Friday, January 23, 2009

Chrysler and their Magical Mystery Tour...


Anyone with a shred of common sense and who has a basic understanding of supply chains and inventory management can see that Chrysler's latest announcement is a huge indicator that they have no clear strategy for how they plan on reconstructing themselves. This comes on the recent anouncment that Chrysler management that it will tour the country and have 'fireside chats' with their dealers in efforts to get them to order and stock more product. One can just imagine how these chats will go as Chrysler sits on one of the biggest inventory backlogs that is placing a huge cash flow crunch in their operations. When it is all said and done- I'm sure the metophor of 'fireside chats' will be more like 'putting their dealers feet to the fire' as they force the dealers to shift the liability off Chrysler's books and onto theirs.

In their statements, Chrysler management talks about their December plant idlings forcing them to 'burn through cash' as their employees sit still with no cars to build. Yet, UAW contract provisions are what got them there when as "Rome burned" (i.e. Customers stopped buying their cars) they continued to build, and build and build. Why? Because their Union contracts mandated minimum days they needed to work. Chrysler management is equally to blame as they did not look for other ways to renegotiate their situation with the UAW. Instead they built and built cars to the point that their product has been devalued by the basic law of 'supply and demand'.

There is a lot of 'could have beens' and 'should have beens', but what is most amazing to this taxpayer is how our senate leaders did not did harder into their plans for the $4Billion that they received in bailout money within the last 30 days? As we approach the March 31st deadline for their bailout compliance, you can be sure that "Brontosaurus-Chryslericus' will be pressing down hard on any and all dealers to make sure that they help shoulder part of their problems and shift inventory from Detroit to the car lot near you. Their dealer network could use some contraction and this economy will most likely help with that as our recent 'gold rush' economy saw an expansion so that there seems to be one on every run of strip malls. Our myopic government led by the 'veritable' (wink) Nancy Pelosi and Harry Reid, on the other hand, didn't think through the supply chain principles and look at how they could help Chrysler help themselves. Instead they did what they do best, throw taxpayer money at the problem showering the Big Three in an orgasm of dollars if you may. A bold display of their newfound majority status.

A better approach would have been to incent Americans to buy cars. Perhaps in the form of a tax voucher or credit that each person could use to buy the product. Then those banks we just lent a ton of money to? Well, how about we get them in on the deal to help finance these autos? As far as the auto makers? The government should have place a condition on their bailout stating that executive pay for the Big three was to be frozen for a period of five years (to be revisited at that point). On the other end of the spectrum- UAW would agree to a cut in pay and benefits for a period of three years (also to be reviewed on the anniversary date). Automakers would need to agree to these terms Unequivocally or find themselves with 'no cigar'.

You see this does a few things, one- it helps move inventory which is one of the biggest problems that the Big three have in the short-term. Long-term it modifies their overhead so that they can reorganize themselves and have a fighting chance to survive. On the banking contingency, it produces accountability (what a novel concept) for the bailout funds that they were afforded. It prevents hoarding and starts currency flowing.

Now Reality: Why our government didn't do this? Well let's see, the incoming surge of Democrats sought to capitalize on the $400million dollars in campaign contributions they received from organized labor. Far be it from them to 'bite' the proverbial 'hand that feeds them'. So as to not upset the constituents that just helped many of them get into office- they dodged any conversation or contingencies that could be placed on the UAW. After all they are for the 'working people'. So why not let the 'working people' fully FUND the reconstruction of the companies for which they work in the form of increased taxes? You see- accountability is a term that is loosely used, but only when it is convenient, NOT when it makes sense and is the most prudent thing to do.

2 comments:

skipper said...

Correct me if I am wrong Lou, but isn't Chrysler owned by a Hedge Fund? They WILL not lose any of their money - I guess the government had to throw three bones to their three headed dog...

Lou Sandoval said...

Good play into Greek mythology. Cerberus is the mythological three-headed dog and ALSO the name of the capital management company that is in primary position with Chrysler. Second largest share is Daimler-Chrysler.

Both of these share positions will most likely be challenged by FIAT's involvement. Yes- that is the Italian automaker (from a country where the unions hold companies in bondage) who has conveniently offered their small car technology. Buy ONLY if Chrysler is granted the second installment of bailout cash from the US government to the tune of $3 billion more.

So yes- there are many dogs (and many with fleas)in this mess. So it is the ultimate setup for the American Taxpayers (to be paid for generations to come).