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Author: Subject: Let Detroit Go Bankrupt... Editorial by Mitt Romney...

Universal Peach





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  posted on 11/19/2008 at 09:32 AM
Let Detroit Go Bankrupt

By MITT ROMNEY
Published: November 18, 2008

IF General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.

Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.

I love cars, American cars. I was born in Detroit, the son of an auto chief executive. In 1954, my dad, George Romney, was tapped to run American Motors when its president suddenly died. The company itself was on life support — banks were threatening to deal it a death blow. The stock collapsed. I watched Dad work to turn the company around — and years later at business school, they were still talking about it. From the lessons of that turnaround, and from my own experiences, I have several prescriptions for Detroit’s automakers.

First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.

That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota’s Avalon. Of course the Avalon feels like a better product — it has $2,000 more put into it. Considering this disadvantage, Detroit has done a remarkable job of designing and engineering its cars. But if this cost penalty persists, any bailout will only delay the inevitable.

Second, management as is must go. New faces should be recruited from unrelated industries — from companies widely respected for excellence in marketing, innovation, creativity and labor relations.

The new management must work with labor leaders to see that the enmity between labor and management comes to an end. This division is a holdover from the early years of the last century, when unions brought workers job security and better wages and benefits. But as Walter Reuther, the former head of the United Automobile Workers, said to my father, “Getting more and more pay for less and less work is a dead-end street.”

You don’t have to look far for industries with unions that went down that road. Companies in the 21st century cannot perpetuate the destructive labor relations of the 20th. This will mean a new direction for the U.A.W., profit sharing or stock grants to all employees and a change in Big Three management culture.

The need for collaboration will mean accepting sanity in salaries and perks. At American Motors, my dad cut his pay and that of his executive team, he bought stock in the company, and he went out to factories to talk to workers directly. Get rid of the planes, the executive dining rooms — all the symbols that breed resentment among the hundreds of thousands who will also be sacrificing to keep the companies afloat.

Investments must be made for the future. No more focus on quarterly earnings or the kind of short-term stock appreciation that means quick riches for executives with options. Manage with an eye on cash flow, balance sheets and long-term appreciation. Invest in truly competitive products and innovative technologies — especially fuel-saving designs — that may not arrive for years. Starving research and development is like eating the seed corn.

Just as important to the future of American carmakers is the sales force. When sales are down, you don’t want to lose the only people who can get them to grow. So don’t fire the best dealers, and don’t crush them with new financial or performance demands they can’t meet.

It is not wrong to ask for government help, but the automakers should come up with a win-win proposition. I believe the federal government should invest substantially more in basic research — on new energy sources, fuel-economy technology, materials science and the like — that will ultimately benefit the automotive industry, along with many others. I believe Washington should raise energy research spending to $20 billion a year, from the $4 billion that is spent today. The research could be done at universities, at research labs and even through public-private collaboration. The federal government should also rectify the imbedded tax penalties that favor foreign carmakers.

But don’t ask Washington to give shareholders and bondholders a free pass — they bet on management and they lost.

The American auto industry is vital to our national interest as an employer and as a hub for manufacturing. A managed bankruptcy may be the only path to the fundamental restructuring the industry needs. It would permit the companies to shed excess labor, pension and real estate costs. The federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk.

In a managed bankruptcy, the federal government would propel newly competitive and viable automakers, rather than seal their fate with a bailout check.

Mitt Romney, the former governor of Massachusetts, was a candidate for this year’s Republican presidential nomination.

 
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Zen Peach



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  posted on 11/19/2008 at 09:34 AM
United Airlines was in Chapter 11 for 4 years and survived. I know there's no love lost by many regarding that airline, but they made it.

 

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True Peach



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  posted on 11/19/2008 at 09:45 AM
Thanks for that article. I'm beginning to come around to agreeing with Romney. A very well-written, persuasive piece that was. Just think, he coulda been a VP. Too bad the all-important Mormonism hurt him.
 

Zen Peach



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  posted on 11/19/2008 at 09:57 AM
Had Romney been n the ticket, he might have been VP. His words make a lot of sense, and could apply to other industries besides the automotive.

 

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Universal Peach



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  posted on 11/19/2008 at 09:57 AM
And it isn't just the domestic car manufacturers suffering.....Check out this link regarding the thousands of imports sitting on lots near shipping ports:

http://www.nytimes.com/2008/11/19/business/economy/19ports.html

 

Zen Peach



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  posted on 11/19/2008 at 09:59 AM
quote:
Had Romney been n the ticket, he might have been VP. His words make a lot of sense, and could apply to other industries besides the automotive.


But, but, he belongs to a giant cult...the base would have none of that...

 

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Zen Peach



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  posted on 11/19/2008 at 10:04 AM
quote:
quote:
Had Romney been n the ticket, he might have been VP. His words make a lot of sense, and could apply to other industries besides the automotive.


But, but, he belongs to a giant cult...the base would have none of that...


So true. Bet the base is happy now!

 

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Maximum Peach



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  posted on 11/19/2008 at 10:13 AM
No more bailouts. The last one was wrong!

 

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Universal Peach



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  posted on 11/19/2008 at 10:56 AM
quote:
Romney makes a lot of sense, but getting people to make the type of sacrifice he suggests from top to bottom will be a hard sell.


True....But the bailout idea is proving to be an even harder sell. If they survive until January and the Obama administration provides some sort of bailout, I suspect it will come with many of the requirements Mitt proposes bankruptcy would lead to anyway.

 

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  posted on 11/19/2008 at 10:59 AM
quote:
quote:
Had Romney been n the ticket, he might have been VP. His words make a lot of sense, and could apply to other industries besides the automotive.


But, but, he belongs to a giant cult...the base would have none of that...


