White House and TARP to the Rescue of Automakers
What now for the automakers, now that their bridge loan failed in Congress? The Troubled Assets Relief Program -- TARP -- was enacted to save Wall Street but it's already been so twisted out of its original shape by Hank Paulson that a bit more twisting to save the Big Three from bankruptcy, at least over the next few weeks, won't be difficult. The White House was behind the auto rescue, and Bush doesn't want to leave yet another failure on the portico as he leaves. Democrats certainly won't object, and Senate Republicans will growl but so what?
I expect TARP funds to be offered as a bridge loan to Detroit, especially GM and Chrysler, to keep them going until early January. The new Congress convenes January 6, and its first order of business will be to amend TARP and make it official (Bush will be President until January 20, of course, so this will be one of those odd-ball pieces of legislation featuring a new Congress and an old President).
Background: A new Civil War is breaking out when it comes to automaking in America, and it was evident in the lineup yesterday of senators for and against bailing out Detroit. Japanese, Korean, and German automakers are now building 18 auto assembly plants in the United States, none of which is unionized. Kentucky (home to Senate Republican Leader Mitch McConnell) already has Toyota's biggest auto assembly plant outside Japan. Tennessee (home to Senate Rep. Bob Corker, who came up with the "chapter 11" bailout amendment which was the basis for an attempted compromise yesterday) houses Nissan's North American headquarters. Alabama (Senate Rep. Richard Shelby) hosts a range of foreign automakers.
There's no reason to suppose the good citizens of Kentucky, Tennessee, or Alabama are particularly excited at the prospect of handing over their taxpayer money to competing firms and their workforces, especially since almost every one of these states already gave foreign firms big tax-payer supported inducements to come and create jobs there.
Besides, southern Republican are not particularly enamored with the UAW, which has steadfastly bankrolled Democrats who have taken on Republicans. (The new Congress will have at least six new Democrats from formerly Republican districts, all of whom received at least $40K from the UAW.)
Corker's compromise -- which he'll push again in the new Congress -- would force the UAW to match the wages of foreign, mostly non-unionized autoworkers in the South. This would essentially make the UAW irrelevant. Why have a union if you can get the same deal without one?
But Republicans also know that the Big Three and their suppliers are spread out over the battle-ground states of Michigan, Ohio, Pennsylvania, Indiana, and Minnesota. Republicans don't dare give up these states or alienate their citizens. So here's where political compromise comes in.
The dirty little secret is that, bailout or no bailout, the Big Three will have to lay off tens of thousands of workers over the next few years, as the foreign non-union automakers, producing cars in the United States that the American public believes are better values for the money, continue to grab market share.
Robert Reich blogs regularly at http://robertreich.blogspot.com/.
The money needed to keep Detroit going on an ongoing basis is approximately the money needed to fund the Iraq war at it's peak. Most of the money that is given to them should go straight to the workers for unemployment.
Until the big banks decide to stop freezing up credit, the auto industry will never improve. And a year off from producing inferior cars won't be the end of the world. Many excellent models are on the docks for 2010.
There would still be devastation, I know. The 300 billion already spent with TARP should have already saved the auto industry. The money would have been much better spent establishing a fund for regular people to borrow money.
We are under siege by both the bankers who refuse to lend, and the politicians who refused to make them as part of the bailout. The refuse to even oversee it.
December 12, 2008 11:53 AM | Reply | Permalink
There's a lot of non black-and-white stuff that all "sides," whether Republican/Democratic, union/mgmt, US/world carmakers, etc., don't want to hear.
Fact is, GM was working on hybrids way back in the 1970s.
Of course, Fact No. 2 is that the UAW invited the Japanese Big Three to America and then never tried to organize Japanese plants — Honda’s first plant being in Ohio, not the South, to boot.
Fact No. 3 is that the auto crisis is global, it’s an issue of oversupply, as well as German (and somewhat Japanese) companies all building too many “muscle sedans,” etc., to the point that the big German automakers want their own bailout and are talking about cutting 100,000 jobs.
December 12, 2008 5:24 PM | Reply | Permalink
Heavy industry can be re-purposed. And transport industry especially, with its supply chains having an emphasis on things both mechanical and fabricated, is ideally suited to redirection towards larger public transportation vehicles - either buses or light rail rolling stock, plus support technologies, and even components for other types of power generation, such as wind and tidal/current generation.
