It's 65 Million B.C. for the Detroit Three

Why use taxpayer money to postpone the inevitable?

The former Big Three are back in D.C. to scare up $25 billion more on top of the $25 billion they've already received from Uncle Sam. If they don't get the money, they warn, cities will die; national security will be jeopardized; millions will lose their jobs; tens of millions will watch their 401-Ks vanish—and their CEOs will lose their corporate jets and have to travel first class. 

But these companies will need divine—not government—intervention to survive. And unless Rep. Nancy Pelosi (D-Calif.) and her fellow congressional bleeding hearts can arrange that, they shouldn't risk another dime of already-strapped taxpayers' money to keep these corporate dinosaurs alive.

General Motors alone burned about $5 billion a month for the last quarter and is expected to completely exhaust its kitty by the end of this year. (The other two will follow suit shortly after.) At that rate of cash burn, the bailout money translates into five more months of life.

A comeback in that time would be hard to pull off even if these were the best run companies on the planet, rather than ones debilitated by decades of labor intransigence and management incompetence, two characteristics that show few signs of abating.

Indeed, United Auto Workers (UAW) Chief Ron Gettelfinger, who has been accompanying the auto CEOs on their taxpayer shakedown missions to D.C., had until this morning ruled out any new concessions to the Detroit Three. "We have made dramatic, dramatic changes and the UAW was applauded for that," he insisted. "The focus has to be on the economy as a whole as opposed to a UAW contract." And what precisely are these "dramatic changes" that Gettelfinger touts? The UAW agreed to a labor contract last year that partially capped retiree health care and other legacy costs of the auto makers that will reduce their wage gap with Toyota from about $25 per hour to $10…in 2011! Until then every car rolling out of Detroit will cost $1,500 more than those built elsewhere in the USA by foreign competitors.

Gettelfinger is also unwilling to overhaul the rigid workplace rules that have long crimped labor productivity. For instance, these rules prevent workers from doing multiple jobs, which means that they can't be quickly redeployed in response to shifting market conditions. Nor will Gettelfinger allow the immediate shuttering of the notorious job banks program that pays laid off workers nearly their full salary for years on end.

Maybe Gettelfinger is just posturing. Happily, he has convened a UAW meeting tomorrow to "mull" some concessions. But if the threat of imminent death won't persuade him to pull out all the stops to restore the auto companies to profitability, why would he do so after receiving a $25 billion life-line from Uncle Sam? In effect, this means that the bailout will force non-auto workers—who should be saving in the event they get a pink slip themselves—to subsidize unemployed auto workers so that they can continue to draw fat checks for a few more months.

To ensure that the bailout money is not frittered away on overpaid unions, President-elect Barack Obama is reportedly considering a "prepackaged bankruptcy" for the auto makers. This is a fast-track process that will make the bailout money conditional on cost restructuring plans that auto makers and labor unions will have to hammer out before going into Chapter 11.

But even though this scheme might force labor to act more rationally, it won't address the other root cause of the Detroit Three's decline: managerial ineptitude.

Even before the latest financial crisis, GM's annual loss for 2007 touched nearly $40 billion, the largest ever for an automotive company (although some of this was driven by one-time costs associated with buying out its workers.) Ford and Chrysler have similarly posted billions of dollars in losses.

Admittedly, the Detroit Three have improved their product lineup in recent years. Gone are the days when people joked that GM ought to hand out a free umbrella with every Cadillac it sold to guard against a leaky roof that it couldn't find a way to plug. Its new Chevy Malibu is reputed to be every bit as good as its closest competitor, the Honda Accord. Similarly, the Ford Fusion hybrid offers superior gas mileage to the Toyota Camry hybrid at no extra cost.

But to persuade hard-pressed consumers to abandon their Hondas and Toyotas right now and splurge on new products, the Detroit Three will have to offer something radically—not just marginally—better. They will have to invent irresistibly sexy cars and sell them at super attractive prices—and still turn a profit.

This will require a degree of new thinking and innovation that their command-and-control corporate cultures haven't supported in a long time. Silicon Valley has demonstrated that competing effectively in a dynamic world requires egalitarian workplaces where smart people can think freely, unencumbered by the traditional trappings of status and power. But the Detroit Three have yet to learn that lesson. The plush corner office—still very much a prized thing—goes not to those with the most creative ideas to generate new efficiencies or products, but to the best ass-kissers. Indeed, in one of these companies, managers (drawing six figures) accompanying a boss on out-of-office engagements have standing instructions to be prepared with information about the nearest bathrooms to allow him or her to answer nature's call without losing a single moment. Is it any surprise then that their CEOs had no sense about how taking a begging trip on corporate jets would look to the thinking public?

Even though all car makers are suffering due to the economic downturn, only the Detroit Three are facing a mortal threat. America's other auto industry—composed of Asian transplants—will survive just fine.

But bailing out entities that long ago lost contact with market reality won't encourage them to reinvent themselves—exposing them to the full force of the gales of creative destruction will.

For the Detroit Three, it is 65 million BC—the year that the meteor landed and replaced the dinosaurs with smarter and more agile creatures. There is no point in using taxpayer money to postpone the inevitable.

Shikha Dalmia is a senior analyst at Reason Foundation

Comments

[concerned observer]

While it bothers me that the workers will lose their jobs, I see the closure of auto companies as a plus. Perhaps we'll rethink our obsession with huge gas-guzzling behemoths.

[Joshua Holmes]

Huge gas-guzzling behemoths didn't cause Detroit to go under. Lagging quality mixed with spectacularly short-sighted management did that.

[John C. Randolph]

co,

The workers at the big three are misallocated. If they still want to build cars for a living, they should go to work for any of the other companies building cars in the USA. I hear that Toyota and VW both have far better relations between their workers and management than the Detroit companies do.

