Mustang Parts
   Carrying Saleen wheels and Bullitt wheels.

Monday, May 16, 2005

Forbes: Big 2 Underrated

Steve Forbes, in the May 23rd issue of his magazine, writes that Ford and GM are underrated, financially. He argues that better products are coming, and that the balance sheets are not bad.

The woes of the U.S. automotive industry have been well covered by the media. The problems are all too real, but the negativity has been overdone.
Ford Motor Co.'s common stock and its income securities have been way overhammered by the fallout from General Motors' well-publicized woes. If Ford is an example of a large, sick company, may there be more of them. Ford will make money this year. More important, its cash flow is positive. That is something to emphasize: Ford will take in more cash than it spends--this in a year that'll be pretty tough for auto manufacturers. The company already sits atop more than $23 billion in cash--that's more than $12 a share. Debt? The obligations of Ford's financial arm are well covered by the stream of payments from auto buyers. The automotive part of the company has debt of $17 billion, and maturities are prudently stretched out for years to come.

Make no mistake, under Bill Ford's leadership future designs of Ford vehicles will be exciting, cutting-edge, à la the brisk-selling Mustang and the GT sports car.
General Motors? If management does for the rest of GM what it did for once-tired Cadillac, then GM is in for sunnier days.

So far, I am with him. The media, and certain web pundits, hammer on F and GM incessantly, as if they are stuck in a loop. It is nearly obsessive-compulsive, the frequency of criticism from all directions. Enough to make a guy like Bob Lutz lash out at the media.

However, when Forbes gets to the practical advice on how to handle the huge cost disadvantage of the American automakers, he loses his marbles, a little.

What about Detroit's onerous health care and pension obligations? The answer is for unionized workers to switch over to Health Savings Accounts (HSAs). They'd still enjoy catastrophic coverage, and much of their high deductibles would be covered by cash payments to their individual tax-free accounts. Auto manufacturers would save a bundle on healthcare premiums, and most workers would see HSAs as a positive step up from their current plans: If a worker is blessed with good health, he would build up a nice pile of cash that belonged to him. A variation on HSAs could be offered to retired workers.

The United Auto Workers will fiercely resist such a change--initially. There may even be labor strife before the union accedes. But leaders and members know in their gut that the current situation is untenable. With an HSA-type solution they'd get as much of a win/win situation as is possible under the circumstances.

As for pensions, a bit of improvement in the financial markets will provide enormous relief. Longer term--after the introduction of HSAs--the next battle will be to get 401(k)-like plans for new unionized factory workers.
I have a great deal of respect for Steve Forbes, however, I think he must have been drinking Michael Jackson's cool-aid. HSAs? Personal retirement accounts? For the UAW?!?

The UAW will never agree to HSAs. They would have to turn their backs on decades of labor paternalism. The union promise to their people is this: "join our union, keep us in power, pay your dues, and we'll make sure you are taken care of". HSAs would no doubt work, by causing people to consume less healthcare, since some of the cost will come directly out of their accounts. However, in an HSA, the user has to manage the billing himself, even negotiating prices with doctors. I just don't see the UAW going for it--and I don't blame them.

A 401(k) like retirement account for auto workers is a little more likely, but they probably won't offer much choice for the worker. From the UAW web site:

The UAW believes that 401(k) plans can provide a valuable supplement to defined benefit plans. But, as vividly demonstrated by the Enron and WorldCom debacles, these plans provide less retirement security for working families. Workers are not guaranteed any specific benefits under 401(k) plans. Instead, the benefits are subject to the risks of stock market fluctuations and may turn out to be illusory. Significantly, the PBGC does not guarantee benefits under 401(k) plans.

To prevent a recurrence of the Enron and WorldCom abuses, the UAW believes there is a need for reforms... to ensure that there is prudent diversification of plan investments by participants in 401(k) plans.

And even if the UAW agreed to change to individual retirement accounts instead of a traditional pension plan, the companies would still have to keep paying existing retirees. There is no way around the problems of a shrinking company.


Anonymous said...

