Congressman John Campbell’s insight into the Big 3 auto maker woes.
HH: Okay, now I want the audience who’s new, AM970 in New York, Hawaii, et cetera, that may not know your background in the automobile industry to understand that when we talk cars with you, we do so because you actually know this business. Would you explain to people your background?
JC: Just real quickly, I was in the retail car business, car dealership business for 25 years, starting out…I’m an accountant/CPA, so starting out as a corporate controller, and ending up owning a number of dealerships myself. And over that career, I owned and operated General Motors dealerships, Ford dealerships, and a number of imported brands, both European and Japanese.
HH: Within the GM family of cars, you had a Saab dealership, and a Saturn dealership.
JC: A Saab dealership, four Saturn dealerships. I also had a Buick-GMC truck dealership within the Saturn…
HH: Boy, you must have a lot of friends for whom the bell is tolling right now, because this is, I read through this plan…
JC: The four Saturn…of those six dealerships that I owned, three of them have closed in the last six months. Three of those six dealerships that I had once owned and built have now closed, and the other three are hanging on by a thread.
HH: So when you picked up the General Motors Corporation 2009-2014 restructuring plan, this must have been like reading what might have been your future had you decided not to do public service. I mean, this document probably still has some impact on you…
JC: I know…
HH: …but it doesn’t have the impact that it has, say, on my friend Jeff Morris or other dealers. What did you think when you read through this?
JC: Well, it wasn’t, I read through the document. Remember GM had their first plan back in December, on December 2nd was the first plan that they presented to Congress after the miserable performance that the CEOs had in front of my committee, and then they kind of did better, and they presented their plan December 2nd. This wasn’t radically different than that plan except for what’s happened in the marketplace. And this is something people should understand about just how bad the car market is right now. In 2007, 17 million cars and trucks were sold in the United States. Right now, we are selling, November, December, January and so far February sales pace, is at a pace slightly under 10 million. Now that’s not quite a 50% drop, but it’s pretty close. To put that in perspective, in January of 2009, last month, more cars were sold, more new cars and trucks were sold in China than the United States. That had never happened, never come even close to happening. This was the largest market in the world, every month, ever, since World War II, since prior to that. Another way to look at the perspective of how bad the market is, if you take it on a per capita basis, it is the lowest sales since Henry Ford introduced the Model T. So on a per capita basis, we are selling the fewest number of cars in the United States basically ever. I mean, obviously excluding World War II when no cars were sold at all. But excluding the period of World War II, this is the worst ever. And so the conditions under which GM and Chrysler propose this is that when they did a plan December 2nd, they had a worst case scenario, a most likely scenario, and a best case scenario. The worst case scenario was like ten and a half million units. When they presented this plan, the only thing that’s really changed is that now they’ve got a ten million, they’ve made their worst case scenario a little worse, and made that their scenario.
HH: Their scenario. And they say they can survive between 10 and 12 million units per year. That’s a good thing.
JC: They, yeah, they say they can, between 10 and 12. At 10, I mean, and that’s the other thing. To understand how bad this is for the car business, look at Toyota. Toyota, which obviously everyone knows, largest car maker in the world, has been enormously profitable, et cetera, they had their first loss ever that they’re posting. But in the U.S. now, they haven’t laid off anybody, but they offered 15,000 workers early buyouts, basically early retirements. They’ve cut hours from 80 hours a week to 72. They’re scrapping plans to open new plants. They’re not operating a number of their existing plants, because they’re losing money in buckets in North America as well. So the conditions under which GM and Chrysler and Ford are operating are also making it almost impossible right now for anybody to make any money.
HH: I just want a prediction from you very quickly first, and then a comment on the upside. The upside is this has so dramatically lowered the demand for oil that it’s going to give us a number of years more before peak oil arrives to allow the technology curve to advance. That’s the silver lining. But do you think they’re going to get the money?