That way lies the future.
Dodge trucks? Smart people dodge trucks...
December 12, 2008 11:55 AM | Reply | Permalink
If companies are now considered troubled assets, where does one stop? States are underwater, as well as cities. How about the builders? The list goes on ad infinitum.
We are now in a politically directed economy. How much longer before we are talking about joining the EU?
December 12, 2008 11:58 AM | Reply | Permalink
"How much longer before we are talking about joining the EU?" Two days ago:
http://www.ft.com/cms/s/0/7a03e5b6-c541-11dd-b516-000077b07658.html?nclick_check=1
Global Government has been a solution in search of a problem for years, and the problem is now being created with the withholding of credit and the collapse of the economy.
David Rockefeller, June 1991
"We are grateful to the Washington Post, the New York Times, Time Magazine and other great publications whose directors have attended our meetings and respected their promises of discretion for almost forty years.
It would have been impossible for us to develop our plan for the world if we had been subjected to the lights of publicity during those years. But, the world is more sophisticated and prepared to march towards a world government. The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the national autodetermination practiced in past centuries."
Henry Kissinger, May 1992
"Today, America would be outraged if U.N. troops entered Los Angeles to restore order [referring to the 1991 LA Riot]. Tomorrow they will be grateful! This is especially true if they were told that there were an outside threat from beyond [i.e., an "extraterrestrial" invasion], whether real or *promulgated* [emphasis by original compiler], that threatened our very existence. It is then that all peoples of the world will plead to deliver them from this evil. The one thing every man fears is the unknown. When presented with this *scenario*, individual rights will be willingly relinquished for the guarantee of their well-being granted to them by the world government."
More quotes
http://www.911kemet.co.uk/nwoquotes.html
December 12, 2008 1:26 PM | Reply | Permalink
Any data on just how much support the various States gave the transplant auto factories, in dollar and other terms? If it is truly significant compared to State perks for Detroit, that does amount to economic civil war against Detroit.
GM needs to severely cut back on its cash outflows whether via Chap 11 or otherwise. I've heard very little about its corporate paper situation (short to long term incl. bonds). Mostly people talk about Republicans trying to extract concessions from UAW as a form of union busting.
What are the larger implications of a suspension of GM debt obligations for 12 months, as compared to the likely consequences of other plans?
December 12, 2008 2:29 PM | Reply | Permalink
Olberman said the other night in passing Alabama itself has given foreign automakers more in incentives than the Big Three bailout.
December 12, 2008 5:00 PM | Reply | Permalink
Well, If my buddy Keith says it, it must be definitive! I don't know where to begin to look for a documented quantitative answer.
December 12, 2008 7:50 PM | Reply | Permalink
Dr. Reich writes: A new Civil War is breaking out when it comes to automaking in America, and it was evident in the lineup yesterday of senators for and against bailing out Detroit. Japanese, Korean, and German automakers are now building 18 auto assembly plants in the United States, none of which is unionized.
I'm wondering if the South is ultimately going to lose this Civil War, too. I'm looking at this in two ways, each supposing the Southern automotive establishment and its Senate minions get their way.
Scenario 1. Suppose they succeed and bring unionized wages to the level of non-unionized souther labor. Would this not remove some of the stimulus to build plants in the south? All things being equal, wage-wise, northern infrastructure, northern education, and closeness to the larger urban market would seem to make the south far less attractive. If Chrysler and/or General Motors go belly up, wouldn't purchasing their newer factories and employing their highly trained workers be worth investigating?
Scenario Two. If union wages and non-union wages are brought to par, wouldn't this put pressure on the wages of those working in non-unionized plants? The general wage would spiral down, and all those southern communities trying to join the consumption economy on the backs of disorganized labor would find standards of living stagnant or declining. Perhaps this time the southern labor will learn its strength must rely on organization and protection against the predatory capitalism which first moved mills south and then to developing countries in Asia.
The new union wage will become the new wage ceiling, and the floor will crumble in the South. Thanks, Shelby, you're a Corker, you are.
December 12, 2008 2:52 PM | Reply | Permalink
Scenario two isn't every going to happen. There would be mass wildcat strikes if it were tried. It's a poison pill, nothing more.
