The big three Detroit auto makers are beginning to run on empty. They are calling on the U.S. government to bail them out for now with $25 billion. (Their subsidiaries in Canada also want help in the form of low-interest loans and loan guarantees.) After all, the American government has already thrown more than $1 trillion at the financial system. So why not the car industry?
Because it would be a bad idea, that’s why. It would be an open invitation to companies everywhere to apply for aid to survive the recession. Why not the boat industry which is also having trouble?
It’s true that Detroit employs hundreds of thousands of workers and there are 125,000 auto workers in Ontario alone. But would locking up badly used resources in poorly performing industries really help Detroit and Oshawa in the long term? (By the way, in the long term the future of the auto industry looks rosy. In the next 40 years, the world’s fleet of cars is expected to increase from around 700 million today to nearly 3 billion.)
This does not change the fact that the North American auto industry is in a mess. They are consructing far too many cars that are too large, use too much gas, and roll out too many models that people don’t want.
Detroit’s cushy management has made blunder after blunder not the least of which is gold-plated contracts with the unions. Did you know that it costs Japanese auto companies $48 an hour per worker to build a car and that it costs Detroit $73 mainly because of union contracts?
So should our governments throw another $25 billion of good money after bad? Or should these dinosaurs suffer the fate of all failing companies that have hit the wall?
Not another bailout but Chapter 11. That’s the ticket. The purpose of Chapter 11 is precisely to help companies that need protection from their creditors while they restructure their liabilities and winnow out their good business from the bad. Remember the car companies would continues to make vehicles as they shed costs and renegotiated lucrative union contracts. In such an eventuality I believe the car management that got into all this trouble would have to go. (The President of GM says he’s not going even if he gets more billions.)
In many ways, Chapter 11 is more stable and predictable than depending on government handouts.
So this week I hope Congress turns down a multi-billion dollar bailout package. ( I also hope that Finance Minister Flaherty does not dole out billions to car factories in his own riding.)
Let the car companies go bankrupt. That will shape them up.
What do you think?
In the Lexus and the Olive Tree Thomas L. Freedman writes “let lame ducks die”. Letting the auto industry peter out would certainly be very costly in social and humanitarian terms at least for the short term. Reorganizing it under chapter 11 would certainly be the best course…wil the powerful UAW go along? But then they may not have a choice.
Most people who work for the auto industry, and its pensioners would say yes. Most people who don’t work for the industry would say no.
I think that if they are not selling cars now, how does more money for the industry make the consumer buy more cars?
The only solution for the industry, long term, is to retool as quick as possible and create green cars. This way when the consumer buys a car he will save money in energy costs, a great incentive to keep everyone happy, except the Oil Companies.
Then, they will be asking for a bailout.
As far as unions are concerned it is only people with well paying jobs union or otherwise that can afford cars.
It would be interesting to see how many people who work for minimum wage can afford cars.
Good morrow, all!
Point to ponder: wealthy North Americans, given the chance, will purchase Mercedes-Benz. Do wealthy Europeans or Asians buy Cadillacs, Lincolns, or North American SUV’s? Didn’t think so. The Big Three are paying the costs of short-sighted pursuit of maximizing the dividends, rather than simply building better cars with experienced North American labor. They shipped jobs and parts production out of the country, because it saved money, and that maximized dividends to the shareholders, and bonuses to the executives, the very people who contribute the LEAST to the success of the companies. Real smart, guys, way to predict the future.
Why should anyone feel obligated to buy an inferior product, built by cheap labor, designed to become obsolescent, for outrageous prices?
I remember the early Toyotas. The panels on the doors were stamped out of sheets of redundant Coca-Cola can-forming steel. Every year, they got better, as did all the other Asian autos. Can’t say the same for the US autos. Does anyone else hear that distant buzzing, and the faint cries of “Tora! Tora! Tora!”
The Big Three have a Big Lesson to learn: Build better cars, or die.
Or so I would digress…CTZen
The automotive pension funds are owed billions of dollars by the makers. Is this the place to start paying up. Some employees have payed their part for over 25 years. If Canada and the provinces fill that gap then Canada et al will not have to pay them monthly pensions/OAS/GIS or whatever else their called. On a clear day you can see General Motors and yes, one can smell the the odor of the corporate governance.
I agree, Neil.
It’s not that much different from Bombardier; a company that probably would have died long ago.
It would be a shame if America would lose its legendary car industry.
I agree.
Let them declare Chapter 11.
Or, if they need money, let them issue some junk bonds or equity through more common stocks. That’s the way it’s supposed to be done.
Here’s a bailout alternative that doesn’t require any taxpayer’s money:
http://www.americanthinker.com/2008/12/a_better_bailout_alternative.html
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Tony, it is indeed a provocative scheme.