I think I disagree with Obama on this one:
The struggling auto industry was thrust into the middle of a political standoff between the White House and Democrats on Monday as President-elect Barack Obama urged President Bush in a meeting at the White House to support immediate emergency aid.
Mr. Bush indicated at the meeting that he might support some aid and a broader economic stimulus package if Mr. Obama and Congressional Democrats dropped their opposition to a free-trade agreement with Colombia, a measure for which Mr. Bush has long fought, people familiar with the discussion said.
The Bush administration, which has presided over a major intervention in the financial industry, has balked at allowing the automakers to tap into the $700 billion bailout fund, despite warnings last week that General Motors might not survive the year.
Mr. Obama and Congressional Democratic leaders say the bailout law authorizes the administration to extend assistance.
Why exactly should we extend more aid to the automakers? Didn’t we just throw them $25 billion? How much more could they possibly need, and why don’t we just buy the damned things and sell them to someone who can afford them and run them properly- they can not be worth that much anymore. or we could just let them fail.
This is not a damned surprise. They had years to re-tool and build vehicles that got better gas mileage, were more efficient, and used new technology, and instead they spent all their time building behemoths and paying lobbyists to fight higher CAFE standards. It was inevitable that once there was a gas crunch, they would get hammered. Why are we bailing out people who engaged in what was obviously bad business practices for years. Their focus on SUV’s was the business equivalent of malpractice, yet they did it anyway because that was where the quick bucks were.
Not to mention, I am curious how much of GM’s fortunes are tied to their financial services sector. In short, I simply do not understand sufficiently the upside and downside to letting these companies fail. Why should we bail them out. What is in it for us? And if we keep bailing everyone out who engages in bad business practices, where do we draw the line?
Dan
If there is going to be a bailout there should be mandatory fuel efficiency goals and a requirement for a % of R&D to be put towards alternative fuel cars.
Genine
The only upside I can see for bailing out the automakers is because of jobs. A lot of low- middle income people would be hard hit. Also, Michigan is already suffering from a lot of shut downs. Its a very depressed area. GM going totally under would make it worse.
I hope that if Obama proposes a bail-out, that he ties stipulations to it like higher CAFE standards and new technology. Yeah, it would be a bail out, but it would be a bail-out done right.
I don’t know. But I really don’t think Obama is going to propose giving the automakers a bunch of cash and get nothing for it. I’ll have to see the details of the plan.
Jeff
Two words: Chevy Volt
If it is what they say it is. GM will have missed the big win by months.
kwAwk
The US automakers concentrated on their core business of making SUVs because they had a competitive advantage in that area over the Japanese manufactrers who had a competitive advantage in the small car market.
The automakers were almost goaded into this business practice by conservatives in this country who defined owning a wasteful car a national birth right. In Japan and Europe by contrast public policy and economic culture put the price of fuel at about 4 to 5 times what we paid for fuel. Our cheap gas policy, mantained by both Repubs and Dems for the past 40 years led to poor consumption habits and thus to poor manufacturing habits.
Now when the shit has hit the fan people want to point fingers at the auto industry and say why didn’t you do this, or why didn’t you do that? Well the reason is that we as a society provided them with incentives to do this and not to do that.
Andrew
What Dan said. For every 10 billion dollars, CAFE gets raised by 1 mpg.
greynoldsct00
Exactly, catering to the ‘piggie-ness’ of the American Public. And I don’t think congress was of any help to push them along (to improve standards) was any help either – everybody was too interested in making money. I think the oil companies have influence in this too (SUVs mean more consumption), like everything else.
DJShay
From what I’ve read, if the automakers go under, they take between 1 and 2 million jobs with them. That’s a nasty hit for the country. I agree it seems stupid to reward companies for driving their business into the ground, but I think those jobs need to be saved. The bailout should have conditions though, such as raising mileage, fast tracking hybrid electric vehicles etc.
SomeCallMeTim
It might be less expensive to briefly keep GM as a going concern that loses $X every year than to provided the appropriate benefits to both the region and the workers that would be necessary should GM disappear. I have no idea if that’s true, but that would be a justification rooted in fiscal prudence.
TheFountainHead
I have to hope that Obama’s plan here is to bail them out, and force the auto industry to re-invent itself in the terms of the loan. Otherwise, it’s good money after bad.
They can have the money when they make it their primary directive to produce the most efficient vehicles technology will allow.
zzyzx
"I hope that if Obama proposes a bail-out, that he ties stipulations to it like higher CAFE standards and new technology. Yeah, it would be a bail out, but it would be a bail-out done right."
From what I’m reading, that is indeed what he’s planning:
"Separate from his differences with Mr. Bush, Mr. Obama has signaled to the automakers and the unions that his support for short-term aid now, and long-term assistance once he takes office, is contingent on their willingness to agree to transform their industry to make cleaner, more energy-efficient vehicles."
As for why? It depends what the plan is. If we’re talking a loan that will have to be repaid, a (relatively) small investment right now could pay huge dividends over the next few years.
Atanarjuat
Mr. Cole, you and I are in absolute agreement on this. In a free market, an industry either succeeds or fails by its own endeavors.
I really do think it’s lamentable that capitalism has been somehow transformed into a philosophy of privatizing the profits yet shamelessly socializing the losses.
– A Country Whiplashed
jenniebee
@Genine: absolutely. I don’t mind the government stepping in as an investor, but like any big investor, it should be able to insist that the company it’s infusing cash into remove its head from its ass and get its act in gear. And since the government’s interest is not only (or even principally) measured in direct ROI but also in improving elements of the public space (like clean air and even temperatures and ocean levels) it should be able to insist that those concerns be met, at least until the company who needs help can buy the government shares back.
Public/private partnership, beeyatch.
On the other hand, I own a Corvette. How much do you think it would jump in value if GM had to shut its doors for good? I guess it would depend on the availability of after-market parts…
The Other Steve
Because allowing them to fail would drop our GDP by about 20%.
Yeah, they probably should reinvent themselves or die, but I’m not sure now is the time.
TheFountainHead
This is nonsense. Yes, the American SUV market was ripe for a decade and the sedan and compact market was being flooded with imports. That still doesn’t change the fact that anyone with a few working brain cells could have foreseen an oil issue and the rise of cultural environmentalism. Just because you can make money now, doesn’t mean you shouldn’t innovate if you want to survive–especially if you KNOW the product you’re currently making money off of is going to be an albatross around your neck some day.
Unless of course you know your government will just step in and foot the bill for you to play catch up in your R&D department.
El Cruzado
One thing I’ve noticed while living in the US is the wild swings in the price of gas. While kwAwk above is mostly right, Euro gas prices are usually in the 2x -3x range of US ones, but proportion is not probably the right way to look at it. In Europe (and Japan and other 1st world countries) most of the price of gas is actually taxes. That of course sucks if you just look at it this way, but it forces everyone to adapt to it and maybe more importantly in the short term it makes the swings in the price of gas milder. An increase of $1 in the price of gas from $2 to $3 is a 50% increase, while in Germany that probably translates to a 20% increase at best, meaning most people don’t really have a big problem with it (industries with small profit margins and heavily dependent on gas still hurt, like fishing).
Just 2 c to add.
greynoldsct00
I’d have to agree that this is a good idea. As much as I hate the bailouts, I don’t think we should let all the American auto makers go down. The job losses involved were reverberate terribly through the economy. And, if Obama can put those conditions on it, I’m all for it. I’d rather see the mismanaged banks tank first. More money for AIG? Enough already. Just my opinion.
Punchy
Dont worry, John, Obama wont be your President. It’s all so clear here what a fraud he is.
I have a feeling we should bookmark this site. Something tells me it will be nothing but pure comedy for years to come.
emptywheel
I started addressing these questions here, will have at least two more posts providing a more nuanced picture of the problems with the auto industry.
But as to the question of a bailout now. First, the $25 billion already given was intended to help the auto maker retool to build energy efficient cars–and that won’t be fully available for as many as 18 months, at which point it’ll be too late.
