A call to action
As you probably know, I work for Ford, which is facing a crisis of its own caused in good part by the on-going credit crisis. We have been aggressively restructuring our business and re-inventing ourselves. The crisis we now face is not of our doing. Because of the uncertainties in the economy at large and the scarcity of credit, people have quite literally stopped buying cars. Ford has positioned itself to be profitable at lower volumes than in the past, just not this low.
I have struggled with my own ideologies, saying that "Too big to fail is too big to play." At the time, my job wasn't at risk. I still believe that it is true. However, somehow the US automotive industry got to a point where we are too big to fail. The failure of one of the Big 3 auto companies would likely drive many of its suppliers into bankruptcy as well. Because the supply base is so intertwined between all of the major players (including the foreign automakers), wholesale disruption in the supply network would likely cause the failure of the domestics and a suspension of domestic production by the foreign automakers.
I believe from everything that I've read and heard that Ford is well positioned to survive a short economic downturn. However, if GM were to fail, the economic fallout would likely also drive us into bankruptcy.
Melanie asked me if the bailout is good or bad. I don't know. I do know that it is neccessary. I don't advocate a free ride for anyone. There should be pain for all involved, as we all got into this together. The union, the executives, the employees, the shareholders, and the taxpayers.
Here's an excerpt from an email I got at work:
There are many who question why the U.S. industry should receive any additional assistance and are quick to assert that the current situation is due to the failure of the automakers to bring new technology to market and an alleged resistance to producing fuel-efficient vehicles. Here are some important points that clearly illustrate Ford's commitment to a new way of doing business and to bringing the newest, most fuel-efficient technologies to market quickly:
· Ford's product-led plan to deliver more of the safe, affordable, high-quality and fuel-efficient vehicles that consumers want and value remains solidly in place. We are also well-positioned to take advantage of our global scale and strengths.
· Ford has committed to leading in the development of advanced technologies, including EcoBoost, Flexible-fuel vehicles, clean diesel, hybrids, plug-in hybrids, and hydrogen cars.
· Ford alone has invested more than $22 billion in research and development (2005-07).
· Ford's quality is now on par with Honda and Toyota and rising every year.
· The new Ford Fusion Hybrid beats the Toyota Camry Hybrid in fuel mileage.
Please take a few minutes to act. There are links below with contact information for your Senators and Representative. Please call them or email them. Tell them that the failure of the auto industry should not be an option. Give us the time that we need to finish restructuring without the added pressures of the credit crisis and economic downturn.
To call your elected officials as a "Friend of Ford" please click here (hint: it will be easier to call if you click on “Print this alert” link on the site below as a complete document will be printed with each of the officials names and phone numbers provided): http://capwiz.com/ford/callalert/index.tt?alertid=12192861 To email or send a printed letter to your elected officials as a "Friend of Ford" please click here:http://capwiz.com/ford/issues/alert/?alertid=12192906
Please feel free to send these links to your family and friends and ask them to take action to support our industry and our economy.
To call your elected officials as a "Friend of Ford" please click here (hint: it will be easier to call if you click on “Print this alert” link on the site below as a complete document will be printed with each of the officials names and phone numbers provided): http://capwiz.com/ford/callalert/index.tt?alertid=12192861 To email or send a printed letter to your elected officials as a "Friend of Ford" please click here:http://capwiz.com/ford/issues/alert/?alertid=12192906
Please feel free to send these links to your family and friends and ask them to take action to support our industry and our economy.
posted by Brady @ 8:30 PM
9 Comments
9 Comments:
I was going to add this article to the post, but couldn't really find any great place for it. It's still good reading:
6 Myths about the Auto Industry
How will a bailout help the auto companies? Sure, it will help them survive for another 6-12 months. Then what? There is no talk how these public funds will help make the companies profitable.
"There should be pain for all involved, as we all got into this together." This comment highlights the problem with the overall financial crisis and the problems with the auto companies. This idea of "it's nobody's fault" or "everyone shares the blame" is damaging. If we can't learn from history, then we are doomed to repeat it. If the auto companies receive a bailout, they will ask for another bailout when they burn through that money. They will not make fair assessments of the problems that got them in this mess, so they will burn through their cash and ask for more.
