The NYT also, however, has a pointed column from Floyd Norris, who notes the double standard being applied here: while the government is disinclined to give Detroit any help at all, it's much more well-disposed towards companies like AIG and Fannie Mae which are coming back for second helpings of bailout money, after having made clearly insufficient changes the first time around.
It strikes me that this is another problem with a potential auto bailout: we don't have any good blueprint for what we want them to do.
The financial industry is one of the most heavily regulated industries in the country, indeed, the world, and while we don't know how to collectively get out of this crisis, we do know generally what we want the banks to look like at the end of it: less leverage, better risk management, and probably a better compensation system that calibrates earnings to multi-year and systemic performance. I don't want the government to run the banking system for any number of reasons. But I do think that the government has a roughish idea of what a good bank should do.
What, by contrast, should we demand from GM in return for our largesse? I don't think we have any legislators or regulators with the experience and flair to design new cars or oversee the marketing program, manage the dealer network or decide which lines to cut or gut rehab. We'll have to depend on management to do this. And the management that will be in charge is going to be, in essence, the same management that screwed things up.
Oh, we can replace the people at the top, if we want (it would probably be a good idea, but I don't know how it would play politically). But American business writing considerably overstates the value of a CEO. Not that being a CEO is easy, or that they don't do valuable work; I venture to say that 100% of the commentators who think that running a major company is a matter of riding around on the corporate jet and stealing from the workers and shareholders would be surprised at how quickly the company sank under them if they were thrust into that cushy sinecure. But while a bad CEO can ruin a good company, it is not necessarily the case that a good CEO can save a bad one.
Big organizations are like ocean liners; they turn slowly, if at all. Corporate culture is simply an amazingly powerful thing, almost always beyond the ability of one man (or woman) to change. I have spoken to people at organizations that replaced two thirds of their staff in a buyout, and nonetheless found the old culture running the place rather than the new, dynamic environment they'd hoped to create. A very small cadre of old workers can perpetuate the old culture surprisingly well, because they're united, while the new people coming in have no common culture to bring against the old guard.
Too, CEOs at failing companies are often operating under more legacy constraints than they are given credit for. One often hears people rail against the UAW when talking about the auto industry; more rarely do you hear about the supplier network, the dealer network, and the politicians at local, state, and federal levels, all of whom exert considerable leverage over Big Three CEOs.
Congress, or some regulator, has no ability to fix the corporate culture that failed in the first place. No matter how many executives you fire, the middle management, the engineers and marketers and purchasing agents and sales force, will stay the same. We don't have anywhere else to recruit a whole new workforce from, even for a stripped down company. Even if we were going to go outside the industry and get new people, how on earthy would you persuade them to move to Detroit? Maybe you could do it by throwing money at them--but can you imagine the reaction from Congress if the new Big Three leadership proposed raising management salaries by 30%?
Indeed, a bailout will mute the one thing that sometimes does turn around dysfunctional management: the shock value of failure. Failure is nature's way of saying "don't do that anymore!" We're whiting that out and replacing it with "Keep going!"
The only thing that the Federal government could even theoretically oversee fairly competently is downsizing: choose which plants to shutter, which workers to lay off. But avoiding mass layoffs and plant closings is precisely the reason that Congress wants to give Detroit a bailout. And even if Congress had the political will to cut deep, in practice it would fall apart. The decisions about plant closures and layoffs would become a political football akin to base closings in the nineties, with Congress working hard to ensure that any such decisions were made on the basis of whose senators and representatives had more power, rather than which plants are least efficient. The Big Three have a fantastic burn rate; at current rates, a $10 billion infusion into GM would be gone in a few months unless the economy magically turns around. Raise your hand if you think auto demand is going to improve to 17 million cars a year in the next two or three years.
Yes, Mr Wagoner, you can sit down now. The rest of us are skeptical.
My prediction: we will get an auto bailout, probably as soon as Obama is sworn in, though possibly sooner. It will not involve the kind of massive job cuts and plant closings that most analysts who do not work for GM (or the UAW) believe are necessary to make the company viable again. Possibly the company will go into bankruptcy, burning the creditors, but any planned bankruptcy will involve shielding union contracts from a serious cramdown. Top management will be fired, and the rest will have their salaries cut or frozen, causing the most talented workers to flee for other industries. The company will burn through the money, and be back asking for more from Congress before Obama's first year is out.
The best case scenario for GM, and the worst case for the rest of us, is that the bailout involves the government assuming many of its legacy obligations at enormous ongoing expense. This will help, but not erase the fact that Detroit has capacity to build at least 50% more cars than anyone is currently willing to buy.
"we don't have any good blueprint for what we want them to do." We-ing is a good way to stop me reading any further.
We-ing is a good way to stop me reading any further.
And presumably if we-ing didn't do it, all that pesky reality and hard decisions would've finished you off.
I remember once reading that, adjusted for inflation, the airline industry has not made a cumulative profit since it was founded.
I wonder if the automobile industry is the same. Anyone have the data to see?
I, too, thing the bailout is a certainty, but that certainty became manifest the moment we bailed out the financial institutions, and the bailouts will continue after the automakers get their cuts until the government defaults. The moment of that default may not be long off now.
I actually would submit that Rick Wagoner is one of those good CEOs (at least after the first year or two) who can't turn around a bad company.
Cut the labor force by 30+ percent? Done.
Cut starting salaries by a third, so they're in line with Toyota/Honda? Done.
Get the union to take on health-care benefits for retirees? Done.
Improve product line and reliability? Done.
The firm is much stronger than it was two, four, or six years ago; only problem is that demand is much, much weaker.
Watching MM and her supporters try to game out the dramatic changes in the US economy with crayons and stickers has been one of the few pleasures in this calamity. You all seem to be the last ones to get the memo that the revolution is over, and the Randians lost.
As for the auto makers, well, I guess New Orleans was just a dress rehearsal. Now we're going to let Michigan and Ohio drown. I don't know if you remember from, oh, about a week ago, but these states happen to have a disproportionate say in what group of people controls the Executive Branch.
That last fact will probably be more decisive than MM's cartoon economics.
Seeing as we're all about multilateralism and international law now... won't a GM bailout break WTO rules and trigger a trade war?
"You all seem to be the last ones to get the memo that the revolution is over, and the Randians lost."
In what sense 'lost'? I don't think there are many who seriously thought Rands writing would ever be the basis for a governing philosophy. She would have had a field day with what is going on these days.
I'd start by finding some managers who are "car guys". The top two at GM are bean counters, and I'll bet the next couple of layers are all lawyers and bean counters. Dump them all.
So is the auto bailout an example of the good economic advice that Obama is supposed to be getting from smart people like Austan Goolsbee, or is it a sign that no matter how good the advice he gets is, Obama's policy options are trapped in Democratic interest groups politics? Which is a worse sign for the next four years?
One reason that the Big Three are in need of a bailout is that the UAW negotiated such a good deal for the workers and retirees that it has bankrupted the companies. A precondition on the bailout should be the union workers agreeing to wage and benefit cuts. If Medicare is good enough for GM's salaried retirees who are 65 or older, it should be good enough for the UAW members who are 65 or older.
So the economist's best hope is that the FT report that insurer's won't cover GM or Ford's part supplies in Europe augurs a bankruptcy before 'hope and change' can take effect?
