Paul Ingrassia's Success Call On "The Great Auto Restructuring"

Only a week ago, I wrote this post regarding AutoNation's CEO Mike Jackson's shameless, disingenuous cheerleading for auto stocks on CNBC. In the interests of equal time and treatment, I guess I must also discuss my one-time squash partner and friend, Pulitzer Prize-winning writer Paul Ingrassia's recent Wall Street Journal editorial entitled The Great Auto Restructuring Shows Signs of Success.

Rather than rewrite the prior post's highlights, let me quote from it,

"Thus, to hear Jackson's version of history, the only way America's automakers could be saved was by government rescue. And that was necessary to preserve jobs and technology.

Well, as I've written in several prior posts, a conventional Chapter 11 filing by GM and Chrysler would have provided both with the time and opportunity to reorganize, group healthy units together and refloat them independently, or sell them to bidders. Further, neither company had to cease operations to do this.
Why Jackson seems ignorant of this fact is beyond me. I guess he's either not creative or simply not well-versed in the very real and frequent occurrence of business death or dismemberment.
So, to hear Jackson sing the praises of GM and Ford and the coming high volume vehicle unit sales years is to listen to someone tell half of a story. Give any business free government help to an extreme and you'll get the same happy ending. Jackson failed to discuss government-mandated purchases of hybrids and other unholy consequences of the excessive intervention.
The chart above displays the lone US automaker with a continuous price history, Ford, and, for good measure, Jackson's Autonation, along with the S&P500 Index.

If you have a technical inclination, you might notice that both firms' recent rapid price gains don't have long term sustainable precedents. In Ford's case, it's pretty clearly just a function of the rebound from the nadir of the 2008-2009 market bottom. Of the three series, anemic as its last decade has been, the S&P is the least volatile, ending with a much better performance than either company.
Of perhaps more import is how both Ford and Autonation have current share prices below their 1990s-era tops. Autonation peaked a few years before Ford, but both had either a flattening or multi-year decline for most of the past 12+ years. Jackson became CEO of Autonation in 1999, so he owns most of that performance.
What Jackson chooses not to explain, or perhaps genuinely doesn't realize, is that automaking is, for the most part, an unattractive commodity business over the long term. He railed about how China is the real 'Government Motors,' but, if true, this simply proves my point. It's hardly the sort of industry in which you'd invest a billion dollar fortune, if you had one to invest.
When you consider where most of the so-called innovations in vehicles originate, it's typically with vendor-supplied assemblies or devices, e.g., anti-lock brakes, airbags, and, now, so famously touted by Ford's Mulally, all manner of wireless communications devices. Thus, most of the profit for the automakers would seem to be sourced in design, rather than manufacture. Otherwise, the smart, value-adding components are available from sector vendors to any assembler.

Doesn't sound very attractive as an investible sector to me. Rather, it sounds more like a case of advanced Schumpeterian dynamics, wherein the value-added growth has long since left the sector's auto assemblers. The entry of Korean and Chinese automakers, and near-exits of GM and Chrysler fits the description of an industry with low barriers to entry and exit."


Here's some of Paul's glowing prose regarding the alleged success and its meaning for broader American fortunes,

"The good times are beginning to roll again, far faster than anybody expected, at General Motors, Ford and even at the weakest of the Detroit Three, Chrysler. There might be a lesson here. If the Great Restructuring has the potential to resolve the seemingly intractable problems of Detroit, perhaps bold structural overhauls can produce similar results on some broader issues facing America. Sure, that's a lot to hope for—but consider what tough love has done in the Motor City.

In 2005, General Motors lost an astounding $10.6 billion—this in a year when Americans bought nearly 17 million cars and trucks, nearly an all-time record. Last year, industry-wide sales totaled 11.6 million vehicles, historically depressed by any standard, but GM posted net income of $4.8 billion through Sept. 30. The company hasn't reported full-year results for 2010, but earnings will easily top $5 billion.

At Ford, the only Detroit company that didn't go bankrupt, the financial turnaround has been even more dramatic. Ford lost $12.6 billion in 2006 but earned $6.4 billion in the first nine months of last year. It just announced it will hire 7,000 more employees. Chrysler, meanwhile, is operating at break-even, and its cash flow is positive.
The average vehicle on American roads today is 10.2 years old, says R.L. Polk Co., which collects such data. This compares to an average age of 9.4 years five years ago and 8.8 years a decade ago. The point: Cars and trucks are getting older and will have to be replaced.

GM now makes 28 vehicles per year for each employee, calculates Goldman Sachs auto analyst Parick Archambault. That's more than double the company's productivity during the 1990s, he notes, and fully four times as high as in the 1950s, Detroit's glory years. GM's hourly labor costs now amount to just 6% of its revenue in North America. That's down from nearly 30% a few years ago, when the company was paying tens of thousands of workers to sit idle, and paying the full freight for employee health care.
GM's gains, and similar ones at Ford and Chrysler, have occurred because of the Great Restructuring, much of which came at the insistence of President Barack Obama's automotive task force.
The car companies' unlimited health-care obligations to retired workers have been replaced by a trust, funded by company contributions that are capped at a fixed amount. Active workers now pay about 5% of their health-care costs, up from nothing a few years ago.

Of course, 5% is only about one-fifth of what the average American employee contributes out of wages to his own health-care plan. That's one sign Detroit's turnaround remains fragile, threatened by the companies' traditional tendency to confuse comeback with victory. But even in labor relations there's a whiff of fresh air.
When GM's new CEO, Dan Akerson, suggested this week that workers' wages should be tied to corporate performance, the new president of the UAW, Bob King, quickly said he's willing to discuss the idea.
The United States is facing trillion-dollar federal deficits that are patently unsustainable, and the broad debate in Washington is whether tax increases or spending cuts are the proper solution. But neither approach, nor a combination of the two, will work without restructuring the vast federal entitlement programs that are the national equivalent of Detroit's Jobs Bank.

Social Security can't and shouldn't be abolished like the Jobs Bank was. But it can and should be restructured—to encourage later retirements, for example—as part of a broad entitlements reform.
States are burdened with underfunded pension plans for public employees that have destroyed their fiscal probity. It's nutty to raise taxes to plug state budget deficits, as Illinois just did, without restructuring public-employee pensions that allow workers to retire in their fifties, in some cases, with 80% of their pre-retirement incomes. Restructuring public-pension plans into 401(k) programs will spur fierce union resistance, just as key elements of the Great Restructuring did in Detroit. There's no painless way out of this problem. But further delay will only increase the pain, as Detroit's disaster of 2009 proved.
We should learn from success. Tough-love restructuring can produce renewal. With political will, resolve can produce results."