-jcr

[concerned observer]

@jcr-Do you really think that VW and Toyota can absorb all the workers who will be laid off?

[toxic]

Ford is right on the edge; its the only one of the 3 that this bailout would actually fix (instead of delaying the inevitable).

They've been working to get the company back into shape since 06.

Chrysler has got to go. GM should man up and declare C11.

[Brian Sorgatz]

The Big Three are Yabba Dabba Doomed.

[classwarrior]

Behind all the "free market" rhetoric are a couple of facts that are conveniently overlooked:

1) Foreign transplants in the US have double-dipped at the public trough in their home countries and with incentive bidding wars that state governments here rountinely are suckered into.

2)They have naturally hired young, healthy workers and don't have the responsibility (yet) to look after them in retirement. You can bet if the Detroit 3 go under, taxpayers will be left holding the bag for pension and health care costs. This cannot be avoided.

[Warren]

Even though all car makers are suffering due to the economic downturn, only the Detroit Three are facing a mortal threat. America's other auto industry-composed of Asian transplants-will survive just fine.

Don't bet on it. The Asian auto companies have been trying to sell the "Everything will be OK" to the public and their stockholders. However, growing inventories betray the lack of sales. I don't think they can keep their house of cards standing much longer than a few more months either.

[J sub D]

I live in the Motor City so I should be clamoring for a bailout of the Big 2.5, right? It is going to really suck around here for all sorts of people who are not UAW members or auto executives.

Unfortunately, I can't do it. GM and Ford aren't special and shouldn't get special consideration. The taxpayers already went out on a limb for Chrysler once. We didn't get burned then, but this is a whole different ball of wax.

Sorry guys, you snoozed and now you should lose.

Unfortunately, the congress will pass a bailout postponing the death of Ford, GM and Chrysler for a half year or so and then they will be back, hat in hand. And congress will do it again.

We won't let AMTRAK* die, what makes us think we'll let Ford and GM go?

* A more recent article to buttress my point.

Since its creation, Amtrak has absorbed more than $29 billion in subsidies and more than $6.5 billion since 1997 alone. It was in 1997 that a federal reform board mandated that Amtrak either become profitable by 2003 or be liquidated.

[KipEsquire]

"Sen. Nancy Pelosi"?

[J sub D]

Ford is right on the edge; its the only one of the 3 that this bailout would actually fix (instead of delaying the inevitable).

Your probably right. GM's death would make Ford profitable and competitive.

[concerned observer]

@JsubD-Trains should be a public service. Profitability should be a secondary concern. The best train systems in the world, in Europe and Japan, are based on this principle.

[concerned observer]

John doesn't care!

[Paul]

The former Big Three are back in D.C. to scare up $25 billion more on top of the $25 billion they've already received from Uncle Sam.

Reminds me of the Onion article where the fat people sat around all day, watching tv, waiting for a cure to obesity. To wit:

Los Angeles Auto Show opens for press previews at the Los Angeles Convention Center November 19, 2008 in Los Angeles. Against a backdrop of economic upheaval, General Motors Corp. and Chrysler LLC will be virtual no-shows with no senior executives in attendance nor holding any press conferences as they concentrate on lobbying for federal bailouts.

Nope, no preparation for a chance to sell cars, no work being done on prototypes for new, more fuel efficient cars. Nope, "our companies are dying", say auto execs as they sit around Washington, DC, hoping for a bailout.

Off with their heads.

[Paul]

The taxpayers already went out on a limb for Chrysler once. We didn't get burned then, but this is a whole different ball of wax.

J sub...

Depends on who you talk to.

[DannyK]

Even if you think the Big Three are doomed, is it really a good idea to let them collapse right now in the middle of an economic downturn? The shockwaves of three big insolvencies, all their financial arrangements unraveling, and all their employees and suppliers' employees simultaneous losing their jobs... it would be ugly.

Think of how the Lehman Bros. collapse ended up having knock-on effects in all kinds of places that weren't expected, like the money markets.

And no, just saying that "in the long run, things will be better" isn't enough, even if it's true.

[Paul]

For instance, these rules prevent workers from doing multiple jobs, which means that they can't be quickly redeployed in response to shifting market conditions. Nor will Gettelfinger allow the immediate shuttering of the notorious job banks program that pays laid off workers nearly their full salary for years on end.

Remember in the 80's how the press lamented that the Japanese automakers (in Japan- as there was little U.S. production of Japanese autos) would keep a worker for life, and how great that was?

The way Japanese firms kept these workers for life is by shifting their jobs. If there was no place for you on the factory floor, *poof* you became a tour bus driver. I laughed and laughed at that, knowing that American Union workers would never put up with such shenanigans.

[Barry Cohen]

G.M.'s bail-out request is thinly hidden economic blackmail. Ford's more reasonable (sic)request is laughingly based upon other auto manufacturers unlikely success.

Both corporate reorganization plans are too devoid of specifics to initiate serious consideration. Further this underscores industry prayers to publicly draft reorganization under the friendly eyes of lobbyist laden elected politicians than submit, like other businesses, to professionally trained, life appointed U.S. bankruptcy court judges.

[economist]

"And no, just saying that "in the long run, things will be better" isn't enough, even if it's true."
Why not. Explain how a bailout that allows them to continue being inefficient at taxpayer expense is not worse in the long run or why we should not be primarily concerned (for public policy purposes) with the long run.

[economist]

DannyK,
To put it another way, what exactly should we say? Bad decisions have bad consequences. Failure hurts. These are realities that do not go away with the bailout. They are just spread around to even more people who weren't involved in the decisions that led to this disaster.

[Pro Libertate]

I think the hopelessness of this bailout is the key. It won't save the U.S. auto industry, so why bother? Are we going to keep doing this indefinitely?

