Life As It Goes By

The story of the US Big Three reminds me of the story of “Three Little Pigs”. The “Credit Crunch” Wolf is here to eat up the pigs. Only the pig with the best defense will survive the blow.

It’s amazing when you think about the decisions people (especially those in power) make in times of “crisis”. After acquiring Fannie Mae and Freddie Mac, the US government continue its aggressive strategy to buy up more holdings on AIG, Citicorp and now the U.S, national pride, the Big Three in the auto industry. Believe me, the list will not end here. What’s really annoying is that it’s almost painless for these lawmakers to spend our hard-earned, tax money. They knew all the while: those without power and wealth would always suffer.

Of the 3 pigs, my bet is on Ford ,which has the least of problems (at least from the surface), being the most honest and dignified, to survive this turmoil as a reward to its better defense. If Henry Ford is still around, I wondered what would be his decision like? To fight crisis himself or beg the goverment for help. I have a gut feeling that he would choose to fight till the end by himself (and his company staff, of course). But today’s crisis would be very tough. It’s not the operating expenses or poor sales that are killing the business, it’s the corporate debts. You can sell off all valuable assets and would have reduced the capital expenditure but with corporate debts such as bonds and pension funds around, there’s still little much you can do. Default the bonds and you will lose the trust from your shareholders. Losing the pension funds is like losing the loyalty of your employees.

The worst pig has to be GM. It is glut and greedy. It is so huge that by moving, it can shake the whole industry. It’s a phenomenon to be able to rank on both ends of the Fortune 500 (Top 10 in revenue and bottom 500 in income or profit) at the same time. Its problems are complicated. It’s so complex that if I were to choose for the US goverment, I would let it go. Yes, half or more of the industry would be gone and recession will advance further to depression. But we are talking about skilled labour here ya. People who can be employed in other industries, seeking for such talents. Of course, they have to accept lower wages now but who’s not. Smarter companies would by now not put all the eggs into one basket. Supplies for automobiles may mean the same for motor boats, helicopters, trains or heavy machineries. This will bring down the overall costs of supplies and develops competitive advantage. This is just the nature of business.

In my opinion, car sales will not pick up in next 2 years’ time. Car makers will fight for survival and start dumping inventories. This may trigger some sales but the cake will remain small. Only lean makers (which the Big Three are really not) will see the light at the end of the tunnel. I like elect-president Obama’s plans for new energy sources. It would be even good if he can see to that the jobless workers(as a result of GM’s fall) fill up the new vacanices he has created. I believe the group still possess the much desired skills (anyway, they have already been doing research for new engine types and for those in production, they should be able to find similar jobs in producing solar cells).

Another option might be great but it is still risky. If the government merges the 3 into 1, then things may seen less complex. However, I don’t believe in mergers. Internal fighting for power and resources will be greater and since they can run well separately, what makes you think that they will as one. Keeping 2 and letting go of one looks fine as well. It will slow the process and the impact down. Let the remaining 2 fight for their own survival. It’s jungle, not a zoo. So, they should be well-versed in all that are required.

If the US government chooses to bailout the three, then I wish the best of luck to America. There remains many icons of America such as McDonalds, Coca Cola, P&G, Du Pont, Walmart, Microsoft, Intel and so on. Why sacrifice the all for few? Just follow the song from The Beatle, “Let it Be”.