(This is the third of a two-part post. And the last. I promise. Please read Parts I and II before commenting.)

To this point, we’ve ignored Ford and Chrysler. According to current media reports – though there are now some questioning the conventional wisdom - it is expected that both companies will make deals that emulate that of General Motors.
 
Don’t bet the farm on that one.
 
General Motors played both sides against the middle on this one, and they won – flat out won – against the other two Detroit automakers.
 
There is only room for one United States based automaker in this country and GM has just realized that title. Ford and Chrysler are no longer in the running. And it was the UAW that did them in.
 
If you’ve read the first two parts of this little polemic, you understand that the basic interest which the UAW got out of the GM contract was the ability, directly or indirectly, to control the company. Recognizing that they ALL work for GM, both management and labor decided they’d try to work together, and share together the benefits. They may have left the shareholders at the curb (in reality, if not in the market), but they have a clear commonality of interest that motivates both to winning in the automotive marketplace – here, now, and in China, too.
 
That’s not true at Ford or Chrysler.
 
At Ford, the family controls the company without owning the company. Due to the Class A and Class B stock differentiation, the family held shares are the only shares that get to vote. The shares you and I can buy on the market don’t get to vote. As a practical matter, they’re lousy bonds: you get paid last if they go broke, you have no guarantee against loosing it all, and the upside mostly goes to the real bondholders, because they get paid first.
 
That’s one of the reasons Ford stock has always stunk. But the primary reason that Ford stock has stunk for years is that the same people that run the Detroit Lions run the company.

Here’s the problem with Ford: the company cannot cut the same deal with the UAW as did GM without the Ford family giving up control of the company that was founded by their progenitor. 

At Ford, a VEBA would either end up with stock that doesn’t vote – in which case it’s not a good deal for the UAW – or it would end up with stock that votes, in which case the family doesn’t run the show any more.
Ford can settle with the UAW on the same terms as did GM only if the Ford family gives up control of the company.
It will be a cold day in hell when that happens. 

Bill Ford did not abdicate the throne of the company in favor of let Alan Mulcahy to let Mulcahy give it to the union. Moreover, there is no family in the entire United States with a greater loathing for the UAW than the Ford family. And vice-versa.

It was easy for Wagoner to sell out the institutional investors in GM because they weren’t in it for the long haul, anyway. But for the members of the Ford family, Ford is a legacy, a definition of who the are, and the source of their power.
So, Gettelfinger’s going to have to figure out a different way to sell a deal to Ford, and to its workers, without it being as good a deal for those members as it was at GM.

He might be able to pull that one off.

But then there’s Chrysler.

No one has the slightest doubt about the motivation of the people that run and own Chrysler.

They’re in it for the money.

They don’t care about cars, they don’t care about workers, they don’t care about anything.

Except the money.

And they’re running the show.

Though the original concept was that the new Chrysler owners were looking for a quick killing, the indications are that Cerberus, the owners, figures it can buy its way to success. It bought Robert Nardelli and then bought other auto industry savvy people, most prominently the boss of Toyota’s stateside operations. They’ve all, according to reports, been promised a chunk of the ownership, if the company goes somewhere.

There is no way that the management at Chrysler is going to give away their shot at the big time killing by giving the UAW a stock chunk.

That means both of those companies would have to come up with cash, instead of the stock that GM used to fund part of their deal. Chrysler doesn’t have the cash and Ford can’t spare what it does have.

But, oddly enough, that makes the VEBA deal just that much more enticing for the UAW, because it means that both Ford and Chrysler are just that much closer to going under – in part because the VEBA deal just made GM that much more competitive. A VEBA guarantees the retirees get paid, regardless of the fortunes of the company for which they used to work. Once they figure that one out – and they will have by the time the UAW is negotiating with Ford and Chrysler, the very same union members who are dubious about the GM deal now will be demanding the same from Ford and Chrysler.

An earlier post suggested buying GM stock. Buy it, but don’t hold it for long.

But short Chrysler bonds.

What do you think?
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1 comments:

  (5) posted on 10.3.2007

I know these 3 have heavily posted about GM and its stock. However as I follow it, you’re saying GM has giving the UAW the option to take the stock and not so much that they got paid in stock.

Wouldn’t all those sorta depend on what the UAW decides to do with the new found cash ?

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