Dana considering layoffs as Obamacare costs mount

Dana Holding Corp., recently announced their third quarter results, reporting a 12% decrease in sales and net income of $56 million, compared to with $110 million for the same period in 2011.

The global auto parts manufacturer properly characterized their earnings as solid, and several media outlets covered the details.

Most of the news reports also mentioned the letter President and CEO Roger Wood sent to employees that called for continued vigilance in light of falling commercial vehicle demand in North America and continued economic uncertainty.

The uncertain global economic environment continues to put pressure on production in Europe, China, and Brazil. In North America, as evidenced not only by our earnings release, but by many other companies as well, there is a looming concern in the economy. The threats of a fiscal cliff, along with increasing taxes on small businesses, are holding down job creation and optimism for growth in the United States. These economic factors affect Dana in that we must always be sure that we are keeping our costs in line with our revenue changes.

But that's where most media coverage stopped. The next paragraph in the letter told the real story:

We must also offset increased costs that are placed on us through new laws and regulations. For example, the Patient Protection and Affordable Care Act, also known as “Obamacare,” is expected to cost Dana approximately $24 million over the next six years in additional U.S. health care expenses. This is a cost that our customers are not willing to cover, mandating that we reduce our overhead expenses to cover them.

Yes, you read that correctly: $24 million over the next six years. And they can't pass that along to their customers, so they have to reduce their overhead.

That means layoffs, because there's really no other way for a company to cover that much expense, especially in a recession.

In June, Dana employed 25,500 in 47 countries. By September, they'd shed 1,000 jobs, some of them from planned actions like their divestiture of their Fredericktown, Ohio, facility; the planned closures of their Longview, Texas, and Toledo, Ohio, facilities; and the consolidation of their Rochester Hills, Mich., and Milwaukee, Wisc., plants into other facilities.

But last Friday they laid off seven white collar staff at corporate offices here in the Toledo area. I've been told by company insiders that more are being considered.

So while President Barack Obama is campaigning on his auto bailout and the jobs it supposedly saved, his Affordable Care Act - Obamacare - is going to cost jobs ... in that same automotive industry.

Dana may be able to survive the increased costs of "affordable" care, but not without consequences for some of their employees. Other small businesses and their workers won't be so lucky.

Where will the jobs be then?


***Dana is a world-leading supplier of driveline, sealing, and thermal-management technologies that improve the efficiency and performance of passenger, commercial, and off-highway vehicles with both conventional and alternative-energy powertrains. The company's global network of engineering, manufacturing, and distribution facilities provides original-equipment and aftermarket customers with local product and service support. Based in Maumee, Ohio, Dana employs approximately 24,500 people in 27 countries and reported 2011 sales of $7.6 billion. For more information, please visit www.dana.com.

Here is the full text of the letter, confirmed as accurate and complete by Dana:

October 26, 2012

Dear colleague:

Today we announced earnings for the third quarter of 2012, and I want to thank all of you for your hard work in achieving solid results. We have seen volatility throughout the entire year, but in the third quarter we saw a rapid softening of demand in some of our key markets. Most significant was the decline in our North American commercial vehicle market, where production rates are now below those of last year.

Looking forward we see opportunity, and also continued headwinds. The uncertain global economic environment continues to put pressure on production in Europe, China, and Brazil. In North America, as evidenced not only by our earnings release, but by many other companies as well, there is a looming concern in the economy. The threats of a fiscal cliff, along with increasing taxes on small businesses, are holding down job creation and optimism for growth in the United States. These economic factors affect Dana in that we must always be sure that we are keeping our costs in line with our revenue changes.

We must also offset increased costs that are placed on us through new laws and regulations. For example, the Patient Protection and Affordable Care Act, also known as “Obamacare,” is expected to cost Dana approximately $24 million over the next six years in additional U.S. health care expenses. This is a cost that our customers are not willing to cover, mandating that we reduce our overhead expenses to cover them. On a positive note, we have made the decision to increase the investment in our global engineering spending to facilitate our growth plan. And we are committed to not allowing this increase to become an excuse for the earnings performance of our company. These challenges require all of us to be innovative and focused to meet the increased cost burdens with creative ways to accomplish our current performance expectations and future growth objectives.