What they’re asking for now is a bridge to get across the credit crunch. GM has partly divested of its financial arm, GMAC, but credit is and always has been critical to the way auto companies do business: in addition to consumer loans, they make loans to dealers so they can buy cars, and rely on loans themselves to front the costs for contracts to suppliers. While the US auto industry has engaged in some shitty practices–specifically spreading loans out over more years, making it possible for consumers to buy more expensive cars, which leads to more consumers being upside down on their car loans–their practices are not as bad as the mortgage industry or the credit card industry.
I don’t dispute that the car industry is very short-sighted, but that’s not the only reason for their failure–a lot of it has to do with the legacy costs they pay that their competitors don’t have to pay, which makes them much less profitable, which in turn makes them much more risk-averse, not to mention that they have had to cut some important programs to meet Wall Street demands.
And while a lot of people don’t want to bailout these dinosaurs, not doing so will result in the precipitous loss of at least half a million jobs, and up to 1.5, with many other jobs being affected.
eyeball
This is a chance to test out the vaunted obama "citizen democracy / change.gov" machinery. The ideas expressed here are exactly what they need to hear: major strings attached; better mileage standards; bully pulpit calls for smarter vehicles; federal share of profits to repay treasury. I’m going there now — urge the same. let’s see if it has any juice, and this is a good test run.
Andrew
Europe was even less effected by the swing in gas prices than we were because the dollar was dropping in value while the price of oil was rising (in dollars).
CIRCVS MAXIMVS MMVIII
I agree that if businesses can’t sustain themselves they should fall; at the same time, I think there are a whole lot of auto-workers who would be unemployed and pissed if we let that happen.
It is my belief Obama is doing this to keep those people employed.
Comrade Darkness
I wish we weren’t bailing out anyone. It’s one thing to extend credit if credit were the only problem, but it’s not, these guys are hemorrhaging. Trouble is, after dumping 870 billion (counting the tax scam) on the banks, letting an actual physical industry slide into the gutter that needs a fraction of that seems petty. I’m not saying that makes it a good idea, just that Bush set an amazingly expensive precedent and the perception that Obama is cheap and cruel is going to be hard to fight.
The automaker situation strikes me as great means of arguing for single payer health care into the U.S. Offer to cover the workers and retirees just to lighten the burden on manufacturing.
jenniebee
@Atanarjuat
If an economy succeeds or fails by the endeavors of a major player in a free market, then the profits are privatized and losses are socialized without the government having to lift a finger.
You might consider thinking about what endeavors are necessary for a country to succeed or fail, and whether a country might deserve to fail if its citizens sit back and let a decade go down the economic tubes because our hands are tied, tied! by the sacrosanct FREE MARKET.
mogden
Yes, this is 75/700 as stupid as the bank bailout. Which is to say, horrifically stupid.
Shade Tail
Mr. Cole: I’m not saying I agree with this, I’m still thinking about it. But here is a perspective, from a liberal, about why GM should be bailed out. At the moment that I’m posting this link, it is at the top of the page. If it isn’t when you click the link, just scroll down until you find "Why I think GM is worth bailing out."
http://www.idrewthis.org/
chopper
meh. the volt’s battery systems aren’t even really ready yet. it’s great on paper, but i really don’t think that chevy would be able to pull themselves out of the fire by putting all their chips (ack, too many metaphors!) on a brand-new, untested platform. chevy is not a leader in hybrid tech.
Napoleon
For 29 years, after buying my first car a new Chevy Citation in 1979 that was a complete lemon, I have been wishing for GM’s bankruptcy and have not bought an American car since. Needless to say I am against a bailout.
We are talking about a company with a climate change denialist in one of the top positions and that cried and whined when the US tied to make as a condition of a loan to them to improve fuel mileage and make their vehicles more green.
Blue Meme
First, let’s be clear about responsibility for the problem:
–It isn’t that Americans can’t build good cars: Toyota, Honda, BMW, Mercedes and others build cars here, and are not asking for bailouts
–It isn’t that Americans can’t design good cars: most foreign car companies have lots of American designers, and design centers in the U.S.
–But it does appear that Americans can’t manage companies that build good cars: decisionmaking in Detroit has been catastrophically bad from 1973 onward. We are on fuel crisis #3 (at least), and they STILL were caught flatfooted.
Understanding the problem should inform the solution: (a) fire the damned management, (b) or sell the assets to better-run companies. It is probably politically unworkable, but selling GM Chrysler and Ford off to better-run companies (with some employment guarantees) is probably the best macro level outcome we could hope for at this point.
Writing Paulson-sized checks will just reward bad management and consolidate teh stupid.
chopper
yeah, i’m seeing somefin odd about this too. the japanese companies put out tons of SUVs. and the domestic companies had many small, efficient models as well.
where the domestic companies really had an advantage was in the truck market.
jenniebee
Zomg Punchy: hi-larious.
Is there a LOL for Laughed So Hard I Cried?
Jay
The total market capitalization of the Big Three is only around $10 billion. Instead of bailing them out and then trying to cajole management into acting responsibly, why not just buy the damn companies, fire all the executives, and then put in new, cheaper management that is actually accountable to the taxpayers?
Buffalopundit
Detroit’s problems did not come suddenly or unexpectedly. While the ROTW has been dealing with ridiculously high fuel prices for decades, domestic automakers continued churning out gas guzzling crap with visible flashing on the dashboards.
I’ve graphically outlined exactly what Detroit’s problems are/have been, and Ford, GM, and Chrysler have no one to blame but themselves.
Pontiac Aztek, anyone?
And none of them have any reasonable excuse. GM has Opel, Ford Europe makes great economical vehicles, and Chrysler was owned by Mercedes for God’s sake.
Genine
@emptywheel:
I think if Obama has some major strings attached. This could be a bailout that could see some real, tangible effects for the rest of us. Yes, it may not be soon. But its something we will see in terms of a million jobs kept, and cleaner more efficient cars. I think we might get a lot for our $25 billion. More than we seem to be getting from Wall Street.
But the auto industry was short-sighted, but then that seems to be disease of a lot of companies. Short-term profit was the buzzword of the last two decades or so. I hope this year is a wake-up call for a lot of folks.
Napoleon
Buy the way Obama should make it a condition of any aid that they get on board with health care reform. Even though financially it would have helped the automakers during the Clinton administration to have his health care plan pass the ideologues who run the automakers helped kill the Clinton plan (and they may not be where they are today if it had passed).
RWB
I am amazed by all the people here saying it was "obvious" that energy prices would go up and that environmental pressures would increase. I suggest mentally going back to the late 80s and most of the 90s for a period when oil prices were resolutely low. Energy companies were going bankrupt and merging like crazy. Of course everyone knew that oil production would fall and that oil was ultimately finite, but for year after year for more than a decade, the price of oil stayed low and even declined.
Given this environment, and given the low interest rates of the 90s, it’s hard to imagine what else Detroit would have done but go heavy on the SUVs and Pick-Ups. As one commenter said, this was the one area where they already had a competitive edge on their Japanese and European counterparts. And let’s face it–the Japanese and Europeans jumped on the SUV bandwagon as quickly as they possibly could.
If the United States had wanted to arrest this commercial behavior by the U.S. auto makers, it should have done so using regulatory tools–like a higher gasoline tax, or tougher CAFE standards. But we didn’t.
Now maybe it makes sense to let GM, Ford and Chrysler go bankrupt. It would allow them to reorganize in a way more financially favorable to themselves. But there is a reasonable fear that consumers will be reluctant to buy from a bankrupt car company on the basis that they won’t know if their warranties will be honored. (Indeed, this fear may be preventing some buyers from going with Ford or GM even now.) That could turn the reorganization (which most think is a good idea) into a death-spiral (which helps precisely no one).
I don’t know what the right answer is–I’m not that wise and I find merit in arguments on both sides. But I do sympathize with car-makers. They made some bad choices, but they were also victim of circumstances and market forces over which they had no control.
