One More on the Pile
We’ve had talk of a federal bailout for the auto industry that didn’t make sense, and also talk of a GM-Chrysler merger that didn’t make sense. The current thinking, it seems, is that we should try to do both:
The Bush administration is examining a range of options for providing emergency financial help to spur a merger between General Motors and Chrysler, according to government officials. [...]
G.M. and the parent of Chrysler, Cerberus Capital Management, are in talks to possibly merge the two companies, which are losing sales and hemorrhaging cash. People close to the talks said G.M. needs between $5 billion and $10 billion in assistance, mainly to cover G.M.’s own needs between now and the time of the merger.
It would make a lot more sense, in my view, to take however many tens of billions we’re considering spending on the auto industry and instead spend that money on direct assistance to people working in the industry and in Michigan more generally. Let the bankrupt firms go bankrupt, and let their assets be liquidated and redeployed in a more efficient way or under better management. The collapse of the US auto industry would be bad for a lot of people. Trying to help people is a good impulse. But trying to help people by propping up failing firms is an inefficient and ultimately unpromising way of doing so. Just help the people and let the firms die.
70 Responses to “One More on the Pile”
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October 28th, 2008 at 8:34 am
Wouldn’t it make even more sense to tie the money to higher fuel efficiency standards?
October 28th, 2008 at 8:36 am
Sure we need to let the firms die, but it needs to happen more gradually. Michigan has a cluster of high-tech manufacturing operations that supports the economy where a good chunk of the state’s 10 million people live. Economic de-clustering would be a brutal negative feedback loop where jobs leave, then people leave, then companies (having fewer customers) leave, taking away more jobs. If we just give everyone generous unemployment insurance and “let the market work” we might end up where all of southeast Michigan goes the way of Detroit, with infrastructure crumbling but too expensive for the declining population with declining wages to maintain.
October 28th, 2008 at 8:40 am
The weirdest part about this era of conservative nationalization is that it seems to be adopting the elements of socialism that are widely regarded as the most clear-cut failures even while steadfastly refusing to even consider a moderate safety net. Whether it’s the auto industry, the banks, or (if McCain had any chance of being elected) the mortgage industry, the major strategy of the GOP seems to be direct government involvement in the operation of bailed out industries.
In virtually every country that has had a socialist political party, the ‘moderate’ left has largely rejected the position that the government should be running businesses. Instead, most focus on exactly the kind of safety net that you’re talking about. At this point, the GOP’s bizarre tunnel-vision, skipping straight from 19th Century “you can die in the streets” laissez-faire to mid-20th Century central planning, with aid for the poor being the ONLY thing still off the table, almost seems driven more by cruelty than anything else.
October 28th, 2008 at 8:43 am
“Wouldn’t it make even more sense to tie the money to higher fuel efficiency standards?”
CAFE standards are a crappy solution to our energy problems, but why not? If we’re practically going to nationalize the auto industry, we might as well say they’re going to build fuel efficient cars. And they’ve got bring down the cost of the Viper below $40K, and stop making Corvettes. Rengotiate the labor contracts, and severely limit executive compensation. Call it “American Motors”. I hear that name’s available.
October 28th, 2008 at 8:51 am
“Just help the people and let the firms die.”
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
FAIL! It’s “Just help the firms and let the people die.” Automobile companies are notoriously difficult to start from scratch. Once an established firm, however sick, is allowed to die it rarely gets revived or replaced. People, however, get replaced every day. Tens of thousands of new workers enter the workforce every week. Those that perish are merely victims of the natural order of things, no different than the lame antelope culled from the herd and eaten by lions. People may be our most precious resource but they’re easy to make. Training them to run an impact gun on an assembly line requires no vast allocation of education money. Spit them out, feed them until they reach majority and point them towards a time clock. Punch, punch, punch, die. Rinse and repeat. It’s worked for centuries, why stop?