December 12, 2008 3:36 PM | Reply | Permalink
Very interesting points!
This reader post by Steve Katz certainly lends support to Scenario 1.
December 12, 2008 3:49 PM | Reply | Permalink
Saying that the continued dominance of Toyota over domestic brands is a pre-ordained is a bit much. Sure Detroit is dysfunctional, and I'd have to guess that Chrysler is headed for the dust heap eventually. But it's not completely unthinkable that US cars can make a comeback in the next decade. Ford especially has been revamping their product line in a remarkably sane manner.
It'd be a hard fight back, but it's not unthinkable.
December 12, 2008 3:34 PM | Reply | Permalink
amike I think you are right.
The manufacturers will have no incentive to raise, or even maintain, wages, without the threat of unionization. And in most of the southern locations, no other high-paying jobs for dissatisfied workers to go to.
My father used to work at a (non-unionized) shipyard. He didn't necessarily want to be in a union, but he noticed he got a raise every year when the union showed up outside the gate.
December 12, 2008 3:39 PM | Reply | Permalink
Years ago, the South used non-union labor to kill off industry in the Northeast, e.g., the textile mills in Paterson, NJ. So obviously this type of region-centric behavior is nothing new.
December 12, 2008 3:42 PM | Reply | Permalink
I think we should recognize that "bringing wages to par" is really about bringing "cost per hour" to par. That would mean driving UAW wages below the level already current for nonunion shops in the South. According to CNN, workers in Tennessee's Toyota plant already make as much as GM workers -- but the benefit and pension burden on GM makes their cost per hour around $20 higher.
It won't mean spit, in financial terms, to drive down UAW wages $1 or $2 to make them "par" with Toyota or Honda workers. Once the UAW agreed to a rapid deflation of workers' wages, the drive would be on to offload the ancillary costs onto those workers, driving their earnings down well below that of Tennessee Toyota. This has the (intended) effect of making Tennessee nonunion jobs look very favorable to experienced UAW workers laid off or just disgruntled enough to move south for a higher wage.
Killing the UAW means killing the entire American car manufacturing industry and substituting foreign-owned industry for it. That is Corker's clear intent and we can hope that the Democrats will not allow it.
We can all do our part to block that play by buying American and getting the word out that we are buying American.
Thanks.
mp
December 12, 2008 3:44 PM | Reply | Permalink
Joseph Stiglitz in the Financial Times today:
December 12, 2008 3:44 PM | Reply | Permalink
Doesn't Stiglitz ignore the workers completely in this article? He seems to want to teach shareholders and management a lesson, which will also hurt the workers. I was puzzle by his reasoning. Plus who on earth would buy a car from a bankrupt company?
December 12, 2008 4:26 PM | Reply | Permalink
How is this for a Civil War?
The next time a hurricane hit the South, and they come wailing for several billion taxpayer dollars, I hope the Senators from the Midwest give the appropriate response: screw you.
The rest of the country has been underwriting the South ever since FDR built the TVA. Every year the Southern states get more Federal tax dollars than they contribute.
Those people choose to live in an area prone to hurricanes. Every year they get hit, and expect the rest of us to help them re-build. To hell with that.
If the Southern Republicans want to preach the gospel of self-reliance, then let them practice it.
Come to think of it, the coastal states all send in more tax dollars than they get back. This means the Democrats on the coasts are funding the Republicans in the middle. Some Senator from California or Washington should introduce the taxpayer fairness act which mandates that Federal money is spent equal to the relative amount that each state contributes.
December 12, 2008 3:54 PM | Reply | Permalink
This begs a question...are the prices for those foreign cars manufactured in southern states cheaper than if they were shipped over from their respective country's? Use to be, BMW's and Mercedes were very expensive. Have the MSRP dropped significantly due to lower auto worker wages, lack of shipping charges, and so forth? Or are the prices still high and the foreign parent company is raking in all the profit from the economy of scales by relocating their plants in the US and hiring americans workers at cheap wages?
