The NYT this morning covers all the opposition from left, right and center to the Detroit Three’s groveling for a Federal blank check. The article concludes:
It all feels excessive to some in Detroit. “I didn’t know that some really, really hate us,” said Ms. Tompor of The Free Press.
No, it’s actually toughlove: a refusal to continue to be the enabler of prior destructive behaviors.
Everyone recognizes the terrible precedent. As Charles Krauthammer asks:
Where do you stop? Once you've gone beyond the financial sector, every struggling industry will make a claim on the federal treasury. What are the grounds for saying yes or no?
The criteria will inevitably be arbitrary and political. The money will flow preferentially to industries with lines to Capitol Hill and the White House. To the companies heavily concentrated in the districts of committee chairmen. To clout.
As Detroit native (and Congressional political guru) Michael Barone wrote:
And, of course, the Detroit Three will not be the last flagging enterprises to line up for government subsidy. Michigan is not the only state that has a talented congressional delegation capable of enlisting allies on relevant committees and from states with economic stakes in failing companies. Other unions, noting the UAW’s success in maintaining benefits, will be standing in line.
In recommending that the Feds help auto workers but not automakers, NYU prof David Yermack notes nearly a half-trillion in private capital squandered by two Detroit auto makers in the past decade:
Over the past decade, the capital destruction by GM (GM) has been breathtaking, on a greater scale than documented by Mr. Jensen for the 1980s. GM has invested $310 billion in its business between 1998 and 2007. The total depreciation of GM's physical plant during this period was $128 billion, meaning that a net $182 billion of society's capital has been pumped into GM over the past decade -- a waste of about $1.5 billion per month of national savings. The story at Ford (F) has not been as adverse but is still disheartening, as Ford has invested $155 billion and consumed $8 billion net of depreciation since 1998.
As a society, we have very little to show for this $465 billion. At the end of 1998, GM's market capitalization was $46 billion and Ford's was $71 billion. Today both firms have negligible value, with share prices in the low single digits. Both are facing imminent bankruptcy and delisting from the major stock exchanges. Along with management, the companies' unions and even their regulators in Washington may have their own culpability, a topic that merits its own separate discussion. Yet one can only imagine how the $465 billion could have been used better -- for instance, GM and Ford could have closed their own facilities and acquired all of the shares of Honda (HMC), Toyota (TM), Nissan (NSANY) and Volkswagen (VLKAY.PK).
An interesting thought experiment: GM buying Toyota would have been like Yahoo (YHOO) buying Google (GOOG) or the railroads buying the airlines. Alas, in all three cases, I’m sure they would have mucked it up.
Former Northwest Airlines exec Michael E. Levine argues that bankruptcy is the right solution to GM’s problems. After all, it worked for airlines.
The social and political costs would be very large, but if GM fails after getting $50 billion or $100 billion in bailout money, it'll be just as large and there will be less money to soften the blow and even more blame to go around.
…
But unless we are willing to support GM as it is indefinitely, the downsizing and asset-shedding will have to come anyway. Even if it builds cars as attractive and environmentally responsible as those Honda and Toyota will be building, they won't be able to carry the weight of GM's past.
…
GM as it is cannot survive without long-term government life support. If it gets that support, it can't change enough and won't change fast enough. Contrary to Mr. Wagoner's brave declaration, bankruptcy is an option. In fact, it's the only option that merits public support and actually has a chance at succeeding.
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This article has 19 comments:
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jod
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17 Comments
Nov 18 01:24 PMwww.forbes.com/2008/11...
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John D
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43 Comments
Nov 18 01:41 PMThere was no real problem with the Big 3 - they were all inline with they're restructuring efforts, other that they were blindsided by the skyrocketing fuel prices (which the North American governments AGAIN did ZERO to head off) and the biggest problem being the collapse of the financial sector which is preventing people from purchasing a house or a car as there is NO CREDIT available - Japanese & Korean car companies have more money to burn through (and are doing so at the same rate) but you can bet the Asian governments will stand by them to insure they're around in the future to get YOUR profits and take them home to support THEIR people.
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UH2L
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24 Comments
My Website
Nov 18 01:53 PMYou severely underestimate the value that these three companies have brought to the US economy over the last 100 years.
Our government needs to help our industrial base just as other countries do. To not do so would be foolish.
UH2L.com
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WhynoT
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18 Comments
Nov 18 01:55 PMLet me see if I get this right. The Big-3 use 50% more workers to make the same amount of cars, therefore we should save them...