Justin
Probably for the people they employ and will employ more than anything else. If a bailout has strings which force them to make more efficient vehicles while preserving, and perhaps expanding jobs, then maybe it’s a good idea.
james r rohrer
ONE BUSINESS FAILURE IS ANOTHER ONES SUCCESS; WE JUST NEED TO’LOOK ‘FOR BIG THREE AUTOS REPLACEMENTS TO MAKE A LIVING AS THE BIG THREE WILL BE REPLACED SOONER OR LATER
Montysano (All Hail Marx & Lennon)
This is only one of a number of dilemmas where both choices are equally horrible; e.g. bail out AIG or let it go down the tubes.
Republicans are were good at winning elections. They, along with many Dems, were expert in the worship of unbridled free markets. However, when it came to governance and leadership…. not so much.
Heckuva job, Brownie.
RememberNovember
It’s no surprise that we reward failure with billion dollar cookies. we reward this country with one of the biggest failures in 2000.
Back in the day, when automakers sucked, they regrouped, put their noses to the drawing boards and made better cars.
Remember the "K" cars?
They got fat off the land with SUV’s and when that cash cow went to the slaughterhouse, they had no back up plan.
Problem is there are too many models- Nissan puts out half a dozen, that’s it. They focused on quality.Ford has dozens. Chevy has dozens,Chrysler, etc. The more models you have the more retooling you do on the line, calibration etc and the more plants you need to build to equip those lines. What a deviation from it’s original line where you could get any color so long as it was black..
Zifnab
And for this crime against commerce, they should fail. I think the problem is rooted in the jobs market. If GM fails, you have a flood of unemployed machinists and engineers and accountants and car dealers. If you want to get rid of a dinosaur like GM without committing political suicide, you have to have a sponge to soak up all those lost jobs. Ultimately, we need some sort of WPA to fill that role.
Investing $25 billion into construction projects and infrastructure initiatives would soak up the lost jobs and let GM collapse. Offering tax breaks and incentives to smaller US auto start up companies could pave the way for a newer, younger, more effective auto market.
GM is dying but its not dead. It still sucks up billions of dollars in contracts and sales. So long as GM exists – kept on life support by government bailouts – we’re never going to see a rival emerge from within the states. Capitalism only works when you’ve got competition and GM just doesn’t have any domestic competition. :-p That’s the flaw in the current economy. Businesses collapse spilling jobs everywhere and no one steps in to fill up the gaps because no one can compete with the husk that remains.
Don McArthur
In a rational world the first step for any corporation seeking a financial bailout from the taxpayers would be to staple the resignations for the board of directors, the CEO and the upper management team to the front of the application. But we reserve such Calvinist sternness for welfare mothers and drug addicts.
qwerty42
I think it is both the direct and indirect costs of failure: whole industries depend on Detroit, so job losses would cascade through the economy. Then there would be the matter of the stockholders; auto industry stock is widely held — a bankruptcy would wipe them out (and obviously, some will be held by pension funds). Detroit made a succession of stupid moves — but all of this was encouraged by stupid gov’t tax policy and equally stupid emissions standards. All of this (I gotta confess) involved both parties, both labor and mgmt and anyone else who had a stake. Now it has to be unwound and it won’t be easy. It doesn’t mean I’m in favor, but I am not automatically opposed.
Napoleon
Why? Oil is a limited resource that anyone with a brain knows will run out and that a transition would have to be made. You could argue about when it may happen, but anyone who was honest knew it was going to happen.
GM is like a guy who happily goes around having unprotected intercourse with hookers even though he knows if he keeps it up is going to end up with a STD, who then acts surprised when he wakes up one morning with the clap.
gwangung
Doubtless, you’d be surprised that a plane would start falling if the engines stopped producing.
I think you may be focussing way too much on the short term and doesn’t allow for nimbleness in the face of events that could occur (and HAVE occurred in the recent past).
jim
GM has been going under for many years now – consistantly losing money, even during good economic times. They knew damn well that continuing production of SUVs after circa 2005 was a long-term nightmare, & went ahead & kept pumping them out anyway. It’s a textbook case of toxic management.
If they’re not going to ruthlessly fumigate the top echelon, you can count on them being in exactly the same mess in another year or two. Either they get rid of the deadwood at the top or they become a permanent basket-case, no matter how good the terms of any rescue-package.
They’ve already had de-facto subsidies in the form of low CAFE standards, Pentagon lolly (think Humvee & APCs), & low oil prices, & none of it has done any good … not to mention that the costs of retooling away from luxury-sedans & SUVs in a recession will be onerous in the extreme … I think GM knows it can use its sheer bulk to extort money from the government every time another bad report comes out – so they have an incentive NOT to improve: staying stupid = money for nothing.
The business of America today is Corporate Welfare – & business is booming.
justcorbly
At least 10 percent of the American workforce is employed by the auto industry or by its dependent industries. No sane government is going to do nothing while 10 percent of the workforce is forced onto the dole.
The government should step into to rescue the Big 3, but they must be very different companies when they come out the other side.
burnspbesq
@Blue Meme:
If we the people are going to give the auto companies what they are asking for, why not just buy the suckers. Their combined market cap is no more than $10 billion. Put the Secretary of Energy on the compensation committees of their boards. Then you’ll see some creative thought from senior managment.
Florida Cynic
The idea that propping up the the not-so-big 3 is going to save jobs is simply wrong. GM, Ford, and Chrysler are all going to have to radically restructure if they are going to survive as ongoing businesses, and that is going to mean a lot of cutting. They also already have recourse to do what they need to do: Chapter 11. I’d rather see my tax dollars go toward retraining the displaced workers than prolonging the inevitable.
jrg
I say screw the shareholders, the bond holders, and the upper management. Let them lose their equity and leadership positions.
As for the companies themselves, yes, we should keep them functioning. We’re going to need more fuel efficient (and electric) cars in the coming years.
If we have to subsidize GM operations in the short or medium term to make sure that American car companies get a piece of this new market, it’s probably worth it in the long run (both in terms of government revenues and GDP).
cgp
I’m biased. I live near Detroit. But there are a lot of jobs in the auto industry. If you haven’t heard this a dozen times already (we know it here because we’re in the city) — It’s not the big 3 that are the problem, it’s the suppliers. This will be a huge hit to the system if some these companies go under. Housing prices (certainly in the Detroit area, but elsewhere in the country as well) will take an even further hit as hundreds of thousands of workers are displaced. Unemployment will unquestionably shoot up.
Again, I’m biased. I have stated a number of times in other situations that the auto companies need to get their stuff together — I could go on for a long time about how the auto companies insist on outsourcing everything in the hopes of cutting costs instead of focusing on their product.
How to support/save the auto industry – Giving them money is probably not the right answer but it might have to be the short term answer.
I didn’t live through the unemployment of the 70’s — I can’t tell you what that was like. I’d be willing to let that happen if it meant we got a lot more competitive auto industry which did manufacturing in the US. But it’s a lot easier to underestimate the impact that losing the auto-industry would have than overestimate it. It is much larger than most people suspect.
Zifnab
Have you filled up your tank recently? Gas is selling for around $2 / gallon. Suddenly, SUVs aren’t the financial anchor they used to be.
How did gasoline jump from $2 to $4 back down to $2 so quickly? Did we suddenly run out and then stumble on a bunch more? Fuck no. Energy giants and speculators took everyone for a ride. The well-market price of oil didn’t fluctuate by 100% and there’s no way the oil companies could have predicted such a maddeningly quick spike and collapse.
Admittedly, GM scrapped the EV-1 (and every other major car company followed suite) back when California balked on their zero-emissions standards. But whose fault is that?
This isn’t about laying blame, this is about recognizing economic reality. GM failed because they failed. I don’t think we should be punishing them, but I don’t see the reason to keep them on life support when they’re just taking up all the oxygen in the American automotive market.
crack
Yeah with the price of gas how can anyone afford to get to work. I mean it’s all the way up to a dollar 90 here. This high price was definitely unforeseeable. There was no way that market manipulation shouldn’t have been expected by the automakers.
This shows a lack of knowledge. Toyota et. al. have assembly plants in the US. They also have none of the legacy costs. GM has a deal to shed much of its legacy health care costs, but the huge one time payment it has yet to make may be impossible for it to make. If a health care deal could get done quickly it would help the entire US manufacturing sector become cost competitive in short order.
