Over at the Corner, all sorts of gruesome numbers regarding the woes of the Big Three, and the question I have to keep asking is why bail them out? I really do not understand how sending tens of billions on top of the 25 billion in loans to companies that have hundreds of billions od debt and could be bought for less than ten billion is a good idea or one that will work. Furthermore, why are companies that are losing billions and have even more in debt worth anything at all? Is the value of the company only the hard assets they hold? Would you not be obligated to purchase their debts when you purchase their assets?
Again, you are dealing with a moron when you try to answer these questions.
Doug H. (Comrade Fausto no more)
Jobs, jobs, and – oh yeah – jobs.
Incertus
The short answer, as I understand it, is that it would wind up being more expensive for the federal government to let them fail than it would be to bail them out, when you factor in the hit that our already fluttering economy would take. It seems to be a choice between a flaming bag of dog shit or being forced to listen to Jonah Goldberg read Liberal Fascism on an endless loop.
PaulW
Jobs.
One company failing apparently is going to cause a house-of-cards effect where the entire auto industry will collapse. Which is sad, scary and screwy, but for now it’s big and bad enough to make enough people scream for that bailout plan.
The trick is, the bailout has to come with guarantees: one, that we’re gonna need to restructure the finances so that this can’t happen again, and two, that jobs will be protected across the board.
Michael D.
Waiting for TZ to stop by to tell you what a fucking blithering idiot you are for writing this post! How dare you!?
Laura W
I was just going to remind you that there are 135 responses to this question on Michael D’s post of Sat. morn. However, too, being a moron, also, on this subject, I am not entirely sure they address your post of this morning. Stuff may have changed significantly in the last 48 hours.
Ha.
crack
Go read Krugman from yesterday. He has a link to Cohn from a few days ago.
It boils down to something Obama mentioned in the 60 minutes interview. Now is not the time to risk putting that many people out of work.
MBunge
Krugman basically spelled it out on "This Week with George Snufalupagus". Normally, just let GM go into Chapter 11 and reorganize itself. But with the credit markets the way they are, there’s a very good chance GM won’t be able to get the money to keep going while in Chapter 11. That means it’s Chapter 7 and liquidation and a few million jobs disappear almost overnight while we’re in the worse economic crisis in 3 or 4 generations.
Like the financial bailout, doing something may be terrible but not doing something could be the end of the world.
Mike
Steve H.
The most common argument i’ve heard for propping these companies up is the same one used for the 700 billion package- doing nothing will have worse economic consequences than spending X billions of dollars to bail them out. specifically, thousands could lose their jobs, the states of ohio, michigan and (i believe) indiana would take crippling hits, etc.
i’m as much of a moron about this as you, but what i mentioned above seemed to be the most common arguments i’ve read in favor of bailing them out.
TheFountainHead
They can have a bailout when they roll out a car that gets 50mpg. I call it the "Show your work" strategy.
forty2
My two cents
I’d rather bail out GM than AIG.
Justin
Millions of jobs in a time when we can’t absorb the loss of millions of jobs. The industry is shifting into hybrids and electric as well. Why shoot 20% of our retail sales in the head and lose millions of jobs when they’re finally on the road to doing what they’re supposed to do?
If we can’t give 3% of the bailout money being wasted by the banks to the American automotive industry to preserve real jobs then we’re idiots.
Foxhunter
@Michael D.:
Heh. That’s the first item that sprang to mind when I read this post, MD.
ACR
It looks like the folks in DC are hell-bent to give the stimulus package another try seeing as the first one didn’t have any real effect.
This time it’s the car industry.
While the sanity of blowing cash around and running the national debt up even further is questionable; it seems inevitable – so this time let’s target unemployment, create AMERICAN jobs and pump up the economy all at one time.
Consider the following:
Manufacturing costs of motor vehicles are 65% labor (i.e.: W-2 income), that’s not all direct but due to suppliers. GM alone has over 1300 suppliers. (That’s a lot of jobs!)
1 in 10 Americans makes all or part of their income due to the automobile industry.
Money turns over 5 times in a year.
Thus a vehicle with a manufacturing cost of 20K produces 13,500 in W-2 income which in turn becomes a total of 65K in 12 months due to the 5 turnovers.
(This isn’t magic, it’s simply how the economy works.)
Our domestic car makers are saddled with legacy costs, most of which will reduce dramatically in 2010 due to contract changes. They need to survive to get there.
Our own over-zealous government with a virtual alphabet soup of regulatory agencies has been no help either.
Foreign competitors have worked off-shore collectively to meet various US gov’t. imposed emission and safety standards, thus dramatically reducing those R&D costs. American car companies are prohibited from that by our FTC.
Make no mistake; it’s no surprise that once again government has been a major part of the problem.
Here’s the solution.
Instead of either shipping cases of cash off to car makers; or sending us all another check:
Send out a voucher for say $1,000 good on a motor vehicle for the percentage of the vehicle that’s domestic. (Civic = 70% Ford Explorer=80%)
Let those not interested in a new car sell or give away their vouchers (Ebay would be loaded with them in no time flat) and those that are so inclined can use as many as they can get their hands on up to the full MSRP of the vehicle.
This would bail out the car industry without giving them a dime directly
Further it would reduce the overall age of the nation’s cars which would in turn;
increase overall fuel economy & decrease pollution.
Strengthen the dollar!
Since vehicles with a higher domestic content would be moving better this would reduce our imports, strengthening our dollar which would in turn further reduce what we pay for anything imported …like gas!
Jobs
Instead of simply bailing out a few big companies, this would cause such a run that it would create employment throughout the industry affecting over 1300 suppliers and their workers.
That would give the economy good swift kick right where it needs one!
Pays for itself!
Since money turns over 5 times, and the vouchers are only good for the domestic content of the vehicle, every dime would be spent in the United States creating taxable income.
What is the income tax on 65,000 anyway?
(Remember? 20K manufacturing cost = $13,500 W-2 income x 5 = $65,000)
Another Stimulus Package?
I’m sure you’ll agree that this makes more sense than simply sending out checks; many of which will be used to buy new flat screen TV’s usually made in Malaysia or some such place.
Tymannosourus
In for a penny, in for a pound.
Napoleon
The answer is no for this question unless the asset in question is pledged as security for a loan, in which event you can not get clear title unless you pay off the loan or make a deal with the lender. GM almost certainly owns almost all of its assets outright, so this should not be an issue for them.
TheFountainHead
But they’re not. And they’ve had a decade or more of history of being anti-progress on this front. This is like saying, "Let’s bail out the Japanese whaling industry because they’ve killed all the whales in the northern Pacific and it has resulted in them finally not killing all the whales."
Brian J
I don’t know if delaying the inevitable is really a good idea, but since these companies going under would affect a lot of other people in a lot of other manufacturing industries and so forth, it might be worth doing what they can to avoid a few million people being put out of work. If this process involves spending money to help the viable automakers purchase the profitable parts, then perhaps we should do that. Or if it’s a matter of taking the legacy costs off their books, maybe that’s the solution.
I don’t really know, because I’m not sure whether the problem is from the supply side or the demand side. I’m not opposed to sending these companies money, to either help avoid catastrophe until the pain is easier to deal with or to help them get back on their feet. I’m just not sure what to do. I certainly don’t envy Obama, who is walking into this clusterfuck of a problem as soon as he takes office.
Punchy
Mixing American and British currency, eh?
John, the reason you bail out the auto industry is to maintain jobs. If you let them fail, the unemployment costs skyrocket. Unemployment bennys, the cost of the 1000s of MORE home going into foreclosure, the political perfect storm disaster of nightly news pics of the homeless, the boarded up factories, and rising crime statistics would just crush the Obama Admin (feels weird typing that).
Plus, when you realize they gave $150 billion to AIG in less than 3 months, why not $25 bill to all three automakers?
burnspbesq
@MBunge:
Doesn’t that argue for letting the Fed provide the debtor-in-possession financing, as and when needed, only in amounts that can be shown to be necessary, with a tight set of covenants so that the $ can only be used for working capital, and with administrative priority (which means we the people get paid back first)? As opposed to just handing Rick Wagoner the keys to the Treasury?
MH
It should be noted that when you read the Corner, you are dealing with morons.
cgp
I agree with ACR, and he lays out the case much better than I could for doing _something_, and doing something better than simply handing them cash.
I’ve tried to make the argument that GM really, really complains vociferously about their health care costs, which, in Japan, are subsidized (in addition to other costs being subsidized) (GM’s health care program costs 5 billion dollars a year)
So, pick up that cost for them. I don’t care how, get someone a lot, lot smarter than me, and figure out to best provide healthcare for Americans. It will essentially be, the beginning of nationalization of healthcare, provided to keep America competitive!
One warning: Don’t just hand a check to private HMO’s, provide some boundaries and rules when you go to deal with them. (which you will have to, because this needs to get done too soon)
El Cruzado
The only thing I’d add to the debate is that I’d rather bail out the automakers than the banks. At least the automakers produce something physical. The banks, just play games with money.
The Grand Panjandrum
@TheFountainHead:
I found the 60 Minutes’ Obama interview interesting and a somewhat similar idea was expressed by the President-Elect.
(My emphasis added)
Let see how Obama handles this one, because I think this could be his first test of leadership.
Shinobi
There were a couple of interesting posts on this over at Obsidian Wings.
IMHO The problem with Detroit is that for the last 30 years they have been looking at the short term. They’ve been going for short term margins over long term stability. And now, we can let them fail and they can take half the midwest with them, or we can bail them out. (again)
My question is, are they going to keep doing what they have been doing? I get that they’ve "overhauled their management." But are they going to look at their product line? At the long term feasibility? At where the American Automobile is going to go over the next 100 years?
They should be the ones with their eye on the future. They should be the ones telling us what we’re going to be driving in 2108. (Just a hint guys, it wont run on gas.) They need to innovate, to find solutions, (and by solutions I do not mean where can they fit another cupholder.)
If the bailout is going to give them the breathing space they need to do that, then i’m all for it. If it’s just another excuse to keep a dinosaur alive, then maybe the american public should buy them out or something?
kay
Stop calling it a bail out. Call it a bridge loan, because that’s what it is. I know I’ll get called on "semantics" or spin, but that’s what they’re asking for: a bridge loan. They can’t reorganize under Chapter 11 and keep making cars, because they can’t get operating cash. Manufacturers shouldn’t be compared to service industries. Manufacturers have to buy parts.
They were allocated 25 billion to retool. They want an additional 25 billion out of the 700 billion already earmarked (for propping up financial markets). It makes no sense to me why 700 billion is allocated to prop up financial markets, and all of a sudden that allocation is set in stone, and car makers can’t carve 25 billion out of it. Why not? A bridge loan to automakers is a perfectly reasonable way to prop up "markets", something WE’RE DOING ANYWAY.
Congress can condition that bridge loan on nearly any terms they choose, and they should. I’d condition it on replacing management and board members, among other things. We’ve done that before, and it worked.
ChrisS
The auto-industry has a lot wrong with it, but it is a very large part of the American and world economy. The hippie in me says to hell with them, our dependence on motor vehicles is the root cause of a number of environmental problems from urban sprawl to global climate change to ecosystem destruction. The pragmatist in me isn’t really enamored with propping up a failing business model and rewarding mis-management. Another part of me says that losing a million manufacturing jobs in a country that has already lost most of its manufacturing jobs would be disastrous to the economy.
I’m undecided, but I think that America needs to have a come to jesus meeting about the costs associated with our continuing dependence on the motor vehicle and realize that the costs we’ve been shirking will need to be reckoned with.
I don’t envy Obama, either.
Zifnab
It’s also worth noting that while the auto industry has been in this shit hole before – back in the 80s? – they recovered and paid back the loans with interest. So giving $25 billion (or $50 billion or whatever the number is) to GM, Ford, and Chrysler doesn’t look as risky as pissing another $50 billion down the AIG money hole.