To counter some of the challenges ahead, we have and are taking aggressive steps to manage costs in each and every aspect of the business. These actions include reducing material costs, taking the complexity out of our products and processes, and reducing our conversion and overhead costs. It is most difficult when our colleagues are affected, but we must take action now, with the outlook as we see it, to ensure that we are competitive in the future.

When I joined Dana 18 months ago, I saw the great potential of this company to move from a survival mode story to a profitable growth trajectory. We have made great strides in our vision to become the global technology leader in efficient power conveyance and energy management solutions. We are on our way to this vision, with a solid plan in place to get there. Working together as One Dana, we are becoming a lean, efficient, results-driven organization with a renewed sense of urgency. We are also investing in technology that supports our growth strategy.

This new Dana requires all of our ongoing diligence in reducing cost and complexity, which is essential to fueling our growth and mitigating mandated costs. Even amid volatile market conditions and increased cost mandates that are placed on our business, I am confident that continued discipline and flexibility will help Dana to remain strong. Consistent with our culture and operating model, I encourage each of you to bring forward your ideas to improve efficiency, eliminate waste, and move us forward.

Thank you for your cooperation, and I look forward to working with you as we meet these challenges together.

Sincerely,

Roger J. Wood
President and CEO

Jeep moving to China?

"Jeep, an Obama favorite, looks to shift production to China"

That's the Washington Examiner headline on a story that details the possibility that taxpayer bailed-out Chrysler might shift production of all Jeeps to China.

Yes, the iconic Jeep, symbol of Toledo, saying "Made in China" ...

So much for saving the auto industry in Ohio.

What possible comment could President Obama have if his campaign poster child outsources production to China???

Is this the push that moves Ohio out of 'toss-up' and into the Romney column?

The article says:

In another potential blow for the president's Ohio reelection campaign, Jeep, the rugged brand President Obama once said symbolized American freedom, is considering giving up on the United States and shifting production to China.

Such a move would crash the economy in towns like Toledo, Ohio, where Jeeps are made and supplied, and rob the community of the economic security they thought Obama's auto bailout assured them.

Obama is such a fan of Jeep that he included a picture of himself speaking at the Toledo plant in his newly released second term agenda binder. In his address to the plant in 2011, Obama said, "I just took a short tour of the plant and watched some of you putting the finishing touches on the Wrangler. Now, as somebody reminded, I need to call it the 'iconic' Wrangler. And that's appropriate because when you think about what Wrangler has always symbolized. It symbolized freedom, adventure, hitting the open road, never looking back."

Well it appears that the taxpayer bailed-out Chrysler is looking back and now considering cutting costs by shifting production of all Jeeps to China, which has a strong desire for Jeeps.

Read more...

What's an 'American-made' vehicle?

I just had to laugh when I read that Lucas County Commissioner and former UAW member Pete Gerken is in hot water over the lease of an Ohio-made Acura TL.

The car was a Christmas gift to his wife and, according to the report, was her choice. But that's just 'an excuse,' according to one UAW member, to get Gerken off the hot seat.

First of all, none of those union people who are so outraged can provide a definition of 'American made' when it comes to cars. I once had a conversation with a UAW leader that went something like this (note the ownership of the various brands was different back then):

ME: Would I be in trouble with the union if I bought a car made entirely at the Honda plant in Marysville? It's an Ohio-made car, so wouldn't that be good to support manufacturing in our state?

UAW leader: No - the plant is owned by Honda and the money goes back to them in Japan - it doesn't stay here in the states.

ME: Well, then. What if I bought a Volvo? They're made in the U.S. and Canada and the brand is owned by Ford - so the money would stay with an American company.

UAW leader: No - it's a foreign vehicle...Vovlo is German.

ME: But I can buy a Jeep made in Toledo by a German company who takes the money back to Germany - that's okay?

UAW leader: Yep - now you've got it.

This really happened! I was dumbfounded - there was no logic whatsoever to the thought process, except, perhaps, that some of the plants are union and some are not, but even that didn't explain the opposition to a Volvo made by UAW members.

