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Firemen, The Big 3, and the Evil Banksters
Firemen have it, but the Big 3 auto companies don’t.
Firemen are well trained and highly motivated to come running towards dangerous and messy situations. Starting in 1955, 53 years ago, the Big 3 (GM, Ford, & Chrysler) saw the smoke, then the fires burning in their North American markets as Volkswagon first attacked, invading the Big 3's monopoly in the US car market.
The Big 3 ignored the early warning signs, then finally attacked the symptoms in a disorganized manner.
When someone is run over by a dump truck, giving them pain killers will treats the immediate symptoms of the victim, but does nothing to heal the patient, nor prevent similar accidents from occurring in the future.
While the Big 3 attacked the symptoms (the arrival of Volkswagon), for the most part the Big 3 ignored the problem (the Big 3's high costs, poor quality, “more of the same” designs, etc.) that allowed Volkswagon to be successful in the US. By 1965, there were 909 Volkswagon dealers in the US. By 1970, Volkswagon had captured 7% of the US market with the sale of 570,000 Volkswagons that year.
What Volkswagon had proved possible, Toyota quickly learned and improved upon. The Japanese had a long history of learning from the best, rapidly copying, and further improving. For example, Henry Ford’s 1922 book “My Life and Work” was a best seller in Japan. Starting in 1957, Toyota went after the American auto market.
The Big 3 had two invasion forces attacking them, one on the East coast (Volkswagon), one on the West (Toyota); a war on two fronts. Napoleon and Hitler both found themselves in a war on two fronts simultaneously, and they both lost. Can we expect any different for the Big 3?
Finally, in the late 70's, the Big 3 sought the help of Dr. Edwards W. Deming, an American quality and management expert who was invited to Japan by US General McArthur to help the Japanese rebuild their industries after WWII. It is ironic that the US automotive industry and others had previously experimented with, benefited from, then lost interest in Dr. Deming’s techniques for quality, customer satisfaction, and profitability improvement. The Japanese however, were eager students who had the self-discipline to adopt the US knowledge as a consistent way of life. In 1952, Deming predicted the Japanese would be excellent manufacturers and formidable competitors. Everybody but Deming and the Japanese laughed. The Japanese worked that much harder.
It must have been quite unsettling that just 10 years after the USA had defeated Germany and Japan, these countries and their auto sector had the nerve to attack the mighty USA in their very homeland, not with gun and bullet, but with cars and trucks. While the first launches of Volkswagon and Toyota were disasters, these foreign invaders never gave up. They never stopped learning. They never stopped improving. Eventually foreign-designed and built cars and trucks captured the allegiance of the American people. The former enemies had learned their lessons well. They were better opponents than the US auto industry were prepared to defend against.
When the Arab Oil Embargo hit in 1973, Toyota and Volkswagon had the small, fuel efficient cars to grab even more market share. The Big 3 were caught flat footed and off balance. Rushing to respond, GM created the Corvair; a total disaster that gave Ralph Nader an easy target, and a life-long career in consumer advocacy.
As a prime example, in 1962 GM built a new assembly plant in Fremont California. It became the epicentre of poor quality, lousy productivity, labour unrest, and almost every other negativity in the auto industry.
By the late 70's, the Big 3 finally admitted they had a problem, a big problem. NBC did a documentary, “If Japan Can, Why Can’t We”. In 1979, Chrysler was on the verge of bankruptcy, and was subsequently bailed out by the US government. After years of mis-management, in 1982 GM shut down its Fremont California assembly plant, as it was a total disaster not worth saving. We’ll come back to this example again a little later.
Finally, the Big 3 re-traced their steps, and again sought the help of Dr. Deming, an American whose techniques they abandoned 20 years before.
Unfortunately, the Big 3 only became serious about change when they had few remaining choices. Like dinosaurs fleeing from advancing glaciers and dwindling food supplies, they seemed helpless at controlling their own destiny. The Big 3 have made numerous attempts to change, and learn from their foreign competitors.
In 1982 GM, the UAW union, and Toyota signed an agreement to re-open GM’s Fremont California plant as a joint venture between GM and Toyota. GM wanted to learn about the Toyota Production System (later called Lean Manufacturing). Toyota wanted a quick entry into the US market without all-out war against the Big 3. The UAW union wanted the jobs back for their members. It seemed like a Win-Win-Win solution to everybody’s immediate needs.
