Monday, March 30, 2009

When You Shake Hands With the Devil ... Better Count Your Fingers

It took Ford's CEO Alan Mulally two trips to Washington to figure out that the bailout money the government was dangling in front of him was really a pact with the Devil, fraught with peril, but figure it out he did and so he and Ford survive to live another day. GM and Chrysler however weren't as lucky. They couldn't or wouldn't see the handwriting on the wall, and thus have sealed their own fate.

Chrysler's CEO Robert Nardelli is now forced to negotiate a do or die deal with Fiat, as his partner the devil holds a gun to his head and whispers in his ear "cut a deal in 30 days or you my friend are toast". Rick Wagoner, GM's CEO, has been shown the door, and GM has been given 60 days of operating capital to conclude it's restructuring. All we can say is good luck... you are going to need it!

Is it possible that GM will be able to do in 60 days what it hasn't been able to do in the last 20 years? No! It can't, and won't. If GM wants to survive as a company and not as the host organism for the parasitic UAW, it should make the long over do announcement that it will be seeking bankruptcy protection under Chapter 11 in order to reorganize its business. If it doesn't, it may exist for a brief period of time as a scaled down post office type operation, making tiny eco- friendly cars that won't take you very far, while providing jobs with above market compensation and benefits for a small number of politically connected autoworkers. But its days will be numbered, and when the operating losses become too great, and they will, for the UAW's Democratic allies to continue to provide the necessary political cover they too will cease to exist.

How is it that GM got things so wrong? They seemed to be under the false impression that because the Democratic party was beholden to the UAW's campaign contributions afforded by it's dues paying members, that somehow it was safe to sleep with the enemy. I hope they know now what they should have known then; it is never safe to sleep with your enemy! They failed to realize that they were never going to get a fair shake in the political arena. Without the protection of the bankruptcy laws and the threat of a court imposed settlement, the company will continue to be stuck between a rock and a hard place in it's negotiations with a recalcitrant union that won't budge and bondholders who don't want to be sacrificed to placate the UAW.

There is a lesson here in dealing with a government that disdains the rule of law and thirsts for ever more power and it is a simple one: When you shake hands with the devil, you better count your fingers!


Anonymous said...

Well-put, Dave. In hindsight, Wagoner's fate was sealed when GM took the first bailout.

dave said...

Had Wagoner filed for bankruptcy he would still be running the company and the UAW would have been forced to make wage concessions ,the VEBA would have fared no better than the bondholders who would have gotten 30 cents on the dollar.

The govt would have provided the DIP financing and the courts would have shielded GM from the politicians.

Very bad move on his part.

RIchard said...

We must all be careful that the pursuit of wealth does not become confused with the abuse of wealth. If the pursuit becimes the object of public ire, the foundation of this country's success will crumble.

shawn said...

I don't understand what you just wrote LOL

Jim said...

While so many attack the UAW for their excesses, remember that the contracts were signed by BOTH parties- GM bought off on it. With the jobs bank, GM turned what should have been a variable cost (labor) into a fixed cost. The only way to amortize that excess expense was to pump out more units than the market demanded then offer rebates to get rid of them. That should be a lesson to all of us about the long-term fallacies of kicking the can down the road as GM, Chrysler and Ford did.

GM should have held the line years with labor years ago. The UAW bargainers got exactly what any good agent gets paid for- to get as much as they could get as quickly as they could get it.

GM continues to have way too many "refrigerator" cars in the US (look at what they did to the Volt) and needs more aspirational ones. I hesitate to speculate how much worse it would be if Bob Lutz hadn't stepped in to bring some cool stuff to market.

George said...

It sounds great, but if you start with a false premise, you wind up with a false conclusion.

Ford, unlike GM and Chrysler, was in a very, very different cash postion than the other two as the "bailout" was begun. This was not because better product planning, marketing, or dedication to capitalism and free markets, it was quite the opposite,,,,,,,.

Two years ago, Ford was on the brink of collapse. Bill Ford was removed as CEO, and Alex Mullaly was brought in from Boeing, to resucitate the dying company.

Mullaly mortgaged Ford Motor Company to the hilt. Two years ago, you could go to credit markets at get money. It was another world.

When the credit crisis hit, and GM and Chrysler needed cash, they could not borrow money. Ironically GM and Chrysler were now in worse positions, because they had not borrowed themselves silly in a desperate attempt to save themselves.......and Ford, due to market timing alone, was sitting on a mountain of borrowed money.

Ford has able to avoid government money for now, because of that money, borrowed before the credit crisis. ......but they also are on record stating that if the economy continues to do badly, that they will need money in the future.

So, the conclusion that Ford is virtuously avoiding government money out of discipline and capitalist virtue is simply wrong. They simply hit the wall first, when credit was available.

dave said...

I am not implying that Ford was virtuous in refusing to take government money, smart maybe, better positioned definitely, but virtuous not at all.I am saying that Chrysler and GM were naive if they thought that they would get a fair shake in the political arena dealing with an adversarial union that is a major supporter of the democrats.