December 12, 2008 4:03 PM | Reply | Permalink
There are several reasons that BMW, Mercedes, Honda, Toyota and Hyundai have built plants in the South. Wages are only a small part of the cost differential due to the heavily automated new assembly lines. The primary reason foreign manufacturers are relocating to the U.S. is the devaluation of the dollar since Bush took office. The cost of producing a car in Europe or Japan is actually higher than the cost of producing the same car in the U.S. because the dollar has been devalued against the Euro and the Yen. Ford and GM have excellent fuel efficient models that they simply cannot export to the U.S. because they cannot sell them for enough dollars to replace the euros they made them with. So both companies are now considering producing slightly less luxurious varients of those same European models in North America, just as some of the most popular European manufacturers do so they can use dollars to build them instead of euros. Another factor has been the massive tax breaks the foreign manufacturers got from Alabama and a few other states. Speaking only for myself as a Michigander who put himself through college and law school working summers for GM, from this day forward, I am not buying a single product that I know has been produced in Alabama until that arrogant SOB Senator Shelby is defeated in 2010. I will also speak to my auto mechanic to see if he would be willing to stop working on cars that have been produced in Alabama.
December 12, 2008 4:48 PM | Reply | Permalink
All the jingoistic bullshit I've heard over the years, all the babble about freedom and Democracy, all the flag waving, and "greatest country in the world" screeching ignored the one thing that DID make this at least one of the greatest countries in the world, at least for blue collar workers,...our standard of living.
Homes with indoor plumbing, central air conditioning and heating, fully stocked refrigerators, pantrys on overload with goodies.
A TV and phone in every room. A car and an SUV in the driveway, swimming pools in our back yards. Dressing in style. Three and 4 week vacations to places of our choosing. It was all there to be had, and many had it. This and the idea that our children will have a better life than we did was the American Dream.
What we see today is a serious threat to that standard of living. The non union auto workers are earing what they are due to the influence of
the UAW's member's earnings. If it weren't for the UAW set standard the non union workers would be making way less than what they are.
For the UAW to meet the Republican's demands of immediate parity with non union shops is a large step backwards in the standard of living of blue collar workers.
When the UAW is destroyed, the capitalists will turn their attention to the non union workers in those plants.
Jingoism never did any good for Tom Joad.
December 12, 2008 4:08 PM | Reply | Permalink
I understand the GOP wants to take a shot at unions - it is their right. But I can't believe how short-sighted this is. If the Big Three go down, many of the Senators will have voted against people in their own states who work at their factories, not to mention the tens of millions they've received from the Big Three in campaign money (The unions give less than the companies), let alone the damage this move would do to that most cherished of institutions NASCAR.
Imagine the hell the senators will catch if the stock car organization starts cancelling races?
December 12, 2008 4:25 PM | Reply | Permalink
If the big 3 go under and another 3.5M people are out of work I would expect repercussions to trickle (pour?) down throughout the country. When they destroy the middle class who do these GOP jerkoffs think will buy those Toyotas, VW's etc. etc?
December 12, 2008 4:26 PM | Reply | Permalink
Agreed. Maybe one, or two or all three of the Big Three are ultimately doomed, but how stupid do you have to be to think now is a good time for that to happen? I'm no economist, but it seems pretty clear that the economy really can't take yet another gargantuan systemic shock just now. Just putting off their demise for another couple of years would be worth the thirty four billion they were asking in this last trip.
Republicans simply seem to be incapable of imagining that actions have remote aggregate consequences. In discussing global warming, one constantly hears statements from them that reveal an inability to concieve that there could be a tipping point at which global warming could cause a catastrophic environmental cascade failure, resulting in mass extinction. Likewise, they seem incapable of understanding that sending the entire domestic auto industry to the unemployment lines at a time when the economy is in, at least, a severe recession could have catastrophic consequences.
Maybe a complete lack (or ability to repress) imagination is what makes on a Republican.
December 12, 2008 5:10 PM | Reply | Permalink
Standing together is absolutely essential if we are to make our nation strong and successful again. We have one or our nation's parties, representing the interests of capital, publicly choosing to attack the standard of living of the majority. That must be punished and there must simultaneously be a conditional offer to reform our social contract around mutual interest. Punishments might be simple tax fairness policies redirecting federal outlays away from separatists. Most importantly, the rhetorical skill Obama has so often demonstrated needs to be employed explaining to the American public how the United Auto Workers benefit them, what the real differences in wages are, and what a remake of health care policies and other matters treated as legacy costs to the automakers means for our international competitiveness. We need to pull together and we need to understand why we must.