The problem is with the thinking - or lack thereof. The UAW has never provided their definition of 'American made' - which makes it very easy for them to pick and choose what they want to support or criticize when it comes to car purchases.

Cars.com actually has an "American-Made Index":

"...rates vehicles built and bought in the U.S. Factors include sales, where the car's parts are made and whether the car is assembled in the U.S. Models that have been discontinued are disqualified, as are those with a domestic-parts content rating below 75 percent."

This seems like a fair way to judge whether or not a car is 'American.'

The #1 rank goes to Toyota Camry - what a surprise!

Only five of the top 10 vehicles are what most people would think of as 'American' because of the name of the company that makes them. According to Cars.com, that's a record low for the Detroit automakers.

Funny, but the Jeep products don't make the list.

In the news article, Bruce Baumhower, president of United Auto Workers Local 12, makes the point very well:

"My wife has always wanted a [Chrysler] PT Cruiser, which is made in Mexico, so there will never be a PT Cruiser in my family."

Rather than purchase a vehicle made by his employer (or the employer of his union members), Baumhower supported the purchase of Jeep products, even when the profits from the sale of those items was going to the German company, Daimler. But if you thought you were 'buying American' by purchasing the Chrysler PT Cruiser, you're wrong, even if it means you're sabotaging the sales of your employer.

How is anyone supposed to know what's 'acceptable' these days? In a global market where companies have plants all over the world, employ workers in markets where they hope to sell their cars, and where everyone is dependent upon trade with everyone else, how is a concerned buyer supposed to make a good decision?

Is it better to purchase a Japanese car made in Ohio by fellow Ohioans or to purchase a Detroit automaker vehicle made in Mexico by your employer? Which is 'better'????

Or is the decision supposed to hinge upon the unionization status of the workers? If so, then why would a unionized plan in Mexico making PT Cruisers be off limits?

What? You didn't know that Mexico had unions? Confederacion de Trabajadores Mexicanos, CTM, is Mexico's largest union and it represents the workers at the PT Cruiser facility in Toluca.

Maybe it's just UAW union plants that count.

This whole thing is just another way for unions to control their members and the politicians. Do you think Gerken will suffer any consequences for this purchase? The UAW did give him tens of thousands of dollars for his first campaign for commissioner. Will he get as much financial support for his next one? Or will the union decide that a Democrat is still better than any Republican opponent, even a Democrat with a Honda in the garage?

***SIDE NOTE:

I couldn't let this story go by with commenting on the decision to even publish a story about what kind of car some politician's wife drives. Does anyone else find it 'selective' that The Blade thinks this is worthy of a 742-word story but they didn't even mention the Commissioners vote to impose Project Labor Agreements for Lucas County bidders?

PLAs will increase the costs of government, force unionization on private employers and their workers and, interestingly, were opposed by The Blade the last time they were tried in Lucas County. Yet the paper never even mentioned the issue, despite covering the meetings at which they were discussed on voted upon.

Yet the paper thinks this is worthy of a front-page story on their second section.

END SIDE NOTE***

Does this make sense to you?

The other day I read Dan Kennedy's column about the initial outrage over the closing of the automotive dealerships and the subject of whether or not the decisions were politically motivated.

He used an example of a Stow, Ohio, dealership whose new car sales were up 57% in 2009 (prior to cash for clunkers) despite a 40% decline in the national market - and wondered why this businessman could get no explanation for the decision to close him down.

And then I remembered an Automotive News editorial I read (opinion piece of 8-24-09, subscription may be required) that talked about General Motors and Chrysler taking applications for new distribution points:

"During bankruptcy, each automaker described the need to build a rational distribution system by closing some dealerships and shifting franchises, and the bankruptcy judge agreed.

But if what was achieved in Madison, Wis., is an example of Chrysler's new strategic distribution plan, there was too much suffering for too little gain.

In Madison, Chrysler fired the east-side dealer and the west-side dealer. Then the automaker hired the west-side dealer to be the east-side dealer and the east-side dealer to be the west-side dealer. The company handed out additional franchises so each dealership will sell Dodge, Chrysler and Jeep.

And what did Chrysler accomplish? It lost sales for several weeks and disrupted two profitable businesses.