Even if we were going to go outside the industry and get new people, how on earthy would you persuade them to move to Detroit?
Jesus, Megan. You do realize that most of the population of the Detroit Metro area is outside of Detroit in the suburbs, right? There are nice places to live with very good schools and safe neighborhoods. Lack of jobs are the problem with getting people to come and stay, you dolt.
Seriously, you haven't the slightest clue how dependent this region is on the auto industry, do you? It's not a town of 10,000 in western NY that we're talking about. This is massive. It's not just auto workers and engineers. It's everyone that is dependent on them as well.
Did anyone actually think that by handing financial firms money without an all-out nationalization (i.e. government managerial takeover), we could prevent this? That we could take them on their word that they would spend the money wisely, like they always have done. Am I missing something here? Megan, this seems to me like the kind of common sense drawback that would have served as the first point in the case against the bailout. And while I do see your point that "financial institutions are special", doesn't this seem like the sort of behavior that could have been expected, and might supersede the dire necessity to enable them further?
And no, I am not in the "demonize greedy Wall Street types" camp.
It's not to say that I support the auto bailout, but your twisted arguments which are trying to justify your embarrassingly blatant double standard is tiresome. You were a complete shill for a financial bailout. And now that a similar situation will happen to a region in which you have never seen and know nothing about, you draw the line. Why, Megan? Your hypocrisy is disgusting.
So what exactly should be done? So far all I'm hearing is that the companies and the unions suck and should be left to die; the workers are to be pitied, but they too should be left to fend for themselves - or at best be given 'job retraining', so that they can learn how to operate the Squishy machines at their next jobs.
For every sob story about the evils of unions, one could write a thousand stories about all the personal tragedies that would result from screwing the unions and the companies and just letting them all die, as is being proposed here.
Funny too that we're straining at gnats ($25 billion auto bailout) while overlooking the really obscenities ($2 trillion for the financials).
DDP--
Perhaps it's because
1) The auto companies have received bailouts before and haven't learned. When was the last time the US injected capital into major banks?
2) Financial firms, upon bankrupcy, have to be liquidated, by law and so you can't restructure them. GM, on the other hand, can be restructured on bankrupcy. So, there are options other than bailout.
3) Financial firms have been culling the herd pretty aggressively. Citi is getting ready to announce the slaugher of 25% of their current staff (this is on top of the 10% or so that got hacked earlier). The whole point of the GM bailout is to prevent such cuts from happening.
And now that a similar situation will happen to a region in which you have never seen and know nothing about, you draw the line. Why, Megan?
Mass financial firm collapse => everybody is screwed, possibly can't recover for at least a decade with no clear path out of the mess. Mass US automotive industry collapse => Michigan is screwed, but can recover in a few years once it realizes how much its anachronistic labor laws contributed to the problem.
But let's talk some more about hypocrisy; that could be fun. Care to maybe disclose your connections to the US auto industry?
Funny too that we're straining at gnats ($25 billion auto bailout) while overlooking the really obscenities ($2 trillion for the financials).
Yes, one would think that they would see the embarrasingly hilarious double standard in this situation, but you're wrong.
"The bailout that I shilled for is a failure, that's why the auto industry shouldn't get theirs..."
Aren't you ashamed yet, Megan? I'm nearly inclined to support the auto bailout solely on your opposition of it. And given your past history (voting for Bush twice, Iraq War, financial bailout...) I'm inclined to think that MLJ was right all this time.
lampwick --
As has been said, GM can be restructured in bankrupcy while the financials could not be. Second, do you think for a moment if anyone would have cared about the banks if it didn't mean that Joe Shmoe can't get a credit card anymore despite already having $50K in debt with a 40K a year income? In a second, the government would have let the banks fail. They got bailed out so that the same union workers in detroit, could continue with the lifestyle they had. What else could you possibly think the GSE bailout, for example, could be about?
Why? The Great Depression. Japan in the 1990s. That's what happens when a country's financial system collapses. Will the GM workers be better off then? Will anyone?
I don't care if every banker ends up out on the street. They made their bed; they can lie in it. If you can figure out a way to punish them harder, go to it, though as a commenter above points out, Wall Street is already hemorrhaging jobs. But I would not give them one thin red dime to save their jobs, their bonuses, or their houses.
The *only* reason that I am in favor of it is considerable historical evidence that suggests that when a financial system collapses, the real economy quickly follows. The Great Depression lasted 10 years, and as late as 1938, unemployment was almost 20%. *That* is what I want to prevent, not the loss of our nation's glorious old banking houses.
Industrial failures, even big industries, do not show any evidence of producing the same kind of knock-on effects in other industries. The only time they do so is in small, undiversified economies who are dependent on a single industry or commodity; Norway's GDP varies with the price of oil, Finland's with Nokia. This does not described the US.
"Congress, or some regulator, has no ability to fix the corporate culture that failed in the first place."
Meg, this comment is absolute nonsense.
Where oh where are our fiscal conservatives who (used to) understand that the notion of needing to borrow money is only tenable in an environment where credit is tightly regulated?
The condition that allows GM, Chrysler, Ford et al to be on a bubble that floats badly run companies is poorly regulated credit markets, and absolutely unverifiable balance sheets.
"securitized debt"????
Dear readers, ask yourself this question -
when is the last time you or someone you know bought a new car for cash?
Chances are your grandparents had to, and found a way to do so.
Mass financial firm collapse => everybody is screwed, possibly can't recover for at least a decade with no clear path out of the mess. Mass US automotive industry collapse => Michigan is screwed, but can recover in a few years once it realizes how much its anachronistic labor laws contributed to the problem.
I agree, our labor laws are part of the enormous problem and I have worked locally to try and change that for some time, to no avail and ire from my fellow citizens.
But make no mistake, this failure will result in disasterous consequences for an entire region. We're talking severe depression for maybe a decade. Let's just be clear about that.
But let's talk some more about hypocrisy; that could be fun. Care to maybe disclose your connections to the US auto industry?
My connection to the auto industry has been no secret. I am a powertrain engineering consultant. I oppose the bailout, even though it would severely damage my well-being, as well as my friends and family. I still oppose it and I support change in Michigan's business environment. I'm resigned to the fact that I will be out of this job and out of Michigan, bailout or not.
But when it was Megan's turn, she decided to shill for a bailout and inject fear into the argument to promote it.
It is no fun for me to discuss this and I will lose a great deal that I love. But at least I don't support stealing from everyone to keep it.
"Indeed, a bailout will mute the one thing that sometimes does turn around dysfunctional management: the shock value of failure. Failure is nature's way of saying "don't do that anymore!" We're whiting that out and replacing it with "Keep going!"
Why can't you say the same thing about the banking industry? We have a banking industry that in its infinite wisdom decided MBS's were a good idea. Why is there any reason to believe that with the same geniuses in charge they won't think up another equally stupid idea? You can't regulate away stupidity.
The banking crisis is much more of a moral and educational crisis than the auto industry problems. You can fix the big 3 very easily; just take a few billion dollars and buy out their pension and medical obligations. Take away those expenses and Detroit can start making a profit on their cars again.
The banking crisis is a lot harder. It is the result of the complete self indulgence and complacency of an entire sector of the economy. If there is one sector were a complete shackup with 1000s of people being turned out, their careers over creating the opening for new, brighter, more conservative, less headonistic people to take their place, it is the financial industry.