October 28th, 2008 at 8:53 am
Ano said:
No need to panic. Bankruptcy doesn’t mean the companies go up in a puff of smoke. Look at the airlines, most of them have been in and out of bankruptcy at least once and never stopped flying. A bankrupt GM would look a lot like the current GM, only current shareholders would be wiped out and creditors would become the new owners. This would also almost certainly bring the change in leadership that GM desperately needs. It would only accelerate plant closures and layoffs that are going to happen anyway.
Don’t let anyone tell you that a bailout of GM & Chrysler is about “jobs”. It’s not. The jobs that have to go to make those companies stop bleeding money are going to go no matter what. A bail-out is about saving current management and shareholders from paying for their mistakes.
“Just say no” to more bail-outs!
October 28th, 2008 at 9:00 am
In Al Gore’s ‘An Inconvenient Truth’ there is a graph that shows how the fuel economy standards of American manufacturers are way below even the cars that the Chinese are driving in China.
The FREE MARKET is working exactly as it should. Chrysler and GM rejected making more fuel efficient cars, lobbying hard against being forced to do so by Congress. Now they are reaping what they have sown.
The best selling cars these days are made by Toyota and Honda and both have better gas mileage than Chrysler and GM. And the car lots are full of new GM’s and Dodge Ram’s getting 10-12-15-20 mpg, and they are going to keep sitting there till they rust away while VW’s TDI cars that are getting 45-50 mpg don’t even stop on the selling floor before heading out the door.
Just try and get a used TDI Beetle.
Several years ago when I was in the market for a new car, I wrote the Chairman of Daimler/Chrysler and asked why they didn’t make a Chrysler 300 with a Benz TDI engine. The PR dept. wrote back with an answer that defied logic. They said nobody wanted that kind of car in the US.
I guess I was that nobody. And bought a VW instead and had to wait two months.
I rest my case.
October 28th, 2008 at 9:03 am
The government should nationalize pensions and health care–those are Detroit’s albatrosses. If conservatives want an economy without government ownership of assets, they’re going to have to accept the shifting of pensions and health care from the private to the public sphere.
October 28th, 2008 at 9:12 am
Pensions would be taken over by federal insurance (at pennies on the dollar) if the companies failed.
The fact that GM wants between five and ten billion dollars in order to keep going long enough to merge with another company that is losing money is insane. The only way that they can survive is if they can dump their health care and pension costs, and the only way to do that is to go out of business. Making cars that didn’t suck would help too, but there’s no way to pull that off in the next six months while going into a recession.
October 28th, 2008 at 9:16 am
Economic de-clustering would be a brutal negative feedback loop where jobs leave, then people leave, then companies (having fewer customers) leave, taking away more jobs.
One of the problems with Michigan is that there seems to be a large number of people who are waiting around hoping that, someday, the good times of auto manufacturing are going to return. Having people accept reality and leave might not necessarily be a bad thing.
October 28th, 2008 at 9:27 am
Politicians (of any stripe) will never let those firms die, because they get too many kickbacks from them. America – the new Europe – big companies are not allowed to fail, and small companies are not allowed to succeed. Yes We Can!
October 28th, 2008 at 9:33 am
Actually I really doubt that. Even a year ago they could have gone Chapter 11 and the above would hold true. But now I really think they’d be staring down the barrel of Chapter 7. Which is probably what should happen, but you know it’s politically impossible to let it happen.
But any cash from DC should ABSOLUTELY come with a strict requirement for the replacement of ALLl of GM’s top management AND board. (Not that I really think that will happen either.)
October 28th, 2008 at 9:40 am
Why not consider something more innovative: a five-year or ten-year economic re-structuring or re-commissioning project for the auto companies, along with a public buy-in. The auto companies get bailout funds in exchange for significant government intervention in the strategic planning and capital allocation decisions of the companies, and a public stake in the companies. Let’s re-structure our chronically ill auto industry, and turn those compnaies into flagships of the new green economy, and global leaders in green and energy efficient transportation products. There are a lot of skilled and intelligent workers in Detroit, and there is a tremendous amount of brainy engineering talent there waiting to be liberated to work on innovative projects. There is also an existing industrial infrastructure in a city that understands work and industry. But there is a consistent pattern of strategic failure at the top.
