Bell Curve The Law Talking Guy Raised by Republicans U.S. West
Well, he's kind of had it in for me ever since I accidentally ran over his dog. Actually, replace "accidentally" with "repeatedly," and replace "dog" with "son."

Tuesday, November 11, 2008

Why are we bailing out the auto industry?

I don't get it. I really don't. Sure, GM, Ford, and Chrysler are struggling. They've been struggling for 25 years. In the past 25 years, the only bright spot they've had at all was the SUV market in the late 1990s. Thatwas not their own doing. It was led by fashion, pushed by low gas prices, and promoted by a hefty federal tax benefit for small businesses that bought SUVS (classified as 'light trucks'). Rather than use the profits wisely, they let the rest of their models and market segments go to pot. They overinvested in the SUV market, as if it would last forever.

At the same time, the primary goal of auto industry management was cost-cutting, not improving quality or anything else. They hired MBAs to cut wages, reduce workforces, close plants, and eliminate or curtail the pensions their employees had earned, all while management paid itself record-high salaries for their efforts. The focus of management has always been on cost-cutting, never on producing a decent product. American cars feel plastic-y and cheap, are loud, and fall apart quickly. The design is always clunky and not quite right, as if they won't hire art students, or won't listen to them if they do. The colors are not attractive. Sleek and elegant are words that Ford and GM just don't understand. Style should be the one area where American cars can compete. Instead, the Germans and Japanese kick our butts in style. These people spend millions focus-testing new names for the cars. They get dumb ones like the "Aveo" and the Chrysler "Crossfire." "Crossfire" is marginally better than "bulletproof." Yet the Germans outsell and outclass them with just numbers and letters. Why are we bailing these people out?

The ONLY reason I can see for a bailout is to save jobs. But that's not going to happen, is it? That's the crime of it. Whatever money we give these corporations will go into "restructuring" or "downsizing," which is corpspeak for reducing workforces, closing plants, and so forth. And, as usual, top management will reward itself for its "courage" in cost-cutting with even higher bonuses and salaries. If we don't give them free money, the companies will go bankrupt and "reorganize," which will produce the same thing.

I've got a better idea. Let's give the money- the hundreds of billions of dollars Obama and Pelosi seem to want to spend - directly to the employees. Then let GM etc. be purchased by foreign car companies at bargain basement prices and do what they will.


Robert said...

In order to build a clean energy economy, we need to have green manufacturing jobs and produce efficient, economical, and environmentally safe products. By bailing out the auto industry, Obama can direct the automakers to do this.

If we simply let foreign automakers take over, we will have more difficulty in encouraging these kind of products.

Pombat said...

LTG - I have no idea why the auto industry's being bailed out, but sadly it's happening here in Aus too. They finally got to the point where the industry wasn't protected from outside competition (am sketchy on the details, before my time, but basically the two Aus companies were the only ones allowed to sell I think - details Spotted H?...), and now that it's suffering because the competition is so good, they're bailing it! It's ridiculous.

Robert - yes, hopefully Obama (and Rudd here) will be able to direct the industries towards greener products. But isn't that part of their problem with the foreign competition anyway, that the foreign manufacturers are already producing greener products? 'We' don't have to encourage these products, they're happening anyway, and leaving 'our' industries behind...

Bert Q. Slushbrow, Sr. said...

robert, I just read an article (in a Chinese blog) talking about the Chinese government doing just such directing. The most recent directive to their home grown auto manufacturers is to begin developing electric vehicles post haste.

I've long thought that China's authoritarian control, used wisely, could have a positive influence on alternative fuels/technologies and I suspect that this new directive may well signal the start of that influence. It will be interesting to see if China is able to take any sort of global leadership role in such automotive manufacturing (at the very least perhaps driving low cost, practical production of such vehicles).

Robert said...

Pombat - yes foreign companies are doing this, like Bert said. But having a strong manufacturing center in your own country is far better, especially because you have jobs, and you have less transportation. Transportation costs are only going to continue to rise, and so manufacturing locally is one way to keep consumer prices down.

USwest said...

May I direct your attention to my point of view, posted in October

The Law Talking Guy said...

USWest is right that she posted about this before. I did not pay as much attention because I didn't realize the Democrats were going to do it all.

monkeyman said...

Robert, you suggest that US cars are cheaper because of reduced transportation cost. Well, first GM for instance produces in 35 countries (source: Wikipedia), while foreign manufacturers produce in the US. So it is not clear that transportation cost is significantly lower when you buy an American car. Second, saving money by giving it away seems an odd concept. In fact, if transportation cost mattered all that much (and if you are right about Detroit having a big advantage in transportation cost) then US car manufacturers wouldn't be in this mess in the first place. I believe what matters most is producing cars people actually like and GM, Ford, and Chrysler haven't been doing a very good job at that.

Raised By Republicans said...

Part of the problem with the Big Three is that they have guys like this Bob Lutz putz who think global climate change is a myth set up by prosperity hating liberals to bring down their industry.

I agree with LTG that it would be better to help the workers directly. In particular, it would best to retrain them for jobs in the emerging green industries sector. The problem is that this sector hasn't emerged enough to generate jobs in sufficient quantity even if we flooded the labor market with upskilled workers. So there needs to be a transition strategy and I think many Democratic politicians are thinking of this bail out for the Big Three in those terms.

USwest said...

The Big Three have huge legacy costs. This is in part why they are suffering while foreign auto makers who have located factories in the US are not suffering as much. And to my Gen X ears, the promise that any company would be able to provide pensions for life seems silly. But then again, no one figured that people would live 20 years after retirement.

The government could help these companies if they would take over some of these legacy costs. But I am not sure they have the mechanisms to do this. That would be a different matter than just tossing cash at the companies.

And take note that you don't hear Ford mentioned too much in the mix, although it will need some help as well with legacy costs. And Ford is having a tough time as well. But Ford has been working on itself for awhile now, closing down certain lines and sharing assembly lines with the likes of Mazda. The old Mazda Protégé, for instance, came off the same assembly line as the old Ford Escort. In addition, Ford has plant and product in Europe. That meant Ford always produced small, fuel efficient cars and started transferring some of those small models that had been made for the European market to the US. So when the SUV thing crashed, Ford had smaller cars ready to roll out. Ford also started making tentative steps at offering hybrid options for some of its smaller SUV models.

In other words, Ford, unlike GM and Chrysler (that spend most of the last 8 years in a failed relationship with Daimler), was already starting to do what all three of these companies needed to be doing all along.

The Law Talking Guy said...

USWest, the "legacy costs" argument is what really bugs me. I think it's a cop-out. Boo-hoo, we have big pensions. We never thought our workers would live long and prosper. Really? No. They made out-year pension promises that allowed them to bargain for lower up-front costs, so the books looked good. This pattern was repeated until the bills came due. Then, as now, the focus was only on this quarter, not the long-term future.

Moroever, 'legacy costs' doesn't explain poor design, poor marketing, bloated executive salaries, and so forth. It's just that these nitwits look at a balance sheet and think "gee, we have to cut somewhere today to balance the books today - that's our problem," not "we need to invest in quality so that we can balance the books in the future."