December 12, 2008 4:51 PM | Reply | Permalink
The dirty little secret is that, bailout or no bailout, the Big Three will have to lay off tens of thousands of workers over the next few years, as the foreign non-union automakers, producing cars in the United States that the American public believes are better values for the money, continue to grab market share.
Don't count on that. Sales of foreign car makes are down as much or more than American in this crunch. The perception that they are better values may still be there but it's not born out by the reliability ratings anymore. American cars are much better than they were a generation ago and foreign cars, both Japanese and German have fallen off some.
And now that the Republicans have squarely sided with foreign automakers over American you'll see a lot of Democrats changing their thinking about whose cars they want to buy. If I was in the market I'd cross Nissan and any Shelbymobile off my list without looking back. And Toyota ought to rename the Prius the Gremlin because it's about as reliable.
Check out what's happening to NASCAR. They're losing sponsorships all over. Even Richard Petty's team is looking to merge and will only run one car next year no matter what. NASCAR isn't just popular in the South, it's damn near a religion.
These Republican senators are being very shortsighted, not only politically but culturually.
December 12, 2008 4:55 PM | Reply | Permalink
A good comment up to this point: "And Toyota ought to rename the Prius the Gremlin because it's about as reliable."
That is absolutely bogus and it a shame that you had to make that up because there is no basis for it whatsoever. The Prius is one of the most superb cars when it comes to reliability, bar none. Read the latest Consumer Reports analysis.
December 12, 2008 4:58 PM | Reply | Permalink
Show me. I don't have a subscription to CR, and I don't trust their ratings any more than I trust Zogby's self selected online polls. And for good reason. Back in 1988 CR said the Honda Civic was a great car. I bought one and had to take it back to the dealership 12 times in the first year to get a variety of things fixed. Now granted that's the first year they built them in Marysville OH in their non union plant. It was a redesigned model that year to boot but that's no excuse. Had to take it back 4 times alone to get it to pass the Illinois emission test. A brand new car. The last time I gave them the keys, told them I wanted a loaner and not to call me until they figured out what was wrong. Turned out it was a badly designed sensor and their testing machine wasn't just miscalibrated, it was broken.
As for the Prius I may be wrong but I know a number of people who own them and they aren't happy.
December 12, 2008 5:25 PM | Reply | Permalink
If southern voters thought the Republican party shut down NASCAR, (which they could by refusing to cooperate with teams) it would have the same effect that the civil rights act had in '64, only in reverse.
Actually, I saw a SPEED REPORT (Speed TV is NASCAR's FOX outlet) and it sounds like the teams are already going to be seriously hurt whether it's done intentionally, or not.
I wish they'd just come out and say it... "the GOP doesn't car about Jr. people" ("Jr. people = fans of Dale Earnhart Jr.)
http://en.wikipedia.org/wiki/Dale_Earnhardt,_Jr.
December 12, 2008 5:09 PM | Reply | Permalink
Mark, I agree, you're full of it about the Prius.
Fact is, GM was working on hybrids way back in the 1970s.
Of course, Fact No. 2 is that the UAW invited the Japanese Big Three to America and then never tried to organize Japanese plants — Honda’s first plant being in Ohio, not the South, to boot.
December 12, 2008 5:20 PM | Reply | Permalink
I disagree.
They're looking at smothering one of the most powerful American unions while it lays in its hospital bed. They'll incidentally destroy hundreds of thousands of jobs at least, and probably two U.S. car companies and their suppliers, but they don't care.
This is a chance to cut campaign funding to Democrats on arguably a permanent basis.
If you're a Republican, it doesn't get any more farsighted than that.
December 12, 2008 11:20 PM | Reply | Permalink
What Southerners who rail against those "unfair" union wages & benefits fail to realize is that labor conditions for all of us -- white-collar & blue, union & non-union -- would be a lot worse if not for the unions. The Southerners also forget to mention that most, if not all, foreign automakers are subsidized at home.
The one difference these Southerners don't mention, one that really DOES make a difference, is the egregiously huge disparity between worker & CEO pay in American companies. I'm not sure of the latest figures, but a couple of years ago, an American CEO made about 800 times what the average worker made, while a Japanese CEO made about 20 times what one of his/her workers made.
On January 20, Barack Obama will be dancing in a tuxedo bearing the union label. That's one dance party for which the Republicans won't even need to dust off their made-in-China penguin suits.
