Junk

[Rick Granick]

Just heard that S&P has lowered the credit ratings of both Ford and GM to "Junk" status. The reason for this action is that they had "lost confidence in the ability of management to meet the competitive challenges of the marketplace".
Hmm... sounds an awful lot like the big boys have been ignoring the sage advice of our own Bob Carter.
graemlins/kaffeetrinker_2.gif Rick

[Angie Pearson, CPF]

I have a friend who's an engineer at ford... he said it's really hard to compete with toyota right now... and he said because ford has been around for over 100 years, their bills are really stacking up; one reason being that they have years of retired employees who are still collecting benefits. Maybe they are cutting costs... I wonder what this means for them?... I don't want to see those companies go away.

[Framar]

One word: Hybrids!

[jframe]

I would like to know how Bob thinks their problems could have been prevented.

To me it seems like the obvious answer is to scale back on production but I'm no biz whiz.

I read earlier this year that GM and Ford would soon have problems like Delta and American Airlines.

It bothers me way too much when retirement plans are flushed down the toilet by executives who walk away with literally millions.

[Jana]

While Honda and Toyota were busy developing Hybrids, Ford and GM were busy producing SUVs.

This is a personal anecdote:

We have owned Fords and Chevys. With all the repairs they needed, they almost drove us to the poor house. In 2001 we bought our first Honda Accord and have never regreted it. It's the best car we've ever had, and it keeps going and going. It handles very nicely and is a delight to drive. Now we have two 2001 Accords.

Prior to buying the Honda, we looked at Buicks and Saturns. We are not car people, but we detected problems in all the vehicles we drove. (Honda isn't perfect either. We test drove some with problems.)

Honda Accords are made in Ohio. That did help us in making our decision. Mansfield has a big GM plant. I just wish they made a product we liked.

[Cliff Wilson]

Jana is closer to a "solution." -- Make products people want to buy.

Hybrids before the public is ready (and sorry, but we ain't there yet.) would only hasten their demise.

The pension problem is TRULY a PROBLEM. People are just living a lot longer than anyone thought they would and it wasn't planned for.

They must reduce expenses (sorry again, but this probably means pay and benifits.) and produce a product targeted at what the marketplace wants to buy. (Where have I heard that before Bob?)

[Pat Murphey]

I don't think that Bob's sage advice to his fellow Grumblers has addressed the issues that have led to the spectacular failure of our large corporations. I know exactly what the problem is and how it could have been avoided. I lived through it in my 37 years with TWA - an airline that went through 3 bankruptcies prior to being absorbed by American Airlines. As an Airline Pilot who served on the Union Governing body, Negotiating Committees, and as chairman of our Retirement and Insurance Committee, I watched all of this unfold.

It can be summed up as 50 years of tax policy and Corporate and Union greed. There also issues of aging infrastructure that aggravate the use of downsizing to profitability. The tax policy that came from the heyday of optimism in the 50's was to make fringe benefits deductible to corporations and tax Free or tax deferred to employees. The two biggest time bombs were free (to the employee) medical coverage and defined benefit retirement plans. they represent promises that these corporations can no longer economically fulfill as the percentage of retirees grows while active employees and revenue due to increased competition decreases.

Most of the problems could have been avoided with two simple changes. Medical benefits for retirees should have been pre-funded and limited to a bridge to Medicare - any Medicare supplement should be provided at group rates but funded by the retiree. Defined contribution retirement plans should have been the norm rather than the exception (with the caveat that the funds NOT be invested in the employer).

This all a simplification of many related issues, but represents the core of the problem. And it's not just these old corporations - the problem is far worse in local, state and federal government budgets. The difference is that they can just tax us to pay the bills.

At TWA we some of us fought bitterly to keep our defined contribution plan separate. Many Airline pilot groups succumbed to the temptation to roll theirs into big final average earnings defined benefit plans, a step that they surely regret today with the relatively small PBGC guarantees. My defined contribution plan present value is over 4 times as large (60% stock, 40% fixed income investments) as my defined benefit plan with comparable Company funding over much of my career - one reason that I so strongly support personal accounts on at least part of our younger citizen's Social Security.

