It suddenly struck me this Friday morning there is nothing so old-fashioned as the auto bailout. In the name of so-called honor (how could the US be without an auto industry?) , it is a stake in the heart of the future, entrepreneurship and creativity. Also, it is radically unfair. I wouldn’t go so far as Jim DeMint as to predict “rioting,” but I certainly understand his point. Why the auto giants versus so many other endagnered industries? Bush is not exactly a profile in courage today in apparently opting for the TARP tarp in a last ditch attempt to save the car manufacturers. It all seems to be a form of sentimentality – and for what? In the end it seems a rescue program for incompetent execs and thuggish union leaders. Lose them both, I think. But then I think – are we really in a worse situation than I even dreamed? I don’t want to consider it.
Chapter 11 isn’t the end of the auto industry, but it’s time for the execs, the unions, and their enablers (politicians eager for campaign contributions), that things have to change to make the US auto industry competitive and more easily manageable.
Many car companies have been born and have died in the 20th century. Some went completely out of business, and some were either bought by other companies or merged with others. American Motors, Nash, Dusenberg, Oldsmobile, Kaiser, Studebaker…these are names that are no more, and we now look at these with a little fondness, but not despairing about their loss.
The Big 3 have to restructure and the unions have to restructure with them. The government has to restructure its thinking in that the ‘too big to fail’ idea is exactly what has gotten us into the financial services mess, and will make an even bigger mess if they stick their noses in the running of car companies.
Roger, I agree completely.
By the way: why exactly are we bailing out Chrysler, anyway? GM risks bankruptcy. Ford, while in trouble, isn’t part of (this)bailout. As you know, I don’t see the companies (at least GM) as salvagable. OK so Chrysler isn’t public, it’s private. They don’t need a cash infusion to survive, just to protect Cerberus’s ROI. If they don’t consider their company a good investment, why should we?
President Bush, for all his strengths in the war on terror, has shown compassionate conservatism for what it is: liberalism without the libertines.
“But then I think – are we really in a worse situation than I even dreamed?”
Nope, these former American auto giants simply need to go bankrupt. This will allow for new leadership and essentially a fresh start. The odds are that the new owners will salvage what is still valuable and get rid of what is no longer beneficial. Bankruptcy is not necessarily the end of the world. It sometimes is even the beginning of something wonderful.
Considering how the Ford family ran the Lions into the ground, do you really want them to get your tax dollars to prop up their badly-run car company?
Did we hear right this AM from the UAW that it was by invitation and financial support, plus the land they are built on , that all the European & Japanese car makers are in this country. That the funds were given without any knowledge of same to the taxpayers and any demands for payback to the taxpayers, along with the workers, are not in anyway connected to the UAW, or any union. This was planned to break all union’s in this counrty returning
to the before workers potection demands? If so, what does this say about the direction of our country and Democracy, being leaders in equality for all.
We all know that the Auto Ind. has been behind in modernization and largely at fault for the situation they are in, but names were mentioned this AM re-garding the above and we all need to know what is going on and why are they financing a sellout of the biggest industry in our country. We saw what happened to the closing of the Steel Ind. in this country, need we watch this happen to the car industry as well, I sure hope not. The clothing industry is now in China, as is the shoe industry, as is much of the interior of our homes. The food companies and the packaging companies, etc. are bringing us in to a country of decay.
I agree with you Wellspring, Chrysler should not be included, they had their bail out years ago and though they paid back with interest, they failed to improve and Cereberus ROI must have plenty in the bank after what they took out of Meryvn’s to cover the needs. Since Ford is holding strong we need
only to keep the workers of GM going and reorganized, Our country must get back on track and strengthen our productivity to continue being the leaders we have been in the past.
Have a good weekend.
“…are bringing us in to a country of decay.”
Decay? We are the wealthiest people in history. Our poorest citizens own their own cars, TV, and have plenty to eat. Free trade with other nations results in lower prices for consumers. Are you against the citizens of Texas trading with those living in Virginia? Do you object when the citizens of Dallas trade with those residing in Houston? Do you get upset when the neighbors of Main Street trade with those living on Central Avenue?