JC: I don’t have any inside knowledge on this at this point, but here’s the thing that I think probably is a couple of reasons. First of all, the government’s already $18 billion or whatever it is deep into GM and Chrysler. If they pull the rug out from under now, they’re going to have to write that $18 billion off, and basically accept the consequences of what happens from there. I’m not sure they want to do that. It’s sort of like a little bit in for a penny, in for a pound. Second of all, you watch the negotiations with the UAW and stuff going on, and I kind of, I mean, the UAW’s making some concessions, but they’re not like giving up the whole shop and saying anything’s better than…so it makes me think that…and you know that they’re leaning on the Obama administration, and obviously so is the AFL-CIO and so are the Teamsters, and the unions have a lot of sway with Democrats. So I’m not sure they’re going to leave them out in the lurch, and they’re not bargaining like they’re going to be out if nothing happens.
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HH: If they got the money…
HH: When you read through the plan, the number of divisions are going down to four, the number of nameplates are going down to 36.
JC: Well no, number of nameplates would go down to four, divisions, there’d be two.
JC: Or three, actually. And yeah, the number of…
HH: Brands or whatever…
JC: Car nameplates, right, brands. Four brands, 36 or whatever nameplates, and three divisions.
HH: And so that plan as it’s understood, and dealerships going down to like 4,000, they’re cutting them all down and they’re really going to get rid of them in cities and the suburbs, and go to their small town base, all this stuff. It’s fascinating to read. Could it survive?
JC: Yeah, I think it can. I mean, as I’ve pointed out many times on this show and elsewhere, I mean, GM this year worldwide, they’re still the second largest auto maker worldwide. And they sold just shy of 8 million cars worldwide this year. And it’s actually a little staggering to think you could sell 8 million of anything and lose money. Well, why does that happen? Because you’re geared up to sell 10 million of that thing, and you sell only 8 million. What this whole plan is designed to do is for GM to be profitable at 6 million, probably, or 5 ½ million, or whatever it is, or 7 million worldwide, because one of the things about this that people forget is yeah, that’s 7 million cars worldwide. Well, over half of them are not sold in the United States.
JC: I mean, over half of them are sold…so this is a worldwide company, and so they are actually…the British are talking about giving them some money, the Germans are talking about giving them some money.
JC: The Swedes, various people are talking about countries, because they don’t want to see those GM manufacturing plants in those countries go away, either. So can they make it? Yeah, if they’re geared. I’ve always said that they’re making good products, they have good market acceptance around the world. But the problem is that this is a company that was geared to make 10 million, hoping they could sell 12. And so they’ve always been gearing to be up and up and bigger and bigger, and they didn’t want to give up the mantra of the biggest industrial corporation on Earth and all that. And now this has hit them like an anvil in the head, and it’s basically said all right, we’re no longer going to be the biggest industrial corporation on Earth, we’re no longer going to be the biggest car maker. We’ve got to be able to be a decent sized car maker and make money. I mean, one of the most profitable car makers out there in recent times is Porsche. Porsche is in fact not one of, it is the most profitable car maker versus sales worldwide.
HH: I didn’t know that.
JC: And what do they sell? They sell 300,000 cars a year or something like that?
HH: Tell me…
JC: And they make a ton of money.
HH: I don’t think this is romantic, but I can sometimes romanticize this because I come from a GM town, and I really do not want GM to shutter. But I also think if GM goes away, the American car industry will never come back, that we will lose a very important part of our industrial package. It’s why I don’t want to build planes in Europe. I don’t want to build our tankers with French companies and European parts. It’s because the American industrial base, which includes its national security component, should be building the best cars in the world.
JC: Yeah, and I agree with you that it’s pretty hard to imagine the U.S. not making cars, for U.S. car companies, which is a specter of something that could occur. And so it’s really hard to imagine that. Now of course forty years ago, was it hard to imagine there weren’t going to be televisions made in the United States, which I think the last television plant closed just last month or something like that? So we don’t make televisions in the United States anymore, but it’s really hard to imagine. I mean, the car business is still so huge because they’re so expensive, and the second largest purchase anybody makes, and all that sort of stuff. And when you include the gasoline that goes in them, the oil that goes in them…
HH: But we’re a car culture, too.
JC: And the tires and the culture and everything around it, it’s pretty hard to imagine, I’ve said it’s really hard to imagine America without General Motors, or America without Ford.
HH: And so I would hope that your colleagues on the Hill have some of that, that this is not just any industry.
JC: Well, some do and some don’t.
HH: Now I know every industry comes…
JC: Some do and some don’t, I mean, because I have encountered with a lot of my Republican colleagues, not to mention Democratic colleagues, and they’re like well, why should we do cars and not refrigerators?
