Monthly Archives: November 2008

The End of Detroit as we know it

By Lloyd Graff

What a day for Detroit. Old John Dingell, the pugnacious congressman from Motown lost his Jewel, the chairmanship of the Energy and Commerce Committee.

Dingell is 82, he succeeded his father in 1955 in the House — so the Dingells have been in Congress, virtually forever.

He lost his job to Henry Waxman of Los Angeles who is Mr. Environmental in Washington and a headline-hunting pain in the ass to the Detroit automakers.

The odds of the Big 3 getting a Washington rescue package were fading anyway, but the Waxman ascendancy was a dagger for the rust belt. Waxman’s defeat of Dingell is emblematic of the lack of clout mustered by Rick Wagoner’s last ditch attempt to circle the wagons.

Now the terms of the Detroit bailout will be dictated by an Obama Administration, with Henry Waxman having a significant impact. This bodes well for Elon Musk and Tesla Motors (see Today’s Machining World’s feature, July 2007), but it is curtains for the status quo. In the real world a bankruptcy filing is going to be ugly and disruptive for the supply chain and workforce. This is a very dark day for Detroit. There will be better days to come, but the Waxman for Dingell trade may mark the end of Detroit as we have always known it.

Question: Are you glad John Dingell is no longer in charge?

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Paul Eisenstein on automaker bailout

By Lloyd Graff

I talked to Paul Eisenstein, TMW’s resident auto guru in Detroit. He is pessimistic about a bailout for the domestic car builders. He sees the legislation caught in a food fight between the lame duck Republicans and the Democrats who find themselves defending a bailout for big business.

I asked Paul if he thought a Chapter 11 bankruptcy approach would work for General Motors. He felt the stigma of a filing would kill the sales of GM’s vehicles for years. He also says that Rick Wagoner, GM’s president, does not accept the fact that he is part of the problem. Wagoner is determined to gut it out as head of the company, which also mitigates against a Chapter 11 filing.

Eisenstein says that the big irony is that GM has made major progress in the last few years with the negotiation of a reasonable rollback settlement with the UAW. They have been ambushed by high oil prices and the current economic gloom, two things out of their control.

Eisenstein concedes GM has a crappy product line aside from the Malibu and the Escalade, but he thinks the option of allowing GM to fail is too awful to accept.

Question: Is declaring bankruptcy the worst possible course of action for General Motors?

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Would no bailout for Big Three be better?

By Noah Graff

General Motors, Ford and Chrysler have asked for $25 billion in government loans to survive the economic crisis — that’s in addition to the $25 billion Congress approved in September to foster fuel-efficient technology (NPR.org).

CNBC’s Dylan Ratigan, host of “Fast Money” and “Closing Bell” says the automakers don’t deserve another handout from the government.

He says that capitalist economics should resolve their situation, not more charity from the government. He argues that the big three have a union problem that’s not sustainable and incompetent management, so instead of another handout from the government you say, “We’ve got $25 billion at an open bid to the entire world. I want the 10 best car designs on the planet earth, I’ll give you two and half billion dollars each for each of your car designs. [If] you’ve got to do them in Detroit you can hire the workers from General Motors.” Then you would do a complete restructuring plan to finally set up a profitable business model.

GM and Ford say they are both spending more than $2 billion in cash each month, and GM says it could run out of money soon – so soon that CEO Rick Wagoner says the company may not have enough time to wait for a bailout from the Obama administration after the new president is sworn-in in January 2009.

Source: www.thestreet.com, www.npr.org

Question: Should the U.S. government give another $25 billion “loan” to the Big Three?

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Problems for Toyota too

As everyone knows, GM and Ford are suffering big time – burning billions every month, desperately begging the government for bailout money – but you might be surprised that Toyota, the “intelligent” auto company that has been showing up the Big Three for almost two decades is also in its own house of pain. Its stock dropped 20 percent last week when it announced that it will make almost no money during the second half of its current fiscal year and expects full year profit to drop by 68 percent.