At this point, the car industry might be little more than a massive WPA project, but that’s still way better than the alternative. Keeping people employed is the bottom line.
On a side note, the management of these companies has been terrible, but that doesn’t mean the business is fundamentally flawed. GM may make cars people don’t want to buy, but they still make cars. The cars still run. Simply tossing the entire business on the scrap heap is a waste of billions of dollars in business capital.
While I won’t be sorry to see the Big 3 shrivel up and die in the near future, this is neither the time nor the place for this kind of collapse. We’ve got to prop them up now – temporarily – until we can get over the hump.
cgp
MH: Unfortunately, I agree with the corner here. I live in Detroit, and I have worked at their engineering facility, enough to hear middle management declaring — gee, everything we make is great!
We’ve seen them shipping jobs overseas in order to make themselves "efficient", and "competitive", when in reality, it’s just cost-cutting. And what do they do with the extra money? Do they reinvest it into doing things differently? Do they use the money to cull the ridiculous number of brands and products they sell?
I’m not sure that GM is turning it around anytime soon, in fact I can pretty much guarantee they won’t. But if they aren’t allowed to continue failing at the slow rate they are, and are allowed to fail in spectacular fashion (which, perhaps is inevitable at some point anyway) — right at this moment, we’re going to see even greater loss in asset value for these financial companies which depend on them. So, a lot more foreclosures… more pain.
Cathy W
The auto companies are, to some extent, the makers of their own problems here – but a lot of their present issues are related to the overall economic crisis. For October, GM sales were down 45% year-over-year, but sales were down drastically across the board – yes, including Honda and Toyota.
Basically, people are not buying cars today that they might have bought a year ago, both because of the overall drop in consumer confidence, and because it’s more difficult to finance the purchase. This situation is (one hopes) temporary – but that won’t matter if GM, Ford, and Chrysler aren’t here to sell cars when the economy picks up again.
They’ve already taken steps to address their legacy costs (an advantage Honda and Toyota have over the Big 3) – but those won’t kick in until 2010. If the companies are still here, they’ll be able to benefit dramatically from those changes – but they’ve got to survive that long.
Quality is up. The unions have already made concessions. This is basically a question of helping the one major manufacturing industry we have left get through a crisis not of their own making.
…and, oh, yeah, hundreds of thousands of living-wage jobs. I’d rather have my tax money go to keeping a guy who works for a living on the job than making sure the Wall Street firms have their bonus pools fully funded this year…
Comrade Stuck
I still think it’s just a wasted effort. The big three auto makers account for something like 13 percent of the jobs in this country, and the very best blue collar ones. Yes, they’ve been mismanaged like so many other companies, using a flawed model that relies too much on short term profit. Most of our industries are shot thru with this lack of long term thinking. But that’s not the only problem. The sickest industry (pun intended) of all, is the Health Care one and it is so entrenched in fail as an efficient business that millions of people in the richest country ever to exist, end up dying for lack of care. On this I am a dreary pessimist. In the end, applying costly and limited bandaids to prop the system up will not work, at least for very long. More and more of our models of business in this country are going to crash hard. And all, or most of us, are going to have to learn to live on Arugula and old shoestrings before it’s over. It will have to be rebuilt from the ground up with some sanity this time.
Ratufa
This is probably the best argument for the bailout that I’ve read. I not sure I’m convinced, especially about the part about how the culture in Detroit has changed and all they need is some money, now. But, at least it’s an argument.
http://www.tnr.com/politics/story.html?id=a4893b49-36df-4784-9859-2dfa3a3211bf
And, here is an opposing opinion:
http://theamericanscene.com/2008/11/17/detroit-same-old-same-old
kay
@Zifnab:
That’s another thing. Why doesn’t anyone ever talk about the poor management of the insurance titans and financial industry heads?
If they bought and sold all that toxic debt, and they did, they’re poor managers, right?
The critics of auto industry management are justified. What baffles me is why that analysis doesn’t apply to the idiots on Wall Street who continued to buy into a crazy and unsustainable scheme when they had to KNOW it was going to fail, eventually.
Semanticleo
Just handing them money is throwing it down the shitter.
If a cash infusion is going to help this patient, it must be used for a heart and soul transplant.
In WWII the Auto Industry had to re-tool to manufacture war machines. They did it quickly and on the head of a pin.
We can’t compete with foreign manufacturers because of
the 70 dollar per hour labor cost (UAW contracts) compared to
47 dollars for Toyota Domestic Plants.
The Big Three have failed the test of innovation, the hallmark of American Ingenuity. If they are gonna build cars, the UAW
has to be willing to look at the National Average for Wage and benefits per hour, $31.
Then, they have to limit production of cars to those with
alternative energy capabilities. Stop fuckin’ buildin’ Hummers……………………………………………………………
Most of the plant production should be shifted to Photovoltaic Cells to reduce the unit cost so Joe Lunchbucket or small business can afford it. Battery Tech needs a Manhattan Project to bring energy storage to a higher State of the Art.
Something similar was done in the 50’s and 60’s wherein the new and expensive transistor was farmed out to Japan to mass produce and lower the cost.
We don’ nee’ no fuckin’ outsourcin’. we need to keep people and industries working. we need cheap energy.
start the fuckin’ thing.
renegademom3
GM be connected to the
assembly line
the assembly line connected to the
truckers
the truckers connected to the
dealership
the dealership connected to the
auto parts
the auto parts connected to the
pep boys
the pep boys connected to the
salvage
the salvage connected to the
gas station……
and all of these PEOPLE lose jobs.
i don’t give a shit about GM itself. I give a shit about actual people.
I still don’t know what the right decision is.
Klaus
So why precisely shouldn’t the auto makers simply pocket the gov loans to pay back their own debts and deficits, while downsizing production and laying off people, bank sector style? Don’t trust the Bush admin to put any demands on a bailout, because that would be anti free market, you know.
lutton
When one considers Powerline gloating about the possible "extinction" of the UAW (and big labor in general), I suspect that saving the automakers is the right side of the arguement to be on.
http://www.memeorandum.com/081117/p17#a081117p17
Last week Atrios noted that we – as a nation – are bending over backward to save the ‘fake’ economy, but doing little to rescue the real one.
http://www.eschatonblog.com/2008_11_09_archive.html#5001331522817963908
Basically, my attitude is if the Corner and Powerline are one side of an issue, I’m pretty likely to be on the other…
ChrisS
As for a dramatic tech shift, I’m not opmistic on that front and I think that America should strive to be more sustainable first, which involves inherent costs savings through efficiency and energy conservation. Then we can start shooting for fancy renewable energy and battery technologies for something as wasteful as propelling a two-ton vehicle to carry a 200 lb person 16 miles daily.
Cars cost a lot and will likely only cost more in the future when pipedreams fail to materialize. I try not to bet against nature and physics.
crack
Check out emptywheel. She’s right, if Chap 7 happens there is only one place with the money and market position to buy any GM assetts, China.
I notice none of the pro-fail crowd is mentioning the complicity of dealerships. They are a bigger drain on the US automakers than the UAW is. They have more power, and more regulatory support. Dealerships are the biggest drag on US brands at this point in time.
Fwiffo
It seems to me, that if you’re an industry that actually generates actual stuff (e.g. planes, trains, automobiles), you’re a lot more useful than an industry that generates only paperwork. Everyone complains about the efficiency of a company like GM, and with good reason. At the end of the day though, you’re sticking $25 billion in one end, and cars pop out the other. If you’re bailing out AIG or whoever, you’re stuffing a few hundred billion in one end, and what comes out the other end? Insurance or loans or bonds or other paperwork, which in aggregate just sucks more money in from the other direction like an undertow eroding a beach.
It’s hard for me to see the value of institutions that create "wealth" by pushing paper around and holding meetings and auctions to decide how much the paper is worth. Sure, they loan "money" to other institutions that actually do stuff, or maybe even create stuff, but why give money to them when you could give it directly to the actual makers of stuff or doers of stuff?
Objective Scrutator
Good riddance, I say. Big Labor does nothing except obstruct the economy. If it weren’t for Big Labor, companies could have increased profits and executive benefits, and they wouldn’t have to worry so much about managing their budget.
The government has shown, throughout history, to be an utterly incompetent manager of the economy, and the most renowned Big Government defender is that partisan Keynesian hack Paul Krugman. If the Big Three are going to save themselves, they will have to do so on their own accord, and hack off the parasitic union workers in order to do so.
Brian J
I was watching the repeat of "Meet the Press" last night, where Carl Levin made the point that automakers in other countries are being given support from their governments. If that’s true, then perhaps it’s a sign that the problems the automakers are facing aren’t as much their own fault as they are a result of the times we are in. Not that they can keep doing what they’re doing, but perhaps a case can be made that they were turning things around and support is justified. Normally, I’d say that this shouldn’t matter, but since they appear so integral to the economy, an exception might need to be made.
Brian J
Elaborate, if you will…
Lee
I still say make then file Chapt 11. IF it fails, then give them the bailout in order to prevent a Chapt 7. Just because it might be hard to prevent a Chapt 11 from going to a Chapt 7, does not mean it can’t be done.
Tim Fuller
The government didn’t force these idiot US automakers into pushing the big truck/suv frenzy when it was patently obvious as far back as 1970’s that gas guzzlers were the wrong direction for Detroit.
Loans to auto industry with forced fleet mileage requirements and HEAVY taxes for any vehicle not at the maximum efficiency that science will allow.
Hybrid Tahoe….WTF??? Idiots.
Enjoy.
Cain
Now tha’s an interesting idea and can move the singple payer healthcare forward at the same time by moving UAW workers into the same healthcare plan that congress gets (or some reasonable approximation) in order to reduce the impact.
My worry is that if we let the big three fail, what replaces it? I don’t see anything we can jump to at least in Detroit that replaces manufacturing jobs.
Secondly, if we give bailouts, it will probably require getting new, proven management board into these companies who can think out of the box and laying off of mid tier management with bad managerial records. They should be going into a whole "throw the bums out" strategy. We might as well start changing corporate culture starting with these guys.
cain
gopher2b
The misconception here is that if we bail out the auto industry, it will save it. It won’t. It will delay its bankruptcy by 5 years. I think Obama’s point (based on last night’s 60 Minutes interview) is that now is not the time to let them go bankrupt. He may have point, but, I prefer to just rip the band-aid off. If Obama comes out and says that one of the "reorganization" principles that comes out of the bailout is that the UAW agrees to cut its wages by 20-30% then we’re talking. Otherwise, everything else is just marketing to sell the bailout (requiring them to make more hybrids, cutting CEO compensation, etc….all reasonable and good, but that is not why the companies are failing)
Famous Monkey
There is a lot more at stake here than GM. The entire distribution chain — steel, rubber, spark plugs, oil filters, whatever — are all going to be deeply affected by their closure.
I happen to believe that if you let them go under, there will be a massive void left in the economy which will likely be picked up by small entrepreneurs who will create the next generation of automobiles. The pain will be real, but the long-term consequences would probably benefit America as a whole. I could even see Google creating a gCar and Mac developing and iMobile or whatever. Of course, Bill Gates would create the CarVista, which would slow down dramatically every time you add something new to it and crash every six months, but hey.
Comrade Stuck
You make a good point, and I agree that if we’re going to subsidize something it should be a manufacturer of an arguably vital industry. Especially one that furnishes 13% of all middle class jobs in this country. But at some point, we taxpayers are going to need to demand something in return, and that is a vast overhaul of how they do business. I am not at all against helping out the Big 3 auto giants. I am against throwing good money after bad, without something in return. And that something is concrete action, forced, if need be, to run an efficient business. And the problem with the financial sector going down, is all the investment of ordinary citizens goes down with them. It’s fucked any way you look at it and more and more gov involvement in private business is going to be necessary, all brought about by right wing thinking and ideology. They should change the name of the GOP to The Party of Ironic Disaster.
zzyzx
I’m pretty pissed about this whole thing because I was curious as to how the Volt would play out. It looks like a car I would really want and I was rooting for it.