We live in a free country built on free trade. The market decides who will succeed and who will fail. As Dana Carvey as H. Ross Perot used to say on SNL in ’92, “It’s jes’ that simple.” For years, the so-called Big Three have ignored the market, a market demanding better fuel-efficiency, cars that dependably start when the drive turns on the engine, that can go for years without a single repair, that will not leak on your driveway (my car mechanic warned me in ’95 or so that I shouldn’t replace our driveway until and unless we no longer owned any GM cars—they’d leak all over the driveway, as our Buick and Chevy Caprice did for years. Detroit ignored everything that Toyota and Honda provide. Our government already gives massive subsidies to farmers. That we, the taxpayers, should prevent these Big Three auto companies from doing as they so richly deserve to do, viz., go belly up, is beyond me. They ignored the calls of consumers who turned in droves to the magnificent products of Toyota, and now want people who didn’t want to support them by buying their cars to support them by bailing them out. This is ludicrous. It is as if the Big Three existed to support the UAW, rather than to provide the marketplace with desirable, sensible products. Do I feel sorry for the estimated one million people involved in the Big Three and the sale of their cars? Yes. But they knew that the business they were in, and were promoting by every working day, were sub-standard, shoddy, poorly made products, and they were collectively foisting them on us. It should be over now. The market has spoken and inasmuch as we do not live in a socialist state, the government should not rescue those who failed to heed the millions of calls from the marketplace to shape up their dismal products.
Lawrence,
As Roger has correctly pointed out many times, this is a liberal blog, not a conservative one, and both of you sound like true liberals. As a neo-(real)conservative, I’m interested in saving the way of life of Americans who prefer to live in Sarah Palin country — away from the coasts and the ugly, soulless dystopian commercial zones that free trade drives young Americans towards. We need an auto industry, and we need economic and trade policies based on an understanding that a nation that exists economically only to consume, invest and export crappy popular culture is a nation whose best days have passed.
The Big Three actually were doing ok in the nineties and first part of this decade, and their quality had improved quite a bit. The problem was their niche in the overall car market was light trucks and SUV’s. They made them because THEY WERE POPULAR. THEY SOLD. Part of the reason they sold was because of the ridiculously low price of gas, kept low by the refusal of the same people who voted against the bailout to accept any increase in the gasoline tax. Also, their refusal to raise CAFE standards. As a result, gas was cheap and the automakers moved to fill demand based on those low prices. Now, of course, no one wants light trucks anymore. (Or do they, given the new lower prices?)
Two more points about labor costs. The main REASON that Japanese companies in America have lower labor expenses is they haven’et been here that long and they have few retiree obligations. Second, lowering benefits and wages of the UAW workers to that of the Japanese plant in USA would bring the price of the average car down by … $800 per car. I don’t think that’s enough to make a difference in a Chapter 11 bankruptcy.
“…inasmuch as we do not live in a socialist state…”
Ay, there’s the rub.
David, I am not against free trade, I just want to see more labels reading ” Made in America ” both here and in the countries we are trading with. We need
some balance. State to state trading is fine but product’s made overseas over balances anything we are selling over their and all our workers are not living
the life you seem to think. Our own state government’s are in need, the streets/bridges and many neighborhoods are in really bad shape. Our schools are in dramatic need, and many children in this country are hungry on a daily basis. Our national debt is out of control, yet you seem to say all is ok. Thank G-d we are free to speak and present facts as we see them, however, being mean or nasty helps no one. We all love our country, it just hurts for some of us to see the situation we our in today.
Have a nice day
Have the Gate’s Foundation back them. Won’t add to the deficit. And they do want to help our country as well, don’t they. If they don’t they could be spending that much on helping American’s get by later.
“As Roger has correctly pointed out many times, this is a liberal blog, not a conservative one…”
Oops, no. I don’t consider it either, frankly. Those are pretty rusty old terms, in my view.
Anita, there is far more manufacturing in the U.S. than many people recognize. U.S. manufacturing output is the highest in the world, considerably in excess of China’s. Although some of the reduction in manufacturing employment is due to offshoring of work, much of it is due to automation and other productivity improvements–just as the % of the population working in agriculture is much smaller today than it was in 1900.
