Category Archives: work

Questions and answers

This will probably be my last post about the auto industry for a while.  I’m sure that you’re tired of reading these long winded posts with me begging for your understanding.  Unfortunately, the Senate failed to act on the bill, largely due to resistance from Republican Senators.  Fortunately, it looks as if the Administration will tap the TARP funds to provide short term relief until the next Congress is sworn in.  
One of my friends saw my previous post about the bridge loans and asked me some questions, which I think are fairly common.   I spent a good bit of time responding, and felt like the results were good enough to share.  With her permission, I’ve attached her unedited questions and my unedited responses.  I am by no means an expert, but I feel fairly confident in my understanding of the issues.  

2008 Ford Focus Washington State Drive

I promise to post something not auto industry related shortly.  Maybe a recipe or something.  We haven’t had one of those in a long time.
Questions and Answers:

Ok, if I am wrong or you see a different take on things, maybe you can explain them.  But here’s my problem with giving Ford and the other motor companies a loan…
 
Why do they need a loan in the first place?  If Ford made a profit in their first quarter and made some cost reductions, well, gas prices are down and while the credit crisis is still very serious, I think that it might be getting better.  So why do they have to have this loan to survive?
Here’s the long and the short of it.  Last year, the US auto sales were something like 17 million new vehicles (This is industry sales, all cars sold in the US).  During the first quarter, the sales rate was trending around 15-16 million cars for the full year, not great, but not shabby either.  By the time the second quarter got here, it had fallen a little more, primarily due to gas prices.  At the same time, the price of steel doubled, from about $500 / ton to $1000 / ton.  Over the summer, the credit crisis starts really fouling things up.  By October, industry sales are trending at 10 million units on an annual basis.  By November, the Year over year (That is, Nov-07 to Nov-08) sales dropped by about 35-40%.  Simply put, the # of cars sold in the US has fallen dramatically to levels that are unsustainable for the industry.  We have a fixed cost base that requires we sell a certain # of cars to pay the bills (bills that we will have to pay regardless of how many vehicles we produce.  Think health care benefits to our retirees, or energy costs to keep the assembly plants heated, things like that).  The American consumer simply isn’t buying right now, not from Ford, nor from anyone else.  
In normal times, the companies would just go to the credit or equity markets and get the funds to cover it.  Unfortunately, no one is lending to anyone.  People can’t get loans for their houses, the auto companies can’t get loans for their fixed costs.  
Ford is fortunately in the best situation of the Detroit.  GM and Chrysler are on the verge of running out of cash.  Ford obtained credit and lines of credit back in 2006, before the credit markets froze up, and so isn’t facing the same liquidity problems.  In fact, we aren’t asking for loans right now, but rather a line of credit (think a credit card, available when you need it, but the cash isn’t in your pocket right now.) in case of a failure of one of our competitors or in case the recession doesn’t end as quickly as people are projecting.  
Ford’s biggest fear right now is that the failure of one or both of the other two Detroit companies would cause a large scale disruption within the supply chain. Basically, as an industry, we have something like 75% overlapping suppliers.  We buy our parts from the same people that build parts for GM and Chrysler.  Now, imagine if one of those suppliers suddenly lost a third of their business.  It’s not an easy obstacle, but you might be able to get past it, maybe.  If 700 or 1000 suppliers and sub-suppliers suddenly lost 1/3 or more of their business, not all of them would stay in business.  Suddenly, Ford wouldn’t be able to build cars, simply because they can’t get nuts or seats or steering wheels.  Obviously, it would take time to find someone to make the new widget, test it to make sure it is safe, and get that new part to the assembly plants.  If Ford couldn’t sell cars for all of that time, it would put us in a very dire position.  That’s why we are asking for the loans to be given to the other two companies. 
 
What is Ford going to do once they get this loan to make things better for the American citizen?  Are they going to lower the cost of all their vehicles?  Make it easier to get a car loan?  Maybe build even more factories and create more jobs? 
I’ll answer this one in general, because Ford isn’t asking for the loan right now.  The other two need the money simply to survive a few more months to restructure their costs.  They will probably use the money to continue development of new cars, including the Chevy Volt, and other new green technologies.  They will use it to retool plants to make these new cars.  But with the legislation as it stands right now, basically they are buying themselves some time.  According to the bill that the House passed, they have until March 31 to develop and implement cost reductions.  This will probably  include wage cuts and other concessions, a restructuring of debt (i.e. reworking the terms of loans, swapping GM stock for debt, other things like that).  I haven’t read the GM or Chrysler plans, so I don’t really know what they are planning.
I do know that Ford has dramatically shifted development of its product line up to focus on smaller cars and more fuel efficient cross-overs.  We are doing that independent of the government financing, but that requires that we retool plants that once produced trucks and SUVs to be able to produce Focuses and Fusions, etc.  Not inexpensive.
I doubt that the companies would lower the prices of the cars, because the cost of material and assembly hasn’t fallen off that much.  Selling at a loss, especially when you have a big government loan to repay, probably isn’t a great idea.  Hopefully, they would be able to make car loans more available, but that has more to do with the ability of the financing companies to raise capital.  Ford Credit is still making loans and leases, although I’ve heard that isn’t true for many of the other car credit companies.
 
