Auto Bailout Package Dies on US Senate Floor

GM and Chrysler informed Congress they could run out of cash in weeks. We are about to find out how many weeks they meant. The bailout bill had passed in the House of Representatives, but Senate Republicans wanted further modifications made to the bill. The collapse of the bill came after talks broke down with UAW officials. The sticking point was wages. The US Senators called for steep reductions to take effect in 2009, calling on the UAW to put US autoworkers pay on par with its Japanese competition. 

The UAW appeared willing to concede to this request, but not until 2011-when the current union contract is set to expire. The Senate wanted to see all participants take drastic, immediate cuts. The UAW’s desire to wait until 2011 assured that reluctant Senators would vote on to the bill.

Daily news reports cited the devastating effects a collapse of the Big Three would have on an economy already in recession, experiencing record levels of jobs losses and real estate foreclosures. Yet in a Marist poll, the majority of Americans were not in favor of bailing out these companies. 

Here is my take on why-

1. The average American is already “bailout weary”. Bailing out the finance sector dominated headlines and news programs on an hourly, even minute-by-minute basis. When the Big Three came asking for money, the reaction was “Who now? And who’s next?” 
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Chrysler remaking company

Chrysler announced that it plans to cut as many as 12,000 more employees from its hourly and salaried ranks, while cutting four vehicles from his product lineup.

The Dodge Magnum, the convertible version of Chrysler PT Cruiser, Chrysler Pacifica and Chrysler Crossfire all get axed for 2008, although the company is adding the Dodge Journey crossover and Dodge Challenger, which won rave reviews at during the 2007 auto show circuit, as well as two new hybrids: the Chrysler Aspen and Dodge Durango.

Sales on the Pacifica in particular have dropped off the table and it was time to move onto a newer and more exciting crossover, like the Journey. The Challenger helps keep Dodge’s reputation as a muscle car machine intact. The elimination of the low-volume Crossfire is not a surprise as it never developed the allegiance that they expected.

Many of the hourly job reductions are coming through the elimination of third-shift production at five plants. Three of the five plants affected by this action are the result of elimination of third shifts in Belvedere, Ill.; Toledo, Ohio, and Brampton, Ontario. The company is cutting second shift production at Sterling Heights, Mich. and Detroit, Mich. plants as well.

The cuts are being made in response to the drop in demand for Chrysler vehicles.

“We have to move now to adjust the way our company looks and acts to reflect a smaller market,” added Tom LaSorda, Chrysler vice chairman and president in a released statement. “That means a cost base that is right-sized and an appropriate level of plant utilization.”

Additional actions include reductions of salaried employment by 1,000 and supplemental (contract) employment by 37%. The company also plans to eliminate hourly and salaried overtime and reduce purchased services.

Chrysler voting portends tougher time at Ford

Chrysler’s rank-and-file are voting against the new contract just as often as they’re voting in favor of it through the weekend polling and the new deal may not get approval. This could make things more complicated with Ford negotiations.

If Chrysler employees vote the deal down, it will represent UAW President Ron Gettelfinger’s first significant setback during his tenure atop the UAW. The senior leadership is will lobby employees this week at the Sterling Heights, Mich. and Belvidere, Ill. plants to vote in favor of the deal and secure its overall approval.

Chrysler voting got off to a tough start last week when 80% of hourly employees at the St. Louis North truck plant voted against the contract. The result was a surprise because the plant had received one of the stronger future product guarantees in the new pact. Other plants that have voted against the contract, include: Detroit Axle in Warren, Mich.; St. Louis South in St. Louis and Newark, Del. The Newark plant is scheduled to close.
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Too many models

Chrysler and Cerberus couldn’t provide the UAW with specific product guarantees because they’ve figured out they have too many vehicles that do too little for sales and the bottom line.

The Auburn Hills, MI-based automaker is expected to cut at least five vehicles from its product lineup, including the much ballyhooed, but cannibalizing Jeep Commander. Did they really need another Grand Cherokee that, if possible, looks cheaper and is less comfortable? Clearly not.

Other models expected to get the boot include the Dodge Magnum wagon and PT Cruiser. Additionally, newly hired executive Jim Press, fresh from Toyota North America, sat in a Sebring and discovered in less than five seconds why Chrysler is having some problems: the interiors look cheap. So the automaker is also undertaking a review of its interiors and will made adjustments according, according to a published report.

Tweaking the interiors is just one of many changes Cerberus is going to be trying to affect over the next two years. Shutting down plants is likely next and in spite of the new contract being more favorable to the UAW than many expected, it does allow for the closure of some plants.

However, Chrysler is not the only one that should be and probably will be reviewing product lineups. Ford is still seeing Wall Street analysts call for the death of the Mercury brand. They cannot see the value in the mid-level product linuep. For example, a fully equipped Ford Fusion is just as appealing as the Mercury Milan. The only difference is the front fascia, rear fasica and the price. Ford CEO Alan Mulally has said in the past that every aspect of the company is being reviewed. If they’re willing to dismantle the Premier Automotive Group (Jaguar, Land Rover, Aston Martin and Volvo), cutting Mercury might not be as far fetched as some think.