The Constant Weader at www.RealityChex.com
December 12, 2008 4:57 PM | Reply | Permalink
Wasn't the Civil War basically a struggle between regional manufacturing centers, the north depending on the employment of "free" people, and the south wanting to continue taking advantage of a unsalaried workforce?
Who in their wildest dreams thought we'd get to relive The Great Depression, AND The Civil War this holiday season?
Merry Christmas, everyone!
December 12, 2008 4:57 PM | Reply | Permalink
Yes, in fact those 'freepeople' were called 'wageslaves' by the Southern slave owners.
They seemed to think that the slaves were trading one slavery from another..the South was soooo set in their 'wayoflife' they felt they could make 'freepeople' disdainful of having to work for a wage!!
December 12, 2008 11:16 PM | Reply | Permalink
When there's a disconnect between wages and productivity, as there has been for about 15 years, while national productivity increased but wages stagnated, middle class held on through increased credit, with the day of reckoning now here. I firmly believe BO will create good jobs, the big 3 (more likely big 2) will end up leapfrogging the foreign auto manufacturers though designing and producing better, low fossil fuel using, vehicles. Infrastructure rebuilding will provide a backfire to the crashing economy and we will rebound. Only thing is, it will take about 6 years.
December 12, 2008 5:11 PM | Reply | Permalink
Supercapitalism strikes again?
To me, the 'Civil War' we're now glimpsing represents the success of corporate lobbying in a pay2play K-Street system, which reached its apotheosis under Tom Delay, Bill Frist, Karl Rove, GWBush, and Richard Cheney. But although It may appear to be a Civil War, but I'd wager that it's even more complex.
It's more like something from Star Trek, and involves strange economic factors like PrivateEquityWormholes and diabolical CDS_BlackHoles. The old economic navigational equipment isn't working; new stronger magnetic forces are screwing with the compass settings, and Paulson can't seem to figure that out.
The forms of energy and technology that drove the (abusively unethical) GOP-K Street political configuration seem to be breaking down, and the good news is that nothing can save it.
Whatever comes next, one thing seems certain: the political model that the GOP thought was infallible, which was based on marketing elections in a free market fundamentalist political culture, is rapidly becoming deader than a dinosaur.
The unions, which went through a phase in which they were outmoded, outdated, and authoritarian, are a better model for a society without safety nets. They can offer what people need: social protection, a sense of belonging, and the ability to take meaningful (nonviolent) action. The corporations, which were once able to provide identity and security, no longer can. And this "Civil War/Cultural Cataclysm" is revealing these contrasts in spades.
I'm not convinced this is a "Civil War" as much as it's the tip of an economic and cultural slow-moving cataclysm; it seems to go deeper than geography or party alignments. The GOP is still protecting a holdover version of K-Street's political calculus that seems about as relevant as Windows 3.0.
Strikes me as short-sighted, but doesn't surprise me one bit.
December 12, 2008 5:24 PM | Reply | Permalink
The republican excuse of "trying to protect the taxpayer" has a few holes, the first of which is the fact that most autoworkers are probably taxpayers. Secondly, should congress not work to raise all Americans standard of living rather than try to lower any particular groups?
Lowering the standard of living of any American sounds anti-American to me. But, if we were aiming to lower a groups standard of living, can we not find a more deserving group other than 60 grand a year workers? (sports, entertainment, CEO's, or other completely non-productive individuals like say, politicians).
December 12, 2008 7:11 PM | Reply | Permalink
I don't know if the Republicans have thought this through, or what an opportunity it presents to the Democrats:
1. The automakers file for protection under Chapter 11.
2. Shareholders and bondholders are wiped out. There is no equity left in these companies.
3. The Federal government steps in and buys (nationalizes) the auto companies by simply assuming the debt to trade creditors and guaranteeing future payment to these trade creditors.
4. The upper management is replaced by government managers being paid at GS13. No more excessive executive salaries and bonuses!
5. The Federally owned car company starts producing fuel efficient green cars, and can provide the financing to consumers to purchase these cars. There is no longer a need to offer incentives to car companies -- the government just does it.
6. The Federal government assumes the liabililty for pensions, which it is on the hook for anyway.
7. Since health insurance costs are significant, a national health care program can be adopted which will cover the auto workers (and everyone else).
