Free Advice to Congress on Rejuvenating the Big Three

Klaus H. Hemsath
November 23, 2008

Klaus H Hemsath
http://thermalexpert.com

United States Congress is serious about dealing with the energy crisis and about reducing the increasingly expensive imports of petroleum. The same Congress seems to forget that a liquidation of US automotive manufacturing companies will increase the importation of foreign made cars.

A befuddled Congress was quick in consenting to shell out $700 billion of taxpayer monies to save investment bankers and insurance companies from the consequences of speculative business practices. Extreme losses resulted from high stakes gambling and from sales of fraudulently assembled securities at excessive prices.

The same Congress balked when the Big Three flew in on their company jets to ask for much smaller handouts. Big Three executives only took home an admonition by Congress to fly commercial carriers into Washington.

What are we talking about? The automotive industry is critically dependent on the continuous investment of large amounts of capital. This never ending investment requires a strong and steady cash flow.

Unfortunately, the automotive industry has been invaded by dividend hungry investors, who soon usurped and occupied the boardrooms. Top management was bribed with obscene salaries and bonuses to do the bidding of the new company owners. Driving up stock prices and dividends became the number one management priority.

The results were entirely predictable and are being taught at all business schools. The business model is called "Cash Cow Management". The Cow alias stands for milking; companies with large amounts of cash or sunken investments are milked continuously and ruthlessly until the cow gives up and prefers to pass away.

Following this business model can be highly profitable for quite a long time. This business model requires very nimble and capable financial, sales, and operations management. Inescapably, this type of company will be walking ever closer to the edge of an abyss. A small decline in sales, shrinking margins, or increasing credit costs will bring down such companies quickly.

The Big Three have been run in this business mode for a long time. The cows are dying. Congress must demand that the Big Three or Big Two are rejuvenated before given a cash injection. For economical and security reasons automotive companies must remain active and competitive. Reorganization through bankruptcy proceedings seems to be the fastest method to break the stranglehold of management, board, investors, and union. These parasites must be removed to revive the healthy structures underneath.

Production facilities, sales outlets, products like Corvette, Cadillac and many others have many attractive features. After shedding the parasitic top layers, these companies can achieve lower costs and improved quality and can become world-leading competitors again.

The US cannot afford to let the Big Three fail while the country is experiencing its worst financial crisis in eight decades. Ineptitude and greed of its management, its board, and its union can be excised.

It is unacceptable and insane to let the majority of the company's employees suffer for the excesses of the few and mighty and draw the country into a deep, long-lasting depression.

In liquidation, foreign companies will buy several of the latest, highly modernized plants for cents on the dollar. Most of the white and blue collar workers will become unemployed. The collapse of the Big Three will be amplified hugely when suppliers, vendors, and the national economy are hit by shrinking sales. Many of these second tier companies have cash cow managements, too, and are bound to fail. An economic disaster like this is senseless. Instead, we must build a strong, productive, national automotive industry again.

For the last several decades, the automotive industry has been under constant attack by foreign competition, by its investors, and by government. The companies lost huge portions of their market share, investors looted cash reserves, and US government felt entitled to tell the automotive industry how to design their cars.

The ill advised meddling of US Government in matters of fuel efficiency and emissions has cost the automotive industry dearly. Huge amounts of research funds were spent in meeting marginally effective government regulations and much needed funds for new product development were redirected.

Congress has not yet understood that engine efficiency has an absolute, insurmountable, upper limit. It is idiotic to crank up mileage limits every few years and to expect that the industry can meet these unrealistic targets. Instead, this country must find the will and the funding to develop two new, desperately needed energy technologies.

We must reduce energy consumption of automobiles by developing advanced gasoline and Diesel engines that can approach energy efficiencies of 45%. Energy efficiency must be determined by measuring the energy input of fuel and comparing it to the power output of the engine at its most prevailing operating condition. This will assure that our inventories of automobiles, trucks, and trains will eventually consume the lowest amount of energy that is scientifically possible.

Most importantly, we must learn to make a petroleum substitute and produce it from renewable biomass. Biomass for renewable fuel production must be grown only on arid, barren, and fallow lands that are preferably located on a belt with maximum sunshine on both sides of the equator. Industrial production techniques can deliver renewable, non-polluting energy for centuries.

Long before us, nature succeeded in creating fossil fuels from biomass. We can anticipate with virtual certainty that we can imitate nature by using a large arsenal of applicable technologies, which were not accessible to nature.

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Dr. Hemsath recently published the book: CLIMATE CHANGE - GOLD RUSH OR DISASTER? For 50 years he has worked as scientist, process engineer, Corporate Vice President of R&D, Company President, CEO, and Inventor. He holds more than 60 US Patents. He is working on a new book: "THE SOLUTION FOR ENDING GLOBAL WARMING AND CLIMATE CHANGE". Go to http://www.thermalexpert.com