Tuesday, November 18, 2008

The Big Three: Belly-up or Bailout?

Now the big three American automakers have made their great journey to the "Land of Milk and Honey" that we call D.C., and they have their hands extended for a bailout. And really, who can blame them? They have seen the federal government give out $750 billion to the financial world, and they want their piece while the getting's good. Unlike Wall Street, Detroit can actually lay claim to making a product that many citizens are reliant on. While it's true that the populace can look elsewhere for automobiles (and many in fact do), it also must be noted that between those who actually work directly for the "Big Three", and all the ancillary companies that support the industry, there are approximately 2.5 million jobs at stake.

I find it completely understandable that folks are resisting forking over more funds for corporations that have a long tradition of mismanagement. I've read estimates that General Motors is losing $1 billion a month. The outstanding question is, "Will any low-interest government loan amount to throwing good money after bad?" If the policies and strategies of car manufacturers in the United States don't change, then there is no reason to believe that an injection of $25 billion into the industry will do anything other than delay its inevitable failure. Still we are told that GM is on the cusp of finally unveiling the Chevy Volt. Maybe this is the chunk of change that will finally put the product over the top?

It's pretty obvious that the reliance on making high-profit SUVs and other large model cars has put these automakers in dire straits. It was fine when gas was consistently cheap... the marketing campaigns were effective enough to convince many suburb/exurbanites that they needed these things for their family trips back-and-forth to Walmart. Once a substantial number were on the road, ownership of such inefficient machines was seen as a status symbol. Then it was easy to justify buying one because you needed to keep up just to be safe among the other behemoths of the road. It was a self-perpetuating cycle that was only stymied by the steep increases in fuel prices. Of course after that it was difficult to give them away.

Still, those who favor such profligate consumer lifestyle choices will say that the state of the "Big Three" has nothing to do with SUVs, but rather the salaries and benefits of unionized auto employees. It's easy to surf the net and find people bitching about "luxury" dental plans and "undeserved" wage increases. Their position is that if we just adjust worker compensation to fall in line with those in third world nations, then we'll be truly competitive. The answer, according to these "free market" capitalists, is "let them go into bankruptcy" so that they don't have to honor their labor contracts. They insist that the preservation of decent jobs is not the business of our national government.

However, I'm convinced that the "Big Three" is going to get their assistance no matter what. The only question is where the money is going to come from. Henry Paulson doesn't want to break it off from the ridiculously large sum he has been given to play with, without oversight. That's for the investment banks. He suggests that Congress take the sum from the legislative allocation that has been made to encourage the production of fuel-efficient cars. But Democrats are not going for it. Apparently they are sick of seeing these large corporations place all their concerns on short-term profits at the expense of technological investments that could serve them well in the future. I can't say I blame them. It sickens me too.

NOTE: One suggestion I've come across that seems just (but not likely) is to pressure oil companies (that have made record profits over the last several years) to extend low interest loans to the automakers. Of course if that did happen, there would need to be close governmental supervision to avoid any resulting influence that Exxon/Mobil would have on the "Big Three". That's already a bit of an unholy alliance.

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Blogger Warm Apple Pie said...

Tough questions, Merge, to be sure. Is there a better example of Corporate America's endemic waste and mismanagement?

And disregard the hooey going around that the foreign car manufacturers are in the same predicament. That is simply not the case. True, they suffer from dwindling car purchases in the United States just like the Big Three, but there willingness to adapt to demands of the marketplace both here and abroad, with an emphasis on R&D and fuel efficiency, puts them on firm footing to weather the crisis. If the American auto industry collapses, foreign manufacturers will either pick up of open market share or dominate the lion's share of the domestic marketplace to the detriment of United States economic interests, depending on your point of view.

The NY Times calls it "picking up the economic slack." Allowing it to happen would be against "economic patriotism" according to Pat Buchanan.


5:59 PM  

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