If GM does for the rest of its divisions what it did for Cadillac, it will have 9 great brands...all competing against EACH OTHER and cannibalizing each other's sales.

Memo: GM can't AFFORD to make NINE DIFFERENT BRANDS competitive in the first place, and even if it does the end result is cannibalization of its own sales, like a snake eating its tail.

The Auto Prophet said...

You are right, GM doesn't have the cash to completely re-build all of its brands.

What it needs to do is build some exciting cars off of a few common high quality platforms. Get the styling and interior right.

NextGenAuto said...

If you're talking about product, both of the Big 2 need to step up on the quality image.

If you're talking about the financial end, Ford has the most potential out of the two of them and their stock tends to be a bargain. Of course, the risk is if they fall on hard times they'll be in trouble. But they're are some healthcare/labor costs that will eat both companies alive. Unions should be partners in the success of the companies because ultimately if you have a paying job you will be ok. This union nit-picking over benefits/pay can drive companies into the ground... Both sides, union and management, must be open and honest and be will to make concessions to keep a company in the black and keep it on a path to success.

The Angry Engineer said...

Ford's short-term financials do indeed look better. However, if I'm not mistaken, they still carry just a bit more bond debt than GM, they've got less gross revenue, and their market share is dropping even faster. I'd be reluctant to say that one company has better long-term financials than the other - they're both quite horrid in my opinion.

With regards to the UAW, they said it all when GM asked for concessions on health care - the union doesn't believe that the situation is "dire enough" to justify re-opening the contract. Now, by the time that '07 rolls around, I'm sure the situation will indeed be dire enough to catch even the UAW's attention. In the meantime, the rank-and-file might want to spend a few minutes investigating what happened to steelworkers, and maybe think of ways to avoid that fate (hint: the solution doesn't lie with inaction).

HSAs don't come to the aid of GM's bottom line for another decade or more - the same for 401(k) accounts. That's approximately 9 years too late.

Besides, health care for currently-employeed workers only represents 25% or so of GM's total health-care costs ($1.5B or so), so a re-negotiation isn't likely to even shave a billion dollars off GM's yearly costs. In other words, it's only a couple of drops in the bucket, especially compared to the $16B in debt that comes due this year for GM.

I don't think that Forbes has ever been quite right since that whole incident on SNL with Rage Against The Machine. He should go back to shilling for the flat tax and leave the messy work for others.

What next - advice for the Big 2 from Donald Trump? After all, that jackass is quite an expert at bankruptcy.

Anonymous said...

Backend Cash Manuscript Revealed Before you buy Backend Cash Manuscript, learn the truth. Everyone else is saying how great the product is, but how many of them actually bought it? Well I have, and I have used it. This E-book is being highly touted by alot of the "Gurus', but does it really deliver? Will it work for the regular little guy? Read my Free report "Backend Cash Manuscript Revealed" befor you buy. Don't be suckered in by all the hype. TheCrazyAffiliate reveals all. Backend Cash Manuscript Revealed

Anonymous said...

The Internet Marketing Genius, Carael Knight The source for information on internet classified advertising and the cheapest advertising method to boost "ANY" business online or off! Think targeted classified ads. Make Money Online using unique state-of-the-art classified advertising strategies.............................

Anonymous said...

"TOP Rated" Money Making Program Online The source for information on internet classified advertising and the cheapest advertising method to boost "ANY" business online or off! Think targeted classified ads. Make Money Online using the most profitable state-of-the-art business classified advertising strategies. Profitable Home Based Business

Anonymous said...

"Slaving For Peanuts-vs-Graving For Walnuts"

Let me tell you a story about me..............................Carael Knight
(TRUE STORY........)

When I first started building my company, MajorEnterprise,
I had started at the bottom. For years, I had worked SO hard "busing-my-hump" for a worthless salary. I mean
No Benefits At All........................................What kind of stability is this? And now, that I look back, the only thing
that comes to mind is, "Man, I worked for some complete "Dummy's" (a.k.a "Bosses.").