I agree with the rest of your points. Ford makes great cars. They quality is good, and they are investing money in developing products Americans want.
Bankruptcy is sad, but it is inevitable. A bailout will just prolong the process, but it will happen. The only possible way to prevent bankruptcy would require fundamental changes to the company, which is something Ford and the others are unwilling to do.
1. The bailout will happen. 2. The Big 3 will stay the same. 3. They will ask for more money. Repeat the process until the government stops writing the automakers these checks.
Hi anonymous. Thanks for your comments. I'm curious who you are, but I'll leave that decision to you.
I disagree with you. The automakers are asking for bridge loans, not free cash from the government. My company has been aggressively restructuring since I joined in 2006, and we actually turned a profit in the first quarter this year. We have sped up the development of new, innovative, high quality cars and trucks, aggressively moved to rely on global synergies in design, sold distracting brands like Jag and Land Rover, and, as quickly as is possible in the auto industry, rebalanced our portfolio of vehicles. Sounds like change to me...
Ford has a plan to profitability. It has been executing on that plan, and continues to execute on that plan. As Alan Mullaly testified today, what we fear is a huge disruption in the supply base. If one of our competitors goes under, they could take with them large portions of our supply base. Suddenly, Ford might find itself unable to procure headlamps or engine mounts or any number of other things. That would cripple us through no cause of our own.
So, there you have more of my opinion... What changes, anonymous or anyone else, would you suggest the auto companies make? There is a lot of griping out there, and a lot of ambiguous talk about change, but no one really suggesting what those changes should be...
Let's hear it folks: If you were the Big 3, what would you do?
I understand the Big 3 intend to repay the $25 billion. However, it is still a bailout because they would be getting a sweetheart deal from the government. The market won’t lend the Big 3 money at such rates, so the taxpayers are exposed to substantial risk with only a minimal return.
Let me pose this question: How come the foreign automakers are not experiencing the same extreme hardship as the Big 3? They are also trying to weather the poor economic environment, yet Toyota and Honda are not in danger of bankruptcy.
The problem is the market won't lend PERIOD. It's not an issue of a "sweetheart" rate. Car companies can't change product mix overnight. Ford has been in the process, but this financial meltdown accelarated things at a rate they just can't match. the 25 billion is to keep them solvent until things settle down and people start buying again. Why does no one understand this? Bankruptcy is far from inevitable with Ford. But without help to the other companies of the big three, it will be. And despite what Mitt Romney says, Bankruptcy will not be good for the auto industry. This isn't the airline industry. People don't have warranties associated with their plane tickets. Ask ANYONE. Any rational human being if they would buy a car from a bankrupt company. they will all say no, regardless of whether or not the government guarantees warranties or not. That would be something eh? A bankrupt country guaranteeing warranties for a bankrupt compnay? Pure and simple, bankruptcy will spell the final doom of the american automaker. Consumer confidence in the big three is low as it is. Bankrupcy will break it.
I completely agree, Aaron.
Anonymous, I don't disagree that the imports have a few things going for them.
- Their product development cycles are slightly faster.
- Their home markets demand smaller cars, so there is more expertise in making a profitable small car.
However, if the American automotive supply base is thrown further into turmoil, as would happen in the case of a bankruptcy at one of the OEMs, even the Japanese automakers would likely have to suspend operations in the US.
Another factor contributing to the stability of Toyota is its corporate structure. As is common in Japan, Toyota Motor Company is part of a keiretsu, which can help provide financial stability.
I won't argue with you that the Japanese automakers seem to be doing some things right. To me, that doesn't mean that we should just give up on the American auto industry. It means we give the auto industry breathing room to make things work. A properly structured bridge loan with appropriate checks would do that.
Call your Senators and Representative and tell them what you think.