If this is the new logic of capitalism then I've got a lemonade stand that takes 1,000 employees per cup, wheres my bailout?
This idea that whats good for the Big-3 is good for america needs to be wiped from our collective consciousness. So sad that places like China are looking more capitalistic than the US.
On Nov 18 01:41 PM John D wrote:
> Joel ... you seem very high on Honda & Toyota environmentally
> friendly cars - if you look back, that must mean GM was well ahead
> of it's time when they came out with AV1 electric vehicle technology
> in 1990 - and if I remember correctly - North America had ZERO interest
> at the time therefore there was NO market and GM went back to what
> the people wanted. Here in North America everyone loves to jump on
> the bandwagon but have difficulty presenting the facts - I'm quite
> sure that the Asian cars are of good quality - BUT - FACT - they
> don't provide 78 jobs per 2500 cars built here like the Big3 but
> a mere 33 jobs per 2500, so what you are saying is that you would
> risk removing over 50% of the automotive jobs because Honda's &
> Toyota's are PRETTY. With those jobs lost - who is going to pay for
> the financial bailout - if the Asian imports had been regulated to
> an even playing field back in the 90's when the 1st electric car
> was brought out - North America would not be in the SAD shape it
> is in today. The cars companies have been trying to warn about this
> for years but again - no one WAS interested.Obama said it during
> one of his speeches - why do Americans allow Korea to dump hundreds
> of thousands of cars here and we sold a whopping 5000 there.
>
> There was no real problem with the Big 3 - they were all inline with
> they're restructuring efforts, other that they were blindsided by
> the skyrocketing fuel prices (which the North American governments
> AGAIN did ZERO to head off) and the biggest problem being the collapse
> of the financial sector which is preventing people from purchasing
> a house or a car as there is NO CREDIT available - Japanese &
> Korean car companies have more money to burn through (and are doing
> so at the same rate) but you can bet the Asian governments will stand
> by them to insure they're around in the future to get YOUR profits
> and take them home to support THEIR people.
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GM driver
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2 Comments
Nov 18 01:56 PM-
bosun.j
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235 Comments
My Website
Nov 18 02:02 PMBreaking the union. Driving all workers into poverty.
Its class warfare at its ugliest. Its the Extremist-Capitalist owning class desire to own and control everything. A middle class is too much of a problem for the elites.
The middle class cannot be allowed to move above Maslow's lowest level on the hierarchy of needs. Those physiological needs of breathing, food, water, sex, sleep homeostasis and excretion.
Never let the workers achieve Maslow's second level where security of body, of employment, of resources, of health or of property.
No, indeed. When those awful workers start to feel safe they start wanting things the elites aren't willing to allow them. You know, human rights.
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mynine14
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6 Comments
Nov 18 02:28 PMThe current situation is largely executive complacency, product marketing mismanagement, and demonstration of the union pitfall.
Rhetorical question for Mr GM Driver... Please explain how President Bush had his hand in the demise of the domestic auto industry?
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GM driver
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2 Comments
Nov 18 03:03 PM1. housing market
2. airlines
3. banks
The auto industry failure would make a nice exclaimation mark for his 2 terms. He is leaving office with the country in economic ruin! As president of the country he must bear the blame, just like a coach bears the blame when a sporting team fails. He gives State of the Union addresses. How is the State of the Union after his two tearms?
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ValueInvestor
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87 Comments
Nov 18 03:26 PM-
car_guy
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36 Comments
Nov 18 03:45 PMThe Bush administration's ongoing war and huge deficit spending combined with cheap credit created a weak $ which increased the price of oil +30% beyond where it would have been with a strong $. Great for oil companies but when it hit $4 the people that didn't "need" to drive pickups & SUVs but bought them anyway stopped buying. This made things much worse.
When gas hit $4 Bush signed a 40% increase in the CAFE standards which penalize the US OEMs for selling high profit, high volume, vehicles where their brand image is very strong (Toyota has been building full size pickups for 15 years and still hasn't passed Chrysler let alone GM & Ford). This burdened the industry with an estimated $40B in additional cost at a time when the industry was in trouble. That would be like increasing the capitalization requirements for banks by 10-20% when the banking crisis started.
Bush's EPA dragged their feet and delayed writing the rules for the $25B loan that Congress & Bush authorized in 2007 w/the CAFE increase but never bothered to actually fund,
The credit crisis created by lack of Bush adminstration oversight and the decision to let Lehmen to bankrupt dried up the credit market and drove down sales in the entire US auto market by +30%.