Bob
First of all, the automakers haven’t received a penny of the $25 Billion yet.
Second, would it change your opinion if you knew that the US automakers have virtually no access to the second largest economy – namely the Japanese auto market? This puts the Japanese makers at a huge advantage especially in the smaller car sales, where they can pay off the R&D through sales in Japan. The US autos have a ridiculously small, small car market to pay off that same R&D. Imports in Japan account for less than 10 percent of car sales. In the US, it is 50 percent.
Third, small cars don’t make money, so don’t blame them for not wanting to build more of them. Auto experts have long thought that even super-efficient Toyota makes little money off its small cars and likely either breaks even or loses money on every Prius it sells. Unless gas returns to $4 a gallon, American will continue to see small cars as economy cars and will be unwilling to pay a significant price for them to be upscale and profitable.
Forth, the US car industry employs 3 Million Americans and supports millions of retiree’s health and pensions. AIG, which received over a hundred million bucks employs only 100,000 worldwide.
Fifth. The automakers have a better track record paying back LOANS. When Chrysler received similar loans in the 1980’s, they paid them back early, with interest. Do you think AIG and the banks will ever pay back theirs?
TheHatOnMyCat
Um, assuming that you are not just trolling …..
First, to prevent (or at least tamp down) a jobs and consumer economy collapse, and ….
Second, because the automakers have been crippled for many years by onerous legacy workforce costs (like healthcare for
retirees) that their competitors don’t have to bear. These costs saddle each unit they sell with higher costs and lower
profits, and force the car companies to make less than optimum investments in quality and technology, thereby reducing product quality and desirability. The aid you refer to just serves to even the playing field a little at a critical time
(see my "First," above)
Senator Obama’s US Senate website has said this for a long time (this material is dated April, 2007)
"The Big 3 automakers rightly argue that their retiree health care costs, expected to be $6.2 billion in 2006, hurt their ability to invest and compete."
This item dated 2006 contains more detailed information:
Third, it’s necessary to understand that Ford and GM do not operate under the same business model as Toyota and Honda.
Whatever else you might think about those four companies, being a Japanese carmaker is not the same as being an American automaker. Unless the business models are competitive, the products, and the companies, cannot be competitive. That’s why Senator Obama has been advocating this kind of assistance for years, and he is right to do so.
Fourth, it going to be a lot cheaper — for everyone — to prop up this industry now than it will be to try to backfill the
economic support necessary to make up for its loss down the road. It’s a case of pay me now, or pay me later.
The US does not want to be in a second-rate position in the global economy. Trust me. Aggressive measures that help prevent that from happening even temporarily are well worth the investment.
Laughingriver
How the hell do you let them fail?
Millions and I do mean millions of people have fairly new cars from these automakers. WHo will service them? Who will perform warranty service, who will provide parts.
This could easily affect upwards of 5-7 million people in terms of employment. Service centers, dealerships, factories, automative parts stores, aftermarket stores, tire stores, shit the list goes on.
No to mention, this goes to the crux of our economic problems, destroying our industrial base, this would literally put an end to it outright. It would be much better to bailout the automotive industry with clear plans for recovery than it would to bailout wallstreet investors…
Mayken
Well, it’s really selfish and stuff but, my job is why. I don’t work for GM directly but I do work for a division of a rather large company that provides auto parts and diagnostic equipment – our division’s largest customer is GM. So, yeah, I’m not too hot on the idea of just letting the Big 3 fail.
I, too, recognize that GM et al have planned poorly – an acquaintance of mine who works for a non-US car company used to joke that they watched GM very closely, then did exactly the opposite of whatever GM decided to do. I do agree, however, that GM sold what the market here in the US demanded. The short-sightedness was on both consumer and manufacturer. (Not to mention the Federal government.)
So in short, yes, please save my job and that of millions (I heard something like 6 million when you count all the peripheral companies attached in some way to the Big 3) of others’. I’m in IT and I know other IT pros in my area who have been out of work for more than a year. There’s no finding another job here. And this is California. I cannot even imagine how my co-workers in Michigan will fair.
Jason
Lots of good points here. I tend to fall into the "Detroit did it to themselves" crowd. One thing I haven’t really seen mentioned is that I feel like every few years someone writes an article about the massive legal and regulatory barriers that Detroit lobbied for in order to protect themselves from competition. It isn’t just that they’ve been making bad product for decades, it’s that they’ve been making bad product while making sure that no one else can even try to do it better in this country. This goes all the way back to the Tucker. I think a bailout needs to be tied not only to higher CAFE standards, but to a massive change in the way that the auto industry is regulated. Surely it’s possible to protect public safety without stifling competition.
TheHatOnMyCat
Amazing. Amazing that anyone could say something so completely boneheaded, with a straight face.
Maybe you’d like to hang around and talk to some Circuit City employees today if you think that Chapter 11 is a safety net for big corporation jobs?
Multiply Circuit City by thousands. The shock waves of a GM failure would flatten businesses and governments in every corner of the country.
A government that stands by and lets something like that happen is guilty of criminal neglect.
cain
@RememberNovember:
They got rich off their product and like good managers should have re-invested back in their R&D but they didn’t. Instead, they started giving higher compensation to their executives and now their stuck. They should drop compensation to their executives who got them into this mess. Decisions should have consequences.
cain
Nylund
Autoworkers make up a lot of union workers. Union workers throw their weight behind the democrats. Obama is beholden to the unions and to the powers that be in Michigan, etc. Its one of those things you gotta do as a democrat. Its the sort of thing you forget about after 8 years without much political power, but now that the dems have the White House again, we’ll soon remember that we too have to dole out our fair share of favors to those that helped get us here.
TheHatOnMyCat
I tried to add this to my post at 57 but the user-friendly post editor screwed me over:
Bankruptcy law is mainly protection for creditors. It was not intended to be a jobsaver for large corporations, especially for failures on the scale of a General Motors or Ford.
thingsbreak
John,
This has to do with Obama’s economic/energy/infrastructure/climate agenda. Creating a smart grid with PHEVs that can be used to offset peak electricity demand is fundamental to his vision of recovering from the financial crisis and rebuilding the economy. You can be assured that whatever "lifeline" he is offering to Detroit, it comes with significant contingencies that will help him in terms of the broader agenda.
There is a game plan here, and as with the primaries and the general election, it is longterm and may not please everyone initially.
Best,
TB
Balconesfault
The Ford Freestyle
Last year, when I needed to replace our old Windstar, I went looking for something that could seat at least 6 (still drive the carpool once a week), but that got better milage. Settled on a used 2007 Ford Freestyle, which had a 3.0-liter twincam engine. It’s been getting me 27-29 on the highway (65-70 mph), and 21-23 on local driving (combo of suburban highways at 60 mph and downtown stop and go driving).
What did Ford do for 2008? Stopped the Freestyle, but took the chassis, stuck in a 3.5-liter engine, and called it the Taurus-X. Cut fuel economy by about 20%.
Idiots.
Apparently, there is some belated intelligence over there, as they’re bringing the Freestyle back with the 3.0-liter in 2009. But a reactive Detroit lobbying Congress to allow it to stay regressive and reactive did significant damage to America up to now. Sending the same damn fools a lot of money should only be done in concert with Detroit backing off and letting Congress slap some serious bumpage on the CAFE standards.
bvac
Not to mention, I am curious how much of GM’s fortunes are tied to their financial services sector. In short, I simply do not understand sufficiently the upside and downside to letting these companies fail. Why should we bail them out. What is in it for us? And if we keep bailing everyone out who engages in bad business practices, where do we draw the line?
Without a strong financial services sector, people can’t get car loans and GM doesn’t sell any cars, period.
If GM fails, the US loses much of its machine-tool capacity. They make more than just cars, you know.
Throwing money at the problem isn’t going to do anything, the federal government has to create programs that put the auto industries’ machine-tool capacity to work – building light rail and the infrastructure for tomorrow.