In hindsight, Chrysler's precipitous rejection of 789 dealerships looks ill-advised, ill-planned and poorly executed. It still is not clear what standards were used to determine which dealerships to reject. But the process appears random and arbitrary. And there are still rejected dealerships that are stuck with unsold inventory that is difficult to unload.

Those were cruel moves, even if necessary. And Chrysler has yet to prove the necessity of closing all those dealerships, even though the cruelty is evident."

I guess I don't get it. If they need new distribution points, could some of the existing dealerships have been relocated or moved instead of shut down? Will they look for another dealership in Stow and, if so, what kind of loyalty will those area customers have if they lost the oldest Chevy dealer in the county, costing 80 jobs, only to have another open shortly thereafter?

If new dealerships open where old ones were closed without justifiable reasons, people will be more inclined to agree with Kennedy's conclusion:

"To their shame, the media has let this story go, even though there's good chance there's a Watergate buried in it somewhere. Killing the successful auto dealers, while sparing the less successful, is most likely a political rather than equitable or rational decision."

Toledo's Jeep Liberty listed as one of most over-priced vehicles

This is not good news for our city.

Forbes has the story:

"These days, car buyers have the upper hand when they walk into the showroom. They have access to dealer invoice prices and day supply data on the Internet--not to mention a recession that has spurred lowest-ever financing deals and unprecedented cash-back incentives.

But that doesn't mean every vehicle is a bargain; plenty are still overpriced. Right now, according to Vincentric, a firm that tracks vehicle ownership costs for the auto industry, several cars on sale now have market values far below their manufacturer's suggested retail price.

The Jeep Liberty, for example, has a true market value 20.9% lower than its MSRP(emphasis added); the Dodge Ram 2500 is worth 26% less; and the Chevrolet Trailblazer is worth 16.4% less than its MSRP.

Those three models, in particular, tell the story of the most overpriced autos currently on the market: Our entire list is comprised of vehicles manufactured by Detroit's Big Three. No foreign brands make the list, as those automakers' cars tend to be priced fairly when considering supply and demand as well as their high rankings on consumer-satisfaction surveys."

Have auto makers tried this?

The Wall Street Journal is reporting that FedEx is "... cutting nonunion workers' salaries by 5% and plans deeper cuts for CEO Frederick W. Smith and senior executives, citing "some of the worst economic conditions" in the company's history. It is also eliminating bonuses and suspending company matching for its 401(k) plan."

I can only wonder if the Detroit 3 have made similar decisions before going to the American taxpayer with their hands out.

How Ohio reps voted on the auto bailout

Yes, I know it's a bridge loan, but regardless of the name, it's still the federal government bailing out a failing industry. I'm in favor of Chapter 11 Bankruptcy reorganization - not rewarding them with tax dollars so they can just buy time until they need to do the inevitable.

Anyway, according to GovTrack, here are how the votes from Ohio were cast:

Ohio
Nay OH-1 Chabot, Steven [R]
Nay OH-2 Schmidt, Jean [R]
Nay OH-3 Turner, Michael [R]
Nay OH-4 Jordan, Jim [R]
Nay OH-5 Latta, Robert [R]
Aye OH-6 Wilson, Charles [D]
Nay OH-7 Hobson, David [R]
Nay OH-8 Boehner, John [R]
Aye OH-9 Kaptur, Marcy [D]
Aye OH-10 Kucinich, Dennis [D]
Nay OH-12 Tiberi, Patrick [R]
Aye OH-13 Sutton, Betty [D]
Aye OH-14 LaTourette, Steven [R]
No Vote OH-15 Pryce, Deborah [R]
Aye OH-16 Regula, Ralph [R]
Aye OH-17 Ryan, Timothy [D]
Aye OH-18 Space, Zachary [D]

Two Ohio Republicans joined their Democrat colleagues to vote in favor of the measure.

Sadly, my representative, Marcy Kaptur, voted in favor of bailing out the auto industry after having voted against the $700 billion bailout for the financial industry. I had hoped she was taking a principled stand on the concept of bailing out industries, but it turns out she just opposed the focus of the bailout. And I'm sure her strong support from the UAW didn't matter at all.

Did Voinovich misrepresent Hensarling's position on the auto bailout?