Remember, last October GM, Ford, & Chrylser signed a new contract that would resolve the hourly health care and pension issues and bring their costs in line with Toyota and other Asian OEMs. Even in June all 3 companies were reducing capacity, bringing their costs in line by buying out expensive workers to replace them with less expensive workers. Chyrsler was shaky, but GM & Ford were still on track and no 'bailout' was necessary. The credit crisis changed all that.
I really can't imagine how this administration could have managed this any worse. His team couldn't have been more effective if they were trying to kill off the industry.
On Nov 18 02:28 PM mynine14 wrote:
> This is a great piece and coincidentally I could not agree more.
> With a bailout what would the two or three do differently in the
> short run such that they will emerge from their destitution? Without
> a bailout they would perhaps reevaluate the marketing strategy and
> conduct an honest market risk analysis so that they will align production
> with consumer demand.
>
> The current situation is largely executive complacency, product marketing
> mismanagement, and demonstration of the union pitfall.
>
> Rhetorical question for Mr GM Driver... Please explain how President
> Bush had his hand in the demise of the domestic auto industry?
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car_guy
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36 Comments
Nov 18 05:31 PM-
Socialism cannot compete!
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484 Comments
Nov 18 06:30 PM-
Mister Jimmy
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77 Comments
Nov 18 10:34 PM-
digitaldorobo
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11 Comments
Nov 19 09:21 AMI had to shake my head when i read your post; you made little sense, if any.
Why should we prop up a business model that requires more employees to create a product. It is unsustainable if the competition can do a better job (AND MAKE BETTER CARS--NOT JUST 'PRETTY' AS YOU STATE) without the same overhead? I thought capitalism is about survival of the fittest/most adaptable...
By your logic, we should subsidize inefficient corporations with taxpayer dollars. That's socialism. How long should the free money continue?
It is plain and simple---the US auto industry had fought innovation, safety standards, and lower fuel consumption for decades. It failed to adapt due to its greed and inertia. It will die by its own hubris.
The UAW unionized itself out of jobs by its 'us or them' mentality. No one should make $20/hour plus benefits for turning a screwdriver. Also unsustainable.
If America is truly the champion of capitalism, it would let these bloated pigs die a natural, Darwinist death.
On Nov 18 01:41 PM John D wrote:
> Joel ... you seem very high on Honda & Toyota environmentally
> friendly cars - if you look back, that must mean GM was well ahead
> of it's time when they came out with AV1 electric vehicle technology
> in 1990 - and if I remember correctly - North America had ZERO interest
> at the time therefore there was NO market and GM went back to what
> the people wanted. Here in North America everyone loves to jump on
> the bandwagon but have difficulty presenting the facts - I'm quite
> sure that the Asian cars are of good quality - BUT - FACT - they
> don't provide 78 jobs per 2500 cars built here like the Big3 but
> a mere 33 jobs per 2500, so what you are saying is that you would
> risk removing over 50% of the automotive jobs because Honda's &
> Toyota's are PRETTY. With those jobs lost - who is going to pay for
> the financial bailout - if the Asian imports had been regulated to
> an even playing field back in the 90's when the 1st electric car
> was brought out - North America would not be in the SAD shape it
> is in today. The cars companies have been trying to warn about this
> for years but again - no one WAS interested.Obama said it during
> one of his speeches - why do Americans allow Korea to dump hundreds
> of thousands of cars here and we sold a whopping 5000 there.
>
> There was no real problem with the Big 3 - they were all inline with
> they're restructuring efforts, other that they were blindsided by
> the skyrocketing fuel prices (which the North American governments
> AGAIN did ZERO to head off) and the biggest problem being the collapse
> of the financial sector which is preventing people from purchasing
> a house or a car as there is NO CREDIT available - Japanese &
> Korean car companies have more money to burn through (and are doing
> so at the same rate) but you can bet the Asian governments will stand
> by them to insure they're around in the future to get YOUR profits
> and take them home to support THEIR people.
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digitaldorobo
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11 Comments
Nov 19 09:27 AMYou stated that the Big Three were "blindsided by the skyrocketing fuel prices."
Ummm...didn't they learn their lessons from the past 'skyrocketing' of fuel prices?
Maybe if the Big Three had proper risk management policies, they wouldn't have put most of their eggs in one basket with their gas guzzling SUVs. Seriously, why the hell would any business allow itself to be pegged to something as volatile as oil prices? Truly idiotic.
