My Idea for the Auto Industry.
Over the past few days, I’ve had numerous people asking me about the auto industry, the bailout Big 3 is asking from various Governments, including those of the US and Canada, what we can do to solve it and if it was time to buy stocks.
Well. I can answer one question right now.
Stocks of the Big 3 (GM, Ford, Chrysler) has plummeted at such a low price, is now the time to buy to make a lot of money?
The answer is simple: No. Do not buy stocks in Big 3 unless you want to loose more money. There are two reasons for this: first, never buy when a stock is going down; second, they are bankrupt and the bailout hasn’t been approved.
The second question I got was if we should bailout the car industry. My answer is no, but.
I understand that the industry is in a difficult situation. Competition is strong. Economy is weak. Pension plans are draining profits and productivity.
But as Mitt Romney, former Governor of the State of Massachussets and Republican Presidential Candidate for the 2008 RNC, puts it in a very good article in the NY Times:
Detroit needs a turnaround, not a check.
Every company who struggles in its business must make changes to adapt, changes the Big 3 have not made and still refuse to make.
The bailout is not a solution. It’s a band-aid on a scratch that will still keep growing and become a real scar because the infection will not disappear. Bankruptcy isn’t the only option, but the bailout isn’t one either.
If I had a company that manufactured a product that no one wanted, why would I ask the Government to help me? There are no reasons.
Without a clear plan, I refuse to allow my Government to loan any kind of money. Big 3 has to present a plan that will solve the current problem.
My solutions:
1) Ask for the sale.
Detroit must ask Americans, Canadians and consumers worldwide to buy their cars. Not demand, ask. Politely, with humility. And at the same time, understand why these same consumers would not.. I have a few ideas of why consumers are not buying American cars:
- The quality sucks. The interior finishing touch is really terrible. A Ford Fusion is sold for almost the same price as a Toyota Avalon, but it doesn’t compare when it comes to finish.
- The design sucks. What is it with the idea that a car has to look like a butter package or a half-tank, half-robot?
- The engine sucks. Consumers are begging for fuel-efficient cars. And numerous small companies have innovated to improve regular engine performance to reach 100MPG. What is the problem with serial production and low MPG?
Why are the CEOs or VP of Sales for the Big 3 not on CNN Larry King, Oprah and other media news outlets asking consumers to buy American cars? “Can you please help our industry and country by buying American cars? We will accomodate you to whatever you want and need and will build cars that you will love.”
2) Change leadership.
I every crisis, a leader is needed. A General who will rally the troops for the cause, unite everyone to solve the problem. But this isn’t happening at Big 3. No one is strong enough, no one has enough respect to get factory workers, sales people, mid-level management, unions and the rest of it to start working toward a single goal: make a better car and sell it.
- CEOs are getting multi-million dollar salaries while their companies loose billions. They fly private jets. They refuse to sit down with small people to ask them to buy their cars. Union workers hate them. They don’t get respect from mid-level management. Current CEOs must all go.
- Union leaders are not helping the cause. They refuse to let go for the sake of the industry. No union leader is motivating the troops to build a better car every day. No union leader is asking consumers to trust them while driving their cars. No union leader has the guts to commit itself to building a better car than anyone else. We need new union and factory leadership, quick.
Everyone must sacrifice their perks to keep the industry alive. Nothing is a given unless you make money. If you lose money, you don’t deserve a single penny of your salary. UAW must find new leadership that gets consumer and worker’s trust. But I would emphasize in this new 21st century paradigm, that these same union leaders must first and foremost get trust from consmers, help increase sales, work toward a common goal and then, ask for new work packages for their union members.
3) Top line vs. bottom line.
Employees of a company are its nerve system. They are what allows the company to make money. They sell, they manufacture, they support. But they can also bankrupt that same company.
- Cut marketing costs. If a car is worth buying, it will sell itself.
- Cut mid-level costs. Mid-level management is not productive, people are playing an unproductive game of power to try to keep their jobs. Cut them loose and the good ones will figure out ways to provide real solutions.
- Go back to simplicity. Cut CEO comps. No more planes. No more lavish dinners. Look at Wal-Mart, Costco, a half million small and medium companies that have survived for decades because of simplicity.
- Cut employee pay and benefits. Offer stock options and participation on benefits. Most companies do it now: Google, Microsoft, etc… And it works. It has proven itself. Once profits are back, then you can talk of retirement packages and more. But achieve profit first.
4) Focus on long term.
Enough companies have died and enough mistakes were done trying to manage on a quarterly basis. Companies and its employees must connect with consumers and work for the long term benefit of each others.
- The companies are virtually bankrupt, why would we bother spend our money trying to save them while we can actually make money saving them? Focus on making money instead of loosing money!
- Encourage small companies to develop innovative technologies through innovative venture capital funds and R&D contracts.
- Encourage large corporations to leverage that IP through licensing instead of developing a NIH (Not Invented Here) syndrome.
These are just first step elements to restructure the companies. A check will not solve anything, and most importantly, if these companies don’t do everything they can and cannot imagine to start selling cars soon, they are just good enough for bankruptcy for me.
Dakx
