Question About Toyota

Any chance the reason the gummint is slamming Toyota has more to do with Government ownership of GM as opposed to safety issues?

Volt Coming To D.C.

D.C. will be joining Michigan and California as the first markets where the Chevy Volt will be sold.

UAW's Game Plan

Labor is its own worst enemy. The UAW membership are killing a plan that their leadership negotiated with Ford management that was more generous than they obtained from Chrysler and GM (courtesy of Uncle Sam and their respective perverted and politicized bankruptcies). While Ford seems to be turning around and has a decent cash cushion, it also has a pile of debt and a decreasing though still significant burn rate. This seems quite foolish on the UAW's part. If Ford continues to be at a labor induced competitive disadvantage (compared to non-UAW manufacturers and now Chrysler/GM which are partially owned by the UAW) chapter 11 is likely in its future. There is a greater likelihood by that time that some entity other than Uncle Sam will be able to provide Debtor-in-Possession financing in which case it is unlikely that the bankruptcy proceedings will be tilted to the UAW's benefit as much as they were for GM and Chrysler.

Chrysler

Chrysler will be a millstone around the Obama administration's neck.  It doesn't appear to do all that much about the cost structure of Chrysler, it will make any company that has a sizable union presence a credit risk in the eyes of investors, and there is a pretty good chance that Chrysler will fail again, just as it has twice already in the last two decades (I am considering the Mercedes merger/acquisition as a bailout).  Pairing Chrysler with Fiat will give Chrysler access to small cars and nominally a luxury marque in the form of Alfa Romeo.  However, both Fiat and Alfa Romeo, are renowned for reliability issues.  Just as Chrysler is.  I do think the Fiat 500 might be a real hit but outside of that Chrysler doesn't get much.  

The principle purpose behind this reorganization seems to be to preserve UAW pensions and health benefits.  But I think this will be viewed as a pyrrhic victory for the UAW and the union movement writ large.  I don't think the UAW is out of the woods yet.  What if Chrysler continues to make crappy cars that people don't want to buy?  I don't see how a tie-up with Fiat changes that trajectory.  If so, four or five years, I doubt Obama will be able to pull off the same hijinx and will probably just have to let them enter into a normal bankruptcy process which could very well result in liquidation whereby those UAW pensions are dropped onto the Pension Benefit Guaranty Corporation.  This is what should have happpened this time around.  There is in fact some value to be found in each individual brand (especially Dodge and Jeep).  It's not as if Chrysler were to go into liquidation that every job would be lost and those brands would be gone forever.  Nissan was just recently looking at having Dodge manufacture trucks for them to be rebadged.  If Chrysler went into liquidation wouldn't Hyundai, Nissan or potentially a Chinese manufacturer be interested in buying one of those brands, whether to supplement their offering in the case of a Hyundai or to get a foothold in the American market in the case of a Chinese manufacturer.

But I think the broader fallout for the Obama administration will not just be the needless waste of taxpayer money but will be the affect this has on unions.  The UAW has largely been identified as the culprit of Chrysler and GM, however, a lot of the blame has been misplaced.  While the UAW did cause a cost structure that made for some unsuitable compromises (such as the precluding the manufacture of a competitive small car) management deserves the bulk of the blame.   The cars that GM and Chrysler have made of the years have been crap.  Some of this is the result of cost cutting but it has also been to a large degree a function of design, concept and quality.  Most of those three things are ultimately the responsibility of management and Chrysler and GM management have failed on all three accounts.  However, by stiffing the senior creditors to reward the UAW with GM and Chrysler equity stakes and the preservation of their benefits, this would seem to create a substantial risk in the eyes of investors where it concerns union companies.  Why would you want to lend to a company with a union when there is a decent chance if things go south that the government will subvert your claims to those of their preferred special interest: the unions.  Now not only will a union company' exhibit a cost structure disadvantage but also a disadvantage from the perspective of borrowing costs.  

Why Not Hatchbacks

In Europe hatchbacks are prevalent whereas in the U.S. they are more of a niche item.  Americans opt for sedans and car manufacturers are reluctant to bring hatchbacks over here.  I don't understand this.  A hatchback is a sedan that just has a little more cargo room (significantly more really) and is easier to load.  They're quite utilitarian and perform every bit as well as their sedan platform mates on the road.  I find them more attractive personally but I am apparently in a very small minority.  I wonder how much of the American buying public's aversion to hatchbacks is rooted in a hatchback's likeness to a station wagon (considered a baby mover and a dowdy one at that- yet again, I like station wagons).  Or, maybe Americans do secretly love hatchbacks and car manufacturers marketing departments are filled with dolts.  I hope it's the latter.

Good News

Now that Fiat is "bailing-in" Chrysler there is a good chance that the cute but cool Fiat 500 will be coming stateside.

More Chrysler Woes

Toyota is now #3 in truck sales, passing Dodge.  What does Chrysler have going for it exactly?  Maybe the approach on the auto bailout should be Chapter 11 for Ford and GM, Chapter 7 for Chrysler.

Mazda on Crack

The design team for Mazda should be drawn and quartered.  The Mazda 3 is probably the best value/most fun economy car out there and it is also a good looking car to boot.  The smiling fascia just destroys the design of an otherwise good looking car.