GM’s worst-of-the-worst assembly plant in Fremont California that GM had previously abandoned was re-opened as NUMMI, a joint venture between GM and Toyota. Most of the same people were re-hired, but this time, Toyota was responsible for the daily management of the plant. Toyota brought their management philosophies and manufacturing techniques such as Lean Manufacturing to this previously disastrous California plant. Within a few years, this California plant had gone from the worst under GM’s management, to one of the best assembly plants in N. America under Toyota’s management. In some key areas, this California plant was better than the best 100%- Toyota’s assembly plants in Japan.
Again, it is ironic that Toyota’s secret weapons, such as Lean Manufacturing and their management philosophies, were mostly inspired by Henry Ford’s book and other US experts such as Deming, Juran, Taylor, and T.P. Wright. As Jesus said, a prophet is recognized by all except by those in the prophet’s home village.
Today, Toyota has 15% market share with the sale of 2.5 million cars and trucks. In the US, Toyota is bigger than Chrysler, and has about the same market share as the once mighty GM.
So where is the root cause of the Big 3's problems? Note that it isn’t everybody in the auto industry who is seeking a bailout. There are 12 international car companies in the US, employing 113,000 people. The Big 3 (now called the Detroit 3 after losing so much market share) employ 239,000 people. None of these 12 international auto manufacturers seek (nor need) government bailouts. Just the Detroit 3 have their hands out, desperately seeking help.
The Detroit 3 carry a lot of baggage from their past sins and mistakes. We often hear that the average wage for the Detroit 3 is $75/hr. That seems like a lot, but contains huge pension and benefits costs of retirees from decades before. On average there are 3.2 retired employees receiving benefits for every Detroit 3 worker who is employed today. Those cost of those 775,000 pensioners are carried on the shoulders of the 239,000 employees of today. This is equivalent to $800 extra cost per car sold by the Detroit 3. Significant, but not deadly. Many of the Detroit 3's models are priced cheaper than their foreign competitors, but still don’t sell.
It isn’t the workers. NUMMI’s success under Toyota was achieved using the same plant and the same workers as GM’s former disaster. This should prove the point that the workers should not be used as the scapegoats.
It isn’t the technology. The Detroit 3 now have robots, Lean Manufacturing, Six Sigma, TQM and all the other tools that their foreign competitors have freely and openly shared with their US competitors.
Is it the unions? For the most part, unions and their militancy, as well as their strength, are a reaction to poor management. The Detroit 3 historically caused and perpetuated an adversarial relationship with the unions. NUMMI, the re-born assembly plant in California, proved this doesn’t have to be so. I therefore conclude that the UAW, CAW, and other unions are no more than a distracting and costly symptom created by the root cause of the problem.
Unfortunately, I must conclude it is the Detroit 3's management. For more than 50 years, through one crisis after another, the Detroit 3's management has chosen to protect their entitlements, run away from problems, blink at the moment of truth, and more than anything else, expect that everybody else suffer the pain of change while their lives have minimal disturbance.
To truly solve the Detroit 3's problems will require a coup d’etat, lopping off most of the management from these sick and dying corporations currently bedridden in the financial intensive care ward.
True, the Detroit 3 have made some changes and good decisions, but not as many as they could and should have. Too often, those critical decisions were a day late and a dollar short. It is also true that there are thousands of excellent management and leaders in the Detroit 3. Unfortunately, the system in which they have to work, the Detroit 3's bureaucracy, holds them back.
The incompetent bosses (all the way up to the Board of Directors of the Detroit 3, inclusive) send these top performers on distracting missions or snubbed their authority so they don’t rock the boat too much. Their incompetent co-workers sabotage the efforts of these excellent workers, waste the profits and goodwill they worked so hard to create, then drag their heals, resist, and distract from accomplishing the necessary changes. The internal rot is deep, chronic, and deadly; just like the rust under the paint of their previous rust-bucket cars.
Will the Detroit 3 change their ways now?
Obviously, some of the best managers and leaders at the Detroit 3 will change. A brush with death has a tendency to focus your attention and re-align your priorities. None came closer to death than Chrysler in 1979. Chrysler made dramatic changes that saved their company’s life, but here they are, just 29 years later, as bad or worse than before. Did they learn their lessons well enough? What can we expect from Chrysler this time? Will GM be any better the first time they are spared from the financial guillotine?
