The question presumes that A) Detroit’s ailing automakers ARE America’s automobile industry and B) using our tax money to protect Ford, GM and Chrysler from their own incompetence would benefit the U.S. car industry. Not true, on both counts. And by ignoring the flawed assumptions underpinning the argument for raiding the average American’s wallet, bailout proponents are misleading what they condescendingly call “Main Street.” To which I say no, no, and Hell no.
Clearly, unequivocally, the American auto industry does not consist of Ford, GM and Chrysler. In fact, these three Detroit-based companies COMBINED no longer control the lion’s share of the American automotive market. Foreign-owned manufacturers– the so-called transplants– account for over 50 percent of all new vehicle sales within the U.S. For better or worse, they constitute the core of the American automobile industry.
Feel free to debate amongst yourselves whether or not the fact that the transplants’ profits return to their home country is a crucial difference— just as long as you understand that Ford and GM’s North American divisions have been living off of their foreign ops’ profits for at least the last two years. And that this financial flow inwards is decades old.
And don’t forget another, equally salient detail: Detroit-based car companies are, right now, importing hundreds of thousands of cars and millions of parts from outside U.S. borders. For more than a decade, Ford, GM and Chrysler have been Hell bent on “saving” the American automobile industry by destroying it, sending U.S. manufacturing jobs to Canada, Mexico, South Korea, China and elsewhere.
Anyway, if we accept the idea that BMW, Mercedes, Toyota, Honda, Hyundai and Nissan’s American production facilities are a vital and yes, equal part of the American automotive scene, it raises an interesting and completely ignored question: is the federal bailout for Detroit good for the REST of the American automobile industry? Does it “save” them?
The surprising answer is yes. By supporting Detroit’s inefficiencies, a bailout would help maintain a suitably high “floor” for new car prices. So your tax subsidy to Detroit would protect the transplants’ profits, and by extension, their American workers.
On the downside, a federal bailout screws the consumer. It would help prop-up new car prices, stifling the kind of competition that leads to innovation, and increased value-for-money. As far as the non-Detroit-related taxpayer’s personal pocketbook is concerned, letting American-owned automakers fail is the best possible course of action. The American consumer would get a better product at a lower price, for no extra charge.
Sorry. I know: it’s about jobs, jobs, jobs. Inherent in the idea of “saving” the [strictly defined] American automobile industry is “saving” American automotive jobs, upon which the entire U.S. economy supposedly rests.
Again, you can discuss the “ripple effect” of a combined Ford, GM and Chrysler C11 on the wider U.S. economy without my interference. But however great the impact, it doesn’t alter the truth: the word “save” here means “subsidize,” to no appreciable end. I mean, is there any one amongst you who truly believes that injecting $25b of federal capital into Ford, GM and Chrysler will put them back on their feet, so that their workers and products can compete with non-Detroit automakers? If so, you simply haven’t been paying attention.
And once we’re doing a reality check, if saving the American automobile industry is a euphemism for “giving The Big 2.8 a bridging loan so they can get healthy and competitive at some point in the not to distant future,” we need to face facts: Ford, GM and Chrysler will have to shed jobs anyway. Bailout or no bailout, they’re too damn big for the U.S. car market, now that the new car “bubble” (which they created) has burst.
Enough of this misdirection. Let’s get down to brass tacks. The real question is this: is Detroit worth saving?
No, it’s not. Not in its current form. In this I refer you to General Motors Death Watch 1, wherein I proposed that GM should be parted out. I asserted that its current management should take a hike and its constituent brands reconstituted as independent car companies. (Or not.) In the last three years, I’ve seen nothing to dissuade me from this opinion. As for Ford, it too needs to shed brands and reinvent itself. Chrysler, well, Chrysler’s a basket case. Only Jeep may live on.
So yes, the American automobile industry is worth saving. Only it’s not in any real danger. The only part of the U.S. car biz that’s on the ropes is the Detroit contingent. And the only way to save that bit is to let it fail, so that it may be reborn. But no matter how you slice it, and sliced it will be, “bailing it out” is against the interests of the American taxpayer AND the American consumer who, after all, must foot the bill.
At the end of the proverbial day, a federal bailout for Ford, GM and Chrysler would simply prolong the automakers’– and their workers’– agony. Yes, there will be pain. Lots and lots of pain. But sometimes the more painful the mistake, the more important the lesson. This is one of those times. Detroit can not be saved from the reality that they’ve studiously, callously, stubbornly ignored. Nor should they be.
Couldn’t agree more.
Pretty much nailed it. I think a lot of people here in Detroit are being hysterical about these events and they should be….however, it isn’t the end of the world, nor it is the end of Detroit. SE michigan will remain the US automotive powerhouse even if one of the Big 2.67 falls through. There are so many suppliers and solid college engineering programs geared towards R&D as well. I highly doubt many suppliers will be moving their main HQ/Design/RD facilities to the South or Cali anytime in the near future.
Dead on Robert. And although you waffle a bit on this part, I think this would be the absolute best scenario for America…
Break the brands into individual companies. And FORBID them from ever merging or selling to another auto company or “holding” company again.
At the same time, let’s eliminate the governments B.S. ability to eliminate new American auto company startups. Let’s have some good old free market competition again. That’s what will save the American auto industry.
I bet the worker in the photo is not getting $73.00 per hour and has a job bank to fall back on, or Viagra for life…..
Yup
Right on Robert.
If there is to be any hope at all for the long term future of successful manufacturing in North America (auto or otherwise), the need for new thinking, new deals and most importantly new management is critical. More money down the same old pipe will reward bad behavior and continue to fund CEO’s who make 200 – 400 time the salary of their average worker with no ramifications whatsoever (this is just wrong and the impotent BoD’s for these firms should be smacked silly).
And as derm81 suggests the actual impact may not be as bad as many predict. In an industry with massive overcapacity, there will be more than a few opportunities for a resurgence. This may turn out to be what stock analysts used to call a “market correction”.
Well said Robert. The rebirth can’t happen until we allow it to completely fail.
I think the media, certain politicians and certain union figures are blowing this way bigger than it is. I may take a little heat but maybe this is what needed to happen in order to finally shake up the Detroit boys. The news channels just want to keep your ass glued to the TV so they can make commercial revenue…
Amen.
I’m a big believer in what Paul Ingrassia of the Wall Street Journal espouses:
“In return for any direct government aid,” he wrote, “the board and the management [of G.M.] should go. Shareholders should lose their paltry remaining equity. And a government-appointed receiver — someone hard-nosed and nonpolitical — should have broad power to revamp G.M. with a viable business plan and return it to a private operation as soon as possible. That will mean tearing up existing contracts with unions, dealers and suppliers, closing some operations and selling others and downsizing the company … Giving G.M. a blank check — which the company and the United Auto Workers union badly want, and which Washington will be tempted to grant — would be an enormous mistake.”
Hard hitting and honest journalism – no ass kissing to MFGRs for money and exposure. This site is about the “truth” not special interests and bending it for one’s own personal or political gain.
Economics 101 – if a company cannot operate efficiently to compete it will never be able to do so again until they change their paradigm – and that cannot be done until new vested leadership with accountability and flexibility can be done – and they can only get that through CH 11. With Wagoner and his gang of miscreants nothing will actually be done besides coming back again and asking for billions more.
Hopefully profitable auto makers will step in and compete for the market share when one of the Detroit 2.5 fold. They will step up production and hire what is needed, they will not start a job bank or invite the UAW to the party. The connection between UAW and failure is clear. Not that Rick W is going to show on ToMoCo’s board any time soon.
All of this hand wringing over the domestic auto industry is pointless. Everything will be just fine. We are going to pay for everything with “Obama Dollars” And when we are through bailing out the Democrats contributors we can use them to fill in holes in our yards, and eventually you will be able to utilize Obama dollars to heat your home. Simple and easy.
I seem to have missed the UAW’s part in all this?
Providing GM was split into smaller companies with new management, how are they still going to compete against Honda, Toyota and others when they’ll still have the UAW around their necks (with the problems that they create and their corruption)? Unions are outdated with current workers rights laws and it’s time that they end so that America’s future auto industry can survive.
The bailout seems to be a bailout of the UAW, not Ford, GM and Chrysler. Is it any surprise that the UAW backs socialist politicians? (Note to R.F., this time I did not say anyone by name… wink wink).
First time poster here. Would it be a good idea for the American manufacturers to look into licensing some European or Asian vehicles and manufacturing those here rather than trying to design new models from scratch? Of course, the question remains whether they could last long enough to even do that, but wouldn’t the time horizon be cut significantly? A couple of examples off the top of my head are the Renault Clio and Fiat 500. They would be a heck of a lot better than the US small car offerings now. Maybe producing them here could keep some UAW guys employed until new cars can be brought online?
Airhen :
If GM, Ford and Chrysler (yeah right) go C11, they can renegotiate their union contracts. And all their other contracts, as well.
Take a look at GM’s Vauxhall lineup and tell me they wouldn’t look good in showrooms over here when gas hits $3 again. Couldn’t produce them over here at a profit though, $70hr for labor is tough.
If only Chrysler would hurry up and die (CH7). That would mean more customers and more bail out bucks to go around to those who could (maybe) make some good out of it. At the very least it would shake things up a bit because with all 3 holding hands as they go down the tubes it is not looking too good.
