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Worse Than You Think - Part 2

Yesterday I trashed GM pretty hard, and they deserved it. The short version for GM, is that the management is both clueless and dishonest, and if they manage to avoid heavy penalties from the SEC, it would only be because the government decided not to pick on the mentally handicapped.

Let's move on now to Ford. Ford is just plain weird from the start, a two-tier company which on the one hand wants to be a big public corporation, but on the other refuses to allow the stockholders' control of their own company, by keeping a level of stock in family hands, an effective oligarchy. Ford is also noteworthy for its selection of pyrotechnic vehicles, from the traditional Pinto to the more modern F150.

Looking at the 2007 Annual Report, we see that Ford received 154.4 billion dollars in revenue, on sales of 6.55 million cars and trucks, or $23,562 apiece. But the car part of the company lost 5.0 billion dollars on the year, or $763 lost per car or truck sold. Only a 1.2 billion dollar profit on its financial services made things a bit better for Ford.

The 2006 report shows a 17.0 billion dollar loss for the car and truck part of the company, and the 2005 report shows a 3.9 billion dollar loss for the car and truck part of the company - like 2007 the financial services helped the final numbers look better. The 2004 report shows a 200 million dollar loss for the car and truck divisions, so what we are seeing is a progressively poor performance as years go by. That trend has neither been effectively diagnosed nor addressed, and the fact that the board of directors at Ford is not directly accountable to stockholders. While Ford has managed not to commit apparent fraud with its books the way GM has done for half a decade, the letters to stockholders which start off every Annual Report show no sense of accountability or effective planning.

Stopping here for a moment, we can see a slight difference between GM and Ford. Ford managed to handle its financing well enough to avoid the catastrophic damage we see happening to GM, but both companies are unable to make an operating profit from their core products.

Now on to Chrysler. If the words 'Chrysler' and 'Crisis' sound similar, you may be remembering how these guys almost killed off the company before. At the end of the Carter years, Chrysler was doing pretty much what it's doing now - making cars that do not fit what the public wants, and headed full speed towards self-destruction, and therefore pleading for the government to save its sorry rear. The thing to note about that help that Chrysler got that time, was not only that it was much smaller than what they want now, it also left the company largely untouched. No management changes, no strcutural changes, it basically assumed that they were doing a good job and could be trusted not to screw up again. And here we are.

Chrysler's ownership has been a mess for several years now. This 'American' company stopped being a really American company some years ago when it became DaimlerChrysler, and was actually a foreign-owned private company until September of 2007. That's right, a company whose foreign owners dropped it like a flaming bag of turd, thinks it makes sense to ask for money from the U.S. government on the claim that it's a good investment. Anyway, looking at the 2007 numbers we see Daimler reporting that Chrysler lost $2.9 billion during the first 9 months of 2007; Chrysler denied losing that much but never released hard numbers to show how badly they actually did. Their new owners, Cerberus, are best known for cutting their investment in Chrysler by over 50% in the first half of 2008 - it appears they only dropped that much, because they could not find anyone willing to take any more of Chrysler after that. Cerberus had also been a big buyer in GMAC and they dumped that, too.

So maybe it was just one bad year? Cerberus' 2006 report shows that it was a good year for the company ... except for the 1.1 billion Euros ($2.4 billion) lost by Chrysler. Chrysler was doing all right before it, but the SUV and Jeep-heavy company started failing when gas prices began a sharp rise.

(to be continued in part 3)


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Comments (10)

Bottom line...it's time to ... (Below threshold)

Bottom line...it's time to let these dinosaurs go bankrupt and let the market sort it out.

Since 9-11 it has been an u... (Below threshold)

Since 9-11 it has been an uphill battle. Ford has Mulaly at the helm and will be in better shape than GM.

Pennywise and pound foolish... (Below threshold)

Pennywise and pound foolish.

Chapter 11 Bankruptcy is th... (Below threshold)

Chapter 11 Bankruptcy is the only cure for the auto manufacturers.