First, let me suggest reading this post from last summer. In it, I discuss Paul's review of another journalist's book about the Detroit automakers. He admits to journalists cheerleading without giving full disclosure,
 
"Ingrassia's opening sentences say it all,

"Many of the journalists who covered the long decline of General Motors that led to last year's bankruptcy were, in their hearts, rooting for the company. Such reporters- I among them- would seize on the occasional piece of good news about GM to write something upbeat. It would be a journalistic coup, after all, to be the first writer to call the company's turnaround. In any case, no one who grew up during GM's heyday, in the 1950s and 1960s, wanted to see an American icon self-destruct."
Together, Ingrassia's inclusion of these passages tells us a lot about why we should simply not trust most beat reporting on US companies and industries.

Reporters are not sell-side analysts. And, for that matter, we know from the last decade's dot-com bubble that sell-side analysts are, in reality, marketers for the equities which their firms underwrite and in which they make a market.
You'd ordinarily think that a reporter was more objective than an analyst whose firm clearly has conflicts of interest.
Ingrassia's review tells you different. I am not sure Paul meant to open the media kimono quite so widely, but there it is."


Let me reiterate that I like Paul Ingrassia as a person, but, thanks to that review, I can't say that I completely trust his coverage of the auto sector in the public press anymore. His own words make that a reasonable stance.

Next, I won't question Paul's many numbers involving Ford's and GM's costs, volumes, profits, etc. I simply reiterate my contention that the basic entry/exit realities of the sector suggest it's very mature and suspect for investors.

Further, Paul makes quite clear that none of this was possible without egregious government intervention. Give your local dry cleaner or restaurateur the same help, and he will eventually show promise, too. But what about years later, when the free bailouts are finished and these businesses have to prosper on their own?

Don't you think that as soon as GM or Ford book large profits, the unions and government will come screaming at management nest-feathering? Sure, it sounds good that a union official "is willing to discuss" linking wages to profits. Try getting that into a contract. The existing health care cost-sharing remains a glaring inequity for UAW members versus the rest of America.

Now, I don't even agree, based upon my prior posts, including the linked one at the beginning of this post, that Ford and GM have accomplished legitimate, long term, sustainable turnarounds. But whatever improved performances have occurred would not have been so, in GM's case, without the bailout, unless the firm were put into Chapter 11 and allowed to exit the traditional way.

So I find it troubling that Ingrassia gets all googly-eyed about how what worked for Detroit could be a template for America to self-rescue on its federal entitlement programs.

Of course, as all pundits, Paul quickly disavows really scrapping Social Security or public pensions. Instead, he is in the camp of some sort of sensible discussions and negotiations with recipients to rationalize and temper the liabilities.

Well, Paul, there's a bit of a problem with that. First, GM's bailout only happened because the federal government basically printed the money for it. That has caused enough problems already. Some of the backlash by overseas investors was precisely because they watched their loans to the US government be funneled to the UAW.

However, there's nobody to bailout the US.

If anything is an object lesson in the administration's bailout of GM, it's to borrow the template used to illegally stiff legitimate senior creditors. If the US could do that to GM bondholders, why not use such tactics to cram reforms down the throats of Social Security and public pension recipients?

Works for me!

Other than that, there's nothing about the GM bailout that is really transferable to the larger public pension or federal entitlement spending mess. It's not just like a business problem. And that particular UAW benefits problem was 'solved' by our government printing and throwing money at it.

Despite Paul's best hopes, I just don't think that's going to work for the entitlements messes he believes will be resolved in that manner.

Indiana Fights For Business & The Rule of Law

Indiana treasurer Richard Mourdock, seen in this interview on Fox News, articulates the state's points vis a vis the Chrysler bankruptcy.

Supreme Court Justice Ruth Ginsberg has agreed to stay the sale of Chrysler assets to Fiat, pending consideration of Indiana's case.

Perhaps the rule of law will be upheld yet in America!

The Early Fruits of Government Coercion in Chrysler's Bankruptcy Negotiations

Early consequences of the administration's use of coercion to stiff secured creditors in the Chrysler bankruptcy are already upon us.

You will recall that Team Obama muscled Chrysler bondholders to step behind the UAW, an unsecured, junior creditor, and accept 29 cents on the dollar, so that the union could receive 55 percent of the smoldering ruin that will be the 'new' Chrysler.

Never mind that being a secured creditor legally confers certain privileges in bankruptcy, all of which have been voided at whim by the administration.

Some investors are already announcing their changed behavior.

The Wall Street Journal reported yesterday,

"Indiana Treasurer Richard Mourdock revealed this week that his state's police and teacher pension funds have lost millions of dollars in the Chrysler "restructuring." Indiana's State Police Fund and Major Moves Construction Fund, which finances roads and bridges, together lost more than $1 million. And the Teacher's Retirement Fund "suffered, at a minimum, a loss of $4.6 million due to the action of the Federal government," reports Mr. Mourdock.

And, sure enough, Mr. Mourdock says that from now on no funds under his control will invest in the secured debt of "General Motors, other manufacturing companies, or those insurance companies who have or will be receiving bailout funds." Given the recent actions by the feds, he adds, "the risk is too great for any prudent investor to accept."

This isn't political grandstanding. Public investment officials like Mr. Mourdock have a fiduciary duty to seek maximum returns for retirees. The question for all public officials responsible for investing pension money is whether they too should conclude that investing in U.S.-aided companies now carries so much political risk that it violates their legal obligations. Such are the wages of White House disdain for legal contracts."

So, there you have it. And who'd have guessed that a state-level investment official would be the first to publicly declare any investment 'opportunity' that is remotely near any federally-assisted company to be 'off limits.'

The consequences of the administration's deliberate violation of bankruptcy laws are just beginning to be felt. But investors have taken note and are behaving accordingly.

The Longer Term Consequences of Government's Coercion of Chrysler's Creditors

The Wall Street Journal published a nice, concise article by Todd Zywicki, a law professor at George Mason University, entitled, "Chrysler and the Rule of Law."

The piece brought to mind a comment by some administration apologist in the past few days claiming that the president 'is trying to save the auto industry in America.'

Well, not really. The administration is trying to bail out the UAW, by way of keeping Chrysler and GM out of a bankruptcy court. As it happens, the auto industry in America is quite healthy, thank you very much. Daimler, Toyota, and other vehicle producers located primarily in less-unionized southern states have not asked for aid, are not failing, and seem to be doing just fine.

In fact, earlier this week, a frequent, hopelessly liberal CNBC guest who is apparently an economist, decried the lack of 'legacy costs' burdening newer US entrants, such as Toyota, Daimler, et.al. He stated that it was "unfair" for those firms to be allowed to compete with GM and Chrysler, whose own bad compensation decisions contributed to their current bankruptcies.

Monday's Journal carried a front page piece detailing the horrible arm-twisting and undisguised intimidation used by the administration and its allies in Congress to illegally bludgeon the Chrysler bondholders from exercising their legitimate, legal rights as secured creditors.

Professor Zywicki's main point, however, is that the White House's coercion of the senior secured Chrysler debt holders will likely bring about future unintended consequences. He wrote,

"But we need to ask how eager lenders will be to offer new credit to General Motors knowing that the value of their investment could be diminished or destroyed by government to enrich a politically favored union. We also need to ask how eager hedge funds will be to participate in the Public-Private Investment Program to purchase bank's troubled assets.