I would like to call for a little humility in this discussion. As much as I respect RF’s opinion (else I wouldn’t be here right now) the truth is no one knows what would happen to this economy if one or all of the Detroit 3 imploded. Any historical examples that even come close are too disturbing to contemplate. There is simply no historical precedent for what is going on in this country now economically combined with the bankruptcy of the entire domestic auto industry. No historical precedent. We are entering (or are already in) a global recession. Just read that my state (IN) which is for the most part fiscally sound and enjoys a balanced budget, is almost out of unemployement funding. Four other states share this predicament.
I’m no Chicken Little, but read any business section and just try to find one single positive indicator.
Perhaps Chapter 11 would be the best medicine for Detroit in relatively stable times, but these times are far from that.
One thing we learned from the Great Depression was that it took massive gov’t spending (read WAR) to pull the economy out. Could we not concede that tough love might not be the answer, considering?
Robert, you’ve greatly over-simplified and completely skipped in other cases why Detroit automakers are where they are (for example, I see little rant about the UAW – and they are as culpable as Jacques Nasser). I’ll also ignore the protectionism and subsidies enacted in places like Japan, Korea and Europe that we’ve not done in the U.S. And, although 53% of sales might come from companies based abroad, the Detroit makers still employ far more than all of those manufactures combined. We’ve also ignored the hundreds of thousands of former UAW wokers with pensions and retirement health care at risk.
And while Ford, GM and Chrylser have outsourced some parts, the value added to their cars from American workers (manufacturing, parts, dev) was, I thought, about 2.5X what everyone else was last I checked (I can’t find the article off-hand, but I’ll look for it). The Detroit makers are still 70% of the U.S. industry.
The destruction of that 2.5X is what worries me. A destruction that large will take out the other 30%, including Toyota and Honda’s U.S. operations.
Is the American automobile industry worth saving? Yes.
You contend that the “American” industry is a larger portion run by Honda and Toyota, and I mostly agree. But those companies will lose billions and lay off thousands as well (and shift production overseas) if GM fails and takes out its major suppliers with it. When those losses come, the Japanese government will help them out both in the JDM and for their U.S. operations.
The U.S. government, in my opinion, should prevent the destruction of the industry by allowing GM (and maybe Chrysler) to fail softly. This isn’t an all or nothing – save it or let it burn – proposition the government should consider, and I wish your discourse would reflect that reality.
I’m not asking for a blind bailout; for cash to be handed off to GM to save an operation that, frankly, should not be allowed to exist. I’m asking that the government prevent something even worse from coming out of GM’s bankruptcy.
I don’t have a union(never did), but I think they continue to be lambasted excessively. Unions still have a place.
I am in a company in similar situation. We went pop after the tech bubble. We have had about fifteen rounds of layoffs since, losing about 70% of our staff. That is just the numbers. Much of the remaining has been relocated to China.
The company has unilaterally without so much as a consultation, cut our pensions, cut medical for pensioners. I think unions still have a place, so there could have at least been a discussion, but they can clearly go too far as well. But in the end the mistakes belong to management.
No bailout will be coming for us. But I don’t think one should. Government shouldn’t back bad management decisions based on short term thinking.
Government should only consider helping working stiffs have a soft landing. Maybe offer some innovation loans for companies with solid business plans, emerging from bankruptcy.
But throwing money at sinking colossus makes no sense. It is like sending in a fleet of speedboats with ropes to stop the sinking titanic. It will just sink the speedboats as well.
There has to be a reckoning and a thinning of the weak from the herd in Detroit.
br549:
Good post, but it seems you’ve equated tough love with not loaning the D3 money they would likely be unable to pay back.
As has been said before, lack of access to credit is a symptom. The core problem is that not enough consumers find GM products desirable.
Propping up companies that make products below consumer expectations benefits only those that got them in that position.
For sake of argument, let’s say the gov’t gives GM the $25, err, $50B bailout. The Feds remove the BOD and Ricky and his gang. What then? There is an enormous infrastructure in place that clearly has rewarded the wrong behaviors. How many thousands of people would need to be fired to make GM an innovation company, capable of producing desirable products in enough numbers to be viable? How long would it take to do this? How much would it cost? $200B? $300B? This reminds me of the prescription drug plan that was sold to the public as costing less than 1/2 of what it wound up costing us.
I understand it’s not all about money, but it kinda is at this point, no?
Has anyone else seen the news article about “why Steve Jobs should run GM”?
http://www.pcworld.com/article/153805/steve_jobs_gm.html?tk=rss_news
The “save Detroit” crowd doesn’t seem to understand that without Alan “Bubbles” Greenspan’s easy credit regime there’s no way we would have had the 16-17M vehicle market we’ve had during most of this decade. Axing 90% of GM’s and Chrysler’s combined production would go a long way towards creating a healthy auto industry that reinvests its capital and doesn’t rely on sales incentives. Regarding the unemployed: we could get creative and reemploy all those out of work autoworkers to rebuild our national rail system, local and transcontinental.
Robert,
I banished myself from TTAC to prevent control of my own opinions and thoughts.
I promise I will once again slip into the background after this submission.
But I thought you needed some support and extreme cudos for this latest effort.
You are damned right.
You are doing right.
But the trouble is, when a society begins it’s run towards self destruction, there is really nothing you can do.
You can and are fighting the good fight.
But it hurts to watch and for what?
Remember all the cries of THE END OF UNITED when UA filed for Capt 11.
I was begging them to do so.
Only then could they clean house, and they did.
Why now all this doom and gloom if GM is forced to do the same?
The reason is because they can.
And it works.
They can cry because it is now becoming apparent all you have to do is cry The Sky Is Falling and then watch the panic.
Its now not an embarrasment to fail, its the in-thing to do.
Its the only way you get what you want.
You are so right explaining this is the ONLY way for they to correct former contracts and release themselves from the shackles they, as did United, put on their own legs.
But regardless, its for nothing.
When people realize they can vote their own wealth, that they can vote a redistribution of wealth, its over.
Just take some xanex and a strong scotch…and relax.
I enjoyed you effort above.
Well, I just covered my short of 1,000 shares of GM stock. Not really due to potential profits in the short term as much as the far greater potential subsidization of the balance sheet.
If GM could cut half it’s NA divisions, recruit an effective management, redraw their contracts, and eliminate half their dealer network, they would definitely have the means to profitability. No doubt there. It would just take a few years and perhaps more than a fair share of luck
However if they do that by filing Chapter 11 I seriously doubt their long-term staying power as a company.
hltguy
I guess you are refering that this is the Egpytian Jeep plant? Not to mention, it is a better product, i.e. Wrangler, then what we get in the US. The J8 has Dana 60 axles, diesel engine, real metal bumpers, rugged steel wheels, etc.
One last point.
Its all about the shackles of labor contracts.
Without chapter 11, these can NEVER be addressed and fixed.
Give all the bailouts you want, without the fixing of retirees getting 2 thirds of their income and the greatest wlefare available, there is a bigger failure still to come.
Without chapter 11, a bailout is money flushed away.
To Turbobeetle.
Yeah, I read that(original at NYT) and it made sense right up till the end when he said call Steve Jobs.
I respect Jobs talent in his space, where he has decades of experience in what works and what doesn’t (he had a share of mistakes before his recent run of successes).
But he is not going to design a new GM saving car in a year.
If Jobs had a serious interest and spent ten years at it, he might become a visionary auto designer, but that isn’t going to happen.
The first thing GM needs are some hard nosed business people to identify what the leaned out GM looks like. Which lines to cut etc. Once they have a serious business plan, then they can get to work designing the winning cars for each segment. Not just milking the Truck bubble.
BR549,
Reading your post, it seems you are afraid of the unknown. That’s all it is. When facing the unknown, we tend to go with faith. Not religious faith, per se, but faith in something.
It seems to me that lots of folks let the decision come down to whether they have more faith in government or the market. Everyone here knows where I stand on that.
However, I don’t think that the facts are necessarily on the table for most of us to see. As good a job as RF is doing on this subject, I haven’t yet seen many good prognostications of what post bankruptcy Detroit is supposed to look like. All too many people think that ALL the jobs are gone. That’s just fear speaking. There are all sorts of possibilities.
Don’t be overwhelmed by the numbers. The economy is a percentage game. Also, you often have to reach the bottom before you can really turn things around. The UAW won’t change or go away, and neither will the 2.8 management culture without a lot more pain. That’s just the way it is. You don’t loan money to an alcoholic. It’s worse than a waste of money.
jkross22 :
I think the proverbial elephant-in-the-room is the fact that there are economic factors outside the control of Detroit which are primarily the reason we are having this particular discussion. All 3 Detroit automakers have problems which have put them in a more vulnerable position than others at the present time. But no honest person would argue that all 3 have been adressing their shortcomings and were adapting to varying degrees. They just had not yet reached a level of improvement necessary to weather the current storm.
Let’s get real here. Detroit has been making strides (no honest person would disagree) and moreover was able to gain significant wage and legacy-cost concessions from the UAW last Fall. Not enough time has passed to reap the benefits from those concessions. One of their biggest issues, too many dealers, is a problem that comes with being in business for 100 years, and is reflective of state laws outside of their control entirely.
If we could take away the current crisis, for purposes of discussion, we would not be able to credibly write off Detroit as a hopeless case. Instead, we would look at incredible efficiency gains (often better than transplants) exciting product offerings and (in the case of Ford especially) impressive quality rankings.
Why don’t we all take a few deep breaths and back off the hyperbole somewhat. The global auto industry, pretty much excluding no one, is suffering. I, for one I guess, see no reason why Detroit cannot rebuild without C11 if given some limited life support.
