Yet Another GM Bailout
If the government does bail out GM, it will not be the last time. Even if the government gives GM a check every week, there will come a time that no amount of government money will be enough to save them. What is the best solution? In a word… bankruptcy. By filing for bankruptcy protection, GM can escape from the death grip that the UAW has on the business. FULL ARTICLE
Comments (77)
Michael A. Clem
It seems simple, when you put it that way. But let's not forget other factors that have led GM (and all American auto companies) into this mess: the various and sundry rules and regulations that they have to deal with in being an American auto company. Unions, tariffs, CAFE, and micromanagement regs on automobiles, and all that is on top of what ordinary businesses have to contend with.
It's no wonder the American auto industry has had trouble remaining competitive, considering the chains that they have had to wear.
Let them go bankrupt instead of bailing them out, by all means. But let's dig a litle deeper into the causes of the problem, and not fall prey to the fallacy of merely treating the symptoms.
Published: November 10, 2008 8:41 AM
Enjoy Every Sandwich
The article says: "What is the best solution? In a word, bankruptcy. By filing for bankruptcy protection, GM can escape the death grip the UAW has on the business."
Given the inclinations of the incoming administration and Congress (plus the belief that they "owe" big labor), I would imagine this will guarantee that GM will never be allowed to file for bankruptcy.
Published: November 10, 2008 8:58 AM
Larry Ruane
The president of GM was on one of the Sunday political shows yesterday, and he was asked what would happen if Ford failed. He said that would be very bad for GM. Hmmm ... your "competitor" fails, and you're worse off? As Elmer Fudd used to say, there's something awfwy scwewy going on awound here ...
Published: November 10, 2008 9:04 AM
Luke Johnson
It may be that GM should file for bankruptcy - and ceryainly many of its problems are self-inflicted.
But the simplistic comparison of job numbers is misleading. GM has hundreds of sub-contractors which employ hundreds of thousands of other workers. Without GM they would probably shut too. The jobs GM provides tend to be well paid (perhaps too well-paid!) and full-time. Places like Burger King tend to provide low skill, part-time, minimum wage work. Manufacturing companies contribute more value added to an economy than service industries. This needs to be taken in to account when considering the ramifications of GM's demise.
Published: November 10, 2008 9:10 AM
Dave Weilacher
Also interesting that GM does produce a class of vehicle for the European market that is what Americans appear to want but regulations forbid their import.
Published: November 10, 2008 9:19 AM
Horst Muhlmann
My biggest worry is that the government will force Toyota and Honda plants to be UAW shops.
Published: November 10, 2008 9:25 AM
Larry N. Martin
Luke, if a company is not profitable, it's because it is not putting its resources to the best, most profitable usage, and that includes its workers and contractors. Letting GM go bankrupt means that a new management team or other auto companies can take GM's assets and put them to better use.
Yes, there would undoubtedly be some disruption as the changes occur, but this doesn't necessarily mean a loss of manufacturing jobs, just a switch of those jobs to different companies from GM.
Published: November 10, 2008 9:29 AM
peter helbich
this is vienna austria where it all began. mozart, menger, mises. hayek etc.
send this theorem to all your friends and students and professors at the mises university
regards peter helbich
Published: November 10, 2008 9:33 AM
Patrick
Let's not forget that Ford & GM are very profitable in other parts of the world, while currently unprofitable here. That's due in no small part to many regulations imposed upon them by the US govt, and because of agreeing to UAW demands which made their business model unsustainable. So let's not be so shortsighted in our analysis that we simply dismiss them as buffoons... that simply displays one's massive ignorance as to the rest of the underlying issues. As for the comment about the govt forcing Toyota and Honda to go UAW... I'd love to see that, then all of the American car company bashers and media would see the results of a more level playing field. Of course, I'd rather see the reverse, meaning UAW removed from all car companies... but we all know how likely that is.
Published: November 10, 2008 9:36 AM
Chris Burkland
I think Mr. Clem provides a solid comment - there are many root causes (most all of which are government based). However, merely allowing GM to declare bankruptcy will have devastating effects on our economy, bearing in mind that roughly 6 additional jobs (supplier, service, support) are lost with each OEM job (varies with the source). I do not wish to be burdened, as a taxpayer, with bailing out ever more failing companies either, but I do recognize that without creation of real value, as a nation, we are nothing. No matter how you analyze this issue, it is ugly, and it goes back to our government interfering in our market.
Published: November 10, 2008 9:48 AM
maera
"As for the comment about the govt forcing Toyota and Honda to go UAW... I'd love to see that, then all of the American car company bashers and media would see the results of a more level playing field. Of course, I'd rather see the reverse, meaning UAW removed from all car companies... but we all know how likely that is."
I'm angry about yet another bailout. I do, however, buy American made cars having found that the difference in quality between American and Japanese for instance isn't as great as it once was. That I pay less for an American made vehicle while encouraging the maintenance of a manufacturing base in the US is only a bonus.
The fact that all the car companies are facing losses from inventories of giant SUVs does anything but arouse pity in me. In my lifetime, I've observed car makers scale their models down to almost 1/2 the size of those monsters people drove prior to the early 80s due to a gas shortage in the late 70s. Then I watched as the size of SUVs expanded along with the market all while environmentalists warned of a permanent oil shortage. Surely these guys should've hedged their bets knowing they'd eventually get stuck with a huge inventory of gas guzzlers.
Expectations that the government will bail out those who are "too big to fail" has entrenched the short-term thinking that undermines our economic well-being. Also, I wonder if there isn't an SUV bubble hidden behind the housing bubble.
Published: November 10, 2008 10:00 AM
Russell
the moral hazards associated with "welfare" are similar no matter the scale of the welfare (corporate vs. individual).
years of poor choices should lead to bankruptcy, not a bailout.
Published: November 10, 2008 11:30 AM
Chris J
Chris Burkland wrote:
"I do not wish to be burdened, as a taxpayer, with bailing out ever more failing companies either, but I do recognize that without creation of real value, as a nation, we are nothing."