And what if the next time it is a politically unpopular business- such as a pharmaceutical company- that's on the brink. Might government force it to surrender a patent to get the White House's agreement to get financing for the bankruptcy plan?"

Which gets to the point I made in this prior post. Both business and government overstepped their boundaries and failed to simply follow conventional procedures for the bankruptcy of American corporations.

Holman Jenkins On Chrysler/Fiat

Holman Jenkins, Jr., wrote another piece in his Wall Street Journal column on Wednesday of this week that is scathing in its assessment of the current US administration's approach to the two US-based auto makers which are in or near bankruptcy. Continuing his outright mockery of the president, Jenkins pokes fun at the tangled, mixed-up, illogical positions in which the current administration, and Congress, now find themselves.

For example, he begins with,

"When you buy a car, I hope it will be a Democratic car."

Oops. We have misquoted the president. He said last week he hoped you would buy an "American car" -- though apparently not one built in a red state in a plant owned by Japanese or German investors. He meant a car built by a company headquartered in Detroit, even if the car itself is assembled in Mexico or Canada. How confusing.

Hundreds of shoppers certainly understood him to mean a Chrysler car. They rushed into dealerships last weekend. Never mind that Chrysler isn't technically making cars in the U.S. at the moment -- it shut down its factories -- and when it reopens it will be on a path to ownership by a company based in Turin, Italy."

It is pretty riotous to hear the president fumble with his call to 'buy American,' when that really means cars assembled outside the US, by a firm which will now be owned by foreigners. Does he ever mention that American workers in South Carolina and nearby states assembling cars for Mercedes, Toyota, et.al.?

Jenkins then observes how astute the Germans at Daimler were to quickly dump Chrysler a few years ago.

"Daimler, its previous parent, certainly had no desire to fund such profitless extravagance. The Germans took a lot of guff but they're the ones laughing now. They sold their majority stake in Chrysler just months after Democrats took over Congress, and just weeks after President Bush began blathering about "oil addiction" and echoing Democratic demands for stringent new fuel-mileage rules (after opposing them for years).

It's no exaggeration to say the rest of the story is told in Chrysler's bankruptcy filing. In search of a partner to underwrite development of fuel-sipping hybrids and electric cars that would be almost certain to lose money in the U.S. marketplace, Chrysler's Tom LaSorda spent two years seeking alliances with Nissan, GM, Volkswagen, Tata, Magna, GAZ, Hyundai, Honda, Toyota, Beijing Auto and others -- efforts that were "uniformly without success." Fiat, he said in an affidavit, was "Chrysler's last best hope."

A stunning rebuke to this whole notion that anyone with brains and money believed that Chyrsler can return to profitability by building cars that the green crowd in America demand. Jenkins then mentions the ill-famed car of the editorial's title,

"Not since Renault teamed up with AMC to bring you Le Car has an odder pairing been seen -- or a less promising one.

Unless gasoline prices go to $5 a gallon, Mr. Marchionne certainly is not so foolish to believe making and selling teensy eurocars in the U.S. is anybody's route to salvation.
Even in Europe, he has noted, a move to bigger, more powerful cars is underway. Motorists are getting fatter and older -- and unwilling to contort themselves to get in and out of a car.

He also understands that trying to beat Toyota at its own game is a nonstarter. Toyota sets a standard of quality and technology that all must meet -- that's the price of admission. But "what we have that Toyota does not have -- and I say this with all modesty -- is the great historical heritage of the brands." "

This is pretty funny. A collection of largely has-been brands, with the possible exception of Jeep, which, of course, has bloated into a non-eco-friendly car line. And this is what taxpayer money is funding to take on the world's best auto manufacturer?

Then Mr. Jenkins notes how the head of Fiat is aiming to build a car maker with sufficient scale to survive the coming thinning of the vehicle-manufacturing herd,

"He's already turned his attention to Opel, GM's European arm, which is on the market. Notice, though, that he's committed no money to Chrysler, only a promise of vehicle technology. As a New York Times story recently trailed off, ". . . at some point, some [Obama auto] task force members acknowledge, the drive for profitability is likely to collide with Mr. Obama's fuel-efficiency and low-emission goals."

Yup. Mr. Marchionne has kept his skin out of the game for a reason. Don't expect him to reach for Fiat's modest checkbook until Team Obama can explain exactly how Chrysler is supposed to make money building the "green cars" Mr. Obama wants it to build. But you already know the answer: You, the taxpayer, have not finished chipping in to keep Fiat-Chrysler alive."

As usual, Jenkins pulls no punches. He correctly concludes that you, the US taxpayer, will now continue to fund this Don Quixote-like dream of profitably building green cars in America. From a failed manufacturer.

Everyone in power over the past few years in Washington is guilty on this one. And, as Jenkins sadly notes, we're nowhere near finished with this travesty yet.

Chrysler's Profit Projections

I read this morning's headline in the Wall Street Journal's Marketplace section. It's chilling-

"Chrysler Forecasts Profit- In 2012"

Followed by this in smaller, italicised type,

"Auto Maker Lost About $17 Billion in 2008; Some Secured Lenders Seek to Block Sale of Assets to Fiat."

What investor in his right mind would be sitting still for a profit forecast that showed, for 2008-2012, a net loss? Judging by the chart accompanying the article, Chrysler forecasts about $3B in profit in 2012.

We're clearly not talking about a borderline-profitable business going through a temporary problem. Chrysler should be dead. It's a failed business enterprise. Its business model didn't work.

It didn't work alone. It didn't work with Daimler-Benz. It hasn't worked under private equity ownership, which is generally the last stop on the way to total failure.

If the hardnosed, flinty capitalists who run Cerebrus couldn't make Chrysler profitable, are we supposed to believe that the guiding hand of the US federal government is going to succeed?

A bunch of appointed, unelected bureaucrats are going to succeed where the most self-interested, cloaked-from-public-view turnaround veterans failed?

Joseph Schumpeter must be spinning in his grave. The Chrysler bailout out, as well as that of GM, is precisely the sort of roadblock to recycling business resources that he would have abhorred.

At least the Fiat move resembles Schumpeter's notion of salvaging the pieces of failed companies to use in better, more profitable applications by someone else. Granted, the senior secured lenders have the right to block the sale of parts of Chrysler to Fiat, if their rights are being subverted. But all of this would have already been in process months ago, had the Bush administration had the backbone to just say 'no' to the two auto makers headed for Chapter 11.

As it is, we have the ludicrous display of a failed car maker seriously projecting net cumulative losses through 2012, and apparently believing this is reason to continue to fund its existence.

America's New Industrial Policy

The last few days have been filled with news about business with an explicit political bent. I refer, of course, to the game of chicken that various parties played during the pre-Chapter 11 filing negotiations among the federal government, the UAW, management, and senior secured lenders, i.e., bondholders.