A good point I heard on NPR this morning about why GM wants to avoid a bankruptcy is that almost always, the head management (including the CEO) gets axed because they’re usually seen as the reason for the mess to begin with. And Wagoner surely doesn’t want to lose that ridiculously-overpaid job, and most likely won’t get a golden-parachute if the feds Chpt. 11 the company.
My job isn’t dependent on the auto industry and I don’t live anywhere near Detroit, so it’s easy for me to say, f*** ’em, let ’em fail. But I can imagine there are many hundreds of thousands if not millions of people whose lives are directly tied to the fate of the big 2.8 who are praying for a bailout.
Letting the domestics fall on their ass may well be the best course of action in the long run, and it may happen regardless of whether or not they get a bailout, I have no idea. But with so many other major industries getting sucked down a fiduciary black hole, it’s gonna hurt, big time.
Excuse me all…
But what in hell does chapter 11 have to do with total failure?
I mean, let’s get real here.
Allowing for a chapter 11 clean up does not at all mean total failure OR the total loss of all those jobs.
You can have protection AND force inner changes…and emerge a better company.
If these so called employees do not accept changes, who the hell are they to cry for help.
This is rediculous!
So stop with all the doom and gloom.
Chapter 11 is a proven way to clean up.
To suggest otherwise is being disingenuous and adding to the total bullshit being shouted about.
Stop with all the false statements.
In the global market place, improvement and “strides” aren’t enough. You either succeed or you do not. It would be a wonderful world if we could afford to reward effort without it actually costing more pain, but it’s not.
Lastly, the idea that the loans can allow them to succeed is questionable. The idea that it was just the economy that killed them is wrong. Pneumonia kills millions because they are sick and dying already, not because pneumonia is a deadly scourge. There is rarely a company that simply goes under without some particular event marking the occasion.
The 2.8 NEED fundamental change that won’t come without management, labor, and government learning some hard lessons. Stealing money from the treasury to avoid the pain of doing the work is not a solution.
I agree. There is no denying that the death of the Detroit automakers in their current form is inevitable and is going to be massively painful. As nice as the soft landing RobertSD proposes sounds, I have seen nothing to convince me that, given more money, Detroit or some government beurocrat will indeed make changes. Unfortunately they will continue with the current model until they absolutely can not. Meanwhile our tax dollars will go down the rat hole with the bank bailout and the multitude of other bailouts ushered in by the precidents set. The sad fact is that capitalism doesn’t mean great times and fairness for all, and neither does socialism.
Chapter 11 is a proven way to clean up.
Give me an example of a producer of big-ticket ($20-$40K) warranted items filing Chapter 11 and coming out successful on the other side. One example. Let me put it another way. Would you buy a car from a bankrupt automaker?
Robert-
You’re wrong about the market-share.
GM, Ford, and Chrysler control around 53% of the market, which increases to 55% when Mazda is included.
Foreign makes have not yet sustained a share beyond that 50% mark.
Out of curiosity, what percentage of cars sold in America are made in America? It seems like many of the best-selling cars are built here, so the number could be high.. To simplify, by “made” and “built”, I mean assembled. We could get into part content, but I doubt that level of detail would be useful.
I’ve proposed my solution elsewhere: Give away the useful assets of GM to another company that will capitalize its recovery, made the deal doable with federal loan guarantees — not cash, just guarantees — and Chapter 7 (liquidate) what’s left.
That would solve a lot of problems. The taxpayer doesn’t get stuck with the bill, the company gets new competent management that knows something about automotive manufacturing, a fair number of the workers will get to keep their jobs (although not all of their benefits), and the liabilities would go away.
The victims would be the union contracts, bondholders, shareholders and bankers who lent them money.
(I would bailout Ford, with the right strings attached. Unlike GM, the management is competent, they just need cash and time to revitalize the product line and consolidate their production. Also unlike GM, a few hits can save Ford.)
That being said, I think that it needs to be accepted by the hardcore bailout crowd that the days of Detroit dominance and massive employment are dead. The jobs that are being cut will not be replaced.
A viable Detroit will also be much smaller than it is today. Toyota is destined to be the country’s largest automaker, and the realists need to suck it up and accept that Toyota won, fair and square, and not because of some conspiracy involving currency manipulation, Consumer Reports and whatever other nonsense you want to dream up. They are a well managed company, and they’ve earned every bit of their success.
I would add one area in which I agree with the commentator Phil Ressler — the Big 2.8 need to get the hell out of Dodge, i.e. Michigan. They are absolutely out of touch with their customers, in part because they are in that backward looking nostalgic quagmire that is southeastern Michigan. Relocate their management to Orange County, California, the Silicon Valley or somewhere else where they can see their future customers at work and play.
This whiny self-deception from the Detroit boosters has to stop. These companies cannot win until they realize that there is a competitive marketplace that demands quality, service and respect, and deserves to get it. Had they owned up to their failures years ago, they would still be ahead, but they’re too busy with their hand wringing to accept the rules of the free market.
The carmaking industry has always been brutal. I’m reading David Halberstam’s book The Reckoning. It looks in depth at the struggles of Ford and Nissan over the years, until 1986 when the book was published.
That history tells me that no matter what happens with GM, Ford and Chrysler, cars will continue to be made and sold. I don’t see the Magnas, the Borg-Warners, and the other suppliers falling in the same hole as the Big Three. But there will be a shakeout, bailout or no. And it will be painful.
Those more perceptive in the car industry have seen this meltdown unfolding for a while now. Carlos Ghosn said in a Wall Street Journal interview a year or so ago that the Big Three would not survive long. Whether two of them would survive, one of them, or none of them, he did not know.
But Ghosn predicted that the United States carmaking industry was in for a shakeout. And he was right.
as getacargetacheck said the sales volumes of the past arent coming back. Thats what GM and others dont get. The impulse buying with 72 month notes is gone. People may have finally woken up. All retail is getting a reality check. People dont need to buy all that stuff. The sales of the past was a bubble just like the mortage mess artificially drove up real estate prices. They need a reality check and start producing vehicles after they are sold. Do we really need to have dealers with 200 trucks on the lot?
@RobertSD,
Have you read anything about economics? Try en easy one “Freakonomics” by Steven D. Levitt and Stephen J. Dubner. Then you can try something by David Ricardo.
The basic principal of protectionism that it is punishing the population of a country where protectionism is enacted. The consumer is forced to pay higher price. Why do you wish to punish US consumer, who is already punished by taxation? If South Korea is willing to punish it’s citizenry and it is OK with their citizenry – God bless them! It has not been OK with Americans, that is the fundamental basis for our brand of capitalism and relative prosperity.
There’s really no difference between a bailout and a bankruptcy.
In fact, bankruptcy is just another form of government bailout. And people know it.
Difference is, the government pays your bills in a bailout; in a bankruptcy they tell the creditors to sit and spin. It’s all bankruptcy, its all bailouts. To the debtor the difference is purely symbolic.
Do you think that GM can get its shit together with 50 billion dollars, and all the government pressure to avoid killing dealers and massive layoffs that would come with those bucks?
Whichever B word you chose, GM is going to have the fight of its life to get back on track. It’s going to be uphill either way.
American Leyland, stay away from me
American Leyland, GM let me be
Don’t come hanging around my door
I don’t wanna see your face no more
I got more important things to do
Than spend my time growing poor with you
Now union, I said stay away,
American Leyland, listen what I say.
Ch11 could work if instead of a cash bailout the government were to guarantee warranties. On the downside, that would remove incentive on the part of bankrupt automakers to minimize warranty costs if the gov’t paid the bills.
This whiny self-deception from the Detroit boosters has to stop.
The bailout is gonna happen, so this whole conversation is merely academic. However, self-deception comes in many forms. Many who believed in creative financial instruments of a very free market/unregulated nature had their worldviews upended. Ask Mr. Greenspan, or better yet, read the transcripts of his testimony at a recent Congressional hearing.
And think about that while you comfort yourselves in the “knowledge” that the market will fix what ails Detroit, and that we’ll all be the better for it.
br549:
As a supporter of the bailout, how much would you say it will take to turn GM around?
No doubt the D3 products are improving. That’s not enough. They need best of class products (i.e. more than one) to take from their competitors to be viable. The Malibu made all sorts of promises on that, as did the Solstice. What cars do the D3 make that are best in class?
“If we could take away the current crisis, for purposes of discussion, we would not be able to credibly write off Detroit as a hopeless case.”
Again, so what. GM’s been heading this direction for a REALLY long time. This didn’t start when SUV sales stopped. Sure, if Lutz could wave his magic wand (that came out all wrong) and make the credit mess go away, GM still doesn’t have best of class products and still has an unsustainable cost structure.
I feel there are two issues that have yet to be thouroughly debated. And I do not for a second wish to turn this into a political debate. Now that Obama, Reid, and Pelosi are in charge of the country, I see two areas that may potentially work at cross purposes. First, card check will likely result in unionization of the “foreign” automakers and somewhat level the playing field from a cost standpoint. Of course these foreign automakers may decide to bring manufacturing back home but I doubt they have the capacity to do that. Second, if a bailout comes with strings attached, the environmentalist contingent will likely require an much higher CAFE or a quota of small cars. How successful have the domestic 2.8 been against the foreign small cars? To be honest, my crystal ball is very dim regarding these two issues and I would like everyone’s thoughts on these.
br549
In my reply,
I left the best example and that being United Airlines.
