Sen. Bingaman: Taxpayers should own Chrysler, not Fiat

The American taxpayers already loaned Chrysler $4 billion. The Auburn Hills automaker has their hand out for $3 billion more and what do the taxpayers get? A full page ad thanking them and a bunch of IOUs. Meanwhile Fiat picks up a third of Chrysler from Cerberus for little more than blue sky and a business plan. Political and economic ideologies aside, it doesn't seem fair.

Sen. Jeff Bingaman, D-NM, agrees.

During the confirmation hearings for President Obama's nominee for Secretary of the Treasury, Timothy Geithner, Sen. Bingaman asked him about Fiat's acquisition of 35% of Chrysler for no cash while the government has already loaned Chrysler $4 billion and is being asked for another $3 billion. Bingaman raised a question many people have asked about the automaker loans, "It's hard to explain why the American taxpayer shouldn't own Chrysler." He has a point. I'm certainly not in favor of nationalizing businesses, but if the equity value of Chrysler is so low that they can trade away a third of it for a strategic partnership and no cash, the taxpayers should be getting something more than just an IOU. At least when Daimler bought Chrysler, they didn't ask US taxpayers to finance the deal.

On paper, it makes sense for all parties involved. Chrysler gets new product and stays in business. Cerberus offloads 35% of a headache. Fiat gets access to the US market.

Fiat will back out of the deal if the additional $3 billion isn't forthcoming, and if Fiat isn't anteing up any cash, somebody's got to pay for adapting the Fiat platforms etc for the US and retooling the plants. That's where Uncle Sugar comes in. Cerberus, Chrysler and Fiat are hoping that the business sense of the deal is compelling enough to obscure what is happening here - that US taxpayers are financing the deal. From Sen. Bingaman's comments that hope might have been misplaced.

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Geithner: Comprehensive Restructuring, Substantial Change in DetroitGettlefinger: Define Restructuring

UAW president Ron Gettlefinger was "out of pocket" yesterday. He flew back to Detroit yesterday from President Obama's inauguration, and when he got home he did what most Detroiters have been doing for the past month. No, he didn't check the Internet or cable news for the latest bad tidings about the auto industry. He shoveled some snow. This winter of discontent in Detroit has been a very snowy one. After clearing out his driveway the head of the UAW drove downtown to speak to the Automotive News World Congress at the RenCen Marriott. So when Mr. Gettlefinger addressed the AN shindig last night, he hadn't heard Treasury Secretary designate Timothy Geithner remarks in his confirmation hearings in the Senate yesterday afternoon.

Geithner said that any further financial aid to the domestic automakers is contingent on major changes.

"Any assistance the government provides is assistance in support of a comprehensive restructuring that will leave the industry in a stronger financial position where they can be profitable and healthy without government support… That's going to require very, very substantial changes by all stakeholders."

"Comprehensive restructuring", and "very, very substantial changes" might scare a union official of fainter heart but regardless of what Geithner said, Gettlefinger is hoping that with Democrats in control of Washington, the "stakeholders" that he represents won't have to take "too big of a hit."

In his remarks to the AN world congress, Gettlefinger said, "We know that additional sacrifices may be required to get these companies back on track. But all stakeholders will have to participate. Any attempt to single out one group to bear the brunt of the changes needed within our industry will fail, because no one group can solve the problem alone."

One of the things that hurt the Detroit automakers during the congressional hearings in November and December was the fact that the UAW gives millions of dollars in campaign funding and political assistance to Democrats. The UAW's chickens came home to roost when the Senate Republicans had the power to kill the congressional loan package. Gettlefinger didn't get to be president of the UAW by being a bad negotiator. Now he's expecting that the UAW's money was well spent and business as usual in Washington will spare his members from major concessions, no matter what Geithner said on Capital Hill.

During his address Gettlefinger said that "UAW members are optimistic about working with the new congress." I don't want to say that the fix is in, and I'm not sure if the Vegas books will take any action on legislative activity, but if I was a betting man…

After the speech, a reporter from Detroit's WDIV TV news asked the UAW chief about Geithner's remarks calling for change and restructuring. The Obama nominee has worked for Treasury or the Fed for most of his adult life, so he's no naif in the ways of Washington, but Gettlefinger is going to school him on the way things really work in the nation's capital.