Comrade grumpy realist
I’m one of those who thinks that GM is too brain-dead at the top (and in the unions) to survive without large handouts from the gov’t. The UAW is already whining and stamping its feet and refusing any more "cuts", and GM upper management is still far too occupied with those mean CAFE regulations and their salaries and the "size" of GM (look at the proposed Chrysler/GM merger–now that was a laugh!)
Feh–stupidity should hurt, and both the UAW and GM have been very, very stupid for a long time. The problem is, they comprise a very large part of the US economy.
Heck, go ahead, have the US Gov’t simply BUY the companies, axe top management, and tell the UAW to shut up and take what they’re given or leave.
Montysano (All Hail Marx & Lennon)
@Zifnab:
Exactly. Per Kunstler this week:
Let’s all hope that 9.1% is a one-year thing, because an annual drop in production of that amount puts us at 50% of peak in less than 10 years. I don’t think that will happen, but it just illustrates the enormous problem on the horizon.
Objective Scrutator
Don’t count on it. So far, the only real efforts American automakers have put into researching alternative fuel sources are the hybrid small SUVs (and the hybrid Chevy Tahoe), which don’t exactly increase gas conservation by that much. They certainly aren’t worth the price increase. I have my doubts that GM is going to be able to come up with a car that good when they’ve been lax researching electrical based (full or part) cars.
I happily join this chorus.
In short, the American car industry has fucked themselves. Trying to give them handouts to make more cars isn’t going to work, because they’ve basically scrapped any serious attempt at making small cars. Ford gets nearly all its chassis platforms from Mazda, and now that Mercedes chucked Chrysler, there’s not going to be a particularly refined platform for a Hemi like the 300C sort of was. (Incidentally, Iraq Hussein Osama drives a 300C, yet does not want us to. What a hypocrite.)
I’m sort of surprised that GM might beat out Ford or Chrysler to their demise, since I thought that GM had the best management of the three. Chrysler’s pride and joy, the minivan, is now Honda and Toyota’s pride and joy. Ford’s always had a really poor leadership that often tries to pander to the labor union Mafiosos and the homosexuals.
TheHatOnMyCat
Because they couldn’t give them away. Complete sales failure. They reacted to the main complaint against the car which was that it was underpowered.
If the next question is, why were they pursuing that market segment in a time of high fuel costs, the reason is that Ford has not been able to make a profit on the sale of smaller cars for a long time. Their Focus came in as one of the biggest selling cars in the world, but they couldn’t make any money on it because of unit costs being too high. High unit costs pushed them into the the high-profit SUV and truck segments and made them top-heavy in terms of product when fuel costs started to erode those big-vehicle sales.
And an idiotic automotive press didn’t help. Competing favorably with the Civic, the Focus lost public approval because the press hammered Ford on every quality issue even though the cars were doing as well on the road as the vaunted Civic was doing. Only the manufacturer really knows how reliable its cars are, anecdotal owner reports and press releases from NTHSA don’t tell the true story. And the point is, the manufacturers don’t share their data on these things … with anybody.
Don’t get me wrong, I love my Civic, but it’s no better a car than the Focus I owned six years ago. The biggest difference between them is the business models behind them. One is a whored-out rental car, sold at a loss, and the other is a prized resale item in the used car lots … but not because it is a better car.
comrade scott's agenda of rage
Anybody interested in a truly independent look at the auto industry, go to The Truth About Cars. They talk loads about the Big 2.8.
NickM
Wow – we had to wait 59 comments into a thread about what is wrong with Detroit to get to blaming the people who work building cars. It is a new day.
If the American auto industry dies, we’ll take a big leap towards being a country that produces nothing much more lasting than chicken nuggets and reality TV. Is that really a good idea in the long term? I can’t think that it is.
gopher2b
The government should not do anything. It shouldn’t "invest" in the industry. It’s throwing money away. There is a big HUGE difference between buying preferred stock in Goldman Sachs, for example, and buying GM. The auto industry in this country is dead. Get over it.
Of course the great irony here is that the party who worries the most about global warming wants is taking the lead in advocating for the government subsidized survival of an industry that is failing because they refused to manufacture anything other than gas guzzling SUVs. Let it fail.
Take the $25 billion and offer it up a reeducation, relocation, and small business loans to the million that will lose their jobs because, one way or another, they will not be working for the automobile industry in five years (unless they move to China)
TenguPhule
Damned if you do, damned if you don’t.
gopher2b
The unions contributed a great deal to killing the industry so yeah, it is (at the very least) partly their fault
Comrade Dread
As others have said, they’re effectively holding a fiscal gun to the head of their workers and threatening to blow their brains out unless we cough up the loot.
No Democratic politician in his right mind is going to tell tens or hundreds of thousands of good Democratic voting Union men and women to go pound sand to hold to a free market principle and teach GM a lesson.
So, we’ll cough up the loot, and if we’re lucky, they might wring some lame half-ass concessions out of them that the auto industry will bellyache over, but won’t change a damn thing.
Welcome to Washington…
Jim
Why give them any money. Just pay for retraining for autoworkers so they can move on into the _________ industry. Oh yeah, good luck filling in that blank. This country doesn’t make a damn thing anymore. Just where are all these workers going to go? How many more consultants can this country handle? You let the auto industry go bankrupt now and we’ll have our new Great Depression lickety split.
TenguPhule
And the zombie corpse will eat the brains of anyone stupid enough to let them fall.
They hold American jobs hostage. And the sheer ripple effect of the votes in play makes it a third rail.
CIRCVS MAXIMVS MMVIII
Yes we do. We create really lucrative (for those at the top) pyramid schemes.
TheHatOnMyCat
To do what? Work at McDonalds? What jobs are you going to train them for, in the new depression-America? Do you imagine that you will retrain assembly-line workers to be cosmetic surgeons, or IT project managers?
Amazing, amazing stuff you read in here.
RememberNovember
@Cain
In the words of Daffy Duck, "Consequences shmonsequences, as long as I’m rich."
Foxhunter
Objective Scrutator, you got the whitey tape, too, don’t you.
Obama drives a Ford Escape.
Thanks for trying, though.
sparky
@NickM: exactly. all Americans are just going to have to share the consequences of stupid decisions made by the auto companies and DC folks for the last 30 years. at the end of the day, Americans collectively are responsible for the mess we are in.
it’s unfortunate, and it sucks, but the alternative is a catastrophe. you simply can’t have an functioning industrial economy with no industrial base. at least not in a country of 300+ million.
i don’t know what the solution is, but i would guess at some kind of government partnership, where the stakeholders get board seats ala the unions. incidentally, i think it is safe to say that the unions at this point are also pretty frightened about what might happen, so i don’t think they expect a perpetual handout. would that the same could be said of AIG.
Don McArthur
The ultimate flaw in globalization. Humans aren’t fungible, IQ matters, and you’ve set our average citizens in competition with billions of people willing to work for what we would consider nothing.
The only beneficiaries of unfettered globalization are CEOs, majority stockholders, big ticket consumers and attorneys.
gopher2b
They can work in the coming alternative energy industry that is (god willing) coming soon. Of course they will have to move from their precious Detroit and Ohio but tough. People move for new work all the time. I’ve never understood why the upper midwest should be an exception.
Foxhunter
@TheHatOnMyCat:
Couldn’t agree more. I have relatives in south Georgia and they *LIVE* off of the farm subsidy. One reason why so many rurual and family farmers became irritated with Saxby Chambliss involved his tip of the cap towards large corporate farms, cutting out funds for the little guy. I love my family, but as long as our ‘free market’ gov’t continues to hand out money to farmers to ‘not farm’, they will not go out and learn a new trade. Why should they…it’s free money that pays the rent.
I’m mixed on the money being tossed to the autos, but people aren’t going to retool their mind anymore than the auto industry is going to retool their facilities as long as there is no incentive. Just keep taking the free money and make the same stupid and archaic decisions.
