And Then There Was One

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A bankruptcy judge could turbo-charge the overhaul of the Big Three's costly labor contracts. Last year, the United Auto Workers agreed to sharply cut the cost disparity between Detroit and Toyota. But execs say it will take another round of talks in 2011 to match the foreign competition—a leisurely pace they can no longer afford. That's why some say Detroit's salvation could come in the form of a prepackaged bankruptcy, a quicker reorganization where creditors agree to cuts up front that would hopefully be less disruptive to the overall economy. With government backing to secure loans and preserve car warranties, buyers might not turn away.

Bankruptcy could solve another intractable problem: Detroit's glut of dealers and car brands. The Big Three need to cut their dealers by one third but are blocked by state franchise laws. In bankruptcy, carmakers can tear up franchise contracts and wipe out entire brands. The question is, would a Wilbur Ross-type speculator come along to consolidate the remains of the domestic auto industry? Business experts say a Warren Buffett or Jeff Bezos could come into Detroit and whip up a winning combo.

Whoever rolls into Detroit should heed the history of Billy Durant, who created GM in 1908 by consolidating Buick Oldsmobile, Cadillac and Pontiac. He lost GM to the banks in 1910, but returned six years later with another carmaker he founded, Chevrolet. In the 1920s, he was forced out again and replaced by protégé Alfred P. Sloan who went on to define the 20th-century American corporation. Durant ended his days managing a bowling alley, proving the line between success and failure in Detroit has always been thin.

With Caitlin McDevitt and Temma Ehrenfeld

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Posted By: HotCarNut @ 01/01/2009 4:04:32 PM

(continued from previous post)

The US Government, via NAFTA, free trade agreements, lack of aggressive reaction with Japan's (and others') unfair trade practices, minimal funding of advanced research in propulsion technologies, and lack of a cohesive energy strategy has been a major part of the disintegration of the domestic auto industry. Without a doubt, the management teams at the Big 3 have been beyond inept since about 1968, but terrible public policy on the part of the US has been at least as damaging as poor management and the UAW strong-arm tactics. To believe that every country honors "free market" ideals is absurd, and yet the US government seems to expect US based manufacturers to compete on an uneven playing field against an imminently stacked deck. If all markets were truly free and open, I would have no problem with the US saying "you succeed or fail on your own". However, no other country treats their manufacturing base this way, and therefore, the US cannot afford to either. We as Americans are at a crossroads: do we try to hold on to the ideals that got us to this point, or do we return to the policies that were common after WWII during the 50s and 60s that sought to push American manufacturing to the forefront.
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Posted By: HotCarNut @ 01/01/2009 4:04:03 PM

You're forgetting a couple of key points. First, in the aircraft industry, the only real competition was Airbus. No Asian manufacturer has ever emerged to challenge Boeing and Airbus (which is actually owned by EADS which is in turn owned by the governments of France and Germany, and a private corporation - Daimler). In automobiles, the Japanese alone have 4 major manufacturers: Toyota, Honda, Nissan, and Mazda. Germany has 3.5: Daimler (owner of Mercedes, Smart, and Freightliner), BMW (owner of BMW and MINI), and VW/Porsche which counts as 1.5 because they are technically separate companies (owners of Porsche, VW, Bugatti, Audi, Lamborghini, etc). Italy has Fiat SpA with brands like Fiat, Ferrari, Maseratti, Alfa Romeo, etc. France has Renault (yes, I know that it's got an equity tie-up with Nissan). Even Russia has several auto manufacturers (albeit they're a decade behind technology wise). China has about 30 brands but really 3 big manufacturers, none of which have brands sold in the US. Yet. India has Tata which also owns Jaguar and Land Rover.

To say that the US has "too many" manufacturers despite being the largest vehicle market on the planet is absurd. What really is true is that the United States has the worst political backing of its' manufacturing base of any country in the developed world. For decades the Japanese government has supported Japanese manufacturers through restrictive trade laws on its domestic market and keeping the Yen artificially low versus the US Dollar and the British Pound (and now the Euro). The currency manipulation of the Yen boosted profits for Japanese manufacturers while making it much more expensive for US and European based manufacturers to import vehicles into the Japanese market. This currency manipulation was not officially recognized or admitted as policy by the Japanese until the recent comments of Honda's president admitting that not only was currency manipulation a common practice, but that if the Japanese government didn't begin interfering more forcefully, he would consider moving all of Honda's operations overseas.
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Posted By: vjspin3 @ 12/12/2008 2:50:29 PM

How do you merge three companies into one? Who decides how much each company???s stock is worth? What about the dealerships, some of which are next to or right across the street from each other. All three have similar but different contracts with the union; how do you resolve those differences? Who decides which factories close and which stay open? Who decides which brands disappear and which remain on the market? So many questions but still an idea that needs to be seriously considered.