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General Motors Chief Executive Officer Richard Wagoner; Chrysler Chief Executive Officer Robert Nardelli; Ford Chief Executive Officer Alan Mulally (pictured right to left), have all agreed to work for only $1 per year, to try to get a bailout. GM and Ford also announced plans to sell their private jets.   (Source: AP)
Opponents to bailout lost a major point of criticism based on Big Three's big new plan

When Ford, GM, and Chrysler, almost out of cash, flew their CEOs to Washington to beg lawmakers for financial aid, they made a major miscalculation.  They flew in private jets, leading to Senators mocking their requests, likening them to a beggar in a tuxedo. 

Now critics in the House of Representatives and the Senate have lost one of their sharpest arguments against the bailout of America's automakers.  A GM spokesman and a Ford spokesman have announced that GM's CEO Rick Wagoner and Ford's CEO Alan Mulally would accept a pay cut to a salary of $1/a year in order to try to convince Congress to adopt a bailout.  Chrysler LLC CEO Robert Nardelli already pledged to take such a pay cut in his testimony before Congress.

Last year Mr. Wagoner received a base salary of $1.6M USD and a total compensation of $14.4M USD, while Mr. Mulally received $2M USD and total compensation of $21.7M USD.  Chrysler did not reveal its pay for Nardelli.

GM and Ford aren't stopping there.  In remedying the most stinging point of criticism they received, Ford will sell all five of its private jets and switch over to commercial flights for its executives.  GM will likewise sell 4 of its fleet of 7 jets, and look into plans to lease its remaining three to an airline or another company.

Chrysler has not announced any similar initiative.

Mr. Wagoner and Mr. Mulaly hope to make a statement by driving to Washington in their company's respective hybrid vehicles.  Rumor has it that Mr. Wagoner will make part of the trip in an hybrid Chevy Malibu and switch cars midway and arrive in a production Chevy Volt.  They will arrive later this week and unveil their joint plans to cut costs in hopes of winning a bailout.  The companies hope for $25B USD in government support, a mere 3.3 percent of the total $700B USD bailout package Congress approved for the mismanaged banking and finance industry.

Ford became the first U.S. automaker to reveal its full recovery plan.  If Ford's plan is any indication of Chrysler and GM's the companies could still meet with stiff resistance in Congress.  Aside from the executive pay cuts and eliminating the private jets, Ford has announced few changes, aside from its already announced brand-slashing and share-selling initiatives and layoffs.

It is banking that its investment in hybrid vehicles will pay off.  Ford believes that fueled by these green cars, it will see sales of 12.5 million vehicles in 2009, 14.5 million vehicles in 2010 and 15.5 million vehicles in 2011, allowing it to return to profitability by 2011.  The company made a commitment to produce more small cars, as it already has indicated it would.

While Ford already sold the Jaguar, Aston-Martin and Land Rover brands and sold a controlling interest in Mazda last month, it is declining to take part in more brand slashing.  This means Ford will not sell Volvo as some have speculated.  It will also not close any more plants in addition to the 14 that are already closing.

DailyTech will continue to follow this developing story as GM and Chrysler announce their plans and the U.S. automakers plead their case before Congress.

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Still begging . . .
By Bateluer on 12/3/2008 8:13:07 AM , Rating: 3
It still does not change the fact that they should not get a tax payer bail out. The American automotive industry was run incompetently and it needs to be allowed to fail, going through Chapter 11 bankruptcy to restructure, so that competent executives can take over.

People must be allowed to fail, businesses must be allowed to fail. This is a crucial part of a free market economy. Americans will still want cars, that fact will not change. Honda, Toyota, Nissan, and others all have factories in the US, building vehicles using American labor.




RE: Still begging . . .
By JasonMick (blog) on 12/3/2008 8:27:11 AM , Rating: 5
The same could be said about many investment firms and banks that the government is bailing out. The whole "but people invested lots of money in them or have home mortgages with them" argument is weak. People invested lots of money in GM, Ford, and Chrysler, and many people depend on them for their monthly mortgage payments as well.

I might add that the Japanese government is considering bailing out or otherwise helping Honda, Toyota -- their sales are down more than Ford and almost as much as GM and Chrysler for the year. Europe is also considering measures to bail out its automakers. Where does that leave our auto makers, if we choose not to?

