Monday, June 1, 2009

Bankruptcy Predicted in KYATMA

My book, Keep Your Assets Take My Advice (KYATMA) predicted the bankruptcy filings for General Motors and Chrysler. I follow publications from the U.S. Treasury and the Chicago Federal Reserve. One of the email pdf files that I receive shows the auto sales for the nation. The automakers were selling about 17 million units per year, then the bottom hit. It is down to around 9 million units a year now. You cannot have a business built on the top of the scale. You have to have a business built where you can still profit on weak sales. Rosy scenarios do not work in business. You have to face the cold hard facts. I would not be surprised to see auto sales dip further from here. Consumers will not buy cars they do not want to own.

I lived in Detroit in the early 1980's for a short while. I was only 24 years old at the time. My job was General Manager of a large nightclub called Nitro. Back in the early 1980's, there were a lot of layoffs in the auto industry. However, when auto workers were laid off back then, they only had to go out and apply for a job every week and they would continue to receive most of their pay. Every week, while I was the General Manager, I would have about 30 to 40 auto workers come apply for a job. Of course, they were dressed in army fatigues, t-shirts, raggedy blue jeans and other well worn clothes. They had no intention of really getting a job. They were only complying with the requirements of their union agreement. You cannot hardly blame them for acting this way. After all, they still needed to feed their families and pay their bills.

It makes you wonder though, what kind of management would agree to such a fiasco? It boggles my mind how auto management could ever agree to such a labor agreement. I hope that when they crunch the numbers they base their profitability on 7 million cars sold instead of 17 million. If they cannot be profitable at 7 million cars sold annually, then why are they in business?

It seems like they still have this same agreement in place. All an auto worker who has been laid off has to do is go apply for a job and still get paid the bulk of their pay. Hopefully, they will change this in the new Government Motors.