Buffett says automakers need a new business model
Predicts more pain before economy heals
OMAHA, Neb. — Whether it takes bankruptcy or a government bailout to achieve, billionaire investor Warren Buffett said U. S. automakers need a new business model to better compete.
Buffett also said he would never serve as U. S. treasury secretary because he loves his current job too much. The Berkshire Hathaway chairman and CEO is a member of President-elect Barack Obama’s transition economic advisers.
Buffett said any automaker bailout package should include a business solution and be negotiated by the president, not Congress. Buffett spoke to Fox Business News in an interview that aired Friday afternoon.
Buffett’s spokeswoman said he was not available to comment further.
The government should insist top executives at Ford Motor Co., General Motors Corp. and Chrysler LLC invest a significant percentage of their own net worths in the Detroit-based companies, Buffett said, ensuring both executives and taxpayers would share in any profits or losses.
A Chrysler spokeswoman said the company had no comment because it hadn’t heard Buffett’s interview. Ford and GM representatives were not immediately available for comment.
Buffett said the government should be able to drive a deal like one of the ones he makes when Berkshire buys businesses, because automakers appear on the brink of bankruptcy.
Buffett said he’d tell the auto executives, “ ‘We’ll give you more upside [than bankruptcy], but you’re going to lose if we lose.’ ”
Bankruptcy would be a poor solution for the auto industry, Buffett said, so he hopes a better way can be found to work out the union contracts and other issues the companies face.
He reiterated his belief that the U. S. economy will eventually recover from its current problems, but he predicted there will be more pain first.
“There are going to be more people unemployed. And I mean, I can’t think of anything worse than going home to a family, saying, ‘I lost my job today,’ ” Buffett said.
He said he expects the unemployment rate to continue climbing past 8 percent and he doesn’t expect the rate to start falling anytime soon.
Buffett said he thinks Treasury Secretary Henry Paulson is a “high-grade guy” doing a good job with an extremely tough situation as he tries to reinvigorate the economy.
“I don’t think I could have done a better job, and I don’t think most of the congressmen could do a better job,” Buffett said.
He said he doesn’t regret agreeing in September to invest $5 billion in Goldman Sachs, because he doesn’t think the investment bank would still agree to pay Berkshire the 10 percent annual dividend Goldman promised. Since Goldman announced Berkshire’s investment, it received $10 billion in assistance as part of the government’s $700 billion bailout plan.
Since Nov. 7, when Berkshire reported third-quarter earnings, its shares have fallen about 30 percent. Berkshire reported a 77 percent drop in profit and said unrealized investment losses of about $1 billion weighed on the results.
Class A shares of Berkshire, which are still the most expensive U. S. stock, were selling for about $82,450 Friday afternoon. The stock set a new high of $151,650 in December.
Buffett said he’s not bothered by the recent share-price decline, because he’s been through similar drops before and he values Berkshire based on its underlying businesses.
Berkshire owns a diverse mix of more than 60 companies, including insurance, furniture, carpet, jewelry, restaurants and utility businesses. It is also a major investor in such companies as Wells Fargo & Co. and Coca-Cola Co. Berkshire Hathway owns The Buffalo News, and Buffett serves as the newspaper’s chairman.
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