ChrisS
@40
Peak oil for one, despite the little spike downward in oil prices, production hasn’t ticked up and oil finds are increasingly smaller and/or more costly to extract (and India and China are discovering the western way of life, including cars). The second is that despite predictions, hopes, and prayers, liquid hydrocarbons remain the cheapest, most efficient, and most energy-dense natural fuels we have or will have. Solar is nice, but it’s not dense and not easily stored or transportable. Uranium/nuclear has some nasty costs on the waste stream (as well as security issues). Bio-diesel is fine as long as it’s a small part of the overall energy budget.
Realistically, barring an incredible technological breakthrough, providing enough energy, cheaply, to power the automobile as the means for mass transportation is going to be costly. Is it worth it to prop up an industry that likely requires an unsustainable future? I think a reinvestment in America’s infrastructure and plan around a less energy intensive future is the better choice.
Semanticleo
"Good riddance, I say. Big Labor does nothing except obstruct the economy"
I hope you mean just the corrupt institution and not the collective bargaining concept. Remember why Unions were created in the first place. Don’t be complacent, the Greedheads (Conservatives) shall return……………………
Zifnab
@kay:
When the original bailout for AIG – and before that for Bear Sterns – was proposed, there was some talk about how management had screwed the pooch and there were questions about throwing good money after bad.
Ultimately, people determined that letting the nation’s biggest insurance company default would cause more harm than good. AIG was "too big to fail". I would argue that if AIG is too big to fail, then the Big 3 are WAY too big to fail.
But, at the end of the day, that’s why we have anti-trust provisions in our legal system. Letting one company monopolize business isn’t just bad because it destroys competition, it’s bad because if the single business goes belly up you suddenly have no other source of that consumer good.
Imagine if AT&T were to go under tomorrow. How many people would lose telephone coverage. Imagine if Metro were to go bankrupt. Who would running busing for large parts of the US? If Tyson went bankrupt tomorrow, where would you buy chicken? If the oil companies all filed Chapter 7, where would you buy gas?
This is the ultimate flaw in a corporate infrastructure. How do you let a corporation that services half the country suddenly fail? It’s the equivalent of a natural disaster or a political coup. Suddenly, you have this massive vacuum of authority and demand massively outgrows supply.
If the Big 3 were to go belly up, what do you think would happen to the foreign car dealerships? Do you think they’d just stand by while it happened, or do you think they’d start reworking their business models to adept to a market with virtually no competition? I have to put my name on a waiting list just to get to see a Prius. And I’ve got to pay asking price. American cars don’t look that bad by comparison. Once American cars don’t exist, why should foreign car dealers compete against a lack of competition?
gopher2b
It’s not that simple. If GM goes bankrupt and cannot get DIP ("debtor in possession") financing then its vendors (part manufacturers) will go belly up too. By the time the government stepped in, a couple of million people would have been out of work for weeks if not months. I’m not advocating for the bailout here-I’m against it. It’s just the whole thing is FUBAR.
Semanticleo
"The government didn’t force these idiot US automakers into pushing the big truck/suv frenzy when it was patently obvious as far back as 1970’s that gas guzzlers were the wrong direction for Detroit."
When you are drowning, you have little time to think about the direction of your career path. They have been behind the competitive 8-Ball for nearly 40 years.
They were reacting to what they perceive the customer wants.
I suspect, just as the electorate gets the government they deserve, they get the car they want. ("they’, being the average citizen)
Comrade Stuck
I said the Auto Industry accounts for 13 percent of all jobs in America. I meant to say they account for 13 million auto industry related jobs.
terry chay
One should remember that when we blame the big three for short term thinking, we are partially responsible for incentivizing them to act this way. The same holds true for a lot more industries than the auto industry (financial, health care, etc.)
If the big three were the only companies out there that had this horrible prioritization then I’m all for letting them fail, but it seems that we set conditions such that this would happen and if we’re going to be bailing out one (financial), we should think about the others and resolve to fix the rules that cause corporations to act in this manner.
Mr Furious
Will the failure to deliver this money actually result in one or more of these dinosaurs going down? I don’t know. But as someone who lived the last seven years in southeastern Michigan, I can tell you with certainty and seriousness that if one of them does, it will be akin to dropping a nuclear bomb on that area—everything from mid-Ohio north will be wiped out.
comrade rawshark
If it wasn’t for the unions GM would have cornered the market on alt fuel vehicles by now. Unions may have had their day in the sun but they are so often run by corrupt assholes that we should just get rid of them.
Mr Furious
If the Big 3 were to go belly up, what do you think would happen to the foreign car dealerships? Do you think they’d just stand by while it happened, or do you think they’d start reworking their business models to adept to a market with virtually no competition? I have to put my name on a waiting list just to get to see a Prius. And I’ve got to pay asking price. American cars don’t look that bad by comparison. Once American cars don’t exist, why should foreign car dealers compete against a lack of competition?
Excellent point I haven’t seen brought up anywhere. Many anti-bailout types assume GM is being killed by the better, cheaper import…perhaps true. But there’s no fucking way that import will be cheaper if it’s the only car in town.
Calouste
@Punchy:
Being ignorant of British currency, eh?
Brian J
How can you be so sure?
Mr Furious
If it wasn’t for the unions GM would have cornered the market on alt fuel vehicles by now. Unions may have had their day in the sun but they are so often run by corrupt assholes that we should just get rid of them.
[spits coffee on monitor]
Really? It was the unions that forced GM to develop a civilian version—no, a whole line—of a military vehicle instead of working on a hybrid powertrain? It was the unions that made GM invest untold hundreds of millions on the last generation of full-size SUVs that will be rusting away on dealer lots?
I must’ve missed that little get together where the mobbed-up ghost of Jimmy Hoffa forced Harley Earl and Henry Ford not to look past next quarter.
TheHatOnMyCat
Comment number one pretty much covers it.
And, then there’s that Google thing, which will lead you to all manner of discussions on the subject, one of which I posted to the Michael thread on this same subject over the weekend. I mean, you can read up on it, or you can just keep asking the question as if nobody had ever thought of it before. Whatever.
As for Michael’s comment:
Um, John is not a fucking blithering idiot. Michael, on the other hand, is. Not exactly a viewpoint that is unique to me, by the way.
Karl Zimmerman
Coming out of the labor movement (though I haven’t been a UAW member for some time), I have a bit of a different outlook.
As others have said, if we let any of the big three die, we essentially lose the entire U.S. auto industry. Due to the credit crisis, there isn’t enough money out there for Chapter 11, only liquidation.
Once one company liquidates, it will filter down through the parts suppliers. Some suppliers deal with only one company, and will essentially have to declare bankruptcy simultaneously. Others have divided production between the big three and even some "imports." These may be able to limp along for a few weeks, but most will have to liquidate as well. This will mean that the remaining "big two" will have to close up shop quickly (Ford could possibly survive if it wasn’t for this).
So, within a few months, none of the U.S. auto companies are left, and millions of workers, union and non-union, who made parts for the big three. Production of Japanese and German cars in the U.S. will even be difficult, as many of their suppliers will also be gone. The price of cars will likely be exceedingly high for several years, as roughly half the supply of cars will have vanished from the market.
Oh, and the UAW, whatever their other flaws as a union, has already bent over backwards in regards to concessions. Regardless, mismanagement got the companies into the situation they are now, not high labor costs (GE in Erie (which makes locomotives) still pays its unionized workers $27.00 per hour, and makes scads of money). If there’s anything about a bailout I view with trepidation, it’s letting the same fucking management stay in charge of these companies.
Brian J
Let’s not forget Ford’s decision to go after the gay population by advertising in gay-friendly venues. If anybody is to blame for the failures of the domestic auto industry, it’s the gays.
Dennis - SGMM
How many times does the Rust Belt have to be fucked over before it starts looking like a third world country? If the Big Three are allowed to go under then I think that we’ll find out. Even with a bailout, the Big Three may go under eventually. I’m willing to gamble the cost of four months in Iraq that the automakers can recover. If nothing else, it will assure that a few million more people don’t lose their jobs at the same time that millions of others are losing their jobs.
TheHatOnMyCat
Or as Barack Obama put it in yesterday’s 60 Minutes interview:
Of course, maybe, just maybe, it’s Barack who is the complete fucking idiot, and Michael D who is the smart one.
I mean, that’s a good possibility, don’t you all think?
Hands?
Brian J
Why all the hate for Michael D.?
Dennis - SGMM
One more point, it’s cynical and partisan. Aside from the economic damage, how happy will the voters in the Rust Belt be with the party that allows the Big Three to go under?
stickler
Wow. Some deep insights here.
Look, people, Detroit made SUVs because SUVs were privileged under the tax code (especially after 2002), and because they were classified differently under the CAFE standards. In the ’90s, Americans wanted big cars, but fuel economy regulations made it hard to build Buick Roadmasters without paying fines under CAFE. Presto-bingo, Detroit introduced the Canyonero!
In Europe and Asia, governments required different things (efficiency, primarily, and not so much safety), so GM and Ford in Europe did what they were told. But Fords that can get 65mpg don’t meet US safety or emissions standards (yet), without massive investment. Which Ford and GM are starting to make, but which they can’t really afford in November, 2008’s awful sales climate.
In other news:
Yeah — those small entrepreneurs? Their names are Honda, Toyota, and Daimler-Benz. The world has a surplus of auto manufacturing capacity right now. If GM disappears by New Year’s Day, then its place will be taken by all the other auto manufacturers out there. No way would Steve Jobs be stupid enough to get into the iCar business; Toyota would eat him for lunch.
burnspbesq
FWIW, the winner of the 2009 European Car of the Year award is a GM product (the Opel/Vauxhall Insignia), and the runner-up is a Ford.
Semanticleo
"In the ‘90s, Americans wanted big cars, but fuel economy regulations made it hard to build Buick Roadmasters without paying fines under CAFE. Presto-bingo, Detroit introduced the Canyonero!"
Are you saying people had SUV’s forced upon them in the New Millenium?
The BIGs just found their convenient, Congressional, ‘wink-wink’ loophole and gave the American Consumer what it wanted; The continued fantasy of perennially cheap and abundant oil!!!!
Doug H. (Comrade Fausto no more)
@stickler:
And SAIC.
Sure we could ‘rip the band-aid off’, just don’t come crying to us when the infection sets in and the sore starts looking like Flint or Youngstown.
Fun exercise: The American manufacturing industry craters. Who gets to be the new Gazprom? My money’s on ADM.
Brian J
I’ve heard this before, but can you provide a little more detail?
TheHatOnMyCat
Yes, that’s part of it, and if I am not mistaken, those Fords are diesels, which are practical in Europe, but aren’t favored in this market at all. To say nothing of the considerable price premium we pay for diesel.
Biggest single reason why Americans bought Suburbans all those years? We had cheap gasoline here. Economy and green were laughed at. That’s not the automakers’ fault. For how many years was the Ford F-150 the largest selling vehicle in the US? Twenty? More, I think. The Chevy pickup was right behind it. Everybody wanted big.
Toyota and Honda didn’t want to compete in the truck market. They didn’t want to do frame and rail construction. So they specialized in smaller and lighter vehicles. Now that the US is going to catch up to the world in fuel prices, frame and rail and room for eight plus their gear doesn’t seem like such a good thing. The US automakers did not make America addicted to big cars and cheap gas. America did that to itself. The automakers just responded to the marketplace.
America can have 65 mpg diesel cars when it wants to buy 250k of them a year or more. I don’t know if that day has arrived, I don’t see Honda or Toyota offering one yet. Or Volkswagen or Nissan.
Dennis - SGMM
@burnspbesq:
True, and I was one of the people who wondered why GM and Ford didn’t simply import such cars, at least to bridge them over until such time as they could produce something similar. Part of the answer is in the way the CAFE standards are written: cars of completely foreign manufacture are not included in the parent company’s CAFE average.
jenniebee
Was just talking to the Glorious Husband about this. He had a pretty interesting insight that he probably got from somewhere else, but what the hell, right?