We are going to be spending this money anyway on green economy initiatives. Why not take the industrial resources that already exist, rather than build the infrastructure from scratch? After we have transformed these dinosaurs into what they should be, we hand them back to the fully private economy.
October 28th, 2008 at 9:40 am
Companies run into the ground by dittoheads asking for a federal bailout. And I though irony was dead.
October 28th, 2008 at 9:49 am
There’s no reason why the US supply and manufacturing chain has to be directed towards the manufacture of crappy cars. (GM makes small, fuel-efficient vehicles, just not in the US. Chrysler, not so much.)
Point is, the executives who bet the farm on high-markup monsters shouldn’t be directing the future of the US auto industry. In essence, Dan Kervick beat me to it: the structural straitjacket of healthcare and pensions probably prevents smart forward-looking decisions in Detroit, and I’m not sure that a bailout is any more than providing the junkie with another fix.
October 28th, 2008 at 9:55 am
The government should nationalize pensions and health care
Yes. I propose that the retired workers get a government provided pension – I propose we call it something snappy like “Social Security”. I also propose that retired workers get government provided health care – let’s call it “Medicare”.
If we get the current retiree pensions and health care obligations off the backs of these companies and into these new government programs called “Social Security” and “Medicare”, maybe the companies can get back to health.
October 28th, 2008 at 10:02 am
The only things worth saving from Chrysler are their minivan line and Jeep.
GM needs to get rid of Oldsmobile and Pontiac; there are simply too many product lines.
October 28th, 2008 at 10:03 am
I’m surprised no one has bothered to mention former VP Dan Quayle’s connection to Cerberus Capital Management. Quayle is the Chairman of one of Cerberus’ international divisions. A little over a year ago, Cerberus bought more than 80% of Chrysler, spending almost $7.5B for the priviledge. Talk about a bad investment!
I would bet that Quayle’s clout connection will do plenty to loosen the public purse to bail out Chrysler’s Cerberus’s bad investment.
October 28th, 2008 at 10:04 am
If GM and Chrysler go under, it’s not just their employees out of work. It’s everyone who makes the parts that go to those plants. Conservatively, that’s two million people instantly added to the unemployed.
October 28th, 2008 at 10:06 am
Matt,
The car companies’ supply chain (remember, they spun off most of their parts manufacturers) is long and entirely dependent on the big three’s survival. If one fails, you’re talking about an impact that goes far beyond the immediate effect on GM/Chrysler (or Ford) workers.
Also, don’t be so sure about an easy survival through bankruptcy. Do you really think that people are going to be willing to buy a car from a company in bankruptcy? They won’t have any confidence that the dealers/service/parts infrastructure will be there for them. Why buy from a bankrupt Chrysler when you can get a Toyota? It’s not like the airlines where your ticket only costs a few hundred dollars. Who wants to throw $30,000 at a company that might not exist in 6 months? Bankruptcy will kill GM or Chrysler and the jobs of hundreds of thousands of workers in related industries. Sounds like a $5b bargain to me.
Beyond Green – blogging a warmer world
October 28th, 2008 at 10:09 am
I think the government should merge all Amercian automobilemakers, bail them out, and start making Trabants.
October 28th, 2008 at 10:14 am
I agree with many of the sentiments here that the upper management created this mess and should be punished for it. I have called for their heads for years but since I don’t own GM stock (thank Shiva!) I really have no say. But since I am a taxpayer and my money will be used on this bailout, I definetly have a say. And I say start with Rick Wagoner and work your way down. I’m not really in favor of a bailout if it is combined with a merger, because it really makes no sense. What would GM gain by taking on Chrysler? Shouldn’t Ford get the real bailout, because they started restructuring at the top (new CEO)? Just ruminating…
October 28th, 2008 at 10:20 am
GM needs to make it to 2010 when new products, including the Chevy Volt will come on. US should want to be making green cars and here’s a viable candidate. GM has never been able to compete in the minivan market and Chrysler has been fairly dominant. Chryler’s distribution network might well be sold to Nisson. There’s still value between GM and Chrysler if the one is broken up and they other survives the next year.