The majority of "J-O-B-S" that I have ever worked, I been fired from. I have never been really good at
working for somebody else. I guess one of the main reasons would be that they knew I was humble. Or maybe they
feared me being so intelligent that I would possibly take over the company or something.

They would say stuff to me like "your not being productive enough" or "we need
to talk about your work ethics". It had been times where I wanted to literally laugh in there face! Why? Well, one reason
would be...........................................

1. I have been commented on my "work performance" so much that it would feel strange NOT to be questioned about my work ethic.

2. What benefit will it be to me if I worked "twice as hard" and doubling my workload for still the same pay rate???

3. If I was to get a raise on a "J-O-B", it wouldn't be much because most "J-O-B-S" only give a person cents on the dollar.

4. In life, if I work hard at something, I would rather "bust-my-hump" doing something I love to do rather than wasting my time doing something to make another man richer!

A lot of people won't tell you these things because there "scared" that they may get laid off or have someone think
differently about them. But as for me, I'm my own individual. I'm taking the gloves off! I'm taking a stand to let any individual that feels
like there isn't hope, know that if I can be successful, so can you! Hear my clear, "The only way to truly be happy in life and be successful
is to do what interest you"! Find your niche. Get out and explore new things and opportunites. Find something that you love to do and pursue it.
"NEVER, EVER, EVER, GIVE UP". This is one of the formulas of success! I've always looked at things in clear view in terms of business and personal


The road was never easy for me but if there are people out there that have overcame hardships ten times as worst as mine, then this should be
a piece of cake for me! That's how I've always looked at it. This is the game of life. Just because a person starts ahead in the race doesn't mean that he
will always finish first. Statistics show that just about every person who is "self made" had to start from the "bottom of the barrel" and "work there way up the ladder". You can too. Being successful and become a shining star in life is not going to be easy "BUT" it isn't impossible either......................................

This has been my true story that I felt I should share with the world..........................................................................

"A Person Never Understands The Sun, Until They've Came Through Rain"........................................Carael Knight

For More About Me And My Company, Visit:


Anonymous said...

The Internet Marketing Genius, Carael Knight

Information powers our world. The more information you have, the more money you make. It used to be you had to go to an expensive business school or spend years becoming a doctor or lawyer to have valuable information people would pay big money for.

Not anymore. Today ANYONE can use FREE classified ads to sell information demanded daily by MILLIONS of people. Think about it. These days when somebody wants to know how to do something, they GO ONLINE and look for INFORMATION to tell them how to do it.

My name is Carael Knight. I started Major Enterprise about seven years ago with a vision and a plan.

The vision was to show people how to start, run, and operate their own profitable online business. Now that led me to create the plan, which was the process of carrying out the vision!

Click Here for more information:

The Internet Marketing Genius, Carael Knight

Anonymous said...

Nice Blog. I will keep reading. Please take the time and visit my blog about: Internet Marketing and Making Money Online


Anonymous said...

Warning! Do not begin a diet before you read the following information. To learn more please visit Weight Loss

Anonymous said...

There is alot of debate whether you can Make Easy Money Online and with so many scams out there it is bound to be a little bit dishearting!

So are there any legit ways to Make Easy Money Online?

Well, Yes you will be glad to know there are legit ways to Make Easy Money Online the only thing is all of them require hard work!

I know there are websites out there that claim you can become a millionaire overnight but if you think about it this is just not plausible!

That said with a bit of work on your part you will be suprised how easy it is to Make Easy Money Online and you should start off by searchnig for more info on Google and maybe join a few groups with like minded people!

If you really want to know how to Make Easy Money Online I would suggest investing in this manual, but only if you are serious as they will give you the keys to the door but you must open it so to speak!

One guide I would recommend that was created by an internet marketing genius, Carael Knight that made it big is called "How To Get Rich Selling Information Through Classified Ads"!

For more info on MajorEnteprise and how you can start to Make Easy Money Online, click the link below:

Make Easy Money Online

Anonymous said...

Nice blog. I will keep reading. Please take the time to visit my blog about loss weight diet