Comments on: American Car Companies: Bailout Or Not?

By: Patrick Di Chiro

Patrick Di Chiro — Mon, 17 Nov 2008 05:54:01 +0000

Thanks to all for your very thoughtful comments. They demonstrate further how difficult this issue really is from a public policy and national economic standpoint.

PDC

By: Patrick

Patrick — Mon, 17 Nov 2008 03:02:19 +0000

In the case of the auto-makers’ bailout, it’s a relief to have a national issue that is so straightforward: American cars tend to break down and fall apart therefore people are not buying them. If GM and Ford don’t want to go out of business, they should start making decent cars. To bail them out would be to reward their terrible manufacturing standards.

By: Don Campodonico

Don Campodonico — Mon, 17 Nov 2008 00:59:23 +0000

So let me make the other argument against bankruptcy. The Chrysler deal in the early 80’s worked. Not without a lot so similar comments coming from Washington lawmakers. Yet it worked because the government put some significant oversight in place, required transparency,and placed significant condition before they received the “loan guarantee”. Ralph Nader recently point out that Congress force Chrysler to contribute $162,500,000 into an employee stock ownership trust fund geared to benefit at least 90 percent of its employees, design more fuel efficient autos to help reduce consumption of foreign oil, and prohibit wages and benefits from falling below a level set three months before the legislation was passed. Provided Congress puts in similar safeguards and conditions it might be OK. Robert Reich in his blog suggests that in exchange for government aid, “…the big three’s creditors, shareholders, and executives should be required to accept losses as large as they would endure under Chapter 11, and the UAW should agree to some across-the-board wage and benefit cuts. The resulting savings, combined with the bailout, should be enough to allow the Big 3 to shift production to more fuel efficient cars while keeping almost all its current workforce employed.” As Nader said, “Congress needs to call on the auto industry to innovate their way out of this morass into which they’ve engineered themselves into.”

The question is: Will they?

By: Don Campodonico

Don Campodonico — Sun, 16 Nov 2008 23:51:59 +0000

I too am torn on this issue. As you said Patrick, on one hand I’d support the “bailout” given their role in the declining US manufacturing sector. However, part of me says, “where does this stop?” So we “reward” firms who consistently make business decisions that prove to be wrong. Ford’s acquisition of Aston Martin, Jaquar, Range Rover et al, all of which are being divested fo are cases in point. My guess is they lost billions on these transactions. They, Ford and others in the US auto industry lacked a focused strategy…the paradigms have been shifting, the second wave is here and they either ignored it or believed int he same old way. I still believe bancruptcy has to be given serious consideration.

It certainily worked for the airline industry. Faced with costs, increased security fees, the threats of terrorism Chapter 11 filings worked. The Washington Post wrote, “…fuelGoing into Chapter 11 gave United and US Airways obvious advantages over their healthier competitors. It went on to say how they operated through the Chapter 11 filing process and were able to cancel contracts at will, tore up catering contracts, thus reducing variable costs, adn told employees that their union contract is canceled. Their quote was: “Take a pay cut or take a hike.” They even reneged on promises to pay pensions and throw their workers to the mercies of the government’s Pension Benefit Guaranty Corp.

In some respects I think they disrespected the bancrupcy process, but nonetheless, they got through it. In fact, there wasn’t a significant reduction in flyers while they went through the process. I guess I’m leaning toward letting them take fall for their poor decision making and perhaps they’ll be better off in the long run.

By: Patrick Di Chiro

Patrick Di Chiro — Sun, 16 Nov 2008 21:28:58 +0000

Leslie, excellent points! And you underscore a key problem facing the manufacturers and a major part of their pitch for the bailout money: If they go bankrupt, already skittish consumers will flee completely from the US brand showrooms.

Something needs to be done, that is for sure. The problem now is that the vanquished party (the Republicans) see this as an issue to restablish their mojo. They are drawing a line in the sand on this issue, which will make it very tough to get any action on the bailout. The Republicans obviously feel that they have already lost Michigan forever, and that the public has already shown a distaste for funding the bailouts of major industries, so this could be a winner issue for them. We’ll see on that. I am not so sure their political calculations fit the mood of the public right now. Either way, this is going to be a difficult fight for the new president.

PDC

By: Leslie

Leslie — Sun, 16 Nov 2008 20:23:00 +0000

As your post observes, the reason the auto industry is in dire straits is due to their inability to compete in the local or global marketplace. Anti-union voices may point to the $2,000 per car premium arising from direct employee benefits. Union supporters can compassionately observe that it the premium is a necessary evil and should not be victimized given the context of Wall Street big payouts and the excesses of the uber rich. Marketeers can analyse the lack of focus, discipline and courage to make hard choices in senior management decision making.
But the bottomline question that needs to be answered prior to awarding any form of support is: would any automobile purchaser buy product from a bankrupt manufacturer with an already tarnished brand and reputation?

To paraphrase a “Dear Abby” headline” Can this industry be saved?

At the end of the day, we will all have to realize that the world is now a different place. As manufacturers, producers and consumers we will now all have to think hard, do our homework, abandon our past of self serving agendas and work together to define our new place in this new world.

I think we can do it if we follow through with our desires as expressed in the Presidential election outcome: to work collaboratively and take the politics out of the processes.

Yes we can… and now we must.