Don't allow yourself to perpetuate lies out of fear. The truth is that several of the current manufacturing giants have mismanaged their resources. The lie is that these companies are the best and ultimate creators of value. These companies represent only a shadow of past efficiency and by bailing them out we build roadblocks to future prosperity. I'm currently listening to Peter Klein (http://mises.org/multimedia/mp3/ss08/4_Gold08_Klein.mp3 at 16:48) say "...an efficient allocation of resources requires that unsuccessful business activities not be repeated ... that there is bankruptcy, liquidation, the cleansing of past error and opportunities to reinvest funds in new projects guided by new entrepreneurs, those who can better manage those resources than those who were unsuccessful."
Don't misunderstand. I am not heartless toward my fellow man. I am not hoping for GM (or Chrysler or Ford) to lay off all workers and cease operations. I am believing that those skilled and unskilled workers will be absorbed into an efficient enterprise willing to make a car I would buy.
Published: November 10, 2008 12:15 PM
Eric
GM is the car company that is building the Chevy Volt. I think it was 60 minutes where the head of the company said this "volks" hybrid, car for the people would cost over $40,000.
So the only way this car would sell is if the government forced everyone else to have some sort of equivalent technology vehicle.
And, if the government bails them out (again), then you know the next step has to be to give them a competitive edge (by force) so they can sell these little beasts.
Beware the military, pharmaceutical, correctional, educational, and now automotive industrial complex.
Published: November 10, 2008 12:23 PM
Briggs Armstrong
I believe that it is worth mentioning that if one calculates the amount that the government (i.e. taxpayer) is asked to spend and divides that evenly among all of the jobs at GM and Ford, which it is meant to save, it amounts to over $212,000 per job. ($75 billion/ 373,700 jobs)
The comment that there are several other jobs that are linked to auto manufacturing is very true. However, saying that all of these jobs would be lost, if GM were to completely fail, is inaccurate. That presupposes that if GM stops manufacturing cars the aggregate consumption of cars will decline as a result. It seems rather unlikely that, in the absence of GM, that many individuals will simply stop purchasing cars. I believe that, ceteris paribus, the demand for automobiles will remain the same. If this is true, the remaining manufacturers would then see a greater quantity of their product demanded. In order to supply all of their new (formerly GM) customers, these companies could purchase from the firms that used to supply GM. In essence, it is simply shifting resources around to more productive uses.
I would also like to note that it is true that the excess government regulation has harmed GM but that Toyota and other manufacturers who operate in the US are subject to the same detrimental regulation.
Mr. Johnson accurately mentioned that Burger King pays less than GM and its suppliers. The problem with his assessment is that it confuses higher pay with higher value. Consumers do not currently value the service provided, at the current price, as highly as they do the next best alternative. GM’s basic problem is that the value of their finish product (i.e. cars) is less than the total value of the inputs. This is just a technical way of saying that their costs are too high thus the price they must charge is higher than consumers are willing to pay. This is not to say that it is impossible for GM to make a product that consumers value. They just seem unable, under their current structure, to make a product that consumers value at the price at which they value it. Regardless of how critical GM is to the economy, in the long run, unless they can find a way to make a product that consumers feel is worth more than the price they charge, they will eventually fail.
Published: November 10, 2008 12:29 PM
Bill Anderson
My guess is that one of the priorities of the new administration will be to smash the foreign subsidiaries of Toyota, Honda, Nissan, and Mercedes-Benz. They will demand that these outfits unionize -- or else.
Keep in mind that the Democrats are closely tied with the unions, environmentalists, hard leftists, and trial lawyers. None of the people in these groups adds to productivity at all, but they are the ones who are going to be calling the shots.
The way that the Obama government will deal with the declining domestic auto industry is to try to destroy the auto industry in this country that is successful. It is what they call, "leveling the playing field."
Published: November 10, 2008 12:32 PM
Mark
I agree with most of the article, however the author has over simplified the situation. While I agree that there shouldn't be a bailout, the time for this discussion was the year I was born, 1979. That was when the govt. had to bailout Chrysler. This was the time for making noise and standing up to the bully. I'm sorry to say that the past 29 years have let the problem grow to an uncontrollable level. It's like the airplane is on auto pilot flying towards a mountain. "The moving finger writes and having writ moves on." We have collectively made our bed and must lie in it. Years from now, when the dust settles from the inevitable collaspe, the remnant will remember the true lessons and will rebuild.
Published: November 10, 2008 12:35 PM
Bill Anderson
Well, what do you know? Briggs brings in that pesky little thing called opportunity cost. His point is absolutely vital here, and it is the same point I have been making in regards to the various missives I receive from Paul Craig Roberts in his eternal battle against outsourcing.
For many years, people have confused the prices paid to owners of various factors of production with "value added." In other words, they are saying: "the higher the costs, the greater the value added to the economy."
An economy does not grow by RAISING costs; it grows when we produce more by using fewer resources in the process. Right now, the UAW (since the Big Three are little more than wholly-owned subsidiaries of the UAW) is trying to force us to pay more for less. We must say no.
Published: November 10, 2008 1:02 PM
Briggs Armstrong
Mr. Anderson thank you for articulating the point I was trying to make in the blog entry. I think you did a far better job than I did. Also, I I love your "he Big Three are little more than wholly-owned subsidiaries of the UAW" comment! Is it a coincidence that their pension obligation is many orders of magnitude larger than their market capitalization? I think not. Going through their balance sheet and income statement is a very scary thing.
Published: November 10, 2008 1:24 PM
Miles
While I agree with your general thesis, I think attacking the problem on the "number of jobs" plane leads to unnecessary logical flaws that only serve to legitimize an erroneous argument. The hard part about backing up your argument in terms of total jobs numbers is that most of the companies you list are retail companies, hiring tons of part time and minimum wage workers. That is to say the salary per worker at A&F really doesn't compare to Ford etc etc. This could lead you down a path in this argument you probably want to totally avoid as it is completely meaningless to the theoretic underpinnings of your sentiment.
Published: November 10, 2008 1:40 PM
Mike D.