This was huge.
And the whole while prior to and during all I heard was BAIL OUT NOW!
Move yourself over to another airlines.
Your mileage was good as gone…ETC, ETC.
What happened?
Nothing…other than an emerging and healthier company with better balance sheets and contracts.
And the empoyees all gave in to the reorganization.
This is a proven capitalistic option.
I fly over 70,000 miles a year.
And I kept getting onto UA planes with their grumpy, bitching stewardeses and laughed at their remarks.
Bitching all the way to a better deal.
Yes, I would buy a car from a bankrupt company…IF I loved the car and just as much as if I would buy from one hurting as they are.
In fact, I was one of those who purchased the new MKS…a Ford.
But no honest person would argue that all 3 have been adressing their shortcomings and were adapting to varying degrees. They just had not yet reached a level of improvement necessary to weather the current storm
Reality suggests otherwise. It’s not that long ago that GM insisted hybrids were a fad, and had invested almost all of their R&D in a new line of awfully big SUVs.
They’re still likely spending more in R&D on trucks than on cars. Anybody think otherwise?
Just for laughs…to lighten this up a bit…
One of the funniest lines I heard from a pilot was one during the UA bankruptcy.
The pilot came on as we were taxying(?) in and thanked us for flying United…
We had a choice of bankrupt airlines these days and he was glad we chose theirs!
…The cabin roared.
Our multi franchise dealership (17 locations)intranet just posted a message from GM asking the employees to call thier representatives and lobby for the bailout. They proferred this link.
http://gmfactsandfiction.com/
br549
In my reply,
I left the best example and that being United Airlines.
That is simply not a valid comparison. There is no reason to not purchase something like an airline ticket just because the company has filed C11. In that instance, you have no reason to believe that the carrier will not fulfill its mission to transport you from one location to another. The exchange, money for one-time service, is simple and risk free.
Many who purchase autos finance them for 60 and even 72 months. If there is any reasonable chance that the automaker won’t be around to provide service or honor warranties, it will be a huge turnoff for potential customers, and rightfully so.
jkross22 : They need best of class products (i.e. more than one) to take from their competitors to be viable.
“Best in class” will always be a rather imprecise title, and up for interpretation. That said, GM’s Malibu ranks right up there in its class, as well as their full-size trucks. There is absolutely no good reason that these vehicles are not selling in large numbers. The Camaro will be the kind of product that Toyota and Honda couldn’t pull off if their lives depended on it. Up until this year, Buick was at the top of J.D. Power quality surveys. Cadillac is producing outstanding product.
To all the free market theorists out there, you must also be actively campaigning to your representatives / senators to for example stop all of the price subsidies and support given to farmers to allow them to compete on a world stage. Or if you’re in IT, you must be actively campaigning to increase the amount of H1 visas and increase the amount of offshoring. How is protecting the domestic manufacturing industry any different?
@carfan22.
Those are ridiculous analogies. How is suggesting the government not waste taxpayer money on a bailout blackhole the equivalent of suggesting that IT companies send more jobs offshore.
FWIW, I am working at a failing tech company, we are expected to go bankrupt sometime in 2010. There has been some discussion of government bailouts of my company and I am dead set against it.
Government should not prop up failing business models in any industry.
To all the free market theorists out there, you must also be actively campaigning to your representatives / senators to for example stop all of the price subsidies and support given to farmers to allow them to compete on a world stage.
Good luck entering that into the conversation.
As another sign that the US auto industry does not revolve around Detroit – Another automotive blog is reporting that Ferrari, Rolls Royce and Land Rover will join Porsche in not appearing at the North American International Detroit Auto Show.
Auto shows are about showing cars to people that actually might buy them, so I predict that the LA show will become the dominant US auto show with Chicago eclipsing Detroit in the Midwest.
Amen to your column Robert. You put into words what I have been thinking for years. I just don’t have the talent to put it into words, or I would work for TTAC!!
Regarding warranties: Many of the major components in many brands of automobiles come from a bankrupt automaker. Its name is Delphi.
People don’t care that Delphi is bankrupt because the warranties on the parts that Delphi makes come from different, separate companies.
As long as an independent company underwrites the warranty on a GM or Ford I don’t think many people will care that GM or Ford are in Chapter 11. I won’t.
Let me put it this way: If you buy a GM now and GM goes Chapter 11 there is a decent probability that you will get screwed and end up with no warranty. It will depend on the actions of the BK judge and debtor-in-possession.
On the other hand, if you get a post Chapter 11 GM with a warranty underwritten by a well capitalized independent company your warranty will be safe.
@br549:
““Best in class” will always be a rather imprecise title, and up for interpretation.”
The only interpretation that really matters is that of the buyer. They have and continue to vote with their wallets.
“The Camaro will be the kind of product that Toyota and Honda couldn’t pull off if their lives depended on it.”
Honda’s and Toyota’s lives don’t depend on building a great Camaro competitor because they make enough best in class vehicles where they do compete. Maybe if the Malibu was as good as you believe the Camaro will be, it would have the sales numbers that Honda and Toyota have in that category.
@ autonut
I’ve likely read as many Economics books as you, and I don’t believe for one second in protectionism. I never once advocated for it in my post. I was merely raising the point that while Hyundai is free to build plants in the U.S. and sell cars without tariffs, Ford is required to pay huge duties on its vehicles sold there and may not opne facilities (they’d have to do a GM and buy a company). The Japanese governmet has also supported the research of Toyota and Honda in various areas through tax breaks and subsidies. The idea of government subsidization is not just some U.S. plight, but a regular practice across the world. I could argue that a lot of Toyota’s success has come on the back of its government and had our government offered the Detroit automakers half the support in developing experiment products, we would not be rushing to prevent a collapse that could have devistating ripples throughout the market (just still worrying about the health of our automakers). Frankly, if they had a better incentive structure to change behavior a few years ago (tax incentives and government loans, for example), we wouldn’t be thinking about using money set aside to change their behavior just to prevent hundreds of thousands of job losses.
My overall response to RF originally was that our auto manufacturers, besides having some incompetency at the top, have also faced very harsh structures. But when your labor costs are 50% greater and the union can strike at the drop of a hat and cost you billions if you don’t pay them more while your competitors get subsidies to set up non-union shops and develop products with help from their governments, it’s not like it was all the fault of the executive team when you can’t build a Civic-sized car without losing your shirt on each vehicle. I was pointing out the lack of depth in his analysis of the situation.
But, RF is also correct that our lack of barriers have allowed the ranks of manufacturing jobs n the auto sector grow even as our Domestic companies decline. But that said, I have serious doubts they will be able to survive the nuclear failure of the native industry.
I look at it from a pragmatic economic perspective: I don’t believe GM’s bankruptcy will be soft. They declare. They lose business. They have even less cash. They eventually shut doors completely. It won’t be slow, either. Six months between C11 filing and doors being shut. And it will take down all of the suppliers tetering on the brink even before its doors are shut. That will take down Ford and Chysler, which will take down a few more suppliers – ones that weren’t so badly off. We’re at about 9 months. That will force Toyota, Honda, Nissan, Hyundai, Kia, BMW, Mercedes, et al to stop producing during the disruption or spend billions keeping production moving. Either way, they’ll lose a lot of money. They will likely shut down some of their U.S. operations. Now we’re at 12-18 months. Meanwhile, the dealer bodies will shed nearly 750,000 jobs. Some mechanic staff will be spared, but not a lot.
I estimate the U.S. stands to lose $300-400B in NPV tax revenues if GM fails like I think it will. I think it’s worth the $20-30B it might take to unravel it quietly in bankruptcy and put it to rest. That’s a good investment for the American people. It gets rid of a lot of the ineffciencies (which is the benefit of free-trade an free market competition) as GM is unraveled and shut down along with its cohorts, perhaps. But a massive correction is not what this economy can bear right now.
Make economic sense?
Roberts editorial ignores all the engineering jobs that are provided by the Detroit 3 that are not supplied by the other manufactures.
Yes the Detroit 3 import designs from other parts of the world but a lot of engineering work is still done in the US for example all the cadillac cars.
Most transplants do most of there engineering in there home country.
Am I in my cabin dreaming
Or are you really scheming
To take my ship away from me
You’d better think about it
I just can’t live without it
So please don’t take my ship from me
Yeah, yeah, yeah
I can feel the hand of a stranger
And it’s tightening ’round my throat
Heaven help me, Heaven help me
Take this stranger from my boat
I’m your Captain, I’m your Captain
Though I’m feeling mighty sick
Everybody listen to me
And return me my ship
I’m your Captain, yeah yeah yeah yeah
(Rick Wagoner)
One thing that I think was missing from the analysis was the comparitive health of the Big(ish) 3. To put it in medical terms:
Ford: Quite sick, but could potentially recover on their own. Some medication (Chrysler-style loan guarantees) may be needed for complete recovery.
GM: Has massive injuries, requiring almost-heroic efforts to save, including amputation (Pontiac, etc.) and organ transplant (much of management). It’s hard for me to see recovery without some kind of reorganization, maybe under government-backed C11. Without government assurance, it seems likely to me that a C11 filing will lead to massive sales losses and a downward spiral to C7.
Chrysler: Needs life support, and may not be saveable. It’s time to start talking to next-of-kin about organ donation (Jeep) to another automaker.
Will the government give each the medicine it needs? My bet is no, that they each get a pot of money. Ford uses it to get healthy again, GM uses it to buy more time before they get back to the same place again, and Cerberus pockets it and keeps looking for a buyer.