Pat graemlins/kaffeetrinker_2.gif

[Jim Miller]

Originally posted by jframe:
...It bothers me way too much when retirement plans are flushed down the toilet by executives who walk away with literally millions. That kind of bother is popular, but I think misplaced.

Most of those retirement plans were doomed to bankruptcy from their beginnings. Like Social Security, they have always been huge pyramid schemes. They were easy to sell at the time, but forward thinkers knew of the dangers decades ago. Time and again, nothing is done to avoid the "train wreck".

Greed is a common trait. We all want more Social Security, even though we know it will eventually bankrupt our federal government. (Nobody disputes that; only the timing of it.) Likewise, workers want more retirement pay, and executives want bigger compensation packages.

Condemning executives for their pay is misplaced, I think. If they could get the job done, they'd be worth every penny. So, rather than say they're paid too much, I'd say they fell short of the expectations heaped upon them. And that leads us to the Boards of Directors who hired them irresponsibly, and then gave them impossible assignments.

Yes, company executives are partially to blame, but they follow the orders of their companies' directors. The directors are pandering to stockholders, who are constantly screaming for higher returns on their investments.

And, truth be told, some of the major stockholders accumulate much more money from these companies than the executives so easily condemned.

The "live for today" culture of American consumers, workers, and companies is the core problem, and blame for that may be placed equally in every direction.

This concludes my philosophical rant. Thank you for your patience.

[Bob Carter]

Trust me that no one in Detriot has called me and for the life of me, I can't imagine why they would.

But, my answer is exactly the same as Pat's

Right now, if you "spun off" the Benefits/Retireed Employees Division, it would be larger than any single division at GM.

Like Pat, I, too have a pension from a large corporation and those days are gone due to the prohibitive expense of those "entitled" benefits.

Had I been able to take those dollars and provide for myself, I assure the return would have beeb significantly better. And that company would not have the tremendous burden of administering that 800lb gorilla.

For me, this has nothing to do with product, marketing, corporate culture or any other villain we wish to attach.

[Rick Granick]

The expense analyses described here seem sound. The market-based reason I gave above was a direct quote from the business news report I heard regarding the debt classification, so I assume it was the opinion of the folks at Standard and Poors.
graemlins/kaffeetrinker_2.gif Rick

[Tom Houston]

Originally posted by Cliff Wilson:

Hybrids before the public is ready (and sorry, but we ain't there yet.) would only hasten their demise.

Interesting statement - here in our neck of the woods, they can't keep hybrids in stock because of the demand. There's a wait to get them. Not to say that pensions et al aren't part of the problem. But I think forward thinking could go a long way. BTW, we're currently leasing our Honda mini-van in hopes of a hybrid being available (either by Toyota or Honda) by the time the lease expires.

[David N Waldmann]

Hybrids are anticipated to have wrested 3% of the market by 2010. I'm sorry, but paying thousands extra for economy doesn't make any sense to me. There are some that will make an emotional or idealistic purchase, but most people that use an ROI approach will skip it.

One of the biggest problems with hybrids is that they are only effective if you have a lot of stop and go driving. In places where there is a lot of stop-n-go driving there is usually public transportation that is more energy efficient than hybrids. So the people that are true conservationists (not saving energy to save money, but to save the planet) will still use more efficient methods.

[McPhoto]

One of last Sunday's news programs had reported that on average, EACH vehicle that was mfg by GM had approximately $800 worth of steel and $1500 worth of medical benefits that added to to the cost of each vehicle!

[Cliff Wilson]

I believe people primarily buy vehicles for two reasons:

1) status
2) ROI (as David points out, hybrids ain't there yet.)

The hybrids are still attracting some looking for a particular kind of status, but not the kind that sells a majority of vehicles.

I think this draws an interesting parallel to custom framing. We need to understand what the customer is buying and why! Unless you are after a niche, and you KNOW it is of sufficient size in your market, you need to offer what your customer wants, not what you think they want or what you wish they wanted.

[Jerry Ervin]

Originally posted by Tom Houston:
- here in our neck of the woods, they can't keep hybrids in stock because of the demand. There's a wait to get them. If you really really want one, both the Honda and Toyota dealers here in Concord have them on the lot and ready to roll. They are not selling in our neck of the woods. You could fly out and drive it home.