HH: You know who they should talk to? They should talk to Romney or anyone who knows the history of Detroit and World War II, because basically, it’s the defense industry when you need it.
JC: That’s right.
HH: It’s the car industry.
JC: No, that’s right.
HH: When you have to produce a whole lot of something in a hurry, the guys who can do it, however stupid they’ve been about K Cars in the past, it’s still Detroit.
JC: Now that’s right.
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HH: Last week when you were under the weather and recovering from your surgery, Generalissimo, Duane, producer of this program.
JC: Yes, I’m familiar with him.
HH: Yes, went forth to try…
DP: We’ve net.
HH: …and buy a Challenger, a Chrysler Corporation product.
JC: Yeah, a Dodge Challenger, yeah.
HH: They are not anywhere available except with premium, because they are fantastically in demand right now, which means there is the capability of building a car in Chrysler that people want, but not the ability to deliver them in sufficient numbers that their price is acceptable. Now when do they figure out how to do that?
JC: Well, now I’m not familiar necessarily, specifically with that model and what it’s day’s supply is, and all that kind of stuff. But I have to imagine that that’s going to be a very short-lived situation, because they need to sell product. And if you’ve got something that sells…now the thing about it is the Detroit Big 3 and everybody around the world has introduced some flexible manufacturing.
HH: That’s what I was coming to.
HH: Can they now respond to market demand much more quickly?
JC: To a degree, right. But they don’t, they probably set one plant up that’s building the Challenger, and not two or not three, because it is a two door sports car. There’s a limited market for it. And my guess is that it’s brand new, it’s been hyped for a while, it’s a neat car, and there’s probably a lot of early demand, which is often the case. And having been in the dealer business for 25 years, you see that, and all these people come out and they all want it for 60 days, and then six months later, you’ve got them stacked up all over, because those people have all gotten theirs. And then six months later, now you’ve got to sell the car. And sometimes, it lulls dealers and manufacturers into complacency, because those early adopters, the people who’ve got to have them right now so they can be the first one on the street, first one on their block and all that, they’re out with it. Then after that, you’ve got to try to convince the rest of the people.
HH: But that’s a problem that every bit of American manufacturing deals with.
HH: And you know, it was with X Box, any hot product goes crazy…
HH: You get e-Bay demand, premium price. But then other American companies seem able to be more nimble in the response to the declining market after the early adopters are there. And I’m just wondering, have the car companies figured out they don’t make markets, they must respond to markets?
JC: Yeah, but the manufacturing of a car has not gotten to the level of like an i-phone, where it comes out and they’ve got 2 million of them available the first day, but even that wasn’t enough. They had to have more and more. And then they discounted it, and so it happens in other products as well, same thing. But cars being as complex and so forth as they are, and being significantly requiring a lot more specific parts and delivery of those parts from hundreds and hundreds of suppliers, it’s just a little harder to set it up to build them in 15 plants for the first six months, and then only one plant after that.
HH: I would ask you about the research, whether or not they can look forward far enough now to anticipate demand and fashion to demand.
JC: Well, but see, now I just have to answer that real quick, because…
JC: Think about what’s happened in the marketplace recently. The consumer on cars is so fickle.
HH: (laughing) True.
JC: When gas was $4 dollars a gallon, Prius…
HH: You couldn’t give away a Challenger.
JC: You couldn’t give away a big truck, Prius was huge over sticker. Mini Coopers had a zero day supply, et cetera, et cetera. Now gas is under $2 bucks a gallon, big trucks are selling again, Mini Coopers have a 60 day supply, Prius are being discounted like crazy all over the place. It’s…
HH: It’s tricky.
JC: And what you’re doing is you’re building a product that takes three years even world class. It’s 34 months from we’re going to build this car to actually having it on the street. That’s the best anybody in the world can do right now. And then in order to make it pay, you’ve got to sell it for at least three to four years. So people today are trying to design and build cars that are going to be, that Americans are still supposed to be buying…
HH: In 2012-2015.
JC: In 2015.
JC: Right today, they’re designing cars for 2015. But yet the public is completely reversing what they want in a 90 day period of time. That’s a really tough thing to match up.