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Fasten Your Seat Belts, Car Company Crash Ahead?

Posted November 20, 2008

Yes, The Whiner has a tough time deciding many things about cars. It’s hard enough to figure out whether to buy or lease, stick with the old clunker, or go car-less entirely. But those questions pale in comparison to the larger issue of what to do with the U.S.’s precarious-struggling-who-are-we-kidding-more-dead-than-alive auto industry.

We could whine all day about the latest scandal du jour: Those three grim-faced CEOs who flew to Washington, D.C. on Wednesday with their hands out for bailout bucks and their butts safely entrenched in three different private luxury jets. (They should have been forced to drive to Washington in one of their lousy gas-guzzlers. Better still, in the same car.)

But why waste a good EconoWhine on them? There are so many things connected with the misuse, misdirection, and fundamentally mistaken nature of this bail out that it’s hard to direct our rage against three incompetents whose names we can’t even remember.

Instead we’d like to focus on a larger question.

At a time when equally incompetent CEOs and flat-lining financial institutions are getting rescued left-and-right, when companies like American Express are turning themselves into banks as quickly as Clark Kent switched to his Superman gear (all in the interests of getting their hot little hands on the U.S. government’s dollars-for-dodos), what’s the problem with helping out U.S. auto manufacturers?

These companies do, after all, employ a hell of a lot of people. And when you factor in all the suppliers, car dealers, diners, and other businesses whose fate depends on the survival of the Big Three car companies, a bailout seems perfectly logical (logical, that is, in the completely insane universe in which we now find ourselves).

The Whiner is wondering if Washington’s tough stand with the auto industry has more to do with trying to break the backs of some unions — à la Ronald Reagan’s showdown in the OK Corral with the air traffic controllers — than with any commitment to fiscal sanity and consistent management of our current economic crisis.

The Whiner wants to know: What do you think? If you were casting a vote in Washington, would you bailout the Big Three, or let them crash and burn?

Reader Comments

  1. Jeffrey G Johnson

    I would bail them out, with conditions, for example some commitments to higher gas mileage standards, lower emissions, more hybrids, hydrogen fuel cell research, etc.
    I’m persuaded by arguments I’ve read that Auto companies can’t pass through Chapter 11 so easily; demand for their products would plunge because automobiles are long term purchases and availability of parts, service, and preserving re-sale value are important factors to consumers. Would you buy a car from a company in Chapter 11?

    I also believe the republican resistance to bailing out the auto industry stems from their desire to slap the UAW. I would like to know why Japanese manufacturers do so well despite a unionized labor pool.

  2. Theresa

    I’d say yes, except then I remember the movie “Who Killed the Electric Car?”and just get madder and madder.

    A consumer economy is a cruel one — you make a bad, gas-guzzling product that everyone hates, you lose. Next we’ll have to bail out Budweiser for selling piss for decades while fighting the microbrew “fad.”

  3. Aristotle

    Bail them out, but only to prevent further economic collapse. There should be conditions, such as automakers focusing on fuel efficiency and politically supporting a gasoline tax. The tax should permanantly kick in after the recession is over, and should set a minumum gasoline price. In other words, no matter if crude prices fall below that threshold, the tax increases to make up the difference in price. That way, people will have incentives to buy fuel efficient cars, regardless of crude oil price.

  4. Rebecca

    I’m not sure if the bailout is a good idea or not, but I really don’t like the fact that AIG keeps getting our money and not nearly as many folks rely on them for a job.
    At least help out their lending arm’s so Americans can actually buy a car. How can the Big 3 possibly survive to make changes if they aren’t getting income?
    Regardless, I think as soon as those new fuel efficient cars hit the show room, we have a duty to BUY AMERICAN!!! And keep Americans employed!

  5. William

    I think it’s reasonable to argue that the US needs a car industry – and needs to have some sovereign control over the industry (not just factories owned by Japanese and German companies). So yes there is a good case for a plan that rescues the American car companies. However, there are real issues with the present management, and even the present structure of the American car companies. By all means “rescue” them, but the rescue should be done in the context of a comprehensive restructuring of the industry. This should include new company structures. Is “the big 3″ relevant today? How about spinning off the distinct brands into independent companies that can pursue real innovation in different niches? How about new management expertise from areas that have demonstrated high levels of innovation? How about the iCar?…

  6. dck

    I think we shouldn’t bail out the auto companies. They don’t have a sustainable business plan and senior mangement have been asleep at the wheel too long.

    Let the market prevail and the most innovative will survive.