I just wonder what is the point of helping Chrysler? so we can have more Patriot, Compass, Sebring and the new joke Dodge Journey? who’s buying a product like Dodge Nitro that received NOTHING for “Highs” and……Ride, braking, handling, noise, fuel economy, fit and finish, narrow foot wells, visibility, access, reliability. for “Lows” in recent Consumer reports test?
Ford should copy EVERYTHING from Ford Europe and stop selling us 9 years old Focus.
GM should get rid of the union b-4 they get anything, as far as I’m concern, if you can’t manage a company the right way, sell products that people actually want, get out of business, and to all auto workers out there, I’m sure you can find a decent job at Honda, Toyota, BMW, or any other company that make real cars in the US.
Obviously your job is not affected by the American Auto inudustry and you believe like so many fools that “we”are better if the foriegn auto makers just took over. You, like other like you just make me sad. Japan has for years protected its own from imports in their coungtry by not allowing but so many US cars to be sold there at all. So although you use alot of words why dont you just become a Democrat and move out of the country with your supporters. Say hello to Jimmy Carter for me too while you are at it. He has for years been telling everyone that America is the Devil.
Buy a 2010 Camaro post bankruptcy and you will be fine.
Buy a 2009 Cobalt now and you are SOL.
The vast majority of Americans already view GM as bankrupt now anyway thanks to the press and the nonstop BAILOUT talk and flashes of the 2 buck GM stock!
Dealers are diversified anyway. How many own just one brand. Most are 3-4 or mega anyway with 10+!
Robert,
How do you feel about the National Flood Insurance Program operated by FEMA, funded by taxpayers?
What about earthquake insurance, also funded by taxpayers sold by the California Earthquake Authority?
We don’t know if the domestics will survive even with a bailout. As you point out there’s nothing to keep them from returning to the well for more money later. That being said, there is a chance that GM will turn it around, even if it’s a slim chance.
Not only is insuring people who live on a flood plain or fault line subsidizing and rewarding bad decisions, there’s no chance there won’t be more floods or quakes. We know with certainty that there will be another “failure” soaking up more taxpayer dollars. The San Andreas fault will have another quake. Floods are literally as regular as rain – hydrologists talk about 20 year floods, 50 year floods, etc. The taxpayers paid for homes damaged in the great 1993 Mississippi River floods and then paid for the sames home to be rebuilt after the major flooding this past spring.
Sorry, but you lost me when you said that bailing out Detroit would create a suitably high floor for car prices. Since when does more competition lead to higher prices. Furthermore Farago neglects to point out that Japan’s constant manipulation of the ¥en for the benefit of Toyota, Honda, et al, allowed those companies to generate billions in profit just in currency transactions alone. At the end of the day it absolutely matters where those dollars go. If Detroit goes, it’s gone forever.
jsevenseven :
The lowest priced product in a given market sets the “floor.”
In this case, Detroit sells their vehicles based on price. Not quality. Or resale. Value. Price. It’s a dumb ass thing to do if you’re the highest cost producer in the game, but there it is. They simply don’t have the ability to create products that can command a premium over the competition.
In other words, The Big 2.8 can only sell the majority of their products if they are the cheap relative to their direct competition.
By the same token, Toyota, Nissan, Honda sell their vehicles for a price premium ABOVE Detroit’s. If Motown’s metal wasn’t there to set the floor, price competition would increase. Their prices would have to drop.
As for Japan’s supposed manipulation of the yen, that “fact” has been disproved countless times on this site and others. I simply ask that you research the issue a little deeper and consider the possibility that you are misinformed on this point.
@RobertSD,
I would like to point that US government was/is providing scientific research at no cost to auto manufacturers. When M-B merged/bought Chrysler there were rumblings from Ford and GM in front of congress, that such research should not be shared with non-US entity (that is how I learned about existence of this research and figured that it must be valuable).
Giving money to current corporations does not make economic sense to me, because there is absolutely not reason to believe that they can possibly do anything of value with new found fortunes. They all were spending much more then 100 billions per year (I worked few years ago in Big 4 accounting and have some idea about Ford and Chrysler books). There are hundreds of complex reasons why they are in current state, but management has not been able to address any of them. At this point I don’t believe there is intellectual capacity on board to move forth and restore those companies. They are in a fire fighting mode and they got there because of their inabilities. Moneys will not help. It is like education in our country: you can’t buy it, if students are not willing to learn.
P.S. I apologize, I sounded condescending towards you in previous post.
Sorry, but this is another example of what is becoming the typical shallow pseudo-analysis . . . ignore the facts you don’t like, and build a fairy story to reinforce your own world view. Oh, and don’t forget to throw in a dash of hypocrisy.
If you hate the domestic auto companies, then for goodness sake stand up for your convictions and say so. If you just want them to fail because of your personal history, or if you’re a rabid no-pinko free-market-at-any-cost Randian, then be proud of that. Stand by your principles. Let them crash and burn. Death before intervention. Free market at any cost. Fine
But Christ, why do you have to continue to play the same old tunes . . . “The domestics are irrelevant now, if they fail the ‘real’ auto industry — the transplants — will just pick up the slack.” Or maybe “Bankruptcy is the best thing for them . . . a healthy dose of medicine.” It’s BS. Fantasy, both.
Take the bankruptcy fantasy. Bankruptcy is not good medicine . . . it’s a death sentence. GM won’t reorganize and emerge stronger . . . they’ll fold. And if GM folds, then Chrysler and Ford will fold, too. Along with a shitload of suppliers. If you can’t see that, then either you’re not looking very hard, or you’re deluding yourself, or you’re just plain dumb. I’ll say it again . . . bankruptcy of GM will cause the death of Ford and Chrysler, and who knows how many suppliers.
Which brings us to the next fantasy . . . since the domestics suck so bad and have such shitty sales, no one will even notice they’re gone (except the lazy UAW and incompetent engineers currently living off their teat). Again . . . if you really believe this, you’re delusional. We’re in the worst recession in decades. The biggest sources of personal wealth in the country — homes and stocks — have taken a dive. We’re pissing away billions of dollars a week on a war we can’t get out of. Credit is dried up. People are scared and confidence is plummeting. But you keep saying that the sudden loss of probably close to a million high paying jobs won’t hurt a thing. That is such willful blindness it makes my teeth hurt.
Keep whistling past the graveyard, all of you . . . if GM goes down the can, then we’re all in the shitter.
Again . . . you’re perfectly free to stand by your convictions and say that the hit we’d all take is worth it to stay true to our free market philosophy. Or worth it to see the incompetent fatcats and lazy workers take it in the shorts. Fine. But stand up for these convictions. Don’t hide behind your fantasy scenarios.
Oh, and while I’m preaching about completely ignoring the truth . . . I’m pretty tired of the total disregard for the progress that Ford has made — in the competence and attitude of their management, in product quality, in fiscal housekeeping, in getting rid of the toxic culture. You don’t even acknowledge any of this. You paint with the same broad brush. That’s not ‘truth’. That’s selective disregard for truth. When something happens that goes against your worldview . . . ignore it. You obviously have no place in your head or your heart for redemption. Once someone has crossed you . . . you write them off forever. Doesn’t matter if they change. Doesn’t matter if they correct their mistakes. They’re dead to you. I don’t see how you can try to pass off vendetta as journalism.
I’ve spewed enough, so I won’t say much about hypocrisy. Suffice to say . . . if a source speaks in your favor, then they’re credible. If they don’t, then their either ‘bought and paid for’ or irrelevant. If a good product or decision comes from your favorite, then it’s the second coming. If not, then it’s irrelevant (again), or a distraction from what should be done. If a bad product or decision comes from your favorite, then it’s ignored. If not, then it’s hyped beyond belief.
Blah blah blah blah blah . …
Speaking as somebody that was a contractor to the GM Small Car Group in Lansing MI… Throwing money at GM will accomplish NOTHING without restructuring the company. I dont claim to have a crystal ball (thats why I wont speak more than I know) but I know what I saw while I was there.
@ RobertSD,
What does the $30-40B get us? How much production can be reduced for how long for that amount? The truth is, its going to take a lot more than that to close down GM’s 6 superfluous brands + Mercury + Chrysler + Dodge + Volvo and prop up all of the businesses that support them. And at some point they will need to close anyway. Is the government really going to oversee the slashing and burning that needs to happen? What senator or congressman will vote for cutting those jobs?
That said, I think your proposal is exactly what is going to happen. However, I contend that it won’t work and the end result will be a delay not a softening and lots of taxpayer money wasted in the process.
dkulmacz: Why do you think GM folding would take Ford down? Even if some suppliers common to both went dark, the factory and tooling would still be there and either Ford could take over the factory directly or a team of workers and managers could pick up the useful bits and carry on.
I am sick an tired of Dire Scenarios being foisted off as certainties. Just weeks ago Paulson told us that the world would end if he didn’t have a pile of money with which to buy distressed loans … and yesterday he says, oh never mind, I have a new vision now.
Nobody actually knows how any scenario would play out. We do know one thing, because it is a historical fact: Wagoner has driven GM right smack into the wall. His leadership has been a failure by any of the metrics with which businesses are measured. That is a fact, not conjecture.
Given the usual operation of the political process, the US taxpayer will likely end up with the worst case scenario. They will bail out the Detroit 3, and they will fail anyway.
I predict the Detroit 3 will get an initial bailout of, say $50 bil, with minimal conditions or real reforms.