A bankruptcy reorganization will allow the auto companies to act in the best interest of creditors while washing out the equity holders. It will also establish a means to reject the union contracts and legacy costs that are draining cash from the industry.

As I've mentioned many times before, why should the auto companies be given a pass that was denied steel, machining, textiles, electronics etc etc?

As I've mentioned ... (Below threshold)
As I've mentioned many times before, why should the auto companies be given a pass that was denied steel, machining, textiles, electronics etc etc?
Because adding a 5th wrong won't make the other 4 right.
This column shows an ignora... (Below threshold)

This column shows an ignorance towards Ford. If you would actually do some research you will see why things happened the way they did and what has been done to address it. Changing course with an auto company is like steering or stopping a big freighter. You don't do it in a few years. Mulally was able to get the line of credit that Ford needed to finance the restructuring. The UAW workforce was trimmed considerably and the salaried workforce has pretty much gotten rid of the dead weight. FMC has accepted that they're going to have to be a smaller company and that they'll have to change the product mix. Closing plants and converting truck plants to car plants costs billions of dollars and takes years to implement. That's being done right now.

The commentary and treatment of the auto companies compared to that of the financial industry has been extremely hypocritical and short sighted. It's nothing but politics.

Why Japanese auto companies... (Below threshold)

Why Japanese auto companies are winning
GM and Japanese style on auto

Subject: An example of American management expertise.

It's nice when they use an analogy to show what's really going on - then we can understand it better. This should be sent to GM !!!
Toyota and GM decided to have a canoe race on the Missouri River.

Both teams practiced long and hard to reach their peak performance before the race.

BUT on the big day, the Japanese won by a mile.

The Americans, tired and depressed, decided to investigate the reason for the crushing defeat. A management team made up of senior management was formed to investigate and recommend appropriate action.

Their conclusion was the Japanese had 8 people rowing and 1 person steering, while the American team had 8 people steering and 1 person rowing. So American management hired a consulting company referred to them by the US Government and paid them a large amount of money for a second opinion.

The consultants advised that too many people were steering the boat, while not enough people were rowing. To prevent another loss to the Japanese, the rowing team's management structure was totally reorganized into 3 steering supervisors, 1 area steering superintendents, 1 publicity manager, 1 HR diversity coordinator, 1 union rep, and a rower.

They also implemented a new performance system that would give the 1 person rowing the boat greater incentive to work harder. It was called the "Rowing Team Quality First Program", with a lunch and a free company pen for the rower. There was discussion of getting new paddles, canoes, and other equipment, extra vacation days for practices and performance-tied bonuses but that decision was held up in committee.

BUT the next year the Japanese won by two miles.

Humiliated, the American management laid off the rower for poor performance, halted development of a new canoe, sold the paddles, and canceled all capital investments for new equipment.

The money from all sales and all fore casted moneys saved from further competition was distributed to the Senior Executives as bonuses and the next year's racing team was out-sourced to India. The Intellectual Redneck

jpm100Why not just... (Below threshold)


Why not just impose a tariff on all auto imports and a special tax on all foreign owned domestic auto producers, either of which would level the playing field? Think you could get that through Congress?

Subsidizing inefficient domestic manufacturers with Federal funds is no different from raising tariffs on importers or raising taxes on foreign owned manufacturers. It's a matter of whose ox gets gored.

Let's see Rob, the financia... (Below threshold)

Let's see Rob, the financial bailout effects every citizen eventually. The car bailout, or beg out for poor management, does not. But you see political? I do to. The dems want this to support their union base. Plain and simple. That is political. ww

Chapter 11 and the market w... (Below threshold)

Chapter 11 and the market will sort out their problems. The auto industry is front end loaded with UAW contracts and rules that choke innovation and flexibility. Their management teams are using a model that is decades old and so inefficient that it makes the new UAW contracts look positively modern by comparison.

The market will decide what car models it wants by either buying the US manufacturers vehicles or those made by their competitors.






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