Friday, November 14, 2008

A Rational Look at the Auto Industry

There's been no shortage of ill-informed and, at times, angry editorials and columns in favor of letting the American auto industry die. But sanity does prevail at Talking Points Memo, where Josh Marshall gets real about why we should bail out the Big Three, despite their myriad mistakes:
"We've been fielding emails all day in response to this morning's post on 'drift'. And the ones that have particularly stuck out to me are the ones about bailing out the auto industry. Quite a few readers are of the opinion either that the Big Three are ground central for global warming and/or they've spent thirty years making cars that can't compete with Japan, etc., so just let them fail. It's over. They've had their chance. It's done.

"I have to tell you this just strikes me as nuts — and beyond being nuts represents a great failure of imagination.

"The auto industry — directly and indirectly — employs a ton of people. Even in ordinary times having that all gone down the tubes would mean a massive shock to the economy. If we can avoid having that happen now, why would we possibly let them happen in the face of what already promises to be a massive recession?

"Second, on the question of the environment. There is no question that the internal combustion engine is at the heart of the climate crisis. But getting rid of Detroit won't get rid of cars. More to the point of creativity -- one of the things about crisis is that it opens opportunities would never exist in normal times. People have been looking for ways to get Detroit to get serious about developing cleaner, more fuel efficient cars for years. At this point, we're beyond that. We need to get serious about cars that don't use gas at all. If the whole domestic auto industry is all but asking to be taken into federal receivership, that tells me that the people running the federal government now have quite a lot of leverage.

"I don't pretend to know the mechanics or precise solutions. But these are times that call for boldness — and more than just boldness, which gets said a lot — but creativity to rises to the challenge of the moment."


Think the collapse of the American auto industry would be a regional problem? Think again says a New York Times editorial:
"Senator Richard Shelby, a Republican of Alabama, is wrong when he says that the troubles of the Big Three are 'not a national problem.' The Detroit companies support nearly 250,000 workers and more than a million retirees and dependents, as well as millions of workers at part makers and dealerships. A messy bankruptcy filing by any of the big car companies, in the midst of this recession, would likely cost the government and the economy more than trying to keep them afloat."
But any bailout should come with conditions:
"This goes beyond firing top management, forbidding the payment of dividends to stockholders and putting limits on executive pay — all necessary steps. The government should insist on a complete restructuring of any company it pours billions of public funds into."

6 comments:

  1. Gordie, Gordie, Gordie, where do I start?

    Let's lay out a few facts we can all agree on. First, the auto industry is not responsible for global warming. Consumers are. GM and others are simply responding to the marketplace. Today, you can buy a Ford or Malibu hybrid sedan, and the
    Chevy Volt will be revolutionary, but of course, GM will take a loss on each car. That won't help them out of their mess. (People who blame cars for our environmental mess should be reminded that bovine flatulence, caused by a corn-based diet that is unnatural and harmful to the animals, contributes as much methane as all cars. This, of course, is driven by the demand for beef. So the anti-car environazis can get off their high horses unless they're vegetarian.)

    Second, most people in this debate are truly clueless about the real issues. Unfortunately that includes almost all of our politicians. With the exception of Michigan's congress-people, who simply do what they're told by the auto industry. If they have any real insight, we'll never know.

    Third, the products are fine. A U.S.-built GM vehicle is way better than a Mexican-built VW. The difference in quality between a Buick and a Mercedes in negligible, especially since Mercedes and BMW are in a war to outdo each other with unproducible technologies that nobody wants.

    So, what's the real problem? The real problem is, as has been copiously documented over the last several decades, is the corrupt and cloistered executive managements of the respective companies. Also, the fundamental reason for each company's existence leads each to its own destruction.

    For example, the purpose of the Ford Motor Company is to keep the Ford family from having to get real jobs. (Again, don't take my word for it. Read the literature.) Their incessant inbreeding with the Firestone family has not led to an imaginative solution to Ford's problems. They simply appoint the least genetically abused family member to work himself to death to keep the family fortune at least somewhat intact.

    The purpose of the GM is for the executives to maintain their little club. Anyone who's gotten close to the 14th floor (or whatever it's called these days) knows that the executive culture thrives on being worshiped. I'm not making this up. Micheline Maynard of the New York Times called this out a few years ago, and she's on the money.

    Not on the money is the idea that a government bailout will solve something. It won't. It will only prolong the agony. GM and Chrysler are going out of business because they don't make money. A bailout will not change that. GM's been going out of business since 1985, so no one should be surprised that what's happening now. The economic crisis has accelerated the process, but probably not by much.

    For those of you who support Obama, I would suggest that you don't want him to get in over his head on an issue he'll never prevail on. I read somewhere that he's interested in appointing a "car czar." A government appointee, subject to all of the political stupidity currently manifesting itself in the press coverage, will never be able to deal with the industry's complexities and nuances. In short, it will be total failure and a total waste of money.

    Let GM and Chrysler go bankrupt. Bankruptcy is a process. It allows the companies to stay in business and forces them to make changes. Or die. Death is not a bad thing.

    But, savvy investors can see that there's a lot of value in the car companies. They make great (if unimaginative) products. They have outstanding workers in engineering and production (the marketing, however, is awful, and contributes to the problem). There's a market for the cars. There factories to make the cars and dealers to sell them.