Then the Detroit 3 will come back for another $50 bil in less than a year (GM burn rate alone is $7 bil per quarter which is sure to go up an a recession).
With no money for product development, the Detroit 3 will fall further behind the competition.
The Detroit 3 have the lowest income customer base (most vulnerable to recession). The 5 to 8 (?) million unit decline will mostly come at the expense of the Detroit 3.
Bottom line, after $100 bil is not enough, Washington finally says no and the Detroit 3 go into ch7 and are liquidated.
dkulmacz… I was going to write a long post but you pretty much summed it up. Don’t get me wrong, I love TTAC and find our conversations here entertaining and stimulating. But there’s been far too much textbook free-market economics lately.
I suspect most – and I stress most – people calling for a GM Chapter 11 have never seen the inside of any car company and have never experienced how ugly something like this would be in reality. I’m no left-wing ideologue. But I see no logical reason by GM and Ford should be allowed to die so that free-market purists can feel righteous – or that someone with an axe to grind about a bad vehicle experience can get their revenge.
Enough with hardline ideology. These are seriously troubled times that require pragmatic, practical answers. A GM bankruptcy will be anything but clean and easy – and create far more pain for the broader economy than our esteemed Mr. Farago imagines.
Waffle:
I look at it this way: If Congress doesn’t come up with the bridge loans, the taxpayers will end up paying anyway – and possibly paying even more than the loans would amount to.
Say GM files for Chapter 11. They’d have to seek debtor-in-possession financing. Where are they going to find that kind of money in today’s financial environment? Congress, that’s where. If not, watch that Chapter 11 turn into a Chapter 7.
Then watch how the consumer refuses to buy a product from an automaker in Chapter 11. Again… the likelihood of this turning into a liquidation becomes very high. Then who pays the unemployment benefits for all those jobless workers? Taxpayers, that’s who.
I’m not saying we have to like federal loans for the domestic automakers. But It’s still probably a lot better than the alternative.
no_slushbox:
On the other hand, if you get a post Chapter 11 GM with a warranty underwritten by a well capitalized independent company your warranty will be safe.
+1. Also, I’d love to see a bankruptcy judge allow internet auction sales of excess vehicles. With delivery to your door… Although, some State AG’s may sue to protect their campaign contributions from dealerspoor, defenseless consumers.
Much too much logic and sense in (most) of the posts today.
This isn’t about logic — there is no smart business sense or logic that props up Gm, Ford, Chrysler.
Its all about the FEAR that their bankruptcy would bring to the American psyche.
Its not just about the auto jobs, its the fear that Americans will slow down, even more, their spending on anything other than the essentials.
If just the the US auto brands died… that in and of itself is not the worst thing.
But then consumers, the spenders, stop buying all the other things that keep the economy going.
So, in the end, the feds will bail them out, rationale business issues be damned. It’ll be all about not wanting to deepen the fear and panic among US consumers.
/p
There is an underlying glaring error in the argument of the hardcore bailout proponents — they assume that a bailout would be successful.
I hope that such advocates are embarrassed in a year or so when Wagoner comes back to the till with his hand out, groveling with more requests for cash and more excuses as to why he still hasn’t fixed it.
GM doesn’t have money not because of the credit crunch, the Japanese, or anything else, but because it’s a poorly managed company without a plan that tries to sell stuff that people don’t want. Much of the same can be said of Chrysler.
Without an effective plan, the right leadership, and desirable products, any bailout money would be wasted. A classic example of good money after bad.
Ford is in a different boat, and probably deserves a chance. It has some of the right leadership, now it needs the products to go with it.
Ugh.
The defeatism of the DET cheerleaders is, for me, the most UNAMERICAN part of it all.
Americans CAN (and have) done f’n airplanes from cocktail napkin to flying in well under a year. In fact, under six months. IIRC, under 3. Hint: it was not a paraglider.
The DET crowd still ignores that there’s a gun to their head, the safety is off, the hammer is back, and (20 years too late) the trigger is being depressed.
If they really were deserving (ie, not gonna piss it away on SNAFU) our 50B, the lights would be on at 2am – because they were all working 90 hour weeks to actually produce a car people want to buy.
Productivity is simply not possible within the extant metric. It has to change.
Compete or die. Like the rest of America has to do every day.
Steve Biro: my point is that GM etc will be bailed out, but they will still fail. The coming recession will likely be at least 6 quarters (1974 and 1982 were 5Q). Annual units are likely to drop to approx 10 mil for several years. The domestics are the most vulnerable because of the economic position of their customer base.
peteinsonj: I really agree about the psychological impact of a GM bankruptcy. But it might just be the shock that get the US to look at real change (ie. not the “change” that supposedly triumphed in the last campaign).
The US (and all of the advanced industrialized countries) have: multi trillion unfunded liabilities for health care and pensions, poorly performing schools, huge taxation, regulation and litigation cost issues, huge competitiveness issues with china (manufacturing) and india (services).
Given that, a campaign where the winner promises cash rebates from Washington, universal health care, free university etc. reminds me of mid 1990s GM where they ignored declining market share, legacy health costs, vehicle quality, labour costs and just built more SUVs.
Is Obama going to be Robert Stempel or Rick Wagoner?
(Note: McCain was just as bad)
so i have some questions the first one when the british motor works go out of business did britin?
If gm goes under the other car companies would have to pick up the slack and they would need workers to produce more as well. some workers would get jobs with the other car companies.
Then the second thing would be SIX HUNDRED BILLION dollars went to the finance sector and guess what the dow jones is still falling. i say that becuase i keep hearing about part of the 100 billion left going to detroit.
third If you really think that little bit of money will do anything but prolong what is going to happen. well look at chrysler umm did or did they not get bailed out before oh im sorry they got secured loans thats right. yeah about that. Gm is one of my favorite car companies but they did this by building suvs and being greedy making billions on billions while not making but few(3) good cars. that is a little much i know but besides the sevile, the camaro, and the corvette tell us a good car that was class beating and successful in the ninties or the the first three years of this century.
the forth thing if gm goes under there are still dedicated americans deticated to buying american and would simply take their bussiness to either ford or chyrsler. if they do not do that they will just go ahead and by that car from gm they looked at for cheap.
last i just think that it is crazy to talk like it is the end of the world. it is not the end of the world. and if gm files bankruptcy and they do not come back it will be red ink rick just getting away in his golden parachute. the only way for them to come back is with someone other then a bean counter at the top. i know the thought of bankruptcy is something of a hit to the pride of many of us that we are almight we do not fail but i dont think it is not how you fall that should matter but how you pick yourself up and make a come back. Everybody falls it is the way of evolution the weak will fall (GM managment), but Gm will evolve, shead the weak links and come back better then ever.
I find it incredible that there are so many so devoted and passionate to rail against American car companies. Mr. Farago is relentless in pounding GM. Relentless. By the way, I am not a DET cheerleader. But I must admit that my livelihood is directly connected to the US auto industry. The failure of GM would have a devestating effect on our entire economy and I for one do not want to experience that calamity.
A bailout that involves completely redesigning Detroit could be an option.
It would have to be done by the Obama government.
Are they up to that?
Is the goverment going to be able to shutter factories and lay off thousands of their voters?
Is the government going to be able to stand up to their UAW constituents?
What if the UAW calls for a strike against Obama?
Can politicians succeed where hard nosed managers have failed?
Possibly, but it would require true change in the way politics works.
Maybe the ‘car czar’ idea could work, whereby an apolitical, technocratic manager with $50B in his pocket is set loose on Detroit….
Impressive article.
My objection to the bailouts is that it means those who consume less from the car industry are subsidizing those who consume more from the car industry. Why shouldn’t people who drive cars be the ones who fully bear the cost of doing so? Why should someone who goes to the trouble of minimizing thir use of cars, subsidize those who engage in recreational driving of big goofy wasteful trucks? Crazy.
As for jobs, jobs, jobs, it’s very simple. Cars will be bought in numbers directly, but not exactly, related to how much driving is being done. Anyone who drives can see that driving has not fallen off by 30%-50% lately. You can’t drive cars without wearing them out, as most of us have noticed.
But new car sales have fallen by 30-50%. So, it could be that the market was over-saturated with newish cars. Which it probably was. But not 30-50%.
It could be that cars last longer than they used to. Probably, but that’s not enough to explain the falloff in sales.
It could be that in a tightening economy people keep their cars longer. The “Cuba” scenario. Yes, but that’s still not enough to explain it.
It could be that people are finally finding alternatives to driving, and the addiction love affair with cars is over. Nope, traffic congestion is unabated.
The sudden falloff in sales is a hysterical reaction to something that’s been building for decades. Part of that something is that the Big # have tried to have their outdated way by throwing their weight around. Well, their weight has gone away, the car market has changed radically, and they’re the ones with no chairs when the music stops. This applies as much to the unions as to the stockholders and management.
Eventually, motor vehicle traffic in North America probably will fall at least 50%. This will be due to some combination of: people spending less disposable wealth on driving, environmental concerns, shifting to more efficient modes of travel, and people maturing beyond car cult devotion. But we won’t see any long-term decrease in car manufacturing, and the jobs that go with it, until we see the roads clearing.
Don’t worry, car enthusiasts will always be able to own and operate any car they want, if they can afford it and they don’t mind being seen in the things.