Basically, the first thing to understand is that auto makers are no longer auto manufacturers, they’re better described as auto designers, marketers, and assemblers. A car is made up of six thousand component parts, and auto companies generally outsource the manufacture of those parts. If the supplier for just one of those 6,000 parts were to suddenly disappear, the entire assembly line would come to a halt until another supplier could be found, but that doesn’t happen, so no worries. Some of these suppliers only make parts for one make of car, but most of them have a more diversified customer base.
For example, take TRW. TRW makes component systems for GM – according to Glorious Husband, GM accounts for somewhere around 25% of TRW’s business. But TRW supplies parts to other automakers, too – automakers like Ford, Toyota, and Honda, who have not managed their companies as stupidly and shortsightedly as GM has. Actually, according to its website, TRW "[s]erves all major OEM vehicle manufacturers worldwide and their suppliers"
Let’s say we let GM go, just for shits and giggles. Suddenly, TRW, with 66K employees worldwide, is in trouble. And not only that, but every other supplier to GM is on shaky ground, too. And if just one of them goes, assembly lines for every other car company which buys parts from that supplier, those lines just stop. And the suppliers that were still hanging on, they just lost more business, which means that another couple of them go down, which takes out another couple of assembly lines, which takes out more parts suppliers, until teh dominoes they is all fall down go bust. Gah!
In a boom economy, we wouldn’t have to worry about TRW. They’d get credit and find other customers fast enough that nobody would have to worry about this taking down the automotive industry in its entirety. But this is not a boom, and I personally don’t feel like letting GM’s fall take the Prius down with it.
Linda in Oregon
I lost my job earlier this year, and my husband lost his job last week. After our 401K took a bath, we are in our early 60’s looking at a bleak future. Too young for soc. sec. and medicare, too old to be hired.
Yes. Jobs.
stickler
Semanticleo:
"Forced?" No. But people responded to the advertising, and the automakers responded to the marketplace. And that marketplace was heavily tilted because of government policy (set, admittedly, with some heavy input from Detroit — Hi, Congressman Dingell!). It was, remember, a Republican Congress which responded to 9/11 with a fantastically screwed-up tax law change. That tax law included a virtual subsidy for corporate purchases of vehicles weighing more than 5,300 pounds, if memory serves. And BMW and Mercedes built (and build) SUVs, too, you know.
Dennis - SGMM
@Linda in Oregon:
For what it’s worth, my condolences.
John S.
Volkswagen seems to comes pretty damn close, though. This couple took a Jetta TDI went cross country and averaged nearly 60 mpg on the highway.
I realize that VW actually rates the gas performance of this vehicle MUCH lower than that.
demimondian
@Semanticleo: Hmm.
In point of fact, I drive an SUV which was designed and is assembled by one of the Big Three. It’s also considered one of the ten greenest cars on the American road. (26 MPG on the highway and in the city. I actually get about 29 on the highway.)
Ford also loses beaucoup buxxors on each Hybrid Escape it builds, at least in part due to the licensing fees it pays to Toyota.
Famous Monkey
@stickler:
I wasn’t proposing that Jobs would or should get into the iCar business. It was just an example. There are lots of small auto manufacturers, like Tesla Motors, who are chomping at the bit to enter the US market place, beyond the big and obvious ones. A decade ago Hyundai was a crappy little car from Korea, and is now emerging as a major manufacturer. Not so much with the Yugo of course, but the point I am trying to make is that there are opportunities for small manufacturers as well as big ones.
I am not sure if there is an oversupply of car manufacturers out there, since I don’t have any data to comment on that. But it seems there is a glut of inefficient cars being manufactured, a void which could be filled by a small start-up like Tesla, or big ones like Toytoa.
Dennis - SGMM
@Famous Monkey:
The last newsletter I received from Tesla Motors said that they were postponing development of their sedan so I’m not certain how poised they are to jump into the gap left by the end of any of the Big Three. The Tesla Roadster, their only model, is still priced at around $100K – not exactly a mass-market vehicle.
The Other Steve
I don’t understand the Republicans and why they want to write off the Big Three so casually.
Comrade Ed Drone
For all of those anti-union twits in this thread, how many hours do you work each week? If your answer is "forty" or less, go fuck yourselves. Do away with unions and you are, indeed, fucking yourselves!
The corporations are not benevolent, and will work you to death and sell your body afterward, if they can.* Do not forget this!
Ed
(*) In case you doubt me, some industries which once had company towns not only charged workers to live in company housing, but charged them for sewage plants and then sold their shit for fertilizer! Waste not, want not, I guess.
Deborah
The Fountainhead They can have a bailout when they roll out a car that gets 50mpg. I call it the "Show your work" strategy.
I agree. I don’t imagine it matters–I think MI is too important a state for the Dems, and I get the jobs argument–but after AIG I’m beyond skeptical that they do anything beyond plan a nice spa weekend and discover that they’re missing a lot more money. Two years from now we’ll be back here–if you want to convince me we won’t, I need more than "They’ve really, really learnt their lesson and are doing things differently now" because that’s been the headline about US automakers for 16 years now.
Demimondian Ford also loses beaucoup buxxors on each Hybrid Escape it builds, at least in part due to the licensing fees it pays to Toyota.
This would be because Ford had not developed a hybrid system that worked anywhere remotely as well as the Toyota one, right? It still amazes me that Toyota could look at "more fuel efficient but can still do a long trip" and come up with the pleasurable Prius, and the American companies came up with a series of dead ends that seemed to avoid the question "what if you really had to drive this for your regular car?"
My prius gets around 50 mpg, so I’d imagine that Ford passes the above criterion for bailout, yes–a car that gets 50 mpg that people are willing to buy?
burnspbesq
@Dennis – SGMM:
Well, then, I’d say that rationalizing the CAFE rules should be on page 1 of the Obama administration’s to-do list.
Brian J
I’d like to ask a question to the group: it seems like a lot of people are saying CAFE standards are bad for a lot of reasons. I’m not sure how valid each of these claims are, because while I’ve heard of them before, it’s been a while. Some of the quick reading I’ve done makes it seem like the standards are bad because of loopholes in the law, because of the measurements we use in regards to efficiency, and because of the unintended consequences, like driving more as the fuel economy of each car is better.
It seems like this sort of legislation, designed properly, could be one part of a very broad plan to address efficiency standards and environmental concerns. Is that just wrong for a number of reasons? If so, what are they? I don’t mean to seem so dense, but a lot of what I’m reading seems to freely mix partisan hysteria with some analysis, so I am not sure how trustworthy it is.
RS
I was at a family get together Saturday in one of the Detroit suburbs. Many of us hadn’t seen each other for quite some time, but after hello, there was little small talk, with virtually all conversations immediately centered on this crisis ( on top of the ongoing crisis that is the Michigan economy). As I looked around the hall, I realized that about half the people there, three generations, labor and management (there’s been some spirited discussions over the years, and if there’s a silver lining to this cloud, it’s the ‘coming home’ of some non-UAW members of this essentially blue-collar family who had drifted right over the years ) were employees, retirees, or dependents of the Big 3. A lot of the talk centered on the cuts in personal spending that had already begun, cuts that will effect other peoples jobs- lawn services, hair dressers, concerts, movies, eating out, bowling, etc. I don’t work in the industry, but I got a college education thanks to my dad’s GM paycheck, just as a lot of kids are today. The resort town where I live in northern Michigan, similar to many other communities throughout the state, is wall-to-wall with lakefront cottages, many of them owned by past or current Big 3 employees, and the local economy depends on summer tourism. Neighboring communities have parts suppliers that they depend on.
There should be a shitload of stipulations on this loan (the ones that should have been attached to the financial industry bailout), but the devastation and suffering that would ripple from Detroit, throughout Michigan and the rest of the country if the deal doesn’t get done is incalcuable.
My father had an interesting perspective on it, pointing out that if the government could invest $25B in a project that would create 13M jobs, that would be a wise investment. An insightful comment for a guy who was just a factory worker.
Semanticleo
"It seems like this sort of legislation, designed properly,"
You are right. This issue is too complex and is rife with
misconceptions in nearly every arena.
‘Designed properly’ is devilish in it’s details, but just as
the electorate gets the legislators it deserves, they get the
cars they want.
It’s probably putting the cart before the horse discussing how
to re-vamp an entire industry before we have tightened the noose on all the scumbags we have elected as Foxes guarding the Henhouse.
But we have to shore up this Monolith (Big 3) before anything
more can be done (meaningfully) about legislation.
Push Publicly Financed Campaigns for future elections, but right now we need to keep the ship upright, so those changes can occur.
Fritz
Is anyone delusional enough to believe that $50B will be enough to keep GM, Ford, and Chrysler afloat?
If not, then let’s get some number for how many billions per year is to be the taxpayers’ cost for keeping those companies in business.
Brian J
This is part of the reason I need to limit my time on the Internet. I meant to go outside to rake leaves about an hour ago, before I go to work, and here I am, because I am not remembering nearly as strongly as I would like what I learned about years ago.
But anyway, your first statement seems to be spot on. I mean, if the issue is nearly as uniform in all sorts of circles, like communism not working, then fine. I don’t have a background in engineering, so perhaps this question is just silly because of that, but I wonder, would it make sense to limit the classifications of cars so that there would be no way around the rules and therefore no consequences, like producing bigger cars that use more gas? What about if we make the requirements for bigger cars tougher than for smaller cars? And is increasing fuel economy standards by tough regulation still a good idea if it’s coupled with a gas tax? Maybe the environmentalist in me is just refusing to accept the idea that the regulation is as bad as it seems, but there are some questions I’d like answered. Thankfully, I found a good environmental economics site, which will keep me busy for a while, but I must go rake leaves.
Until later…
sparky
in the tank for the bridge loan(s)–
–jobs
–infrastructure. it is a really really bad idea to let this system fall apart. if you want a bad analogy, how about shutting down the electric plants and dynamiting the transmission grid. that’s what destroying the auto industry will be like, though the effects will take longer to notice. it’s taken the better part of a century to build this infrastructure and if we let it collapse i don’t think we have any understanding of what else will come down along with it.
–as a proportion of the money spent on triage for crappy investments this is pretty damn small. AIG has already spent 4 times this entire amount, and for what, exactly? guaranteeing swaps for banks? guess that money saved Citibank from laying off any more people. oops.
finally, IMO there is too much retributionist thinking here. sure Detroit made a lot of stupid mistakes that have probably cost billions. this makes them unlike, say, Wall Street, which made a lot of stupid mistakes that have so far cost one trillion USD. additionally, another reason this happened is because the american consumer wanted these crappy behemoths. in other words, they were selling what people here were buying. i don’t recall any big demand for efficient vehicles before gas spiked.
nothing wrong with attaching conditions to bridge loans. but seriously, can we stop thinking like a bunch of retributionist-minded GOP twelve-year olds? "who cares if they fail so long as it doesn’t hurt me" is the same kind of myopic self-centered thinking that the GOP has been pushing for 25 years now. more of the same is just going to help the GOP dig the USA’s grave that much faster.
sparky
gahh comment in moderation and formatting is all screwed up.
anyway, shorter me:
jobs
infrastructure shouldn’t be written off
proportionally a small investment
as we are all at fault, at least partially, we should stop acting like a punitive GOP and recognize that we are all in this together.
Punchy
TZ’s a AdRock and MCA fan.
Dennis - SGMM
@Fritz:
It would also help to know how much it will cost the taxpayer if these companies go under and then make an informed decision.
Here’s one thing: 13,000,000 lose their jobs. They collect unemployment for six months at, say, $500/month.
$39,000,000,000
Anyone care to guess how the affected states are going to come up with that kind of money?