Regarding "restructuring", Gettlefinger said, "I'm not sure exactly what that means at this point in time, and I didn't hear it… I missed out on the hearings today but again a lot of times people make statements and then when they look at the facts it's a lot different."

Gettlefinger no doubt figures that Obama is in charge, not his Treasury secretary, and that the newly sworn in president and a Democratic Congress will by sympathetic to the UAW. Concerning Obama, the UAW president said, "He knows and we know that a strong manufacturing base, including a strong domestic auto industry, are vital to the future of the U.S. economy."

From what chairman of the House finance committee Rep. Barney Frank, D-MA, said, Gettlefinger is right. Frank, who has been a vocal critic of the concessions demanded of the UAW in the Bush administration's loan package, was speaking on the occasion of a largely symbolic House vote reaffirming the loan conditions. Frank said, "I'm sure Obama will change those."

Regarding those conditions, the deadline for GM, Chrysler, their creditors and the UAW to come up with a plan that Congress will consider viable is February 17th. Theoretically, if the benchmarks aren't met the government will pull the loans already granted, which would mean immediate bankruptcy.

When asked if the details can be hammered out in less than a month, Gettlefinger said, "I think we can be ready… it's going to be a push on the time." Like I said, Ron's a great negotiator. He had a failsafe loan from President Bush in his back pocket when playing hardball with Senators Corker and Shelby. He now knows that he can dig his heels in negotiating with GM & Chrysler between now and Feb. 17th and a Democratic congress and President Obama will back him up.

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2009 NAIAS: There Ain't No Such Thing As A Free Lunch

Chrysler has made a tradition out of showy product introductions at the NAIAS in Detroit. They've driven a Jeep through a glass wall at Cobo Hall and a herd of longhorn cattle down Washington Blvd. Getting the attention of 6000 jaded journalists takes some creativity, and free food, and good booze, and eBayable swag. There's a "new reality" in Detroit these days, though. That's how Rick Deneau, director of Product, Brand and Sales Communications for Chrysler put it in a post on the Auburn Hills automaker's Firehouse media blog.

So let's say goodbye to all those Hollywood productions. Say hello to "straightforward" press events. Perhaps based on all the negative feedback on their Thank You America ads, Chrysler's marketers understand that they can't be perceived as wasting money. In any case, that's sure what they want the media to know. The blog post spends more time explaining to the journalists that they should expect few if any perks, than it does about the new vehicles Chrysler will introduce and how it will display them at the 2009 NAIAS.

Public show goers will surely miss the popular Jeep waterfall, but not as much as the journalists will miss Chrysler's other cutbacks during the media preview. No more office and interview space and rows of computers with free Internet access, and no swag like the djembe drums of yesteryear. Worse, Chrysler is literally saying there's no such thing as a free lunch. For years Chrysler's served a complimentary lunch to the horde of assembled reporters complete with an open bar (well, at least for beer). No more free lunch. Journalists will have to fend for themselves. Nissan, which served filet of beef last year, isn't sponsoring a factory display in Detroit this year so that won't be an option. Maybe VW will still fly in a Lufthansa catering crew from Munich like they've done in recent years.

Perhaps the cruelest cut is the fact that Chrysler will not operate the Firehouse bar & grill for attending media this year. The Firehouse, ironically the namesake of the blog that announced its own demise, and the attached cigar bar, have been popular after show hours hangouts for journalists and Chrysler personnel alike. The food was free and so was the well stocked bar, which was tended by Chrysler execs and celebrities. While it undoubtedly was a nice perk for media types and Chrysler marketing folks, perhaps the biggest loser will be the Detroit Firemen's Fund. The Firehouse was set up on the first floor of the old downtown fire station. While the food, drink and cigars were free to those with press credentials, tips went to the Firemen's Fund, and Chrysler's corporate foundation always made a large contribution as well. Last year Chrysler put $25,000 into the fund to restore a 1937 Seagrave Safety Sedan, a vintage fire pumper, that will be used as a catafalque for fallen firefighters.