You can buy a lot of gas for the thousands extra they charge for these vehicles. In fact, if you are looking at dollars spent, you can buy 2 Kias and have $5,0000 left over for gas.

The sticker on the Honda shows 35mpg city and 32mpg Hwy. My 1996 Cadillac Sedan De ville with 225 horse power V8 gets 32 Hwy. And, I could put the Honda in the trunk.

[Mike Labbe @ GTP]

Hybrids are already here and in high demand, mostly as a status symbol. Every brand is scrambling to get their hybrids to the market. They cost 2-4k more, but there's also a $2000 tax break incentive. Hybrids generally get twice the mileage and cut emissions in half. Many dealers have a waiting list of 6-12 months, because they cant make them fast enough.

There are 3 popular types of hybrid technology out there, which vary greatly. Toyota/Lexus is leading the pack in this area, and is providing (selling) its technology to other companies such as Porsche, Nissan, and Ford.

The Lexus RX400h hit showrooms 3 weeks ago, and are in extremely high demand. The electric motors drive the vehicle until it goes over a certain highway speed, when the gas engine comes on automatically. It has the power of a v8 (0-60 in 7 seconds) but has a v6, and never needs to be plugged in. The batteries are charged by captured braking energy. She gets just under 30mpg, and is the first luxury SUV to have this feature. They're rolling the same technology out soon in the Toyota Highlander (same drivetrain). This same engine is being considered for the Porsche Cayenne.

Not a complete list:
2005 Honda Accord Hybrid: 29(city)/37(hwy)
2005 Honda Civic: 48/47(auto) 46/51(std)
2005 Honda Insight: 57/56(auto) 61/66(std)
2005/2006 Ford Escape: 36/31 (Toyota technology)
2005 Toyota Prius: 60/51
2005 Chevy Silverado 18/21
2005 GMC Sierra 1500 18/21
2006 Lexus Rx400h (April 2005) 31/27
2006 Toyota Highlander (June 2005) 33/28
2006/2007 Mercury Mariner (Fall 2005) 33/29
2006/2007 Hyundai/Kia (Fall 2006)
2007 Nissan Altima (Toyota technology)
2007 Lexus GS-450h
2007 Mazda Tribute
2007 Chevy Tahoe, Yukon, Malibu
2008 Ford Fusion
2008 Mercury Milan
2008 Fuji/Subaru (Toyotas technology)
2008 Chevy Silverado, Sierra

While there's a lot more that can go wrong and you're relying heavily on computers, I think they have a bright future. Because of the lower emissions, it gives them a greater freedom - especially in places with strict controls (like California).

I seriously considered a Hybrid, but decided to wait a couple years because there are bound to be issues with new technology.

Does anyone here have a hybrid vehicle? What do you think?

[Rick Granick]

It's always the early adopters who pay the higher prices that allow a product to reach critical mass in the market and the prices to fall eventually as more demand allows greater economies of scale. Think of the folks who paid a couple of thousand (1950's) dollars for the early color TV sets. Or $100 for early handheld calculators you can get for under a dollar now as a checkout-line impulse item.
This morning's Wall Street Journal reported that demand for SUVs is off 40%.
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[Baer Charlton]

Originally posted by David N Waldmann:
Hybrids are anticipated to have wrested 3% of the market by 2010. I'm sorry, but paying thousands extra for economy doesn't make any sense to me. There are some that will make an emotional or idealistic purchase, but most people that use an ROI approach will skip it.

One of the biggest problems with hybrids is that they are only effective if you have a lot of stop and go driving. In places where there is a lot of stop-n-go driving there is usually public transportation that is more energy efficient than hybrids. Ho boy. Where to start. First, my 2003 Toy Prius flipped 42,000 miles yesterday. And I have yet to put one dollar into it beyond buying it.

Lets start with ROI. Cost $19,999.99 TOTAL. (no sales tax)

State tax credit $3,487.23
Fed tax credit $2,000.00
Fed Clean Fuel credit $2,000

Total $$ Returned to me$7,487.23

Milage for business (and this is my business car) 36.4 per mile ...2005 is 40 cents. . .

Now lets get back to the milage on open road vs. city stop and go.

