Wednesday, November 19, 2008

Bailing Out Detroit

Since the public eye has swung back toward the financial crisis the only thing I hear on the radio are interviews with executives from domestic automakers or the unions. On top of attempting to get government assistance, in both Canada and the U.S., they appear to be trying to make their case to the buying public. We are supposed to soften up and encourage our governments to hand over enormous amounts of "short term" cash to car manufacturers because they are the backbone of our collective economies. 

For now, this is a generally true statement. But who, other than a strict conservative, wants that to continue being the case? The US has already carved out 700 billion to distribute amongst the most guilty parties responsible for this crisis. Now, other than the direct link to the oil industry, the second-most culpable group wants money to stay alive? They don't appear to be even cracking a smile when they ask. The 25 billion dollar figure that keeps floating around, by most estimates, won't even cover GM's troubles over the next two years. Forget about Chrysler and Ford. And what would they do with this infusion of cash that would help them become viable in this new world order? I don't think they have it in them to change this much. They're dinosaurs and have already been out of touch for more than twenty years. May I remind anybody  "Who Killed the Electric Car?"

I've been thinking about it quite a bit, because it's unavoidable, and I am personally turning a cold shoulder to all big 3 automakers. We are trying so hard in North America to keep using the broken system because so many are plugged into it and don't know anything else. But, it's time for everyone to reclaim that pioneering spirit that we all grew up learning about in our history books and decide what the new backbone of our economies is going to be. New clean and renewable energy research and infrastructure construction alone would likely replace the jobs lost by the automakers going under. And that's only one new wave of industry (that is being blocked at every turn by the desperate bureaucrats still grasping onto their old world power).

If the governments support this buyout, who is next in line? I'm sure whoever they are, they will make a strong case about their past glories and importance to the overall economy. It's all just too absurd. Whatever happened to competition - fair and square?


Anonymous said...

Great post. This is something that's been talked about in this household for a few weeks now. Personally, I am not in favor of bailing them out. I realize what the collapse might do to states like Michigan, Ohio, Penn. The U.S. stands to lose 2.7 million jobs directly and indirectly related. But the point you make about renewable sources and a re-tooling the industry is something we've always stressed in our talks here. There are millions of new jobs waiting to be created, millions of people can be re-trained.

The Big 3 have had faulty business models for decades. Remember, this is the same industry which feverishly opposed seat belts, higher standards for mpg., airbags, etc. Historically, the auto industry has always resisted and balked at safety innovation and change. At the risk of further collapsing the U.S. economy, I say do not bail them out.

Also of note, China's auto industry is heavily pressing Beijing for a bailout due to severe slowdown.

Here's a good article on the British lesson on auto bailouts:

sleepyjer said...

(I can't believe I'm saying this, but) Ashton Kutcher had a good idea when he appeared on "Real Time" this past week. He suggested the oil industry use some of their record profits to bail out the Detroit.


the beige one said...

Fact - During the Clinton years, the Big 3 were getting government funding on the condition that they would be developing more fuel efficient vehicles, and hybrid technologies; the goal being to get ready to wean the nation off of oil.

All of that work was abandoned the moment Bush was elected into office. Their factories could be churning out products that would be realistically competitive against the Prius at this very moment. They just figured it wouldn't be necessary.

JJisafool said...

Yeah, Jerry and Ashton, at what point do we encourage the government to go after the ill-gotten gains of the individuals that created this mess? They stole money from our collective pockets.

Anonymous said...

The only way change seems to happen is at the very last second when there's a dire need and no other option unfortunately. Proactive planning seems to be trumped by corporate greed. Let them 'fail' so we can all finally move forward please.

New paradigms, a holistic approach to problems, connecting dots, innovation, new jobs...aaaaand GO.

JJisafool said...

I actually stand with Big Eddie Schultz on this one - I was listening to him on the way home. This is a $25 billion loan to be tapped during retooling and the current crisis (the news on consumer prices was chilling). I am not for doing nothing merely because the problem shouldn't have happened in the first place. My daughter should know better by now than to touch the stove, but I'm still going to bandage her hand when she does.

And, I also think this is easier to say than do. When I was in Crit Theory classes with all the young theory-heads, the question I often had to bring tham back to was "Who does the dyin'?" And, it wouldn't be any of us. It would be the same people already taking it hard in the ass during this recession.

You want to redress the wrongs that got us here, go after the execs. Make the loan contingent upon drastic reduction of exec salary, or maybe even one-year compensation freezes. Make the rich dudes that run the companies take the money from their pockets before they dip into ours.

But, my feeling is we're all being a bit cavalier here about "letting them fail." They aren't just companies - they are literally millions of lower-education blue-collar workers, and if for nobody else, we should be fighting for them.

sleepyjer said...

We must also remember it is not just the Big Three. There are roughly 5000 company's that supply auto parts to the big three. In the last two years 100,000 jobs have been lost in these companies due to sagging sales in Detroit.