Other manufacturers, I'm sure, will cut back on their media presentations. I don't know how much it will help the domestic automakers or their foreign competitors but they have no choice. None of them can afford to be seen as wasting money wining and dining reporters. It's possible, on the other hand, that some kind of competition for which automaker wears the coarsest hairshirt may end up with cynical reportage.

Rick Deneau said there'd be "Less glitz and no giveaways. These are unfortunate but necessary steps to help return Chrysler to a solid footing. And with the government loan to help Chrysler bridge the financial crisis, it’s the right thing to do." After the negative response to their Thank You America ad, Chrysler knows that their critics will seize on any expenditure that can be somehow portrayed as wasteful. That doesn't help the people formerly paid with those expenditures. Like the general aviation industry that winced as congressional gasbags bloviated about private luxury jets, I'm sure that catering, video production companies, and other people that have worked the media days at the NAIAS are not thrilled about "straightforward" and "efficient" press events.

Some of the Chrysler reveals were indeed over the top. Watching Kermit the Frog pitch green Lincolns with Magic Johnson approaches the surreal. Still, I'd hate to see the product introductions at the NAIAS, or any auto show media preview, turn into the kind of sterile presentations Porsche likes to give - some guys in suits droning on in Cherman accents. Forget the Cayenne intros. The Porsche guys put me to sleep when they were introducing the Carrera GT. Surely there is some middle ground between wretched excess and boring speeches.

With sales 30-40% down for just about all brands, the near bankruptcy and bailout of GM & Chrysler, and Toyota & Honda now losing money, this NAIAS will be under a microscope. Regardless of who brags about saving the most money, I think the automakers that address the challenges they face in an honest way and present a viable path forward and relevent new product will get the most favorable coverage.

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Will Ceberus Give Chrysler to the UAW?

With the news concerning the Detroit automakers flying fast and furious, sometimes things slip under the public's notice. Missed in the hubbub surrounding President Bush's announcement of loans to GM and itself last Friday, on the same day Chrysler and Cerberus made announcements about personnel and other developments that would normally have gotten much more attention on a slower news day. One of those announcements was a potential bombshell: Cerebrus floated the idea of offloading Chrysler to the UAW.

First the personnel changes. Jim Press wasn't the only high profile Toyota employee that Cerberus persuaded to join Chrysler. Only sixteen months ago Deborah Meyer, who headed marketing for Lexus for six years, with a prior stint at Ford, working on Lincoln, Mazda and Ford do Brasil, was hired to manage the image of the struggling Auburn Hills firm. Her hiring was considered a bit of a coup at the time. Meyer's success at Lexus had made her a marketing superstar and Chrysler even created the executive position of Chief Marketing Officer for Meyer, also naming her VP. Now Meyer is gone and so is the CMO position. . The press release from Chrysler said that Meyer was leaving Chrysler "to pursue other opportunities". The Detroit 3 have had a lot of refugees lately so Meyer could be jumping ship before it goes down. Alternatively she may have been pushed out due to a disastrous year as Chrysler's public image has been battered.

Meyer's responsibilities were consolidated with Steven Landry, Executive VP – NA Sales, Marketing and Mopar Parts and Service, and Michael Manley, Executive VP – International Sales and Global Product Planning Operations.

While observers have long expected Cerberus to try and extricate itself from the Auburn Hills automaker, the bombshell that Cerberus might just give Chrysler, in part, to the UAW was not on anyone's radar. Cerberus slipped that posibility into their news release applauding Treasury's action to offer the domestic automakers help with loans from the TARP fund. Farago commented on Cerberus' offer, sincere or not, to invest $2 billion from Chrysler Financial into the parent automaker. However, buried in the same paragraph was this juicy nugget:

In addition to this, Cerberus believes that concessions by all relevant constituencies will be required to facilitate a full restructuring and recapitalization of Chrysler. In order to achieve that goal Cerberus has advised the Treasury that it would contribute its equity in Chrysler automotive to labor and creditors as currency to facilitate the accommodations necessary to affect the restructuring.