[J sub D]

@JsubD-Trains should be a public service. Profitability should be a secondary concern. The best train systems in the world, in Europe and Japan, are based on this principle.

Congress didn't think so in 1997, did they? They were going to make AMTRAK pull it's own weight or die.

haha, just kidding, it was a fig leaf to cover up taking money from productive people and giving it to others.

Why should the trains be special and not Greyhound? Why not taxicabs? Limos?

They do it in Europe is hardly a glowing recommendation.

[J sub D]

I think the hopelessness of this bailout is the key. It won't save the U.S. auto industry, so why bother? Are we going to keep doing this indefinitely?

AMTRAK. But much more expensive.

[Paul]

Even if you think the Big Three are doomed, is it really a good idea to let them collapse right now in the middle of an economic downturn?

Because they tend to be doomed during economic downturns. You know, when no one can afford to by a superfluous 7 passenger SUV with the video screens in the headrests. Nope, people tend to go with only what's necessary. Maybe make the car they already have last a few more years. Buh-bye.

[prolefeed]

Do you really think that VW and Toyota can absorb all the workers who will be laid off?

I'm sure Toyota and Honda and VW will be happy to ramp up their production and eventually rehire those laid off workers who can fit in with a non-unionized environment.

I'm sure that there will be an adequate supply of cars to buy if all of the Big 2.5 go under, and people employed making those cars.

[P Brooks]

Die!

DIE!

DIIIIIE!

[Jim]

They might be willing to re-hire workers in Michigan if we passed a 'right to work' law here. Should have done that a long time ago; we might not be in this situation right now.

[Jim]

Paul,
Part of the reason the big three are so dependent on large SUV's and trucks is because they can't afford to build small cars with union labor. Also, they build small cars at a loss (in typical times about $1000 - $2000 per car) so they can make money selling SUVS at a profit ($5000 - $7000 per car, when times were good). The solutions here are to a) get rid of the union lock on the labor, and b) get rid or modify CAFE requirements that require automakers to sell unprofitable cars. I think if you take care of a), b) would probably not be necessary.

[Paul]

Do you really think that VW and Toyota can absorb all the workers who will be laid off?

No. A group of new car companies that spring up from the ashes of the big three very well may. I will not, however begin to suggest that they'll have the same pay and benefits package... you know, the one that seriously helped to kill the goose that laid the retirement packages?

Jim,

I know. The Big 3 have been grousing for years about how they really would rather build SUV's and large trucks because of the higher profit margins.

In my opinion, however, getting rid of CAFE standards would be much easier than unlocking the Union contracts. I firmly believe that the only way to break the stranglehold of Union benefits in the old-auto sector is to dynamite the entire sector, and start from scratch. In the end, both workers and company will benefit. Workers can again be part of a growth sector at the ground level.

[Jim]

There is an additional twist on this - CAFE regulations require that both the domestically produced fleet and imported fleet for each automaker must meet CAFE separately. This ensures that the unionized automakers must make negative profit small cars with union labor rather than importing them from, say, Mexico or China. You could probably fix both problems by just changing that regulation to apply CAFE to the whole fleet regardless of where it is produced. Congress had the chance to do that with the most recent round of CAFE regulations, but put the 'two fleet' rule in (probably from union political pressure) before it was passed.

[Douglas Gray]

We need to get away from "The Auto Industry" mentality, and see their demise as nothing more than comings and goings in the transportation sector.

The future of the industry is you order a custom made vehicle of some kind on demand; a robotic factory puts it together, and it is delivered.

Huge show rooms, giant factories, huge employee pensions........obviously a business model that is going extinct.

[Die, GM!]

All this talk of what's going to happen to all those poor widdle auto workers if we let their crummy companies fail sure isn't inspiring any sympathy from me. I mean come on, these are tyrannical and bloated unions of thieving parasites we're talking about here, not hard-working honest employees! Every one of these leeches should be grateful merely to be fired, rather than torn to shreds by angry mobs of exploited taxpayers and ground up for dog food as they deserve.

I little doubt the author is right about the managers being incompetent as well; blood-sucking unions and incompetent management tend to reinforce each other. Everyone competent enough to work at other more competent and efficient companies is probably already doing so. As such, the only management left is the union-approved pointy-haired kind. It's a scenario right out of a Dilbert cartoon, except that all the "workers" are horn-haired incompetents as well. There are virtually no long-suffering Dilbert types left at the Massively Incompetent 3.

You know, we could do with that whole Japanese demote-the-losers practice someone mentioned earlier here in America: those Japanese auto guys would sure as hell never put up with any of these union "worker" shenanigans. They'd sell those parasites' lazy carcasses to a fishing boat for shark bait first, which is really what ought to be done to all such bureaucracies, but doing that to the UAW would at least be a good start.

So far as I'm concerned, the "Big 3" can all go down in flames. To hell (and the scrapyard) with all 3 of their union brothels, and may they take Jennifer Granholm and all her socialist whores with them! (Probably too much to ask, but I can dream, can't I?) The bleeding hearts have their assessment of the situation completely backwards: there's no better time for slaughtering old failing companies than during an economic downturn. Let the recession hit those wastrels who deserve it the most the hardest; throw them out on the streets and let them starve!

[NAL]

It all hinges on the UAW. Yes, the management made some bad decisions (pinning all profits on SUV/truck production, being the big one), but they didn't have much wiggle room when they're paying $73+/hour to their labor (Yes, that's a composite number which includes benefits, retiree costs, etc., but the comparison to competing manufacturers' composite $45-48/hour is valid).