There is a lot that government policy could do to help manufacturing, especially by changing the way in which capital expenditures are expensed/depreciated. And there are a lot of regulatory actions that government takes that make it very difficult for many manufacturers to thrive or even to survive…see this, for example.
Markus: As Roger has just noted, this is neither a “liberal” or a “conservative” blog, and I can assure you my comments were factual and not on either side of the political spectrum. It does not further the exchange of ideas here to try second-guessing the political views of the contributors. When it comes to my own political views, I refer you to what Jeremy Irons as Claus von Bulow in REVERSAL OF FORTUNE, replied when Dershowitz tells him, after their first meeting, “You’re a little strange, aren’t you?”
“You have no idea.”
One thing that needs to be pointed out: large swaths of public opinion in the US, especially “elite” opinion, have long been hostile to manufacturing. Lots of stuff written in the 1960s and 1970s about how dehumanizing it was to work on the assembly line, often from a Marxist or Durkheimean perspective, probably some of it by people who are now mourning the disappearance of “good manufacturing jobs.”
More recently, Stephen Hardis, then chairman of Eaton (large auto parts company) conducted an interesting and depressing experiment. At cocktail parties, he would sometimes introduce himself by citing his educational background (he was over 50 at the time) and sometime introduce himself by talking about his work as head of a big anufacturing company. He got a much better response with the first approach. “It’s not only considered dull,” he says, “there’s an intellectual disdain for people who go into industrial America. It’s as if they can’t make it in these other parts of the economy.”
I am not a union member, nor a UAW supporter, nor a mindless booster of the U.S. auto industry, nor even of “Made in America” stickers. I am, in fact, a conservative and believe in the free market and free trade. But, I’d like to make a few points that most of the above posts don’t consider.
From first-hand experience as a consumer and as a close industry observer, neither Ford nor G.M. nor, to a lesser extent, Chrysler has made “shoddy cars” for at least 15 or 20 years. Especially in initial quality control, durability and mechanical/electronic component quality, they have been at, or very near practical parity (sometimes even exceeding them) with Japanese makers and, most times, ahead of European makers for about the last 10 years. A lot of the criticism of domestic American-made automobiles which accompany the comments on the federal loan controversy seems to reflect impressions based on experiences from 20 years ago, repetition of some uninformed media mantra or dubious but popular urban legends. Today’s reality is different.
Also, what is perceived as Detroit’s failure to respond to marketplace demands with “fuel efficient cars” is both highly exaggerated and misunderstood. The U.S. makers’ fleets now do have about the same percentage of high mileage vehicles as do their foreign competitors. However, historically, they have not been as large a part of their product line or as “refined” as their foreign counterparts until very recently. Rather than reflecting some delinquency on the part of our industry, this was due mostly to the demand in the Japanese and European home markets for fuel efficiency brought about by their traditionally much higher fuel prices. The Japanese and European auto executives have not so much had superior judgment, as fortuitous circumstances. This difference has been rapidly narrowing over the past 5 to 10 years, and that “refinement gap” in smaller vehicles will probably disappear in the next three or four years, if U.S. car development stays on the same arc as it is now travelling. Plus, both Ford and GM, in their Asian and, especially, their European divisions, have competed very successfully in fuel-efficient segments. They have actually done a fairly good job at what real corporations are supposed to do – respond to their real markets (not necessarily be able fully to anticipate volatile geopolitical and natural resource market changes) with vehicles people actually will want and buy and maximize their profits to the benefit of their shareholders.
The U.S. automakers biggest disadvantages by far are clearly in their current legal obligations to current and retired workers, mostly UAW members, but also, to a lesser extent, their white-collar workers as well. This gets to be a distinctly legal and political issue as it involves the possible abrogation of legal contracts and a question of “fairness” as to the breaking of long-held promises. On these issues hang almost the entire current predicament. While union power holds sway in state and federal legislatures, while additional and counter-productive environmental and CAFE standards add scores of billions of dollars to auto development costs and subsequent car prices, while government meddling in the financial sectors made private loans impossible for the “Big Three” and extremely difficult for their potential customers, the way to salvaging our car industry must now, unfortunately, pass through government.