  7. Arlene

    Sorry, all three of them just don’t need to be here. Their top management is oblivious and their business models are broken.

    In the end, they probably will (and maybe should) get those revolving loans, but lots and LOTS of conditions ought to be attached. We just don’t need three barely-breathing companies on fiscal life support.

    Why can’t the magical market that the Repubs have been telling us about sort this out? Oh, that’s right–it’s all the unions’ fault. Union-busting is definitely part of this sad mess, unfortunately.

    I also love the suggestion of making them share a drive in one of their own products from Detroit to Washington and back.

    I would suggest my late father’s 1997 Ford Escort with its mysterious and unsolvable starting failures every 500 miles for a particularly stimulating trip. Then they could wait alongside the Interstate for AAA to bail them out of THAT mess…and get a clue.

  8. Mark

    Why would you bail out an industry that has been losing money for years and is burning it now at a ferocious rate? Its not like “bail-out” money burns slower. Its not like with (you put in the billions of $$) they are going to “turn the corner”.

    The NY Times had a good article the other day on the government guiding them through Chapter 11, investing enough money so they dont go to Chapter 7 (liquidation).

  9. Miles

    I’d like to say no. But like other posters, I’m angry that useless financial instituations like AIG and all the rest are getting plenty, and their fat cats are getting to keep their bonuses. I like the idea of letting them go bankrupt so that we can get new management in there. But I don’t like a whole lot of auto workers and retired auto workers potentially losing their pensions and healthcare all of a sudden (again when all the financial execs get to keep all their perks). I’d like to see a guided Chapter 11. I think Chrysler nees to dissolve, completely. There is no room for a third car company and I wonder what they really add to the market.

  10. tabby

    I’d bail out only one of them. The one that has offered the best product, has updated itself to the current economy and consumer needs. I don’t know how they’d determine which one that would be but i think it would send a message.

    The airline industry jumped on 9/11 and got a financial package which a lot of people regretted afterwards. We can’t keep bailing and bailing. Because there won’t be an end. We might as well set up government controlled private companies at this point.

  11. carmen laube

    Let Exxon bail them out. barring that, crash and burn. Other countries with fewer resources than ours manage to put out innovative cars with better or alternative fuel efficiency. Why not us?

  12. Kathryn

    I would buy the Volt technology from GM at a fair price, consider buying Ford stock and let the chips fall where they may. Chrysler has been making poorly executed cars for so long it’s probably unredeemable. Ford has been doing better, and if it shed some weight in bankruptcy, might be competitive. GM could take the money from the Volt sale and see if it could figure out a better model, but on the whole poor planning on your part does not constitute and emergency on my part–why subsidize them and not the little experimental companies that might actually build a better mousetrap?

  13. Jamie Stanley

    If I were casting a vote in Washington, I WOULD NOT bailout the Big Three. The old paradigm is no longer viable or sustainable. Those CEOS that went to Washington with cup in hand have been paid big money to manage and they and their predecessors messed up. They jumped on the gravy train when the timing looked right.

  14. bob

    myth 1- big 3 making clunky, fuel gouging Suv’s,reality:
    bmw,mercedes,toyota,honda,infiniti,lexus,acura et.al
    make suv’s with same gas mileage.
    myth 2- big 3 cars terrible quality reality: objectively
    compare sedan, suv and truck quality between big 3
    products and foreign competition and you’ll see
    they’re virtually the same overall with J.D. Powers
    evaluations. Actually, big 3 have passed camry and
    accord with their american counterparts according to
    j.d.powers
    myth 3- big 3, no hybrids – they actually
    now have more than foreign competition.
    myth 4- fuel economy-big 3 on par with foreign, use brain
    and compare. You’ll see! use brain, u won’t
    complain!

  15. amy

    Goodbye Motown, NOLA of the North. No, a bailout does not seem perfectly logical, in large measure because there is no viable business there to bail out. See under “creditworthy”.

    Detroit was cooked 30 years ago. If they haven’t fixed the problems since Lee Iacocca’s day, they ain’t gonna. I would reserve whatever plants we need for manufacturing military vehicles, then arrange with international friends to make good on some Treasury debt by payment-in-kind with auto factories. And let them see if they can do any better.

    Course, they might not want them either.

  16. MW

    I would bail them out – just as far as it would take to protect the poor retirees whose lives will be ruined when they lose their pensions. Other than that – I don’t believe in rewarding any person or company that so poorly manages their own finances (ex. private jets to Washington even now).