How can you make profit on anything but large, more luxurious vehicles when your costs are so high? (Any smaller cars they have are profit losers that are only there to balance out the SUVs for CAFE reasons). You can argue that they shouldn't have agreed to those contracts in the first place, but then the UAW would strike (with strike pay built up from years and years of union dues) and they would lose billions per month
and their already shrinking market share.

The UAW had (and continues to have) them over a barrel and it's all coming home to roost now.

IMHO, the only way for them to survive is for them NOT to get a bailout and to have to go through bankruptcy to nullify UAW contracts, dealer franchise agreements, etc..

P.S. If you've ever argued with a hardcore UAW member, you'll see a whole new level of entitlement mentality.
It's almost to the point of sounding brainwashed.

[NAL]

Eliminating the CAFE standards won't work now. With energy prices where they were, the CAFE standards became irrelevant, because people enforced their own private CAFE standards with their wallets. This recent decrease in gas prices is temporary and everyone knows it, so it won't help either.

[juris imprudent]

dannyK sez And no, just saying that "in the long run, things will be better" isn't enough, even if it's true.

Even if it's true? You'd rather hear a pretty lie?

bahhhhh, bahhh, baaaaaahhhh, baaahhhh

[john]

I've spent my entire career in the auto industry, first as an upper level executive with Ford, BMW, and British Leyland, then as a dealer for Porsche, Audi, Lincoln-Mercury, Mazda, and Suzuki. Detroit's only chance is Chapter 11. It's the only way they can get themselves out from under their hopeless legacy costs, and even then the outcome is doubtful, to say the least.

The Big Three were non-viable before the Big Meltdown. None was profitable. All were losing market share. They were falling further and further behind their European and Asian competitors. Now the situation has gone imminently critical. Trying to keep them afloat with federal money is an exercise in desperate futility. They'll all be back at the cashier's window before March 1, 2009. They have to be allowed to make a Chapter 11 filing. It's the only, albeit faint, hope.

[Jim]

NAL, of course you're right as long as gas prices are high the market will motivate smaller vehicle sales. The change just happened so fast to already weak companies; it takes 2-3 years to develop a new vehicle (and a boatload of money - we're talking billions typically).

To 'Die, GM' - unless you've spent some time working for one of the US automakers, and/or one of the foreign ones, you really don't have any clue what you're talking about. There are good people working there, both management and union, and surely some incompetent ones as well, just like any other company. The foreign ones have their own problems, in resolving cultural differences between the mother country and the American workforce.

[DannyK]

"And no, just saying that "in the long run, things will be better" isn't enough, even if it's true."
Why not. Explain how a bailout that allows them to continue being inefficient at taxpayer expense is not worse in the long run or why we should not be primarily concerned (for public policy purposes) with the long run.

"In the long run, we are all dead." If a collapse of the domestic auto industry prolongs the recession by 3 years, that's a huge blow to millions of people, even if the economy will be humming along again in 20 years.

It's pretty obvious that a lot of the posters here are primarily salivating at a chance to liquidate the UAW, and this is just a convenient opportunity to do that.

[juris imprudent]

liquidate the UAW

They are a very distant second on my list. Management of the Big 3 leads by a mile. You can run a profitable company with union labor, but bad management will kill even a sweatshop.

[jbmcb]

A bit of factual clearing-up:

1 - The quality of the domestic car companies has improved greatly in the last fifteen years. Many models are on par with the best of the Japanese models, in terms of short term and long term reliability metrics. They also sell very fuel efficient vehicles and hybrids along with their gas guzzlers, which the Japanese companies also produce, by the way.

2 - There will be no bankruptcy for the car companies, it's bailout or liquidation. Some car companies *have* tried reorganization bankruptcy in the past, the last was DeLorean - it doesn't work so well for a myriad of reasons.

And, on a side note, unless you work in or alongside the auto industry, you really have no comprehension on how it works. It's an unbelievably complicated business to be in. You can't point to one, or even a few, reasons as to why a car company the size of GM is doing poorly, it's a combination of hundreds of factors. GM was actually doing pretty well until the economic downturn. Now that capital has dried up, credit is scarce, and the market has shrank, they have no maneuvering room left.

[Mike Laursen]

DannyK, you seem to be considering only the benefits of a bailout without considering the costs.

Bailing out the auto companies is going to drain wealth from the economy through inflation and/or higher taxes. How do you know that that inflation or taxes is not going to cause more business failures elsewhere, or prevent new businesses from getting a chance to get started, or more unemployed people than the bankruptcy of the automobile makers?

How do you know that failure would result in complete collapse rather than reduced market share for American auto companies? How do you know that one or two auto makers won't survive, helped by the decreased competition from the auto maker(s) that don't survive? How do you know that the bankruptcy of the American auto makers won't create an opportunity for their business assets to be bought by more successful foreign auto companies, who will hire their former workers?

[Michael Solana]

Let. Them. Go.

[Xeones]

Die, GM!, why don't you tell us how you REALLY feel?

[Liberty Lover]

I would not be so fast to blame "management" and "labor". That's incomplete.

Both sides act this way because they have been too insulated from competition, despite the existence of many auto makers.

The former Big-3 builds large cars here because they cannot import small cars from abroad where they can make them profitably.

What trade restrictions exist that prevent management from threatening labor with low-cost imports?

What CAFE standards and other regulations exist that force higher the cost of making a car?

[Big Cat Kahuna]

concerned observer - Trains should be a public service.

Why? So that retirees can have long vacations traveling across the country by train?

But for a tiny fraction of the country Amtrak is completely impractical for work and (apparently) highly undesirable for vacations. Metropolitan transit systems have at least some justification but even assuming it is not a special interest handout--an enormous assumption--what public service other than nostalgia does Amtrak actually provide?