All the while we are spending 10 billion a month to patrol the streets of a foreign country. I mean wtf. Our military contractors are no more competitive than our auto manufacturers. They are just in a socialized economy provided by our tax dollars. Geez. I'd rather spend the money helping my fellow citizens maintain the dignity of their work than pay to protect some oil sheiks in Iraq or Kuwait. What is wrong with you people? Don't you understand that when Detroit fails the government is going to be left holding the tab anyway? We'll pay more for unemployment insurance and food stamps and when that goes south we'll pay more money for police and more for jails.
Megan's objection to the auto bailout and love of the banking bailout does smack of self service. She is expecting us to believe that while auto industry management is so dysfunctional that a bailout would and new CEOs would be insufficient to reform it, the management of the big financial houses has really learned their lesson and will take the bailout money and go forth and do well and never get into trouble again. To put in simpler terms, Megan just thinks her friends and colleagues in the financial sector are just smarter than those icky auto execs, not withstanding the fact that her friends and colleagues have nearly managed to destroy the entire world economy with their brilliant ideas on mortgages.
But Megan, don't you understand that if the automakers go into bankruptcy, everyone in America will be standing in a soup line tomorrow?
Ask Tom Wilkinson: he'll tell you. If GM goes down, then GM's suppliers go down; all of their dependents go down; all of the suppliers' suppliers go down; their dependents will go down; GM's suppliers' suppliers' kids won't be able to buy ice cream cones any more; dairy suppliers to ice cream makers will go down; feed suppliers to dairy producers will go down; corn farmers' kids won't be able to buy whirligigs anymore. The next thing you know, the whole world economy collapses!
I mean, duh. Isn't this obvious? That's why the automakers /need/ this bailout. And the next one.
GUys, accept my premise for a moment: that letting the banks fail seriously risks another Great Depression. You don't have to agree. But many people of intellectual heft agree that it is so, and so agreed before the question ever came up as a practical matter; the argument is not made in bad faith.
If the choice is between spending a lot of money and wrestling around with a terrible regulatory regime, or having GDP fall by 1/3, unemployment hit 25%, bread lines, homeless workers--can you concede that maybe, just maybe, if you genuinely believed that this was a serious risk, you might be willing to bail out Wall Street even though the money would help save the jobs of a lot of people who don't deserve it? And that you might not be willing to extend help to other industries that do not pose similar systemic risks, no matter how heartrending the plight of their workers?
and what greater principal are we upholding? A free market that doesn't exist? And in exchange for what? The problem is that if we let detroit go, they will pull us all down with them. Doesn't anybody see this? And now the republicans are opposing bailing out Detroit? I mean if the republicans really cared about such things why would they give no bid conracts to Halliburton? Why would they pass a huge prescription drug benefit that explicitly forbids the federal government from negotiating the lowest prices for drugs from the drug companies with our tax dollars.
The republicans had two good ideas.
1. Fiscal Discipline
2. Don't let companies get too big to fail.
They've long since given up the latter. The last 8 years are proof that they don't believe the former either.
Its about time that you free market ideologues wake up from your opium induced comas and realize how things are really done here. At the very least shut up and get out of the way.
Megan,
You are assuming that a bailout of the financial sector would actually prevent the dire consequences you list and that the financial sector won't get themselves into the same mess again in a few years. After all they are too big to fail, why worry about the consequences of the next dingbat scheme some MBA thinks up?
Assuming that you are correct and that the sector going down would be the end of the world, aren't we really screwed anyway? Yes, a lot of people deserve to lose their jobs. Allowing them to keep their jobs just institutionalizes the dysfunction in the industry. What happens in three years or ten years when they have done it again? Wouldn't we be better off taking our medicine now and emerging with a smarter better designed financial sector where the people who should lose their jobs do?
Megan, as Strother Martin said, some people, you just can't reach.
The difference, as she's said 438 times this week, is NOT about who gets the money, class warfare, Eastern elitism, or whether the workers/shareholders/management deseve it. To quote a different movie, deserves ain't got nothin to do with it.
The issue is whether, in purely pragmatic terms, a taxpayer bailout is necessary to avoid an economy-wide disaster. Megan, and a lot of others believe this was true w/r/t the financial sector.
Only Tom believes it's true for American Automakers. And DDP, in his incredibly sanctimonious and tiresome way, believes that it would cause such a disaster, but limited to Michigan and perhaps surrounding states (like my Ohio).
I don't want the government to run the banking system for any number of reasons. But I do think that the government has a roughish idea of what a good bank should do.
What, by contrast, should we demand from GM in return for our largesse? I don't think we have any legislators or regulators with the experience and flair to design new cars
Plug-in hybrid electrics with vehicle-to-grid capability.
PHEV V2G. Learn it, love it, live it. That's what the strings to a bailout will bring.
I guess WelshCorby agrees with Tom. Though I admit to being confused by the references to Haliburton, prescription drugs, and opium.
"Plug-in hybrid electrics with vehicle-to-grid capability.
PHEV V2G. Learn it, love it, live it. That's what the strings to a bailout will bring."
And if people don't want to buy these vehicles, do you plan to force them? What about Toyota and other foreign car companies, will they have to produce these vehicles in order to sell in the US? In 2012 will I be able to buy the car of my choice, or will I be issued a government mandated green version of the Trabi complete with the two year waiting list?
It's starting to look as if the auto bailout is not inevitable. Whatever you think about the TARP, it is now pretty clear that a firm line will have to be drawn somewhere, and bailouts will have to stop. Atlanta, Philadelphia and Phoenix are now insisting that they and other cities must have "a place at the table" when bailout money is handed out. Now is the time to stop. It cannot be about who deserves help.
This thing kind of started with the Wagner Act, circa 1937, or in its ethos. At that time demand was seen as fixed and FDR's government was into a 'fair' allocatin of resources. The first psrinciple of populism is that corprations are bad or greedy, 'economic royalists,' viz. GM. Therefore it was fair that the UAW be able to selct a target and humble it with the propect that its competitors wuld survive getting the car 'demand.' Well now we have Detroit screaming that it needs it's fair share; it has a cultural presumption of it.
DB....no....as another guy who wrote earlier put it, all of the choices are just points on a continuum. We can choose to help our fellow citizens one way or another. Or we can choose not to help them at all. Megan's argument is not to help them and let them live with the consequences. I don't understand anybody who makes that argument while at the same time we are spending 10 BB a month patrolling the streets of a foreign country. But Megan's argument isn't about the specifics of this case. Her argument is about a mythical principal called the free market....something which hasn't existed in human history and certainly doesn't exist in the present day United States. Want proof? The government is already picking winners; halliburton, drug companies and losers; the taxpayer and small business....the list goes on and on.
The *only* reason that I am in favor of it is considerable historical evidence that suggests that when a financial system collapses, the real economy quickly follows. The Great Depression lasted 10 years, and as late as 1938, unemployment was almost 20%. *That* is what I want to prevent, not the loss of our nation's glorious old banking houses.
The Great Depression was caused and sustained by many more factors than the problems financial industry, and you know it. There were many banking panics and failures beforehand, and no Great Depression. Monetary policy, some government policy, and lack of some government policy also bear massive
The more important point would then be to ask you: when will you start advocated for a removal of an obviously flawed system that has PROVEN to fail us and requires massive government aid and regulation?
