Trickling Down on Detroit

Last month I wrote what I thought would be the last post on bailing out the Detroit Three automakers.  I should have known better, especially after last week's election.  Once you prime the government trough, it's very hard to turn it off.  There's already talk about another "stimulus package" and even, yes, yet another bailout for the Detroit Three.  Geesh... I wonder where all that money is going to come from.  Oh that's right... the fewer and fewer of us that actually pay taxes.

Obama said Friday he would push Congress to accelerate the delivery of 25 billion dollars in loan guarantees aimed at helping automakers develop more fuel efficient vehicles ahead of upcoming regulation. The Big Three asked for another 25 billion in loan guarantees for more general expenses during a meeting with top lawmakers in Washington Thursday.

Even NAM, that industry association that has spent most of the past two years criticizing everything even the slightest bit left-leaning, now weighs in on Obama's side.

"Automakers need immediate funding to stay on track during this difficult time," said National Association of Manufacturers president John Engler. "We're talking about close to a million jobs in America -- we're talking about a lasting impact on our industrial production in the United States. We simply cannot afford to let the auto industry fail."

Presumably Engler means "Detroit automakers" as although they're technically eligible, the foreign companies have turned down the handouts.  Maybe it's time to take another look at NAM... it's been a while.  Will subsidizing pathetic management really save those jobs long term?  Probably not.  The miscalculations of the Detroit Three have been pretty phenomenal.

But the seeds of the current crisis date back to the last big oil shock, of 1979, which helped the Japanese gain a foothold for small, fuel-efficient products. As gas lines faded from memory, the Asian automakers continued to gain ground by focusing on quality, something GM, Ford and Chrysler have only recently come to grips with -- and with varying degrees of success.

Further compounding the situation, Detroit has been consciously slow to embrace changes in the American automotive marketplace, especially the shift from big trucks to small, fuel-efficient passenger cars. And even where it has, lamented Consumer Reports' auto analyst David Champion, it has needed "more models that were exciting for people to buy."

Our friends in the hollowed ivory towers of Wharton recently provided similar comments.

I would just add that over the years, probably in the last decade or so, decade and a half, they made a lot of strategic mistakes. You know, basically, years ago, they had a very favorable industry structure. Industry forces were positive. They had power over suppliers. They had power over buyers. Buyers didn't know much about buying cars. They had size, they had market share. It was an oligopoly -- three firms. All of a sudden, the world changes. Competition comes in. The customer gets much more knowledgeable, because of the Internet. Suppliers become more powerful. The UAW had a history with GM of bad relationships. And that's not carrying over positively right now. And so when you put all of that in perspective, and given what John Paul also said -- that in fact, you can see some strategic errors, and just inability to manage their company well.

So why not give them more bucks?  A billion here a billion there... apparently it doesn't matter much these days. 

Let me get this straight: we have to bribe historically pathetic management to save a bunch of jobs that are supposedly protected by unions, while without any prodding Toyota is spending $35 million a month to save U.S. factory jobs when they don't even have unions breathing down their backs?  Yes I know Toyota has an incredible cash position.  Isn't that a function of leadership?  Which form of leadership do you want to ensure survives long term?  Who should really get the bribe?

And wait a minute... doesn't this latest auto bailout sound a lot like supply side economics?  From the same Democrats that complained about Reaganomics?  Trickle it down, baby!  Dump it on top and hope it helps the common folk.  I would have thought the Dems would at least focus on pushing on the balloon from the demand side.  Funny how politics works.

Comments

[Jeff in the D]

The Detroit 3 built large trucks and SUV's because there was a demand for them and they provided the largest profit margin. To ignore that market to push small cars would have been bad management. Furthermore, the "gods" of Wall Street would have criticized them for not maximizing shareholder profit. Even infallible Toyota had entered the large truck market with the Tundra. They were just fortunate to be a little late to market with it so they aren't as hurt by the change in market. No one could have predicted gas to practically double in price in little more than a year.

[Chet Frame]

I believe that there are some cogent and important issues in this discussion, but you seem to have decided that Evolving Excellence is going to become a Right Wing rant rather than a discussion of how things will be made better or where there is excellence in what we see.

Please go back to the view of the better direction rather than a rehash of political history in which no one has clean hands and our decision making has been mired in political posturing for the sake of the media. There are companies and people who are succeeding without handouts and bailouts. How are they doing it and what can we learn so we can continue to evolve toward excellence.

[david foster]

How about the US firms 1 and 2 tiers down on the supply chain?...are these to be bailed out also? If GM needs some new CAD software as part of their new fuel-efficient model, can they buy it from Dassault Systems, or will they be required to spend their bailout money on US companies only? (I believe someone raised this issue in comments here a few weeks ago.)

My guess would be that the larger the company/industry, the better its chance of being included in the bailout. If you're a steel company lobbying to get all steel sourced from the US, your chances are pretty good; if you're a small tool & die company, not so much.

Anyone know if the proposed bailout language deals with these issues?

[mattf]

Kevin:

I hear your pain, we all are feeling the pinch as huge corporations are now falling because of their own stupidity. In the end who pays for all of this? Why of course, the American people! Not like China, where their stimulus plan basically is for the people and not the corporations. Corporatism for ya, businesses here control everything, government is just a scapegoat for it all.

[Dan Markovitz]

Tom Friedman in the NYTimes today had a terrific column with respect to the proposed bailout: http://tinyurl.com/5ow787.

I'm very much a left-winger and believe there's a role for government intervention in the market, but this particular one sticks in my craw. Leaving GM and Ford aside for a moment, a bailout means that Cerberus and Bob ($250 million) Nardelli get helped out. Please.

[Kevin]

You know something must be wrong when a left-winger and a right/libertarian agree!

The more I look at this, the more it stinks.