The key to survival [of a Big Four firm] lies in the willingness of the partners to stay committed and at their desks — something that the Andersen partners did not possess, as proved by the two-week period in 2002 during which they bailed out en masse and thus smashed the firm beyond recovery.
A study done for McCreevy calculates that the partners of a European firm would bolt in numbers large enough to be destabilizing rather than be forced to finance a litigation payment that extracted a profit reduction of 15% to 20% over three to four years. Applying those assumptions to the Big Four's latest reported US revenues of $4.7 billion to $8.7 billion, the US firms would confront partner flight and possible failure at liability levels as small as $450 million to $1.8 billion. Those amounts are modest to the point of insignificance against the size of this decade's financial debacles — examples ranging from the $20 billion hole in the balance sheet of Parmalat to Enron's $67 billion bankruptcy.
Saturday, February 24, 2007
Response to Comment
Any comments on how Unions caused problems in high costs? Japanese companies who have factories in America with no Unions seem to have a very good profit margin. I think Chrysler's workers did themselves and the company in. Any thoughts on comparing this to some airlines troubles? (Eastern, PanAm)
No question that the problems of GM, Ford and Chrysler are due to overly high compensation and benefits demanded by the union. For example, in 2005, GM’s US other postretirement employee benefits expense, consisting of retiree health care and life insurance, increased to $5.3 billion (that's HALF of GM's $10.6 billion loss right there).
However, it is too easy just to blame the unions. Past management (and here I mean as far back as the 50s) is also to blame in that it was far too easy to promise benefits that would be paid years later rather than wages that would have to be paid on the spot.
I agree that Japanese companies that have factories in the US with no unions indeed have a very good profit margin. Furthermore, it's worth noting that GM and Ford operations abroad are also much more profitable than their US operations. I've previously commented that if Ford could just make their US segment disappear they'd be in top-notch financial shape. This is the reason why I don't think GM would ever buy Chrysler. Folks who know a lot more about cars than me observe that the two companies' vehicle portfolios don't mesh well. And they are right. However, from a financial point of view it just wouldn't work out. GM has more than its fair share of "Detroit troubles" and has no business trying to take on Chrysler's very similar problems.
Your comment in comparing the automakers to airlines is quite insightful. Heavily unionized industries are all collapsing due to the unsustainable wage/benefit promises extracted from management by the unions. Steel, airlines, automakers. They're all going down for the same reasons.
No question that the problems of GM, Ford and Chrysler are due to overly high compensation and benefits demanded by the union. For example, in 2005, GM’s US other postretirement employee benefits expense, consisting of retiree health care and life insurance, increased to $5.3 billion (that's HALF of GM's $10.6 billion loss right there).
However, it is too easy just to blame the unions. Past management (and here I mean as far back as the 50s) is also to blame in that it was far too easy to promise benefits that would be paid years later rather than wages that would have to be paid on the spot.
I agree that Japanese companies that have factories in the US with no unions indeed have a very good profit margin. Furthermore, it's worth noting that GM and Ford operations abroad are also much more profitable than their US operations. I've previously commented that if Ford could just make their US segment disappear they'd be in top-notch financial shape. This is the reason why I don't think GM would ever buy Chrysler. Folks who know a lot more about cars than me observe that the two companies' vehicle portfolios don't mesh well. And they are right. However, from a financial point of view it just wouldn't work out. GM has more than its fair share of "Detroit troubles" and has no business trying to take on Chrysler's very similar problems.
Your comment in comparing the automakers to airlines is quite insightful. Heavily unionized industries are all collapsing due to the unsustainable wage/benefit promises extracted from management by the unions. Steel, airlines, automakers. They're all going down for the same reasons.
Friday, February 16, 2007
GM rumored to be in talks to buy Chrysler
I have of course been following the many reports of problems at the Chrysler unit of DaimlerChrysler including all the discussion about how the "merger of equals" was falling apart and Daimler was looking at "strategic opportunities" (translation: divestiture) for Chrysler. However, this story BLEW ME AWAY:
General Motors is in talks to buy the Chrysler Group in its entirety, Automotive News reported Friday, citing unnamed sources in Germany and the United States.
General Motors is in talks to buy the Chrysler Group in its entirety, Automotive News reported Friday, citing unnamed sources in Germany and the United States.
Friday, February 02, 2007
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