Yesterday, the nation's president took industrial policy to a new extreme, publicly calling for a "buy American" ethic, explicitly supporting Chrysler's survival/revival, and excoriating those who lent to the failed car company in good faith for wishing to exercise their legal rights.

Truly, it seemed like a scene right out of Ayn Rand's "Atlas Shrugged."

Later in the day, I briefly viewed Michigan's Democratic governor at a press conference, exhorting all parties to produce a solution that will make the state the new leader in whatever sort of futuristic car design and manufacturing is required. Nevermind that industry usually locates in a geography for a particular reason related to either transportation, markets, or resources. Michigan would no longer seem to have any of those, since the newest auto makers have chosen to locate in right-to-work states in the southeastern US.

Today, Michigan Democratic Representative John "Tailpipe Johnny" Dingell continued the president's assault on capital, decrying "speculators" as "vultures" for sinking the pre-bankruptcy negotiations over Chrysler's future. Apparently he, too, prefers government agendas to the rule of law.

Today's Wall Street Journal published a piece noting how the Chrysler dilemma is a trial balloon for GM's own turn in the barrel later this month. If the former's capital structure does, indeed, award more control in the surviving company to a junior, unsecured creditor, i.e., the UAW, than to the senior secured creditors, the impact on general corporate debt issuance and pricing will be chilling. Any company with a strong union workforce will be viewed sceptically by potential debt investors, because the government's manipulation of the Chrysler and GM situations will alert them to the ultimate unenforceability of the bond covenants under which they lend corporations capital.

How long will it take to reverse that sort of loss of confidence? What effect will it have on the apparently still-fragile US capital markets?

What is the longer term implication of a federal government which does not enforce laws, but, instead, inserts itself on one or another side of private sector conflicts, then seeks to manipulate public opinion to get its way before legal remedies may be employed?

How is this sort of government behavior conducive to a vibrant, strong, risk-taking private sector of our economy?

The effects of this misguided government intervention in the Detroit-based auto makers' situations have implications for the US economy far, far beyond just two failing auto makers.

Rick Wagoner's Ouster

I've written my share, or more, of posts criticizing GM's recently-ousted CEO, Rick Wagoner.



And I don't like to mix politics with business on this blog.



But this weekend's firing of GM CEO Wagoner by the head of one of the firm's creditor's, the US federal government, breaks new ground. So I believe it needs to be addressed.



The accompanying price chart for GM and the S&P500 Index since 1962 paints a very sobering picture for the auto maker. In non-deflated dollars, the company's stock price peaked in 2000, but, in real terms, obviously much, much earlier.

Since Wagoner's assumption of the CEO title, GM's market value has headed straight downhill.

I've railed for years against GM's horrible senior management and ineffectual board of directors. I have argued for years that Wagoner should go.

But not because the president of the US, which is not even the largest creditor of the company, says so.

However, even Wagoner's dismissal by a minor creditor, is not the most troubling news related to GM today.

No, that would be the US president's contentions, as expressed in his remarks about GM this morning. It's evidently too recent to find a YouTube clip of the appearance, so my text will have to suffice.

Disturbingly, the president of our country unilaterally declared that:

-GM is too old and important to fail.
-Management is to blame, but workers are not.
-Federal money will be spent to save/create auto jobs in the communities affected by GM's troubles.
-GM will not be put through a normal Chapter 11 bankruptcy.
-After being 'fixed,' GM will rise to success once again.

No mention was made of the UAW's role in this through its exorbitant demands. Nor was Ron Gettelfinger's resignation as head of the UAW demanded by our government.

Further, our president, oddly for an attorney, provided evidence of his ignorance of what a Chapter 11 filing entails. He claimed that such a filing would result in dissolution of GM and the sale of its operations, which would also shut down.

This is simply false.

So now we have an ultimate government taking. At least with AIG, the federal government became the owner of the firm, albeit at gunpoint, and has since called the shots.

At GM, it's not an owner, but a relatively minor creditor. And should have no particular stake in the outcome of the firm. Markets are supposed to do that.

Instead, we have a near-Rooseveltian step by government into the restructuring of the auto sector. Chrysler was judged unworthy of further investment, unless it completes its pending merger with Fiat. GM has been deemed worthy of saving, but, obviously, because of the UAW jobs involved.

And those jobs, and the contracts under which they exist, will not be subject to a court-appointed bankruptcy trustee. No, the government has charged management alone with guilt in GM's failures.

The nature and extent of the federal government seizure of control of GM, using a comparatively small operating loan as the basis for its thuggery, is disturbing.

But perhaps this could have been avoided if, as I wrote half-jokingly, this post were true. Had Armando Codina been replaced by a competent board member, along with most of the rest of GM's board, perhaps this act of government seizure could have been avoided.

My business partner and I have discussed my strong belief in the necessary of death of corporations which cease to serve shareholders well. It is, admittedly, a very robust version of Schumpeterian dynamics. But this latest act in the melodrama that is GM proves my point.

Far better for the private sector to look after its own interests, shutting weak, ailing firms, than to await politically-motivated government meddling.

GM could have gone quietly, with some parts sold, others closed. Now, it's going to be forced to continue life as a money-losing "green" car maker, taking orders from Washington.

Truly, a far more ignominious end for the once-proud and profitable car maker.

Paul Ingrassia On UAW 30-and-Out Retirement

Paul Ingrassia, once of the Wall Street Journal, wrote a very impressive and insightful editorial yesterday entitled "GM's Plan: Subsidize Our 48-Year-Old Retirees."

As usual, with his comprehensive grasp of the American auto industry, Paul debunks the myth that only the UAW is responsible for the mess in which GM, Chrysler and Ford currently find themselves.

There is one line, however, early in his piece, that really says it all,

"That was a couple of years before Detroit agreed to let auto workers retire with full pensions and benefits after 30 years on the job, regardless of their age. In practice, that meant a worker could start at age 18, retire at 48, and spend more years collecting a pension and free health care than he or she actually spent working. It wasn't long before even union officials realized they had created a monster."

Paul blames both auto company executives and UAW chiefs for failing to address and fix this crippling feature of Big 3 employment.

No matter what else you read or hear about the need for a US auto maker bailout, or how badly their filing Chapter 11 bankruptcy might affect the US economy, reread that second sentence.

We are all now paying for a bunch of workers from the auto industry who managed to earn more in retirement than they actually did working.

There are many interesting and important details in Paul's editorial that explain how bad a deal we are all getting for taxpayer funding of GM and Chrysler. GM is waving a $100B price tag around as the cost of Chapter 11, but it's a phony number, because it represents pension guarantees and other obligations that would be trimmed in such a court-supervised reorganization.

Chrysler, as Paul points out, wants continued government funding, in lieu of money that Fiat and Cerebrus won't contribute. How's that for being left holding a very expensive bag?

In his final analysis, Paul concludes that all stakeholders, especially bondholders and the UAW, are unlikely to get serious about facing reality outside of Chapter 11.

