Collateral Damage

By Keith R. Schmitz

Excellent piece by John Torinus in the JS Biz section about the harm caused by the attacks on the auto bailout package by southern Republicans in the Senate.

In their attempts to swing a knife at the car company unions, the caucus of Confederates will gash open the suppliers who feed parts, subassemblies and services into the auto industry.

Torinus reminds us who the real victims of scuttling the bailout will be:

Vendors produce about 70% of the parts that go into a new car, and they are almost always better managed than the automakers. In many cases, automakers outsourced parts to get away from the union and management problems of the car assemblers.

Companies such as Strattec and Johnson Controls are among the leanest and best manufacturers in the world. They are good enough to supply Asian and American car companies.

Yet top-quality vendors will suffer the most collateral damage from a meltdown in Detroit, a crisis caused in large part by mismanagement on Wall Street and in Washington, D.C., of the financial and housing industries. The same politicians wearing angel wings in the debate over the future of the auto industry were presiding when the financial crisis was being created.

It should be emphasized that many of the suppliers radiate beyond Detroit and a good number of them are here in Wisconsin. The car makers go into backruptcy and these fine companies will see pennies on the dollar for goods and services bought over the past months, blowing holes in the already fragile finances of these companies. The fresh start for Detroit would be fatal wounds for their suppliers.

This is yet another example how divorced many conservative, so-called "business-friendly," politicians are from not just from reality in general but business reality in particular.

Chapter 11 -- Not a Good Idea

By Keith R. Schmitz

The right wing seems to be getting way too much pleasure over the prospect of letting the automakers sink into Chapter 11 to "punish" the gall of the UAW in demanding things like good wages, health care, etc.

As if the workers are responsible for the troubles visited upon the house of Ford, GM and Chrysler. Not like it was inept, quarter by quarter focused management led to this or anything. You know, just like the same reasoning that argued the poor and minorities brought our financial system to its knees because they got access to mortgages.

But like all things wonderful in the minds of conservative, there are problems with that perspective. Why would a bailout be better?

1) The process of bankruptcy is rather distracting on a management that had a hard enough time paying attention to just running these companies in the first place.

2) Having had a client that went bankrupt and having lived that dream, I don't think that vendors that faithfully provided goods and services to the automakers should suffer, seeing pennies on the dollar or even nothing instead of payments on their invoices.

3) If handled properly, a bankruptcy should be a chance or a company to reorganize, come to Jesus and come out of this better than before. But what evidence do we have that the current management would be capable of that. Like none. What we will see will be the butcher shop spectacle of wholesale layoffs to protect bloated and undeserved executive compensation like we did in the airline industry. We will see unemployment figures leap, dragging us further into recession because of course a consumer economy depends upon consumers. The former though seems to never bother our conservative friends.

4) The bailout affords us opportunities to make the auto industry do what it should have done in the first place. From the inside of their little protective cocoon the Big Three leadership saw the world in their vision. Left to their own their instincts, they could do no different.

Now US having major ownership, reality could intrude.

Something the Bush administration couldn't do we could do now, which is provide so many strings for this money the automakers would resemble marionettes. And why not. They have already played Pinocchio.

I can just hear the Greek chorus -- "Government can't do anything right."

Some governments. There is every indication this new group will be looking to hire the best and brightest, not the connected and the corrupted as we saw over the past eight years.

Yes, the UAW will have to offer up concessions, but to put blame for the jalopy known as the US auto industry on the shoulders of the workers indicates a lack of perception. Didn't Detroit management after all negotiate these contracts? This was the Bush administration where workers usually didn't stand a chance.

This is not a time for old thinking. It is a time for bold thinking.

Be the First on Your Block to Own a His Majesty King Abdullah II Ibn Al Hussein Ayass Motors Car

By Keith Schmitz

Things have now come full circle.

From the people who have us over a barrel when it comes providing with the oil we continually chug, now offer a new way to burn it.

From the press release:

Under the patronage of His Majesty King Abdullah Ibn Al Hussein and with the attendance of the Prime Minister, His Excellency Eng. Nader Al Dahabi, His Majesty’s representative, Ayass Motors celebrated the launch of its first of a kind vehicle manufacturing and assembly plant in the Kingdom on 30th January at Le Royal Hotel, central Amman.

One can only imagine the features on these new cars. Also consider the interesting bed fellows in this deal.

Our overall aim is to our customers with high quality vehicles at competitive prices. This product is the outcome of Jordanian, Chinese and Iraqi collaboration, and will be sold to customers according to Jordanian and international quality standards, providing a premium vehicle all produced in Jordan.”
“We are in the middle of negotiations with a number of international companies who are also interested in assembling their products in Jordan. The added value benefit of assembling other products produced in the Arab world will be a plus to our investment. In some Arab countries the automobile car complimentary industry is competing on an international level resulting in the aspired Arabian economic union”, added Mr. Mazen Ayass, Chairman of Ayass Motors.

But admittedly, the bright side is it will take efforts like this to settle things down in the Middle East. Tom Friedman has pointed out that unless this region joins the rest of the economic world extremists will continue to offer up the only alternative for many, and it's not pleasant.

Detroit though won't have to worry because their production goals are modest:

Ayass Motors is the first Jordanian company specialized in vehicle manufacturing and assembly using the latest automotive manufacturing technologies in the Middle East, as it specializes in manufacturing a variety of vehicles under the name “Ayass Motors” according to the highest international standards. These vehicles include Pick ups with single and dual-drive Cabins, small vehicles and 4-wheel drive sport cars.
The company will start its operations by producing 5,000 vehicles during its first year, and will increase its production capacity to 12,000 vehicles annually in order to compete on a local, regional and international scale. The competitive advantage of Ayass Motors lies in the product quality, the competitive prices and maintenance and warranties.

I believe that works out to the monthly production at the Janesville GM plant.