Professor Elam

Benchmarking Chrysler

 

Benchmarking Votes

 

Benchmarking is the process of  identifying successful strategies of the best in the field to implement one’s business plan. Sadly most political projects only count the votes available and spend accordingly. The latest case in point is Chrysler.  Bankruptcy is a pretty good deal, assuming one is not really bankrupt, just ask Wayne Newton or Donald Trump.

AP Chrysler LLC filed for bankruptcy protection Thursday and announced it will temporarily halt most of its vehicle production while it completes a deal with Italian carmaker Fiat designed to revive its tattered fortunes.

Fortunes, what fortunes?  Chrysler has been a company perpetually on the verge of bankruptcy, now it is official.  Chrysler was ahead of its time with the fine 225 cubic inch slant six. Other developments such as aluminum blocks and fuel injection  on that engine were strangely never brought to market. Chrysler was basically an large engine/transmission maker (318/383/413/440/hemi and torqueflite ) from the 1960swith  Don Garlits winning  on the drag strip and Richard Petty in NASCAR  with Chrysler engines.  Lee Iacocca and Mitsubishi saved their bacon in the late 1970s.   Lee left the company in good shape financially with the hugely successful mini van and a lineup of turbocharged 2.2 L four cylinder powerplants. Later management frittered that away, discarding  the engine that even Consumer Reports loved. In the deal of the century, succeeding management sold the firm to Daimler Benz (Mercedes)  enriching themselves and setting Chrysler towards its present state.  The resulting culture clash had Daimler paying hedge fund Cerebus to take it off their hand.  But Cerebus bought less than a complete company even then.  There was no design studio, the economy cars had been eliminated just in time for $4 gasoline, and the sedans come in 13^th in ten car comparison tests.   Obama was driving a 300  sedan but sold it for a Prius during the campaign.

Congress never asked the airlines to benchmark Southwest Airlines in giving them $15 B after 9/11. So don’t expect them to ask it of Chrysler .

And while the unions are being asked for concessions on a hopelessly out of reach defined benefit plan, the real problems are ignored like the elephant  on the coffee table. There is no way the Pension Benefit Guaranty Corp (another Federal idea) can handle the Chrysler or GM unfunded pension liability. The task ahead is simply not financially feasible. But the potential votes are there and so we soldier on.

Chrysler has dallied with French Simca and Mitsubishi and even Lamborghini and Maserati (Lee was Italian after all).   With those deals in the past, Obama now turns to FIAT for a solution. Indeed FIAT is successful in Europe and has small car technology. But it would easily take two years to start building Fiats in US Factories. This is not pasta after all.

The bankruptcy deal requires the Federal Government to provide Debtor in Possession funding during the bankruptcy when all plants will be shut down. Optimists predict a sixty day make over, I wonder if in fact Chrysler will ever emerge from the free for all known as bankruptcy court.   The Administration envisions the UAW, themselves, and Fiat on the board. One wonders what the goal of the UAW will be?  Better cars, a real dealership system, a focus on quality rather than cost, or paying out all the money in wages with just enough left to pay the government, hey that’s Fiat’s job after all.

No doubt a not so subtle ploy here is to make it clear to GM that this could happen to them. The ultimate irony is that GM and Chrysler debt holders are re insured with Credit Default Swaps courtesy of Federally subsidized AIG.  But make no mistake, the cost to the country of letting thousands of  dealerships go under along with the factories would be expensive indeed.   

This is all about keeping Chrysler and GM on life support so that the UAW will help Democrats carry Midwestern states in the 2012 elections. That is   three and a half years from now. After that, all bets are off for GM and Chrysler. Can the party last that long?

Dennis Elam teaches at A & M San Antonio and can be reached at [email protected].

My Last Word on Certified Exams this Semester

Here is the link again to various certifications.

My suggestion to you is this.  Whatever exam you take your fellow co workers will only know whether you passed or failed. So make sure the one they know you are taking is one you will pass. Hint, do not go for the most difficult on the list, pick one you know you will pass.

It will do you no good to be known for failing something multiple times even if you do eventually succeed in passing, all you will be known for is having failed before you passed, hardly an enviable position.   But all I can do is dispense free advice.

Chrysler on the Brink

Chrysler in my lifetime has been a company that manages a small profit in the best of times and is going out  of business, always, in the worst. We are at such a low spot, again. 

One of the problems here is that the Administration is beholden to the UAW. Things would be better if the Administration were in the position to tell the UAW, not listen to them. 

As i write today is the deadline for the banks, bondholders, FIAT, and anyone else to make a deal or to BK court we go. I suspect this is also a way to leverage the GM deal by showing the Admin is serious about letting it go to court if a deal is not struck. 