Ben
It’s the health care system… it all comes back to the fact that we inflict the burden of health care costs on the employer. It’s crippling American companies.
patrick
bullcrap. the automaker’s problems are a systematic problem of Wall St. in general. To keep shareholders happy, companies end up focusing to maximize short term gains, which usually comes at the cost of thinking for long term viability. you see this now in the collapse of the financial sector as well. Don’t forget, Toyota has more SUV platforms than even GM.
They built trucks & SUV’s because that’s what people wanted. As others have said, our energy policy, by both stagnating CAFE, and by discouraging conservation (cheap fuel), created that demand. just imagine how much better the OEMs & our infrastructure would be if gas taxes were slowly raised to double, triple, or quadruple what they were at the end Clinton administration , when times were booming vs. where they were in ’92. the SUV/truck market would have been tempered, and focused manufacturers towards more fuel efficient products, as that’s where customer demand would be, we’d have much more funding for infrastructure improvement, and we would be using less oil.
Some other factors playing against the domestics are years (decades) of currency manipulation by Asian governments, lack of access to Asian markets, and the fact that all other Countries that export cars here have some sort of socialized health care which takes a heavy burden off of the manufacturers’ balance sheets.
Zifnab
No no no. You can’t fix this problem by creating an even bigger and more monolithic super company. Turning GM and Ford into Fannie and Freddie does not solve the auto crisis.
I’d like to see anti-trust provisions leveled against the giants and have the Big 3 get broken up into something more like the Big 12 (/pun Go Horns!) Take the giants apart and see which components can still survive on their own. Then, if the SUV division fails, employees can float over to the small car companies. If the parts division is not cost effective, another mid-sized company can step in to supply radiators or engine blocks or paneling for assembly.
Give smaller, better companies a chance to compete.
Microsoft would never have gotten off the ground if IBM hadn’t been allowed to fail. Chili’s and Denny’s couldn’t exist if Bennigans was constantly taking government handouts to prop up its industry. Southwest Airlines wouldn’t exist if Delta and American Air got as many sweetheart deals as Ford and Chevy.
If you want domestic alternatives, you have to clear a place for them to grow. The Big 3 are occupying that space. They need to be cleared away.
TheHatOnMyCat
A few years ago I stood next to a machine under construction in a factory in Michigan. The machine took in assembled auto engines at one end and moved them out the other, tested and certified for the next step in production. It quickly measured tolerances and gaps and listened to the sounds the new engine made when its innards were made to rotate and interact. The machine was part of a series of machines that cut the cost and increased the quality of car engines in a newly retooled factory.
The machine was hand made, about the size of a large Winnebago, and took a year to build. It cost its purchaser about $20m. The capital costs in this industry are staggering.
The idea that "executive compensation" is somehow a big factor in automotive economics doesn’t quite rise to the level of amusing. Check the salary of Bill Ford. I think it’s one dollar a year, not including stock transactions. Considering the price performance of Ford stock lately, I’d say that it would be hard to get rich on Ford stock in the last decade. Considering that the Ford family has long had a majority interest in the company, I’d say that their net worth has been heading south for quite a long time, probably circling around Tierra Del Fuego right about now.
Comrade Dread
Well, if we insist on spending the money, there are quite a few highways, bridges, and rail lines that are in need of either being built or repaired, I imagine that could hold them over until someone, somewhere in America gets a decent idea that creates manufacturing jobs.
Egilsson
Why?
(1) Jobs
(2) Union retirees are going to get creamed otherwise.
It’s lousy, but maybe an ugly necessity.
I’d rather bail them out than the banking sector. And definitely not the people upside down in the mortgages.
Mako
That’s a wonderful argument, but.. the fact is you couldn’t give American cars away here. Sure, you see the occasional Jeep offroad modded or an elderly yakuza in a Cadillac, but American auto manufacturers just don’t make the cars that anyone would even consider buying here.
Bob
I think I read somewhere that Chicken nuggets were imported from China.
Comrade grumpy realist
The reason US cars don’t make it into Japan too much is
1) crappy quality by comparison to what comes in from Germany or the home-grown
2) cars that steer like a boat down the road aren’t going to work that well on narrow Japanese streets
3) Japanese emission and safety standards, which GM wasn’t too interested in worrying about
4) much worse mpg than what was available locally.
So–in short, they had a product that didn’t meet local standards, local requirements, or local tastes, and then you wonder why they can’t sell it?
(I worked on localizing the products of a certain US conglomerate for the Japanese market. We took it seriously, and we did extremely well. 94% of the local market for some products.)
Comrade Darkness
@Zifnab: "How did gasoline jump from $2 to $4 back down to $2 so quickly? Did we suddenly run out and then stumble on a bunch more? Fuck no. Energy giants and speculators took everyone for a ride. The well-market price of oil didn’t fluctuate by 100% and there’s no way the oil companies could have predicted such a maddeningly quick spike and collapse."
Peak oil theorists have said for 20 years that this is exactly what will happen as oil production flattens out (which is has for 4 years). The price per barrel difference when there is 2% excess capacity is wildly different from the situation where there is 2% shortage of capacity. That 100% swing in price is the bidding war for the last 2%. There are no close substitutes at the scale the world burns oil so when you need it, ya gotta buy it, no matter the price.
It bears repeating, tho, that the cure for high prices, is high prices. In this case, especially.
emptywheel
@TheHatOnMyCat: If we bail out Ford, I have just one request.
They must fire JWT as their ad agency. That agency has screwed up the Focus advertising, absolutely botched the Hybrid Escape, and generally ruined every viable product Ford has.
Napoleon
But not if they are the ones who hired the woman who does the Mercury ads. I am absolutely in love with her.
Comrade Darkness
@Ben: "It’s the health care system… it all comes back to the fact that we inflict the burden of health care costs on the employer. It’s crippling American companies."
Yeah, and the companies insisted on that. Someone had the bright idea way back when that the industry should have an independent benefit pool that went across companies and the companies cried foul because they did not want their employees to have job mobility between competitors.
Someone mentioned short term thinking?
orogeny
Just a few facts about the "bloated" salaries and benefits that the UAW has won for it’s members. According to SimplyHired.com, the average salary of an auto worker in Detroit is $41,000. In addition, auto workers "generous" pensions amount to: an average of $32,000 if you worked 30 years and retired. And that monthly payment by the company GOES DOWN once a worker begins to collect Social Security. In the mean time, executive compensation, benefits and retirement pay has gone through the roof. The total compensation for a NEO at GM is around $5 million a year and the CEO makes around $10 million.
Wow, that’s what is wrong with the American auto industry…they actually pay their workers enough to live on.
John S.
Along with most of the other large agencies that handle automotive accounts. There hasn’t been a truly riveting campaign for an automobile in quite some time.
Napoleon
@Napoleon:
A PS to my own post, I google to see if I could find the woman from the Merc. ads and she seems to have have many admires on the web. Her name is Jill Wagner.
Joel
I hate this bailout, but I have no doubts that it’s motivated by political popularity.
To a lot of people, the American Brand means more than anything.
Bob
1) Germany does not have significant inroads into the Japnese market either. And have you seen the reliability of a German car? Better buy one for spare parts.
2), 3) and 4) The big three are capable of localizing cars for different car markets. They do it for China and Europe. Why should they create cars for the Japanese market when they will be blocked at every turn?
Zifnab
@Comrade grumpy realist: You forgot 5) High import tariffs and other draconian trade restrictions. The Japanese don’t dick around. They like their domestic industries. We had to fight like rabid badgers to get Japan to open its doors to imported US rice and other staples.
Those reasons above are excellent examples of how Japanese vehicles overcame US competition. But American vehicles rarely get a solid chance to compete in the Japanese market to begin with. If GM has skipped over Japan to focus on emerging markets elsewhere, it’s not entirely because of emissions standards and mgp limits.
The Other Andrew
I’d love to see the "What, me innovate?" powers-that-be in Detroit get what they deserve, but…
1. In addition to having extremely negative consequences we can foresee, it’d most likely have extremely negative consequences that we can’t foresee. Obama is being cautious/dare I say conservative.
