The Motley Fool says satellite radio is too big too fail. Kidding! But point taken. “In reality, there’s no good reason for the government to step in and save satellite radio. It’s a terrible business that’s done nothing but pile up losses and disappoint shareholders. It can’t compete with the Internet, podcasts, or MP3s. The business destroys value. If the government were to loan it money, it would never see that money again. Bailing out satellite radio is a ridiculous notion. No one — not even the politicians in Washington (let’s hope) — is considering it. Yet Washington is considering a hefty bailout for U.S. automakers — an industry with much more in common with satellite radio than anyone would like to believe.” The rest of the piece argues against a Detroit bailout. It should give the American automakers’ political supporters pause’ it ends with an increasingly familiar call to readers to contact their reps to oppose the bailout. Take it from someone who surfs for a living (Jesus, is that what I do?): there’s a growing groundswell of public opinion against throwing money at Motown.
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To be fair, it’s all about jobs. If XM/Sirius craters, the net economic impact is probably less than Circuit City’s recent tanking.
GM, Chrysler and/or Ford is going to hurt more. And longer.
psarhjinian :
Jobs, jobs, jobs, eh? In truth, those jobs were “lost” a long time ago. Why should we use tax money to pay for jobs that are not sustainable? How much of the money will get lost in translation (i.e. bureaucracy)?
Think about this: for $25b, you could give 250,000 workers a check for $100k each. If I HAD to spend the money on Detroit, that’s how I’d spend it.
Bail the people out instead of the companies.
I’m an economic interventionist, so take this as you will. I’ve always subscribed to the idea that, while the market corrects, it doesn’t always do so in a way that’s quick or painless.
Jobs, jobs, jobs, eh? In truth, those jobs were “lost” a long time ago. Why should we use tax money to pay for jobs that are not sustainable?
Self-defense. Maybe living as I do in a part of the world that’s dependent on manufacturing gives me a little more of a sense of urgency, but we’re on an economic precipice and the tanking of a major employer like GM removes a lot of consumer spending for the system.
I’m not arguing for a carte-blanche bailout, or that all those jobs are sustainable, or that four years ago I wouldn’t have wholeheartedly agreed with you because times were different. Right now, though, this is not a good time to let a significant chunk of the economy collapse, regardless if it’s Silicon Valley, Wall St or Detroit.
Yes, eventually the transplants would pick up the slack. Eventually. Maybe. In part. But consumer confidence would take years to recover as those jobs trickle back into the economy. If they come back at all, in which case we’re looking at yet another weakening of the middle class and another step towards this country looking more and more like a second-world nation.
Think about this: for $25b, you could give 250,000 workers a check for $100k each. If I HAD to spend the money on Detroit, that’s how I’d spend it.
And that’s not a bad idea, but it’s not a sustainable one. If GM et al could be supported long enough become a viable going concern, and if the stipulations, oversight and accountability were put into place to help that occur, I’d consider it money well spent. What I don’t want to see is a blank cheque to continue business as usual.
Think about it as impact mitigation: one way or another, that money is going to go away, either a payout, or as a net drop in the strength of the economy as a whole. If the money can be used constructively (I know I’m stacking “if’s” here) at the least we’ve shortened the recovery period.
I would never buy a car from Ford, GM, or Chrysler. They, with the full complicity of their unions, spent far too long screwing over the American public, selling overpriced, under-engineered, unreliable, s**t-boxes.
I would, however, be giddy at the thought of buying a car from Boeing, Cessna, or Gulfstream. I can just picture German executives thundering down the Autobahn in their Gulfstream G550 sedans.
Could you imagine how excited you would be by the unveiling of the new Citation X couple. Or the new 737 minivan?
I would much rather have my tax money go to help the likes of Boeing, Cessna, or Gulfstream – America’s most successful exporters, than to have it wasted by greedy Big-3 executives and their union compatriots.
Think about this: for $25b, you could give 250,000 workers a check for $100k each. If I HAD to spend the money on Detroit, that’s how I’d spend it.
Interesting concept — I do actually like the line of thought that we should be bailing out the workers themselves, and not the corporation.
What I’m wondering, though, is:
– What exactly would the workers do with their money? Invest it? Live off of it for a few years while they find a job?
– What about the support industries — e.g. the raw materials guys, American Axle, etc.? The bailout is for guys like these more than anything.
I want nothing more than for GM and Chrysler’s execs to be stripped of their money, their pension plans, etc. and to be held personally liable to stockholders — they deserve the full fury of a failing business.