For me, however, the most striking element of this whole sorry mess is to be reminded of the sacred, unique "30 and out" deal so many UAW workers managed to connive out of Detroit in the fat years.

Every time I think about that, I find myself not caring at all what larger economic damage could come of forcing GM and Chrysler to file Chapter 11.

New Evidence On Consumer Choice & Cars From Bankrupt Producers

Yesterday's Wall Street Journal provided new evidence concerning whether American consumers would still buy cars from producers in Chapter 11 bankruptcy.

The answer is, 'yes,' for 90% of those surveyed. As the article notes,

"A pair of new surveys suggest buyers aren't completely unwilling to buy a car from an auto maker in bankruptcy court, as long as the federal government is willing to play a role in helping the company restructure.

This contradicts the conventional view of Detroit auto makers that suggests consumers would shun a bankrupt auto maker over fears related to the resale value of a car, the warranty and the ability to secure service and replacement parts.

Merrill Lynch & Co. recently completed a study showing 90% of car buyers would consider purchasing a vehicle from a car company in bankruptcy court.

Another survey, by CNW Marketing Research, found 48% would consider buying from a bankrupt auto maker if the company were getting help from the government, but that is up from a previous survey conducted by the Bandon, Ore., company."

Of course, this provides refutation of one of the more forceful arguments with which the UAW, GM, Ford and Chrysler have pursued Federal aid. The Journal provided more detail further on in the piece,

"The Merrill Lynch study, conducted for its clients and which included talking to 500 people, concluded that a "large majority of consumers would consider buying or leasing their next vehicle from an auto maker that is backed by U.S. government funding and may emerge as a strong company, following a restructuring through the bankruptcy process."

Merrill has had a banking relationship with domestic auto makers within the past year.

The CNW Marketing Research survey, of 9,700 domestic car owners completed Dec. 14, suggested 48% of buyers would be willing to consider a product sold by an auto maker in bankruptcy court, as long as the government was involved in the process.

CNW had been the source of an earlier study whose conclusions raised concerns about the impact of a bankruptcy filing on a car company. That survey found 80% of buyers would stay away, and the auto maker's revenue would plunge.

But CNW President Art Spinella said in an interview Tuesday that new research suggests people would feel much better about a bankrupt auto maker's chances "as long as there are loan guarantees by the government."

The results contradict much of what executives at U.S. auto makers and the United Auto Workers argue would be the impact of a bankruptcy on one or more of the companies."

Clearly, a Federal loan for debtor in possession financing would meet this criteria, as would some provision in any package for a separate warranty-funding facility.

Thus, once again, we see that the reasons for avoiding Chapter 11 filings for the US auto makers continue to fall by the wayside under closer examination.

Aftermath Of The Senate's Defeat of Auto Maker Bailout Bill

On Friday of last week, with the news of the Senate's defeat of the Detroit auto maker bailout bill, a curious thing occurred.

GM prepared to file a Chapter 11 bankruptcy, as CEO Rick Wagoner declared that the company has insufficient cash with which to operate until a more assured rescue comes, after January 20.

Now, according to Forbes, Wagoner was paid $4.82MM in 2006.

Yet, for an assumedly similar amount this year and last, what did shareholders get?

A CEO so inept that he failed to file for bankruptcy, to reorganize GM, last year. So incompetent that he forced the firm to run through nearly all its cash before seeking court protection to reorganize and renegotiate any and all contracts- union, dealership, suppliers, etc.

Instead of behaving like a real CEO, and having his staff observe, then plan for contingencies stemming from the 2007 credit market troubles, Wagoner dithered on as usual.

Having now run GM almost entirely out of liquid assets, he baldly blames Republican Senators and the President for his firm's bankruptcy.

This is rich, indeed.

A better-run firm would have headed into the safe harbor of Chapter 11 last year, when the gathering clouds of financial crisis and debt market unraveling gave warning of trouble ahead.

No, not GM. Not Wagoner.

In their playbook, all troubles which GM has recently faced are due to Washington, or the credit markets, but none of their own making.

Not even from their sins of omission- failure to notice a crisis looming, and failure to seek Chapter 11 court protection, in which to sort out their mess.

10 Lies About Bailing Out GM, Ford, Chrsyler & the UAW

As I have heard and read, like you, countless articles and hours of Congressional testimony and news program interviews pursuant to the question of the American taxpayer bailing out GM, Ford and Chrysler, a list of lies told by Rick Wagoner, Alan Mulally, Bob Nardelli and Ron Gettelfinger has occurred to me.


I can't link each lie with one person, in every case. But this is a list of claims made by one or more of the four which are simply untrue.



1. Bankruptcy is not an option.

Of course it is! This is something basically uttered by all four of these guys.

Ask yourself why they bothered to go to Washington first, rather than Chapter 11? Because, in Chapter 11, an apolitical bankruptcy receiver would restructure the whole mess with abandon, to truly be capable of survival. It won't be pretty, and it will make the efforts of at least Wagoner and Gettelfinger look silly and half-assed by comparison.

2. Filing bankruptcy will bring down hundreds of suppliers and cripple the US economy in the midst of a recession.

No, it won't. This is a bald-faced scare tactic. GM, for example, only has something like a 25% market share. Chrysler is even smaller. The few cars that actually turn a profit could be bundled into one unit and either spun back out or sold to another car maker. The suppliers for these cars will still have demand.

For any share lost by GM, Ford and Chrysler, other US-based, foreign-owned brands will pick up the share, and, with it, demand that feeds back to the suppliers.

This argument is just baseless on the face of it. No matter how many times CNBC auto-blowhard Phil LeBeau contends this to be true, it simply is not.

3. Nobody will buy a car from a car maker in bankruptcy.

This hasn't been demonstrated, by research, to be true in the proper context. Plus, it's never clear that the question is asked with a proviso that a third-party warranty would be provided. If anything, many buyers, assuming they even want some of the junk peddled by GM, Ford and Chrysler, merely would expect to pay lower prices.

4. This is a loan, not a bailout.

Lie. If this were merely a loan that was truly expected to be repaid, the capital markets would be handling the transaction. It's precisely because nobody expects this money to ever come back that only the taxpayer, via Congress, would provide it.

5. Without GM, Ford and Chrysler, the US will lose an important manufacturing base and be hostage to other world powers, plus become less capable of self-defense.

Nice try, but, this, too, is a lie.

First, we have a dozen or so foreign-owned auto plants in the southern US which, together, manufacture- actually, more correctly, assemble- fully as many cars as GM currently manages to sell. Losing GM doesn't lose this capability, but, merely the worst-performing, least-efficient amount of capacity.

Second, car making is more about assembly nowadays, less about manufacture. So this argument is wrong and specious on this point, alone.

Third, real defense-related production comes from companies like Boeing, General Dynamics, Lockheed and other similar contractors. Not to mention their suppliers.

Last time I checked, Wagoner, Gettelfinger, the governor of Michigan, et.al., were not Nobel-winning economists capable of credibly assuring US taxpayers that the precise capacity and capabilities of car assembly represented by Detroit-based auto assemblers is vital and necessary to a vital US economy in the future.