The key reason that GM is bankrupt is that GMAC can not raise the money for car loans and leases. Sure, $1500 per car health care costs don't help the situation, but even Toyota, who do not have these labor millstones around their necks are having difficulty. I think Peter Schiff is right when he identifies the problem as the US Consumer not being able to take on any more debt.
Published: November 10, 2008 2:15 PM
Yancey Ward
Bill Anderson is correct- the bailout will happen, and it will be accompanied by putting shackles on the competitors of the Big Three in the US.
Whenever government is in business, it likes to hamstring the competition to keep in order to make it's operations seem worthwhile.
Published: November 10, 2008 2:44 PM
adam hartung
Remember when Circuit City was a favorite in "Good to Great" by Jim Collins? Remember when we thought being big gave you clout with customers and vendors to produce long-term returns (Michael Porter's 5 Forces Model)? It's time we recognize that the old approach to management doesn't work in a rapidly shifting competitive world. There are winners in today's market, but they follow a different approach. Read more at http://www.ThePhoenixPrinciple.com
Published: November 10, 2008 3:05 PM
Jonathan
Briggs - Just wanted to say I enjoyed the article. You've managed to raise some important points that the bulk of the media has missed so far.
Published: November 10, 2008 3:27 PM
Pat
You know what? I feel like they might as well nationalization every company in the country. I mean, why being shy about and simply bring socialism or corporatism for that matter. Capitalism couldn't find bigger traitors than those people (To be fair, they do have to find ways to survive. But they seem to not realize what they are doing).
Published: November 10, 2008 3:32 PM
FLC
Poor decision making should not be rewarded.
Nuff' said.
Published: November 10, 2008 3:58 PM
Vance Hayes
Mr. Armstrong - As I read your article I kept repeating to myself - this is right out of Atlas Shrugged! Ayn Rand's fictional warning of 1954 has become reality today.
Thanks for your perspective.
Vance Hayes
Published: November 10, 2008 4:06 PM
simple
For the traditional "Detroit 3" a consolidated single company is a good answer (post-bankruptcy). Can there be an argument to have more than about four brands out of these three -- Ford, Chevrolet, Jeep, and Cadillac. With these, every segment can be served, and through bankruptcy and reorganization significant efficiencies can be realized.
Of course, in this financial environment, there may not be the DIP financing made available by traditional lenders. The government could solve this issue by providing a backstop (much cheaper than the current discussions). But then this would mean all union contracts/pensions/retiree medical would be at risk. Do you think the government would then be as eager to help???
These three have multiple problems, none of which will be solved with more money. For example they regularly rank as the bottom three OEMs with which to do business in annual supplier surveys -- by far.
Published: November 10, 2008 5:00 PM
george
When I left GM in 1984 they were America's largest private employer with some 400,000 employees. They had more than 50% of the car market, they seemed invulnerable. Yet I knew they were a sclerotic behemoth dying a slow, torturous death. They were killed not by competitors, but there own management. Management continually gave in to union extortion and passed the cost on to the consumer. The death blow was the pensions and the health care benefit which management gave to themselves and all employees and passed the cost on to the car consumer. The was exacerbated by a complicit federal reserve that made funding for new cars very easy to come by. Many Americans drove off the lot and were immediately upside down as there car lost up to 50% value by taking ownership (you did not actually have to drive, just sign the loan paper work). The model was bad then, it is bad now, let them die.
P.S. Management has already set aside billions for themselves in a private fund so they will not have to suffer.
Published: November 10, 2008 5:14 PM
Glen
Yes, Vance, the similarity of the current situation with Atlas Shrugged is scary.
Will letting GM go bankrupt be painful? Yes. For years we've been pushing out the day of reckoning. We are like a drug addict and actually quitting cold-turkey is the only thing that'll help. Quitting means we'll face withdrawals and when we're finally off the stuff, it'll take a lot of work to get healthy again. Even if we kick the habit, will we be like many and just replace the substance abuse with another.
Published: November 10, 2008 5:28 PM
BWM
I generally hate bailouts, but since it was the government that killed the car industry here, I'm not totally opposed to it, assuming the government actually fixed their problems. GM and Ford are burdened in ways their competitors are not, so it's not fair to say it's entirely their management's fault. The fact that, for example, the government has about 100 different ways it's restricting oil supplies and taxing gas and otherwise making driving costly is not in anyway GM's fault. It'll never happen, but I'd like to see the big three get out there and demand not a bailout but improved policy. At least they'll send a message.
Published: November 10, 2008 5:51 PM
Jody
Why doesn't the government give a collective amount to For, GM, and Chrysler to work together to produce fuel efficient cars rather than giving money to each individual company? It seems like 3 heads are better than 1 and we won't be reinventing the wheel.....
Published: November 10, 2008 6:05 PM
simple
BWM -- "GM and Ford are burdened in ways their competitors are not, so it's not fair to say it's entirely their management's fault. The fact that, for example, the government has about 100 different ways it's restricting oil supplies and taxing gas and otherwise making driving costly is not in anyway GM's fault."
Your example is counter to your argument. Government's interference in oil and gasoline is applied equally to all volume OEMs that sell in the US.
These companies made their own beds -- bad labor agreements, bad supplier relationships, bad model choices are only a few examples.
Published: November 10, 2008 6:28 PM
Ralph H
I bought gas this weekend at $1.97 per gallon. As I drove in the driver next to me was calling her friends about this price with much excitement in her voice as this price is about 50% below where it was this summer. Imagine the excitement if we could buy cars at 50% of their list price if GM declares bankruptcy. The economic effect would be dynamic. GM might go out of business but it would stimulate economic activity everywhere else. I would like to see this board address this opportunity rather than philosophize about government interference suppressing this obvious benefit.
Published: November 10, 2008 7:10 PM
baitshopbilly
let's avoid the ripple effect.
Remember WWII?
Why can't we use this skilled manufacturing workforce to benefit our outlook, rather than put fear into our outlook?
here's an idea I've been working on. What do you think?
Bill’s idea for auto makers.
The plan:
1. allow auto companies to downsize toward current demand and clear inventory. Keeping good on retirement packages and so fourth. (private sector will be more encouraged to give them loans to do so if they are showing a profit.)
