Jerry Eike on Auto Bailout |
| Blooker Comments - Auto Bailout | |||
This is an OurBlook interview with Jerry Eike, business teacher at the University of Phoenix. What would be the benefits of a bankruptcy/reorganization for General Motors if it is broken up into good GM/bad GM?JE: As a business concern, GM should become more competitive in the world market by shedding itself of excessive cost structure relative to major foreign auto manufacturers like Toyota and Honda. Unfortunately, most of these costs are associated with labor (American workers) and the benefits they have commanded, e.g., health care, pensions, etc. ... which means most employees' wages and benefits will be reduced. If managed properly, GM would realize considerable savings and could invest more into research and development while producing quality products at market competitive prices. What are the drawbacks? JE: The main drawback would be employee benefits and job loss. Given the size of GM and the auto industry, the government will probably have to step in and save pensions/retirement plans which will cost billions more. In the end, someone (American taxpayers) has to pay for all of this. Also, there is no assurance that management will be any more effective ... but bankruptcy is the only viable solution at this point. With Chrysler as a privately owned company, is it a different situation from GM and if so, what would be the pros and cons of bankruptcy/reorganization for Chrysler if it is broken up into good Chrysler/bad Chrysler? JE: There is really no difference between GM/Chrysler (public vs. private) ... it's more a matter of size and overall viability. GM is much larger and has larger economic impact. It is also financially in better condition and has a stronger chance of surviving. Chrysler is the weakest of the Big Three and it may be best to let the market determine its fate ... which probably means folding and the pieces purchased by GM/Ford and/or other car makers. Consolidation much like the airline industry. Steel companies and airlines companies have been through bankruptcy/reorganization and re-emerged. Do those cases have any relevance for the auto companies' predicament? JE: Yes, there are similarities. The key is the talent and vision of management. What people need to understand is that the steel/airline industry has changed a great deal and so must the auto industry. It will survive but it will be much different, especially in the number of employees and the wages/benefits earned. Is there anything else you would like to say about the proposed second round of bailouts for the U.S. auto industry? JE: I believe the American consumer will also see a change in the way vehicles are sold and marketed. The market is saturated with auto dealerships. Many are swimming in red ink and the weakest dealerships are going out of business. There will be more consolidation and the used car market will continue to grow. Mr. Eike has been director of marketing for the Mayo Clinic Foundation, founder of Eike Consulting and director of revenue management for National Car Rental. He is currently national sales director for Navvis Solutions.
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