While a bondholder swap of debt for equity has always been presumed to be part of any restructuring of Chrysler, it appears that Cerberus wants to offload all of Chrysler to its creditors and employees. Whether those bondholders and UAW members will take the deal is certainly not clear, but it raises intriguing questions and some concerns.

Employee ownership is not a new idea. There are many examples of successful ESOPs, like W. L. Gore, makers of Gore-Tex waterproof materials. Unfortunately the experience of United Airlines and other ESOPs involving financially distressed firms may bode less well for UAW ownership of Chrysler. In exchange for large salary concessions, United's pilots, machinists, bag handlers and salaried employees acquired 55% of the company's stock in 1994. Not only was the value of that stock wiped out in United's post 9/11 bankruptcy, but the Ch. 11 reorganization completely cancelled the ESOP and forced the former employee owners to take yet further cuts in salaries. The company pension plan also defaulted.

A more recent large employee ownership plan is that of the Tribune Company, parent of the Chicago Tribune, Los Angeles Times, Newsday, Hartford Courant, Orlando Sentinel, and owner of superstation WGN and other newspapers, tv and radio stations, as well as the Chicago Cubs and Wrigley Field. Investor Sam Zell took the Tribune Company private in a complicated 2007 deal that involved the ESOP borrowing $250 million dollars to buy 100% of the common stock, while Zell put up the remainder of the money as warrants on 40% of the equity and a subordinated note.

The Tribune Company has struggled since the deal, burdened with $13 billion in debt from taking the company private and from the steep decline in revenues in the newspaper business. Drops in broadcast advertising revenue during the current recession, particularly from automakers and car dealers, have further distressed the company. Early in December of 2008, the Tribune Company filed for reorganization under Chapter 11. While the ESOP, in this case, was not funded from employee concessions or pension funds, whatever equity the Tribune employees had in the company is now worthless.

Like I said, UAW ownership of an automaker would be intriguing. ESOPs have their advantages, including better employee relations because of their proprietary stake. As Cerberus' press release stated, employee stock ownership would "facilitate the accommodations necessary to affect the restructuring." An employee owned Chrysler might also help negotiations for labor concessions at GM and Ford as well. Shifting employee and retiree health care to UAW managed VEBAs has made union members far more aware of the true cost of health care benefits.

As owners through an ESOP, the UAW might likewise more readily recognize the need for radical changes in their shop floor work rules, an important aspect of the domestic automakers' competitive disadvantage.

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No Wonder the Detroit CEO's Were a PR Disaster in DCLook @ Their Advertising

Even defenders of the domestic auto industry have panned the Detroit CEOs' performance in Washington. The same companies that environmentalists attack for having lobbied to stall CAFE regulations now seem impotent in Washington, scorned and mocked, rather than respected or feared. Worse, in a world with C-SPAN and YouTube they did an appalling job of public relations during the congressional hearings. It shouldn't surprise us, considering the state of their advertising.

I don't know who is more at fault, the car companies or their advertising agencies, but for decades, the Detroit car companies haven't seemed to be able to make commercials that can tout their "new and improved" products without reinforcing the negative impact previous models have made on consumers, or worse, giving their competitors positive publicity, or yet even worse than that, make their own customers look like idiots.

This isn't a recent phenomenon. For years, dating back to the mid 1980s, Ford tried to recover market share lost to the Japanese brands with "Have you driven a Ford lately?" ad campaign.


"We used to build crap cars but, honestly, we're competitive now, really, so check us out, please?"
Actually, it wasn't just a slogan, Ford had an entire jingle written for the campaign.


Ford eventually retired the slogan, but old insecurities die hard and they reprised the slogan and updated the music for their full-line ads for the 2007 model year. Someone in Dearborn must really like the slogan because they produced both a short form version

and the extended play version:


There are echoes of it to be found in their "Drive One" marketing campaign, started earlier this year. One part of that campaign features ads titled "Ford asks people to Drive One" with people who hadn't considered Ford products but were impressed after extended test drives. One of them has a potential car buyer saying, "There's a little skepticism going forward because, well, Ford doesn't have the best name as far as reliability goes."



While it's admirable for Ford to acknowledge reality, I'm not convinced that reminding your customers about your bad reputation for quality is how you change that reputation.