Auto Bailout

Bush is going to release TARP money for GM and Chrysler.  The terms are actually pretty good for the taxpayer and it appears that the conditions set for receiving the money are similar to what would occur in a Chapter 11 Bankruptcy:

"—Reduce debts by 2/3 via a debt for equity exchange. 
—Make one-half of VEBA payments in the form of stock. 
—Eliminate the jobs bank. 
—Work rules that are competitive with transplant auto manufacturers by 12/31/09. 
—Wages that are competitive with those of transplant auto manufacturers by 12/31/09."

This is probably better than the unions would have gotten in a bankruptcy in so far as it requires the automakers to pay into the VEBA fund (as a result of contract negotiations between the unions and the automakers last year health care benefits for retirees were taken over by the unions but the automakers had to make significant one time contributions to the health care trust fund- VEBA).  I am guessing in a bankruptcy proceeding the judge would tell the unions that there is a neat thing callled medicare and to go enroll.  So this is maybe a little more even handed.

The Word of the Year

Here's a bit of belated new: The Oxford English Dictionary's Word of the Year is hypermiling.  You learn something new everyday.

Reducing Wages

I really don't get why bringing the UAW workers wages in line with the rest of the industry is considered beyond the pale.  It is in many senses overly generous. The big three have a horrible reputation for quality.  In order for them to compete they will not only need to build cars of comprarable or superior quality but be able to compete on price.  To me that means that workers' wages need be below that of their competitors.  There are consequences of failure, and those consequences shouldn't be solely borne by the taxpayer.

Automaker Bailout

The democrats seem intent on replicating the structure of a bankruptcy proceeding for the automakers without having them go into bankruptcy.  It appears the car czar (or commissar if you prefer) is nothing more than an ersatz bankruptcy judge.  However, this all leads me back to my original point regarding the bailout, if what the automakers need is a massive reorginization then what they should do is go into bankruptcy.  If they bankruptcy is not a tenable option because automakers cannot obtain debtor in possession financing on credit markets the government can provide the DIP financing.  The only purpose this legislation seems to serve is to kick the bucket further down the road and in the mean time give democrats hope of creating a government sponsored enterprise in the form of the domestic automobile industry.  This is a stupid bill.  That said, I am not sure the republicans shouldn't vote for it.  It could be that this bill as awful as it is, is simply the least bad option.

The One Argument for the Auto Bailout

The one argument for the auto bailout that gains some traction with me is essentially as viewing it as a jobs program, or in other words keeping folks off the unemployment rolls till less turbulent times.

More on the Big Three

Mitt Romney has a good op-ed on the proposed bailout. He opposes it and suggests bankruptcy and appears to suggest the government provided the Debtor in Possession financing.

NHTSA Uses the Web

NHTSA, the National Highway Traffic Safety Administration, the kind folks who make your auto manufacturer issue a recall have created a free email subscription service where can keep tabs on whether your car has a recall or a technical service bulletin.  This is a handy feature if you own a Volkswagen like yours truly.

Bankruptcy not Bailout

Stephen Bainbridge has a good rundown on why GM should go into bankruptcy as opposed to receiving a bailout.

The Big Three Up the Ante

Now they are asking for an additional $50 billion as opposed to an additional $25 billion.

More Loans for Big Three

Speaker Pelosi is apparently considering giving the big three another $25 billion in loans.  This is absurd, let them go into bankruptcy.

Jeremy Clarkson on Motorcycles

Here is his review of a Vespa.  Here are two of my favorite bits:

"That said, a bike is much cheaper to run than a car. In fact, it takes only half a litre of fuel to get from your house to the scene of your first fatal accident. Which means that the lifetime cost of running your new bike is just 50p."

"I also liked the idea of a Vespa because most bikes are Japanese. This means they are extremely reliable so you cannot avoid a fatal crash by simply breaking down. This is entirely possible on a Vespa because it is made in Italy."

Bailouts for Everyone

The big three had been lobbying the government, and it appeared successfully, for a bailout ($25 billion in subsidized loans). But this is rich, GM wants $5 to $10 billion from the gummint to assist it in buying out Chrysler. Once it does this, it will axe most of the Chrysler workforce save those that manufacture Jeep products and their minivans and pocket the $11 billion cash Chrysler has on hand. I am not a fan of bailouts in general, and with respect to the auto industry there seems to be the least compelling case for a bailout.

If Chrysler or GM goes under, it would in fact hurt Michigan, and the autoworkers. But in the place of the corpse known as Chrysler or GM a "foreign" automaker such as Hyundai, Toyota, or Honda will simply build more plants in the South, increase shifts at existing plants, and churn out more cars which are better and affordable.

What also makes GM's claim to federal assistance for a merger less compelling is that Nissan appears willing and eager to acquire a stake in Chrysler. If one's concern is for the autoworkers, a Nissan merger would seem to be vastly preferable as there is significantly less product overlap between Nissan and Chrysler than between GM and Chrysler. Thus, Nissan would probably be less likely to cut as many workers as GM.

I find this type of thing noxious because it reeks of economic nationalism. That there is some support for such a bailout/merger seems grounded in the desire to keep an American manufacturer from being consumed by those awful "Feriners". However, with the auto industry this is especially stupid as where a company is headquartered has little relevance any more. A Toyota Corolla is every bit as domestic, or more so, than an F-150. It is designed here, the supplies manufacture here, and the car assembled here. So indeed, the Toyota Corolla is a "Japanese" car, but just as much as it is a product of Alabama or Texas or wherever else in the South they produce them.

Update: The $25 billion in loans to the big three have in fact already been approved. The $10 billion GM is requesting is in addition to the bailout they have already received. This is absurd. There is a reason the big three are in dire straits, they are run like a pension company with a side business in cars and their side business is piss poor.