I’m just not so sure that the blue collar folks will be okay if we don’t bail out GM. A direct cash handout would have tenuous success, I’d imagine, for the workers. They’d have to move (as the plants’ cities would wither), and possibly learn a new skill. The unions would suffer too, which actually has another unintended consequence — there are quite a few people attached to UAW who aren’t remotely affiliated with the auto industry. Without the bargaining power, a lot of smaller worker groups would have to deal with renegotiations and possibly put their benefits on the line.
This is going to take a lot of lobbying in DC to get done.
Just as an odd factoid, Wikipedia says that Dan Quayle (yes, potatoe Quayle) runs a division of Cerebus. Keep an eye out for him during the negotiations.
http://en.wikipedia.org/wiki/Dan_Quayle#Post-vice_presidency
@All: If Motley Fool thinks the bailout of the Detroit Dunces is a bad idea, then it’s gonna happen. I always maintained a contrarian stance towards them MFs, and it usually worked.
@jmo: Now THAT’s an interesting idea. I harbor doubts that General Dynamics would agree to sully their brand image with something plebeian as a car … but who knows? If enough companies go under, the market for Gulfstreams soon won’t be what it used to be.
And maybe, GM will emerge from C7 …. with a Mirage?
PS: VeeDub’s aerial conveyance of choice is the Airbus A319-133. They want to upgrade, but that darned runway at the Braunschweig-Wolfsburg airport is too short, and folks living nearby don’t like the idea of a longer one. Daimler has an A319 too, but hey, Daimler owns a good chunk of Airbus. They regret that. Their share in Airbus lost them lost 8 million euros this year, an improvement compared with a 20 million euro loss last year. http://www.youtube.com/watch?v=S4_QIaziWTQ
If Xm/sirius dies, it will likely be reborn. I suspect it could make a profit without the original start up costs. Could require waiting until the economy gets better. OTOH, the FAA could buy up some of the bandwidth and broadcast digital information to aircraft. The cost to use it from XM is now fairly high, especially since the data is already paid for by the government.
There is one considerable difference between bailing out satellite radio and a manufacturing concern, and deserving’s got nothing to do with it (to paraphrase Clint). It is the same reason we should have protected the steel industry. If the shit jumps off again like 1917 or 1941, we are going to need a manufacturing base. Once it’s gone, it is very hard to bring back.
Which is all the more reason that we should also crucify those clowns for running the business into the ground.
Just use the money from the supposed bailout to hire the workers AWAY from GM and Chrysler, and put them all on road crews and use them to fix the infrastructure of this country. Bridges, roads (I know Michigan has some third world country cratered roads [I’m from Ohio]), and other projects. Let them filter back to the auto production jobs once we have turned this country’s transportation system into a world-class Swiss watch ticking mofo. All 50 states of course.
Kill two birds with one bailout/huge public works program.
The total number of people working at OEMs will never be 200,000 again. Right now, with sales at 12 mill give or take a couple of mill, they probably don’t need more than 150,000 total — all of them transplant and domestic.
“If GM et al could be supported long enough become a viable going concern, and if the stipulations, oversight and accountability were put into place to help that occur, I’d consider it money well spent.”
Never gonna happen.
This jobs argument plays well if you’re in MI, OH or IN, but outside of that region, I’m pretty sure the rest of us know that nothing short of a complete gutting of the company, it’s leaders, union contracts and indeed, the ‘essence’ of GM would need to occur to have said turnaround work.
GM lost its soul decades ago. That’s when they decided craptastic was good enough.
If the shit jumps off again like 1917 or 1941, we are going to need a manufacturing base.
@Detroit-Iron: Now we are getting closer to the crux of the matter. Gotta save America’s heavy metal industry, because relying on Germans or Japanese to build tanks for America sounds sorta silly? General Dynamics (coincidentally, manufacturer of said Gulfstreams) can produce their M1A2 just fine by themselves, but if the doodoo really flies, we need the production capacity. Forgetting the notion for a while that if when the doodoo (as in MIRVs) really flies, Detroit will be in ashes.
Lest we forget: The original M1 tank was a Chrysler build. They made a mess of even that, development was delayed, and Chrysler’s shoot-em-up division was sold to General Dynamics. They are doing just fine.
I’m no fan of Detroit, but the parallels between satellite radio and the 2.8 are weak in the extreme.
Satellite radio is an entertainment toy which has lost money from the day it was first conjured up. The auto business, on the other hand, was the engine of industrial growth and development for many decades. Over the road transportation is absolutely a vital part of the economy.
Whether or not the US benefits from a domestically based auto industry or not is another discussion, but that has nothing to do with satellite radio. Personally I think it is vital that we bring more manufacturing jobs back onto US soil. I don’t care terribly much if they report into Japan or the US, though I would prefer the later. The two big lies of the past several decades were trickle-down-economics and “don’t worry, be happy, we will be a service economy”.