We've been moving to a service-based economy for over a decade. The real high-end, value-added manufacturing base is more efficient, requires fewer workers per dollar of value-added, and resides in other sectors than auto production.

6. There's light at the end of the tunnel for GM, Ford, Chrysler and the UAW with this 'loan.'

No, there isn't. Look closely at the CEO's promised dates of return to profitability. The earliest, I believe, is Ford, in 2009. Wagoner keeps babbling about 2010 and his cherished 'Volt' electric car. But his own EVP, Bob Lutz, let slip recently that green cars won't actually make money if priced so that consumers can afford them. Ooops!

Chrysler is a recurring disaster, profitable only during peak years of US economic cycles.

Republican Senator Tom Corker, among others, was correct when he noted, on CNBC, earlier this week, that none of these three companies have a plan to become truly viable and profitable in a reasonable timeframe.

No sane investor or lender would accept, today, from an existing large US industrial concern, a business plan which does not promise a profit for the next two years. It's just insane.

7. The current dire situation of GM, Ford, Chrysler and their common, primary union, the UAW, was caused by the US financial market crisis which began earlier this year.

One of the bigger lies propagated by everyone pushing for this bailout.

These three auto makers, and their greedy union, have mismanaged their situation for well over a decade. True, their situation worsened since September, when credit tightened/vanished. But that's part of running a large corporation- planning for many scenarios.

GM, in particular, has been headed for bankruptcy for nearly the entire term of Wagoner's ineffectual reign. The recent financial crisis merely offered an opportune occasion for these parties to raid the Federal Treasury and taxpayers' pockets.

8. Rick Wagoner is the best person to 'lead' GM.

Another big lie. Wagoner has misled GM for eight years. He's a major part of the problem, not any part of a solution, such as it may be.

A bankruptcy receiver would be far better and more objective for doing what needs to be done at GM to survive.

9. Bankruptcy of GM, Ford or Chrysler will be a disaster for the US economy because these companies will "go down."

Another lie, similar to lie #2.

Bankruptcy is not liquidation.

Putting GM into receivership, via Chapter 11 bankruptcy, does not mean it ceases operations. It means a trustee is in charge of reorganizing the firm to survive in the future.

Liquidation occurs when the operations, under bankruptcy, prove to be unable to be sustained, even with reorganization.

For example, the retailer Dave & Barry's went bankrupt this past summer. But it was not in liquidation until a few months later. Prior to that, the chain still operated, albeit under court protection.

See the difference?

That's why all this handwringing about GM filing Chapter 11 is a hoax. They won't stop production lines the day after the filing.

10. The UAW and the Detroit auto makers have already made a lot of concessions and done a lot of restructuring, so they deserve this Federal help.

Nice try, but the market doesn't reward efforts, only results.

Veteran auto-sector reporter and writer Paul Ingrassia, late of the Wall Street Journal, has written for months that the Detroit Three have been slow and ineffective in coming to grips with their troubles, and realistically fixing them. Bloated costs, too many brands, and too little effort spent attacking Congress' CAFE regulations have left them incapable of surviving in their current shape.

The UAW, for its part, points to concessions, but Gettelfinger badly needs to avoid his union's employers filing bankruptcy. If they do, he and his union are history.

Not because anyone is out to 'break' them. Rather, their own greed and shortsightedness has resulted in them crippling their employer.

In truth, a great deal of GM's, Ford's and Chrysler's troubles are co-owned by prior UAW rank file and leadership. Including Gettelfinger.

He, too, must go. Most likely with the decline into near-obscurity of his once-influential union.

Washington's Bailout Bill for Detroit

Take $20B, divide into 400,000 employees, and you have $50,000/person.


That's what you could do with a little more than the money currently being offered to Ford, GM and Chrysler, in exchange for something less than bankruptcy.


After all, not every employee of the three US-based auto makers will be out of work. Some will transfer with their successful, profitable product lines to other owners. So, between out-of-work auto employees, and some among their suppliers, you could assist a lot of non-management employees without 'bailing out' shareholders and management.


Let's help the non-management employees, and let management and shareholders pay the price for decades of lousy management.


Force Wagoner to file for Chapter 11, and probably Nardelli, too.

But under no circumstances should Congress give any of the three US auto makers money prior to a Chapter 11 filing.

More On Detroit's Bailout

Paul Ingrassia, former Detroit bureau chief of the Wall Street Journal, and Pulitzer Prize-winning author, wrote another excellent editorial in Thursday's edition of the paper, entitled "The Latest Song of Detroit."

The core of Ingrassia's piece are these passages,

"Consider GM, which appears to be in the most immediate danger, and sits "at the epicenter of the auto industry's crisis," in the words of respected Deutsche Bank analyst Rod Lache. General Motors seeks a total of up to $18 billion (including the $4 billion mentioned above), which is a hefty $6 billion more than it had requested just weeks ago.

The company proposes in its "Restructuring Plan for Long-Term Viability" to reduce its distribution network from some 6,500 dealers today to 4,700 in 2012. It also pledges to put its Saab and Saturn brands through a "strategic review," which means a potential sale, in addition to Hummer, which already is under review. Ailing Pontiac would become a niche brand, leaving GM mainly with Chevrolet, Cadillac, GMC and Buick. Additional efficiencies could come through amending contracts with the United Auto Workers union. GM suggests a federal "Oversight Board" to monitor its progress in meeting its "restructuring benchmarks."

But here's the problem: GM, by its own admission, is out of time. The benchmarks, while moving in the right direction, remain too low and too slow. Making Pontiac a niche brand isn't new; that plan has existed for years. Putting the other ailing brands "under review" will mean little unless GM actually can discontinue the brands (and thus end the cost burden they create) if the company is unable to sell them. Negotiating contract changes with the UAW will be a protracted process, and negotiating with dealers to reduce their numbers will be slower still. Even if the company does get down to 4,700 dealers by 2012, it will still have an excess of at least 2,500 dealers -- as compared to the average annual sales volume of Toyota dealers.

That's why an "Oversight Board" isn't enough. What's needed, under the aegis of the board, is a federal restructuring trustee who can lead car companies through a bankruptcy-type process if they opt for federal loans -- which Ford, alone among the Detroit Three, says it might not have to do. A restructuring trustee would have the power to set appropriate compensation for terminated dealer-franchise contracts, which would be invalidated with no value if an auto maker files for Chapter 11 bankruptcy. And the trustee should help find a foreign buyer for Chrysler, which is that company's best hope now.

The trustee also would have the power to impose a new labor contract on the UAW. An excellent model for such a contract already exists at the GM-Toyota joint venture plant in Fremont, Calif. The UAW represents that plant too, but the contract there is shorter, simpler and more flexible in every respect than the union's master contract with the Detroit Three."

He pulls no punches. A Chapter 11 filing, or an equivalent status, must be required for GM in order to receive any more Federal help.

