If you don’t have the capability to lead, the vision to look more than six months down the road, and the guts to make tough decisions… it must be someone else’s fault, right? That’s presumably the opinion of the Detroit Three as the get read to ask for what is effectively a bailout by the government. No, let’s clarify that: a bailout by you and I, the taxpayers.
The supports pushed by General Motors Corp., Ford Motor Co. and Chrysler LLC would represent the biggest intervention of this kind by the government in the auto sector since Washington’s bailout of the former Chrysler Corp. in 1979-80. But the differences between the Chrysler rescue and the latest proposal are substantial, starting with the scale. This time, all three of the unionized Detroit auto makers plan to work together to secure direct loans from the government, giving the federal government a massive new role as a major lender for three of the 11 global auto makers building cars in the U.S.
To be fair, the last one didn’t turn out so bad, even though the premise was still wrong in my opinion.
The Chrysler rescue, which ultimately returned a profit to the Treasury, involved just one company and $1.5 billion in government guaranteed loans, or about $3.7 billion in today’s dollars.
But let’s also take note of a key phrase in the original quote: "…three of the 11 global auto makers…" Somehow the Detroit Three (GM, Ford, Chrysler for those of you unfamiliar with this shift from the term "Big Three" which technically includes Toyota) consider themselves different from everyone else.
The auto industry, crippled by high fuel prices and consumer trends away from SUVs, bristles at calling the program a bailout similar to the Chrysler deal. Still, in 1979, much like today, Detroit was reeling from skyrocketing oil prices, competition from foreign auto makers and a souring economy, said Robert J. Barbera, chief economist at the research and trading firm Investment Technology Group.
No, the entire auto industry is not crippled. The Detroit Three are crippled. Although sales have slowed for the likes of Toyota, Honda, and Nissan, years ago they began the shift toward smaller and more fuel efficient vehicles, including massive investment in new technologies such as the Prius hybrid.
This time, Detroit is making the case that the loans will help advance the country’s energy-saving goals by offsetting some of the estimated $100 billion it will cost Detroit to comply with tougher fuel-economy standards enacted as part of the energy bill. The loans would allow the auto makers to borrow money to retool for more-efficient vehicles at significantly lower interest rates — likely between 4% and 5% — than if they got the loans on the open market.
So let’s see… the U.S. government will be subsidizing business costs for the Detroit Three, while foreign auto companies have to foot the bill themselves. I bet the supporters of this bailout include some of the same jokers that complain that foreign governments are subsidizing costs for their domestic companies, making it more difficult for U.S. companies to compete. Anyone want to look around for some black pots and kettles?
I want the Detroit Three to succeed. Really I do. But rewarding a stunning lack of leadership vision removes the accountability that helps create excellent leadership. Similarly tough times have a way of stimulating excellent leaders to find innovative pathways out of the maelstrom.
Bryan Coats says
You need to understand the auto industry, both domestic and foreign, before you join the typical American industry bashing “journalists”. Foreign auto companies have long enjoyed advantageous government support in their home countries, including currency value management, import restrictions, and so on. They have also developed their fuel efficient vehicles in their home markets due to the fact that fuel was several times more expensive than in the US, largely because of high taxes which created high prices, which created demand for fuel efficiency.
Chet Frame says
Excellent post.
When the going gets tough, talk to your local representative to see if he can fund you out of the hard work. If we bail them out, nothing good will be learned, but jobs will be saved in the mid term. Will those be American jobs, Nafta jobs, or global jobs?
Dan Markovitz says
Amen, Kevin. Let’s also not forget that the executives at these firms (including the financial types at Cerberus) pontificate on both the glory and the moral superiority of the free-market system. Well, you can’t have it both ways.
david foster says
“The Chrysler rescue, which ultimately returned a profit to the Treasury”…what does “returned a profit” mean–just that the amount of money returned was greater than the amount of money put in? A more meaningful analysis would provide a true return on investment figure, taking into account the time value of money.
I expect superficiality from the NYT, but hoped for better from the WSJ.
John Hunter says
The ranks of business bailout bureaucrats is not large. Here is an editorial my Dad wrote about the mistake of bailing out AMC in the 1980s http://williamghunter.net/articles/longtermcomentary.cfm The idea of car manufactures improving their management has been around for decades and those paying themselves millions over that period did not do nearly enough to improve.
And my understanding of Chrysler is they failed to pay the taxpayers what was promised up front. Once millions were available for executives they made the typical, free market, business is good government is bad… pablum (along with large payments to those voting to have the government pass up on taking the gains the original deal promised – I am confident without having to even look for any data) to get out of paying what they agreed to.
skh.pcola says
The “Big 3” aren’t in poor health solely due to a sluggish response to rising demand for smaller, more fuel-efficient vehicles. A larger portion of the problem is due to rapacious labor unions and the enormous legacy costs imposed on the auto makers by those same union thugs. The union/firm relationship, as it currently exists, will always result in epic failure, since unions feel as if they “own” the jobs instead of acting like both parties have a stake in the continued success of the domestic industry.
Stan Heard says
I want the Detroit 3 to succeed. I really do. My Dad drove a truck delivering GM autos to dealers until he retired 15 years ago. My Dad and I were at odds over the quality of American cars for a few years. I don’t want him to have to watch the company he gave his life and family time to, crash and burn.
Most everybody believes in the Free Market until it affects them. Then they want someone in government to intervene on their behalf by making the rest of the American population poorer through a taxpayer bailout.
If other countries want to make their economies poorer by taxing citizens and helping automobile companies, let’em. That will just make them poorer and Americans richer. The American consumer will have higher quality goods at lower prices. Consequently we will have more money to spend on other things we want and can not have otherwise because we didn’t have the money. Our lives will be enriched.
If you believe in Lean Management you have to believe in eliminating waste. When a producer is unable to garner a market for a product, then that producer is wasting resources (Money, Manpower and Material) and the sooner that business goes out of business, the better…for American consumers and the economy as a whole. that will allow the Money, Manpower and Material to go toward making products or services for which there is a market.
You believe in Lean, believe also in Free because without a Free Market, you cannot have a Lean Business. Not really.
Jim Huntzinger says
Until the Big Three (any company for that matter) learn to use a superior business model, they will never compete against competitors who do use a superior business model (flow vs. batch). And any bailout will only prolong the inevitable – failure. Case in point, Chrysler is failing again and wants a bailout again. And this is beside the point about free market capitalism vs. socialist government support. Companies fail everyday due to a poor business model and the government does not (nor should it) bail them out – these companies do not get PR as do the auto companies – so most of the country pays no attention to their failure, only people local to the failing firm. In a free market environment a company either competes; or if it cannot, it changes or fails. That is our system (at least is suppose to be our system), and this type of system provides more wealth and growth to everyone involved in the system than any ever devised by man. This does not mean that the system is perfect, nor that companies (which means people) do not suffer from time to time. It happens, but it happens by design so that the stronger, more competitive firm rises up and provides wealth to more people. It is not a zero sum game – the pie continues to get larger, which benefits more people.
I do not want to see the Big Three fail, but if they cannot compete, then they fail – just as any business that cannot compete would suffer. And in the long run the economy will prosper because a better competitor assumes that market. This is a decision by the customers, and should not be made by the government – unless we have a preference for socialism. Which if we do, then we will all suffer, just not those who cannot compete.