Yes, yes, we know. We need fractional reserve banking and financial "talent" else I wouldn't be able to afford my car. Thus we have to keep band-aiding a system that, for short periods, have proven not to be beneficial to society or to provide its goods in a beneficial manner.
GM still hasn't failed as spectacularly as the financial industry has proven to be able to do so.
The financial industry is special, indeed.
Industrial failures, even big industries, do not show any evidence of producing the same kind of knock-on effects in other industries. The only time they do so is in small, undiversified economies who are dependent on a single industry or commodity; Norway's GDP varies with the price of oil, Finland's with Nokia. This does not described the US.
Michigan, Indiana and Ohio are exactly that. Their economies will completely crumble. What do you think will happen with foreclosure rates when this happens? How will this affect the financial market's situation? What will happen when all of those who depend on those in the industry will also lose their jobs?
I've already asked before, you really have no idea how massive this failure would be, do you? There will be contagion throughout the economy, further exacerbating the financial crisis. But we're already bailing out their mistakes, right?
Good post but a word of caution: starting a sentence with "too" (as in "Too, CEOs at failing companies...") is atrocious grammar. I suppose it's fun to do it now and again as kind of a twee way to play around with English but you seem to do it a lot of late.
Be cautious that cutesy treatment of grammar does't degrade to actual poor English composition.
I live in Ohio. My grandmother, about 20 of my uncles and cousins, and half my hometown worked for GM at some point. I know exactly how ingrained that company is to the economy here.
The failure of GM, and its suppliers would hurt, but it is from from the kids-eating-shoe-leather scenario you portray. "Completely crumble" is nonsense, at least for Ohio and, I suspect, Indiana.
And of course, the scenario you present - GM ceasing to exist - is a complete and utter fiction. IT WOULD NOT HAPPEN. The company is not going to close up shop, shutter the doors, and never again slap the Corvette logo on a hood.
DDP,
You make a good point. But if we don't do something about the compensation of UAW workers, Detroit will never be competitive. Total compensation per hour for the big-three carmakers is $73.20. That is a 52 percent differential from Toyota's (Detroit South) $48 compensation (wages + health and retirement benefits). In fact, the oversized UAW-driven pay package for Detroit is 132 percent higher than that of the entire manufacturing sector of the U.S., which comes in at $31.59. http://www.tcsdaily.com/article.aspx?id=111308A I would be willing to support a bailout for the reasons you give. Without a serious restructuring of the UAW contracts and reduction in compensation, a bailout won't accomplish anything beyond delaying the inevitable. If you could do a bailout that was accompanied by a real restructuring of the Big 3 that resulting in leaner more competitive companies, I would support it. Sadly, that is not going to happen. The UAW has too much clout with the Democratic Party. Instead, what we are going to get is a multi-billion dollar payoff to unions and still be stuck with an uncompetitive auto industry.
Megan,
You once said that Amity Shlaes's assertion that FDR's actions causing the prolonged Depression was a gross overstatement. But by that rationale, is it not an equal overstatement to assert that if we do not bail out financial institutions, we'll land into a similar catastrophe? Would it not be an equally logical assertion on my part to assume that a more dangerous action precipitating prolonged depression would be government imposed price controls? I feel that if you ask us to take on faith your premise that lack of a bailout would plunge us into hades, you must also entertain Shlaes's premise and not dismiss it as a "gross overstatement" - or admit that your dismissal of hers is based on specific policy disagreement and not a lack of engagement in an argument of systemic complexity.
@John:
In 2012 will I be able to buy the car of my choice, or will I be issued a government mandated green version of the Trabi complete with the two year waiting list?
You'll be able to buy any car you want provided you can afford it.
You do believe in adjusting for negative externalities, don't you?
Wow Megan, you sure took the wrong lesson away from Japan's Lost Decade. How can you possibly see it as a case of a) "bad things happening due to an economic collapse" rather than b) bad things happening due to continued propping up of zombie companies with no other skill than wasting resources most effectively?
Is it really hard for you to see General Motors and virtually every large financial company plus FM/FM as a zombie?
I'm worried more about the mentalities that are developing than anything else. Specifically, these two are coming into vogue:
1) We absolutely most prevent current statistics from being ANY different from what they currently are. OBVIOUSLY the superior value for EVERYTHING occurred in 2007, including: creditworthiness standards, LIBOR, financial industry market cap, loan volume, homeownership rates, etc.
2) The best way to succeed once you're big is to be *awesome* at whining how badly you can mess up the economy when you go down.
The failure of GM, and its suppliers would hurt, but it is from from the kids-eating-shoe-leather scenario you portray. "Completely crumble" is nonsense, at least for Ohio and, I suspect, Indiana.
I can grant you that. But the credit crisis was also far from the scenario that Megan shamelessly promoted. The region is more likely to see an acceleration of the migration to other, more prosperous states. Which will be better than nothing. But the Detroit area will suffer heavily as a result, and many of those unable to leave will experience real economic depression.
"Seeing as we're all about multilateralism and international law now... won't a GM bailout break WTO rules and trigger a trade war?"
Highly improbable. The European carmakers took the clue and turned the passage of the $25 billion loans package for Detroit into an argument for subsidies for thmeselves. Also you can expect the EU to see to it that the European Ford and GM subsidiaries will receive their cut of the bailout. Forget about international law.
"You'll be able to buy any car you want provided you can afford it.
You do believe in adjusting for negative externalities, don't you?"
Of course. But only if the negative externalities are real externalities rather than imagined ones produced by mass hysteria and belief in a crackpot hair shirt, environmental religion masquerading as science.
To John
Why should the UAW get welfare in the form of tax payers being on the hook for their health and welfare payments. Why should single mothers with children trying to but food on the table be told no, we need to spend those welfare dollars on the UAW.
If the UAW workers want to avoid operating squishy machines, take a 20% pay cut for three years.
It is in the collective good of the UAW to take a pay cut to save the employers, but they will not do it.
Wall Street is having no difficulty shredding jobs, reducing compensation, and closing institutions.
I can grant you that. But the credit crisis was also far from the scenario that Megan shamelessly promoted.
Hold the phone, this one's got some 'splainin' to do. A short while ago you nearly execrated the hostess for supporting a bailout in an industry and region she did know something about, while opposing a bailout in an industry and region she allegedly knows very little about. But then you turn around, and oppose a bailout in an industry and region you do know something about, and oppose a bailout in an industry and region that you have not shown yourself to know anything about.
On what basis do you believe that the credit crisis was not so severe as whatever scenario the hostess is claimed to have "shamelessly promoted"?
DanC
All you say is right. But think about this. All those Wall Street jobs lost means that in the long term, taxes will go up because unemployment benefits will rise. That puts more pressure on the public sector of the economy leading to service cuts and more unemployment as local and state governments shed workers. As unfair as a bail out may seem to you, we are all stuck with footing the bill...one way or another.
"Why should the UAW get welfare in the form of tax payers being on the hook for their health and welfare payments. Why should single mothers with children trying to but food on the table be told no, we need to spend those welfare dollars on the UAW."