October 28th, 2008 at 10:21 am
Hey, there’s a whole ‘nuther “American” automobie industry. Over the last 15 years it has created more jobs, most of them union (sort of), than Detroit has lost. It is the American operations of Toyota, Honda, BMW, Mercedes, Hyundai. Why isn’t anyone talking about them? How much assistance do they get? OR do they not get any because they are actually efficient, productive, not led by greedy-gut- MBA, corporations?
There was an NPR piece not long ago about how GM was shutting down two truck production lines because of high gas prices. Right after that was a one line sentence about how Honda USA was temporarily closing its production of big trucks for two weeks to re-tool the production line to produce more fuel efficeint smaller cars. What does that tell us?
October 28th, 2008 at 10:22 am
GM is a bank that gives you a car for taking out a loan. It’s called GMAC. The problem is that they became more focused on their credit business than the real business.
I’m amazed at Chrysler. Why are they always involved in some deal but end up free again? They’ll probably merge with GM, gobble up what they can to survive and split off again. GM might fail, since they aren’t into autos anymore.
October 28th, 2008 at 10:23 am
The Volt is a complete joke at its intended price, even if it’s actually real and not vaporware. Which I doubt.
October 28th, 2008 at 10:46 am
I take it that the progressive approach to economic policy eschews the “let it fail” mentality. No matter how big and awesome our safety net becomes, there is nothing progressive about armies of “dislocated” Americans on unemployment, who have lost their seniority and status; their careers, vocations and sense of purpose; their social networks and communities; and even their self-respect, as they re-train themselves and wait to start over again at the bottom in new jobs that may or may not come. So I can’t go along with Matt’s suggestion that we just let Detroit collapse under an economic Katrina, and put everyone on the dole as we wait for the Next Big Thing to gobble up the assets and beaten-down labor at garage sale rates. (And by the way, I use “Detroit” as shorthand for a whole interdependent industrial sector whose corporate center is in Detroit, as others here have already noted.)
On the other hand, Matt is right in that we can’t continue to reward bad behavior and poor decisions, or simply perpetuate a system that is demonstrably not working and is in repeated trouble.
So let’s put all these people directly to work building the new American economy, employing the skills and smarts they already have in new and creative directions, but with minimal social and individual disruption, and in a way that can serve as a model and seed for other troubled cities and sectors. Not only can we save jobs, dignity and communities, but when the whole makeover project has been successfully completed, the people manning this re-made industry will have the pride which comes from being able to see themselves as global leaders once again, and as having participated in a great project to save not just themselves, but a challenged and struggling American industrial economy. Tens of millions of Americans will be able to share in the new wealth they have created.
Taxpayers won’t be asked just to give a no-strings welfarist handout, but a public investment that will pay long-term dividends for all of us. The recipients of the invested funds get a vision of a better future, a shot of morale and new energy – and some hope. It seems to me that this reflects the “Obama way”, so to speak: hard work, creative solutions, common purpose and responsibility, and hope.
October 28th, 2008 at 10:50 am
“At this point, the GOP’s bizarre tunnel-vision, skipping straight from 19th Century “you can die in the streets” laissez-faire to mid-20th Century central planning, with aid for the poor being the ONLY thing still off the table, almost seems driven more by cruelty than anything else.”
Central planning for the rich, which is the current GOP position, is fascism. I hate to violate Godwin’s Law, but the American right has embraced Mussolini’s foreign policy, they are now embracing Mussolini’s economic policy, its pretty clear to me that civil liberties and elections are coming next (though this is the reverse order from how Mussolini did it).
October 28th, 2008 at 11:01 am
The current thinking, it seems, is that we should try to do both:
There’s that dreaded “we” again. The only thing “we” should do is get out of the way and let those dinosaurs go extinct.
October 28th, 2008 at 11:06 am
seems like there must be a lot of expertise in the industry — design, engineering, robotics, etc., that must be chomping at the bit to get into better, leaner, greener design.
