In September I was willing to give some slack to the government to help bailout the banking industry. Unfortunately, the first roll out of that bailout has been a complete debacle and there are stories coming out that we don't even know who is receiving the money. This is quickly becoming one of the largest public lootings in our history. Now the big 3 automakers want another bailout. Talk about bad timing.
Living in Michigan I have the unfortunate perspective of watching the decline of the American automakers. Their demise has been a long time coming but laughably they are now arguing that they are "turning things around" and that the reason for their troubles is the bad credit markets. It's ironic because I thought the first bailout was supposed to loosen up those markets.
But let's be honest, the problem isn't solely that the big 3 can't get loans it's that they are poorly run companies who sell products that the public doesn't want to buy and they pay their employees more than they can afford. No amount of government handouts are going to change that. In fact, it will probably only protect that failing culture by insulating them from the consequences of their poor decision making.
The problem is that the bailout floodgates have been opened and once you give one industry money, how can you say with a straight face that another industry doesn't deserve the same thing. Well I guess you can say that if you are Paulson and your only interest was in protecting your fat cat friends on wall street.
To completely understand why there is so much pressure on the Democrats to pass a bailout for the automakers you have to acknowledge the elephant sitting in the room: the unions. If the big 3 go bankrupt all those union contracts will be voided and the democrats will lose their control on a huge sector of voters. If the government bails them out then the unions can continue to go along as they please and the workers will be forever indebted to the Democrats.
But a bailout will not solve the long term economic problems of the big 3. They simply cannot continue to pay the high wages and benefits the unions demand and be competitive in the market place. The built in disadvantage for car makers who have unions vs those who do not have unions is $2000 per car. That's not going to change with a bailout but it might change if they go through bankruptcy court.
Finally, there has been a lot of talk lately about Gov. Granholm leaving Michigan to become part of Obama's administration. Some even speculate that he will name her "auto czar". If he does that he is dumber than Republicans suspected as Granholm has been fiddling for 6 years while Detroit burned. Instead of Granholm, Obama should back up his bipartisan talk by appointing Mitt Romney as the auto czar. He just wrote an excellent column in the NY times and has the business experience that is needed to turn around the automakers. But somehow I doubt the unions will go along with that idea.
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3 comments:
Couldn't agree with you more. Especially about Obama not appointing Granholm to any part of his administration.
My dad, Todd and I had a silly, but interesting conversation last week. We feel that if the government would have/could give each American citizen 1million dollars the problems would have been solved and it would have/is a lot less expensive. ;) If we all had a million dollars, most of us could pay off our mortgages (helping the banking industry) and buy cars (helping the auto industry)! Then, we could turn around, sell our houses and build new (helping the building industry) and buy new furniture (helping the furniture industry)! Great plan, huh!?
On the more serious side, though. Where do the bailouts end?? Who's helping the small business owners like my dad? Who's helping the furniture industry like Steelcase and Herman Miller. Not to mention all the other businesses struggling. I heard yesterday that even Focus on the Family had to lay off over 150 people!
Jeff,
wow a post that is correct :). The only thing I would add is that the current Chrysler problem is that they did not let them go in the late 70s early 80s. Look at how much better the other two companies would be as Chrysler's customers would have gravitated towards Ford or GM.
One of the other things that nobody is talking about when it comes to this portion of the economy is that some of these companies need to die or become smaller independant companies. They are only taking up human and economic capital, which can be used in other smaller start up companies. Part of the credit freeze is that the big 3 are in so much debt and nobody believes they will pay back any loan thus nobody trusts anybody.
For example Sears, Chrysler, Ford, GM, Macy's, amongst other companies were horrible at something in the 70s and 80s, and it is what people are complaining about now. The Conventional Wisdom is that all these companies are making things people do not want currently. Well, that really took place in the mid to late 70s and into the early 80s. You saw these horrifically ugly cars, appliances, and clothing at much higher prices(in fact Jeff I remember the one that had flying engine hoods). Does anybody remember the Pinto, olive washers, and plad on every rack to name a few. Some of our Grandparents continued to buy from these companies out of loyalty, however some went to other brands while our parents had little loyalties and we have zero loyalty to these dinos. However, there is no WWI generation left, few of the forgotten gen, the greatest is rapidly leaving, and now the Korean war gen is starting to die in rapid succession. What does this mean? That the companies listed above have fewer loyal customers, and of those left they are at the end of their purchasing power, as it shifts to medicine.
I am actually of the belief that these companies actually have been the leaders in developing some of the best current technology. There problem is that nobody really cares about them unless they work there. If you go to any of these companies they maybe the best positioned technology companies in the market with products that actually have value to the consumer. Yet, do to the lack of Gen X loyalties they maybe a lost cause.
One of the things I will never forget from some of my business classes is that large companies take 25 years to die. Each of these companies above are in the beginning, middle, near the end, or living on borrowed time. As our Grandparents leave the earth, these companies have fewer customers leaving a fewer reasons left for existence. Eventually Wal Mart, Lowes, Honda, Toyota will all have the same issues due to better competition and the loss of their current core customer. The longer we let the first group survive the worst the market gets, since there will not be people who want to build something because customers, capital, and employees are tied up in life support companies.
CJ
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