--------------

classwarrior - Worker Health Care

It is likely true that the taxpayer will ultimately have to absorb at least some of the cost of autoworker health care should the big three collapse. But how would that be more expensive than subsidies? When these monsters do finally end at least some, perhaps most of their assets (human, material and intangible) will put to productive work.

[R C Dean]

In my opinion, however, getting rid of CAFE standards would be much easier than unlocking the Union contracts.

In a Dem controlled Washington, the former is merely impossible, while the latter is utterly unthinkable.

[Die, GM!]

"Die, GM!, why don't you tell us how you REALLY feel?"

Did I mention I hope the newspapers and the government schools go down in flames too? Out upon the streets and starvation to the lot of ye, parasites!

[Highway]

To those who say that GM and Ford vehicles are 'just as good' as Honda, Toyota, or even Nissan vehicles, I urge you to spend just a few days driving both types of vehicles.

Yes, self-reported surveys show that the American companies' rate of repair and serious flaws are better than they used to be, and closing with the Japanese cars. But in terms of overall design of vehicles, the American offerings have design flaws that just show their inferiority.

You will NEVER find Honda vehicles where you have to break your wrist to close the door (like on 2007 Ford Explorers). You will NEVER find a Toyota vehicle where you cannot use either the parking brake or the cupholder, because they occupy the same space (like the 2008 Chevy Equinox). You won't find Japanese cars where the automatic transmission column mounted shift arm completely blocks the HVAC controls while in Drive like in the Suburban.

Three nit-picky things? Maybe. But those are the last three American cars I've driven. Every time I get into one, I find something that is just wrong. So maybe build quality is better, but the design just does not carry through.

[R C Dean]

I think the basic quality problems with Big Three cars really show up in the materials used. I believe that is where costs are cut in Big Three cars to try to cover the crushing legacy/labor costs.

Its my impression that Big Three cars use a lot more ticky-tack plastic and just feel a lot lighter/cheaper than their competitors. Build quality may be improving, but I think materials quality still sucks.

[Struggling]

The company I work for could use a Bail Out since we are on Main St. America, where is our cut? Screw The Big 3! It is only a band aid on a chest wound!

[michigan ruth]

ok ok, but my question is Why are we willing to lavish money on the financial industry but so unwilling to help the auto industry? AIG and Citigroup ask for billions and they get'em, no problem, no questions asked. The Big Three? not so much.

as a Michigander, I can tell you that if the car companies are not given some sort of help, my state is dead. it's not just the bloated, overpaid UAW workers who would be out of a job; it's the people who run the restaurants and stores and services that make up our communities who would have no customers. all gone. not pretty.

[Paul]

It is obvious that the Big 3 shouild not get a bailout and it is absolutely certain that they will. This is the sign of a truly disfunctional society.

[Corboland]

It's truly amazing to see how so many people are rushing to bury our domestic auto industry while letting subsidized and tax incented forgeign companies come into our domestic market and undercut our workers, diminishing our tax base and our standard of living. And what do we get out of it? Higher unemployment payments and more jails. The most amazing thing is the amount of hatred so many people voice towards the UAW, where the average worker is making 58k a year plus benefits. Yeah, that may be more than the average worker at Walmart, but its all in all a hell of a lot less than we gave away to the wealthiest citizens under the Bush tax plan. I mean jeez, where is everybody's outrage over the 25 Billion we spend in Iraq or the the billions of dollars that we spend in no bid contracts and cost overruns at the Pentagon. Where is the sense of decency and fairness in this crowd?

[Jerry]

It will be interesting when Congress subsidizes the Big 3 with taxes paid by fast food workers inorder to pay furloughed UAW members to sit and watch TV while collecting 95% of their regular pay.

[Lurker Kurt]

I mean jeez, where is everybody's outrage over the 25 Billion we spend in Iraq or the the billions of dollars that we spend in no bid contracts and cost overruns at the Pentagon. Where is the sense of decency and fairness in this crowd?

Uhh...

Very few people on this board have supported the war in Iraq and the money spent there.

[roger]

the sad part is that who would buy a new detroit car at this time? not a sound investment.

[roger]

michiganruth

Michigan is toast because of your leadership. Your high taxes drive all of your industry elsewhere

[Roger is a dope]

Roger,

Really? If you drive the streets of France you will note that most people drive cars manufactured by 1 of 3 producers; Renault, Citroen and Peugeot. All in all, nearly 7-8 in 10 cars on the roads are produced by those three. Are the French simply more patriotic than we are?

[MIKE DAUSH]

oF COURSE IT WON'T WORK! THELAST THING MOST PEOPLE IN AMERICA ARE THINKING ABOUT IS BUYING A CAR. THE ONLY WAY DEMAND WILL IMPROVE ISIF THE ECONOMY GET S HUMMING. LOWER CAPITAL GAIN TAXES AND MAKE PERMANENT THE BUSH TAX CUTS. IN MY INDUSTRY, ALL OF THE INVESTORS ARE ON HOLD UNTIL THEY SEE OBAMA'S REAL INTENTIONS, NOT WHAT HE HAPPENS TO SAY AT HIS 4TH PRESS CONFERENCE IN A ROW. THEY DON'T TRUST HIM AND ARE NOT ABOUT TO LISTEN TO WHAT HE SAYS. HE NEEDS TO SHOW AMERICA WHAT HE IS GOING TO DO, AND RAISING TAXES IS NOT GOING TO GET IT!

[Professor Yorgle]

Mike Douche,

We should steeply lower income taxes on the middle class, keep them the same on the rich and raise taxes on real estate sales, while at the same time eliminating mortgage interest deductions while also eliminating accelerated depreciation. If we raised those taxes enough, we might be able to even give a capital gains tax cut on real long term investments. How does that sound?

[Steve J]

It is truly astonishing how misinformed the author of this opinion appears to be. It's especially rare when the very first line of such a hack job is a lie, but lets not allow the facts to get in the way of our bias, right?