2. offer a TIF(tax incentive) for the purchase and retooling of these plants for the construction of energy sector mechanicals.(wind mills, solar, etc.). this will bring in money from the private sector for funding the projects. Avoid socialism at all costs during tough economic times like this.
3. fed’s already have budgeted money for energy. This would have great use in the need to train this enormous workforce in the new sector. There will knowingly need to be assistance in housing for these individuals and families during the training period. This is money well spent, as they will be paying taxes again after their jobs are restored. It shouldn’t take too long to teach someone who can build a fine piece of machinery like the Cadillac, how to build a windmill. And if the unions want to be as involved in the new sector, then they can contribute to the training costs as well.
4. business as usual…. When the energy infrastructure is reaching sufficient levels, these automakers will no doubt be expanding again. At this point they can start buying facilities back to meet their needs.
after they design their new line of energy efficient autos. you can charge the batteries with a renewable energy built during the recession.
Published: November 10, 2008 9:28 PM
Eric
It's easy to understand how the feds will choose who to rescue and who to let fail.
Just think, "What would the mafia do?" While there might be more honor, they still would do whatever profited them the most. And so will the politicians. Period.
So, it's a waste of time trying to analyze any proposed govt solution as though there's a chance that good economic principles will be followed. Simply follow the money and corruption.
Published: November 10, 2008 10:26 PM
Jose Ortega
Do you remember the same situation in the 80's when Lee Iacocca did the same for Chrisler as GM is asking now?
He rescued the company and it didn't cost the goverment any dollar.
If you let GM go, it's not only the people that will have no job, it's also that one of the main industries in USA will die.
Numbers are easy to manage, and you can say 200.000 employes is not much, but if you let a big company fail, there won't be another big american company replacing it. There will be a Chinese company that will get all the benefits and the jobs in the future, and USA will have no industry...that's the biggest problem of letting a big industrial company fall.
Published: November 11, 2008 6:19 AM
Becky
While I disagree with the bailout, I think using the 'number of jobs' criteria is a bit misleading. Yes, Abercrombie & Fitch may employ more people than Ford, but are these full time jobs with benefits that allow a man or woman to support a family, or are they largely held by young people working part time?
The economic impact of the collapse of Ford would ripple through the economy in a way that the collapse of Abercrombie & Fitch would not - those retail workers would likely be able move to Target or Walmart. The manufacturing employees at Ford will go... where? What manufacturing options do we even have in this country anymore? The A&F employees are scattered across the country in small groups. The Ford employees are concentrated in larger numbers, leading to a more profound local impact if the company fails. And don't forget the supply chain. The companies that sell clothing to A&F probably already sell to many other retailers - they're unlikely to fail as a consequence of the failure of A&F. Ford's component suppliers may not be in the same position.
Again, I'm against the bailout because rewarding bad business decisions will inevitably lead to more bad business decisions and it's not the government's role to be propping up private industry, but let's not be complacent about how the failure of the U.S. auto industry will impact the economy.
Published: November 11, 2008 8:09 AM
newson
jose ortega says:
"There will be a Chinese company that will get all the benefits and the jobs in the future, and USA will have no industry"
this is a non-sequitur. honda, toyota and other foreign carmakers make state-of-the-art investments on american soil. the chinese would be no different.
"Do you remember the same situation in the 80's when Lee Iacocca did the same for Chrisler as GM is asking now?
He rescued the company and it didn't cost the goverment any dollar."
bastiat's broken window fallacy. the damage caused by the diversion (even temporary) of capital from successful, viable businesses to chrysler is necessarily unknowable.
Published: November 11, 2008 8:20 AM
Jose Ortega
newson:
Honda and Toyota invest in USA because they have to: better image, gov. aids...
When there is no need to build the cars in the states (no competitor from USA, then no difference form one competitor to others)...Why are they going to invest in USA when they can build cars cheaper and better in China or India?
Then you will only have the "shops" to sell imported cars, TVs, computers...
If you are a big country, you need to have a balanced economy weather it's not in your books(yes agriculture, and industry are important too!)
For your second question.
It wasn't capital coming from succesful business. It was debt from the government and they did it with many other companies (read Lee Iacocca autobiography...very interesting)
Probably a bailout is not the best option "a priori", but when the government is the cause of a situation (above all moving up and down interest rates, and helping some companies and not others), I think the government has to do something to let the country return to normal.
Published: November 11, 2008 11:47 AM
Ward Welvaert
I wrote a few notes on my blog about failed business strategies around globalization and US corporate culture.
And let's not forget the simple idea of accurate internal accounting. The car companies have always accounted for revenue as cars rolling out of the factories, not sold to the public. This only contributed to their problems as everyone tried to "make their numbers" instead of balancing supply and demand.
Ward
Cusco, Peru
www.lifeinperu.com
Published: November 11, 2008 11:47 AM
Ward Welvaert
In regards to the comment of Jose Ortega:
Here are some pictures of made-in-China Chery cars I noticed here in Peru - with not a sign of any US product anywhere.
You can only control your own destination. Accept the competition and run a competitive business.
A bailout shouldn't be a big government check but a change in business plans to resolve the underlying issues that got GM into this mess in the first place.
Published: November 11, 2008 11:55 AM
Stanley Pinchak
Jose Ortega,
Have you heard of the division of labor and competitive advantage? There are many reasons why, "If you are a big country, you need to have a balanced economy weather it's not in your books(yes agriculture, and industry are important too!)," is a flawed policy. It may be that despite maximizing the division of labor and making full use of competitive advantage, a country would still have a "balanced" economy, but to make this a goal and enforce it through policy is economic nonsense.
Government debt can only be obtained by removing investments from healthy companies, or overt and covert taxation. In the first case, government bonds dilute the market for investment in private companies. In the latter case, taxpayers, or fiat money users pay for the bail out, preventing that much money from being saved or invested, and having additional pernicious side effects (especially when inflation is the tool used). In either case, the distribution prevents poorly managed companies from having their assets being put to their most economic uses. This leads to a situation of malinvestment and a poorer economic situation for the general populace as compared with the non-intervention option. Plus the enlargement of the state and the ratchet effect makes future interventions all the more likely. In all intervention is terrible for free markets, entrepreneurs, and consumers. Its only beneficiaries are those being bailed out and the state itself.