If someone robs a bank, is caught, convicted, sent to jail, and then lives the life of a model citizen after release from jail, we have a success. But what should the courts do if 29 years later, that same felon robs another bank? Should the courts be more harsh, or more lenient due to the 29 year hiatus? Should there be a “three strikes, you’re out” rule for the Detroit 3, just as in the US criminal law?
Unfortunately, there are bigger issues and consequences than just the fate of the Detroit 3. The Detroit 3 are linked into the trigger mechanism of the world’s largest financial bomb, rated at $600 trillion or more, that today, is armed and ready to explode, at any moment.
The financial bomb is composed of an intricate web of alphabet soup created by the banks and their allies: CDO (Collateralized Debt Obligations), CDS (Credit Default Swap), SIV (Special Investment Vehicle), SPV (Special Purpose Vehicle), and many more; all of which are parts of the Financial Derivatives market.
There are many good bankers and bank employees. However, there are bad apples in every barrel, who will rot out the entire good barrel of apples if they aren’t removed quickly enough. Unfortunately, the bad bankers, whom I shall call “banksters” (rhymes with gangsters) and their lobbyists had the laws and bank regulations changed so they could legally (if not morally), carry out their evil plot with the creation, selling, and trading of Financial Derivatives.
The financial bond rating companies (S&P, Moody’s, DBRS, etc.) were supposed to be our Customs & Immigration officers at the border, our first line for defence from the importation of dangerous goods, such as financial bombs. By incompetency or bribes from the banksters, these financial bond rating companies not only didn’t sound the alarms, they wrapped the bomb in beautiful gift wrapping paper so everyone welcomed this impressive Christmas present when it was delivered to their door, placing the nicely wrapped bomb in a place of honour under the Christmas tree in their living room. From time to time, a few people asked what that ticking sound was, but never discovered the source until very recently.
These Financial Derivatives offered highly-rated, investment-grade, fixed-interest products paying a 1 or 3 per cent premium over similarly rated investments. If a prospective investor read the fine print, they would have learned that they would lose some or all of their money if seven, eight or nine of a long list of apparently strong global corporations went broke. Even if they read the “War and Peace” length of fine print, a few years ago, the simultaneous bankruptcy of more than 9 of the very best US corporations was seen as impossible. Guess what? The impossible is close to happening.
Almost all of the synthetic CDO investments reference lists include AIG (American Insurance Group), Ambac, Bear Stearns, Chrysler, Countrywide Financial, Countrywide Home Loans, Fannie Mae, Ford, Freddie Mac, General Motors, the three Icelandic banks, Lehman Brothers, MBIA, PMI, and many of the big name US home builders. Do any of these names seem ominously familiar from the recent financial headlines?
If you haven’t been following the financial news, the above CDO reference list looks like the “hit list” of a financial mass murderer; the dead corporate bodies and blood are strewn everywhere. Adding GM, Chrysler, and Ford to the victims may be enough weight on the bomb’s trigger mechanism to set off this $600 trillion financial bomb.
Trillion is a big number. How big is it? If you take all the grains of sand on all the beaches of the world, it would only be 1000 times bigger than $600 trillion. That’s a lot of sand, and a lot of money. It’s the GDP for the entire planet for more than 10 years.
For the vast majority of the public who never realized what was going on until too late (myself included), let’s review how the banksters’ scam works:
1. There is an innocent, respected, trusted and trusting investor (eg. a hospital endowment fund, a University, an orphanage, a pension fund, etc.) whom we will call the “Widows & Orphan’s Fund” for this example.
2. The Widows & Orphan’s Fund hears about (or is told about by their friendly neighbourhood bankster or accomplice) a high grade, guaranteed investment that pays 2 to 3 % more interest than the bankster’s other traditional offerings.
3. The bankster sponsors the incorporation of an off-shore SPV, created for the Widows & Orphan’s Fund. The Widows & Orphan’s Fund invests all its savings, totalling $1 million dollars, into the SPV, trusting the bankster, not realizing they have been duped into the bankster’s evil scheme.
4. Using the Widows & Orphan’s Fund money, the SPV buys $1M in US Treasury bills, and using those $1M in Treasuries as collateral, sells credit protection (CDS, etc.) to the bankster, and the bankster’s mob of accomplices. The SPV pays the Widows & Orphan’s Fund income from the Treasury bond coupons and CDS premiums; an income that is 2% to 3% better than the safe US Treasury Bonds and GIC’s the Widows & Orphan’s Fund had always bought previously.
