It is expected that auto sales, worldwide, will drop by 8% this year. Last year, we sold approximately 58 million cars, but forecasters say we will only sell 53 million this year, though we are set up to produce a whopping 20 million more! At the same time, factories are generally only profitable if the load factor is at least 80%. What happened is that every company thought that they should have a wide array of cars to offer if they wanted to be competitive. This was a worldwide management problem in the making for many years, and the bursting of the bubble was a moment most experts expected. In addition, most companies, particularly in the
Well, the bubble burst. Car companies worldwide are struggling - but not at equal levels. Generally, those companies which listened to the customer and applied prudent management methods are in better shape than the others. In
Volkswagen, with its main brands Audi, Seat and Skoda, is by far the most successful manufacturer, filing a profit even now when everybody else is in the red. They have the right mix of cars covering all categories and producing what customers want. Ford
The problem in the
But there are two more factors which had an influence: (1) The unions, particularly the UAW union, whose outrageous contracts cost the car companies the highest compensations and benefit packages worldwide. Each GM car is burdened with something like $3,000 for such costs - something which had to be compensated for somehow. The design went cheap, and the quality went down - two factors which are crucial to customer satisfaction. That must be compared to factories of Japanese and German companies in the
Here comes the crucial question: How much should the government help, if any, to bail the companies out of their situations? Let's put this into perspective: If a company is in trouble because of a market problem or a management problem, the situation can only be solved from the inside out. It may require a temporary bridge loan, but other than that, the company must solve its own problems. The normal way of doing so is through a complete reorganization, if need be, with the help of temporary bankruptcy proceedings, because it provides them with the possibility (or need) for substantial reorganization and the possibility to renegotiate all contracts, including those with the unions. Many large and small companies have done that quite successfully, including some of the large airlines. A bail-out will not force the issues and has the tendency to provide some bandaids but not solve the real problems.
The approach by the European conservative governments (in
So, here is what has happened: Obama basically assumed control over GM and Chrysler, and, his "Automobile Czar" Rattner (the one, who is under investigation for bribery in the amount of $1 million, and who has been in the investment business, which hardly qualifies him from directing the automobile industry), undertook the following actions (simplified to make the point): (1) Fire the CEO of GM and ultimately force them into actions similar to Chrysler. (2) Fire the management of Chrysler, give the unions a majority share in Chrysler (basically have the unions run the company), compensate debt holders with 29 cents to the dollar (the unions get 80), force Chrysler to enter into a contract with unimpressively-managed FIAT (which would give FIAT 30% or so of the shares and a seat or two on the Board), reconstitute the Board (3 members of the union, 3 of the government, one or two for FIAT), and, most recently, cut the marketing expenses of Chrysler by 50% (which shows how deeply the government has intervened). The biggest beneficiary of these actions are the unions which had to make only minor concessions to create an appearance of appropriateness.
Now, this can only be called nationalization in the true sense of communism (this goes beyond socialism). This is government run industry, run by people who have absolutely no idea about the subject. How could anybody think that government bureaucrats are better qualified to run complex industrial companies than properly trained managers? They've taken control of crucial industries and are doing all they can to protect unions and their outrageous contracts.
To top it all off, Obama forces Chrysler to partner with FIAT. Where is this coming from? Had any of you seen exhibited the typical business model for this type of situation which includes competing proposals? Maybe, just maybe, there was a contribution somewhere to the Obama organization? Bizarre. Also, I don't know whether FIAT would even bring the necessary knowledge with it to deal with related problems. As said above, FIAT is up to its nose in debt, has not much international experience, and has applied for participation in GM's Opel in
Bottom line: The U.S. administration is handling all of this wrong. The characteristics of their actions indicate a strong march toward communism, with actions which eerily resemble those taken by Hugo Chavez in