Published: November 11, 2008 1:39 PM
Francisco Torres
Jose,
Do you remember the same situation in the 80's when Lee Iacocca did the same for Chrysler as GM is asking now? He rescued the company and it didn't cost the government any dollar.
It cost the taxpayers - the government used people's money to bail out Chrysler so that it would in return keep Jeep/Eagle. So it did not cost the government itself anything.
If you let GM go, it's not only the people that will have no job, it's also that one of the main industries in USA will die.
So? A business is not an institution. Businesses are supposed to make money, and if they fail to do so, they get liquidated and bought by more efficient or effective companies or investors.
A job is not an entitlement. People do not deserve a steady job. Besides this, it is not as tragic as you state it - people change jobs all the time, doing stuff they never imagined they would be doing.
Numbers are easy to manage, and you can say 200.000 employees is not much, but if you let a big company fail, there won't be another big American company replacing it.
There could be many smaller American companies replacing it. Why is it needed to have a Big company?
There will be a Chinese company that will get all the benefits and the jobs in the future, and USA will have no industry...that's the biggest problem of letting a big industrial company fall.
That is nonsense. The worst it can happen is that the company gets bought, but it is not like all those capital assets will stay there to rot. The fact that America is losing its manufacturing base has more to do with protectionism than with competition from China or elsewhere. There would be much more manufacturing companies if the government was not hell bent on regulating everything out of existence.
Published: November 11, 2008 2:37 PM
Robert Cohn
I suggest that the government buy $50 billion GM and
Ford cars and sell them at a steep discount to State and local governments and non-profit organizations.
That would pump money into the auto companies,
put their labor to work and give the government something for its money.
Otherwise it will be money down the drain.
Published: November 11, 2008 6:24 PM
Craig Stokes
Bottom line is they GM and workers have priced themselves out of the market. Wages at $40 per hour. Maybe union should re-evaluate expectations.
Published: November 11, 2008 9:31 PM
Andy
smart guy, unfortunately no one, other than this site's patrons, care.
Published: November 12, 2008 7:38 AM
danielle allen
I agree with everyhting that was stated in the article. If GM is bailed out , then everyone wil have there hands out. The government is rewarding compaines for a bad business model. Even dispute the weakning econmoy auto makers like honda and toyato are stil able to sell cars because they are making products that consumers want. The money that is used for the bail outs can be used for more sufficent things, like the school systems. The other question is , since the goventment is just hanidng out money when will it become of unvaule. We just cant be prinitng out money that doesnt have any backing to it.
Published: November 12, 2008 7:40 AM
Maureen Cagnet
I think everyone is missing the BIG picture here. What about the near millions of workers out of jobs that supply products and services to the American and foreign automakers. The tier one, two, and three suppliers equal about 35% of the workforce in our country. It is not GM or Ford that employees directly, it is who is affected indirectly. There are many components and items that go on automobiles and trucks, these are the people who will be hurt the worst by the collapse of one of the big three. These companies depend on the automobile industry for their livelihood. Most of these companies are not unionized. If GM and Ford go down, so would half of the Midwest. It is more than corn, you know!! Where are the workers from the fuel injection shops suppose to go? What about those in the door rail industry? The Roll forming, Stamping, Rubber, Steel, Glass makers, Transfer and Eyelet, Tool-Makers and Machine shops through out the country would be forced out of business. This is the impact to America - not the "Big Company" itself. I do not like the concept of big government, but I would not have supported the unions either. From a financial aspect what would be the impact of all those industries out of business on unemployment at the same time? That would be the duty of the taxpayers too. In fact, the suppliers of the automobile industry do have a say in where their money goes. I would rather my lifetime of tax dollars go to save the livelihood of many than support those that live off of our welfare system.
Published: November 12, 2008 7:56 AM
Robert Wright
Perhaps a look back in history at how HD was saved
and if the big 3 hadn't moved so much of their outsourcing off shore perhaps more people with decent jobs would be buying their product. Also why
are they spending billions advertising products no one
wants.
Published: November 12, 2008 12:53 PM
Michael A. Clem
Where are the workers from the fuel injection shops suppose to go? What about those in the door rail industry? The Roll forming, Stamping, Rubber, Steel, Glass makers, Transfer and Eyelet, Tool-Makers and Machine shops through out the country would be forced out of business.
This same fallacy has been presented a few times on these auto bailout threads, but also refuted at least a couple of times. Just because a business shuts down doesn't mean that its resources and such just disappear in a puff of smoke. No, other companies that are in better shape take over those assets and put them to use. If GM shuts down, then perhaps Ford would take those assets and put them to use, or perhaps a new car company could be formed to put those assets to use. People wouldn't stop buying cars just because GM was gone, so demand for roughly the same amount of cars would still exist.
Thus, all those automotive and subisidiary jobs would still exist, too, but they would work for, or contract with, a different car company instead of with the then defunct GM company. Therefore, concerns about GM or any company being too big to fail, or affecting too many people are unwarranted, and miss the point of how businesses and the market work. It's change that would take place, not absolute loss.
Published: November 12, 2008 1:32 PM
John
It can't be overstated how much the UAW has crippled GM. By their very nature unions work against the free market - driving up costs, driving down quality and harming competition. Bail-out NO ONE I say, and dismantle the government-backed "free" enterprises like Freddie Mac, Fannie-Mae, USPS, etc. And how much money is spent (wasted) annually on administering the tax system? They call it revenue, I call it plunder. Rant over for now.
Published: November 12, 2008 5:00 PM
Joe
No one is asking exactly *how* GM would repay these loans. They already have $59 BILLION in negative equity, and that's growing by a couple billion a month (and probably accelerating over the last month). Would these be zero interest loans with no payments for five years?