5. The Detroit 3 (and others like them) default or go bankrupt on their own, or are set up, or assassinated by the banksters and his accomplices.
6. Under the terms of the SPV, when enough of the listed entities go bankrupt or default, the banksters get to take possession of the $1M in Treasury bonds previously held by the SPV; free and clear.
7. The Widows & Orphans Fund loses their $1M to the bankster. The bankster go looking for their next victim.
8. The Widows & Orphan’s Fund stands there with their mouth hanging open, wondering what happened, embarrassed at having been duped out of their life savings. The banksters insist it was all done legally, and that the Widows & Orphans Fund had financial advisors, lawyers, and accountants recommending the deal to them.
Years later, we finally learn what the banksters were really up to. It seems the evil bankers who created the synthetic CDOs knew exactly what they were doing. These Derivative investments were created out of thin air, designed to give the bankers and their goon squads of Derivatives sales people huge sales commissions in the short term, pushing the risk onto everybody else, and setting everybody up for the big fall (all except the bankster and his friends) when the CDS/CDO financial bomb goes off.
Derivatives were specifically designed to protect the banks against the default of the most leveraged (and therefore the most risky) companies in the world. The banks knew better than anyone else who these highly leveraged corporations were, with the greatest financial risk. They took advantage of this inside information. They were no match for their unsuspecting and trusting client dupes.
If that financial bomb goes off, it will probably take more than 10 years to recover from the financial consequences. Japan is still trying to recover from a much smaller financial bubble collapse. Japan had the collapse of an innocent looking financial bubble,1990 to present, 18 years and running. In this case, we are talking about a powerful financial bomb.
It appears that the US Congress, most financial institutions, and the media are not supporting the Detroit 3 bailout. It’s interesting that the banksters, their lobbyists, and their friends were sure insistent and supportive about bailing out the banks and Wall Street. Interesting, isn’t it!
After the failure of Citigroup and its rescue by the US government, we now see Citigroup taking many of these Derivatives back onto its balance sheet. These Derivatives were part of the “toxic debts” that they had to be previously rescued from by US government bailout. Why does Citigroup and many other banksters want to invest into “toxic debt” now?
Is it possible the banksters intend to cash in on the Derivatives’ windfall profits when too many reference entities default. This means they profit from the creation of the financial bomb, then profit when the bomb they built explodes.
The assassination of Chrysler, Ford, and GM (as well as other weak corporations on this financial hit list), will step-by-step move the banksters closer to cashing in on the $600 trillion financial bomb they have hidden in our very midst. And we thought Al Qaeda was devious in their 9/11 attack on innocent citizens?
Traditionally, banks wanted to see success by those they lent money to. In this case, do the Detroit 3's bankers want them to fail so the banksters collect on the Detroit 3's life insurance policy?
When somebody dies, and foul play is suspected, the cops always check to see if there were any life insurance policies. If suspiciously large amounts of life insurance were purchased recently, the cops investigate the beneficiaries and their involvement in the death.
Is Congress, the SEC, the FBI, Bank Inspectors, the US Treasury (somebody?, anybody!) motivated to investigate these suspicious events by the banksters? Will they de-fuse the $600 trillion financial bomb before it goes off?
In the interim, in spite of the management incompetency by the Detroit 3 and many others in the automotive industry, they should be bailed out immediately, even if it’s only to thwart the banksters’ evil plan.
It will be far cheaper to pay $25 billion every quarter to the Detroit 3, and keep the 239,000 Detroit 3 employees working and earning $22.2 billion/yr in wages, keep the $156 billion/yr purchases of N. American auto parts flowing, and help the 4.5 million other N. American workers who support the Detroit 3's business indirectly (dealers, suppliers, delivery, etc.).
It is far better to keep this incompetent management and dysfunctional industry on life support than to suffer the direct losses created by their bankruptcy. As long as they are on life support, we can choose to harvest their precious organs at some point down the road. Rotting corpses stink, make a bloody mess, and are a liability that has to be quickly buried. It’s not an asset until well composted and useable as fertilizer, which is a long way off in the future.
If the bankster’s financial bomb goes off, everybody risks losing everything.
Hold your nose, and support the bailing out the Detroit 3.
Let’s focus our efforts and attention on helping the Detroit 3, de-fusing the ticking financial bomb, and bringing the evil banksters to justice.
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