The "former Big 3" have NOT received $25 billion from Uncle Sam "already". They have not RECEIVED a dime. They were promised money, as part of the energy bill last year, to help cover PART of the estimated $100 billion it would cost to meet the new fuel standards. Not one penny has been delivered, which is typical for the government.

Some among you who have responded have correctly pointed out that foreign manufacturers routinely receive government money. In fact, the Japanese government's decades-long record of currency manipulation has subsidized their auto manufacturers to the tune of tens of billions of dollars (in Yen, of course).

State franchise laws in the US have inhibited the restructuring efforts of the US based manufacturers, and idiotic economic policies, which celebrate low gas prices while enforcing insane CAFE standards, have also stacked the deck against the US companies.

But don't take my word for it. Carlos Ghosn, who manages Nissan and Renault was asked recently if the US companies management had been short-sighted or lacked imagination. His answer: NO!

There are plenty of people who have never run businesses on this blog. Yet how many of you sit in your offices and homes, with zero management experience of your own, and pass judgement on executives whose daily pressures and issues you can scarcely comprehend.

If these companies go BK, you will all wish you had rethought your stupid opposition.

I'm sure you will all have others to blame when the depression deepens. Because YOU don't have anything whatsoever to do with their demise. Yeah right.

[Neu Mejican]

Pure ad hom here, but isn't Shikha Dalmia the idiot who did the Prius vs. Hummer analysis that commentators took a part in about 10 comments once it was posted on the blog?

Should I believe Shikha Dalmia knows anything about the topic of automobiles and automakers?

[Boss429]

Roger is a dope | December 3, 2008, 4:42pm | #
Roger,

Really? If you drive the streets of France you will note that most people drive cars manufactured by 1 of 3 producers; Renault, Citroen and Peugeot. All in all, nearly 7-8 in 10 cars on the roads are produced by those three. Are the French simply more patriotic than we are?

I noticed that none of the manufacturers you mentioned happen to be Ford, GM, or mopar, also noticed Roger never mentioned anything about "patriotism", and somehow you've managed to make a connection between France and the situation the Michigans big 3 are going through, which for the life of me I can't figure out unless your name is also Roger and you've chosen to be brutally honest when you chose your handle for this thread.

[TrapperGus]

I found the article to be ingborant and completely off base with very little actual information.

What the people replying really don't seem to understand is that the 3 to 4 million people that this will put out of work directly are about 5% of the US labor force thus we will be going from 7% unemployment to 12% in a couple of months. The loans are a cheep price to keep that from happening.

You all also do not understand how connected the Big Three and the supply base are and the fact that if one of these companies goes backrupt they will cause all three to follow suit since the supply base will colapse whioch will most likely also cause the other car companies Toyota to go backrupt since they buy from the same suppliers.

And finally these suppliers don't supply only the car companies so a number of other businesses will be forced into backrupcy.

Evetyone posting on this board will be hurt far more than they understand if the car companies go under.

[Boss429]

Trappergus, if there's a red underscore you might have spelled it wrong, preview is your friend.

That being said, I doubt losing any, or for that matter all of the big 3 in this country would have a lasting impact. Virtually all of the "foreign" manufacturers have plants here in states although, understandably they avoid Michigan. Importing components for ass'y here is an expensive burden that those manufacturers could eliminate by using existing resources, however choosing the right vendors and validating them would take time, which would be an economic inconvenience for some, but a relatively short lived inconvenience considering the alternative.

The union "buy american" rhetoric didn't catch on outside of closed shops back in the '70's and '80's, today that bucket still carries no water considering so many "Jap" companies are over here employing Americans building Hondas and Toyotas, etc, vehicles of superior quality to those of the big 3, and they're doing it in volume, in clean, safe, eco friendly plants, profitably without the "help" of the UAW.

If the big 3 from Michigan died yesterday, the hole in the economy would be filled quickly without tax dollars. That's the beauty of capitalism.

[Pete Murray]

This article is right on point. the Detroit 3 need to become the Detroit "One". Let GM and Chrysler file for bankruptcy.

[George]

I drive all GM cars, and they've been great. GM still sells more cars than any other company, so they're doing something right. Restructure? Yes. Dissolve. No.

[otto]

Nothing is inevitable. Otherwise Churchill would have thrown his hand in 1940 and FDR would never have overcome the crippling disablility of polio. The US car industry's principal immediate problem is that the market has shrunk from a peak of 17.5 million units to around 10 million, a decline of nearly 45%%. Any business that see's its market shrink by 45% is going to be in trouble particularly one that is as volume sensitive as car manufacturing. They have other problems but let's not forget this was an enormously profitable industry as recently as three years ago. Judging by his comments Mr Dalmia doesn't know much about the car business. If the big three go so will thousands of parts makers employing numbers ranging from the twenties to the thousands. Then there are the dealers, about 13,000 of them employing over a million people. Then of course all the town tax and state revenue goes out the window. And for what. To satisfy Mr Dalmia's conservative theology. The govt will have to pick up a huge chunk of the legacy pension and healthcare costs anyway, the pensions alone are likely to swamp the PBGC. People like Dalmia spend a lot of time telling us how exceptional we are but apparently we're not exceptional enough to be able to run an auto industry. His logic belongs to that school of unintended consequences that has already given us 'we'll be greeted as liberators' and 'the war will pay for itself.'

[jg]

To michigan ruth, et al. who are scared to death that finding new employment is akin to being chased by Nazis, you implicitly ask a question:

Since the bailout of AIG and Citigroup (and Chrysler long ago, and Lockheed too, by the way) was effected, then why not the car companies too?