To dismiss the industry’s request for a $14 billion dollar LOAN with industry oversight and at least some necessary concessions, while giving the financial sector a mostly condition-free BAILOUT purported to amount to trillions of dollars, is more than just short-sighted, wrong-headed and hypocritical, it would be disastrous for our economy, surely bringing depression-like conditions to a wide swath of our country already in the midst of a long recession. Think of this as the Smoot-Hawley act of the 21st century.
And, lastly, although not necessarily of the same importance, the Republican Party, if their veto holds, can kiss off any hope of carrying Ohio, Michigan, Indiana, and a few other states in our lifetimes. Those “values” voters will not much care about abortion, limited government, or issues of individual freedom as they’re waiting in lines at soup kitchens.
“Those “values” voters will not much care about abortion, limited government, or issues of individual freedom as they’re waiting in lines at soup kitchens.”
So all the workers will be laid off if GM files for Ch11? And they will never ever work again plodding hopelessly down to the soup kitchen each dreary day? Please. Spare us the Chicken Little scenerios.
What happens to companies that lose money is restructuring, not disintegration. Get a grip.
“The U.S. automakers biggest disadvantages by far are clearly in their current legal obligations to current and retired workers, mostly UAW members, but also, to a lesser extent, their white-collar workers as well. This gets to be a distinctly legal and political issue..”…it is also a financial issue. A very basic principle of accounting is the matching of costs and revenues. The costs of worker retirement should have been applied during the periods in which they were employed; to the extent that this was not done–apparently pretty substantial–the profits in those time periods were overstated.
I applaud davidfranklin’s comments, and, at least in my case, he is 100 per cent correct that the repair-prone GM cars to which I referred were, indeed, in the early 1990s. And, of course, he is correct to point out that the Big Three are perfectly capable of manufacturing “fuel efficient cars” because they do so for markets abroad with (what I deem both painful and necessary) high federal gas taxes, which I champion (and dread!) here at home. I appreciate and stand corrected on the points he has made so wisely and clearly. In particular, I do agree with his point that, “To dismiss the industry’s request for a $14 billion dollar LOAN with industry oversight and at least some necessary concessions, while giving the financial sector a mostly condition-free BAILOUT purported to amount to trillions of dollars, is more than just short-sighted, wrong-headed and hypocritical, it would be disastrous for our economy, surely bringing depression-like conditions to a wide swath of our country already in the midst of a long recession. Think of this as the Smoot-Hawley act of the 21st century.”
I refer fellow readers of Roger L. Simon’s blog to Joseph Stiglitz’s piece in the Financial Times
that begins as follows:
Chapter 11 is the right road for US carmakers
By Joseph Stiglitz
Published: December 11 2008 20:02
The debate about whether or not to bail out the Big Three carmakers has been mischaracterised. It has been described as a package to help the undeserving dinosaurs of Detroit. In fact, a plan to bail out the carmakers would benefit shareholders and bondholders as much as anybody else. These are not the people that need help right now. In fact they contributed to the problem.
Financial markets are supposed to allocate capital and monitor that it is used to good effect. They are supposed to be rewarded when they do that job well, but bear the consequences when they fail. The markets failed. Wall Street’s focus on quarterly returns encouraged the short-sighted behaviour that contributed to their own demise and that of America’s manufacturing, including the automotive industry. Today, they are asking to escape accountability. We should not allow it.
Despite his disclaimers, it’s obvious “davidfranklin” is a Big Three apologist and sympathizer.
Negative impressions of American cars aren’t based on dated impressions. My last two American cars were a 1993 Grand Cherokee and a 1999 Mustang, and my frequent trips to dealer warranty service (like three replacements on the engine mounts on my Grand Cherokee before 20K miles!!) are what turned me into a 100% Japanese car buyer. And of the two Hondas and three Toyotas I have owned in the last 15 years, none—-none—-has ever required warranty service. The only out-of-warranty service (besides scheduled maintenance) required by any was a new water pump in my first Honda at 87K miles.
So please drop the crap, “davidfranklin,” and quit trying to convince us Detroit cars are great but we consumers are just too stupid to grasp that fact. We have a basis for our judgments, a basis that is reinforced every time our rental car is a Big Three product and our skin crawls each time we have to get behind the wheel.