But please, don’t even think of using government money to prop up the sat. radio business! It is one of those services which adds only minimal value.
psarhjinian said
Think about this: for $25b, you could give 250,000 workers a check for $100k each. If I HAD to spend the money on Detroit, that’s how I’d spend it.
I am so sick of these half way measures. Why not give everyone in the country $1,000,000. And if the treasury reissued the $100,000 bill (it had a spiffy picture of Woodrow Wilson) the entire printing run could probably be completed in less than week.
If the treasury isn’t up to the task of printing large denomination bank notes then they could sub-contract the Job to the German Printing Company that has been printing the $100 billion dollar notes for Zimbabwe. After all it is a Global Economy!
@Volvo: That’s where we are heading anyway. Those bailouts will take their toll. Can only be financed with money printing presses. Will result in inflation. Which results in a lower dollar. Which results in higher US exports. Hooray! If we can wait that long.
I believe a bailout is warranted, not just because of jobs, but because the US is already suffering the effects of having let most of its manufacturing base dissolve (colossal current account deficit). There are those who subscribe to the view that foreign debt doesn’t matter. That camp doesn’t include me.
However, whilst there are a few smart ways to go about it, there are no end of stupid methods. To me, the most important thing is actually not the Big 3 per se, but bailing out the supplier base. Seriously – most of these guys are critically close to the brink, having cut their margins to the bone under pressure from the manufacturers, and if any number of them go, so do the car companies. It’s also important for another reason – they’ll need it if part 2 of this plan is to work.
Which is, lend whatever’s left to Ford, and let GM and Chrysler sort out their own arrangements. Ford, it seems to me, have a better standing (especially on the coasts) than the other two, have made massively more progress in their turnaround plan (and not just by virtue of having one), and actually stand a half-decent chance of delivering ROI.
The obvious problem with that plan, of course, aside from more than halving the suppliers’ workload (hence the requirement for their own bailout), is the loss of jobs. But unfortunately, at this point, there are only bad choices and worse choices. Ford, IMHO, is worth committing to, whereas a government bailout of the other two is only going to perpetuate the failed status quo.
As a result, Chrysler will certainly die; ultimately, this can’t be helped. GM? Who knows. Once it files C11, there’s a possibility corporate raiders will pick up the pieces. This is basically the only time I would ever speak positively of these types, but if one of them is given free rein to go about turning GM into a competitive entity, chopping and changing where they see fit, I believe there is a great deal of potential waiting to be tapped. In what form that manifests itself, I don’t know. But we’ve seen what GM can do, when it applies itself. Under new management, one would hope it could be unleashed…maybe?
Will all, or any, of that happen?
Yeah, I know, I know. What a waste.
“…buying a car from Boeing, Cessna, or Gulfstream…” and the car would cost $500K. Planes are essentially hand built and require tons of maintenance. Cars, even the s**t boxes refer to, are a much better deal. Maintenance is much less and cost of ownership is much less. Detroit is just another example of American business theory, short term thinking, little investment into the product and executives out to bleed the companies dry. Any bailout has to address the obscene compensation of executives. Their salaries are all carrot and no stick.
No matter what Washington does Detroit will lose jobs, it is only a question of how many and for how long. Here is why I think so:
The US passenger car “rolling stock” is currently greater (is several senses of the word) than the country can afford.
1) The vehicles are too large (full sized SUVs for Mom and her two kids, full sized pickups for the construction manager to carry the clip board, 500 hp when the owner wouldn’t know the difference between that and 300 hp, etc).
2) The rolling stock is very new. (Does anyone keep their old beater anymore because they choose to? Also, many premium German car owners sell before the warranty is up (3-5 years) because repairs are so expensive, then they get a new car. Check out the depreciation on some of those cars like the 750i.)
3) Credit is tight and will remain so for awhile. (No more borrowing on easy credit only to find that you are upside down on the loan in two years.)
4) Many households now have more (running, registered) vehicles than they have drivers. They will find that when money is tight they can (surprise!) get by with fewer.
Just like the US housing stock was over built on easy credit the “rolling stock” was too. Construction and auto jobs will take years to recover, if ever, hence Detroit WILL lose jobs despite what Washington does.
Iridium is better analogy for SiriusXM. It is a satellite phone service which went bankrupt soon after its launch.
The satellites and other hardware were bought out by private investors pennies on the dollar, and relaunched successfully, at least so far.
The two big lies of the past several decades were trickle-down-economics and “don’t worry, be happy, we will be a service economy”.
Amen brother.
The problem with getting politicians to admit the failure of trickle down is that the Republicans still refuse to believe it even failed. Whenever I converse with my Republican fellows on how to fix the economy they just won’t admit it.