You have three options:

(1) End the concept of government bailouts altogether. Now is the opportunity to set the precedent, and let the chips fall (big and small). Here's the moment in history. And individuals will face up to the reality -- UAW and corporatist, jet-toting executives don't give two craps about them, and individuals must fend for themselves, not relying on the carpet-bagger vermin that pretends to care about them.

or

(2) Bail out the car companies, and continue to bail out all who flounder again in the future. All of them. All. Every company can expect Pelosi, Reid, Obama, and their successors (Republican or Democrat) to ensure that your place of employment is forever solvent.

or

(3) Bail out the car companies, but stop there. Insist this will be the last time daddy comes to help an ailing company. This is it, guys, really. No more after this one. We mean it!!!

If you choose (1), there will be some pain, but I have more faith in Michiganders than you apparently do. They will have to move, adapt, change, reeducate, migrate, create, evolve..... Difficult, perhaps, but every challenge brings promise through the struggle. Human beings are noble and strong and will win against their odds.

If you choose (2), then you must accept a socialistic economy, with full and expansive government oversight, command and control. We must stop this absurd mixed economy crap, and just be "fair" to everyone. Centralize the economy completely, and stop playing favorites. Oh, right, I forgot, playing favorites is what the government does.

If you choose (3), then you don't give a damn about anybody else who is laid off in the future, but can be happy that your short-sighted Michiganders (your implication, not mine) were all protected, didn't have to find new employement, didn't have to start a new restaurant in some other state, didn't have to adapt, and the rest of the world be damned.

Choose wisely.

[Jim]

I've been in the auto industry now for 14 years, and I've seen this go from good to bad to unimaginably bad. The underlying union and legacy issues haven't been dealt with in full but they were moving in that direction last year when the UAW made some pretty major concessions on wages and job categories and agreed to absorb legacy health care costs from automakers in a trust fund (that still isn't fully funded).

I've also seen the products evolve over the years; I no longer work for an American car company but we look at US vehicles and Asian vehicles all the time and quite honestly the US cars have gotten more expensive, more high tech and more refined while I've seen that the Japanese cars have gotten cheaper and less refined. I also know how they test their cars and the American automakers pay a lot more attention to reliability and durability.

So overall in my opinion the market has been pushing the US automakers and the union to become more competitive, but the most recent crisis is due to the government's macroeconomic mismanagement of the entire economy (the foreign automakers are showing 35-45% decreases in volume too, but they aren't as weak financially as the Big 3).
Regardless of what happens with or without a bailout, if and when one or more of these companies go belly up, it should not be viewed as 'creative destruction' but as more fallout from the financial crisis that was essentially created by bad goverment policies.

[DonH]

Allow me to make a modest proposal.

Given that GM's market cap is only $2B or so but that its accrued liabilities to the UAW are in the tens of billions, I think we should recognize the fact that the ownership of GM has already been transferred. Rather than hand GM another $18B, I suggest that the federal government simply buy out all current GM shareholders at the market price and then hand complete ownership of the company to the UAW, wishing them good bye and good luck.

Some might complain that this won't save GM, but I don't think that's possible, and it would be both cheaper and much more entertaining than another subsidy.

[Karlh]

I once worked as a contractor to GM, it was a fun observation post to have and it gave me some insight. GM at the time (16 years ago) was run pretty much like the Federal Government. I say at the time because I have no idea how they are run now but given their current situation I doubt much has changed.

I watched one woman file sexual harassment complaints regularly that resulted in raises and promotions for her. It took 3 years for GM to enact a dress code that stopped her.

I watch an upper manager that made more than $200K get caught embezzling funds and while he lost his job he was given a $1M golden handshake and allowed to still have a company car. Criminal charges were never filed.

One Security Department head was using the NCIC to do background checks on employees and had the facilities person in charge of communications set up wire taps on company phones. The FBI did run an investigation but it went away quietly and the persons involved were given golden handshakes as well. The one who had access to the NCIC was allowed to keep his reserve law enforcement job.

So just like the Feds, if you get high enough into management your immoral and/or unlawful activities can only bring you more rewards and a lower likelihood of punishment.

Oddly enough they spent millions renovating that facility only to close it down less than a year after they completed construction work on the renovation. It has stood beautiful and vacant ever since.

So when do we create the Department of Automotive Manufacturing? DAM for short.

[Mandy Cat]

Quite a few of the postings on this thread remind me of the poem written about the Archbishop of Canterbury -- in a very different context, of course.

My Lord Archbishop, what a scold you are.
And when your man is down, how bold you are!
Of Christian charity, how scant you are.
And, auld Lang Swine, how full of cant you are!

[Dan]

Don't forget that these legacy costs are your grandparents, uncles, aunts. These legacy costs that are going to dumped on the taxpayers are people who worked hard and, like many Americans of previous generations, were promised a pension and health benefits. This influx of retirees will add to an already stressed system and put an additional burden on the funders of our government-the Chinese and Arabs.

Those who do not like corporate welfare should consider the competative advantage the US factories of foreign car companies have. The southern states gave them hundreds of millions to build factories in their states. Tennessee gave $579 million to VW, Alabama gave almost $300 million to one of its transpalants. $879 million to ThyssenKrupp for a $3 billion dollar palnt. Texas gave $250+ million to Toyota for its Texas truck plant but Ford asked for state aid to modernize their truck plant but was told that money & tax breaks were for job creation and not for job retention. That gives Toyota a $600 per truck competative advantage over Ford trucks. The foreign car companies have nationalized health care and pensions for all of their head office and their in country people.

The southern hypocrits such as Senator Shelby R-Ala. are full of crap. They are in the pockets of the foreign car companies. We need domestic heavy industry. What happens if we get into a shooting war or economic war with the Chinese. We cannot make the products to support our country with the industry we have now. We are losing the skills to make the machines to make the machines that make the products we need. Our future is getting grimmer and grimmer as our country and people are being sold out. No economy is sustainable in the long run if all we do is sit in a circle jerk and sell each other insurance and loan money to each other. True wealth is created by making something and not by financial services.