What about a Branson-style competition, fostering entrepreneurs, instead of propping up an industry that’s repeatedly proven it doesn’t understand the needs of tomorrow’s consumers?
October 28th, 2008 at 11:08 am
Yes. I propose that the retired workers get a government provided pension – I propose we call it something snappy like “Social Security”. I also propose that retired workers get government provided health care – let’s call it “Medicare”.
If we get the current retiree pensions and health care obligations off the backs of these companies and into these new government programs called “Social Security” and “Medicare”, maybe the companies can get back to health.
Did anyone notice this comment by Al? The notorious Republican hack that used to run around on this website all the time? It appears that in this case the first thing we should do is allow GM to renege on a contractual obligation to former employees to save the current shareholders. The reason we can do this, apparently, is that they can tend on social security and medicare, which the Republicans have assured us absolutely need to be pillaged for more tax cuts for the rich. I, for one, am very much in favor of this approach. The cruelty of this kind of bait-and-switch makes for good dark comedy.
October 28th, 2008 at 11:13 am
Does anyone know where one could find a history of government support for the auto industry?
October 28th, 2008 at 11:13 am
> At this point, the GOP’s bizarre tunnel-vision, skipping straight from 19th Century “you can die in the streets” laissez-faire to mid-20th Century central planning, with aid for the poor being the ONLY thing still off the table, almost seems driven more by cruelty than anything else.
The GOP was never laissez-faire, especially under Bush and McCain.
October 28th, 2008 at 11:21 am
The problem is, those things are already dead. The amount of effort it would take to keep GM on its feet long enough for it to slim up and retool would be insane. And even then, they would still be stuck with the pension and health care costs. Maybe if we went with universal health care and a boosted up social security, then you could dump those expenses and they might have a (small) chance, but as it is? No way. Those billions would be much better spent on dealing with the resulting implosion, since it will end up happening anyway.
October 28th, 2008 at 11:24 am
Dan and pseudonymous are right. Look at comparisons of GM’s small cars with Honda’s. The (non-hybrid) Civic and Fit are comparable to the competing Cobalt and Aveo. The problem is that the companies leveraged their futures on the ability to sell large profit margin (and hence largely inefficient) vehicles. The companies can be restructured in a way to make them profitable again.
My personal preference is to see Chrysler go. I have never particularly liked their products and think that there is reason they’ve had many owners through the last few decades. Their minivans and Jeep could be bought by another company, but I just don’t see the argument for the rest of the product line. Obviously, I’m sympathetic to people losing their jobs so I’ll listen to counter arguments or other suggestions.
October 28th, 2008 at 11:42 am
In much the same way that a dog turd is “comparable” to a bowl of chocolate ice cream. The former are all cars and the latter a both brown.
October 28th, 2008 at 11:43 am
Not anymore. GM sold off 51% of GMAC a few years ago, and quite wisely too. 5 years ago GMAC was making all the profits for GM, but mostly through mortgages. Car loans were a drain on GMAC because GM’s incentives were 0% APR. A finance company can’t make a profit on 0% so they looked for financial profit elsewhere. Remember that GMAC owns Ditech, the subprime giant. A few years ago GM sold off a majority stake in GMAC, auspiciously to generate capital, but more likely because they knew that the end was coming for GMAC and it would hang like an albatross eventually.
October 28th, 2008 at 11:49 am
Perhaps people need to become more familiar with the “Two wrong make a right” policy. By that standard, this might be the greatest idea ever.
http://thesebastards.blogspot.com/
October 28th, 2008 at 12:40 pm
One of the problems with Michigan is that there seems to be a large number of people who are waiting around hoping that, someday, the good times of auto manufacturing are going to return
Seriously, Tyro. Fuck off. Come to Detroit and preach your gospel of enviro/technocratic post industrial liberalism. You probably would not last long.