Comrade Mary, Would-Be Minion Of Bad Horse
As Steve Balmer would say if he worked in the auto industry, SUPPLIERS SUPPLIERS SUPPLIERS SUPPLIERS.
Also, jobs.
Look, I understand the freaking insane amount of money we’re talking about, and I understand the anger at the executives who fucked up, but the waves of pain that will spread from even one of the Big Three going belly up will be immense. I think Obama’s concept of a bridge loan makes sense. This is not a time to see a shitload of jobs vanish. Craft the legislation with some painful and punitive controls, but do something to yank these dinosaurs back from the brink because they are going to smash a lot of innocent fauna and flora if they land hard and soon.
alhutch
To the "let ’em burn" folks, perhaps a step back and some reflection would be in order. The Big 3 are more than just the manufacturing bases in the Midwest. Their suppliers are all over this great nation. Chances are, no matter where you live, you have a ‘domestic’ dealership in your town (maybe more than one). The Big 3 go down hard, those jobs go ‘poof’ too.
Any gov’t assistance shouldn’t be seen as a ‘bailout’, but a bridge loan (as others have noted above). For this assistance, the gov’t can and should build in serious strings for management performance and product mix shifts. Amend the CAFE/emission standards to bring non-cars (i.e. trucks, minivans, SUVs) more closely in line with those of cars. That alone would force product mixes that boost fleet mileage. But, the gov’t could do a few things to help the Big 3 as well.
Specifically, look more closely at our crash and emission regs (especially diesel, to capitalize on the low hanging fruit of +30% mileage) . Try to align more closely with current and future EU regs so that cars designed and built for the European markets can more freely migrate to the US (could be a collaboration with EU regulators). Ford and GM both have the products US buyers desire in their EU portfolios, but can’t just snap their fingers and make them appear here, during a current product cycle. Short sighted on GM/Ford’s part to have not reacted sooner, yes. Punishment by death seems a little extreme though.
Folks that think "entrepreneurs" will pick up part of the slack if the Big 3 go down are delusional. The barriers to entry are incredibly high. While I think the Tesla is swell, it costs over $100k and started with an existing platform (Lotus Elise)! Clean sheet designs are expensive to get off the CAD screen and into reality.
Punchy
Isn’t that fucker who heads GM a GCC denier? Kinda hard for him to run a suck-sessful biz if he can’t even see that the fucking snow aint comin in November like it used to….
alhutch
Punchy – Yes Bob Lutz (vice chairman of product @ GM) is a climate change denier. Probably a industrial strength R as well.
Check him out on Colbert
He has said in the past he doesn’t see hybrids or diesels playing a meaningful role in future GM products. At 76, some of his ideas are not exactly cutting edge…
Christopher Barger
Hi John – just some perspective from GM and Detroit. I’d check out this study by the CAR Group — http://tinyurl.com/6czvwx. Basically, the systemic risk to US economy is pretty big if nothing is done.
But to make another point, this isn’t the "same old Detroit." We’ve got a new agreement with the UAW that takes effect in January 2010, we’ve closed quality and productivity gaps with the Japanese automakers (for instance, GM cars hold both the North American and European Car of the Year awards), we’ve dramatically scaled back SUV manufacturing and have transitioned to cars and crossovers. We’ve got the most ambitious alt-fuel program of any automaker, including R&D in plug-in electric vehicles like the Chevy Volt, hydrogen fuel cell propulsion systems, and cellulosic ethanol. And these aren’t pipe dreams – we’re the closest to market in all three categories.
Our position is that it would be a shame to see those programs die, and millions lose their jobs to boot, over a short-term bridge loan that will be repaid with interest. Given GM’s underlying strength and the magnitude of loss the country would experience if it fails, I think a short-term aid package is a pretty good investment.
Thanks for listening.
alhutch
Colbert Link
http://www.colbertnation.com/the-colbert-report-videos/185021/september-17-2008/bob-lutz
demimondian
@Deborah: Umm… actually, due to patents, all American companies PAY A LICENSE FEE TO TOYOTA if they so much as want to experiment with mixed hybrid technology. I don’t know why, seeing as the technology goes back to diesel electric railroad engines, but…
AnneLaurie
Not such a bad analogy, IMO. The automotive industry is basically all we’ve got left for a manufacturing base, and if you believe we’re at or near Peak Oil, having a manufacturing base *here* becomes even more important. That base may not be making cars in 10 years, but if we let the Funny-Money Finance Guys torpedo it now, it may be impossible to recreate the infrastructure & knowledge base without outside input. Do you want Obama to give Michigan, Ohio, Indiana, etc. a "bridge loan" now, or do we let Dickie Shelby "screw the UAW" and end up working in Chinese-owned, Russian-financed maquiladoras?
stickler
BrianJ:
CAFE standards exist for one reason: Congress didn’t want to enforce fuel conservation the logical way (increasing the gas tax to European levels) because it was unpopular to do so. So instead, they came up with a Rube Goldberg system of carrots and sticks that put the whole onus for fuel economy on the manufacturers. And the fact was, by 1998, Americans didn’t really want fuel-efficient cars, they wanted Tahoes and Explorers and Escalades. But GM, Ford, and Chrymler-Benz had to have a "corporate average fuel economy" that met an arbitrary target (25mpg?). So they cranked out crappy but relatively-efficient Cavaliers and shoveled them off to Enterprise Rent A Car just to keep the UAW and the EPA happy. By 2004, if I remember right, 70% of Ford’s annual volume was in trucks, and that’s where the money was.
We should scrap CAFE standards. But we would still need some rational way to encourage Americans to buy more-efficient autos over the long term. A much higher federal gas tax (like they do in Europe) would have the same effect, but we could phase it in (or, in emergencies, out)* gently so that people and corporations (and GM) could plan ahead. Instead, we have boondoggle CAFE rules, and the whipsaw of gas prices that are $3.25/gallon in January, $4.75/gallon in July, and $2.09/gallon this morning (Shell station on Bethany Blvd. north of Hwy. 26 in Oregon).
How the hell can GM plan three or five years in advance for the kind of vehicles Americans will want if the price of gasoline can be expected to oscillate between $2/gal and $5/gal? They can’t.
(*) … This presupposes, of course, that the government actually acts as a regulatory agency over the oil bidness, investigating price fixing and windfall profits. Something we haven’t seen for about eight years.
Ivan Ivanovich Renko
On hybrids, I tend to agree. I think hybrids are terrifically faddish. Look around and see how many ’91 cars are still running about (the Renkova and I gave our old ’91 Toyota Camry to her sister about 7 years ago; and its still running strong, rust belt and all). If it had been a hybrid, the battery pack would have failed by now; and how much is it to replace one of those suckers? And what do you do with the waste that comes therefrom?
But on diesels, I tend to exalt the European approach– small 4cylinder gas engines and small diesels mated to manual gearboxes (learn to clutch something other than your pearls, ladies!); a well proven technology that gets reduced emissions, increased fuel efficiency, and you still have vehicles that can be driven (rustily, up here) into their third decade.
Quite literally, however– YMMV.
marjowil
All I know is, I live in Detroit. We’ve already been in recession for years, it seems. I don’t work in the auto companies per se, but in my job I work directly on auto accounts. Auto companies and auto-related companies are by large the largest source of revenue in my company and in the community at large.
The union at my company (again, non-auto but a service industry) is the United Auto Workers union, and our benefits (for union and non-union workers) to some extent mirror the auto workers. The auto workers show a lot of loyalty to us as a result and the auto companies use our services in part because of this relationship with the UAW.
Virtually all major companies in this area are so entwined with the auto companies that I have no doubt that if GM and/or Ford went down, we would be no longer in a recession but a full-on depression around here. My own company was walking out (laying off) employees by the dozens this month and last month already. One lady dropped dead before they could finish laying her off. It is bleak here. They are pushing out people like crazy, giving ultimata to those near retirement to retire early so they can hire more newbies with less benefits and less expectations of any kind of respect. Everyday you wonder if you are next to go.
Letting the autos die would be catastrophic here. There’s nothing to take it’s place but more misery.
MNPundit
Because the economy of Michigan as well as Indiana, Ohio and Illinois(!) would collapse. The parts suppliers would have no one to sell to and then they would collapse. And just in case I missed anyone, the workers in these plants can’t be retrained–there would be almost no manufacturing jobs anymore and except for maybe the youngest, they can’t learn to do anything else.
ThatLeftTurnInABQ
Kudos to RS and others putting a human face on this problem.
We can argue until we are all blue in the face about the optimal way to respond to this crisis (Govt. backed Ch 11 DIP loan, straight up bailout, etc., etc.) but at the end of the day I want something done and not just see us stand back and watch and do nothing as an entire state is given the Katrina-New Orleans treatment.
God forbid it could happen to any of us by way of either a natural disaster or a terrorist attack or an economic crisis, and if we aren’t willing to pony up to help each other weather these storms then we might as well drop the "United" part out of the USA and just starting calling ourselves the "Everyone for Himself States of America ".
Or to put it another way, how much would you be willing to spend on homeland defense if OBL and AQ were to announce tomorrow that they plan to launch devastating attacks on Detroit and the upper Midwest? Would 25 billion be deemed too much?
Saving an entire industry and an entire subregion of the US from economic collapse for the price of a couple of stealth bomber squadrons sounds like a pretty good deal to me.
Comrade Rommie
Something I haven’t seen discussed much, if at all (so if I missed it here feel free to deliver the Moe Slap)
The Arsenal of Democracy.
Giving the Big 3 the Nelson Muntz HA HA and telling them to pound sand might have some unintended consequences…
Comrade Stuck
I agree that something needs to be done, provided that something actually works to fix the problem. However, comparing the auto industry, their states, or their employees to a natural disaster is a false comparison. The entire auto industry, save a few, has rebuffed any efforts to reform itself over the Years to be more competitive for the long term, and for the overall good of the country. That includes the big three, the states where they operate, the elected representatives of those states, D or R, and the workers. And by including the workers, I am specifically talking about withdrawing their votes for any pol who advocates for better CAFE standards.
AnneLaurie
RS, Marjowil: I hear ya, for all the good that doesn’t do. I left the Bronx (for college) in 1973. All the Repubs and a small-but-noisy far-left-past-the-Dems fringe were busy explaining that New York City *deserved* to fail, because NYCers were nothing but a greedy bunch of welfare cheats, union workers & Trumps trying to suck precious tax dollars from the Heartland(tm). Left Michigan, along with my native-Michigander spouse, in 1989, when the much the same crew of Repubs & anarcho-socialists were telling us that what the Rust Belt really needed was to empty some 40% of its "lazy, benefit-addicted, not-prepared-for-the-new-millenium" population into the Sunbelt for retraining as Vegas croupiers and/or Texas maquiladorados. Now it’s the Rust Belt again… along with California… and NYC, or at least the financial-services-dependent part of NYC… and once more, the same batch of Political-Media Village Idiots (plus their nepotistically enpowered offspring, hello NRO!) are explaining that all will be well if "we" only have the hard-headed good sense to chop the bottom rungs off the Ladder of Progress!eleventy-one!! Because if "we" can just rightsize/downscale/outsource/LOSE the bottom 70% of the pyramid, the lucky remnant floating unencumbered in the glorious thin air of Free Enterprise will be happy forever with our Steve-Jobs-designed iCars and pixel-perfected SmartHomes(tm)!
Brick Oven Bill
The foundation of the automotive industry is the need to move stuff around. This need is going nowhere (ha ha), so we will continue to make cars.
What we are coming to grips with is are the fundamental differences in the human condition throughout the world. The labor costs to GM are something like $75/hr (H), or $600/shift (S). Wages in sub-Mexico Hispanic countries are $3/day (D). So GM could hire a guy for one shift in Detroit, or hire a Hispanic guy for 200 days, for the same amount of money.
Up until after WWII, we addressed this with tariffs on imported goods. Following that period, the globalists took control, and tariffs went away. I believe that Obama is a globalist because he refers to the Treasury Secretary as ‘Hank’.