    The problem is the executives. The auto industry labor movement is a reaction to the executives' culture of corruption and abuse. Today, they can't get the National Guard to shoot at auto workers because it's illegal, not because they don't think it's a good idea. Auto execs will blithely lie, cheat, steal, or even do something unethical so they can continue to squeeze the goose and shoot the golden eggs in their own narcissisticly general direction. (These tactics, which are rationalized as being good business practice, always backfire. GM executives are finally in the path of their own collective backfires - the emotional flatulence of all of their customers, past and present, who see through the childish games. Far from controlling their message, they have created a mess that they can't control.) And when the goose is dead, they can walk away rich, fat and drunk on GM executives' wine of choice, Blue Nun. Realistically, you can't deal successfully with a cabal of pathological liars. They've consistently ruined it for everyone else. With the executives out of the picture, all of the other problems can be solved by the intelligent and decent people who are already in place.

    But alas, even the New York Times can't get it right, saying, "This goes beyond firing top management, forbidding the payment of dividends to stockholders and putting limits on executive pay — all necessary steps. The government should insist on a complete restructuring of any company it pours billions of public funds into." In the real world, restructuring is handled by top management. Obviously, the company needs a radical restructure. A massive loss of jobs will result whether they go bankrupt or are bailed out. So let's not waste taxpayer money to prolong the inevitable. The war in Iraq already shows that politicians of both parties are eager to initiate destructive and unproductive initiatives using our hard earned dollars. And then point fingers later.

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  2. It's not about "letting the auto industry die." That's not going to happen regardless. It's about restructuring it into something that is capable of sustaining itself financially, something that won't happen if the taxpayers simply continue to shovel money at it with existing union contracts and management.

    GM isn't an auto company. It's a corporate welfare state and finance corporation that makes cars on the side. And I say that as a Flint native and someone who has a brother with a family in the Flint area who has a lot to lose in such a restructuring.

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  3. maybe we should look at bailing out the auto industry not in terms of bailing out the companies or the execs, but about bailing out the employees, the retirees and the ancillary businesses in michigan and throughout the country that would be devastated if the industry collapsed. that's way too many people to be out of work, out of benefits, and out of retirement.
    seems a no-brainer to me, especially if there ARE strings attached.
    as for the products made in detroit: it's as much about demand as it is about supply, which i don't think those of us on the coasts realize. someone close to me just got back to the SF Bay area from two months in PA, where she worked on the Obama campaign. She did not notice one hybrid during her travels. and in fact, whenever her very liberal buddies there found out SHE drove a hybrid, they would respond with that all-knowing "only in california" laugh and say, "of course you do." bbk

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  4. And in the SF Bay Area the inverse is also true — you simply never see a Buick. And when you do, it's got a blue license plate, indicating it was purchased more than 20 years ago.

    And it drives my friends who work for the Big Three crazy, but many people still view U.S. cars as poorly made, despite the quality surveys that show it simply isn't true anymore. Which confirms oakparkmark's point that American cars have horrible marketing. The Caddy commercials during NFL games are a good (bad) example — they are horrendous.

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  5. Not to have an onslaught upon me, but weren't Chrysler cars badly made in the 80's and that's why they needed a bailout back then? Could one bad apple, give all US cars a bad name?

    I think GM has always made good cars, but even in the 80's I only saw Toyota and Honda on the East Coast. So when did that shift to foreign cars occur?

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  6. Oakparkmark, I =agree= with you in the main. But I have to disagree in some of the particulars:

    First, MI’s congresspeople don’t just do what they’re told by the auto industry; they also do what they’re told by Big Labor. They are worse (much worse) than useless—-they are a large part of the problem. And Big Labor priced itself out of work-—is this really a controversy? I remember line workers (or was it tool-and-die folks?) making $48 an hour. Today, BA in hand, I make $19.50 an hour.

    Big Labor also contributed Big Money to Obama’s campaign. So I have Big Questions about what comes next-—tho’ I voted for him, and I think it is justifiable to expect great things from him.

    Second, GM product is not just fine. My husband has a GM fleet vehicle (Chevy Uplander), and I have a Toyota Echo. We both prefer to drive the Echo.

    The van, which he’s had since April 06 and got as a brand-new vehicle, has appalling ergonomics and no storage for anything-—but that’s the least of it. My husband has had repeated problems with the fuel gauge and front end noise. The bearings needed replacement and the CD player has stopped working. His transmission burned out!

    A co-worker’s van’s engine (same age) had to be completely replaced, and another went through three sets of bearings in less than six months. All the brakes in the company fleet pulse.

    Before the Uplander, my husband had a company Trailblazer (also a brand-new vehicle). Its transmission failed the first time he tried to put it into 4WD, with less than 500 miles on it. His first GM van had headlights that regularly filled with water, which of course shorted out the bulbs.

    My husband compares GM products to Microsoft’s: It’s not that they suck, it’s that they’re vacuums.

    My Echo, which I bought privately and =used= in 2007—-it’s a 2001-—has had not one single thing go wrong in the time I’ve owned it. Not one. Its interior is beautifully designed (astonishing room for such a small car—-my tall husband appreciates that). It gets 40mpg; it’s a manual. My tiny little auto has literally three times the storage options from the front seat that the Uplander has, and-—little things matter—-the Echo is the one that has a grab handle, above the passenger door.

    Third, the argument over global warming isn’t over corporate vs. consumer contributions. It is that humans, in general, are contributing to warming, via demand and behavior and waste and all the rest of it. And if I extend your argument, it would be that we should hold drug dealers blameless because, despite the nature of their product (read great-big gas-guzzling vehicles, or illegal, often dangerous drugs), it is the demand that is the problem, leaving responsible stewardship behind. This is the problem, IMHO, with laissez-faire capitalism!

    Have you ever heard Chris Rock doing his response to "Guns don’t kill people, people kill people"? The routine is all about the cost of a bullet.

    And last, I have been in favor of a complete restructuring or collapse of the auto industry since I was a kid. So can we take my "demand for beef" (since I truly wasn't buying any) off the table? Using the consumer guilt card, for all that I completely understand (and support) the anger behind it, is not a productive way to wage this argument.

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