Much of this pain of course is the result of a suffering economy, but partly it’s the result of some of Toyota’s poor decisions such as putting out its full size Tundra pickup in 2007 just as gas prices were skyrocketing and American buyers started panicking.

Another reason Toyota is having trouble is its Japanese tradition of not laying off employees, even as factories sit idle. They may have the benefit of being non-union, but Nissan, Daimler, GM, Renault, Ford, Volvo and Chrysler have been able to cut costs by laying off workers. Notice that that list does not include Honda which I assume has a similar Japanese employment code of ethics.

One the flipside Toyota still has $18.5 billion in cash, almost no debt and is a leader in clean technology. It stated earlier this year that it was going to shift its Mississippi plant from producing Highlander SUVs to Prius hybrids. It plans to start producing hybrids faster and put out four new models next year.

Source: Wired.com

Question: If you traditionally buy American cars and trucks, are you more or less likely to purchase one today as the Big Three beg for government money just to survive?

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What a Country!

By Lloyd Graff

About five and a half years ago my son Noah and I went to the Big Ten basketball championship at the United Center in Chicago. It was an early round and the stadium was pretty empty, but seated a few rows beneath us were a couple of guys I recognized – David Axelrod, and Rahm Emanuel. It is no huge leap of faith to believe that these smart young politicos were discussing how they were going to put Barack Obama into the White House.

Today Axelrod is considered the genius behind the masterful Obama campaign and Emanuel is widely expected to become White House Chief of Staff. These guys came up through the maze of Chicago politics. Axelrod started out as a newspaper reporter and then turned to the dark side. Emanuel had a lot of family connections and weaved his way into influence in the Clinton administration before getting bequeathed one of the country’s safer Democratic congressional seats on the North Side of Chicago. These two smart Jewish guys saw greatness in the wiry, chain smoking, hoops loving black guy with the Muslim name, soaring ambition and a beautiful, equally driven wife.

The story rings of the TV series The West Wing where the idealistic Josh Lyman goes looking for a candidate who inspires him and talks Martin Sheen – Jed – an obscure former governor of New Hampshire into running for President and then works 18 hours a day for two years to help make it happen.

As the Obama victory was taking shape last night I couldn’t help but think about the parallels with Bill Clinton. Obama like Clinton never knew his father growing up, who walked out on his mother to go back to Kenya. Clinton’s father died in a car accident before he was born. Both mothers married badly the second time around.

Neither Clinton nor Obama had any family money, but both went to the best schools on scholarships because they could make people believe in them. Both married brilliant lawyers who made money while they pursued politics. And both ran for President starting with no personal money, just an amazing ability to connect with America. Ultimately both Clinton and Obama beat war heroes with major family wealth and connections.

What a country.

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An Exciting Day for America

By Lloyd Graff

Today is an exciting day for me and an exciting day for America. I voted early this morning, and the line forced me to wait more than an hour to get a ballot.

I live in a beautiful southern suburb of Chicago named Olympia Fields. I’ve lived there for 30 years. I’ve never waited more than 10 minutes to vote. This election is different. The waiting line was comprised of almost all black people – probably 90 percent, but who’s counting. When I moved to Olympia Fields you would have seen the reverse number. And I could not have imagined myself back in 1979 living in a predominantly African American suburb with close black friends.

My America has changed.

I voted for Barack Obama, knowing he could well be another failed Jimmy Carter. He may even name Paul Volkner, Carter’s old Fed Chairman, as Secretary of Treasury if he wins.

For a long second I pondered voting for John McCain, the only presidential candidate I’ve ever given money, but I pulled the trigger for Obama because I want to believe in the ability of America to change like I have. Racism is embedded in the fabric of America, but it is fading – slowly. Slowly – but a Barack Obama would not have even made it to the Senate a few years ago. Even today he is the only black U.S. senator. But it seems likely that today the people of America will throttle their racial fear and vote this exceptional “brother” into the White House. I did not think I would live to see it.

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