[jswarren]

The only thing that's inevitable is that US taxpayer, and in this case disproportionately the Southern taxpayer, is going to have to spend $25 billion to give economic aid to Michigan, Ohio, and the other decimated states(which I might add have been net tax DONERS to the federal government unlike the LAZY WELFARE STATES OF ALABAMA, MISSISSIPPI, and TENNESSEE WHICH TAKE MORE FEDERAL TAX MONEY THAN THEY GIVE). They can either do this buy agreeing to this loan package with restrictions where they have a chance of getting paid back or just sticking it to GM & Ford, instead giving Michigan, Ohio, and others a blank check for $25 billion which they won't get any back.

[Anonymous Person]

The big 3 have been in trouble for a long time. To use this as an excuse now to pour tax payer money down a black hole is ridiculous.

Time for the CEOs and the UAW to live in the real world where the rest of us live.

2 weeks severance (if that), buy your own health care, get in the unemployment line, and plan and save for your own retirement.

Why should the tax payers support you? Those clinging to their unrealistic perks that have drained the sow, are now trying to slough off their perks on the taxpayer backs.

If you can't make a product at a profit, why should we help you? We're hurting also.

Other employees at other car makers opted NOT to unionize, and they aren't showing up with a tin cup in their hands.

Why should we pay for what we, as taxpayers, don't even receive?

That is insane. Get real.

The Armageddon talk by the unions is just more scare tactics and bullying. Typical union behavior. If you don't give us what we want, the world will collapse.

The nation is strong. We didn't fall down and die when Bethlehem Steel went down. We will not collapse because 3 languishing auto makers go down. (And frankly, some semblance of the companies would survive, just not what THEY want.)

They would just lose their cushy perks in a bankruptcy as unsecured creditors. The CEOs would find that they would not receive their perks and bonuses in a bankruptcy. (Why do they get a bonus anyway when a company is failing?) Who was in charge of that stupidity?

The apocalyptic talk by those who will lose unrealistic perks need to get real. They over estimate their importance.

Go away, reorg in a bankruptcy and get real. Or just go away. The nation will survive without you.

But stop asking the tax payers to support that which we do not even have. The CEOs and the UAW killed their corporations. You made your own beds.

Now get in the unemployment line with the rest of us. Live in the real world with the rest of us.

Lesson learned.

[i. blain]

The guy writing this article is a dinosaur. He thinks nothing has changed at the big three in the past thirty years. First of all, our quality has been as good as the Japanese for years. All auto factories are highly automated and half of all hourly workers are skilled tradesmen to maintain all of that automation. The auto companies build as many cars now as thirty years ago with 1/10 as many workers. As far as building huge suv's, that's what the people wanted. This is a libertarian publication, do you want to tell them what they are allowed to drive?

What hurt the auto companies was the one two punch of suddenly higher gasoline prices and the collapse of the housing bubble. Middle class people can't afford to spend 150.00 a week to drive back and forth to work so they stopped buying suv's. Then the recession hit and many decided that now was not a good time to buy a new car. Both of these bubbles were created or aided by or government. Notice that banking ceo's have not been hauled before the tv cameras. Maybe since this crisis was created by Washington, they can help clean it up.

[i. blain]

Another point to remember is, most of GM's losses this year were at GMAC. they had huge losses in home mortgages and writedowns on the residual value of leases on suv's. Both of these problems have nothing to do with building auto's or unions. How about treating GMAC like a bank and bailing it out?

[David E. Shellenberger]

I agree with Ms. Dalmia's excellent article.

I like the dinosaur analogy, but is it fair to those creatures? After all, they used their brains (albeit small); they coped well in their environment, lasting 165 million years; they were the victims of meteors, not mismanagement; and they never demanded government bailouts. Perhaps Detroit could have learned a thing or two from them.

If the bailout occurs, legislation should prohibit renaming the Taurus the Brontosaurus--it wouldn't be fair to the dinosaurs!

[Anonymous Person]

Other auto makers that are not unionized are not showing up with a tin cup.

Other automakers are capable of shifting a production line within hours. In Detroit, it takes weeks. And the UAW does not allow job crossovers, so employees stand idle.

There are so many things wrong with Detroit, that there isn't any reason to bail them out.

And those that are screaming the loudest against a bankruptcy are those that would stand to lose their perks.

Employees would be reallocated, and some plants would probably be shut down (trimming and realigning assets. That is a GOOD thing.)

They could come out of a bankruptcy leaner and stronger.

A bankruptcy would help them.

But take notice, those barking the loudest against it are those who have ridiculous perks which would be curtailed.

They should have filed before. They can file now on a prepackaged bankruptcy on a rocket docket.

The insane reason the UAW keeps giving that no one would buy a car from a company that has filed bankruptcy is ridiculous. They are losing market share already.

A bail out would only postpone the inevitable. And it would take our tax money down the drain with them.

They have absolutely no reason whatsoever not to do it.

Bottom line: If those people who ran the company into the ground are not willing to do what it takes to save it, then frankly........

Why should we?

Seriously. Why should we?

[Fred Evans]

Why are anti-big business politicians so willing to spend billions to bail out the automobile companies? It's the best way to gain political control over the economy. With the bailout comes new management (hired at less than "obscene" salaries) and a green product line. And if the new products don't sell? Well they will because it is the "right" thing.

The courageous thing for the Big Three CEOs to do would be to say thanks but not thanks. Oh, I almost forgot. Courage, especially of the political variety, is less abundant than operating capital in the US auto industry.