Who is to say that this loan will be put to good use and not wasted?  Is there any guarantee that jobs will not be lost and things will get better even if it is made?
It’s hard to say how you would be able to tell if it is put to good use.  The current legislation would have the President appoint a “Car Czar” who would monitor the progress of the restructuring, report back to Congress on a regular basis, and would have some say in the decision making process, especially large expenditures.  During the Chrysler bailout in the early 1980s, this kind of watchdog was put in place, and it seemed to be effective.
There is of course never any guarantee.  From my point of view, I’d rather take the risk that it might not work than the certainty of failure.  
 
 
Why should a company get a loan when we, the average American family, cannot even get a loan to consolidate our debts and make it a little easier to get by each month?  Is that really fair?
We can’t get a loan from anyone either.  However, if we don’t get the loans, and the industry fails, by some estimates between 3 and 5 million people will lose their jobs.   I don’t think that’s a good solution, by any stretch of the imagination.  I, like many others, thought that the other bailout was supposed to make it easier for the average American family to get loans.  Somehow, that hasn’t happened yet.  The government has serious questions to answer about that, but I digress.
 
I love ya and want you to keep your job, but if not giving this loan helps to make things just a little bit more fair, if that money could go somewhere else to help more people, then why shouldn’t it?  (And I’m not talking welfare and food stamps either)  Why can’t this loan money be put directly into the hands of those who have high amounts of debt and are trying to pay it off instead?
Again, I don’t have a really good answer here.  The government previously approved $700 Billion for just that purpose.  The amount of loans that are being requested by the auto companies isn’t chump change, by any stretch, but it also isn’t (relatively speaking) a huge amount of money.  The principal difference that I see between large scale debt relief and a bridge loan to the auto industry is where that money will be going.  Debt relief is basically paying back money that has already been spent, (an investment in the past), while the bridge loans will be investments for the future, investments that will pay back by creating value in the economy.  Both would add liquidity to the larger economy, but only one creates ongoing value. 
 
I’m not trying to be mean or cruel.  I just want to understand why this will make such a difference and why it is so needed.
I understand that many people don’t understand the gravity of this.  Some people don’t understand the complexity of the auto business, or the long lead times, or the costs.  Thanks for giving me the chance to explain some of it.  If you’ve got any more questions, I’m willing to answer any and all of them.  

A favor to ask

Hey Folks-
Brady again, asking you to support the Domestic Auto Industry. It appears that an agreement has been reached to provide about $15B of loans to GM and Chrysler so that they can last until March. During that time, they are to negotiate with creditors, labor unions, shareholders, and other stakeholders to bring themselves into a reasonable cost structure. Some are calling it “Bankruptcy Lite”. A “Car Czar,” appointed by the president, would monitor progress and ensure that taxpayer dollars would be well spent. Additionally, the government would benefit on the upside with stock positions in the companies.

This plan seems reasonable and will protect the taxpayers. However, even though there is reportedly agreement between the House of Representative and the White House, Republican Senators are threatening to block passage of this bill.

If the automobile companies are allowed to fail, hundreds of thousands of people will lose their jobs. You know at least one of them. Hundreds of thousands of senior citizens may lose benefits from their pension plans. You probably know at least one of them too.

There has been lots of talk lately about Energy Independence, the concept that we rely too much on foreign countries for oil and other energy. If we allow the largest domestic manufacturing industry to fail, we could find ourselves in a similar situation, relying on foreign countries for cars and other heavy manufacturing. Do we really want to go there?

At the end of the day, I am asking you, my dear readers, to do me a personal favor. If you live in, or have a credible connection to, a non-Michigan state, will you call or email your state senators and ask that they support the Auto Industry Bridge Loan program? This is especially important if you live in a state with Republican Senators. (Cough… Cough… Texas… Cough… Utah… Cough… Wyoming…)

Tell them that you are calling to support the job of one of our friends, the pension of one of your grandparents, the future of one of your children. Please, as a favor to me, call them. Here is a link that will help you find your Senators:

Here’s some more reading for you, if you’ve got nothing better to do:
Seven Myths about the Automakers

And don’t forget the Ford Story!