Maybe I wasn't clear. You are correct. They shouldn't. Unless the UAW is willing to agree to make its compensation competetive, we should let the big three go into Chapter 11 and let the courts and the new investors make the companies competetive.
Of course. But only if the negative externalities are real externalities rather than imagined ones produced by mass hysteria and belief in a crackpot hair shirt, environmental religion masquerading as science.
Oh. A Climate Truther.
Can't you people add that to your usernames so the rest of us can ignore you?
Those Wall Street people will get what 1/10,0000 in unemployment compared to their former income? Or will they be employed, just at perhaps a lower cost in another industry. Some may do better. We don't round them up and shoot them, even when we should.
Putting these people to work teaching inner city kids how to invest drug revenues.
To use the ship analogy, GM was about 90% turned when it was hit by a massive wave (created by the very financial industry everyone seems resigned to rescue.) There is plenty of detail on the GM Investor site for anyone who wants to actually look at the facts, as opposed to throwing around a bunch of half-founded opinions.
Product design, plant efficiency, quality, costs -- all are fixed in exactly the way the critics are demanding. Even the legacy costs are pretty well under control, assuming a normal level of sales, which can generate the revenue to fund the VEBA that was set up by the 2007 GM UAW agreement.
All we are asking for is a bridge loan to keep us afloat until the market stabilizes.
All we are asking for is a bridge loan to keep us afloat until the market stabilizes.
I believe the market has priced that bridge loan out for your already at about 30%.
Gee, Rob, I bet you'd find a 30% rate very helpful if you got in a jam and had to refinance your house.
For those who need a laugh, I will relay a fable told by Mike Jackson, CEO of AutoNation and former head of Mercedes Benz of North America.
A once great athlete goes to seed. Gets fat. Starts drinking too much light beer. He gets a scare at his annual physical, and decides to get back in shape. Goes on a diet. Works out. Is making great progress.
One day, he is running on his treadmill and a guy comes up behind him and clobbers him with a lead pipe. While he is laying on the ground bleeding, a cop comes by, gives the guy who hit him $700 billion, and tells the guy on the ground, "Sorry, you let yourself get out so shape, so you deserve to die."
Gee, Rob, I bet you'd find a 30% rate very helpful if you got in a jam and had to refinance your house.
I can do better than that because, unlike GM, I have good credit.
Which is of course my point; if "all" GM needs is a bridge loan, why, it can issue bonds, and therefore doesn't need a bailout. If it finds that the bond rate is way too high, well, then, that makes some of us suspect that a mere bridge loan isn't all you need, after all.
I'm not altogether sure that Chapter 11 is a possibility for the automakers, as DIP financing seems to have pretty much dried up.
Rob -- No doubt GM's credit rating was so-so prior to the downturn. The kind of restructuring Megan and others are calling for -- and that GM was doing -- costs a lot. Closing plants, buying out workers, spinning off subsidiaries, all cost money. All the same, the debt load was manageable, even when sales slowed in 2007 and early 2008. Then the industry fell off a cliff, thanks to the credit crisis.
To use the homeowner analogy, imaging you lose a big chunk of income, and the bank decides you are a poor credit risk. Your rate goes up.
Again, what is your alternative? Why is it OK for the government to pay to clean up the mess after the collapse of the U.S. auto industry and the devastation of the upper Midwest, while it is not OK to loan a 100 year old company some money to get it through a rough spot and prevent the mess in the first place?
To use the homeowner analogy: naturally, if I lose my job, the government should give me a billion dollars so that I don't have to borrow from my credit cards.
But more seriously, I am highly skeptical that this is merely a rough spot. If it is, then there should be no need to get the bridge loan at below-market rates from the government; the bond markets are still there, after all. If it isn't, and in fact the troubles go deeper than that, then the government gets to both forestall the mess for a little while and then clean it up afterwards--a real win/win for taxpayers.
You're essentially trying to force us to take what investors have determined to be a junk-level risk with tax dollars. That's a risk I wouldn't ever take voluntarily, not on my budget. You'd better have a hell of a good case for squeezing it out of me at gunpoint.
Merely claiming that it isn't a junk-level risk, not really, isn't a great answer.
Why is it OK for the government to pay to clean up the mess after the collapse of the U.S. auto industry and the devastation of the upper Midwest, while it is not OK to loan a 100 year old company some money to get it through a rough spot and prevent the mess in the first place?
Because, even with a loan, there's still a very real risk that it will fail. In fact, given the government, I think it's better than 50/50 that the loan comes with strings that make GM's recovery less likely. After all, is a Democratic Congress really going to subsidize a company that plans to cut union jobs, wages and benefits? How do you expect bailout funds to be conditioned?
The alternative isn't that GM disappears, but that it enters bankruptcy, sheds the dealer networks, brands, labor contracts, and other liabilities that make it non-viable, and emerges as a smaller organization better able to compete in the 21st century automobile market.
A few points:
1) Politically, when you bail out an industry, you come up against the argument that we need help, and we're more important than the industry you saved.
2) If you've changed your mind any number of times, your deciding to draw the line here is going to look arbitrary, stupid, and smack of cronyism.
3) Political Economy is not the same thing as economics. It includes a moral and philosophical dimension. It is entirely appropriate to argue that saving jobs or even some businesses for a another chance or even to defer massive dislocations is worth spending the extra money. It is a moral and philosophical, as well economic issue.
4) Saving banks run by buffoons who are either insolvent or close to it isn't going to help the argument that decisions in the private sector are any smarter than government decisions. The usual reasoning is that however smart or stupid decisions are in the private world, they should be confined to what you own or run. Thousands of businesses don't make it. Sadly, in this case, they were not so confined.
5) The ship on government intervention has sailed. It's so far out to sea that we can't see it anymore. For those reasons, I would accept a government bailout if the management was replaced. Whoever we pick will probably make a pig's breakfast of the whole thing, but, compared to TARP, that would be an improvement. It's a compromise brought on by a series of foolish decisions, but not a peculiarly awful one. It could well be that the automobile business is dying, and we're delaying the inevitable, but we do it everyday,for as silly a reason as common humanity.
I think we can call this post "depression", so take heart, all, MA may well be headed toward "acceptance", next. [fingers crossed]
Seems to me that the question(s) we should be asking might be along the lines of how much bargaining power "we" have.
What happens to the UAW contracts if there is a bankruptcy? What happens to the VEBA plans, if there is a bankruptcy? What happens to supplier contracts, if there is a bankruptcy? What happens to dealer contracts, if there is a bankruptcy? What happens to forward purchase agreements and so forth, for raw materials and foreign exchange (i.e. hedges)?
If there is both a common ground for all people in the deal process and something that each of them would very much like to avoid by not reaching agreement, it seems to me that the burden of this whole thing can be equitably distributed.
And yes, Megan is right, there is no guarantee. But that perspective is only for those foolish enough to think it could or should go on forever ... if the economy rebounds, there won't be any appetite to re-ante for American autos. That's why *everything* that can be done to help them should be done now, including restructuring the liabilities, getting their captive financing flexibility back in full, giving them the tools to deal with the dealer network - basically clearing the decks in every possible way, so that they have one last, grand chance.
An argument could be made that we can allow the Big Three to fail -- just not now when the economy is weak and we can't take such a huge blow. Perhaps a structure implosion, in which the government props up two automakers while the third goes bankrupt and restructure, would split the baby just right.