2. They’ll owe us, which means we can enforce environmental stuff and demand more accountability in terms of competence.
3. When Obama eventually unveils his single-payer health plan, he can call in markers and goad them into doing what’s already in their own best interest–vocally supporting it. Having them loudly on-board, talking about how private healthcare is dragging them down, would go a long way towards sending a "Hey, this isn’t socialism, it makes sense" message to the American people.
HRA
Many good pro and con arguments are given and now I certainly don’t know what to decide on. I saw where retraining and/or schooling was brought into the discussion.
I once worked for the UI part of TRA for the autoworkers in the late 70s till the middle 80s. Those who wanted to leave the auto industry were given TRA schooling. They chose air conditioning repair, landscaping, woodworking, etc. At that time they were only allowed to apply to community colleges. Near the end of my employment, one person won a hearing to apply to a university. We called in one person who had never applied for his benefits and had quit the plant. He opened a small business with his new money.
This last recollection may be amusing to some. One claimant applied to a lock and key shop that taught apprenticeships. None of us in the office had given him the TRA for the schooling there. We knew him because he had gone through every program we had to offer -UI, TRA, CETA and WIN. The lock and key was next door to the office and a coworker had seen him leave the shop. The owner was asked about him by a supervisor. This man had been convicted twice for B&E. His school days were over.
Robert B
Jill Wagner. I have a serious crush on her too.
BooBooBear
Dude, that ship, left ages ago. At this point, I think the focus is on saving union jobs in critical states.
It sucks that automakers could not get their arse out of gear to fix their industry. . . but that leaves lots of blue collar folks out in the cold. If they’re going to re-build the middle class, they need to start with resuscitating all those midwest blue collar economies.
The only othere industry that is worse in terms of a non-viable business model is the airline industry.
We’re not going to fix these issues with ‘privatizing the profit’ and ‘making the risk public’ until there is some serious re-writing of corporate law.
burnspbesq
Why not just invert Ford and GM? Let the people who run their European operations run the whole company. The only good cars being sold in the U.S. by those companies these days are the Ford Focus (German design and engineering) and the Saturn (ne Opel) Astra.
And for whoever it was who ragged on the quality and reliability of German cars, I’ve owned five over the years (three VWs, a Porsche, and an Audi). Routine maintenance is expensive, but Nothing. Ever. Breaks.
Worst car I’ve ever owned? A Mistubishi Galant assembled at DiamondStar in Normal, Illinois.
Mayken
BooBooBear said
And it’s not just blue collar workers we are talking about here. There are millions of jobs that are not auto workers that are based on supporting the auto industry. I work for a division of a large company that makes auto parts and diagnostic equipment. Most of my co-workers are software and hardware engineers, many of them with multiple degrees. There are hundreds of thousands, if not millions, of service industry jobs at stake as well. And Teamsters jobs. Etc. We’re talking about a huge infrastructure here.
And I just don’t see the European and Asian auto companies being able to rescue a large enough portion of that infrastructure to prevent dire consequences for our economy.
grendelkhan
At giving money to people who aren’t phenomenally wealthy, of course. That would distort the market and bind the invisible hand.
Doesn’t Atrios handle this kind of question?
Zifnab
I was really floored in this election by the Republican Party. They were pushing a tax deal more plutocratic than the last round of Bush Tax Cuts, but had the gal to accuse Obama of socialism for offering a similar sweetheart tax deal to middle America. Actually, that’s not what floored me. What floored me was how people would go along with it.
"Another 10% tax cut for corporations? Sure, that’s just smart business. $500 for every working tax payer – heck no! That’s socialism!"
/facedesk
Dave
Free Trade is a myth, no different than the Tooth Fairy. PLEASE STOP SPREADING THE FREE TRADE BULLSHIT.
http://www.export.gov/logistics/country_tariff_info.asp
zengolf
The Big 2.5 has 1/2 + of the US market.
GM sells more cars in other countries then in the US.
Ford has some of the best small cars in Europe.
These are companies selling lots of vehicles worldwide.
The issue is that the Big 2.5 can’t adjust US costs to meet demand. Too many retirees, too many dealers, too many workers/factories that can’t be stopped when demand slows.
Chapter 11 might work if we think people will buy cars from a possibll out of business company.
Otherwise bailout with strings to management pay and CAFE standards with a possible tax credit for buying 30MPG+ cars produced by the BIG 3 and hope for 2010.
TheHatOnMyCat
I agree, their advertising is teh sux.
But for bad adverstising, can you really top Chrysler and GM?
For the amount of money they are spending, you would think they could get some inventive and creative material for crissakes.
My favorite spots right now are for Honda Fit 2009. The one where the Fit puffs itself up to fend off the Road Warrior chevy. At least it makes a person smile. Ford ads just make me want to take a nice warm shit and fall asleep.
TheHatOnMyCat
Yes, except that now we call them Malamine Nuggets.
mary b
I agree with you. We should not bail out the auto makers. My husband worked for a G.M. Dealership for 30 years and I worked there for 4 years. We both got laid off for supposedly "lack of work". Turns out, they had relatives that needed our jobs. We weren’t the only ones.
Then when they would get new cars on the lot, they would put in a security device, which was faulty, that cost them about $40.00. You had to have this device or they would not sell you a car. Then, they would turn around and charge the customer about $350.00 for it. Most customers did not want it. So, then they charges them about $150.00 to take it off your car.
G.M. has run themselves into the ground, building only gas hogs that are way overpriced. You cannot believe that they didn’t forsee oil and gas prices going up. Most of the new cars that were sold were in for major service jobs before their 30,000 miles were up. I would never by a car from G.M. again. At least until they get some management with brains and much less greed.
Physicsmom
Yeah, I know it might feel satisfying to say "let them fail," but the economic consequences are enormous. In addition to the million plus jobs that would be killed, there is the issue of the million plus retirees who would lose their benefits, including health care. These are hardworking people who had been told their whole career that their pension and health care would be taken care of and who therefore spent any extra money stimulating the economy over the years instead of saving for retirement. Don’t blame them for not saving, it just wasn’t part of the culture. Furthermore, as a Michigan resident, I see firsthand how depressed the economy is here. If the automakers fail, you might as well turn out the lights on this state, and watch the lights flicker out all across the country as the supporting industries fail also.
Stew
I sense a growing outrage in the pulse of the blogosphere regarding this auto bailout.
After the not-so-transparent fleecing of taxpayers with previous bailouts, now were going to subsidize GM’s piece-of-monkey-crap Hummer?
Hmmmm…..
Wondering if Congress would put in place REQUIREMENTS for an automaker bailout. Things like high CAFE mpg standards, minimum percentage of hybrid and electric cars before such and such a year, and not robbing autoworker pensions and health care.
What think you all?
buermann
"we as a society provided them with incentives to do this and not to do that"
They lobbied every step of the way for those incentives, they lobbied against public old age pensions and nationalized healthcare, and they lobbied for looser fuel economy and environmental standards. They funded the political campaigns and invested in the think tanks, they are some of the most reactionary political forces in the country, and they wrote the policies that have lead to their demise.
This stuff about jobs disappearing is so much nonsensical hokum. Haven’t you read the propaganda GM and Ford have funded for decades? The market will provide! Break them up and sell off the salvageable components to better firms with less scientifically illiterate executives. It should be no skin off anybody’s back if that means one of the most capitulatory and conservative labor unions in the country is destroyed in the process: the jobs and factories will still be there, or somewhere, in the long run, and it’ll be a lot easier to pass legislation to help those auto workers – who are going to be out of work with or without a bailout – without GM and Ford around funding and organizing opposition to every line item on Obama’s official agenda.
Detroit Metal City
No, because American cars don’t sell well in Europe either. That’s a failure of marketing, not of trade barriers. Only Ford has managed to successfully and consistently market it’s own brand in Europe. GM has expanded by cooperating with or buying European manufacturers, but GM’s American models have a miniscule market share. Chrysler completely botched it’s attempt to expand into the European markets in the 1970s.
fafner1
It takes 5 to 10 years to lose your reputation, and 5-10 years to earn it back. Most American cars are not "shitty" today; if you don’t believe me go test drive one.