Chrysler in this environment has little to offer. A mediocre line of sedans, no economy car, a better truck than Chrysler used to make, an incredibly weak dealership network, hmmm, other than the votes from the UAW, there is not much to save here. The Admin has the upper hand as it is the only one that can or will put up the cash to keep the doors open. 

 

Portfolio Magazine RIP

A Forbes columnist comments on the passing of Portfolio magazine.  His conclusion is that being born in New York City doomed the publication. If NYC is in trouble, it stands to reason that new ideas for publications born there will have trouble. He speculates that one shoulder launched missile launched into a fancy NYC eatery at LUNCH would advance publishing for everyone. 

Here here, all my life since the birth of modern television in the 1950s, we are subjected to the view from New York City. Folks talk about Fifth Avenue or the Bronx but never about Helotes or Terrel Hills in San Antonio or Bellaire or Sharpstown were we in Houston. And that is the point, broadcasting has a New York myopia or a Los Angeles myopia as though all original thinking could only originate there. 

At least CNN was birthed in Atlanta but that seems to have given way to NYC also. 

The battle for the intellectual control of the US continues. Harvard and Yale would have us believe it is all up there, but for you and I, it is all out here, go West young man or lady. AS the New York Times founders losing millions a week, and New York City drives residents elsewhere with high taxes, one can scarcely tell in Texas that it is the worst of times. But in Detroit the residents hang on every promise from the NYC to Washington DC corridor, no wonder Perry mentioned the Secession word. 

GM's Likely Future

I suspect Chrysler is toast, here Jerry Flint speculates on GM's future. 

For sure the Democrats in charge will keep GM somehow someway on life support thru the next Federal Election. That would hopefully capture several midwest seats in the election. With those states like Ohio and Michigan, along with New York and California, it is hard to see how the Dems could fail to hold the White House. 

Meanwhile the battle for world wide auto supremacy will be fought between Toyota and VW, huh?

Sowell on Housing Bust

Prof Tom Sowell's latest book examines who was behind the housing and financial crisis. 

The Housing Boom and Bust would be a good choice for a book review in any business class. 

How We Feel About Celebrities

Dallas based Davie Brown Entertainment has devised the DBI index that tracks and ranks how we fell about more  than 2,000 celebrities. You can go to the site here, but of course it takes a membership to view the results.  

The index tracks how we feel about celebrities. Here is socionomics in action. The usefulness of the index is to allow firms to decide who would best be for example a spokesperson. That would be decide d by the traits the public links to that product or service. In trustworthiness, President Obama now runs second to Morgan Freeman. Mike Phelps shot up after winning multiple medals at the Olympics but fell from grace after the marijuama incident.

This is more evidence that social mood dictates what actually happens in markets.

Perot Family Gets Margin Call

The Parkcentral Global Hub LTD Hedge Fund fell from $2.52 B to $266 M in a matter of months.

While that in itself is not unusal given what has happened lately, the fact that the Perot family was the biggest investor was unusual. This is not the sort of thing that made Ross Perot rich. Speaking as one who has worked for Ross, I suspect this Hedge Fund idea came from someone other than Ross.

Margin calls hastened the need to sell assets as this Fund like most others was highly leverage, ie, using lots of incredible debt. That is what caused so much selling, the need to raise cash to meet margin calls. This spiral down of selling   magnified the losses. IN short, we have a margin call as our security values have fallen. Okay sell something to meet the margin call. Whoops, now the value of other securities are down, so we need to sell some more to meet other margin calls. And before you know it, over $2 B is gone.

An old saying has it, shirt sleeves to shirt sleeves in three generations.  The idea is that grandad makes money and the kids, not understanding how he did it, then foolishly risk it away. I don't expect the Perot bunch to be looking for jobs but I imagine there was a serious I told you so conversation from Ross.

The FountainHead - Ayn Rand

Austin Kroll discussed Atlas Shrugged in Ethics class last week. I incorrectly suggested that Gary Cooper had been in the movie of the book, whoops, it was Ayn Rand's Rountainhead instead.

That book, click the hyperlink for a description, is all about sacrificing principle for profit. Like Atlas, a great topic for an ethics class.  

Patricia Neal fans can also spot her in winning Best Actress for Hud, another movie on my Ethics list come to think of it, and with John Wayne In Harm's Way.  Neal suffered a stroke after Harm's that limited her career for several years.

Soak the Rich, Playwright Weber Responds

Birtian and the US are mimicing one antoher, tax the rich, they can afford it. But can the entire country. People vote with their feet and Weber here explains that will happen.

Talent will simply pick up and go elsewhere. Interestingly Ireland of all places realized this a few years back, they lowered taxes to ten percent, attracted talent from all over Europe, and grew the most of any Western European country.

Will we make the same mistake, we already are as New York has the highest taxes of any place one could live.