As I discussed this ongoing drama with my business partner yesterday, he noted the front page of a newspaper, probably the NY Times, listing five options for Detroit's auto makers. Bankruptcy wasn't even among the top three, and anything requiring outsider-led reorganization was down the list and assessed as being opposed by the UAW and company managements.

It's taken this to make the strangest bedfellows, UAW chief Gettelfinger and CEOs Wagoner, Mulally and Nardelli. And, this morning, GM executive Bob Lutz, who has worked for all three auto makers, at one time or another.

Lutz and Gettelfinger were each interviewed on CNBC this morning. It was pretty disgusting.

Lutz sang the praises of Wagoner, but, when asked how much the UAW had to give to make things work, he punted. Then he continued by claiming that firing Wagoner was like 'firing the mayor of a town just hit by an earthquake.' According to Lutz, i.e., the company line on this fiasco, all of Detroit's problems have been external. They didn't mismanage themselves, ever.

Nope. The financial crisis and current recession are entirely to blame.

Then Lutz corrected the interviewer, saying something like,

'I don't know why people call this a 'bailout.' It's not a bailout. It's an emergency loan that will be paid back.'

Yeah. Right. A company that can't forecast being profitable under the best case for two more years will pay back an $18B loan on time.

If this were such an attractive financing opportunity, GM would be going to the capital markets, not Congress.

A little later, Ron Gettelfinger, head of the UAW, was interviewed. What's surprising is that Gettelfinger is so craven and desperate that he's singing the same song. When asked about firing Wagoner, Gettelfinger virtually repeated Lutz' argument- that all the trouble GM is in is outside of its control.

When pressed for what the UAW would give to make a reorganization work, Gettelfinger, too, punted, saying everything was on the table, but nothing was sure until he 'saw what everyone else was giving, too.'

When corporate management and their union suddenly begin singing from the same hymnal they are holding together, you should worry.

And put your hand on your wallet. And hope your Congress has its hand on your Federal wallet, too.

It seems that these clowns really believe nobody has noticed how the managements of GM, Ford and Chrysler, together with the greedy UAW 'management' and its workers, have run this sector's US-based companies into the ground. Now, they want $34B of our money to 'tide them over,' as if we'll ever get it back.

Paul Ingrassia, who has followed this industry for decades, making his mark by studying it closely, is right on target. The only way these three companies should receive any more Federal help is in Chapter 11. Period.

The Detroit Pigs Return To The Washington Trough

On Thursday, I wrote this post on my companion political blog discussing those aspects of the current drama being played out on Capitol Hill involving the US-based auto makers.

After I wrote that post, there was still plenty of drama occurring, both in the Congressional hearing room, and outside, as all parties rushed to appear before cameras on CNBC and Fox to attempt to add weight and urgency to their positions.

In this post, I want to address the economic aspects of what was said, and not said, yesterday in testimony and various post-hearing interviews.

Perhaps the most outrageously insidious and disingenuous 'witness' at the hearing was the UAW chief, Ron Gettelfinger.

This union chief stopped at nothing to save his hide, and, parenthetically, his union, too. To hear Ron's view of the world, filing Chapter 11 is unacceptable, because it would cause GM to cease to function.

Of course, that's a lie. But what else can Gettelfinger say? The truth is too awful for him and his union members.

Gettelfinger kept banging away on the theme that millions would become unemployed, national production capacity would be lost, and cars would be unbuilt if GM, Ford and Chrysler file for bankruptcy. And that no consumers would buy a car from a producer in Chapter 11.

Trouble is, Gettelfinger's source on that last contention was hopelessly biased and suspect.

But, listening to the UAW chief, you'd think that filing Chapter 11 was somehow less efficient than having a giant pow-wow, before a filing, in which everyone magically sits down and negotiates in good faith, once you and I have agreed, through Congress, to write checks totally some $30B to the three failed auto makers.

The truth, of course, is that Chapter 11 is crucial to force such negotiations. Gettelfinger is scrambling to hold out for pre-bankruptcy negotiations, because, in bankruptcy, his union will have its benefits and wages slashed unilaterally.

In fact, one Democratic Senator explicitly accused, but not by name, some Republicans and pundits for using Detroit's problems to break the UAW. But the UAW is doing that all on its own. It doesn't need help.

Perhaps the most sickening aspect of the presentations by Wagoner, Mulally, Nardelli and Gettelfinger were their simultaneous claims of two mutually exclusive positions:

-If GM, Ford and Chrysler are not rescued, their failure will mean untold damage to the US economy, so dire is their current predicament. And this predicament, by the way, is only the result of the recent financial crisis, not the woeful mismanagement of the three firms and the UAW for decades.

-If GM, Ford and Chrysler are bailed out, they will magically become the best-managed, most eco-friendly, well-run, successful American companies you ever saw.

Actually, both positions are probably lies.

First, Chapter 11 filings by all three firms would allow them to operate under a Federal bankruptcy referee, who would assist in the pruning of loss-making operations, reorganization of the three firms into fewer, stronger firm(s), and/or sale of attractive operations to other car makers.

Further, shuttering Ford, GM and Chrysler, as we know them now, does not preclude Federal assistance to formerly-employed UAW workers, as citizens, though, not UAW members. Shareholders and creditors may suffer, as they should, but employees need not be totally cast adrift.
Too, if GM, for example, is truly within a month of failure, then it's way too late to claim that a few billion in cash will magically solve all its ills.

Also, the three CEOs attempted to con the Senators at the hearing into believing that it is natural and acceptable to forecast 18-30 month timeframes until which these firms will show a profit again.

No private investor would stand for this. No bank would lend on these terms. But the CEOs could offer no case for rescue, in this situation, other than trying to cause a fear of massive unemployment and national economic ruin, should they fail.

Simply put, the CEOs, and Gettelfinger, all of whom are culpable in having brought the firms, and the US-based auto making sector to this point, attempted to evade responsibility for ruining the three firms, but threaten to make the nation's taxpayers pay a high price for the mistakes of these four leaders, and their predecessors.

The second contention of the four leaders, that, if bailed out, they will magically become better-managed companies, is silly on the face of it.

Without significant change in management, union contracts, and various other vendor arrangements, these companies will never survive to repay the 'loans' they claim to want.

You have to ask yourself, how will GM, Ford and Chrysler, which mismanaged themselves to this point, magically change just by the infusion of tens of billions of dollars of taxpayer money?

They won't.

Finally, there is a lot of emphasis on various surveys purporting to claim that, if in bankruptcy, these firms will lose customers, because, 'nobody will buy a car from a company in bankruptcy proceedings.'

These surveys are, when you carefully evaluate them, specious. Gettelfinger and Wagoner never actually cite the details of the 'survey' on which they rely.

Today, on CNBC, economic misfit Steve Liesman cited the network's own poll as showing that 52% of those questioned would buy a car under those circumstances.

Then the economic idiot claimed he had reversed his own numbers, and the correct value was a lower number. 37%, I believe, with the balance, some 11%, were undecided.