Forcing the auto companies into bankruptcy makes it so much easier to nationalize them!
December 13, 2008 12:36 PM | Reply | Permalink
Allowing Lehman Brothers to go bankrupt was the trigger that set off the current world-wide financial crisis. About the only two people who still defend the decision are Hank Paulson and Timothy Geithner. If you want to argue that the auto companies should not be bailed out, you should look very carefully at the credit collapse following the collapse of Lehman brothers: Fannie Mae and Freddie Mac, AIG, Washington Mutual.
Allowing the auto companies to go bankrupt will be the second blow to the U.S. economy, and will have far more devestating effects on the American economy. Rescuing the auto makers will be far less expensive than letting them go bankrupt. The government really has no choice at this time but to nationalize them, as follows:
Replace the Boards of Directors by federal oversight committees which will have all the powers of a bankruptcy judge. The auto makers have already agreed to these oversight committees. Suspend payments on debt. Leave the stockholders in place. Free market principles would argue that no investors, neither creditors nor equity holders, should be protected. Anyone who bought auto company stock or debt in the last 5-6 years should have realized the risk they were taking. The debt on GM and Ford has been junk status for years. Chrysler is privately held, and only the workers deserve any sympathy.
Auto dealers should also receive no protection. It is time to retire the present model of automobile marketing. Union members and management alike should receive pay at scales comparable to the govenment's GS scales.
The oversight board will have to oversee the downsizing of the current companies to a size which can survive, and point them in the direction of producing energy efficient automobiles, hybrids, electric cars, and busses and trams for public transportation.
(GM used to make city busses and diesel locomotives)
The transformation of the auto industry will take many years; but it is a project worthy of investment. The country will always need transportation, and we are trying to increase our manufacturing sector, not decrease it. The downsizing of the manufacturing sector began, I believe, with Reagan. The Republicans are so bent on destroying the unions, that they are willing to destroy the country in doing so.
December 13, 2008 6:33 PM | Reply | Permalink
You're exactly right about Lehman.
According to the weekend FT's Markets column
that ranks third among the year's worst financial mistakes (after the Fed's poorly explained January rate cuts and the ECB'S July rate increase).And if the auto bailout is not rescued that will become the #1 failure.
December 14, 2008 10:19 AM | Reply | Permalink
Could you say why you're sure of that ? My impression is that nothing is forever. Perhaps you think what happened yesterday is bound to happen tomorrow.
Could be. Or could be that as with countries and baseball teams there are cycles of various lengths. Sticking to business it's easy to observe that companies get worse and then some of them get better. For example Apple over the last 20 years.
If you'd like some other examples re read Tom Peters' "In Search of Exellence".Then look up what happened to all those exellent companies since then.
Most failed.
Some of those failure have since returned to "excellent" performance.
I read Supercapitalism with increasing uneasiness because you seemed to have somewhat surprising confidence in your ability to make predictions.
With the greatest respect for your intelligence and accomplishments-not particularly in business I believe- I actually think that neither you nor I have any basis of making firm predictions about the american consumers' assessment 5 years from now of the relative merits of the US and foreign car companies. In part because we have no basis for predicting how their respective managements will perform in the interim. Or even who they will be.
I have no doubt that you agree with me that there is no inherent reason why americans can't make cars. But ad arguendo were you to believe there's something in the Japanese gene pool that makes them inevitably superior , well the Red Sox bought Daiskai.........
Of course you may be right. Or even I might be. And given, what I at least think is that degree of uncertainty, Obama would be behaving rashly if he formulated his auto policy on either assumption.
And if he is not going to assume you're right,common sense suggests he should act in such a way that, if I am, the industry-and country- can benefit from it.
OBTW this afternoon,for the first time in years I checked Consumer Reports' ranking of new cars expecting the US cars to be a sad story.I wasn't making notes but I certainly recall a Chevy and a Ford among the top choices. Somehow.
December 13, 2008 8:54 PM | Reply | Permalink
I'm still waiting for someone to explain to me why the Big 3 autoworkers should have their jobs and pensions protected when other American workers are being thrown out of work and the bankrupt companies they worked for are running out on their pension obligations. Why the UAW members and not everyone else?
December 14, 2008 11:31 PM | Reply | Permalink