Rob_Lyman & Tom_Wilkinson_at_GM: It's actually worsened significantly since July. As I noted on my bloggy, GM bonds maturing in early 2011 (about two freaking years away) are trading at yields of 75%. (Scroll down to "last sale" at the bottom.)
Let's get one thing clear: 75% is more than compulsive shoppers pay. It's more than consumers pay the moment they declare bankruptcy. It's worse than the highest rate any credit card I've ever been offered can ever reset to. It's higher than banana republics pay.
To claim that GM is somehow fundamentally sound in light of those bond yields is such a bad joke it's not worth responding to.
You want to raise money? I see a tall GM building in Detroit that accomplishes nothing for shareholder value except giving executives a nice view. You can sell that. You can repeat it for every city in which you have offices. I know lots of great businesses run from leased office space.
You can whore out all the brand names you don't need.
You give every customer who comes in for warranty work a big enough runaround that they give up and you never have to pay a mechanic. (I got that idea from my health insurance company.)
You can raid your foreign subsidiaries, which are withholding money that rightfully belongs to workers and pensioners you made promises to.
You can gore your entire middleman network of deceptive dealers, set up no-pressure facilities where people can test drive, and sell direct from factory.
You can cut 80% of executives and middle management.
Try all that, Tom_Wilkinson_at_GM, and I might stop regarding every single word you post here as a shameful, deliberate lie.
Forget Chapter 11, here is a plan worth a look by Congress...
http://pacificgatepost.blogspot.com/2008/11/solution-for-detroit-gm-friends.html
Trying something outside the box like this, is the only way to save the U.S. Auto Industry.
... it deserves saving.
Toyota and Honda also depend on the same suppliers who feed GM and FORD. No need to let “Detroit” disappear.
There is also much creative talent hidden inside the U.S. Big 3 that has been smothered by mismanagement and the UAW. ... and they actually "make" something, .... unlike Wall Street.
A lot of high dudgeon here, but let's get back to reality. No expert who actually studies the auto industry thinks a Chapter 11 bankruptcy has much chance of working. Similarly, experts who actually study the industry are pretty sure the contagion from the failure of one of the Detroit 3 will reverberate through the economy, causing real damage in places that didn't even know they were connected to the auto industry.
You can wish, you can theorize, you can pontificate -- none of this changes the reality. Faced with the tough choices in front of us, government loans to the industry are the most rational choice.
TW, you may be right and it could turn out that Congress gets convinced (one would have to put odds of that at nearly 60%, given how much finance the leaders of Congress can know).
However, this is a bit of a different forum and the convincing is a little harder.
I don't know the legal corporate structure(s) for GM, but I see a share price at $3 and debt at $0.30, implying that both shareholders and debtholders can be "bought off" prior to a Chap 11 filing (which could hopefully be arranged as a 'weekend bankruptcy' - just long enough to approve the re-organization plan, that is).
If the government are already the debtors and the shareholders of the company, what is the problem getting out of Chapt-11? The UAW?
Don't pick on Tom. He is doing a job and he is presenting a viewpoint, not lying.
If GM were to declare Chapter 11 and:
1) they could get the UAW and management to agree to forgo salary (about 12%) in exchange for GM stock until the loan is payed back.
2) accelerate the contract changes to which the UAW have previously agreed
3) Democrats remove strings from the loan
I would then actually support a $50-60 billion dollar loan to the auto companies at below market rates for five years.
We avoid the huge burden that Michigan and Ohio would require in social spending - they would need a federal bailout to meet their budget shortfalls . We give Detroit two years to prove themselves.
Hopefully they will not squander this chance, the way they squandered the chance Reagan gave them in 1981.
Back then, Detroit claimed that they needed time to restructure in response to the oil shocks of the late 70's. So Reagan agreed to import quotas on imported cars. Detroit responded by giving everyone sticker shock as prices quickly jumped up.
The then CEO of GM was asked how people could afford a dependable new car with the way prices were escalating. He responded that they should buy a used GM car.
The Japanese actually came out ahead from the deal in the long run. They were happy to sell to entry buyers and they sold a quality car that offered true value. A generation started to buy Japanese cars and never stopped. The arrogance of GM management was amazing back then. ( Only matched by the arrogance of the UAW producing sub-standard cars.)
The government has limited resources. Many worthwhile projects go unfunded every day because we have to allocate limited resources. But with people like Prof Krugman calling for a huge increase in federal spending, I might as well piss away money on the limping 3 as the pork barrel projects that Congress is likely to think up.
A once great athlete goes to seed. Gets fat. Starts drinking too much light beer. He gets a scare at his annual physical, and decides to get back in shape. Goes on a diet. Works out. Is making great progress....
Bad analogy. Why will Toyota and Honda have no trouble surviving this downturn? Because they are healthy and have financial cushions. But the Big 3 went about 'getting back in shape' in an moronic way. Instead of taking on the cost problem directly (by hard-nosed bargaining with the UAW, taking strikes if needed), they tried to buy their way out of it to the tune of tens of billions (for UAW worker buyouts, for VEBA), and now it turns out that...ooops...they really needed all those tens of billions to survive the economic downturn. They put themselves in a position where their plans might, MIGHT have worked only if we went another decade without a recession. At best, it was a long-shot that didn't even come close to panning out.
I'm in SE Michigan, so I have a vested interest. My sense is that there's at least a chance of recovery if the Big 3 go chapter 11 and reorganize massively, shedding dealers, brands, and union contracts. But if there's a bailout before bankruptcy -- forget about it. A Democratic Congress will look to preserve all that should be cleaned out and get heavily involved in product decisions, and there's just no way in hell it'll ever work. The government will pour vast sums down the rat-hole and it'll all go under eventually anyway.
All the Ch 11 advocates are overlooking the critical point: you can't do a Ch 11 reorganization without financing.
You basically have two options for that financing -- loans from investors, and continuing operations.
There are no investors out there right now for healthy companies. So where would one expect to find investors for a bankruptcy reorganization of what is still one of the largest, most complex industrial companies in the world?
Continuing operations is even bleaker. The analysts who actually study the auto industry (as opposed to those who opine on cable TV or post on the internet) are unanimous in their conclusion that customers would shun a carmaker in bankruptcy. Customers simply have too many other choices to take a risk on a vehicle with uncertain warranty service and resale value. No customers, no revenue. No revenue, no ability to restructure.
There is also the risk of automotive armageddon. Suppliers who are squeezed could fail themselves, or just stop delivering parts. Lack of a single component shuts down an entire assembly plant. Similarly, even if the union leadership decided to participate (a big if) union locals might decide to stage wildcat strikes. Again, plants are shut down. Revenue falls further, and liquidation is inevitable.
You may hate the fact that the auto industry is so big. So complex. So entangled in government regulations, dealer agreements and union contracts. So interwoven into the economic life of every state and community. But it is.
Sorry, but the folks who advocate Ch 11 are like kids living in the world as the wish it was, not the world as it actually is. Sorry, Megan, but I think that applies to you, too,
Ok, I guess I am just one of those stupid kids and my very smart Uncle Tom is a real man. Whatever dude.
You convinced me, that despite your earlier comments that the UAW has reformed, the UAW remain so arrogant that they could still destroy any agreements that Washington and GM management make. So what is the point of a bailout?
