After an initial round of hearings on Capitol Hill, it looks like the Republicans are generally opposed to providing additional taxpayer money to bail out the American auto manufacturers at this point, while the Democrats are generally in favor of it. Pelosi and Reid scheduled the hearings but the effort has now stalled. President-elect Obama supports it, former presidential candidate and son of an auto executive Gov. Mitt Romney now opposes it (with his trademark phoniness, natch). Bush and Paulsen say don’t look to the $700 billion in bailout money.
Although I completely understand the opposition to government bailouts in general and the reluctance to reward the shortsighted management of the Big Three, this one looks pretty clear to me: it stinks, but we’ve got to do it. The alternatives — assuming that what “everyone knows” is accurate, namely, that GM is close to the edge financially and really is in serious danger of running out of cash and having to declare bankruptcy within the next year (or less) — are even worse.
Yes, it’s partly their own fault. They foolishly fought Congressional efforts to impose fuel-efficiency standards and kept on pumping out big, expensive, gas-guzzling SUV’s and pickups year after year, keeping their eyes firmly fixed only on their quarterly and annual bottom lines, refusing to lift their eyes to the horizon and acknowledge that they couldn’t go on that way forever. Yes, they’re still paying for their sins in the 1970’s, 80’s and early 90’s, when they built lousy products and let the rest of the world (particularly the Japanese companies) catch up and surpass them in terms of quality and market share and reputation. Yes, it’s maddening to see their execs fly out to D.C. in their private jets and plead for a handout from you and me.
But we need to do it. We can’t let the American auto industry die. They (well, at least GM and Ford) have finally, belatedly, responded and are slowly turning these giant behemoths around. They’ve got some good products out now, such as the Chevy Malibu (conventional or hybrid) and more on the way such as the plug-in hybrid Chevy Volt. They do well in global sales, such as in the China and Russia markets. They are not too far gone — far from it.
More significantly, the economic effects of a GM or Ford failure would be huge. It’s hard to see how a bankruptcy filing wouldn’t be devastating to sales, given how it would rattle the confidence of prospective car-buyers, and the problem even now is financing — even healthy companies are having trouble getting the loans they need; a bankrupt and flailing dinosaur would be unlikely to attract crucial financing. And the ripples would spread far and wide — thousands of suppliers and dealers throughout the country (and the world) would go under, and those that survived would take a serious hit right when they can least afford it. There are, potentially, millions of jobs at stake here. Yes, that’s plural. And that’s huge. Costs for state and local governments would increase with the need for various forms of assistance , and in Michigan and the rest of the rust-belt (partucularly Ohio, Indiana, Illinois and Wisconsin) tax revenue would plummet.
We’ve coughed up $700 billion for the Wall Street investment banks and financial companies because it had to be done, to keep the global financial sector from completely freezing up and tipping the recession into a depression. We need to put up a fraction of that amount to keep the backbone of the U.S. manufacturing sector afloat for the next few years, until they can get back on their feet again.
There’s a strategic aspect to this. The U.S. should not simply permit its auto industry to die out. We need a domestic automobile industry. Besides housing, autos are the single biggest purchase a household makes. Auto manufacturing is big, it’s technologically advanced, and it’s important. We won WWII in part because we were able (eventually, yes) to quickly turn our manufacturing base around and begin pumping out enough planes, tanks, trucks, jeeps, etc. to equip not just our own forces but those of our allies as well with the modern, effective material needed to win. Detroit led that effort and justly earned the phrase “Arsenal of Democracy.” There’s a change afoot in global manufacturing. The world is moving into the clean, green technology of the 21st century. Somebody is going to lead the way. U.S. manufacturers are well-positioned to lead that revolution over the next couple of decades, and the American auto manufacturers will be right in the lead — if they can survive the next couple of years. Chrysler probably won’t make it as a stand-alone manufacturer, but if GM and Ford can get through this rough patch they — and we — will be in reasonably good shape to face the future.
It’s not going to be easy, and it’s not particularly pleasant or politically popular. But we need to bail out Detroit.
Strings? Hell, yeah. I’m guessing some sort of oversight board with authority to put conditions on the payout checks. And a smart guy with some global clout as chair. Hey, Al Gore’s probably got some time these days…
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I’m not sure why nationalization isn’t an option here either. If it so far in line with the national interests to keep American automative industry American, why not buy them out now and sell them after they’ve been slimmed, trimmed, and made more sexy?