I way let the current automaking regime go bankrupt, institute a 35% tariff on all imported cars and mechanical components, and let the American workforce take care of the rest.
Hi ThatLeftTurniInABQ. Everything you heard me say about oil was wrong.
Mike G
Normally, just let GM go into Chapter 11 and reorganize itself. But with the credit markets the way they are, there’s a very good chance GM won’t be able to get the money to keep going while in Chapter 11.
So why not let them go into Ch11 and then extend government credit, subject to conditions.
Unfortunately the auto industry needs major reform, not just a temporary cash injection to allow them to continue onward in the same fashion. Everything from UAW contracts, provision of healthcare and retireee benefits, dealer laws and harmonizing safety and emission regs with the EU should be under consideration.
The Bush assministration would be guaranteed to turn such a process into a wholesale looting for benefit of their cronies. An intelligent, reality-based Obama administration just *might* make some sane moves if they can fight off the powerful interests just looking for free money so they can maintain the same dysfunctional status quo.
Condition one should be the wholesale firing of the arrogant, incompetent Court of Versailles that is GM management. The management culture entrenched for generations, dominated by financiers while and corner-cutting on engineering, quality and warranty claims, needs to be stopped cold. The relentless focus on short-term financial results that leads to screwing over customers to save a few pennies, and promoting MBA hucksters who don’t give a damn about product integrity as long as they get their bonuses, needs to go.
Deborah
Also, jobs.
Look, I understand the freaking insane amount of money we’re talking about, and I understand the anger at the executives who fucked up.
How about the concern that they’ll say "thanks, and we totally promise to reform our ways" and then they’ll do the same stuff and need more money next year?
I accept that we’re probably doing something, I even see that if it were done right with the proper controls it could work…But then I look at AIG and think the odds of it being done with the proper controls are slight, and the odds that the big 3 executives will decamp to AIG’s spa are high. I believed people about how AIG totally had to be bailed out and it would save the economy…so I’m triply skeptical at all future "we must bail them out or see the economy destroyed!" arguments. Joe’s gas station will be in line with that argument. (I do buy it for attempting to liquefy credit markets globally, for what that’s worth.)
Umm… actually, due to patents, all American companies PAY A LICENSE FEE TO TOYOTA if they so much as want to experiment with mixed hybrid technology. I don’t know why, seeing as the technology goes back to diesel electric railroad engines, but…
I am aware of the traditions of the patents….Toyota got there first with something that really works; the American research, whatever it was doing, didn’t come up with a viable alternative and must pay to license the technology or wait for it to go out of patent (and then not use anything covered by new patents). That is life and competition and intellectual property rights, and suggesting that it is all too hard, too hard for our poor guys to figure out denies an awful lot of history when America dominated on R and D, or an awful lot of industries where it still does.
As for hybrids as a dead-end—they came out with something that could work right now, while the big 3’s attempts at greater fuel efficiency fizzled. (The standard fuel-efficient alternative to a hybrid being a small Toyota or Honda sedan.) My mil’s early model Prius hasn’t needed a new battery yet–given the life expectancy of most American-made cars (note we’re talking about 18 year old Toyotas, not 18 year old Chryslers) I don’t see the chance at an expensive repair after 10 years as exactly inhibiting anyone from ever buying a hybrid. I keep my cars that long but I don’t think I’m in the majority.
Just Some Fuckhead
Count me as a strong supporter for getting the Big Three through this crisis. I don’t have any arguments for it that haven’t already been made but I’m pretty stung by the uncaring and/or cheerful attitudes exhibited on this thread and others for the demise of our last big manufacturing sector, the displacement of millions of workers and a tremendous deathblow to our national economy.
You people really disgust me. I guess it’s easy to cheer on the depression from the relative safety of your mom’s basement. I don’t have any doubt we’ve got a long way to drop in the economy but there’s more than one way to do it and precipitously isn’t the answer, wankers. Try to muster a little empathy and then start from there. Pretend it’s all about you and maybe you’ll care more.
TheHatOnMyCat
I’m a little spaced out today after a bad 24 hours at work … when I read this, for a minute there I thought I was reliving some of my childhood Thanksgiving dinners ………….
ThatLeftTurnInABQ
The comparison is not as facile as you might think. Take any major natural disaster and you will find voices pointing out that with benefit of hindsight the victims were living in the wrong place, did not take heed to properly prepare for what they should have known was coming, if succored will just repeat the same behaviour, have behaved badly in ways which should deflect our sympathy, etc., etc. See the media coverage of the post-Katrina "looting and disorder" for a particularly nauseating example.
Hurricane victims, people whose houses burn up in wildfires, folks living in zones subject to earthquakes or tornados, they all get the same Monday morning quarterback treatment. Usually those commenting have enough good taste not to actually come right out and say "they had it coming", but functionally that is what it adds up to.
So no, I don’t think the comparison is false.
Comrade Stuck
I was fully expecting this argument. The trouble with it is however, besides no actual natural event as the direct cause for the auto industry failure, is that by the time you declare all the places a Hurricane, Tornado, Flood, Earthquake is likely or may happen, we’d all be huddled together in a safe closet somewhere in Montana. Sorry, it’s still a false comparison to make. Though like I said, I’m for bailing out this vital industry. The only question is how to do it in a way that works. And just throwing money at the problem, won’t get the job done IMO.
Of course, this probably puts me in the mean house JSF just built, but maybe we can all just care so much the problem fixes itself.
dand
I could say a lot but in this case I think that the old adage about if the left and right agree on anything it must be a really bad idea. Given how much I have heard about how we should let them die on both sides gives me pause. I am really disappointed in the anti-unionism by many on the left. The UAW has its problems and they need to clean their own house some but killing this domestic industry would effectively end organized labor in this country.
In the final analysis though, the cold reality is that it will cost more to let them fail than to keep them alive.
ThatLeftTurnInABQ
Sorry to break the news to you, but with heavy metals contaminated groundwater (a legacy of the mining industry), Montana isn’t safe either.
Which is sort of my point. In one way or another we all have chosen to live in harm’s way. That is why I’m not willing to limit my sympathy to only those who have led the clean and righteous life of care, prudence and due diligence. Because the circle is pretty small if you draw it that way, and I have enough imagination to think what it would be like to be on the wrong side of that line, looking in.
Comrade Stuck
I was raised in a trailer in the dark hollows of Appalachia, which
is well beyond any line you can think of, at least in this country. I don’t lack sympathy for the auto workers, but I want a plan that works for the country as a whole. Autoworkers are not the only ones headed for the wrong side of that line. We all are to one degree of another, except maybe the very rich. Obama said it best on 60 minutes, that he was going to be harshly pragmatic in his approach to how to fix the economy, and what steps to take. I took that as a warning of very hard times to come, and I’m glad he is going to approach the problems we are facing without concern to ideology or special sentiment for any one group, but rather what will work for the country. Maybe that’s cold, but so be it.
alhutch
Well, I’m not a big fan of hybrids, but helping folks to move in the right direction in terms of MPG works for me (multiple solutions are better for the market, no?).
In early ’02, I decided to make a positive change myself (my ’96 Nissan 4-cyl. truck did 20-21 mpg in the city). A very quick look around the automotive landscape landed me in a hatchback with a diesel (VW Golf TDI). I average about 37 mpg in the city and run various levels of bio-diesel during the year to boot. If Ford had brought their Focus (or C-Max) with a diesel, I would have given it serious consideration.
Part of the delay in getting diesels here most recently was the ridiculous management of the ’05-06 transition to ULSD (ultra low sulfur diesel – i.e. under 15ppm) and nearly simultaneous tightening of US emission regs for diesels. Three years on, VW and Mercedes are just now getting "clean" diesels (50 state emission compliant) to market. Everybody else is watching to see what happens to them. Had that been sequenced properly, maybe the diesel Focus (and others) would already be here to address fuel mileage concerns.
Just Some Fuckhead
Something like the Appalachian Regional Development Act?
comrade rawshark
@Mr Furious:
LOL C’mon you didn’t think I was serious did you? Tossing out unions because the leadership is corrupt? I was trying to point out that the right’s feelings about unions are akin to cutting off your nose to spite your face, or throwing the baby out with the bathwater, I’m not really sure which fits best. In fact most right wing talking points are simply violations of basic rules we learned as kids. Liberal media? Just judging books by their covers and/or shooting the messengers. There’s more but I can’t remember any of them right now.
Comrade Stuck
Nah, that’s for pussies. I was thinking more along the lines of the Petrograd Soviet for the coming revolution. Have you paid your party dues Comrade?
That One - Cain
@Ivan Ivanovich Renko:
Wait, how am I supposed to drive as I clutch my massively large soft drink container or latte while driving? That’s not what I want!
cain
Ed Drone
The auto-industry plan should include these factors, else it’s guaranteed to fail:
Make the help a bridge loan, with a decent interest rate, instead of a hand-out;
Stress on higher mpg standards in new models, and help in retooling for same (already in the works, as I recall);
No new demands on labor, but hold them to the accords that kick in in 2010;
See if there’s a way to take over some of the health-care costs that are driving the higher labor costs for the industry — there’s no reason the unions and corporations should shoulder that burden if we’re moving toward universal insurance.
And everyone who is discussing this should point out that the impact of losing all those thousands of jobs is impossible to calculate. Talk about causing a depression!
Ed
Bob
John-
Serious question, is it conservative to let all other nations sell the cars here, without equal access to their markets?
Just Some Fuckhead
Edit: wrong thread.
Chuck Butcher
Suppose we back the train up to the part where management is soooo sucky.
Anybody remember the tarrifs that forced the foreign mfgs into the US and the reason? They were loss selling cars here and subsidizing with home country prices. Why exactly is it that you think that is not happening with their components? Their cars still cost a lot more at home where the components come from. Why don’t we know? Once on the ground here, it is a corporate decision not a purchase decision.
Health care costs are eaten by the Big 3, hmmm – their fault? Big 3 cars – not trucks – have been sold at a loss for years, the SUVs covered the losses. There’s a lot more room in a $40K truck than a $18K car.
You trade cost of batteries & interconnects for mpg, loooong payoff. Batteries go and that’s part of your payoff and you just went seriously backwards.
The current real problems are related to right now, financing on both ends, consumer & mfgs. I just did a temporary repair for our GM dealer, he can’t get financing for most folks so he can’t sell cars. I’ve known him for a long time, rock-ribbed R, voted Obama.
Am I a Big 3 partisan? No. Do I know some of what they’re up against, yep. One thing further, Americans have demanded cleaner and safer cars – the foreign cars won’t pass. That’s weight and mpg and expense.
If you want to hit a wall at 100mph, sink ’em. That part isn’t even partly complicated, but along with them take out the banks, and all associated with them. You want to play like that, then screw it – burn the system to the ground and start over. It’ll get kinda weird out there and a bunch of you ain’t coming out alive.
stickler
Chuck Butcher:
The financing thing is really strange; leasing has seemingly disappeared overnight, and I heard a story last week that to get a car loan you need a FICO score of 700. WTF? No wonder sales are off 45%.
But didn’t Congress just give the banks $750 Billion With A B to address credit problems? Couldn’t Paulson just advance the banks, say, $10 Billion tomorrow and say, "direct this to car loans," and help ease the crunch?
Gaaah. Please let the next sixty days go by easily, with no more Republican ideological catastrophes.
Comrade Stuck
Well, in fact, nobody gets out alive. And I’ve been hearing some declaring this thread is full of people saying just burn em down. I don’t see that in my readings. You say just get them thru this. Through what? This isn’t a cyclical business downturn, it’s a goddamn economy wide meltdown on it’s own accord. And a lot of good the free cash to the banks has done, they still won’t loan money because they know this is a hundred financial storm that normal bailouts won’t stop. If the government has a responsibility to stop a catastrophe then it should go all in and nationalize the auto industry and keep it afloat long enough to be restructured in a sane and sound model of business. Same goes for the financial industry. That’s basically what happened in the Great Depression. Otherwise, it’s just more money down the shitter before what needs to happen happens.
dr. luba
National Security.