The Ford Story: A different route – Ford on the credit crunch, recession and more fuel efficient vehicles

Loyal Readers-

Please click through and take a minute to read the Ford Story. There seem to be many misconceptions about the domestic auto industry and a real tendency to lump the “Big 3” together. Ford has a unique story to tell right now, and you should know what it is:

A call to action

As you probably know, I work for Ford, which is facing a crisis of its own caused in good part by the on-going credit crisis. We have been aggressively restructuring our business and re-inventing ourselves. The crisis we now face is not of our doing. Because of the uncertainties in the economy at large and the scarcity of credit, people have quite literally stopped buying cars. Ford has positioned itself to be profitable at lower volumes than in the past, just not this low.

I have struggled with my own ideologies, saying that “Too big to fail is too big to play.” At the time, my job wasn’t at risk. I still believe that it is true. However, somehow the US automotive industry got to a point where we are too big to fail. The failure of one of the Big 3 auto companies would likely drive many of its suppliers into bankruptcy as well. Because the supply base is so intertwined between all of the major players (including the foreign automakers), wholesale disruption in the supply network would likely cause the failure of the domestics and a suspension of domestic production by the foreign automakers.
I believe from everything that I’ve read and heard that Ford is well positioned to survive a short economic downturn. However, if GM were to fail, the economic fallout would likely also drive us into bankruptcy.
Melanie asked me if the bailout is good or bad. I don’t know. I do know that it is neccessary. I don’t advocate a free ride for anyone. There should be pain for all involved, as we all got into this together. The union, the executives, the employees, the shareholders, and the taxpayers.
Here’s an excerpt from an email I got at work:
There are many who question why the U.S. industry should receive any additional assistance and are quick to assert that the current situation is due to the failure of the automakers to bring new technology to market and an alleged resistance to producing fuel-efficient vehicles. Here are some important points that clearly illustrate Ford’s commitment to a new way of doing business and to bringing the newest, most fuel-efficient technologies to market quickly:
· Ford’s product-led plan to deliver more of the safe, affordable, high-quality and fuel-efficient vehicles that consumers want and value remains solidly in place. We are also well-positioned to take advantage of our global scale and strengths.
· Ford has committed to leading in the development of advanced technologies, including EcoBoost, Flexible-fuel vehicles, clean diesel, hybrids, plug-in hybrids, and hydrogen cars.
· Ford alone has invested more than $22 billion in research and development (2005-07).
· Ford’s quality is now on par with Honda and Toyota and rising every year.
· The new Ford Fusion Hybrid beats the Toyota Camry Hybrid in fuel mileage.
Please take a few minutes to act. There are links below with contact information for your Senators and Representative. Please call them or email them. Tell them that the failure of the auto industry should not be an option. Give us the time that we need to finish restructuring without the added pressures of the credit crisis and economic downturn.

To call your elected officials as a “Friend of Ford” please click here (hint: it will be easier to call if you click on “Print this alert” link on the site below as a complete document will be printed with each of the officials names and phone numbers provided): http://capwiz.com/ford/callalert/index.tt?alertid=12192861 To email or send a printed letter to your elected officials as a “Friend of Ford” please click here:http://capwiz.com/ford/issues/alert/?alertid=12192906

Please feel free to send these links to your family and friends and ask them to take action to support our industry and our economy.

Apparently, I can’t dress myself


Shoes
Originally uploaded by tanakawho

You know how it’s cute when a little kid starts learning to dress themselves, and they get their shoes on the wrong feet? What if it’s a twenty-freaking-eight year old who can’t dress himself on Monday mornings?

Honestly, I still don’t really know what happened. I was sitting at my desk, talking to my supervisor about the weekend, and upcoming stuff for the week, when I look over at one of my feet. I thought to myself, “That’s odd, I swear I put on my black shoes today.” You know, black shoes to go with my black socks, and my black slacks. Perfectly normal right? That foot I was looking at was wearing one of my brown shoes.

So I looked at the other foot… yep, I was wearing a black shoe, like I thought… on that foot…

I’m half an hour away from home, and wearing two obviously unmatched shoes. How embarrassing! Of course, I was talking right at that moment of recognition, and I just blurted it out.

I spent much of the rest of the day hidden at my desk, and when I did go to meetings, I spent time standing on one foot, so that fewer people would get to see both shoes together at the same time.

Other than my supervisor, to whom I blurted my situation, I only know of one person who noticed! Perhaps that’s all for the best.

So far, I’ve managed to wear matched shoes the rest of this week. But its only Wednesday, so who knows what’ll happen tomorrow.