If you think consumers are too afraid to buy a car from a company in bankruptcy, how is a government bailout going to change that perception of the limping 3? Even if you get Federal money, the vast majority of people in this country will still think that GM remains a few bad months from bankruptcy.
Simply, if you think people will not buy cars from a bankrupt company, guess what, who are already there.
The private market doesn't want to give GM money. Why? They have already made too many high risk loans with little hope for repayment. But most of all because as you imply, GM management really isn't in control, the whole company is a deck of cards waiting to come down at the first wildcat strike.
GM is not some person who got a scare at their last physical. GM is a chronic heavy smoker who after being diagnosed with cancer decides to switch to filtered cigarettes. And when asked to walk up a few difficult steps, they cannot understand why they are out of breath.
So start the liquidation sale. This kid will just have to live in a never never land where companies can build cars and turn a profit without threatening to hold their breath and kill themselves if I don't give them money.
So Dan, how are you going to weather The Great Depression II? What puts food on your table and watts in your laptop?
If you can pay your bills with free-market ideology and the certainty of your opinions, then you must live in the best of all possible worlds.
As for me, I am going to keep mucking out the stables in what is left of America's industrial base. It is a messy world, but it still matters a lot to the millions of people who depend on it.
The analysts who actually study the auto industry (as opposed to those who opine on cable TV or post on the internet) are unanimous in their conclusion that customers would shun a carmaker in bankruptcy.
Are those the same analysts who gave GM the great advice that got it where it is now?
Look, customers are already shunning GM because they already know GM is almost out of cash and options. It's big news, everybody knows about it (not just blog readers).
If there were a chapter 11 plan in place, GM would look like a better bet for being around in 5 years than it does now, standing at the brink of disaster with no plan.
Too true. After my used fixer-upper first car, I bought Toyota because that's all I could afford; GM, Ford, and Chrysler were at least $1K more for an equivalent vehicle. When I was able to afford an American car, I bought one, and it was the worst pile of... it was a poorly constructed clinker of leaking seals and bad warranty service. I vowed to never, ever buy another. And I haven't. And I never will. That's what happens when companies screw consumers. We have long memories.
Tom, better get your apples and choice of street corner now. GM is gong to make a huge crater very soon, no matter what you do and no matter what the US does. Bankrupt GM and the demand for transportation won't go away. Reorganize using the pieces, and this time, don't screw your customers. That's the only bailout that will succeed.
What is wrong with demanding that GM have a better plan to restructure before they get money?
And why shouldn't I be worried that the Pelosi/Sierra Club plans for GM will do more damage then good.
We have limited resources. Perhaps I prefer to spend money on education, health care for the elderly, or anything but an arrogant collection of people (management and the UAW) that cared little about customers and still refuse to cut compensation to a level that is closer to the mean in this country.
If unions weren't involved Democrats would be screaming about corporate welfare.
Am I a free market fanatic? No. But is my alternative to throw money away.
If all Gm needs is a bridge loan till it gets to the land of milk and honey, why aren't GM employees jumping at the chance to reduce their paychecks in return for stock and certain riches?
I agree with Megan and the general idea that you need a financial system for the nation to function (hence the bailouts to financial firms), but you don't want to get into bailing out random, always struggling, industries, given finite resources.
And if we go down that wrong path,the companies need to be turned upside down and I just don't see anyone willing to take that on.
The argument that people won't buy cars from a manufacturer in Chapter 11 seems a little disingenuous considering that GM has been screaming publicly that it only has days or weeks to live. It seems to me that public confidence in GM can't get any lower than it is now. Couldn't the Treasury negotiate a deal whereby it would use the TARP to guaranty DIP financing to GM in Chapter 11? I know management doesn't want to be in bankruptcy and the UAW doesn't either, but bankruptcy law exists for a reason.
Suppose Megan is correct (and I think she is) that a big part of the problem is the corporate culture at the Big 3. Note that, as she correctly points out, changing a corporate culture requires pretty nearly a complete turnover of personnel. At all levels.
But the whole basis for the argument for a bailout is that all these people would lose their jobs. Which, be it noted, they would have to in order to get the corporate culture changed.
So it seems like it would be a whole lot more to the point to skip the middle parts and focus on what kind of help to provide to all these people in order to prepare them for jobs somewhere else. Of course, that would require facing the fact that they woun't be able to just keep doing what they have always done, with no uncomfortable changes required. But at least it saves wasting time discussing the merits of getting other people to move to Michigan, not to mention getting the current residents to move elsewhere to make room.
What if I told you that two hospitals in northern Ohio have only a fifty-fifty chance of surviving the next six months. They are already failing to meet complete payroll or pay suppliers.
Why should I care more about GM then these hospitals? Both hospitals have been a significant source of jobs in their communities. Both hospitals provide vital services that will disappear from the respective communities.
Do I give money to a medical staff who every day provide life enriching care to rich and poor in their community? Or do I give it to GM management and the UAW to build cars that people increasingly don't want to buy?
Who should I bail out? Or should I just a bail out all of them? Where do I get the money?
Just to clarify a few things that folks seems to be confused about.
Some people think that buyers would be scared of buying cars from a bankrupt GM. GM could solve a big part of that problem with a day one motion to affirm all outstanding warranties. Once car owners saw that their warranty claims would continue to be honored, their fears would recede.
Another source of consumer fear, though, is that GM might close down some brands for good. People might not buy Buicks or Pontiacs if they thought that GM wasn't going to make them anymore. Well, that's a problem that GM is going to have to face sooner or later because if one thing is clear, it's that the current business model of supporting 8 different brands is an abject failure that cannot be sustained. GM should be cut back to Chevy, Cadillac and maybe Saturn, and that's it.
I suggested in another thread that instead of just loaning money to GM as is currently proposed, the Government might consider making a debtor-in-possession loan to GM to finance a chapter 11 restructuring. This would have numerous advantages. Most importantly, it would take away the need for the Government to decide how to restructure GM. Any terms dictated by the Government would in essence be terms dictated by the UAW and other Democratic special interest groups and that's just a recipe for failure. It would make more sense to leave those decisions to management, which is subject to the close scrutiny of the bankruptcy court and the unsecured creditors committee. The logic of chapter 11 would force very dramatic changes (summarized in my comments in the other thread) which could very well result in a smaller, leaner GM emerging from ch. 11 with brands and a cost structure and capital structure that makes money instead of burning it.
Another advantage of DIP financing is that the Government would have a super-priority lien on all assets (other than those already mortgaged), which would greatly increase the possibility that the loan might some day be repaid.
We've heard the screams about bankruptcy as if this is putting Tiny Tim in debtor's prison. Not so. It is a process the airlines have gone through when their product, air travel, went, with deregulation, from a defined demand with oligopolistic tolls carving up a defined demand, business traveler and those wealthy enough to jump into their pool, into a supplier competitive market. I was riding around Oruro Bolivia twenty yeas ago, I imagine a Stalinist state would have had, similary, the almost empty streets and dingy solid buildings. One of the few cars on the street was an early 50's model Ford or Chevy. Aye; those were the good old days for the Big Three. if you wanted an auto, our toll, baby. No mas. And the genie of other suppliers isn't going back in the bottle.