Today I received the following email from Sen. George Voinovich's office:

According to this Bloomberg story, the head of the Republican Study Group in the House, a staunch conservative, Rep. Jeb Hensarling, has endorsed using sec. 136 money to provide a bridge loan to the American auto industry – essentially the Voinovich-Levin-Bond bill:

Representative Jeb Hensarling, a Texas Republican, said he is “more than happy” to allow the automakers to use the energy-bill funds to avoid bankruptcy. “If this is such a dire emergency,” he said, the Democrats could waive or delay requirements in the 2007 legislation that the money be used exclusively to develop more fuel-efficient vehicles.

This seemed completely out of character for Rep. Hensarling, so I called his office to clarify his position.

I spoke to Debbee Keller who explained that Rep. Hensarling is in favor of allowing the $25 Billion already passed by Congress to be used to help the Big 3 with their financial issues. The funds were supposed to be for certain purposes, and he agrees that Congress can re-purpose those funds to be used for their operational expenses.

He does not support allocating any of the $700 Billion to the automotive companies. According to Keller, Rep. Hensarling has not taken a position on the Voinovich-Levin-Bond bill.

So you tell me - is this a misrepresentation of Rep. Hensarling's position on the auto bailout?

Don't we have just two legs?

In what I'm sure he thought was an inspirational speech about supporting the bailout for the auto industry, Mayor Carty Finkbeiner yesterday again stuck his foot in his mouth.

You can listen to clips of his comments on the WSPD News Page, but the comment that caught my attention was not used by the News Department.

Carty said:

"We have to get up on our hind legs, labor and management together, and fight..."

So I have to ask - what hind legs? We only have two legs, so what is he talking about? Is he implying we have to act like animals in the way we address the issue of the bailout? Are we supposed to 'fight' like junkyard dogs?

Obviously, since he made the comment yesterday during the 'pep rally' to try to generate support for the bailout, he's had time to clarify his comment. Does his not even realize what he said? And did no one say anything to him about it? Probably not, considering his previous reactions to such criticisms.

Carty was way over the top, claiming that without the bailout, the auto industry in American will collapse. Most 'experts' say that even if one or two of the Big 3 have to declare bankruptcy, it will not mean the end of the American auto industry. As it is, Ford is saying only that they'd appreciate a line of credit - they don't actually need any money, at least, not yet. And a bankruptcy does not always mean a liquidation, but even if it did, other manufacturers would purchase and then use the assets that were being sold. It might mean the end of a particular company, but not the end of an industry.

Carty also claims that "the American automobile industry built the United States of America and where in the world would you let anybody who built a country fail on its backside?" Grammar aside, I guess I didn't realize we had cars in 1776.

He ends with: "...this is what America is about and the day we lose it is the day we lose our strength and our vigor and our heart and soul as a nation." And our Congresswoman Marcy Kaptur said 'it's a fight for America and our children and grandchildren,' adding the obligatory 'it's for the children' tug on the heartstrings.

I'm concerned that an elected mayor thinks the heart and soul of our nation is dependent upon any one industry, rather than upon the freedom and liberty of its citizens. I'm also concerned that our representative who voted against the $700 Billion bailout now thinks a bailout is somehow okay because it benefits members of a union.

I only wish they were this passionate about cutting my taxes, reducing the size of government and increasing my liberty.

Sidenote: Carty called the $34 Billion being sought a 'modest' amount. Gee - can I have a 'modest' raise?

Mayor pleads for the bailout

Toledo Mayor Carty Finkbeiner sent out a press release yesterday saying he was going to Washington, DC to help lobby for the automotive bailout.

First, Toledo is facing a $10 million deficit to balance out 2008 - so where is he getting the money to travel to DC?

Second, Toledo has to cut, according to the mayor, $23 million from the 2009 budget - so do we really think that Congress is going to take his advice about what an industry needs to be 'successful'? He can't run a city without going into debt, so do we really think that he knows what the auto makers need to get out of debt?

But he got his name in the news again and he can try to look like he's doing something to 'help.'

Style over substance - which is indicative of his entire term in office.

*** Does anything think he'll also put in a plea to help Toledo, as well? After all, if everyone else is in line for a handout....