Detroit did fall in the trap of making oversize fuel hogs, but they aren’t alone. The American public egged them on by buying the dam things. It’s easy to sit back and take shots at Detroit, but the whole country will be better off if we can pull this one out. Otherwise we can end up like the Brits, with our automotive manufacturing base all owned by foreigners.
buermann
"our automotive manufacturing base all owned by foreigners"
Oh no! Foreign direct investment! In America!? That’d be just awful.
low-tech cyclist
why don’t we just buy the damned things and sell them to someone who can afford them and run them properly- they can not be worth that much anymore.
They can’t. Current market cap for Ford is $4.07 billion, and current market cap for GM is $1.65 billion.
Since the value of Chrysler is essentially zero, that means that we, the taxpayers, could buy the U.S. auto industry for less than $6 billion.
I’d be in favor of doing that, and hiring away some managerial talent from Honda and Toyota to run them. Once they were back on their feet, we could sell them back to the public, but not until we’d passed higher CAFE standards and climate change legislation without having to worry about their opposition.
ERD
GM has just submitted its Third Quarter results to the SEC. You can pull this up in the Investors part of the GM website and I defy most to understand what it is saying.
For background I am a retired engineer and I have a lot to say about car efficiency and the technical direction we should be going in BUT all I want to talk about here is management efficiency. I spent most of my engineering life as an independent contributor but in the last few years got into managing quite large engineering projects, and was successful in delivering these on time and within budget. I was willing to spend about 7% of the budget on tracking progress and expenditure. Every week I had detail reports on material costs, work completed, manpower used etc. I had the tools at my fingertips for effective day-to-day management and if anything this enhanced the ability to do things creatively and pioneer new ways of doing things AND IT SAVED MONEY. It also improved the ability to secure the best people since their time would not be wasted.
Now we have GM. For years they typically take 4 weeks from the end of the quarter to get the report out (most companies take 2.5 weeks) and then, when it appears, it is a nightmare to try to understand it. To be able to get back from the ‘minimized-on-purpose earnings’, that are the basis of taxes paid, through all the myriad of ‘charges’ they are allowed to take to try to ascertain how they are doing in producing money in their core business, making cars – that is what I like to do by way of deciding whether to invest or not. (Naive, I know).
They seem to have an aversion to spreadsheets and tabulations. Often they will just use narratives with much repetition to hide away the whys and wherefore of billions of dollars that can completely swamp the direction of the final number I seek.
Maybe they reckon they are smart to hide the true facts from shareholders – within the fog of inconsequential details – but I strongly suspect they just do not have effective tools to manage the business themselves. They delude themselves just as much as they delude others.
Now the SEC does not help by just accepting the garbage. I’ve never heard of any policing of these documents for understandability. I can criticize GE’s reports for lacking itemization but at least the preliminary numbers are published about 10 days after the end of the quarter. Many others are models of clarity. Amongst the DJ Industrials, KO, HD, MCD come to mind, off hand. But then, at the other end of the scale we get GM who amongst the DJ Industrials even take longer than the financials, like C, JPM and BAR, and then produce unfathomable garbage.
The current burn rate of available cash might keep them going to this time next year. Many companies have been in worst conditions and survived. However from now on they need to be producing weekly quarterly reports (by Thursday at the latest, having complete results for the previous week) that are masterpieces of clarity. That way, as a taxpayer, I’d be willing to start drip feeding money to them, with some strict controls over where the money is spent, and some other pet controls like ratio limits to average employees for executive compensation.
This is what my spreadsheet tells me GM is worth $/share in the last 15 quarters having done my best with the garbage.
41 20 10 1.4 5.9 1.1 5.4 11 15 29 26 18 18 10 0.1
The current situation means my number system agrees with Deutsch Bank – they are essentially worthless.
Phoenix Woman
@Jeff:
Exactly.
The Chevy Volt is what will save not just Detroit, but American industry as well.
What happens to our steel industry if the car makers aren’t around?
Phoenix Woman
@fafner1:
A-yep. Most people bashing American cars haven’t driven one in the last ten years — and don’t know about the Chevy Volt.
goatchowder
Amen, brother!
Fuck GM. Fuck all these corporations that made stupid mistakes and blew it.
I don’t want to give them a penny. Take them over and NATIONALIZE them (ooh, socialism!) if we can’t spare to lose the jobs. Or fuck GM, and create government jobs, or provide government venture capital contracts for new alternative energy startups, to replace them.
I’m tire of this shit.
buermann
"What happens to our steel industry if the car makers aren’t around?"
They sell it to the car makers that take their place.
Bankruptcy doesn’t mean the factories and subsidiaries and engineers and line workers evaporate overnight in a puff of dreamy vapor, the organization gets restructured or its assets get auctioned off to other firms. Including the precious chevy volt operation. The fed handles bankruptcy, the government intervention to salvage the jobs and factories is already in place, it’s called bankruptcy court.
gopher2b
These companies are worthless. WORTHLESS. The point is that these companies will fail in five years even if you bail them out now. It’s inevitable in a global economy. I do not see the need to put this industry on life support only to revist the issue in 2013.
If the U.S. gov’t wants to save pensions, then take them over. As for the lost jobs….tough. Find news ones. Move. Go to school. Not my problem.
Mako
It also doesn’t hurt that american auto manufactures didn’t even make a right-hand drive car until well into the late ’90’s.
urbanlm
LOVE the discussion. Some observations:
1) We’re so angry at the industry executive and managerial leadership for making shitty and unlucky decisions for the past 20 years — on fuel efficiency, CAFE standards, design, pension plans, SUVs, short term market returns. Screw them!
2) A lot of people are at risk — 6 million? — in the Big3 plus suppliers and subsidiaries, plus retirees etc. The industry is a big employer, very visible.
3) The democrats HAVE TO do something, they own Congress and the White House. Unions delivered the vote.
4) The industry is capital intensive; you need SCALE to compete. If you sell off the pieces to people who run them better/ more profitably, you’re cheap pickings for … some foreigner to come control the US auto market.
5) The bankfuptcy law exists to restructure companies in the hole. It protects creditors, not jobs. Bankruptcy means reorg, major job cuts, contracts renegotiated. What else? Does exec mgmt get fired? They hang on I think. But they make shitty decisions. Bankruptcy to me leads to a leaner Big3 and a lot of pain at the bottom, but with better structure for the COMPANY to survive.
6) If they’re worth only 6 billion, buy them out. Socialize. But no one will want to be CEO. And, it takes YEARS to effect change in a capital intensive industry. Retooling plants? Retraining workers? R&D to design and build efficient cars?
Personally, I think losses are being punted to the public. This is indeed capitalism "lite". There’s plenty to blame everywhere. Congress can’t raise CAFE standards? Can’t put enough in R&D? Don’t like the idea of saving for retirement? I wish everyone would just grow the f*** up and make solid long term decisions for their personal lives, for national policy, and for basic investing purposes. Everyone wants the quick buck. Well, this is what happens.
Wonder if this is a cultural phenomenon that we never want to wake up?
Jim
There seems to be no concern for the poor car owners who bought those cars with bad gas mileage and now can not resell them for what they expected. Many can’t even afford their loan payments or the cost of operating them with high gas prices. Shouldn’t the government bail them out too (like people who are underwater on mortgages). The big 3 companies were clearly predatory car sellers convincing people to buy vehicles they couldn’t afford to start with that high gas prices have made worse. Its not fair. We need to help these big 3 car owners as much as we help the big 3 companies.
Mako
On the plus side, once you lose your house, you can live in your SUV.
Patrick
I think we should reorganize the big U.S. auto firms along the lines of what the workers did in Naomi Klein’s documentary "The Take." If you talk to an average autoworker (and I’ve talked to dozens), they have a much better idea of what direction the company needs to go in than the plutocrats up top.
These bailouts are approaching the sale value of these firms. Why not buy them out and hand them over to their employees, which would then become employee/owners?
TenguPhule
Oh good, you didn’t need your job. Enjoy the breadlines when you discover your job depended on their jobs.
PHX Air Conditioning Repair
did anyone see the SNL from last week in the begging where they spoofed the big 3 its was so funny