Some of that base resembles a cult of its own.

 

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Ultimate Peach



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  posted on 11/19/2008 at 11:02 AM
I don't know this as well as I should, considering some of my customers deal with these retiree legacy issues too, but can this stuff be flushed in a bankruptcy? If one of these goes Ch 11, do the retiree benefits get flushed or is some entity like the PBGC on the hook? If so, would it be better to just shift the liability to them outside of a bankruptcy so the trade doesn't get flushed too?

 

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Zen Peach



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  posted on 11/19/2008 at 11:14 AM
I remember when United cancelled their pension plans in 2005. In any BK, the court determines which creditors are due what funds, etc. Usually employees are at the end of the line...I think the flight attendants petitioned the court, but I can't recall how it ended up.

But, yeah. If the BK court determines that the flush is needed to satisfy creditors, then, down the drain it goes.

Not sure how union benefits fit in with the automakers, though.

 

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  posted on 11/19/2008 at 11:17 AM
no bailout.....

 

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Zen Peach



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  posted on 11/19/2008 at 11:37 AM
quote:
United Airlines was in Chapter 11 for 4 years and survived. I know there's no love lost by many regarding that airline, but they made it.


for the moment

 

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Ultimate Peach



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  posted on 11/19/2008 at 11:38 AM
quote:
f one of these goes Ch 11, do the retiree benefits get flushed or is some entity like the PBGC on the hook? If so, would it be better to just shift the liability to them outside of a bankruptcy so the trade doesn't get flushed too?


Well my wife works for United Airlines in Customer Service (currently she's on a medical leave of absence), but when United went Ch.11 her retiree benefits were turn over to PBGC, and they were severly cut from what she was expecting. In addition, she had to take a pay cut and a reduction in hours works (from 24 to 20), btw it's almost impossible to be a "full-timer" in Customer Service unless you've got 15 to 20 years service, and willing to work some "crappy shifts", which you also have to to re-bid for, every time managements wants to re-structure something. United employees are not a happy bunch anymore, with many leaving the company.

 

Zen Peach



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  posted on 11/19/2008 at 11:39 AM
quote:
I remember when United cancelled their pension plans in 2005. In any BK, the court determines which creditors are due what funds, etc. Usually employees are at the end of the line...I think the flight attendants petitioned the court, but I can't recall how it ended up.

But, yeah. If the BK court determines that the flush is needed to satisfy creditors, then, down the drain it goes.

Not sure how union benefits fit in with the automakers, though.



If PBGC takes over the pensions, they get about 1/3rd....the fat cats make out big time eventually . BIG TIME.

 

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Zen Peach



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  posted on 11/19/2008 at 11:39 AM
quote:
quote:
f one of these goes Ch 11, do the retiree benefits get flushed or is some entity like the PBGC on the hook? If so, would it be better to just shift the liability to them outside of a bankruptcy so the trade doesn't get flushed too?


Well my wife works for United Airlines in Customer Service (currently she's on a medical leave of absence), but when United went Ch.11 her retiree benefits were turn over to PBGC, and they were severly cut from what she was expecting. In addition, she had to take a pay cut and a reduction in hours works (from 24 to 20), btw it's almost impossible to be a "full-timer" in Customer Service unless you've got 15 to 20 years service, and willing to work some "crappy shifts", which you also have to to re-bid for, every time managements wants to re-structure something. United employees are not a happy bunch anymore, with many leaving the company.


Yeah, I figured it was probably not a happy place. They seem to be the poster child for Chapter 11 survival, probably not a good thing.

 

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  posted on 11/19/2008 at 11:48 AM
Citi-Bank cutting 50,000 plus jobs.
Don't be shocked when you see the jobs that were US based end up being performed from the Phillipine Islands.

 

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  posted on 11/19/2008 at 12:16 PM
Romney makes a lot of sense and I agree with the sentiment of no more bailouts. Giving money to a spendthrift isn't going to change anything except to put us deeper in debt. GM has already had one bailout haven't they?

 

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  posted on 11/19/2008 at 12:21 PM
Romney probably shorting 1,000,000 shares of the Big 3.

 

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  posted on 11/19/2008 at 12:21 PM
quote:
If PBGC takes over the pensions, they get about 1/3rd....the fat cats make out big time eventually . BIG TIME.
This is the most disturbing part. Regardless of what happens, the fat cats always seem to make out big time. Bonus cuts for employees within a company (the paltry ones) somehow manage to escape being cut from top management salaries. Pensions eliminated for Joe Worker? Joe Penthouseoffice still manages to keep his ridiculous golden parachute...

 

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  posted on 11/19/2008 at 01:09 PM
quote:
no bailout.....




I'd have to vote no as well. The auto industry won't go away as new investors would come in and take over. It's obvious the Big 3 need some fresh blood.

 

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Peach Bud



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  posted on 11/19/2008 at 01:21 PM
Mitt hit the nail right on the head. We need to save the industry, but not in its current state. No need to throw good money after bad. GM simply cannot keep its financial obligations. Retirees will be hurt. but there is little sense in transferring their pain to the average taxpayer. It is a scene that has been played in the past, and unfortunately will be often played in the future.
 

Extreme Peach



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  posted on 11/19/2008 at 01:25 PM
I agree about letting them go bankrupt, but I am short the market. If they do go bankrupt, the recent crash we had is not going to compare to what would be coming. It would probably put us into an extended depression, but I say let the crap hit the fan. Things would be very very bad for several years but it would eventually improve.


 

Universal Peach



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  posted on 11/19/2008 at 01:28 PM
quote:
Romney probably shorting 1,000,000 shares of the Big 3.


And that ABB Hedge Fund I proposed starting a few weeks back could be doing the same.

 
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