As far as bailouts go, I’m not a fan of bailing out the UAW, but using that cash to fix Michigan’s infrastructure would be awesome. I’ve been considering suing the state for the damage its roads do to my car. That and those damn left turns.
Meet the new boss, same as the old boss.
“It can’t compete with the Internet, podcasts, or MP3s.”
What happened to the concept that a combined Sirius/XM would be this out of control monopoly, as the FCC and the NAB tried to get everyone to believe? Isn’t this why the merger took years and millions of dollars to accomplish? If satellite radio fails it will be more about the state of our government and the influence lobbyists have than a failed business model.
Morea: 10-4. With about 750 cars for 1000 people, the U.S. of A. has the largest car density on the planet. Don’t know the average car age (anyone?) but in Germany it stands at 8.4 . 10% of Germany’s cars are 16 years or older. Wouldn’t notice it on the Autobahn. I totally agree that delaying auto purchases for a while won’t hurt much.
“…there’s a growing groundswell of public opinion against throwing money at Motown.”
Yeah, there was a HUGE groundswell of public opinion against throwing money at Wall Street, too.
“If the shit jumps off again like 1917 or 1941” – Detroit-Iron
The manufacture of modern militarty vehicles bare little resemblance to the manufacture of modern passenger vehicles. Saving autombile manufacturing base wold have little to no impact on our ability to scale production at a time of war.
In fact, I’d be much more concerned about our skilled engineering base then I would be about our blue-collar worker base…of course, I’m not living every day like it’s 1941.
Bertel Schmitt:
“Lest we forget: The original M1 tank was a Chrysler build. They made a mess of even that, development was delayed, and Chrysler’s shoot-em-up division was sold to General Dynamics.”
Actually no mess was made. Any delays were caused by the advanced technology of the program, since the Army wanted to leapfrog Germany’s Leopard tank. Delays like this are not an unusual occurrence in the defense industry. The reason that General Dynamics got the defense unit was the goverment forced them to sell some military assets during the loan guarantee phase.
There are 18 million people who like satellite radio enough to keep purchasing it month after month after month. Are 18 million people going to purchase a new Detroit automobile next month? Don’t think so. Maybe we should take a tiny sliver of the money we’d piss away keeping Rick Wagoner employed, and use it to bail out Sirius instead?
Barber,
“Planes are essentially hand built and require tons of maintenance.”
Tons of maintenance – really? A commercial aircraft can fly 18-20 hours a day every day for 30 years. Try doing that in a car for even 3 years and it will be a wreck. If you look at aircraft maintainance in terms of passenger seat miles it’s a small % that of a car.
Yes a D-Check is expensive but it comes after 36,000 flight hours. 36,000 hours in a car at 60mph would be 2,160,000 miles. And even then the d-check on a 747-200 is only $2,000,000 or less than 0.5% of the price new. I’m sure if we spend 100,000 on a car and it needed 500 worth of maintainance after 2,160,000 miles we’d think we got a good deal.
AG,
Your problem is that you and your Republican friends probably don’t agree on the meaning of trickle down economics.
What was called trickle down during Reagan’s time DID work. It was easy for it to work because the tax rates were punitive. You really can’t refer to a 2% argument on the top marginal rate as a matter of trickle down or not.
What is not trickle down economics is the idea that setting the tax rates at a level which reduces revenues is simply foolishness, or maybe even tyranny.
The part of the Obama plan that will blow up on us is the combination of the marriage penalty, and the social security donut. Most people simply don’t understand these things. Just like people don’t understand most derivatives. That’s why they are so dangerous. It sounds like a free ride, but it will destroy the country if enacted. Similarly, increasing the welfare aspect of the tax code is not a great idea.
Supply side may be challenged, but even Keynes wasn’t a Keynesian. That BS has failed over and over again. No war on poverty was ever won. They are waste of treasure and blood that make Iraq look like kickball.
I would be willing to bet that ninety-some percent of people who own cars with 500+ hp engines are able to immediately tell the difference between that power level and 200 hp less.
@john.fritz
Your on. I believe most with 500hp would pee their pants (or barf out the window) if they ever got close to using their car’s full potential. Anything more than 300 hp is a waste for 99% of the owners out there both in terms of what they can handle and where they can use it (even illegally use it). Just surf on over to wreckedexotics.com
It seems likely that Sirius will file Ch. 11 and it will be acquired out of bankruptcy by someone else. The business will make a lot more sense to someone else with a different business model who didn’t have to pay the full costs of building it out.
Whether or not you believe in rescuing Detroit, satellite radio is not a great metaphor for the auto industry. I guess that the guy needed something to write about, but the comparison doesn’t really work, on a lot of levels. It’s quite possible to rationally defend a bailout for Detroit without seeing a need for the feds to assure Howard Stern of continued employment.