$16 billion in additional funding would be gone in eight months, at the third quarter rate of burning cash. It looks like Delphi won't be able to emerge from bankruptcy, meaning that GM would be on the hook for even more healthcare and pension costs. I don't think any amount of money can fix GM. Unfortunately, it must be allowed to fail to stabilize the rest of the market.
Published: November 12, 2008 6:48 PM
Walt D.
The latest reason:
"If the auto industry is not bailed out, they stand to lose $150 billion in tax revenue".
Published: November 12, 2008 6:52 PM
Dave D.
Is it fair to scapegoat the union workers because they want a healthy wage? Executives are paid more than any person should ethically be paid, at millions each year. And it's the backbone of the industry that is being blamed?
GM is in the hole it is in because of bad business decisions. Its love of gas-guzzling SUVs and its huge wager that their demand would continue to remain high amid unrest in countries from which we import oil, and foreseeable oil shortage, for one. The fact that while ten years ago they had a small subcompact capable of getting 50mpg, and now have nothing over 37mpg, and they (somehow) claim that anything over 30mpg is 'green' and fuel efficient. How about the fact that they manufactured an electric car which people wanted, but was snatched from their hands and crushed? They do not appear to be actually committed to creating any autos that have anything special about them. Their only hybrid cars are either full-size sedans or large SUVs. The fact that they have made a Tahoe Hybrid makes me want to laugh and cry at the same time.
Should I feel pity for a company that has flushed itself down the tubes? I don't think so.
Published: November 12, 2008 9:01 PM
Richard Pagan
Bailout G.M.? at first i was thinking no way! But after some review and putting some thought toward the situation, let's as Americans bind together and insist on not giving G.M. a fish but teach them how to fish so they could feed themselves. G.M.'s economical difficulty is directly related to supply and demand, (what they are supplying, we are not demanding.) If G.M. wants our 2.5 Billion dollars to bail them out, let's put a stipulation on what they must use it for. 2 billion dollars to bring back a full on production of the EV1 to be sold to the American public and not leased. The EV1 must roll out in 6 months at approximately $15,000 a unit at a tune of at least 125,000 units the first year. With a plan of 50 % increased prodution per year and a gaurantee of 5 years of said vehicle prodution, until a new and improved model is released; and never to abort the sales and production of electric vehicles until our petroleum crisis is solved. The remaining .5 billion dollars of the bailout can be used as they wish, as long as they comply.
Published: November 13, 2008 10:04 AM
B. McNamara
The government should appoint an oversight committee to supervise and alter the GM-UAW contract to conform to a logical, workable and profitable model. Production and sales now have to support too many non-productive jobs and are suffocating the company. This desperate moment is the time to step in and force changes to make the company profitable. That will help all of us, uncluding us retirees. We need some real no-nonsense leadership.
Published: November 13, 2008 11:26 AM
ken
Why is an American employee of GM entitled to more job protection (government subsidy) than an American Toyota employee? Is it because they are more American? Is it because they work harder? Is it because they are a member of a special interest group? Is it because they are more valuable to our economy? Maybe it is because the Big three in their dieing throws have advertised their products as synonmous with the American flag and we have bought in. Too bad these American icons have opted to source more of their parts from non-US sources than their Toyota American counterparts - otherwise I'd believe they do have a sacred tie to our nation's fabric. We need to reexamine what it means to be American -- why we are special to the world - and what it will mean if we turn our backs on the ideals that made us a great nation - one that every other nation admires. When you remove the consequences of risk taking, you remove the market incentives that truly keep us competitive, employed, happy.
Published: November 13, 2008 7:10 PM
Ohhh Henry
"Why is an American employee of GM entitled to more job protection (government subsidy) than an American Toyota employee?"
Government's job is to help people who are cannot or will not help themselves. Losers in other words. If an insufficient supply of losers exists then they must go out and cultivate or create new bunches of losers. That is why they hobble successful companies and individuals and subsidize unsuccessful ones. It is a make-work project for politicians and bureaucrats.
The recommended procedure is:
1) Find something to hobble or destroy which is working fine on its own. It could be a foreign country, a domestic industry, a city, a school system, an ethnic group, whatever. Be careful to disguise the sabotage as "aid" or "regulation".
2) Wait for a cry to be raised for "help".
3) Confiscate money and power away from whichever entities or individuals managed to sidestep or work around the hobbling procedure in step (1) and use the money and power to respond to the cripples crying for help. Hire family members and pals to help you to spend all the money and wield the new powers.
4) Repeat.
Published: November 13, 2008 7:41 PM
Len Wilson
The beauty of capitalism is that it is self-policing. If the government sends our tax dollars to a loan for a failing business, then the balance of fairness is upset.
Loaning 25 billion to failing companies is a bad investment. It is only prolonging the inevitable. Years of overpaying employees, and making promises for future benefits has finally caught up with the big three.
If the big three go down, then sales will probably shift to the asian automakers. The present parts suppliers will then have a market to supply parts to them instead. The volume of auto sales will remain the same, it's just a matter of which manufacturer will make them. Bailing out GM will not increase their auto sales, it will only prolong the lackluster performance that we've seen in the past.
The big three have progressed from:
The only
The best
The overpaid
The worst (Japan had to remind us how to build good products)
Now the victim
Since most of us non auto workers were not part of the "overpaid" part, it us unfair that we should be responsible for the "victim" rescue.
Published: November 14, 2008 8:28 PM
Buckley
I take it that while many here are well versed in Austian economics, how many here are actually well versed in concerns to the automotive industry itself? I mean did the author do any research in concerns to how automobilies are made? Which cars get the best performance when tested by impartial testing groups? Has the author been inside an automotive plant lately? Talked to some automakers? Talked to those who sell auto parts, sell the cars, did he talk to anyone about this situation?
What Ms Cagnet said her post was correct. Except that if the Big 3 went down ,it just wouldn't affect the US midwest.Many other people worldwide. Ford has plants all over North America and some of those plants serve such companies as BMW, Hynduai(SP) and other overseas carmakers. If these plants were closed ,if the Big 3 were to shut down, then these overseas companies would suffer.