The basic problem with GM is that its executives and workers are collectively dumber than a pile of horse manure. GM’s problems have been obvious for a long time and the managers/workers have refused to even acknowledge them, much less address them. Proof? Take a look at this December 12 article from “Business Week,” and note that it was from December 12, 2005!
http://www.businessweek.com/magazine/content/05_50/b3963114.htm
GM’s problems were clear three years ago. And we are supposed they’re going to solve in three months what they couldn’t solve in three years??
The bill for decades of collective incompetence and wishful thinking in Detroit is now due, and a “bailout” will not change what must happen, but only make the day of reckoning that much more painful when it finally comes. And people like “davidfranklin” are the enablers who are trying their best to keep Detroit, and America, from facing a painful, terrible, but unavoidable and looming dose of reality.
Re: 21.Harry
While I would certainly not call myself an apologist for the so-called “Big Three,” as I have been actively criticizing them for over 25 years, I will certainly not deny that I am sympathetic to the millions of people affected by their current plight. So, go ahead and call me a sympathizer, if you wish. Whether you want to call me an apologist for explaining my assessment of the state of the quality of the current “Big 3″ offerings is a matter of your opinion. I formed my opinion from personal experience, looking first-hand at their organizations from the inside as a former and very minor supplier and data from 3rd party organizations such as J.D. Power, etc. However, if your knowledge exceeds mine on the topic, I’d be glad to look over any statistical figures you might have handy. Furthermore, I have a good friend that has had endless trouble with his Toyota Camry. Am I to extrapolate from his experience that “the basic problem with Toyota is that its executives and workers are collectively dumber than a pile of horse manure.” Just as that statement would of course be absurd, rude, crude and without merit, so, of course, is yours. As would judging a car company’s products from renting a low content “stripper” from a car rental lot. Both of your examples merely seek to generalize from your very small sample. Furthermore, I think I can gauge the quality of your thinking by the less than civil language you have chosen to both characterize these companies and their employees and, to a lesser extent, me. Perhaps you are doing so in order to avoid having to refute very much of what I had pointed out. Perhaps not, but certainly name calling is not very mature.
As to the last part of your reply, which is at least a genuine argument (one that you, not incidentally, barrowed from someone else) that bankruptcy would a better solution to the industry’s problems, I simply disagree.
What bankruptcy advocates seem to ignore is that, as far as I know, there has never been a bankruptcy so large and affecting so many companies and so many people, all in one economic sector, at one time. The reason that bankruptcy usually works, besides the obvious benefits to the small group of surviving employees, is that it spreads the outcome of failure over the broader, more successful economy which may allow the bankrupt company, throwing off its debts, to be leaner and survive, if it is not first broken up and sold off at fire-sale prices. One such example might be if a very small car company would declare bankruptcy. It could pay its industrial and service suppliers 10 cents on the dollar, reorganize, permanently lay off 30% of its workers, lower wages and benefits to the rest by 50%, and try to sell its cars to a public shaken by its very highly publicized failures with no real guarantee of its continued existence. Yes, for that small company in an otherwise good economy, this might work. Its suppliers might survive, as they would still be getting plenty of business from the other larger and healthier OEM’s. Its terminated workers might also find work with those same companies or move on to another more successful sector of the economy. Unfortunately, in the current instance, none of those conditions actually exist. It is very obvious to me that the near simultaneous bankruptcy of so large and wide a sector of the economy would not leave enough companies to provide new jobs for former employees. Their suppliers, having no or too few paying clients would also declare bankruptcy, forcing their own debt and laid-off workers onto what was left of the existing economy. The cascading effect would be enormous. Very few major businesses within at least what you might call the “industrial heartland” of America would be spared as, in the end, they nearly all depend, somewhere down the chain, on wealth created by the auto industry. And so does a smaller but significant amount of business and employment in the rest of the country. There is no boom anywhere in this country to take up the slack. And, lastly, there will not be any other auto companies eager (including the Japanese and their U.S. transplants) for the assets of a dissolved GM, Ford, or Chrysler when faced with the PR nightmare of “foreign” ownership of U.S. icons and the fact that the net effect on the economy will surely have already suppressed their own sales and cash reserves.