October 28th, 2008 at 12:41 pm
I agree with Rob B that we have an opportunity to torque the american automakers towards the production of quality, green cars. I also agree with Steve LaBonne that any bailout should be accompanied by a selective flush of upper management. I am averse to a full “de-baathification” – there is a culture of innovation at GM. Although Steve trashes the volt, the concept is really innovative, and I will note that GM devised their own hybrid technology (vs. all the rest licensing from Toyota), innovated on the technology to shut down cylinders at cruise speed, and years ago innovated on the new permanent magnets in response to a cobalt price rise in the Congo. The problem is not with the engineers or scientists at GM, but rather the lack of integration of product and the extraordinarily short sighted non-techie upper management I think.
I would be concerned that the rapid death of this enormous american industry would cause some problems. AT the same time, I generally eschew buying crappy American cars (we have an escape hybrid, but it is a donkey, so to speak, next to our prius gazelle).
Any partial nationalization would be of necessity short term in order to torque the big 3 towards quality and green-ness.
October 28th, 2008 at 12:49 pm
Okay, if the automakers go under, how would you do that? These people don’t know how to do anything but make cars and we have no reason to make cars anymore.
Assuming you solve that, I tend to agree with that Bitch Fiorina–the US Auto-Industry has shown it deserves nothing but death. Long live Asian Hybrids.
October 28th, 2008 at 1:20 pm
Seriously, Tyro. Fuck off. Come to Detroit and preach your gospel of enviro/technocratic post industrial liberalism.
I have no particular attachment to “enviro/technocratic post industrial liberalism.” However, I do think that when a situation is fucked up beyond repair, you should leave. It’s one of the weaknesses of the liberal mindset that we keep deluding ourselves into believing that just a bit of community involvement and rolling up of our sleeves will bring the good times back again. Any politician who tells Michiganders that prosperity is around the corner is a liar or seriously deluded.
October 28th, 2008 at 1:39 pm
Yes, I live in Brazil and most cars that Ford and GM produces here are fuel efficient and their subsidiaries in the country are profitable as never before. Few people have Japanese cars, that are mostly for the elite.
For example, take a look at that nice SUV produced by Ford:
http://www.ford.com.br/sr_ecosport_default.asp
It´s simple, beautiful and nice. Most SUVs sold by Ford in the US are monstrous and horrible. I don´t think that Ford and GM will end: I think that it will become a Latin American venture…
October 28th, 2008 at 1:55 pm
It appears that in this case the first thing we should do is allow GM to renege on a contractual obligation to former employees to save the current shareholders.
Where did I write that we should save current shareholders? I don’t think we should. The auto companies should all go into bankruptcy, completely wiping out the current shareholders. Debtholders should be forced to take a haircut. And retirees ought to be forced to depend on good ol’ government-provided pensions and health care, which is exactly what the left-wing have been preaching should be forced on everybody in the country. I say, we can’t immediately give to everyone in the country what the left-wing wants us all to have, but we can start with the retired autoworkers!
October 28th, 2008 at 2:02 pm
That is one of your worst suggestions, Matt. The countries that put money into their auto industries in the Great Depression – Germany, France, Sweden – still have them. Japan would never be dumb enough to let the auto industry go. But the gospel of neo-liberalism jerks its knee every time the U.S. considers an industrial policy, which is a big reason that the U.S. has an immense trade deficit and can’t take advantage of a favorable playing field when the dollar goes down in value.
To let the American car industry fold should be called: trading the residual. Everybody knows, now, that the driver of growth is knowledge. What Solow called, long ago, the residual that makes up 50 percent of the factor that goes into the increase of GDP. What that means is not only that a country should have a good educational system, but that it should definitely look askance at trading largescale industrial institutional advantages – like the auto industry – for short term ideological benefits – like pretending that one is following the will of the “market’. To allow the auto industry to collapse is to cede any power over the future of the auto. You will notice how much the British have contributed over the last twenty years to auto technology… or haven’t. In fact, by applying the Thatcherite rule of thumb, the U.K. has zip say about the future technology of its major form of transport. Only a country determined to head down the slope would do something as stupid as what you are suggesting, Matt.
Luckily, I think the time for liberal neo-liberals to show “tough love” to the working class, ie train them for jobs as pizza delivery men, is over.