Yesterday. Filled up tank in Eugene. Reset guages. Drove home to Portland averaging 70-72 mph....

AS I pulled into the driveway the meter was saying I averaged 56.4 miles per gallon.

Usually around town I average 43mpg. But lets go back to that stop and go grinding through gridlock creeping along traffic.... usually I can ease it up to about 90mpg. Because most of the time it's on electric.

As appossed to lets see a Tahoe @ 12mpg hiway, and 6 in city and if you happen to be pulling a ski boat...5, and in 4x4 pulling that boat up to Detroit lake, you can watch the needle move on that 40 gallon $100 tank of gas.

Oh, and last but not least. [b]ROI</> for those who have been doing the math...
The dealer is offering me a straight trade-in of 16,500 on my new 2006 in Sept.

I don't know, I guess if you're a taxi, your car can make you money... ROI.

I've never had a person ask me on a frame job: "What's my ROI"..... :D

[Kevin Colbert]

Pat and Jim,

Your commentary on the junk string was excellent! I just read it today and appreciate your insight and willingness to share.

"It can be summed up as 50 years of tax policy and Corporate and Union greed."

Isn't it a shame that we (people in general) can't live by some of the simplest things we learned in kindergarten like "there is no free lunch" and "no cutting in line" or “you reap what you sow”.

You are so right about the lack of foresight we have had for the past 50 years. And now it seems the biggest goal of our nation is to avoid paying the piper for the greed of the past (and present).

[Art On Canvas]

Jim..

"Like Social Security, they have always been huge pyramid schemes..."

Isn't Social Security insurance?

SS has been solvent and caring for our elderly for the past 70 years. The nonpartisan Congressional Budget Office predicts solvency until 2052.

I'm very distrustful of all the BS that politicions say who want to privatize Social Security.

[David N Waldmann]

Baer,

Tax credits are great, but as Kevin just reminded us, "there's no such thing as a free lunch".

Compare the 20,000 price tag to a 14,000 Corolla. Even at $3/gal, that leaves you money to buy an extra 2,000 gallons of gas (assuming you keep your money under your mattress). The difference between 40 and 51 MPG (the EPA ratings of those two cars), you'd could drive aproximately 370,000 miles in the Corolla before you ran out of your reserves. Of course, by then, you'd have bought new batteries for your Prius at an estimated $2-3000, maybe more than once by then. That is the ROI I'm talking about. And if you're really into saving money we could have used the Echo instead of the Corolla.

However, there is no "right" answer. That's the great thing about the USA - every individual can do whatever they want.

[MerpsMom]

Don, I don't think Social Security is insurance. You paid in through deductions and receive a prescribed dollar amount when you begin collecting. Problem is, there is no account somewhere with the money you paid in collecting interest for you...or anyone else. The money paid in now by current workers pays for the prescribed amounts being paid to the previous workers. That's what Jim meant by a pyramid scheme. Pretty quickly, we'll be upside down on what comes in vs. what goes out. It's not 2052.

The system isn't really solvent because it must rely on general treasury funds to pay the current beneficiaries because that's where your contributions go. The money paid in by us workers goes to general funds to pay for other items as well as Social Security checks.

SS needs an overhaul badly, but not quite as badly as does Medicare/Medicaid. The latter is in many minds a true timebomb. Congress as a whole should stop being afraid of a valid discussion of both entitlement programs. Studying the inevitable problems now surfacing at GM, Ford, UAL, Delta, etal should provide ample evidence that obligating the future to untenable promises regarding pensions and medical insurance can create financial hardships with few happy endings.

[Bob Carter]

Compare what city employees in Corpus Christi, Tx are receiving in "retirement" benefits under a "privatized" plan compared to general population of same age/earnings retirees in that city with Social Security

And, those city employees in the private plan have an asset that they may pass on to their heirs

[Baer Charlton]

David, Sorry that you missed the point.

By the time I had all the tax credits, the car cost me less than the comparable Echo ($13,495) Mean while the Echo has lost 20% of worth do to depreciation while the dealer is offering me a "great trade-in" at only 12% depreciation because he knows that he can resell it for $500 less than what I paid for it 3 years ago. (Or I can put it on ebay for the same as I paid for it 42,000 miles ago).

