Op-Eds Speaking Truth to the Powers-That-Be
Apparently there is one thing that liberal and neo-con think-tanks can agree upon: Let Ford, General Motors, and Chrylser fail.
Lefties want to stick it to the man! Down with corporate greed! Environmental wonks wag their fingers at the industry and are reveling in a big “See I told you so!”
Righties want to stick it to the unions. Down with corporate welfare to overpaid workers!
Here is why all of y’all should be embarrassed.
Let’s debunk the rants of the “Let Them Fail” crowd and see how giddy you feel about dumping on Detroit:
The Gas Guzzler Lament
The Big Three produced cars that no one wants, and that people cannot afford because they are big gas consumers.
Up until gas started topping $3.00 a gallon, the sales of SUVs large and small transformed the industry. Pickup trucks and other big, powerful vehicles were being bought up. Toyota went into the big truck business to chase some of Ford and GM’s market share.
So these apparently WERE the cars that you wanted.
Hybrids were the elite conscience cream of the educated and ecologically-guilt-ridden. You have had to pay such a high premium just to get one that they did not make economic sense for most Americans.
Who were the companies largely sticking it to you for your desire to be green, Mr. & Ms. American consumer?
Toyota and Honda.
People who didn’t like the Big Three’s lineup, mostly for green reasons, are doing the “See I told you so,” dance, but the auto makers followed demand as they perceived it at the time.
Think tanks tend to be in political and business centers of the country that are very out of step with the America where people buy and use automobiles.
American cars sell best inland. Visit any red state and the foreign options are there, but they still are not the dominant players in the market. Ford Tough and “Like a Rock” ruled the heartland, and very little granola-eating Prius-preaching from Lefties on the coasts was going to change that. Sure the Hyundais of the world are filling in the cheap car market, but we loved our big fat SUVs burning $1.89 gas.
The Big Three were also not wholly responsible for producing gas guzzlers. The Feds kept relaxing emissions and efficiency standards, keeping gas consumptive cars on the road. OPEC and the oil companies made cheap gas which kept it cost-ineffective to develop other types of cars. The biggest impediment to more fuel-efficient cars I can sum up in one eight-year long letter:
Oil men put cars on the road that burn oil.
When gas soared, largely because unregulated speculators and hedge funds switched from stocks to commodities, sending oil up over $100/barrel, the auto makers were holding a deck that was admittedly stacked in the wrong direction.
The Marie Antoinette Theory of Economics
Right now the Heritage Foundation and other conservative think tanks are gleefully trotting out their experts to say that allowing free market capitalism to operate is best here.
All of the little people affected by letting the Big Three collapse? Their dislocation and pain is secondary to the larger principals of Capitalism
Of course it was okay when the Fed’s brand of socialism was protecting the bank accounts of these think-tankers, and those of their benefactors and employers.
It can seem very smugly reassuring to say stick it to the union workers in the auto industry who were making $65.00/hr and who walk away with $4300/mo. pensions. Right now, about $1500 of most American-made cars goes to pay off the pension and welfare of the very well-paid UAW worker.
Did they make too much? Did they get far too generous compensation and benefits. Probably. All of these deals were negotiated from the pinnacle of the industry’s glory days, where the air was so thin that no one saw down coming.
So let’s stick it to those union guys, right?
When you drop a stone into the water, a lot happens in the ripple-effects.
When the Big Three go down, most will keep operating, more than likely. The majority of the damage will be done to four groups:
Employees and Retirees
They will be the hardest-hit. Benefits may go down as much as 70%, and many will lose their homes. This will in turn affect everyone from credit card companies to insurance companies to the state and local governments where they live to the housing market to the guy on the corner selling hot dogs. Any hope of coming out of a recession in the short-term will go out the window, as government and the courts will be swamped with people flying through the holes in the social safety net.
It is a nice idea to try to go after the CEOs of Detroit for their bad line calls. They made many. In good times, in a more stable economic system, letting one or more of them enter into bankruptcy might just teach those golden parachuters a lesson.
The companies will be allowed to break lots of deals in bankruptcy. From union wage scales to pension and welfare, the bankruptcy courts always work in favor of the companies, not the employees.
Except that it won’t. Their parachutes are still gold.
Investors will be wiped out. A risk that all investors know that they will take, to be sure, but how do we sell the next generation of car companies, or the rebuilt Ford or GM, to investors after the phenomenal burning of the current crop of shareholders? Do we have an American auto industry, or do we just ramp up our imbalanced trade deficit more by importing 100% of our automobiles?
From steel companies to the holders of bonds, the collapse of these companies will leave companies as big as Alcoa and U.S. Steel down to the bond-holders of GM, Ford or Chrysler debt with pennies on the dollar. Again, a risk that is assumed when they invest, but, again, how do these companies reform in a way that anyone, from raw materials suppliers to bond investors, will ever trust their ability to repay what they owe?
The General Public
Your world will change. Radically. Got a car now? Good. Try getting the parts when the company below the Big Three had to shut its doors because it could not reorganize. You may find it hard to get them from a dealer that had to shut their doors. Assuming the dealer is open, you better have a lot of cash, because the retail end of the business could not get the auto loans or lease programs that they needed to sell more cars.
If you think that this is limited to Detroit, think again. Everyone, from construction workers in Austin to restaurant owners in Biloxi to small banks in Oregon will feel the wave as the industry that has been the core of the American industrial revolution comes crashing to the ground.
We deemed some investment banks as too necessary to fail, yet they effect very few lives and their operations can easily be duplicated by dozens of healthier banks. We kept them because they are friends of the wealthy elites who run the Fed and the Treasury. Take care of your own.
The government, once again, seems poised to do nothing, still largely in the hands of an obstructionist Republican Party far more interested in the wealth and myopic business principles of Wall Street than in the pain and suffering of Main Street.
The Bridge to Somewhere
A bridge loan, which is what the auto makers are requesting is temporary. It floats the Big Three long enough for some share price recovery and for them to have some ability to get their businesses retooled using the $25 billion already set aside by the federal government to do that.
The notion that they will go about their old ways seems a little out of touch with the reality of the last few years. Ford, GM and to a lesser extent Chrysler have been grappling with retooling for the realities of a China that puts half a million cars on the road a year, and an India with its $5,000 motor-connected-to-tires specials.
The industry needs to get to 2010, when its pension funds move into a more cost-effective structure that was negotiated with the UAW. It needs to use the $25 billion loan it was granted previously to re-tool and keep the doors open.
The automobile industry is so hard-wired into our economy, across so many sectors, that the failure of any of these companies is bad, but the failure of two or more is a disaster.
Who will get left to pick up the pieces? Either way, you, the taxpayer pick up the check on this mess.
You have two choices:
Leave people in their pensions, their homes, etc. and work through ways to migrate the industry to equally severe and meaningful changes in the way that they do business, or;
Unleash a tidal wave of pain: Increased unemployment, homelessness, defaults on mortgages, and every other form of fall-out ultimately means that a lot of people end up falling into the government’s safety net after going through a whole lot of pain.
The bottom line is both humanist and economic. How can we get the auto industry to where it needs to be, destroying the fewest lives possible and incurring the least economic bailout by the federal government?
It would seem to me that, in comparison with the government shelling out $25 Billion that they are getting repaid beats paying out billions for the homelessness, Medicare, foreclosed homes, failed businesses, and shattered lives that the bright boys at places like the Heritage Foundation are advocating.
My shiny two.