That insecure mindset must be deeply ingrained in Dearborn. Ford can't even tout good news without sounding like, "hey, what about us? We make good cars now too." After recent data showed Ford being in a statistical dead heat with Toyota (and Honda) in terms of initial new car quality they started running commercials saying pretty much that - only they shot themselves in the foot by saying that Ford has quality equal to Toyota, mentioning their competitor by name. Everyone already knows that Toyota is the gold standard of quality so why mention them? Also, saying you're as good as the competition doesn't really do much to convince people to switch to your product. If you're only as good, why should consumers switch? It seems to me that saying "Ford has industry leading quality" (without a "now" in there) gets the improved quality information to potential customers without mentioning either Ford's prior poor reputation nor would it enforce Toyota's already stellar reputation in consumers' minds.

Insecurity must be contagious in Detroit. Saturn, arguably the GM brand with the best consumer reputation, has been trying to widen its appeal beyond folks who frankly, don't like cars that much. Two years ago, to highlight Saturn's expanded lineup, Saturn's ad agency, Goodby, Silverstein & Partners, produced a commercial around the tag line, "That's a Saturn?", with people expressing surprise when they see the Aura, Sky and Vue.

The agency must have thought didn't have enough edge, so they also shot, for online distribution, a R-rated version, "That's a $%&^ing Saturn?", using the same actors.

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With or without profanity, the message was the same, "we don't make just boring cars anymore." Just like Ford and quality, the ad simply reminds people about boring cars Saturn has sold. It's also derivative of the 70's vintage "That's a Matador" ad from AMC.

[Matador ad is @ 2:35]
Considering the level of the Matador's success, I'm not sure that's a good thing.

While "That's a Saturn?" didn't appreciably increase showroom traffic or sales, it's another mistake from which GM apparently hasn't learned a thing. With manufacturers and dealer groups running seasonal end of year sales, GM is now running ads announcing Saturn's "Red Tag" event. A customer steps into a Saturn store, glances at a Sky roadster and a Vue compact SUV, looks surprised and steps back out of the showroom to look at the Saturn sign. He returns to the showroom and asks, "These all…?" and the saleslady says "Saturn? You got it! Happens a lot lately," with her male counterpart chiming in, "People do that", followed by a voiceover saying, "Meet the new Saturn, at the Red Tag event."

Humorous? Yes. Clever? Perhaps. Will it sell Saturns to people who hadn't considered them before? I doubt it. Will it make current Saturn owners think that GM is calling them dorks? Perhaps not, but only because they probably don't pay any attention to car commercials. They are, after all, that segment of GM's customer base that doesn't really care about cars other than as an appliance.

Advertising that makes fun of customers does happen to be a pet peeve of mine. Chrysler excels at that. I can understand Durango ads implying that men are idiots who don't ask for directions and who'd never be able to function without wise, all-knowing wives. So many commercials follow that misandrist theme that Chrysler's not unique. Women make about 80% of consumer purchases. However, even the very popular and successful "That thing got a HEMI?" Dodge Ram truck campaign took a swipe at loyal customers. The knuckle-dragging rubes asking that question, played by actors Jon Reep and Todd Giebenhain, drive a ratty looking 30 year old Duster with a hood scoop.

Why have them driving a MOPAR product? If they're going to get smoked by the guy with the HEMI, might as well have them drive a competitors product, maybe a really rusty 70s vintage Corolla.

At one of the media previews I asked some Chrysler marketing folks about that swipe at old MOPAR guys, but I got the same blank looks as when I asked the Mitsubishi folks why they used an Iggy Pop song about sex hustlers, drugs and booze for the music in their commercials. Maybe advertising cluelessness isn't restricted to Detroit.

If the Detroit manufacturers want to let consumers know that it's not business as usual, they should build superior cars and tell people about what makes them superior. Apologizing for poor products in the past or saying that you're just as good as the competition isn't going to end the red ink or increase market share. Humor has a place in advertising. So does comparison with competitors. However, if Detroit is truly interested in changing the way they do business, they need to take a hard critical look at all elements of how they make and sell cars, including how they advertise.

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