So mean while, my milage credits have made all my car, insurance, and gas payments to date.

So if I just do the trade-in... I'm still $7,000 ahead of having bought the car. So basically, with the same downpayment that we made 3 years ago, I will have reduced my car payment by $48/mo, and be driveing a 3 year newer $27,000 car that gets even better mileage, and is fully loaded.
Even at $4/gallon, is will still be making money.

There is NO OTHER kind of vehicle under $215,000 that can give you that kind of ROI.

Of course you can wait for GM or Ford to come out with a hydrogyn car.... :D

So when the last of the "clean" air is used up, what will the ROI be on an SUV?

[Tom Houston]

Originally posted by Cliff Wilson:
I think this draws an interesting parallel to custom framing. We need to understand what the customer is buying and why! Unless you are after a niche, and you KNOW it is of sufficient size in your market, you need to offer what your customer wants, not what you think they want or what you wish they wanted. Glad this has come back around to framing. I agree that while it is important to understand why the customer is buying what they are, I think it's our job to inform them as to what the possibilities are. Most customers really don't know what they want - or they want something because they have no other realm of experience. We spend alot of time educating our customers and showing them the various options available. As a result, we do alot of high-end work. Not exclusively, but a fair amount.
The analogy would be a customer walks into a grocery store and wants a loaf of bread. Once upon a time there was only white bread on the shelf, so that's what they chose. Then someone started carrying whole wheat; then black olive and rosemary. Pretty soon, there's a whole gourmet bread section.
I see that in framing. Lots of shops carry the tried and true excusively and assume that the customer doesn't want to pay for anything eles. So they never sell anything eles. You can't know if a niche market exists, nor the size of it unless you branch out and test the waters. For us it's about what we personally like and believe in. Because if the person at the front counter doesn't believe in a product, the consumer never will.

[David N Waldmann]

Originally posted by Baer Charlton:
David, Sorry that you missed the point.
I guess we have different points.

Mine was that even though you are getting the tax credits, I am paying for them, along with every other American individual and business. That's why I took them out in my calculations.

[ERIC]

Social Security - It's too bad that it doesn't the way that we have all been allowed to understand, or is that misunderstand.

Hybrid/Alternative fuel - The very best and most realistic application of this technology is not in the general population of drivers. Rather the future in in city buses, school buses, taxi, commuter shuttle, airports and college campuses. Anywhere that a defined user and route is in use. This will take 'the will of the people' to make leaders and decision makers act on this. I have to wonder which there are more of: SUV's or buses.

I heard that the original diesel-type engines were designed to run on vegatable oil. Did you hear that on NPR too?

[Jerry Ervin]

Originally posted by ERIC:
I heard that the original diesel-type engines were designed to run on vegetable oil. Did you hear that on NPR too? I did hear the piece on NPR. I also read in Scientific America about the new generation of diesels coming out. The blend of hybrid electric power and new generation diesel is the future some of the auto makers will be banking on. The Hydrogen powered vehicles GM is going after will be the ultimate 'clean' vehicle. The only emissions are Oxygen and water.

[Pat Murphey]

Yeah, the hydrogen vehicles are a great idea! It takes more fossil fuel to produce the hydrogen than the car would have burned. The same is true of pure electric cars and their chargers. I guess it would all be OK if the PC crowd would let us use nuclear or hydroelectric power.

Pat :D :D

[Mike Labbe @ GTP]

Uh oh smile.gif

http://money.cnn.com/2005/05/16/Autos/prius_computer/index.htm?cnn=yes

It gives computer crashing a new definition...

[Baer Charlton]

That is amazing Mike. Usually CNN is right on top of or and the leading edge of news. This computer glitch had a recall notice that went out last fall.

No, it has not killed any one. It's kind of like running out of gas....you pull over.

Actually Pat, it doesn't take ANY fossil fuels to produce hydrogen (unless you're friends of Shrub). VW in research with Seimans Solar have made solar powered mini-hydrogen plants that are about the size of a half city block, that also incorperates the fueling station. There are already 6 up and running in Germany, suppliing fuel for police and other regional services vehicles.

But for now, a hybrid is a better answer than an SUV.