We’d also have more to say in terms of reaching our own energy independence goals.
So whats the deal?
What do you mean by nationalization, Marc? Do you mean have the U.S. government buy a controlling share (or all) of the stock?
How do you envision that taking place?
Well, I was more just wondering why nationalizing the banks is acceptable but GM isn’t. I mean in terms of our financial structure, making sure that the major banks didn’t fail was imminently more important to the nation, yet reforming the auto sector is more in line with our long term national goals.
The total stock assets in GM are only 4.5 billion, which is why a 25 billion dollar loan is so friggin insane; we could buy GM 5 times over and ensure that A: that long-term plan that Pelosi was harping about would actually be implemented and B. remove some of the worst management to run any of these auto companies which was, just 6 months ago when gas prices were over $5 a gallon, still believed their future was in cornering the big car market (SUV’s, Trucks and Minivans).
I mean, no one really believes that this will be the last of the loan money Detroit needs, nor is anyone reinsured that any of this money will be paid back. why not directly investment over indirectly, and be prepared to sell shares when the market and the companies are turned around and we can guarantee a return on investments while assuring to our country that our industrial sector isn’t further stumbling blindly into irrelevancy?
First off you reap what you sow. Second off, NATIONALIZE THE AUTO INDUSTRY?!?!? Oh, holy hell no. And when was the last time the government was capable of streamlining anything and making it more “sexy”?!
The answer to this is to let them fail. It’s the way our market works. Someone will come in, buy out the profitable parts, then move on. It’s ok to let things fail, Democrats. Stop trying to bubble wrap the world in safety. And for the love of all that’s holy please stop trying to grow government. They’re inefficient, beurocratic, politically motivated, and mostly incompetent. They’re not business people.
Well brogarn, as we’re talking about using TARP funds to nationalize Citigroup, that leaves only 2 major non-nationalized American banks (JP. Morgan and Goldman Sachs) which is to say that in the span of a few short months, we’ve nationalized DAMN NEAR THE ENTIRE BANKING INDUSTRY which until recently accounted for over 30% of the DOW. That’s a huge part of the American economy that we’ve quickly put under government ownership so nationalizing the auto industry isn’t all that much of a stretch.
Now lets make this clear, the government will not “run” the auto industry anymore than it is running the banking industry. Day to day business has been left to the banks. We simply hold a chair and controlling interest at the board of directors meetings, so that we can veto future stupid investment decisions, like say the auto industry investing millions in making a hybrid chevy Suburban, which is precisely the kind of thing they’ve been trying.
As for innefficient bureacrats running the system, we have two former Goldman Sachs CEO’s running the banking nationalization schemes, so it doesn’t look as if the trend is to do so, cause frankly, government may be dumb, but its not that dumb.
I’d just as soon keep this a recession, rather than a full-scale, god-awful depression, myself. 2 or 3 million additional jobs lost is not something I look forward to.
We’ve seen the glories of the unfettered free market in action, in the 1930’s, and it’s a disaster.
Speaking of “strategic” industries, has anyone noticed the semiconductor industry, you know, those guys who make the chips that go in our guided bombs, has almost completely moved out of the country? Only Intel still has state of the art fabs or the prospect of building new fabs in the United States.
Do you really think the Chinese will supply us with the chips our missiles and bombs need so they can be aimed at them?
Yet no one has offered to “bail” out TI or IBM or Freescale Semiconductor. What industries are truly strategic any more?
That’s interesting, Jack. I didn’t know that we had only one domestic chip manufacturer left, and to tell you the truth I hadn’t thought about that.
Do you happen to have a link for that info?
And, on the subject of the strategic value of the auto industry as the backbone of American manufacturing, remember that the New Deal only got us halfway out of the Great Depression. The actual recovery only came with the war — led by the jawdropping war production from Detroit.
Here’s Mitch Albom’s take. And that was published before yesterday’s decision to give Citigroup another $20 billion grant and $300 billion in loan guarantees — over a weekend, no hearings, no public discussion, given to one financial services company.
But nothing for the auto industry?
Why should we try to reform a competitive industry that has players in it that already meet “our long term goals”
I’d also like to ask in all seriousness why we should let government dictate all of our long term goals.
[...] troubled assets) that it’s perfectly fair at this point to use it for something worthwhile, in my view, such as saving the American domestic auto manufacturing capability (at least for the time [...]