It'd be a shame to see the U.S. government throw money at corrupt and mismanaged financial institutions with little accountability, while letting U.S. automakers fail when they're asking for a mere 3 percent of the total bailout. This situation would be even more despicable considering that foreign competitors are being bailed out by their own countries. Especially when Ford, GM, Chrysler, and UAW are doing everything they can to survive. I guess it boils down to a choice of whether you want to support U.S. products, or see them overrun by competitors from countries willing to look out for their own.


RE: Still begging . . .
By Bateluer on 12/3/2008 8:32:00 AM , Rating: 5
The US has bailed out corporations before, and none of those companies has returned to profitability. They've all been leeches on the tax payer. Amtrak, for example, hasn't turned a profit since the rail companies were bailed out and merged by the government. In contrast, K-Mart filed for Chapter 11, restructured, and today is a profitable company again.

I haven't heard or read anything about European or Japanese automakers getting bail outs, but I know Japan has bailed out corporations before and they became zombie businesses that never regained profitability either. They just continue to exist, making widgets that nobody bought, leeching from the taxpayer wallet.


RE: Still begging . . .
By tehbiz on 12/3/2008 9:05:08 AM , Rating: 2
because 3rd party retail and the automotive industry are directly comparable?

remind me how much kmart has to spend in research and development in order to stay competitive with sears ect.


RE: Still begging . . .
By ebakke on 12/3/2008 11:52:28 AM , Rating: 3
Don't be so naive to think that competition among retailers is any less than that among auto manufacturers. Every company has competition, and areas where they must invest. These differ between industries, but they're always there.

Furthermore, Sears and Kmart are owned by the same company.


RE: Still begging . . .
By Nik00117 on 12/3/2008 3:39:42 PM , Rating: 3
I'll give you an example of where Chrysler came out on top.

In the 80s they got bailed out. They then came out with the Grand Caravan and paid off a 5 year loan WITH interset back to the governmnent in 9 months.

if the gov doesn't blame out Chrysler I go out of business and now am unemployeed. In my company alone there is 500 poeple who would be gone, there are also several branch of businesses which relay heavily on us such as the body works shop down the street from us makes 60% of their business from us, the restuartants surronding us make a large majoirty of their business as well. We rent out several different locations as well. Not only that we have a banka cross from our location which recieves about 40% of their business is our car sales.

We are just one location and one company directly 500 poeple woud be jobless who knows how many indirectly.


RE: Still begging . . .
By ebakke on 12/3/08, Rating: 0
RE: Still begging . . .
By TomZ on 12/3/2008 4:02:08 PM , Rating: 2
That's naive - you are assuming that the Big Three are in trouble because of their own choices, their own execution in a free and open market. Nothing could be further from the truth.

Please look at a few of my other posts, especially to the CNN article that will give you at least part of the background so that you can make a semi-informed decision.

Alternatively, you could consider running for Congress.


RE: Still begging . . .
By ebakke on 12/3/08, Rating: 0
RE: Still begging . . .
By Dwayno on 12/3/2008 5:40:13 PM , Rating: 3
quote:
They are in trouble because of their own choices (and the choices of the UAW), and their execution. I agree that the government has intervened where it shouldn't have, but it is still a free and open market at the core. Don't think for a minute that Detroit doesn't have enough lobbying power in DC to implement changes to benefit them. If they truly thought the government was intervening to their dismay, they would've done something about it.

The projected car market this year is 8-12M units (down from 14-17M units). How is that their fault? If it is, then why are the companies that are "selling" also experiencing a downturn in their markets as well (and they ARE making the cars that people want!). The Big 3 are selling cars, but in a recessive market were loans are hard to come by or people are worried about their jobs, no one buys big ticket items (witness homes, boats, and RVs).

Detroit does NOT have the lobbying power that you think they have...if they did, we would still be driving the cars of the early 70s. The safety, fuel economy, and low emissions that you enjoy in any car is all because of government regulations. These were not easy or inexpensive tasks...the reality is that it takes hundreds of million of dollars to enact some of the government mandated changes. And some of those regulations had to be meet before the technology was invented. I know...I worked 34 years in R&D.
quote:
They failed to fight the unions that demanded every last penny from the company and that failed to accept changing/improving technologies. They failed to produce products that consumers want to buy. For many years they failed to produce products with high quality/reliability. They failed to employ upper managers who could address these problems. And they failed to have a backup plan when the SUV/truck sales declined. They failed on many fronts, and floating them a loan won't fix their underlying problems.