One wonders ,if the Big 3 went down, who could replace them? That is to say who has the money and resorces to take on such a task? Mass producing one car is not as easy as some elsewhere have said.
Everything is not as black and white in concerns to this bailout ,or proposed bailout, as some here would think it is. The issues here are complex and involve many people around the world than most of us can imagine.
Published: November 16, 2008 1:56 PM
Stanley Pinchak
Buckley,
because the situation is so complex, we can't have government come bungling in and messing everything up. If someone thinks that they can turn around parts of the big three, then let them come and purchase the assets, before or after bankruptcy proceedings. Since a huge millstone around the American auto industry is union contracts, post bankruptcy reallocation seems more likely. Get rid of some of the dead weight and the industry will recover without being a continual drain on the taxpayers.
Published: November 16, 2008 3:21 PM
Matt Sutphin
I would say history has shown that as a people we need the heart as well as the brain to survive this kind of environment. I wonder how many on this thread have ever gone bankrupt, had to buy fuel for their furnace at the gas station in 5 gallon cans because that is all the money they could find, or have gone to a construction dumpster to get scrap wood to build a dog pen, had to work nights at the local supermarket or paper distributorship to have some money to give all the creditors that keep calling, as well as keep up with tuition in order to have the promise of a good future for your children? And had to do so for an extended period of time.
The point is: It should be understood that fall from grace is not easily or quickly recovered from, particularly in a stagnant deflating environment. Overcoming inertia again has its costs, many not readily quantifiable. Hardship is a human condition; not a textbook exercise. Costs should not be taken lightly by those who would have an industry 'go sit in the corner'. 'Greasing the skids' requires one to be close to the ground in all its many manifestations
We all are under the gun at the moment. We should think as a community; not savage those challenged. And we have all learned a lot of late. We can help Detroit morph itself to green technology for the greater good, rather than obsess on who should pay a price, a la Shelby (couldn't help but notice this site is based in Alabama!). Let's remember to use our hearts as well as our minds. Those who have failed should be expected to rebuild trust, but they have their experience to give us as well.
ps
a side note,
Many of my friends are upset about how much they have lost in their pension funds. I ask them to consider if their fund would have ever gotten any higher than it is at the moment without the exhuberance of the past, be it rational or irrational. My take, we shouldn't feel too sorry for ourselves.
Published: November 17, 2008 7:48 AM
solrev
Auto bailout
Two things are critical to bail out the auto industry; one a sound energy policy that the auto industry can count on, and two reduce labor cost with a universal healthcare system in which business is not responsible for healthcare. Electric and hybrid diesel vehicles are required to save the auto industry. Where do we get the additional electric energy requirement? We nationalize the natural gas industry and build gas power plants instead of coal. Let cheap gas pay for the green revolution just as cheap oil paid for the industrial revolution. If we can survive, until the young people that voted for Obama has kids and grand kids running the show, they can change. There are just too many greedy people and born again pagans that need to die off first for change to happen. “The merchants of the world will weep and mourn for who will buy their goods. He who does unto the least among you does unto me.” Born again pagans can not practice what they preach and Babylon always falls.
Published: November 17, 2008 10:55 AM
Gene Linet
I don't understand why libertarians/ Austrians are opposed to the bailout. I am in favor of capitalism - however, we have to consider the realities of business in a regulatory environment. A business like GM cannot survive in the US - satisfying unreasonable emission/safety standards and Union demands - without also receiving government compensation for the losses incurred therefrom. What Austrians should be saying is that FIRST, the industry should be deregulated - and THEN corporate welfare should be abolished. But to proscribe the latter while the first is still in effect is to proscribe business altogether.
Published: November 18, 2008 1:28 PM
kevin
Why the crisis. Two words: BIG OIL. High GAS prices started the crisis and the housing crisis finished it.They handed us the shovel and we dug our own grave.Who is resposilbe? CONGRESS They run the country not the President. Quit pointing fingers and go after those moneymongers in CONGRESS."In God We Trust" and in GREED we will fall!!!
Published: November 27, 2008 1:49 PM
j
I feel the auto makers should stop looking for the government to bail them out and start looking to see where they can cut back on their own expenses just how every individual affected by the economy has to do to stay above water.
Published: December 3, 2008 8:00 PM
pjkPA
This is not a bailout .. this is just a small dose of fairness.
The Japanese government has been "bailing out" companies like Toyota Honda Nissan for 60 years.
And our own US government has been rigging the US market against our own US companies like GM FORD Chrysler etc... how .. by letting Japan keep our products out of their market while selling products in the US more than freely. They are not even paying US taxes giving them a $3000 per car tax advantage alone over our own US companies.
If our government had been doing their job we would not have to help our companies now.
Level the playing field and our companies will not need help. It's totally wrong that a Chevy Cobalt costs $45,000 in Japan while a imported Japanese or built car is sold in the US without even paying US taxes.
Published: December 6, 2008 6:13 AM
Bob
I work in a factory on an assembly line that supplies parts to the big 3. I only make a little less than $12 per hour. We get a cost of living increase of 2% every year, but we haven't gotten one in a last couple of years.
Our benefits have been getting cut because of the big 3. The big 3 have been demanding that their suppliers sell them parts cheaper and cheaper. That means my company has to cut our benefits and workforce. Whereas, alot of us have to do TWO jobs and work faster for the same pay. Bullshit. Let the big 3 fail!!
Published: December 8, 2008 2:59 AM
Kristen
You guys are all selfish people who do not understand anything about this whole situation. When somebody in your family who you depend on has worked for over 32 years for the company as a LINEWORKER, then tell me how you would feel about the bailout. Yes, the big wigs should not have their private jets and company credit cards that pay for everything in their lives. But what about the average citizen who has been loyal and worked for a company for so many years? It's fair for them to lose their job with nothing in return? The government can give all this money to AIG and all the banks to help the credit market. However, did all of you fail to notice that this money was just handed over and these people were throwing parties for themselves?!?! If the money was given with stipulations and guidelines to be followed, then maybe this country wouldn't be in such an awful mess. There's one person to blame for this and it's the stupid idiot who can't even do an intelligent speach, let alone read a teleprompter.