Therefore consumption of cars may be retreating from historic heights, but long-term consumption of cars will continue at high levels for the medium term future. Someone has to make those cars, and make parts for them, and sell them, and service them. Whether the cars are made by the “Big 3” or someone else.
So anyone who says 2.5 million auto sector workers are suddenly going to lose their jobs, is either hysterical, stupid or has some other motive for spreading misleading information. And the people with those jobs should see the writing on the long-term wall, and be preparing accordingly.
Bridge2far :
November 14th, 2008 at 1:13 am
The anti US auto company bias here is absolutely ridiculous. I find it incredible that a site would be so devoted and passionate to rail against American car companies. Mr. Farago is relentless in pounding GM. Relentless. By the way, I am not a DET cheerleader. But I must admit that my livelihood is directly connected to the US auto industry. The failure of GM would have a devestating effect on our entire economy and I for one do not want to experience that calamity.
There is a simple, free market solution to saving GM:
GM needs to build products that the public wants to buy and that it is able to make a profit on.
If they can’t do that, they deserve to die, like any other company in the same situation. Any bailout big enough to actually save GM will require either a near-nationalization of the company or corporate welfare on an immense scale (like, here’s a hundred billion dollars-have fun!). Do you really want the government to be in the auto business? Really?
There is another option-have the government force Chyrsler to go out of business. Give them none of the loans, stop all purchases of Chrysler vehicles by the Federal government, the works. Chrysler goes poof, and the majority of those sales will migrate over to GM and Ford, saving both, at least in the short term.
Having Chrysler go out of business is much better than having GM do so, due to the sheer scale. If nothing is done, it might be GM that goes first. There is only enough room in the marketplace now for two of the Detroit Three; better GM and Ford than Chrysler and Ford.
I guess I’m still not clear.
I don’t think the government should be in the business of saving GM or conducting its reorg. I don’t care if GM goes down; I just don’t want it bringing the economy down with it.
If GM failed, I would want the government to prop up Johnson Controls, for example. Why? Because several manufacturers use them. GM’s bankruptcy, slashing of output and non-payment of invoices would bankrupt Johnson Controls as well. Ditto Lear or Delphi and a few others. So, if GM owes Johnson Controls $1B in receivables, the government pays all or a significant part of it and offers a low interest loan to restructure for the drop in GM business (something like 50% of their business, I thought).
Ultimately, GM gets nothing, and the government doesn’t help it restructure. It can crash and burn on its own, but it gives Ford, Toyota and Honda time to find new suppliers or help the suppliers downsize drastically to accomodate the lack of GM.
The only areas that are grey are things like: if Ford survives the fall of GM, should the government take over their VEBA cash payment ($4.5B)? Last man standing type thing? There are questions about pension liabilities, but it is fairly common government practice to take those over as well during bankruptcy, so I don’t know that is a true new cost.
The government would not be in the business of saving our manufacturers or restructuring them. It would be in the business of protecting our economy. Make more sense now?
BR549 and Biro are on the right track. Here are the big issues:
1) If GM goes C11, will people buy cars from them? My guess is no. You would think that polling or focus group testing could come up with some data. I bet GM has done that, hence their refusal to consider C11.
2) Why wouldn’t GM’s management be forced out as a condition of a bailout? That’s what happened to AIG.
3) Psychology is a huge factor in economics. To ignore that is irrational. Lehman’s bankruptcy had a profound effect on the markets. Wouldn’t GM or Ford (but probably not Chrysler) going under be similar? If not, why?
Discuss amongst yourselves.
Some here have said that the Japanese carmakers get subsidies from the Japanese government, and their success, at least in part, stems from that. Not so.
The Japanese government has done little for its carmakers. The infamous Japanese shaken system does encourage people to buy new cars there more frequently than here in the US. And the Japanese carmakers do have some other advantages, such as a better educated and stable workforce.
But if the Detroit Big Three are saying that they deserve subsidies from the United States government because Toyota, Honda and Nissan get subsidies from the Japanese government, they are lying through their teeth. Don’t believe it.
All the worry about taxpayer money going to Detroit has a double standard to it IMO.
We bailout other industries all the time. We even bail out whole other countries. Iraq comes immediately to mind. And Israel and Afghanistan.
Korea and Germany were and are huge beneficiaries of American military largess.
The whole military spending thing is nothing but government money going to private industry. Same thing for Medicare. And the recent banking/insurance $700 billion bailout is another prime example.
I am a farmer. Farmers have received government bail out money umpty nine times over the last 50 years and few complain. I recently received a $5000.00 farm program check.
Government employs about 23% percent of American workers all paid for with taxpayer money. Few would argue that they are efficient and competent.
I find it odd that the automotive sector is held to a different standard. True they are incompetent, but so are the other examples I have cited.
While I think that a properly structured bail out of Detroit would be a good think. I cannot see it happening.
The only way to make a bailout successful (and not a postponement of the bankruptcy) would be to force GM to use it for major restructuring. Eg paying for it to close a couple of brands, with the thousands of job losses that would entail.
But can you imagine any politician getting involved in a deal that resulted in huge job losses even if it saved the company and more jobs.
Also I consider a bailout of Detroit far more palatable that the financial bailout. Detroits exec have made some bad decisions a big part of the reason that they are in such dire financial straights is the historic issues of pensions and health care. The financial business that are receiving the bailout had non of these issues. They drove there perfectly good business into the abyss for pure greed.
Is the American automobile industry worth saving?
Everyone of us who cannot afford a new Big 3 car every 3 years has faced this question individually. At some point your car just plain costs more to fix then to get a new one. One week its a rad, then the ball joints, then just when you think you are safe for a bit you need a tune-up. That is the way a bailout is going to work. A little fix here a big fix there but eventaully you just come to the conclusion that it is cheaper just to drag the old one off to the junk yard and look for something new. Funny how the model the auto industry has gotten us all used to is now happening to the companies that designed planned obsolescance. Go Figure!
I propose a slight upgrade for the big 3;
We should heretofore refer to them as the big 3.14159265, which represents the big hOle they have managed themselves into, and into which we should pour 0 dollars.
“How do you feel about the National Flood Insurance Program operated by FEMA, funded by taxpayers?
What about earthquake insurance, also funded by taxpayers sold by the California Earthquake Authority?” -Bozoer Rebbe
You are equating the management abilities of Rick Wagner with a natural disaster. LOL.
While I would agree with your assessment of Government run insurance programs as bailouts, they are bailouts we as a nation believe are warranted, mainly because the bailout situation is caused by an ACT OF GOD, not an act of an incompetent CEO.
Too funny.
John Horner . . .
In better times, you are correct. But we are not in ‘better’ times. We are in shitty times. Ford is doing everything they can to weather the storm and come out the other side. Yet they question if that is possible given the economic realities, hence the possible need for a ‘bridge loan’ to keep them going if required.
How can you honestly believe that in times like this, they would have the resources to take over a part supplier’s factory and keep it running? There is no cash to do this. There is no headcount free to take this on. There is no knowledge of what to do . . . do you think running a production facility is like turning on a washing machine?
We are walking on the edge of a knife, and even with our best efforts and the best circumstances, we could go over. (Again . . . hence the need for a bit of insurance to make it across the precipice and emerge healthy and competitive on the other side.) But a small (or not-so-small) push in the form of failed suppliers and more market chaos/consumer fear would almost certainly send Ford over the brink.
If a loan to GM keeps them afloat long enough for the economy (and her domestic competition) to get healthy, and makes the scenario you propose a possibility . . . then it will be money well spent.
Ed,
While the wind and rain may be an act of God, the decision to build and re-build on the coastline where we know the wind and rain will strike is most definitely NOT. That decision is the root cause of the problem, and that decision is very much akin to management decisions. And we’re bailing them out, and will do so again when the next big one strikes.
A more fitting analogy . . .
Poor management decision:
Build houses on the gulf coast, because it’s warm and sunny and the view is great!!
vs
Invest in pickups and SUVs because gas is cheap and people are buying and we make thousands of dollars on each one!!
Act of God:
Oops . . . hurricane strike!
vs
Oops . . . crude oil / gasoline price bubble!
Obvious outcome:
Your beautiful house does not look so good anymore!
vs
Your truck plant does not look so good anymore!
Bailout time
Federally subsidized insurance
vs
????
It’s worth saving but only with a completely new business model. Throwing money at the current mess will continue the decline and make people even more turned off of Detroit.
I remember reading how many vehicles, services, and donations the big 3 gave during the 9/11 crisis and how little the transplants gave even though they were having record sales. I use this as a point as to why we should have a domestic manufacturing base not as a way to justify keeping Detroit in its current failed state.
Unfortunately, the reality is there is going to be mass job loss in order to right size these companies. It is just a now or later situation.
Oh . . . another one . . .
What about the other guy?:
Some people live in Pennsylvania or Illinois or Montana . . . because their parents did, because they have roots. But if they could afford a nice getaway on the beach they sure would love it! Hey . . . maybe I’ll start saving!
vs
Some companies sell small and midsize cars because that’s about all people buy in their home markets. But if they could sell half a million or so pickup trucks with a five figure profit, they sure would love it! Hey . . . maybe I’ll build a plant down in Texas!
Maybe Rick Wagoner should be replaced by a robot or a PC. Since Rick and his cronies aren’t responsible for anything that goes wrong, they can save the cost of their compensation, plus all of the horrible mistakes that they make, all in one blow.
Not that this would end the debate. We’d be fighting over the benefits of using Linux vs. Windows, plus the Mac crowd would have to weigh in.