I don't work or have ever belonged to a union, nor do I have any love for them. That being said, if you are paid for overtime, paid vacation, paid for any holiday besides Xmas, or are paid more than minimum wages, then thank someone from the union. The government only came up with any of these laws AFTER the unions had negotiated them and then got the government to back them.

People that need trucks or big SUVs are STILL buying them. The problem was the people who didn't. So the car companies were building the vehicles people were demanding. Don't forget, if this market didn't exist, then why did Toyota, Honda, and Nissan go into that market in a VERY big way?


RE: Still begging . . .
By ebakke on 12/3/2008 10:53:19 PM , Rating: 2
quote:
The projected car market this year is 8-12M units (down from 14-17M units). How is that their fault?
It isn't.
quote:
If it is, then why are the companies that are "selling" also experiencing a downturn in their markets as well (and they ARE making the cars that people want!).
The other companies are noticing lower sales, but they're running to Congress screaming "Without your help, we will cease to exist!"
quote:
The Big 3 are selling cars, but in a recessive market were (sic) loans are hard to come by or people are worried about their jobs, no one buys big ticket items (witness homes, boats, and RVs).
Again, down markets mean lower sales numbers. That makes sense. What doesn't make sense is a company losing over $2B per month. GM has been losing money (albeit, not at this rate) for YEARS. Their problems span beyond the current recession. On average, they spend ~$2400 more per car than Toyota or Honda. That translates to real dollars for consumers.
quote:
Detroit does NOT have the lobbying power that you think they have...if they did, we would still be driving the cars of the early 70s. The safety, fuel economy, and low emissions that you enjoy in any car is all because of government regulations. These were not easy or inexpensive tasks...the reality is that it takes hundreds of million of dollars to enact some of the government mandated changes.
And if you think the enacted regulations are anywhere near what their proponents were seeking, you're living in fantasy land. The auto industry (and every other large organization) has a huge lobbying force. And it has done an excellent job fighting for them.
quote:
That being said, if you are paid for overtime, paid vacation, paid for any holiday besides Xmas, or are paid more than minimum wages, then thank someone from the union. The government only came up with any of these laws AFTER the unions had negotiated them and then got the government to back them.
Agreed. Completely. Unions were incredibly useful at a point in time. However, their time has passed in the US. At this point, there are several other means for which an employee can write wrongs committed by an employer. Today people join the union because they don't want to get screwed by "the man", only to give their union dues to a different "man" who again, makes way more than they do, and makes his success on their backs. In my opinion, if someone told these people that they're not stupid, they're not incompetent, and they actually can negotiate compensation for themselves the world would be better off. But to add to my point that the UAW is not needed, there was a recent news article stating non-unionized Toyota (might have been Honda) employees were making as much, or more, as their UAW counterparts when salary, benefits, and bonuses were all tallied.


RE: Still begging . . .
By ebakke on 12/3/2008 10:54:05 PM , Rating: 2
*The other companies are noticing lower sales, but they're not running to Congress screaming "Without your help, we will cease to exist!"

BAH! No edit feature.


RE: Still begging . . .
By Dwayno on 12/3/2008 4:11:05 PM , Rating: 5
quote:
And now they're in front of Congress, begging for money so they don't go under again! Chrysler wasn't saved in the 80's; their demise was just prolonged for another 20 years. The exact same thing will happen again if we continue down this annoyingly irresponsible path.

Let's see. Someone got a loan and paid it off in less time than required, with interest. Twenty five years later, they are back asking for another loan. In the real world, that is called a good return on investment! Were you denied a 2nd loan because you paid the 1st back too quickly?


RE: Still begging . . .
By ebakke on 12/3/08, Rating: 0
RE: Still begging . . .
By Dwayno on 12/3/2008 6:09:30 PM , Rating: 2
Gee...so you never have received a 2nd loan (after all, you are a gambling addict)?

To use your analogy, if the gambling addict kicks the habit because you gave him the money to help in his rehab, was that a bad investment? You are equating past performance with the sweeping changes that are happening in the global market. The Big 3 are addressing those changes...they are just asking for the time and money to do so. I worked for 34 years in R&D...my small group was responsible for millions of dollars in test equipment. Our computer center to save us money in development cost, cost use more than $100M. This is NOT inefficient use of money...this is what it cost to stay competitive in a global market.

You must understand the size and scale of the Big 3. Ford alone has seen gross income figure as high as $180B...GM has to be far greater. What do you think they paid to the government during those years? A $34B LOAN to keep these businesses going is a cheap investment indeed (even for 5 years)!