Such a myopic business model shouldn't be rewarded with public fund bailouts.
On Nov 18 01:41 PM John D wrote:
> Joel ... you seem very high on Honda & Toyota environmentally
> friendly cars - if you look back, that must mean GM was well ahead
> of it's time when they came out with AV1 electric vehicle technology
> in 1990 - and if I remember correctly - North America had ZERO interest
> at the time therefore there was NO market and GM went back to what
> the people wanted. Here in North America everyone loves to jump on
> the bandwagon but have difficulty presenting the facts - I'm quite
> sure that the Asian cars are of good quality - BUT - FACT - they
> don't provide 78 jobs per 2500 cars built here like the Big3 but
> a mere 33 jobs per 2500, so what you are saying is that you would
> risk removing over 50% of the automotive jobs because Honda's &
> Toyota's are PRETTY. With those jobs lost - who is going to pay for
> the financial bailout - if the Asian imports had been regulated to
> an even playing field back in the 90's when the 1st electric car
> was brought out - North America would not be in the SAD shape it
> is in today. The cars companies have been trying to warn about this
> for years but again - no one WAS interested.Obama said it during
> one of his speeches - why do Americans allow Korea to dump hundreds
> of thousands of cars here and we sold a whopping 5000 there.
>
> There was no real problem with the Big 3 - they were all inline with
> they're restructuring efforts, other that they were blindsided by
> the skyrocketing fuel prices (which the North American governments
> AGAIN did ZERO to head off) and the biggest problem being the collapse
> of the financial sector which is preventing people from purchasing
> a house or a car as there is NO CREDIT available - Japanese &
> Korean car companies have more money to burn through (and are doing
> so at the same rate) but you can bet the Asian governments will stand
> by them to insure they're around in the future to get YOUR profits
> and take them home to support THEIR people.
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digitaldorobo
-
11 Comments
Nov 19 09:30 AMWhat the hell are you talking about?
This isn't class warfare. This is simply the case of a union that was too stubborn to realize that their demands could not sustain an industry that made crappy, overpriced cars.
By your logic, everyone who worked on the assembly line would make 100k a year. Then a Ford Focus would cost $80k. How's that for an unsustainable industry?
Put away Marx and pick up a book on manufacturing economics.
On Nov 18 02:02 PM bosun.j wrote:
> This entire let them fail - save them argument boils down to one
> thing.
>
> Breaking the union. Driving all workers into poverty.
>
> Its class warfare at its ugliest. Its the Extremist-Capitalist owning
> class desire to own and control everything. A middle class is too
> much of a problem for the elites.
>
> The middle class cannot be allowed to move above Maslow's lowest
> level on the hierarchy of needs. Those physiological needs of breathing,
> food, water, sex, sleep homeostasis and excretion.
>
> Never let the workers achieve Maslow's second level where security
> of body, of employment, of resources, of health or of property.
>
>
> No, indeed. When those awful workers start to feel safe they start
> wanting things the elites aren't willing to allow them. You know,
> human rights.
>
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bosun.j
-
235 Comments
My Website
Nov 19 10:31 AMAs labor amounts to no more than 7% of the cost of a vehicle perhaps you might remove your kisser from the Extremist-Capitalist owning class orifice!
On Nov 19 09:30 AM digitaldorobo wrote:
> bosun.j:
>
> What the hell are you talking about?
>
> This isn't class warfare. This is simply the case of a union that
> was too stubborn to realize that their demands could not sustain
> an industry that made crappy, overpriced cars.
>
> By your logic, everyone who worked on the assembly line would make
> 100k a year. Then a Ford Focus would cost $80k. How's that for an
> unsustainable industry?
>
> Put away Marx and pick up a book on manufacturing economics.
>
> On Nov 18 02:02 PM bosun.j wrote:
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bosun.j
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235 Comments
My Website
Nov 19 12:33 PMwww.thetruthaboutcars..../
That will really get the rah rah rah sis boom bah we're number one nationalist types excited!!
Been telling Americans they need to learn Chinese for many years.
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Turbo Grande
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5 Comments
Nov 19 01:30 PMThe government could actually bail out GM for less than $2 billion, once and for all.
At GM's current stock price it is worth well under $2 billion. Congress should buy all of the common stock and just give it to the UAW for free. The company is now yours, lock, stock and barrel. Best of luck to you.