The more sensible course, of course, is to make the merger of GM and Chevrolet happen, and buy a stake – as the U.S. has done with AIG – in order to create a hurry up program for radically upping miles per gallon in the automobile – it is nutty that European cars, even those made by American car makers, achieve twice what American cars achieve. This also means reconsidering diesel – and finding ways of buffering the ill emissions effect of diesel.
October 28th, 2008 at 2:13 pm
As a Michigander that is still hanging in there and working I say Nationalize them and get new management to run Detroit and see what happens.These folks in Detroit have had plenty of time to develop alternative fueled vehicles and refused to do so because carbon based cars and trucks flew out the doors as fast as we could make`em.We are victims of our own gluttony for bigger is better thinking and now we are crying the blues.We are part of the problem and we need to help fix the problem if we are to get a GREEN ECONMY going in this country.I will gladly have gov`t run green economy to get us out of this mess.
October 28th, 2008 at 2:22 pm
These are global companies. GM sells as many cars in the rest of the world as in the US.
Ford is a major player in Europe.
Honda, Toyota and Mazda make cars in the US.
Ford and Volkswagan make cars in Mexico.
Ford and GM do compete outside the US and have 40%+ of the US market, they have very good engineers and US workers assemble many of those Accords and Camrys that everyone likes as well as the Big Two’s products. So what is the issue?
Pension overhang?
Too many dealers?
lack of flexability in abilty to adjust production levels?
Management with not enough engineers and too many marketers?
If all three go chapter 7/11 it will create a huge blow to the economy not only to Michigan but the entire country. Dealerships are everywhere and parts suppliers are also spread around the country.
I think Ford and GM will survive in smaller form through a Chapter 11 proceeding and Chrysler will go Chapter 7 with someone picking up their Jeep and minivan business.
October 28th, 2008 at 2:40 pm
…Car loans were a drain on GMAC because GM’s incentives were 0% APR. A finance company can’t make a profit on 0% so they looked for financial profit elsewhere.
Actually the car loans are profitable to GMAC (and Ford Credit, etc.) because the parent manufacturer pays a subsidy to the subsidiary finance company to subsidize the rate buy-down. This is treated by the parent company as a marketing expense in the year the car is sold, and amortized as income by the finance company over the life of the loan.
October 28th, 2008 at 2:40 pm
Snoop Dog in a Honda Accord?
A sequel to Rising Sun!? (including “many” [new] “ghosts” such as John Delorean in Limbo [should any self-described sports car do 0-60 that slow? {Paradise |walkable, of course | for Enzo Ferrari}]…although they may have to cut and paste Wesley Snipes into it).
October 28th, 2008 at 3:36 pm
Alternatively –
You can use the federal $$$ to directly shore up the retiree health and pension plans which are drowning the companies. They can then negotiate out of these obligations on a going-forward basis to prevent a recurrence of the problem.
I would suggest that in return, the automakers be obligated to reduce the price gap between the hybrid cars and their non-hybrid bretheren.
October 28th, 2008 at 4:09 pm
As a former resident of Detroit (area)and GM employe, this is throwing good money down a bad hole. I agree with the previous comments and let the dinosaurs die!
October 28th, 2008 at 4:13 pm
Right on. One word: Alitalia.
October 28th, 2008 at 6:21 pm
The barriers to entry into large scale auto manufacturing are very high. If the Big Three cease operations in North America, they won’t be replaced.
I think Matt has recognized that one of the core reasons why our economy is fundamentally screwed up is because we’ve stopped making a wide range of finished goods. A large number of former US manufacturers have either gone out of business, gotten out of the business, or moved their plants overseas.
Shitcanning GM/Ford/Chrysler and letting foreign fill in with final assembly plants isn’t going to help. I agree that just dumping cash onto them isn’t the perfect solution, but unless you’ve got a better idea, it’s a start.
October 28th, 2008 at 7:46 pm
Give Detroit a bailout, and they’ll use it to build pickup trucks with 28 cup holders and DVD players in the armrests. The parts will come from China and Japan.