  17. Julia

    I tend to agree with those who say that the government should provide them with assistance, under strict conditions, requiring them to build more fuel-efficient, greener cars and invest in alternative fuel technology. I am also persuaded by the arguments that they should not be rescued from their years of obvious mismanagement and should be allowed to go under. But I cannot justify the harmful ripple effects of that in millions of lost jobs, the damage to the suppliers and others supported by the industry. And the CEO’s should be forced to sell those ridiculous Lear Jets and take the bus! Otherwise, in the words of Michael Moore, this is not capitalism, it is just socialism for the very wealthy.

  18. Sara

    Thanks, Rebecca and William!

    I live in the Detroit area, and my entire extended family relies on the auto industry for our lives. Now, I agree with those of you who say that it’s a bloated industry that needs major changes to survive long-term, with or without a bailout. Careful reading and analysis on my part has given me an opinion on the bailout identical to Jeffrey G. Johnson’s: That we should be bailed out, but with conditions and research as to how other similar industries and companies in other places have more consistant success than the Big 3.
    But for all of you who just think that Detroit is filled with unionized fat cats who are getting paid not to work, well, there are some. Not too many left, but I know a few. But there are also people like my husband, who works his butt off every day as a machinist and programmer for a small Delphi/GM prototype parts shop that hires less than 100 people. He doesn’t belong to a union, we have an hmo, no retirement plan, and the wages, while good, are definitely not lavish. He’ll lose his job, too, if GM goes under. So too, will all of the service industry here, and they couldn’t be working harder for the money. My father already lost his job with Chrysler (he’s an engineer, and wasn’t unionized). He might have to move cross country to find a new job. We might have to, too. Does everyone wish us ill, here in Detroit?

  19. amy

    Do we wish you ill? No, of course not. But this former resident of Bethlehem can see the writing on the wall.

    I’d git, if I wuz you.

  20. Chiamaka

    No bail outs for Automakers please!!!

    Bailing them out is the same thing as throwing our hard earned tax money down the drain because it will be used to put out old raging fires and not for any future benefit of the companies. They made a bad deal in the past with Unions and are now faced with billions of dollars in retirement benefits to pay off. So, they want to use my tax dollars to pay of retirement benefits and then what next??? This will not save GM. After the bailout, GM will be faced with the same challenge: LACK OF COMPETITIVE PRODUCTS. This could have been prevented if they had not spent millions in lobbyist dollars trying to prevent the government from mandating more fuel effecient cars. Lets deal with the real problem people!

    Granted, there are numerous jobs at stake but the truth of the matter is (as harsh as it may sound) bailing out GM, Ford, Chrysler is akin to saving the current generation which has messed up at the expense of future generations.

    Chapter 11 does not mean that GM is going under. It only means that creditors will take over the company and let go of the current management and then make their own decision on how to run the company. What is so wrong in that??? Mr. Wagoner sounded even threatening when he came to beg for money.. give me the $$$ or else… No remorse, no personal responsibility. how come no one is ASKING ME for my opinion on how to use MY tax dollars???

    As for other servicing companies that are dependent on the automaking industries. I do not believe that they will go completely down the drain because the fact remains, demand for cars still exist. Consumers will just go to car makers with the most suitable products and if this means that some GM customers switch to Nissan? Nissan still needs the servicing companies to handle the demand.

    So, thanks for allowing me to blow off my steam and could somebody please tell Wagoner to go some place else for help.

  21. Les

    In 1986 David Halberstam published ‘The Reckoning’, a comparison of the histories of Ford and Datsun (now Nissan). One point he made in this engaging book was that Ford’s upper management had no idea that their cars were unreliable. They were supplied with new models every few weeks or months and each working day their cars were taken off to a company garage where any fault, squeak or rattle was corrected.

    Now fast forward to this past February when GM Vice-Chairman Bob Lutz famously dismissed the idea of global warming in crude, scatalogical terms. No matter that Polar ice packs are melting and wine grapes are growing in England, Mr. Lutz declines to be convinced.

    US automaker management simply does not have a clue.

    No, Sara, I don;t think the US hates you or wishes your family and all like them harm. Sympathy, pity – something like that. You’ve found yourselves hitched to a failing star , one that has deeply disappointed many Americans. We would would like to be able to take pride this signal American industry but we’ve found nothing to admire.

    And Bob, I’d like to refer you to page 65 of the December issue of ‘Consumer Reports’ where auto reliability is tabulated. In the category of Least Reliable 28 models are American and 17 are foreign. In the Most Reliable category 43 are foreign and 3(!) are American. As for hybrid propulsion I’d like to note that a number of bulky, inefficient vehicles have been equipped with Synergy drives (Toyota license)to try to squeeze out a few more miles per gallon. That in itself doesn’t make them fuel efficient.