Sure, someday, this would all be sorted out in our resilient economy. But, in a shift as large as this one would be, it would take many, many years, in some cases maybe decades, for affected areas of our country to recover. What would we do in the mean time to deal with our disastrous economy? Accept mass homelessness and hunger? Make-work government jobs? Extended unemployment benefits and welfare? Does that ring a bell? Would that be the very attractive alternative? Plus, most likely the last great vestige of our industrial economy would be shifted “overseas,” leaving a very small industrial capacity to provide for emergencies such as needing sudden large ramp-ups for self-defense.
Also, I find the allied argument that we no longer have to make large, complex industrial products in this country any more, that we can leave that task to developing countries while we produce more sophisticated value-added products and services such as software, networking and whatnot, very unpersuasive. If they are smart enough to develop a car industry, they are smart enough to develop other high tech industries and provide their own services. We still must make real complex hard goods, in factories or whatever production facility is developed next, in order to support our higher tech companies and service industries and maintain a healthy economy. Anything else is merely wishful thinking.
Don’t know about you folks, but I’d much have my doctor deal with a mild, localized infection than a severe systemic one. It’s a rare bird who enjoys a fevered delirium.
davidfranklin, any aid targeting the Big Three would be much more profitably directed toward helping affected workers retrain for new jobs, even if it might mean (horrors!!) they may have to relocate from Michigan, Ohio, etc. Assistance with health care, etc., could, and should, be part of any transition. And some aid to affected communities would be justified in many cases. But don’t try to tell me Rick Wagoner or Bob Lutz are suddenly become more competent executives with a federal checks—-they’ll still be the same buffoons as before, just more solvent buffoons.
But you need to quit fooling yourself that any of the Big Three are viable in their current form. Like the old Soviet Union, they are simply unsustainable no matter whether you put in another $15 billion or another $150 billion. A draconian, top-to-bottom restructuring is going to happen no matter what. You are simply not thinking clearly if you believe otherwise. The Big Three already has a “severe systemic condition,” not a “mild, localized” problem.
GM and Chrysler are, for all practical purposes, already in bankruptcy—-if you publicly say you need billions or you’ll shut down in a few weeks, a filing for bankruptcy is just a formality. You’ve admitted you’re broke and the entire world knows it, so any argument against a bankruptcy is an argument against a fait accompli.
A bailout doesn’t address Detroit’s key problem, namely that they have alienated a substantial chunk of potential buyers, people like me who would never consider buying a GM, Ford, or Chrysler product. I bought a 2009 Toyota in early September, and only looked at Hondas for competition. How does Detroit plan to get back in the game with people like me? (Hint: a 100K miles/10 year warranty might be a good start.)
I might be able to sign on to a federal bailout for GM if it forced the sort of housecleaning a bankruptcy would, including removal of GM’s executives and board, voiding of labor, supplier, and dealer contracts, strict financial controls, and putting stockholders at the back of the line for any remaining crumbs. GM simply has to shed brands, production capacity, dealers, and employees to survive—-it must. A bailout to GM coupled with a business-as-usual attitude will only mean this problem will be revisited again and again. The cancer growing on GM should’ve been removed years ago; it must be removed now or it will just get bigger.
As for Chrysler, if Cerberus doesn’t feel like putting more of their billions of cash into it, why should taxpayers? And Ford, thankfully, has begun the process that GM has avoided, and I’m more inclined to grant them government loans than GM. To his credit, Bill Ford recognized his family’s company needed an outsider’s perspective, and I applaud that.
The best line of the day is quoted in today’s WSJ editorial:
Senate Republicans had more gumption. Led by Tennessee Senator Bob Corker, they asked the auto workers to show they were serious about making Detroit competitive again. In exchange for a lifeline from Washington, Mr. Corker wanted the union to set a “date certain” in 2009 for lowering the Detroit Three’s hourly labor costs to the average of foreign-owned auto makers in the U.S. He also wanted creditors to bring down Detroit’s total debt by two-thirds through an equity swap, making sure debtholders share the cost of restructuring.
The union’s counteroffer was that it would bring down labor costs in 2011, when its current contracts run out. Maybe we missed something, but we thought GM and Chrysler were facing bankruptcy now, not in three years. As Minority Leader Mitch McConnell said on the Senate floor, that sounds like “taxpayer money today for reforms that may or may not come tomorrow.”