No, really. General Clark says so.
Shell Goddamnit
I said it before.
The Big Three gambling on continuing larger profit margins from SUVs etc were also gambling with the SE MI economy, which was not so goddamn great anyway.
I’m part of the Detroit Diaspora. Lots of us are GTT; it’s traditional, when you leave MI, to head for TX. But now, of course, there’s a shit ton of people with houses they can’t sell for what they owe – or, in some cases, at all – and they can’t just pack up & leave. I’m not sure what the reduction in population in MI has been over the last 6-7 years but I’m betting it’s a goodly chunk. Those that are left, a lot of them can’t leave.
In short, we’ve done conceded what we could and cut back on population as we could and at this point, MI is just fucked. We’ll be the South after reconstruction if the remains of the auto industry are allowed to go belly up. It’ll be several generations before there’s any sort of recovery, and bitter? You ain’t seen bitter yet.
Brian J
@ stickler,
It seems like the biggest problem is that there are different classes for different cars, which leads to a lot of bad things, like cars ending up bigger to fit into a certain class. Would it be a good idea if the standard was the same for all cars, no matter what type they are, if it went along with a gas tax?
Dennis - SGMM
@Shell Goddamnit:
Read over at mlive.com that Detroit’s population has gone from 1.85 million (Peak, in 1950) to 919,000 today. Damn. If the automakers go belly up the city will turn into a ghost town.
Shell Goddamnit
Dennis:
HA! I tell you, HA! You want a ghost town? Check out the urban prairie of St Cyril parish in Detroit.
It’s not like Detroit hasn’t been sliding downhill since WWII. But the whole region is swirling the drain now.
Brian J
I realize that a lot of people claim that urban revival plans don’t work, but if there are even worse problems with Detroit and other areas in the state no matter what happens, is it even remotely feasible to do something drastic like eliminate all or most taxes in the state and have the federal government pick up the tab for a decade or so?
Dennis - SGMM
@Shell Goddamnit:
That’s like being punched in the gut. Made me think that before this is over we’re going to see Bush Towns alongside the freeways where people park their cars en masse when they finally run out of gas, out of money, out of car, on their way to find some work somewhere.
Shell Goddamnit
Detroit is a special case. Jane Jacobs said Detroit was in trouble way back in 1960, and damned if she wasn’t right. It’s not dense enough to be a city and it used to be not sparse enough to be a suburb. Can a city be a suburb of itself? The answer to that is NO, by the way.
That old saying is, the nation gets a cold; Michigan gets pneumonia. Corollary: and Detroit is diagnosed with lung cancer.
stickler
BrianJ is full of the teaser questions tonight. Hey, BrianJ: ever heard of Teh Googleator? Shit, man, exercise a little gray matter and find an answer for yourself.
That said, this:
seems unnecessarily obtuse. Would it be a good idea to HAVE NO STANDARDS FOR VEHICLES AT ALL? Yeah. Which is what I was saying above.
Here’s a shorter version: Tax gas. Let the consumer figure out what he wants to drive. Detroit will fill that consumer demand just as well as Stuttgart or Hiroshima can.
Dennis - SGMM
@Shell Goddamnit:
I seem to recall seeing, back in the Eighties, a TV news broadcast that showed a bunch of arson fires in Detroit on Halloween night. IIRC, the anchor said that it was a yearly occurrence. All of those empty houses must have presented so much opportunity for that kind of work.
Ed Marshall
The regionalism is what’s funny. You can find some libertarian in the midwest to be a contrariarian and say "yeah, burn it down!". You will find a couple eco-folks in the midwest to do the same thing. Everyone here knows what the stakes are. I was a kid, but I remember the early 80’s and what goes down if the auto industry keels over will make that look like paradise. We hit 25% unemployment back then, if the big three goes down I can take a pretty primitive head count not counting knockdown effects and see something more like 50% unemployment.
When you see the wingnut republican screaming about how manufactuting is a national security priority, that’s a Limbaugh listening, paid up, republican that understands how close he is to getting wiped out. I know more than one of these that saw the writing on the wall and voted Obama. He’s not going to say that he doesn’t believe in the free market and he’s not going to curse socialism if you dare him, but if Obama throws us into the hell that’s looming he’s making a horrible political consideration.
Shell Goddamnit
Dennis: Yes, the vacant & unwanted housing was the target of the "Devil’s Night" arsons. Detroit doesn’t do that any more, much; the available stock of burnables got burnt up many years ago. The result is as you see St Cyril’s Parish. In some ways it is less frightening to outsiders to see the blank spaces than the rows of rotting vacant housing, I guess, but the emptiness is kind of heartbreaking.
Not all the city is like this, of course. There are still reasonable places to live in Detroit. But the pockets are small, small and surrounded by the unreasonable places.
Brian J
Man, I guess today really isn’t my day.
Sometimes, if I find a link to something that explains an issue or event really well, I bookmark it, both for me and others. That way, if I or anyone else ever needs it, it’s there. I think this is important, because as valuable as Internet searches are, it’s not always the most direct way of finding an answer to a question that requires a detailed answer. I figured that you might be able to point me towards an answer to that question and others faster, because they weren’t the sort of answers that would come about with a ten second Google search.
Dennis - SGMM
@Shell Goddamnit:
It must be hell on long-time residents to see the town just wither. I saw it on a much, much smaller scale down in South Texas. There were towns that peaked during WWII and then declined as the military shuttered or shrank the bases. Block after block of boarded-up houses just rotting away.
Chuck Butcher
I’m no appologist for the domestic auto industry, they’ve made their mistakes and the late 70s were a real example. But the Federal Govt sold them out by letting the Jap cars be sold at a loss to gain market share. Exactly what rectifications you expect a business to make when it’s having its throat cut?
That was then. This is now. The problem isn’t so much that they build cars people don’t want, they don’t want them at that price. That price is driven by two factors, components and labor costs. It isn’t that they can’t build good cars or desirable cars, there are GM models like Caddie and ‘Vette that you have to wait to get, but look at the price. The ‘Vette is superior to cars costing 50% more, it’s not the engineering or design, it is the damn costs. Then go and crush the credit market.
There is a real serious difference between mfg and investment banks and comparing them is silly. There’s still no money in the credit market…well what the hell do you think would happen if the banks use it for something other than lending?
It isn’t goddam Detroit, or the rust belt, it is damn near everywhere if those 3 go under. Who the hell is going to buy a car if the mfg is in Chapter11? Are you crazed? I’ll spend $20K for a product with a 5yr/50K warrantee that is in Chapter11? Sure, and so will you…
Shell Goddamnit
But you know, there’s lots of places in this country that have been through the withering. Once-healthy farm communities across the nation have turned into vacant shells as farm employment vanished and the family farm became Archer Daniels Midland. Some of them are close enough to a metro area to become bedroom communities, and some of them have some other flame that flickers, but a lot of them are just dying and some of them are dead.
And some of them got run over by a suburban boom and vanished into the Northern VA traffic, for example. It’s just not all that easy to live all your life in one place without giant scary changes, these days.
Interesting times, interesting times…
Comrade Stuck
I wasn’t comparing them, except that they’re both important industries in danger of going under. I’m for keeping them afloat as are most of the people commenting in this thread. So the strawman your building is just that, a strawman. If your going to take issue with what people write then it would be prudent to actually read what they write first.
TenguPhule
Because by the time the credit line opened, the corpse’s bones would be picked clean in Chapter 7.
That said, I think Bush and the GOP are going to give a great big middle finger to all the people who didn’t vote for them in 2008 and just shit the whole country by letting the Big 3 die.
My only hope is the mobs get them before they leave American airspace.
Failing that, CIA sanctions.
TenguPhule
GOP to Automakers, Drop Dead
Provided we all survive the next 2 years, there will be very few Republicans left in Congress in 2010.
Cain
@Shell Goddamnit:
You’ve described my brother’s predicament as well. He bought his house when the prices were high and now it’s all crashed. He’d lose a lot of money if he sold it now. It’s just a sad situation. He’s better off leaving Detroit and take his design skills to some other sector.
Maybe all these people should migrate to Texas. They could use some Democrats there. :-)
cain
Cain
@Shell Goddamnit:
Doesn’t help you have that circus of a city management. Kirkpatrick and his ilk needed to be kicked out some years back. The man is an embarrassment. My brother’s neighbor was telling me all kinds of stories about the wierd crap he has going on with churches and the homeless. They are all getting some kind of kickback from him. I don’t quite understand it.
The thing is is that Detroit seems to be a prime piece of land. They could get a lot of other businesses in there if they figure out how to exploit their geographical location. For godsakes, they should start getting some decent public transport and trains and what not. I understand the car lobby is quite strong there. This is a great time while they are weak to start re-tooling the city and diversify and attract other kinds of people.
cain
Cain
@Shell Goddamnit:
I’m sure quoting you a lot. :-) Devil’s Night was popularized in the movie "The Crow" if I call correctly. It’s basically a night of craziness. I didn’t think they did it anymore..
cain
AnneLaurie
Detroit bet the rent, quite literally, on Henry Ford’s big ideas, and then the WWII materiel build-up and the post-war ‘Levittown’ consumerist boom cemented the city into its status as Jim Kunstler’s Worst Nightmare. But it does have enormous geographical advantages, not least its well-established connections to Canada. President Obama’s administration has a chance to make an enormous impact there, because it’s not identified with two of the current Oval Office Occupiers’ larger failings — promoting wasteful fuel consumption & race-baiting. But if the Rethuglicans get their way & the American auto industry goes belly-up, big chunks of Ohio and Indiana are going to make modern Detroit look positively *vibrant* in comparison, and cities like Gary & Cincinnati may not be salvageable.
Limniade
I’m totally talking out of my ass, here, but what about negotiations to sell some plants, to Toyota, Nissan, Honda et. al, essentially turning over management without a significant change in employee roster? Renegotiate those workers’ contracts under the new employer so they’re not costing an arm and a leg, people stay employed, America gets better cars, and American car companies get some cash flow while deciding what the hell to do with themselves.
The big problem here is that all of America’s ills are coming home to roost at the same time: overspending, negative saving, focus on short-term profit to the point of depending on constantly increasing consumer spending to survive. That describes the housing industry, auto industry and credit crunch in a nutshell. When you base your entire economy on convincing people to buy things they don’t need, and then suddenly they realize they don’t need those things, yeah, the feces will clearly hit the fan.
And yes, I’m pissed off that companies allowed this to happen, because it’s not like the average American has seen the benefit, particularly in the last decade–it’s been Pillage for Profit all the way. Part of my response to that is to want the executives of those companies to strangle on the ripcords of their golden parachutes.
What needs to happen is a complete removal of the "profit at any cost" mentality of business, with the dwindling wages and worker benefits and the skyrocketing CEO pay regardless of performance (because of course, all of these executives will still collect their bonuses despite their colossal failures). Obviously deregulation doesn’t work. Trickle-down economics doesn’t work. When you keep the minimum wage down, it doesn’t create jobs. When you give companies the freedom to operate as they wish, it doesn’t result in more competitive prices and better products. In all cases, it results in precisely the opposite: a big shit sandwich for everyone but the executive board and the stockholders. As long as we’re putting the GOP’s ideals to bed, we can start not only with their way of governing, but their way of doing business.
To sum up my talking-out-of-ass, maybe we need a new New Deal. I have no idea what that would even look like. But the dike’s starting to flood and we’re all out of fingers.
Gravenstone
@The Other Steve:
If I may be suitably cynical, I imagine their calculus looks a bit like this.
1. Democratic Congress
2. Incoming Democratic President
3. Big 3 go tits up while the above administrations are in power
4. Republicans profit!
Seriously, it wouldn’t shock me one bit to find at least some of the prominent Republicans are factoring in who will get the blame for any eventual collapse of the domestic auto industry into whether or not they get behind action right now.