Remember that GM support liberal/left wing causes such as affirmative action. Remember the amicus brief in the Bollinger case (http://www.umich.edu/~newsinfo/Releases/2001/May01/r053101d.html). The UAW's politics are even worse. I would never give 1 cent to GM until these policies are rescinded.
Remember that GM workers are forced to pay union dues to the UAW. We need some sort of right to work laws in Michigan to curb these abuses.
What has been conspicuously absent in the discussion so far is the fact that government policy was a big cause of the current financial problems of the big three.
Absent CAFE standards the big three would have been able to focus on producing products they were good at that the US consumer wanted to buy.
They would have been financially stronger and would have had more money improve quality and focus on a smaller number of fuel efficient vehicles to meet the US market demand.
Detroit's Other Legacy Burden
To TJIT
Which is why a bailout could be the final nail. With special interests groups helping to apply strings to any bailout from Washington, how will this path lead to real market based reform.
to keep their operations going rather than restructure them:
A lot of us would have liked the discipline of the market imposed on investment banks and financial firms in general. There was, before the bailout, plenty of credit being offered to good risks. A lot of that credit was being offer by local banks, thrifts, and credit unions. These wise lenders stood to gain from a restructuring of the banking industry. Sure their would have been some brief pain as a few more major banks went under, but eventually things would have worked out. Just as with the auto industry.
Either laissez faire works or it doesn't. If it doesn't then certain and industry that actually produces something is worth supporting, rather than the glorified bookmakers that the investment banks had become.
Which is why a bailout could be the final nail. With special interests groups helping to apply strings to any bailout from Washington, how will this path lead to real market based reform.
Exactly right. A bailout from Pelosi/Obama will certainly include requirements that the automakers build the kinds of (small, green) cars that Democrats have always wanted to force Detroit to build (but that Americans have not wanted to buy -- and still won't want to buy with gas in the $2 range). But will Democrats add a big gas tax to push the price of gas back up to $4 to create the incentive to buy those small green cars? Hah! No way.
I think that if they go chapter 11 and shed the union contracts, legacy costs, and dealer franchise agreements, the Big 3 might have a chance. If they become 'American Leyland', with Obama's 'Auto Czar' making the calls, they're doomed.
Dick Monahan wrote "I'd start by finding some managers who are "car guys". The top two at GM are bean counters, and I'll bet the next couple of layers are all lawyers and bean counters. Dump them all."
Please don't go looking for any more "car guys"! GM would be better off with more engineers and fewer "car guys". Car guys go for go-fast high HP cruisers. The world only needs so many Corvettes.
Get rid of the goof balls who trained at GMI and promote the engineers who trained at MIT and Berkley, Purdue and RPI. There are some of them working at GM. The problem is that the frat boys from GMI don't listen to them.
MM wrote
Industrial failures, even big industries, do not show any evidence of producing the same kind of knock-on effects in other industries. The only time they do so is in small, undiversified economies who are dependent on a single industry or commodity; Norway's GDP varies with the price of oil, Finland's with Nokia. This does not described the US.
I woudl be interested in seeing a discussion about the sustained depressed subeconmoies in the US agricutlural and commondities markets during the 1920's that were masked by the ever-increasing bubble in the stock market. We seem to forget that these sectors were flat or failing throughout the '20s and are wont to oversimplify the cause of the great Depression as a failure of the stock market.
FYI
Judge Posner, at the Becker Posner blog, has posted on this issue.
He favors for a bailout. I prefer his second best solution, let them file chapter 11 and then provide DIP financing
We missing the forest for trees here. This is all about new tariffs in the end. GM and Ford want their SUV tariff back, and no doubt want one on the small cars the Japanese make so well. There will be more tariffs if this deal goes through - how can there not be? GM, Ford, etc. can't make money on small cars in the present market environment. They will manipulate it, in league with compliant and stupid Democrats, to make it so they can. It's an inevitable as rain in the spring.
On another note, HTF did Ford get $160 Billion in debt? It seems almost impossible...
After the last round of tariffs the Japanese moved more production to the US. The Civic is made in Ohio. Camry in Kentucky. Altima in Tennessee. etc Imposing meaningful tariffs would be almost impossible today. The Japanese were not stupid
I think that DanC's point about Asian car manufacturers moving their production to the US is extremely pertinent in that, these companies still value the locality (although partly out of trade-barrier necessities) and are willing to move production here to meet demand, yet are not willing to sacrifice quality. My parents for years drove a Ford Taurus with, and this has forever blown my mind and stopped me from considering buying an American-designed car (other than maybe a Jeep model) the next time I have the opportunity, but THE CAR HAD A PLASTIC RADIATOR. PLASTIC
RADIATOR.
it broke, and we, not having a lot of money as a family, tried with our limited knowledge to fix the radiator using a common-enough patching solution of metal that you add and that seals over small leaks to stop the problem, which only exacerbated it until we took it to a mechanic who couldn't do any work on it because of a PROPRIETARY part for maintenance that required a dealership to do the repairs. thanks to that, my dad at one point ended up having to walk to work until we could find a cheap enough replacement or could save enough to get the repairs done.
I have seen little evidence that the quality of design has improved, except that the cars have gotten bigger and so eventually have a sheer-scale appeal to people who feel a psychological need to drive a condensed-milk version of a Mack truck.
The Japanese, and the Koreans for that matter, realize that they can build these sorts of behemoth cars, but also can continue to put out cars like the Honda Accord and the Toyota Camry that run for years with minimal preventive maintenance, and that are relatively easy to find service and parts for, AND THEY'RE ASSEMBLED IN THE US.
And then, touring the BMW manufacturing center in Spartansburg, SC, i saw that, in fact, auto workers' jobs, while somewhat boringly repetitive on the one hand, were actually more like inspectors and adjuncts to an essentially automated line, or an extender arm for a complex hydraulically powered toolset that performed a yet-un-automatable motion or something similar. And these people, when working at the Big Three, are insisting on making more than my father, who could barely afford one of their crappy cars, certainly not new, while raising _his_ family, be forced to subsidize their receiving an hourly wage and benefits package that "blue-collar" workers, many of whom in other industries actually have to do their own heavy lifting and welding and other not-so-robotized tasks, could only dream about on a cold night, and this because of a massive government intervention backing up a management that thought they were safe behind tarriffs to continue making ugly, faulty cars.
That is why it's absurd to simply give GM or anyone of the Big 3, a "bridge loan" without insisting they clean house at the white-collar level and let those with the skills to succeed at other firms, Japanese or other domestic or foreign, succeed, and in the meantime stop building automobiles that break quickly, require proprietary maintenance for non-electronic parts, and look like blocks of ugly, balking recyclables.
My parents for years drove a Ford Taurus with, and this has forever blown my mind and stopped me from considering buying an American-designed car (other than maybe a Jeep model) the next time I have the opportunity, but THE CAR HAD A PLASTIC RADIATOR.
Neal, you might be surprised to find out that probably 80% of all the cars made in the last 10-15 years have a radiator with a plastic tank, including my Jeep Grand Cherokee. This is pretty common, and is one way to reduce weight so you can squeeze out the CAFE-mandated MPG numbers: less weight. If you want a vehicle that is over-engineered and over-built and will last a long time you will end up with the Hummer H-1, and 10 or less MPG.