The flaw, of course, in Liesman's figures, is that one would need to carefully consider the sample makeup. To me, the most reasonable universe for these surveys would be current buyers of each company's cars. With such a small market share now, GM is really only worried about current customers, since most car buyers wouldn't take a GM product if you gave it to them.

Thus, it's probably a good idea to totally discount these 'surveys' purporting to show that the firms can't....just can't...be in bankruptcy, or they will sell no cars.

Finally, the CEOs, and supporters, including the Governor of Michigan, would have us believe that, without GM, Ford and Chrysler, valuable non-carbon-based car technology will lapse, and we'll be at the mercy of foreign producers of alternative-fuel vehicles.

Again, this is a red herring, and nothing could be further from the truth. If these technologies are so promising, why would not either other car makers with plants in the US, or simply other companies, buy these patents, technologies, or operations, in order to continue perfecting them?

It's not the assembly of something like GM's oft-heralded, but far-off Volt, that is crucial. It's likely the battery and drive train technology. Parts that a supplier could easily buy and finish developing.

In general, any parts of these companies that are valuable will be preserved and transferred, in Chapter 11, to a better, stronger parent. So will employees needed for ongoing car operations.

In summary, the cases made by Wagoner, Mulally, Nardelli, Gettelfinger, et.al., are deeply flawed, specious, and devoid of merit.

We should all hope that Congress only extends a debtor-in-possession loan to any of the three US auto makers which choose to enter Chapter 11, and then offers focused assistance packages to displaced employees.

To do more would be folly and insanity. Throwing our good taxpayer money after bad, lost shareholder and creditor money.

Reality TV: Detroit Auto CEOs' Return To Washington This Week

Having been chastised by members of Congress, as I wrote in this post, for using private jets to travel to Washington for last month's hearing at which the CEOs of GM, Ford and Chrysler came begging for public assistance, it appears all have learned their lesson.


Comically so.

Reports have Alan Mulally tooling his way across the Eastern US in a Ford hybrid. Hapless GM CEO Rick Wagoner is doing something similar in one (or more) of his company's newer models.

Chrysler's Bob Nardelli had not, as of yesterday, disclosed his travel mode, other than to assure one and all that it certainly would not be a private jet.

The Detroit Three's second Congressional appearance has now taken on the character of a very bad reality television program.

Next, we'll hear that Mulally's car breaks down, or can't be recharged en route. So he misses the meeting because of frequent gas stops to fill the car's small tank.

Or that GM's Wagoner, inept as always, manages to lose his way and winds up in West Virginia, instead of Washington, D.C. Even his OnStar navigation system will fail him, to the embarrassment of all concerned.

Then Chrysler will reveal that Nardelli, not to be outdone, actually hitchhiked his way to the Congressional hearings. Unbeknownst to him, Mulally will have picked up Nardelli on I-70, south of the Breezewood exit, thinking him to be a drifter in an old, beat up suit, carrying a battered nylon courier bag.

Once before the Congressional panel, the three CEOs will be unexpectedly interrogated regarding their choice of lodging on the trip.

When it is revealed that Wagoner chose a Radisson, angry murmurs will sweep through the gathered lawmakers.

Mulally's selection of a Hampton Inn will be more favorably received, but only because the chain offers a plentiful, self-serve buffet breakfast.

But the assembled Members will rise to cheer and applaud when Nardelli reveals his audacious gamble in setting out for the Capitol on foot, staying overnight in a youth hostel in the Pittsburgh area.

Far from being insulted with the ex-Home Depot CEO's grimy, soiled and unshaven appearance, several Democrats will laud him as having finally gotten 'in touch' with the real spirit of 'hard working Americans' everywhere.

On a more serious note, though, I read yesterday's Wall Street Journal's Marketplace section's lead article, which depicted Alan Mulally's mug beneath the title, "Ford Will Speed Green-Car Launches."

What we are now seeing, sadly, is a group of struggling, near-dead companies offering to engage in whatever product and business strategies a group of equally-inept businessmen and women- Congress- demand of them, in hopes of securing some $30-40B of taxpayer-financed loans which are unlikely to ever be repaid.

Nothing good comes of a situation in which publicly-owned, private corporations set aside their own business plans and strategies, and, instead, simply agree to do public bidding, outside of, perhaps, wartime production agreements.

In this case, Ford and GM are touting what they believe Congress wants to see- a sudden rush to produce and market 'green' cars. No matter that the infrastructure for most of these is still non-existent. Or that they don't actually make economic sense for consumers to buy, if they are priced to make a profit.

By the way, look, next, for Congress to demand fairly rigid, low profit margins on 'green' cars, the better to speed their adoption.

Won't that result in the Detroit-based auto makers jumping from the frying pan of current, unprofitable vehicle manufacture, into the fire of newly-introduced, equally-unprofitable 'green' cars demanded by the Feds?

Probably so.

Simply put, why would anyone think that cars which the public doesn't seem to want in sufficient volume to make them profitable, will suddenly be popular just because a few Democratic members of Congress think, in their infinite wisdom as seasoned business experts, that our nation needs 'green' cars.

In my opinion, whatever happens next to Mulally's Ford, Wagoner's GM and Nardelli's Chrysler is appropriate justice which they will richly deserve. By turning over product planning to Congress, which last was seen architecting the spectacular collapse of Fannie Mae and Freddie Mac, as well as many commercial banks whose mortgage lending practices followed Congressional directives, these CEOs are abdicating what little chance of survival their firms have to a bunch of short-sighted politicians.

In short, Ford, GM and Chrysler are about to make a Faustian bargain with the devil, Congress. By suddenly pushing largely-unwanted, unproven 'green' cars, in exchange for tens of billions of dollars of loans, they will merely become more and more inextricably dependent upon the public trough.

It reminds me of the folly of Walter Wriston and David Rockefeller, then CEOs of Citibank and Chase Manhattan Bank, in the late 1970s. At that time, in the wake of the first oil price shock and Arab embargo, these two bankers were lauded by the Federal government for their vaunted 'recycling' of billions of 'petrodollars' from the Gulf to various third-world countries in need of loans.

The problem was that Walter and David forgot to mark up the interest rates on the resulting flood of 'sovereign loans' to unstable, poor (a/k/a "developing") countries around the globe, and, particularly, in South America.

Thus, only a decade later, in the late 1980s, many of these sovereign loans became non-performing, forcing the largest US money center banks to write off several billion dollars of these loans.

The thanks that Citibank and Chase Manhattan shareholders received for Wriston's and Rockefeller's bad loan and pricing decisions was a sudden loss of value in their investments in the two banks.

So much for private enterprise doing the bidding of government, instead of looking out for their shareholders' welfare and interests.

What happened to the US banks in the late 1980s is probably going to be repeated in Detroit in the next few years. Don't be surprised when the three American-based auto makers end up either as wards of Washington, merged at gunpoint, or on permanent Federal life-support.