This country has a good track record of helping distressed companies emerge from bankruptcy. Bankruptcy would be a sign of “reorganization” and not “going out of business.” Americans will still buy cars from an automaker in bankruptcy. Aaron points out that confidence in the Big 3 is quite low. Bankruptcy will not lower confidence much further, and in fact, bankruptcy may actually increase confidence in the market. Knowledgeable people can see the problems with the Big 3. Bankruptcy would send a signal that the Big 3 automakers are finally making fundamental changes instead of putting a band-aid on failed policies. This gloom-and-doom talk about the consequences of bankruptcy is simply an attempt to take taxpayers’ money to compensate for failed business practices. Honestly, I would be more willing to buy a vehicle from the Big 3 if I was convinced they were changing their business practices.
Brady, I agree we shouldn’t give up on the Big 3. But a “bridge” loan without a clear destination and finality of taxpayer support is not appropriate. Barney Frank suggested today that $25 billion is only the “start” of the funds Detroit needs.
The Congressional testimony from the Big 3 CEOs clearly shows why bankruptcy is necessary: Detroit will not make fundamental changes until forced to do so. Until the automakers can show a plan for long-term viability, there will not be public support for the bailout.
Harry Reid and Nancy Pelosi stated today that there are not enough votes for a bailout. Don’t worry Aaron and Brady, there will be an eventual bailout package. But don’t be surprised if we have this written exchange again when the Big 3 run out of cash in the future. Furthermore, don’t be surprised when the answer to a future bailout is “NO!”
You seem to think that bankruptcy will help without any evidence to back that up. And I'm talking Auto Industry evidence. Bankrupt car companies don't stay in business making cars, period. They either disappear entirely and show up 10 years later under chinese ownership, or they get torn to shreds by their competition and sold off piece by piece. I can't wait to buy my Honda Mustang.
And I'll be the first to admit the the American auto companies have made mistakes. Quality lapses, yes. Letting unions dictate the course of the company, also yes. But I'm sick and tired of them being blamed for the popularity of gas guzzling SUVs. You know what made them so popular? THE MILLIONS OF PEOPLE WHO BOUGHT THEM! Many of whom are probably now livid with rage at how the evil automakers are going to get government help. Prior to all this financial turmoil and $4 gass, Toyota, that scion of greenness released their HUGE Tundra truck and full size SUV variant. They also have many other SUVs but I don't see anyone waving the placards in front of Toyota headquarters.
I took part in customer research back in 2005 for the Ford Fiesta small car that's about to be released. This was back in the days of $2 gas. We showed images of cars and got various responses from the 18-25 year olds we were interviewing, but invariably, when we told them the car was as big as a Chevy Aveo we got the response "No, that's too small. I'd hate that." What the heck are we supposed to do against such ignorance? Not build the big vehicles that people demanded? It would have been suicide. I'll tell you what we did do though, we went ahead and made the Fiesta anyway, and now we're going to sell it. Our Fusion Hybrid gets 6 MPG better mileage in the city than the Camry Hybrid and costs less. In fact our regular 4 cyl gets the same mileage as the Camry Hybrid for a LOT less.
By the way, Ford Motor Company closed down its Expedition/ Navigator factory today in preparation for it being retooled into a modular small car plant. All without governement help. Things are changing but nobody thinks they are. The question is, will they change fast enough to save the company when GM and Chrysler die? I sure hope so.
Admittedly, I do not know exactly what will happen if one or more of the Big 3 goes bankrupt. Such an event has never happened before. The bankruptcies in the industry have been on a much smaller scale, so a bankruptcy of one or more of the Big 3 would be unchartered territory. Examining evidence from a variety of sources, I personally think the automakers can emerge from bankruptcy much stronger with the tools necessary to succeed indefinitely.
I think Ford is smart in designing cars/trucks/SUVs that Americans want to buy. I think they make high quality, reliable vehicles. People who criticize Detroit for making SUVs or cars “Americans don’t want to buy” are being unfair. Most of these highly publicized criticisms have come from politicians in Washington.
With the eventual bailout, I worry that the Big 3 will lose much of their flexibility in making business decisions. I would like to see Detroit develop a financial sustainability plan in accordance with the bailout. However, I fear the politicians will attach inappropriate mandates (i.e., design mandates, additional regulations, etc.) to the Big 3. I think bankruptcy will give the automakers the flexibility to emerge stronger companies without crippling mandates from Washington politicians.
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