Is a bailout just delaying an inevitable bankruptcy? And is bankruptcy -- with its forced restructuring -- the best chance the domestic car companies have?
Sure, they've mostly run themselves into the ground. I mean, you don't see Honda teetering into bankruptcy, do you? They've gorged themselves for years on high-fat SUVs, and now that they're having the inevitable heart attack, should we give them the money for a bypass? Will they even use the money to get healthy, or will they just use it to keep gorging?
On the other hand, the auto industry is the industrial backbone of America. And if it goes under, hundreds, if not thousands of other companies that supply parts and modules to the industry will go under, too. And with them, hundreds of thousands of jobs. Can we afford the kind of crushing transition that will be brought about if it happens all at once? And can we afford to let other countries produce our largest consumer goods for us?
If we DO offer help, what conditions should be placed on the money? Should it be only for products that will benefit the country -- like fuel efficient vehicles? Should it limit executive compensation until the loans are paid back? How can we be sure that it's an investment rather than a bailout...that we're teaching them to fish, rather than just buying them a boatload of Mrs. Paul's Fish Sticks?
We're interested in your thoughts.
Tom and Ray Magliozzi
Click and Clack, the Tappet Brothers
In my mind the function of the government and the purpose of taxation are not to provide bailouts to private companies who have been and continue to be poorly managed. We should not be entering the private sector in that manner.
The size of the market and the market segments will vary with the economy, but will be unaffected by a corporate bailout. The market is the best determiner of how large each competitor's share of the market is. If GM is no longer a viable company, the same number of cars will be bought, they'll just be from competitors that have better met the needs of the marketplace. And they'll probably be more likely to have been manufactured in the U.S. than if they were GM products. Toyota and Honda seem to have done a far better job meeting the market's need's efficiently with U.S. facilities and labor than GM is currently doing.
In 1977 the Consumer Redevelopment Act was passed. That act, and subsequent legislation further loosening constraints on "creative financing" were passed to artificially stimulate a then-poor economy and "flat" housing market by promoting high risk loans for home ownership by demographics unable to purchase in the traditional way with conventional financing. Now high risk loans are crashing all around us. We're now paying the price for such artificial support of the private sector. I contend that we should not now try to affect the situation by creating another artificial support vehicle using tax dollars.
Let the market decide. It'll be painful either way, but at least letting the market decide will result in a correction of the core problems. Artificial intervention will not.
Bailing out the GMs of the world is not the purpose of taxation. Let us not allow the feds to distort this any more than they already have.
I get tired of people of using Adam Smith's name in vain. First, the "Wealth of Nations" was a social utopianistic work. There never has been free enterprise except in various small parts of an overall economy; since the industrial revolution the overall economy has been getting less free: and the wealthiest of people will do all they can to make it less free.
Chrysler was given a government loan back in the early 1980's and this helped Chrysler survive at the time. As Iacocca said, "We borrow money the old fashioned way. We pay it back". In his first year, Iacocca fired 33 of the 36 vice presidents and streamlined the management. He also paid the workers less. Iacocca is an automotive engineer who knew how to develop a salable product line.
I think that if bailout money is made available to GM, the government must insist on good management. General Motors thrived in the days of Ed Cole and Bunkie Knudsen. These were automotive men. General Motors lost a big share of the market under Roger Smith's management. Smith was an accountant. Chrysler got in trouble in the early 1960's with a leader who was an accountant. It seems to me that GM and the other big three manufacturers need to submit a plan for research and development. The big three automakers got themselves in trouble by measuring success by Wall Street's standards of next quarter's profit as opposed to producing a quality product that in the long run will attract and keep customers and make the corporations healthy.
Excellent post. While I remain forever in awe of what Lee Iacocca accomplished, and he paid his loans back early, I still contend that it's inappropriate use of tax money. Besides, I see no Iacocca at GM right now.
Iacocca was, as were Ed Cole and Bunkie Knudsen, first and foremost a "car guy". Oddly, while Henry Ford was a a car guy Bill Ford seems to have majored in those accounting degrees that you so correctly point to as a major part of the problem.
Iacocca came to Ford's marketing department via the design group. However, there's no requirement for a design background to be a "car guy". The term in my mind simply describes someone who truely loves and appreciates great cars. Jay Leno is, indisputably, a "car guy" of the highest order.
There's also no denying Iacocca's marketing saavy.
It has long been my belief that those who found and build successful organizations have a "gut" understanding of the marketplace arrived at by their love of the product. They know what compells the customers to buy. Countless companies have failed after being taken over by heirs, investment groups, or those famous "experienced board of directors" that banks make small companies form when they grow to that stage where they need capital for growth. I think the reason is that they so often lose that connection, that love and understanding of the product that the company founder had. Even large companys lose that connection when taken over by accountants. Even the GMs and the Fords of the world.