    I agree that the US needs a soverign auto industry. It is essential, however, that said industry should be robust and creative, not a tarted up relic of the 1950s. Assistance should be granted on the condition that a thorough housecleaning be performed starting in the executive suites. I refuse to believe that the brains and initiative that could transform the industry are not already present in those companies. It needs to be applied. Excellence flows from the top down and in this case there’s been none to flow.

  22. Donna

    I grew up in Detroit myself. My dad, grandfather, and great grandfather all worked for Ford. My great-great grandfather helped build Henry Ford’s first assembly line. I know very well what is going to happen to the regions who rely so heavily on the Big 3 economy.

    That said, the Big 3 had 30 years to address their problems. They instead decided to push cheap credit instead of actually making meaningful changes to their product. If we bail them out, they will not change at all. I don’t care how many conditions you make – they will find a way to weasel out of meeting them.

    This is what happens when you bail out some companies. Everyone wants one.

    No bailout. We never should have bailed anyone out to begin with.

  23. Sara

    I think some of you aren’t thinking about this clearly at all. I see the wisdom in statements like

    ‘I’d git, if I wuz you.’

    ‘You’ve found yourselves hitched to a failing star…’

    But we didn’t ‘hitch ourselves’ We were all born here, children of immigrants.

    So say we do ‘git’ out of here.
    Where do we go?

    It’s not like jobs are in demand anywhere else.
    Also, say my husband and I come to your town and steal jobs out from under you. What then? There are MILLIONS of us here that will need to ‘git’, not thousands like if the banking corporations collapsed. So we either take all of your jobs, or we go on welfare in your town. That’s what happens if you collapse an entire region in one of the most populous countries in the world.

    I don’t think I’ll kill myself to save you the tax dollars if it comes to that, all because I had the audacity to be born in Detroit, Michigan.

    So at the risk of sounding like a horrible person, what makes all of you think you won’t have to bail us out regardless?

  24. amy

    Sara, I think you’ll be disappointed when you see what welfare entails these days. We don’t have much in the way of welfare anymore. Reagan was a pretty thorough fella, and Clinton did the cleanup. It’s very difficult to get or stay on welfare. The aid programs are also run through the states, and the states have a tendency to run out of money in bad times.

    If you don’t think you and your husband can retrain and win jobs, I would go as far as you can towards self-sufficiency. Think about what you’ll do for heat, food, medicine. Think about what you’ll do if bad times last a while. And get a dog and a gun, if you haven’t got those already. That rabbit lady in Roger & Me was terrible to watch, but dude, she had a house and what to eat. I don’t think she was sporting advanced degrees, either.

    As for getting jobs — no, not everyone will get them. But I can guarantee that hanging around talking about the hard luck of those born in Detroit will not help you. Incidentally, in the past week, two of my laid-off friends in the NY metro area have found jobs; I applied for a gorgeous part-time full-benefits job here, have had two offers of freelance work, and have had an offer of collaboration on another project. (And apparently found hours to waste writing on blogs.) You’re going to have to hustle like the rest of us, I’m afraid.

    I understand that it’s miserable, particularly when you’re not young and have kids. Starting again can be nothing but hard, scary, dangerous. There is no guarantee of success. But I don’t know that you’ll have much choice, bailout or no bailout. I didn’t two years ago, when I found myself suddenly responsible for supporting and raising a kid more or less on my own. You hustle, you’ll probably make it.

  25. amy

    Oh. And Sara, keep in mind that you have a massive advantage over the steelworkers of the 80s. You have the internet. You can find out what other places are like before you get there, apply for non-local jobs easily, and find out what it really costs to live someplace you’ve never been to before. Moving to a new place is always expensive, always a scary risk when you’re low on cash, but going in completely blind is so much more expensive.

  26. Donna

    Sara – Not quite sure what to tell you. The writing was on the wall when I graduated from high school in 1991. I made a point to choose a career path that was not related to the auto industry and left Detroit. My brother followed me 7 years later.

    Frankly, I was sure this would all happen sooner. I didn’t count on the credit arms of the Big 3 keeping them afloat. Well, that’s over and the borrowed time has been used up.

    It’s heartbreaking. Detroit could have been so much different had the Powers-that-Be made different choices.

  27. beebs

    What about the bailout of buggy whip manufacturers?