They can’t help it. It’s all they know how to do.
Instead, take that money and give it to the FFRDCs (Federally Funded Research and Development Centers) like Los Alamos, where they’re usually stuck doing pointless weaponry crap. Ask them to do research on high-efficiency engines and alternative energy sources.
October 28th, 2008 at 10:07 pm
I’m not exactly certain what Dan Kervick is proposing on number 27. What is it that he wants to employ all of these people to do?
October 28th, 2008 at 11:29 pm
for a peek at post big three Michigan take a look at Buffalo
October 28th, 2008 at 11:54 pm
in “progressive” fantasyland, all those blue collars are compelled to service knowledge workers and their children at low wages
October 29th, 2008 at 1:09 am
Ford and GM do compete outside the US and have 40%+ of the US market, they have very good engineers and US workers assemble many of those Accords and Camrys that everyone likes as well as the Big Two’s products. So what is the issue?
The markup on a truck or SUV, combined with financing, has been the way for Detroit to keep paying the bills. It also helps that the platforms are — and I have to nod to Top Gear here — pretty much covered waggons. (The markup on a Civic is generally tight, though dealers have been able to charge above MSRP for Fits during the $4/gal summer.)
The sticker price for cars in the US is generally, in comparative terms, fucking cheap. At the bottom end they look it, too, but that’s where we are, and it skews the market. Even at current exchange rates, Ford couldn’t sell the Ka or Euro-model Focus at European margins in the $15k price range to compete with the Fit or Echo, and GM would have to stretch to sell the Opel Corsa in that range. They’d end up as $20-22k cars, which is decent-spec Civic territory.
Now, there’s no reason not to think that GM/Ford can somehow just not build and sell $15k small, fuel-efficient cars in the US — and I’m not just talking about the Volt. I’m talking about cars that could come online in 2-3 years. It’s getting there from here with the pension/health obligations, which the UAW signed up for in lieu of getting that money in their wage packets (so you can fuck off, Al) and with the weight of what happens when you bet the farm on people buying Chevy Suburbanhomesonwheels.
It’s clear that as global entities, Ford and GM know how to build to their market. Now, you can argue that they built to their market in the US when they crushed the EV-1 and shifted to monsters, and their market consisted of people who now watch their Dodge Rams and GMC Envoys depreciate in the garage because nobody will buy a 12mpg penis enhancer. You can look back and wonder whether using CAFE standards as a bludgeon might have made senior management think twice about shifting so many production lines to SUVs and trucks. But you’re not going to persuade me that it’s worth letting the people on the factory floor and the design labs go fish on account of being managed by fools and swaddled by idiots.
October 29th, 2008 at 10:54 am
(Enzo Ferrari went to hell Linus. He made cars and they pollute.)
They weren’t masterworks of mechanical engineering and design?
(It doesn’t matter Linus. Every day polar bears drown because of him. We’re going to melt them down and make buses and unique containers for canning.)
Oh. Okay.
October 29th, 2008 at 12:25 pm
When the Government does rescue the auto industry, they should certainly impose gender quotas on the engineers and designers. Patriarchy rules in Detroit, and you can tell by the preferred design of the auto – always bigger, always wasteful, always built with the idea that the highway is a battlefield (Detroit, since the end of WWII, has loved to hire the Pentagon types, and is always moved by the design innovations in military vehicles).
If women constituted 50 percent of the design pool, American cars would be a lot different.
November 30th, 2008 at 7:57 am
All this gibber jabber about the Big Three Steaming Pile Automakers spending billions more to make cars that are more fuel efficient sounds good but they have already one this in the past and abandoned the idea in the 90’s. I own a 93 Old 88 with a 3.8ltr V-6 full size front wheel drive and it gets 30 MPG. So dont tell me that it cant be done. These Automakers are are screwing you American shmoes all the way to the bank just like your women are doing and you are to stupid to figure it out. Let the rat bastards fail and maybe someone will start up a reputable and honest Auto company.
PS: “You can sell Americans anything”
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