To look at it another way:
According to Planet Money (an excellent blog and daily podcast) each Ford F-150 pickup truck "contains 4,350 parts, made by 270 suppliers in 26 states as well as several foreign countries. Every F-150 that doesn't sell hits literally hundreds of thousands of people."

Anonymous said...

I'm still not even close to being convinced, even after having read these eloquent comments up above. I do realize what the collapse will do to the blue collar workers. GM's chairman, just to-day, admitted there is no way he can promise he (and the others) won't come begging back for more money in March. This is a blank check.

Why isn't there more outrage at Paulson doing a bait and switch last week w/the bailout package, by the way? I am fucking fuming over the decision to funnel money to banks, and HOPE they'll make loans. Are you fucking insane? They're going to buy up the competition. This is outrageous. This is the stuff that makes me think Americans need to grow back their bollix and deal with the coming tidal wave that is the collapse of the auto industry. Otherwise we'll see these boys come back begging next spring, after having squandered the $25 billion. I'm sorry, but in light of Paulson's move, on this issue I stand harsh and firm.

Anonymous said...

JJ when I say let them fail, I do realize who's involved and what's at stake.

And I'm betting the government will not let them fail nor do I have high hopes that a reasonable arrangement will be in something that tax payers will think is fair, such as some of the suggestions made in this comment section.

So all I'm saying is that the massive changes that need to happen probably aren't going to come with a bailout.

JAC said...

I just wanted to point out that I'm not unaware of the consequences of the collapsing auto market. But, it has to be time to make hard choices. Forgiveness and consideration for the little guy is what they're using for leverage. I say necessity is the mother of invention. Nobody wants to force suffering and sacrifice, especially on those who are undeserving, but how long can old economics trump the natural future of our planet? I definitely think it's time to sacrifice to make the shift that's needed.

anna said...

What's stopping Capitol Hill from attaching solid, non-negotiable ultimatums to the bailout money? Hey GM, you can get this cash... if it actually goes to getting true fuel-efficient vehicles on the road. Yo Ford, you can get some money, too... if you rework your plants to build the buses AND TRAINS we need to improve our sorry-assed public transportation system.

OR what would happen if the government sat the Big Three down and said, "What say you we give this money to Vestas and Spire and some of these other companies actually working towards alternative energy sources? Maybe some of it goes to your employees, to help retrain them for jobs with these folks? How about that?"

I wonder if this is also tied into immigration reform. I mean, no need for the corn growers and meatpackers in Iowa to hire Mexicans when we got so many desperate Americans who need jobs.

sleepyjer said...

From what I understand (and this is mostly from memory from Planet Money podcasts), after the bailout was rejected the first time, there was a hidden addendum placed in the package that enabled the treasury to buy up bank stock at thier disgression (much to the chagrin of the banking industry). Economists in general thought it was a better idea than buying up billions of dollars in toxic assets as was the original plan and now that the treasury has come around to the fact that buying the toxic assets would be too time consuming and risky they have come to understand it too (this is something that economists could have told them if they were consulted in the first place when the package went before congress).

What is more outrageous to me (and this ties in to Beigy's post on keeping the duck doesn't overcrap (yes, I said it) his pond, is this.

Anonymous said...

Anna, this comment ties in w/the one i made on the entry above this. Washington is overrun by lobbyists. The most powerful ones are working for the oil industry, the auto industry, coal and energy, and the AARP, believe it or not.

The good ol' boy network is alive and well in Washington. I agree wholeheartedly with you on conditions. I desperately want to see those. $25 billion is enough to float GM and Chrysler to March. Perhaps. The CEOs themselves admitted to that.

Anonymous said...

Here's a nice little gem upon which I just stumbled today:,general-motors-opens-its-first-factory-in-russia.html

sleepyjer said...

Here is something that (I believe) supports my previous post

the beige one said...

Just struck me...What in the world are the Big 3 asking for from Canada? How much?

JAC said...

GM is looking to the Ontario government for support because that's where the concentration of their manufacturing is in Canada. I haven't heard a distinct number like I've heard with the U.S. company-wide bailout amount, but it's significantly less. The Ontario government is pretty cash-poor as it is. The rest of the country has been trumpeting the news that we've gone from being the "haves" to the "have-nots" all in the space of a few years.

sleepyjer said...

Yet another take on who will be affected (again, from the Planet Money blog):

My husband and I felt pretty insulated from severe effects of "our economy in crisis". At 51, our mortgage is almost paid off, we have no debt and we live a happy life. We both felt that our jobs were pretty secure at least for the time being. Then yesterday at a meeting at the local tv news station where he works they were told that if the Big 3 go down, they'll be in dire straights due to the amount of ad money from automakers. Here we are in Portland, OR, the economic crisis at our door.