Auto Bailout Hearings A Public Relations Car Wreck

Thursday, November 20, 2008

"Flying in on my private jet plane to get my Auto Bailout"

The House cancelled a planned vote on the auto bailout today, and the Senate is putting off tomorrow’s vote as well. It was revealed during the bailout hearings before The House Financial Services Committee (chaired by Barney Frank) that the three CEOs from GM, Ford, and Chrysler turned up on private jets! This might have been the strongest argument for why the Big Three should not be given a blank check for $25 billion.

A public relations car wreck, somehow this shocking revelation came to crystallize the 40 years of mismanagement and miscalculation which, combined with the economic downturn, has reduced the 17 million vehicles the industry used to sell per year down to 10 million per year, while production just keeps on going, glutting miles of parking lots with new cars standing20unsold all over the country. Meantime, both Honda & Toyota are building new plants in the U.S., and in Alabama three foreign automakers profitably employ 27,000 people, while Volkswagon is building a plant in Chattanooga.

The U.S. auto companies are facing an immediate financial debacle. GM is desperate, with a current cash burn rate of $6.9 billion per quarter it could run out of cash by year’s end. The CEO fat cats who have run the auto companies into the ditch flew into Washington to ask for a $25 million bailout in individual private luxury jets, disembarking with tin cups in their hands, as if showing up at a soup kitchen in a tuxedo. It looked suspicious; have we seen the future? Couldn’t they have flown on commercial flights, or at least jet-pooled? Are these the right people to make the hard decisions about downsizing and restructuring the bloated, dying auto industry?

Each Gulfstream and Lear jet costs $35 million, and GM operates a fleet of 8 private jets. The Detroit-Washington-Detroit roundtrip cost on these gas guzzlers is $20,000, compared with $300 on a commercial flight. Should a company on the verge of bankruptcy ditch the jets as part of its dire cost-cutting measures, along with the wasteful carbon output of using the THREE jets? While not illegal, it might be unethical, and certainly flies in the face of common sense. It just looks bad.

This extravagance is incongruous for the CEOs that claim they are running out of cash, and they look tone deaf. This is how they live while talking about the sacrifice of closing plants, dealerships and laying off workers, never thinking of personal sacrifice or thriftiness. Some members of the House Committee were irate with the arrogance of these CEOs (with $30 million annual salaries) embarrassingly showing in televised hearings beamed around the world that they just don’t get it. Why reward the guys who have been brain dead on what they are supposed to do?

At the hearings it was clear that the managers are leadership failures, with no plans to restructure their inefficient, failing companies, no plans for transformation in a pre-packaged bankruptcy, no plans for the economic downturn, no plans for anything except getting the $25 billion on which they focused like a laser. Their business model is a failed model and it is not going to cure the systemic problems----the bloated payrolls and work force, the 7000 dealerships that would cost $1 million per dealership to close, the lack of efficiency and innovation, the redundancy. But if they could get it now, the $25 billion could be a bridge to Obama’s February democratic administration & a Congress that will then give them more taxpayer billions, estimated by some like Senator Richard Shelby to go as high as $200 billion or more on the backs of taxpayers, with discussions swirling around the political considerations of jobs and union jobs rather than the viability of the business model.

Without a viable business plan, the Big Three auto companies have become just a pension obligation masquerading as a car business; a financing industry rather than a manufacturing industry, turning a marginal profit while charging high prices.

The public is being asked to invest in something it has already decided by its purchasing power is not worth buying---both the cars and the companies’ stock.


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