The Auto Bailout Executives and Business Buyers

As I watched the CEOs from the Big Three automakers get grilled in Congress, I couldn’t help but marvel how much they had in common with the typical business buyer (I’ll get to that in a minute). These so-called top level executives were so ripe with stupidity and cockiness, it was astounding. Their sheer ignorance was beyond belief.

I have long given up the using the expression “one would think” because you cannot think for other people. But, if I were to use the expression again, you would think these guys would have at least done a bit of preparation to make their case. They strutted before the nation as though American “has to” give them the money.

They had no plan. No end game. No nothing. Not a single compelling reason outside the thought that they cannot be allowed to fail. Of course they can fail. This is where they reminded me of many people who begin the search to buy a business.

It is common for people to believe they are going to walk into the bank and get the money they need to buy a business. They do not come equipped with any plan, or prove to the lender they are well-suited to run the business. They have no research to backup their claims.

Many buyers go into this process with some ridiculous idea that they are going to navigate the financing, negotiations, valuation and due diligence even though most have never done so before. That is why so many fail to ever buy a business.

For years I have taken a softer approach to business buyers but I have had enough. It is tiresome to see all these well intentioned individuals who want to be their own boss, but have absolutely no clue what is involved. Moreover, most are too darn lazy to do their homework in advance and prepare themselves properly for this project. They too want a quick fix, just like the auto executives. That strategy doesn’t work. It won’t for The Big Three and it won’t for business buyers.

Time and time again it is proven that if you have a well-laid out and realistic plan, your chances of success are infinitely greater. Take shortcuts or guess your way ahead is not a strategy.

Hoping to buy a business is not a plan either. Only knowledge guarantees success!

Let’s get back to the auto industry because I have a major problem with this whole bailout concept. Their core business model is completely flawed, and they clearly do not have any sincere intention of changing it. To me, it is the worst kind of structure one could ever have the misfortune of operating under. Plus, the auto industry is way down across the board, with no end in sight, and rest assured that any money the government doles out will disappear – bet on it.

The way they manage and hold inventory on behalf of the dealers for example runs counter to any logical business strategy. They fund the dealers and collect only interest for 90 days. It is absurd; unless you are the dealer. The by-product is massive dealerships operating on the manufacturer’s money. There is no other industry like it.

If the folks in Congress were smart (which most aren’t) they would force them to do the following:

1. Combine all three into one US car company with a single network of suppliers and dealers.

2. At the very least, consolidate models – how crazy is it that each of these companies sell two brands of the exact same product and have to double of dealers, advertising, infrastructure, etc? It’s craziness. Just up the road from me there is a Chevrolet truck dealer half a mile from a GMC truck dealer seller the same product under a different badge and like hundreds if not thousands of similar situations across this country, spending double in head-to-head on advertising.

3. Reduce the number of dealers across the country dramatically. Buying a car is not an impulse purchase. The American companies think they need to have a dealer every few miles…it’s just plain stupid. If people want a GM product, they will drive twenty miles.

4. Make each dealer company owned with no commission salespeople. The dealers have had way too sweet of a deal for way too long. Even a store front would work. 

5. Centralize the service and make it convenient of course but again, reduce the number of locations commensurate with the demand.

6. I am only 47 but when I was a kid, when my dad wanted a car, he went into the dealer and ordered it and paid cash - there is a strategy here. Forget the dealerships with hundreds of cars. Keep a nationwide inventory in a number of strategic locations and let the dealerships draw from a central pool. Forget this “sign and drive” nonsense. How about: buyer comes in, chooses what they want, dealer does a search, car located, price is shown with no BS, financing finalized, car is shipped to dealer, customer picks it up, end of story

I’m not the smartest guy around, but to me, this is just plain old Business 101. I'm sure you have a few suggestions too, and I would love to hear them.

In its infinite wisdom, Congress has chosen to focus on the executives taking massive pay cuts or flying in on corporate jets. Talk about worrying about the wrong issues. Look, I hate the arrogance of these executives, and clearly, they could have done a better job with the PR on this one, but there are bigger issues at hand.

I am all in favor of pay for performance, but we have to realize they need to recruit the right talent. I do not care what the pedigree is of the executives, they should fire them all today and get the right people to run these companies. Nobody in their right mind can convince me that any of these guys have done a decent job, so why the hell are they going to give them more money to mismanage? Like Al Pacino said in Scent of a Women (one of the all-time greatest movies) “I’m in the dark here.”

Please folks, tell me what I’m missing!

I would love to see these companies saved. My heart breaks at the thought of so many displaced workers, and the potential hardship it will cause. I think the economy will take a massive hit if they fail. The problem is, these businesses are not worth saving. The bailout is another example of messing with the economic version of Mother Nature. Let all these companies collapse if their business model doesn’t make sense. They should have let the financial institutions fail as well.

This way, we could all start from a true beginning, and a clean slate.

Have a great week!

Comments

[michael A]

I think your business model is wrong, these auto companies walked away from the formulia that build the business. When I was a kid in the 60's me and my friends couldn't wait for Aug, to go to the dealer lots and see the "new" cars, the day they walked away from annual model changes they walked away from the business model. Also dealers maded the business, went the companies pushed out the "pop and son" deaers and went to "mega" dealers, they change the business forever, noboday can carry the inventory these dealers carry, not even the manufacturer. The country needs many companies , US or other, if you thing service is bad now, and prices are too high, your plan will put us back on horses. They had the business model, and lost it, old Henry Ford had it right, good cars, that are affordable

[Sell a business]

Too True!

[Doug Horn]

You are absolutely correct. Since the 60's when the first Datsuns and Toyota showed up (and prior to that the VW's) the foreign manufacturers have been offering better quality and more features than the Big 3. Even when adding tarrifs to bring the price of the imports up to the price of the American card, buyers continued to flock to the imports.

Buyers told Detroit what they wanted. Detroit refused to listen.

Year after year the unions "watched out" for their people by getting them more and more even if it made their employer uncometitive.

It's been coming for decades. Detroit is getting what it has earned!

[E Frerichs]

Best article I have seen,everything is as you say,we wonder why the CEO's and their big time money they are paid can't figure out how to run a business,they should go down the tube

[Kara H.]

AMEN! Great Article today.

[samuel]

Nice, article. It's good news for the all the people.Thanks to keep such good information in the site.
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samuel
Make Money

[Sue]

You pretty well summed it up. Being a small business owner of various businesses for the past thirty years, Congress has never offered to "bail me out" when the going got tough. In earlier years I paid the price of my own mis-management, learned from those mistakes and moved on to build profitable, well managed companies.

[Leon Parker]

Right on! (As usual).

There are a lot of resources there, including the workers, that should be put to work by new institutions with a fresh start.

[Rhonda Miranda]

You are sooooo right, that is exactly what we need to do, Sounds like you should have run for president!

[Richard Parker]

Thank you Rhonda. I had a great laugh. But in reality, it is just common business sense. Hopefully, the next administration will be a little more prudent. Yesterday, I read that 21 of the banks who received part of the first $350 billion bailout money would not disclose what they did with it exactly nor are they obligated to divulge how they dispersed it. Isn't that amazing? Happy Holidays!