AUTO INDUSTRY

AUTO INDUSTRY

 

Having been in the auto business at the retail level for nearly 60 years, and having dealt with all members of Detroit's BIG THREE, along with many Import franchises, I feel compelled to deliver a few facts to my friends about the Auto Industry which never seems to be properly explained by the media.

I do this on the threshold of the four years that lie ahead because the auto industry during the preceding four years was impacted so dramatically by actions on the part of the Obama administration.

Many of you have asked me to give my opinion on this subject, so here it is as I view it.

Jack

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First, President Obama takes credit for bailing out the domestic auto industry and saving the State of Michigan from disaster, despite the fact that it was really created as a means of capturing the support of the UAW for the benefit of the Democratic Party. So, let's take a look at what the Big Guy authored.

Actually, his plan was not truly a bailout of the Auto Industry, but rather a bailout of the United Auto Workers. I don't blame the Labor Union for accepting his offer because the funds predominantly went into their coffers.

The UAW explained the bailout to its membership as follows, "For our active members these funds mean no loss in your hourly pay, no reduction in your health care, and no reduction in pensions."

Upon retirement, UAW members' health insurance will continue until they reach Medicare age and has a maximum out-of-pocket cost annually of $285.00. By comparison, the average Medicare recipient spends an average of $4,200.00 annually out of pocket. In addition, UAW members can retire in their 50's.

Secondly, Chrysler's secured bond holders should have been paid in full prior to unsecured creditors rather than payments of 29 cents on the dollar. The UAW's unsecured pension fund received more than 80 cents per dollar owed.

Unsecured trade creditors and second lien creditors received zero (zilch) on their combined claims of more than $7 billion, while the unsecured UAW pension fund received 41% ownership of Chrysler plus a note at 9% interest of $4.6 billion.

Is it unthinkable to assume that the Obama administration was rewarding UAW for past and future votes on the Democratic side of the ballot? Bottom line is - Obama gave $26.5 billion in taxpayer dollars to the UAW union, more than our government spent in foreign aid during 2011.

Ford Motor Company declined the bailout and is operating successfully even though the domestic market is well below expectations. Chrysler and GM are stumbling to keep their heads above water and meet obligations.

Third, the highly publicized "Cash for Clunkers" program was another Obama auto industry disaster, yet he consistently said, “It has been successful beyond anybody’s imagination"! Yet, retail auto dealers were left holding the bag for many months waiting on their rebates, and during the months following the program's conclusion new car sales nationally dropped like a rock. It was clear that sales were stolen from future months and did not result in any increased volume for the year.

Fourth, nearly 2,000 Chrysler and GM dealers received pink slips as the Obama appointed Car Czar decided that fewer retail outlets would serve to reduce overhead for the entire industry. This reduction of outlets cost the nation nearly a half million jobs as the terminated dealerships and their suppliers bit the bullet. Thousands of highly qualified employees were put on the street with the stroke of pen, a pen held by unqualified governmental officials who had zero knowledge of the automobile industry.

Terminated dealers were compensated only for new and unused parts, new vehicle inventories, and corporate signs. A major financial loss to many of those dealers were long term leases, single purpose buildings, and properties standing vacant all across the country. Many of these properties are still vacant, some have not been maintained, and buyers of single purpose buildings are few and far between.

Fifth, energy inspired automobiles encouraged by the Obama administration have also been a disaster and unacceptable to the general public. Substantial incentives and rebates have not moved buyers leaving dealers stuck with fat inventories. The few energy efficient cars currently being sold are priced well below their cost and have provided no financial benefit to the Detroit auto makers.

Sixth, Ford is basically holding its own without a bailout, but Chrysler and GM are still marginal. However, it goes without saying, the UAW still holds most of the cards with respect to the financial future of the Big Three. Unless the economy of our country takes a turn for the better President Obama needs to prepare for another bail out, or let the Detroit Gang fend for themselves as he should have done a few short years ago.

In conclusion, when you put the Detroit Auto Industry in the hands of people who have never held a real job in their lives, what more could you expect. Current election polls indicate that we will probably face the Obama administration, bailouts, energy independence, smart cars, entitlements, et al, for another four years. So, we might just as well "hunker down", as my Amish friends would say, and learn to live with the "CARS" we are dealt.