Bailout 'scope creep'

It's a term most often heard in engineering, architectural and technology projects: scope creep. It's when you make your plans and start your project only to find, along the way, a bunch of new 'wants' or ideas that participants want included.

Since you're re-doing this, why not re-do that at the same time? It's not always that easy and it usually ends up costing a lot more than anticipated.

That's exactly what is happening with the bailout. The legislation was supposed to be limited to the financial markets - to provide liquidity in the financial sector so loans could continue to be made and institutions that were critical to the liquidity/credit areas would be solvent.

Now, it's the automotive industry. Remember when they got their own legislation for $25 billion? Well, that just wasn't enough. Now automotive CEOs and many in Congress are saying that some of the $700 billion in the bailout bill should go to the auto industry.

"In a letter to Treasury Secretary Henry M. Paulson Jr., House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry M. Reid (D-Nev.) asked Paulson to "review the feasibility . . . of providing temporary assistance to the automobile industry during the current financial crisis."

The letter notes that Congress granted Paulson broad discretion to use the bailout money to "restore financial market stability. A healthy automobile manufacturing sector is essential to the restoration of financial market security," the letter continues, as well as to "the overall health of our economy, and the livelihood of the automobile sector's workforce."

If the request is granted, it would expand the federal government's role in private enterprise far beyond the financial sector."

That's scope creep.

The logic is that survival of the American auto industry is critical to the economic health of the country. The problem is, that logic can be applied to any number of industries - and the expansion is never ending. Fortunately, the Treasury Department, so far, is restricting its focus to entities that are subject to federal regulation.

Friday, General Motors reported a $2.5 billion net loss for the third quarter. Ford's quarterly loss was $129 million.

GM has lost $57 billion since 2005. Ford has lost $24.5 billion since 2006. But these losses are only part of the problem.

"Going into the third quarter, GM had 21 billion dollars on its books. By the end of September, that had plunged to 16.2 billion dollars, coming perilously close to the 11 billion to 14 billion dollars it says it needs on hand to keep the company operating.

Ford burned through 7.7 billion dollars in the quarter, though its reserves are nearly twice as richer thanks to a massive line of credit it acquired last year.

Though it doesn't report its full financial data, the privately-held Chrysler LLC is also thought to be fast running out of cash: one reason, analysts believe, why its parent, Cerberus Capital Management, was so eager to sell Chrysler to GM.

That deal, however, was scuttled by GM, and observers believe Cerberus may now rush to find another buyer as the economy continues to worsen."

So my first question is: what have they been doing since 2005/6 to address their obvious problem? And why must I, as a taxpayer, save them when they haven't indicated their willingness to do what is necessary to save themselves?

They're already getting a $25 billion low-interest loan package to help them retool their factories to produce fuel-efficient vehicles that meet tough new emissions standards. (That Congress passed new emissions laws whose compliance needs to be funded by said Congress is a problem in the first place.) These are funds coming from you and me to reward them for not paying attention to the market and our wants in terms of vehicles over the past several decades.

"But the seeds of the current crisis date back to the last big oil shock, of 1979, which helped the Japanese gain a foothold for small, fuel-efficient products.

As gas lines faded from memory, the Asian automakers continued to gain ground by focusing on quality, something GM, Ford and Chrysler have only recently come to grips with -- and with varying degrees of success.

Further compounding the situation, Detroit has been consciously slow to embrace changes in the American automotive marketplace, especially the shift from big trucks to small, fuel-efficient passenger cars.

And even where it has, lamented Consumer Reports' auto analyst David Champion, it has needed "more models that were exciting for people to buy.""

Yes, the auto makers have started their redesign efforts which is why they say they need additional money. Their new designs, which they hope will lead to long-term success, need the influx of capital in order to bring them to market. Without such cash infusions, they are likely to cut back on the very designs the market desires in order to save money.

And there is some relief in labor costs anticipated beginning in 2009, which will also help. But the argument is that this industry is 'too big to fail.'

Again, that's scope creep.

Many criticized the warnings being shouted by others of the 'slippery slope' the government was approaching. It's here - and it will be even harder to stop the slide now that we've begun.