Xenos
@Chuck Butcher: There could be ways to protect warranties… for example, a limited loan guarantee that kicks in for warranted buyers. The problem is that it requires coordinated governmental intervention. Not only does this need several agencies operating together under new statutory authority, but it will violated free trade agreements that will need to be reworked on the fly.
An Obama administration could do this. Hell, the Carter administration could do this, although it would be ugly. Bush? No credibility, no expertise, just more of the cronyism and free market fundamentalism that got us into this mess.
Ron
This should not even be under consideration until company salaries across the board, including the unaffordable union contracts currently in place, have been reduced to be competitive with the rest of the world. There is no reason our kids should subsidize exorbitant business costs and failed business plans.
Furthermore, subsidizing a losing proposition only postpones the inevitable. The car companies should spend their time doing what any business home owner (or home owner for that matter) does when costs exceed income – cut costs.
The government’s role should be to eliminate the artificial costs (regulation) that have been imposed on these companies. While I think the industry is over-regulated, It is interesting that Toyota, Honda, BMW, etc don’t seem to be having trouble with retooling costs to meet "unreasonable" efficiency requirements.
Dennis - SGMM
@Gravenstone:
Add "Busting the chops of a big union" to your list and it’s a Republican wet dream.
AnneLaurie
Yeah, the Media Village Idiots occasionally mention that Dick Shelby & his merry band of "screw the UAW" fellow Rethugs have Toyota and Honda factories in their districts, but apparently the FCC clean-vocabulary code prohibits mentioning that Republicans have been rabidly anti-union for more than a century.
Dennis - SGMM
@AnneLaurie:
It’s also important to them to break the UAW because, largely due to the work of the SEIU, union membership actually increased in 2007. That was the first time in 25 years that union membership went up.
Shell Goddamnit
Hell, even the stockholders are not immune to shit sandwiches – the executives are off the leash. They sit on each other’s boards and give themselves giant pay packages and those lovely golden parachutes in the teeth of the stockholders and to their detriment. The stockholder demands for ever-increasing quarterly profit come in second.
Pillage for Profit, indeed.
Mr Furious
For a little context—and yes, comparison—read this excerpt from Michael Lewis (author of Moneyball and Liar’s Poker) on how Wall Street got into this mess.
Then explain to me why the fuck they should be bailed out while GM, etc are left to rot.
Mr Furious
Oh, and all of you non-Michiganders? Stop talking about this as having anything to do with the City of Detroit. With the exception of GM’s RenCen, the entire auto industry fled the city years ago. this isn’t about saving blocks of urban blight from metastasizing—we’re talking an area ranging from Oakland County down past Toledo, with islands scattered throughout MI, OH, IN and beyond.
Talking about Detroit is like talking about the Bronx when you really mean the tri-state region.
Barry
Shinobi
"There were a couple of interesting posts on this over at Obsidian Wings.
IMHO The problem with Detroit is that for the last 30 years they have been looking at the short term. They’ve been going for short term margins over long term stability. And now, we can let them fail and they can take half the midwest with them, or we can bail them out. (again)
My question is, are they going to keep doing what they have been doing? I get that they’ve "overhauled their management." But are they going to look at their product line? At the long term feasibility? At where the American Automobile is going to go over the next 100 years?"
You could take this same writing, and change the terms from ‘Detroit’ to ‘Wall St’, etc. It’d fit at least as well, and we’ve spent well over 10X the proposed auto money on Wall St.
But I don’t see that much.
RS
Some of those islands are pretty large- Saginaw, Lansing, and especially Flint.
The concern I’m seeing expressed here is heartening. As I anticipate even darker economic days ahead, what I’m somewhat fearful of is what I perceive as a looser social cohesion than what the US had during the last depression. I’m afraid that more Americans are less prepared to be polite when hungry in 2008. While anarchy has always seemed to be a perfectly acceptable form of non-government (given perfect human beings to make it work), watching the recent devolution of Yugoslavia (granted, for different reasons than purely economic) made me realize that probably no place is safe from that kind of unraveling given the right conditions. And then, of course, we’d get the subsequent reaction from the state, in our case one empowered with the Patriot Act and a Northern Command, not to mention Blackwater, etc. Anyway, one way to partially immunize ourselves from a nightmare like that is simply the realization by a critical mass of people that we’re all in this together.
And like I wrote above, I can see silver linings, for instance members of my own family regaining their working-class sensibilities. Before that, I fully expected the VEBA the UAW negotiated with GM would ultimately hasten us toward national single-payer (and how the fuck can you lose by proposing "Medicare for everybody"?). That was reinforced when GM eliminated health benefits for salaried retirees ( good recipe for getting Republicans to look appreciatively to their left). My dad (who lived through last depression) has maintained since Reagan that it was going to take another depression for too-comfortable working-class Americans to get their political act together, and it’s looking more and more like he’s right.
Hopefully Obama knows enough history to realize why Roosevelt was as popular as he was. A lot of Americans listened to their better angels and elected him- he needs to listen to his.
TheHatOnMyCat
Even though many Dems don’t get this, we are all in this together. If the Great Lakes states turn to a rustbowl because the government sat by and shrugged as the American auto industry collapsed, everybody suffers, everybody pays. No free lunch. Even the cool latte sippers in Portland and Seattle will feel the pain, and for a long time. Not many of them get that right now, but watch them grab their pitchforks when the depression hits their town, and listen to them wonder why nobody tried to stop the levees from being breached.
I can just hear the Republicans now. "Nobody could have predicted that a GM bankruptcy would throw us into a 20% unemployment rate!"
This is bigger than Katrina. It’s a storm that will knock over stuff from coast to coast. Throw all the restrictions on the bailout you want, but get the bailout. My grandparents warned us that we’d face another time like the thirties. I never believed them, until now. This is a perfect storm of economic trouble. Down the road, in stabler times, if a phased dismantling of GM is necessary, then maybe. But not now. We are sitting on a house of cards that GM did not build.
Ecks
1/100th of a British pound is one penny. Where do you think america got the word from?
Anyway, I haven’t had time to read the whole thread, so don’t know if this has been covered already, but no, a company’s net value does NOT equal the cost of it’s physcal assets.
From a finance point of view, it is the cost of it’s phsycial assets, plus its current assets (money, inventory, etc), plus its intangible assets (reputation, goodwill, patents, brand equity), plus its owners equity (i.e., stock value plus money the owners have directly invested in the corporation).
From a stock market point of view, the value of the company is all of the future revenue that it can generate discounted back to the present (i.e., money that arrives in 10 years isn’t worth as much as money that arrives next year).
There’s actually a measure called Tobin’s Q that is basically the stock market price of the company minus the replacement cost of all its physical assets. The theory is that the difference is all of the intangible assets such as brand reputation which are otherwise almost impossible to measure (if you can’t measure them directly, then you have to do it indirectly). People use this as a partial gauge of how well management is doing, as it reflects their ability to turn the same amount of physical assets into an expectation of even greater future revenue.
And now you know :)
Marc
To let everyone know if the auto industry goes bankrupt. one out of every 10 people in the US is employed in a service that is related to the US auto industry. If a plant closes, so does its suppliers, the local stores, local restaurants due to the 2 million jobs lost from the auto industry. And that is just in the first year. In the second and third years 2.5 million jobs would also be lost. That’s 4.5 million jobs lost in just three years. WOW! That does not even include the cost to local, state, and federal governments. That loss could reach 156.4 Billion dollars over three years due to lost taxes, unemployment and health care assistance. There are approximately 14,000 US-brand dealers in cities and towns accross the country, that employ approximately 740,000 people. Which is the area I work in. That would also be out of a job. That payroll is approximately another $35 billion dollars that would not be spent in the economy. I hope this educates some people who are not related to the auto industry. Thanks for your time and Have a Great Day/Evening. Marc
brandywine
I think it might be time to let them go chapter 11 and reorganize into more efficient companies. It might be that only 2 are left. It well could be that union contracts need to be renegotiated. I do have to ask as a more middle class worker why we who make 10-15 bucks an hour should be asked to pay for companies that are paying their workers in the mid 70’s an hour? Something is just wrong about that. What do I get out of the deal? Will I get a break the next time I want to buy a new car? Personally I think that they will be back in a month or 2 asking for more if they do get the money. They can’t afford to pay the Union retirement plan early next year. They just need to file and get it over with.
Randy
It is funny how we rushed blindly into shelling out $700 billion to companies with few jobs to and are not going to help protect hundreds of thousands of jobs in the mfg. sector which is where the middle class with and without college degrees live and breath. The only reason I can think of for not helping them is that if they file Chapter 11, they can break the back of the union and end their contracts in court as part of reorganization and offer them their jobs back as less pay. My vote is to help them out now. I think $50 or $75 billion is better spent here and than $700 billion was previously. Here is a sample letter I found and a site to locate your representatives as well to support bridge loans to the auto industry. They loaned Chrysler money years ago and they were a strong and growing company until Daimler bought them raped them and they threw them out with little to nothing. Oh, I am sorry that was a merger of equals. Ha.
pseudonymous in nc
I’m late to this, but the big point is made by Marcy Wheeler: if GM goes tits-up, then the successful bits (the foreign ops, a few small production lines in the US) will be snapped up at firesale prices by the makers with the money on hand (that would be the Chinese, primarily) and anything left would not only be unprofitable, but also deprived of the seed corn to improve.
The right path for the US-owned industries is to rapidly get the stuff they’ve been been doing overseas into the US market. Ford’s doing it, GM is finally doing it, after a decade of dumb. (Look at the Cruze.)
I’ve made the analogy that GM is America’s crackwhore. Crackwhores have johns: those sales of big SUVs and trucks, and a reluctance to do small cars, came in a climate that has enabled its dumb stuff — cheap gas, big tax writeoffs on Hummers, CAFE leniency, etc.
There’s little hope of an orderly restructuring in the current climate, when the chief desire of GOPpers with foreign-owned factories in their states is to spitefuck the UAW to death, in the hope that a reborn (even Chinese-owned) GM will move its factories to Buttwipe, Alabama, when in truth they’d be more likely to import foreign-made flex-fuel and high MPG superminis and put the squeeze on the non-union workers at the Japanese and German-owned plants in the south.
AlaskaVoice
We could give them $80 billion and it would all be for nothing, unless major preconditions were met. Changes in management pay are a must, but changes must also be made in union benefits. $40,000 a year for each employee’s medical plan is, simply, outrageous. I want to make it clear that I have no problem with their hourly wage.
The union needs to give up the "gold plated" benefits package and join the real world. Without these preconditions – I say "no," don’t give them a dime.
td
I live in a town with two auto plants. Why should the government give them our tax money to pay their employees who aren’t working to build cars that we have to buy. The cars get more and more expensive because of the rediculous labor agreements forced on them by the unions. These companies blame banks for giving bad mortgage loans but they’ve been profiting off of the same failed credit system for years as well. I don’t want to see people lose their jobs but the government isn’t going to bail out the industry I work in when people quit buying our product. The companies are in trouble and the plants are shut down but the employees are getting paid most of their wages while they are not working. I dont know what the answer is but I dont think paying people who aren’t working is going to fix it. If people quit eating McDonalds is the government going to bail them out.
Varun
It seems the CEOs of the Big Three will be headed back to Washington DC early December. And, this time they might carpool instead of flying the private corporate jets. But that does not change the fact that bailout is the wrong solution. I have written a detailed article entitled "Big Three Auto Bailout is Wrong Solution" to make my case. You can read the article in detail here:
http://commonsensetopics.blogspot.com
aaron4unitruth
There are many reasons why the bailout of Wall street and the auto industry is wrong but most importantly because the federal government is far more powerful than it was ever meant to be. Now the government can be a stockholder? Sounds too much like socialism.
http://www.theartdeptchronicles.blogspot.com