Iacocca was a "car guy". With a flair for promotion and a great business sense.
Jay Leno is, indisputably, a "car guy" of the highest order.
I agree. I wonder what changes would be made in General Motors if Jay Leno became CEO after he retires as host of the "Tonight Show". Jay Leno appreciates both the quality of a car and the design. He obviously knows more about cars than the CEOs of the Big 3 manufacturers.
Iacocca's right hand man at Chrysler, Bob Lutz, is a certified "Car Guy". Guess what he is doing today. He is the vice-chairman of GM! GM today has excellent products that are recognized for excellent performance and quality. The problem today is, banks not being able to give people loans or leases to get cars. Every car company in the world is suffering, including Honda an Toyota.
GM has excellent products that are recognized for excellent performance and quality? Bull. I owned one. The $850 fuel pump and $1000 transmission rebuild the same month at 80K miles sent me to Volkswagen. THEY have products that are recognized for excellent performance (you should try driving a GTI for excellent performance) and their quality is outstanding. Maintain them and they will last forever.
And the banks are still lending money -- they are just lending it to people who can actually pay the loans back.
The biggest problem is that the Big Three don't have the backbone to stand up to the UAW, and the UAW leadership is so intent on maintaining their jobs and positions of authority that they don't care that the membership is going to be tossed out on the street. If the foreign automakers are having it so rough, why is Hyundai (another quality auto -- my wife drives one) building the largest auto plant in the world down south, and why has VW committed to making a multi-billion dollar investment in Chattanooga, TN?
The UAW is not the problem, nor is CEO compensation. For Chrysler at least, only 1% of the cost of the car is wages--the vast majority of cost is in components and machinery.
I'm not so sure about that. The UAW gives millions to the Democrats every election cycle. Seems to me that that money is wasted and I am wondering why I keep buying American cars.
Regarding marketing savvy, I think this website is particularly interesting. In a time when GM is fighting public dismay and inner turmoil, citing boring cars as a big problem, they manage to produce a site that makes the Chevy Cobalt look like the ultimate ride for tuners. Check this out, yo! :) http://www.chevycobaltlabs.com
I believe that in view of the dire economic situation in the US, some sort of bailout is in order.
As mentioned, firm conditions have to apply.
GM needs to restructure itself in line with a 25% market share. This means getting rid of several divisions, probably Pontiac, Saturn, GMC trucks, and Hummer. Executive staff should be cut in half, and their wages rolled back to those of Toyota managers.
Obama will expect to see a product development plan with green, economical vehicles. Union wages should reflect the level the company needs to be competitive. The US government should pick up some of the severance package costs.
A similar program is on order for Ford, although no cutback in product lines is necessary.
Chrysler should either (allowed to go under)be put out of its misery or sold to Tata of India or the Chinese. It does not deserve a bailout, only a line of credit until its sold. On its own it is not a viable entity!
The taxpayers should NOT bail out the Big 3. Let them fail and declare bankcruptcy. The unions have stong armed the Big 3 for all these years. Why should I pay for their retirement. If only they made good cars then this would not have happened. I bought a Chevy before and all I got was problems, same thing with my FORD Expedition.I have a Toyota a Honda and a Mercedes and I am very happy with my cars. I bought American cars and I was so disappointed. Sorry NO BAILOUTS for the Big 3. Clean up your acts yourself. There is no one to blame but the Big 3 and the unions.
Like it or not, you *will* pay for the retirements of any people formerly employed by GM, Chrysler, or Ford if they go out of business. There is nothing in the workd more sure than that.
That is the whole problem with the bail out is that the government is going to tell them what to do and how to do it. That is why we should not bail them out, if you run a business you either run it in the ground or you make it. There should be no "green cars" if the company does not want to sell them due to the high cost of American made products and the low interest in buying them. It is like food, everybody complains about fast food being unhealthy (and I agree) but when they try to sell salads how many people really buy them.
let's allow businesses to make it or break it and use our tax dollars a lot wiser.
Until ethics return to upper management(fat chance) we are stuck in a loop
Look at Lehmen and Bear Stearns, those top executives were getting job offers as they walked down the street carrying the boxes they used to clean out their old offices.
There is no stigma attached to acting like "one of the boys"
But we can't let the Auto industry fail.
It's like "if we fail it will hurt us,but it will hurt you more" they have us over a barrel.
11/13/2008 1:59:56 PM