Published: December 12, 2008 1:44 PM
fundamentalist
Kristen: "When somebody in your family who you depend on has worked for over 32 years for the company as a LINEWORKER, then tell me how you would feel about the bailout."
It's very sad for anyone to lose their job and I sympathize with the hundreds of thousands who have lost jobs in the current downturn. But don't think that the bail-out would save any jobs. The Big 3 auto makers will have to get rid of close to half their workers with or without a bail out because they make too many cars that no one wants to buy.
The choice is not between saving all the jobs or losing all of the jobs. The choice is between cutting half the jobs now or wasting billions of dollars and then cutting half of the jobs. The bail out has nothing at all to do with saving jobs.
Published: December 12, 2008 3:02 PM
Greg Scott
The idea that GM can operate out of bankruptcy is not very realistic. Who will want to buy autos from a company in bankruptcy? Be careful what you ask for you may get it. No other industrialized country is so eager to give up its industrial base. The only activities that actually generate wealth are those that extract things from the earth (mining, agriculture) or make something out of these things. Look at China and its emergence as an economic power as a case study on this. There are two major factors that are hurting the automakers and it does not necessarily include the union. One having been around for a long time they have significant pension and medical expense for their retirees. In this regard they are actually unloading a burden on the government. Secondly the current economic situation is by far the most dire it has been in my lifetime of nearly 50 years. It hard to function in an evironment where people are so afraid to buy a big ticket item as car and sales are only 60% of normal. Failure of the big 3 will surely result in the failure of many suppliers including manufacturers of steel and plastics. This will in turn eventually shut down. the transplant manufacturers as well. The impact on the economy which is beyong fragile will be catastrophic. Probably far worse than the picture the auto companies are painting. Not to mention what will happen when all the outstanding credit default swaps on GM come due. This whole economic debate is academic, however, as the economists in Washington know all these things as did those (and unanimously I might add) at the congressional hearings. It is a hot potato that noone wants to handle, but will go through one way or another due to sheer necessity.
Published: December 15, 2008 5:46 PM
Greg Scott
The idea that GM can operate out of bankruptcy is not very realistic. Who will want to buy autos from a company in bankruptcy? Be careful what you ask for you may get it. No other industrialized country is so eager to give up its industrial base. The only activities that actually generate wealth are those that extract things from the earth (mining, agriculture) or make something out of these things. Look at China and its emergence as an economic power as a case study on this. There are two major factors that are hurting the automakers and it does not necessarily include the union. One having been around for a long time they have significant pension and medical expense for their retirees. In this regard they are actually unloading a burden on the government. Secondly the current economic situation is by far the most dire it has been in my lifetime of nearly 50 years. It hard to function in an evironment where people are so afraid to buy a big ticket item as car and sales are only 60% of normal. Failure of the big 3 will surely result in the failure of many suppliers including manufacturers of steel and plastics. This will in turn eventually shut down. the transplant manufacturers as well. The impact on the economy which is beyong fragile will be catastrophic. Probably far worse than the picture the auto companies are painting. Not to mention what will happen when all the outstanding credit default swaps on GM come due. This whole economic debate is academic, however, as the economists in Washington know all these things as did those (and unanimously I might add) at the congressional hearings. It is a hot potato that noone wants to handle, but will go through one way or another due to sheer necessity.
Published: December 15, 2008 5:46 PM
Greg Scott
The idea that GM can operate out of bankruptcy is not very realistic. Who will want to buy autos from a company in bankruptcy? Be careful what you ask for you may get it. No other industrialized country is so eager to give up its industrial base. The only activities that actually generate wealth are those that extract things from the earth (mining, agriculture) or make something out of these things. Look at China and its emergence as an economic power as a case study on this. There are two major factors that are hurting the automakers and it does not necessarily include the union. One having been around for a long time they have significant pension and medical expense for their retirees. In this regard they are actually unloading a burden on the government. Secondly the current economic situation is by far the most dire it has been in my lifetime of nearly 50 years. It hard to function in an evironment where people are so afraid to buy a big ticket item as car and sales are only 60% of normal. Failure of the big 3 will surely result in the failure of many suppliers including manufacturers of steel and plastics. This will in turn eventually shut down. the transplant manufacturers as well. The impact on the economy which is beyong fragile will be catastrophic. Probably far worse than the picture the auto companies are painting. Not to mention what will happen when all the outstanding credit default swaps on GM come due. This whole economic debate is academic, however, as the economists in Washington know all these things as did those (and unanimously I might add) at the congressional hearings. It is a hot potato that noone wants to handle, but will go through one way or another due to sheer necessity.
Published: December 15, 2008 5:47 PM
logan
Maybe GM should include a DVD of 'Pearl Harbor' with each new vehicle.
It was American manufacturing that helped the US win WWII. It also saved alot of American lives.
Maybe, if it had gone the other way. Alot of these naysayers would not even exist. They would have no parents or grand parents.
Published: February 18, 2009 12:24 AM
anon
re: logan - so you're not against a bailout?
some people still rue thatcher for destroying britain's manufacturing base.
Published: February 18, 2009 2:29 AM
Shawn Downey
"It may be surprising that the following companies employ a larger number of workers than GM: Target, AT&T, GE, IBM, McDonalds, Citigroup, Kroger, Sears, and Wal-Mart. It is also worth noting that Home Depot, United Technologies, and Verizon all employ nearly as many workers as GM."
Briggs,
None of the companies you listed are in the "manufacturing" industries, you listed companies all in retail and service industries. We have very few manufacturing companies, and this is why the bailout is a big deal, to keep the few manufacturing companies that we have. It's true, the bailout is more for piece of mind because our economy has turned near entirely to a service economy, and GM is equivalent to the last "dodo" bird, unfortunately :( Luckily, Silicon Valley still offers hope for new manufacturing companies.
There's also an issue of nostalgia, since the US invented cars, but going deep down it's really embarrassment that we've lost the automotive market that we created and that was at the heart of our economic recovery so many years ago.
Published: March 7, 2009 10:48 AM