Ford: Quite sick, but could potentially recover on their own. Some medication (Chrysler-style loan guarantees) may be needed for complete recovery.
GM: Has massive injuries, requiring almost-heroic efforts to save, including amputation (Pontiac, etc.) and organ transplant (much of management). It’s hard for me to see recovery without some kind of reorganization, maybe under government-backed C11. Without government assurance, it seems likely to me that a C11 filing will lead to massive sales losses and a downward spiral to C7.
Chrysler: Needs life support, and may not be saveable. It’s time to start talking to next-of-kin about organ donation (Jeep) to another automaker.
Excellent analogy. I’d carry it further:
Ford: Patient has engaged in many high-risk dangerous activities in the past but appears marginally committed to stopping smoking, at least, and has improved his diet.
GM: Patient is smoking in the oxygen tent and insists that cigarettes are good for you. Says he’ll stop one of these days anyways, but only because the damn liberal media has convinced everybody about smoking being bad for you.
Chrysler: Patient insists that those aren’t cigarettes, and they aren’t even in the hospital anyways, and besides, we’re all being controlled by satellite transmissions and high-fructose corn syrup. Plus, just threw up toxic waste all over the room.
CinciAV “The J8 has Dana 60 axles”.
Really? Are you are they aren’t Dana 44s? If they are Dana 60s, they should start selling them here, finding a ‘real’ Dana 60 is very, very difficult.
Back to the article. To me, the most salient point is that bottomless pit aspect. I have yet to see any proponent of this bailout state emphatically that x billions will do the trick. Asking for $25 billion, knowing full well that that is just enough to keep the lights on, deceives the public and deserves to be rejected outright.
dulkmacz, Steve Biro, etc.
You guys are making a good argument, but it has some holes in it which you don’t see because of your OWN bias. You should detect your bias creeping out when you start exagerating the bias of the other side. One can be pro-market without being a radical about it. One can look at the UAW ridden 2.8 and see something that simply can’t work. For Pete’s sake, PCH101 is against the bail out. You must be new to think he is laissez-faire.
BTW, so you can stop imagining that you are conversing with a bunch of know nothings, I have been in the HQ of GM and Ford doing business. I have had dozens of dealers as clients. Furthermore, I don’t know PCH101’s resume, but having sparred here with him at length I can vouch for his intelligence and reason (though he is often misguided by his left leaning sympathies). I would say he has a good handle on this situation, even if his solution is unlikely, it is reasonable (though basing in socal is a terrible idea, I recommend North Carolina).
Once again, don’t be fooled by the huge numbers. From a percentage standpoint, loss of GM won’t do us in. You have to realize that they haven’t been making any money for a while now, and even at their size, they are no longer that big a force in the country. No one is bailing out my company, why should I have to pay to bail out theirs?
bridge2far,
There is no anti-american car bias here at all. The problem is that what you think is an american car company, isn’t. The 2.8 are the most unamerican of the lot.
Warranty worry warts and Bankruptcy panic people,
I can name several manufacturers who sell big ticket items that came back from bankruptcy. Usually, the first thing they do is start honoring warranties. If warranty fear is a big deal, then GM could simply sell the warranty from a third party insurance firm with their vehicle to allay fears. There are dozens of these companies.
If you disagree with the idea that bankruptcy won’t work for GM, then you need to make a good case for that. I really haven’t seen one that convinces me, not that it matters. I don’t believe we are worse off without GM.
“What about YOUR favorite subsidy arguments” –
Here is the thing. I am against all of them. AND, two wrongs don’t make a right.
The only argument that stands a chance with me is to demand a bailout on the grounds that government interference is largely responsible for these failures. Unfortunately, the left ain’t going to change any of that, so it doesn’t make any sense to bail them out so we can continue to strangle them.
While I would agree with your assessment of Government run insurance programs as bailouts, they are bailouts we as a nation believe are warranted, mainly because the bailout situation is caused by an ACT OF GOD, not an act of an incompetent CEO.
Too funny.
I disagree. The bailout situation is caused by building homes where they have no business being built. We reward bad decisions.
Building on a flood plain is as stupid as anything that GM has done. Hoping that it won’t rain is not a plan.
Bozoer,
Okay, stop national flood insurance, AND don’t bail out GM. Deal?
They are absolutely out of touch with their customers, in part because they are in that backward looking nostalgic quagmire that is southeastern Michigan.
Perhaps they can call them Heritage Autos, and sell them at farmer’s markets together with heritage tomatoes and heritage turkeys.
As long as an independent company underwrites the warranty on a GM or Ford I don’t think many people will care that GM or Ford are in Chapter 11. I won’t.
Er… wasn’t that the cause of the trouble on Wall Street? Bankers investing your money in toxic mortgage securities and saying, “It’s OK, Moody rated them, AIG insured them.”
When people don’t take responsibility for their own buying decisions and their own products, things start going downhill.
“bridge2far,
There is no anti-american car bias here at all. The problem is that what you think is an american car company, isn’t. The 2.8 are the most unamerican of the lot.”
Absolutely laughable.
Funny how the model the auto industry has gotten us all used to is now happening to the companies that designed planned obsolescance. Go Figure!
At least you can have a car repaired. When was the last time you tried having some kind of electronic consumer product repaired? The stuff is literally designed to never be repaired. Just throw it out and get a new one. But who hates Sony?
How come nobody calls it “planned obsolescence” when Steve Jobs announces the next new improved iPod or iPhone?
http://www.huffingtonpost.com/2008/11/14/bush-wants-25b-in-loans-r_n_143952.html
Bush is now backing a bailout. If he did not, the failure of the big 3 would forever be blamed on the Republicans. So it is going to happen, whether people on this site like it or not.
If the recession is deep enough, Japan, Korea, German, Sweden will bail out their manufacturers.
There are arguments for and against, but it will happen.
Not only do I think the D3 is worth saving, I think HUMMER is worth saving.
Don’t worry, those impulse buys for cars will come back.
Personally I think letting the D3 die on the vine will reduce consumer choice. Can you imagine just being able to buy Toyotas, Hondas and Hyundais?
Mr. Farago,
I found your arguments against the issuance of a bailout package for U.S. car manufacturers to be extremely informative. It is important to examine this type of governmental expenditure given the current economic downturn. You bring up several great points in defense of your assertions.
I agree with you that companies composing the Big Three (Ford, GM, and Chrysler) are bloated corporations in need of an overhaul. They need a shake up that will restructure their management and restore their prominence as premier American brands, delivering products with amenable features customers want.
However, I believe it should be a concern of our nation’s citizens that foreign automobile makers have such a stranglehold on the domestic market. I do not share your sentiment that this is an unavoidable reality.
American cars can indeed make a comeback through careful revision of their manufacturers and their subsequent realignment with the market. You advocate that the industry should be left to fail, yet what do you think about this sector’s synergy with other areas in the economy?
According to the Center for Automotive Research, as many as 2.5 million workers could become unemployed nationwide if any one of these corporations go bankrupt. That is a significant amount of jobs lost, especially considering the recession is expected to raise the unemployment rate considerably by the year’s end.
It is true that the Big Three have been consistently unable to competently respond to foreign competition, and they have indeed been mismanaged for years. Yet they appear to exist as a cornerstone of the American economy and job market.
Therefore, wouldn’t it be a better plan to keep these corporations afloat, but in doing so demand they concede to requirements they have been avoiding for years? Stringent mandates could be attached to the bailout, successfully realizing the implementation of guidelines such as higher fuel economy standards.
These types of policies would not only help to address environmental concerns, but they would help automobile manufacturers to put cars on the road better matching the evolving demands by consumers for more innovative products.
I agree with you that “the new car ‘bubble’ has burst,” but more pragmatic policy approaches could be introduced to address the U.S. carmakers than to simply let them fail.
Your take on this “crisis” is very interesting. I agree with you that this proposed infusion of cash is infuriating, considering that the big three: GM, Chrysler, and Ford are doing exactly what you point out in your post- shipping jobs overseas to stretch their dollar.
Does saving the 3 automakers insure jobs here? Yes. Of course it does. But does it also ensure that these companies, in order to cut costs and stay afloat will cut their highest paid workers? Of course it does. Where do those highest paid workers reside? Right here in the good ol’ US of A as members of the UAW making union pay at $74 an hour.
This money from the government is necessary- these companies employ hundreds of thousands of people and not just at company owned plants. Think of all the laborers and employees that have positions at subsidiaries of these companies. What will they do if the automaker suddenly stops ordering windows or windshield wiper blades?
However, the bailout money should come with a very clear caveat- re-structure your business to compete with the other auto makers or we, the taxpayer, will not prop you up. One merely has to look at Toyota to see how a company should treat its workers.
During this economic crisis, when American companies are shedding jobs, Toyota has not fired ONE person. See this courier press article for what they are doing for their employees- http://www.courierpress.com/news/2008/nov/01/making-the-most-of-down-time-toyota-uses-for/.
In your opinion, what do you see as the best solution to the problem? Do you think that breaking up vehicle conglomerates like Ford (who owns Ford, Lincoln, Mercury, Mazda, and Volvo) should be broken up into single entities to foster competition in the marketplace?
This much is clear- changes need to happen, and fast. Otherwise, we may see the end of vehicle manufacturing by American automakers. How strange would it be for the world to exist without Ford, the company started by the inventor of the machine that has changed the world?
I thank you for your insightful and informed post. I also welcome your comments and can be reached here- http://www.blemmon.blogspot.com