Just Say No to Detroit

[NOBama]

Just Say No to Detroit
Given the abysmal performance by Detroit's Big Three, it would be better to send each employee a check than to waste it on a bailout, says David Yermack.

Before Michael Moore became famous for documentaries like "Fahrenheit 9/11" and "Sicko," his first big success came in 1989 with "Roger and Me." In that film, Mr. Moore followed General Motors chairman and chief executive Roger Smith with a camera crew, asking him why the company was closing plants and producing low-quality vehicles. Mr. Smith looked flustered and inartfully avoided Mr. Moore's camera crew while it lingered outside his country club or GM's executive offices.

"Roger and Me" was entertaining, but it missed the real story about Roger Smith, who turned out to be a forward-thinking genius. Mr. Smith made big investments in information technology and satellite communications, acquiring Electronic Data Systems in 1984 for $2.5 billion and Hughes Aircraft in 1985 for $5.2 billion. Mr. Smith's successors divested those businesses at huge profits -- EDS was taken public in 1996 for more than $27 billion, and Hughes, renamed DirecTV, went public in 2003 for more than $23 billion. (The man who sold EDS to Roger Smith at a bargain price was H. Ross Perot, who then convinced many people that the experience qualified him to be president.)

Full Article

First things first: Kathianne, originally posted the above article in the Say no to the auto bailout post. Kudo's!

The purpose for the duplicate thread is to take a poll to see what the USMB membership thinks of the bailout and why.

Personally, I'm against it: Mainly because these companies have become dysfunctional due to the UAW and old School management. Plus, we've already tried this and we know it doesn't work.

What say you?

Edit: Oops, I screwed up. I wanted the vote results to be public. Maybe Gunny can fix it if he doesn't decide to delete it.

 

[editec]

America has become disfuctional.

The auto industry is but one example of that.

 

[WillowTree]

American government is dysfunctional and will become worse. Say no, let them file chapter 11 and resturcture the way they do things.

 

[PheloniusRM]

Do you really want to have 1 million+ angry, unemployed union members hanging out at every import car dealer and manufacturing plant? One thing is certain, if the big 3 go down they WILL take the imports with them.

 

[Kevin_Kennedy]

Do you really want to have 1 million+ angry, unemployed union members hanging out at every import car dealer and manufacturing plant? One thing is certain, if the big 3 go down they WILL take the imports with them.

I'm not concerned.

 

[NOBama]

America has become disfuctional.

No doubt about that. The '08 election results prove your point conclusively.

 

[editec]

I really don't know.

Depends on how the bail out is structured, I suppose.

 

[Bern80]

The one way I would put it is not on there. And that is, yes I would bail them out under the condition that they restructure.

Unfortuantely it is sounding doubtful that the UAW is going to do that. The head of which was on the radio as late as yesterday saying they were going to concede basically nothing.

 

[Bern80]

http://finance.yahoo.com/expert/article/economist/122606

Good article on why we shouldn't bail out the auto indsustry.

Posted on Monday, November 17, 2008, 12:00AM
Congress is contemplating a bailout of the American auto companies. My advice: Don't do it!

Yes, this is a time for government to act aggressively to stop the negative feedback loops that have infected the economy. But giving money to the dysfunctional Big Three is not a good way to do it.

Here's why:

1. Because a bailout won't help.

Sending loans to Detroit will not stop the slow rot that has been going on for 40 years. Management has presided over decades of poorly designed cars that have less and less appeal in the global marketplace; labor has been inflexible and unrealistic, making it harder and harder for the American firms to make a good car at a competitive price.

Traffic safety experts don't like the word "accident" because it implies that nothing could have been done to prevent it; they use the term "crash" instead because it leaves room for culpability. What's happening in Detroit is a crash, not an accident, and it's been unfolding for a long time. The current economic crisis has merely sped up the impact.

2. Because bankruptcy isn't a bad option.

The Big Three will not disappear if they run out of cash. They'll declare bankruptcy, like the airlines do every six or eight weeks. A working bankruptcy would enable the automakers to ditch the labor contracts and pension obligations that have made them uncompetitive.

The Big Three could emerge as leaner and more competitive. Or they could emerge as the Big One. Or they could end up as Toyota. Each of these is a reasonable outcome, and bankruptcy would speed it along.

3. Because there's no economic justification for a bailout.

How does sending cash to Detroit make the rest of us better off? Obviously it helps autoworkers and executives; indirectly it slows the bleeding in the Detroit area, which will continue to suffer as the automakers sink further. But there's suffering involved with any business failure -- when crops fail in Iowa or my drycleaner loses his lease in Chicago. (The latter actually happened; his name was Hugh and it was sad.)

We should inject government money in places where failure would otherwise spill over to the rest of the economy in pernicious ways, such as bank failures precipitating a credit crunch. Saving the automakers won't quicken the recovery, nor will leaving them alone cause pain above and beyond what we've got coming. The money could be better spent elsewhere.

4. Because the Big Three have been horrible corporate citizens.

As a policy person who works on transportation issues, I've watched this for years. The industry lobbied against transit funding; they fought higher fuel efficiency standards and green taxes (such as a higher gas tax); they fought Japanese competition by limiting imports rather than building a better small car. The industry made tons of money by making increasingly irresponsible cars at the same time that we were becoming more aware of global warming. And now we're supposed to bail them out? No thanks.

(By way of disclosure, I do have a dog in this fight. The last American car I owned was a Ford Explorer. It rolled over on Interstate 80 with the whole family inside, shortly after Ford CEO Jacques Nasser began appearing on television commercials to assure consumers that the Explorer was safe.)

5. Because a bailout would be a terrible start to the Obama administration.

Democrats have a well-earned reputation for throwing money at problems. Many of us hope that Barack will be a pragmatic leader who's willing to do battle with the left wing of his own party. The Big Three bailout may take place in the waning days of the Bush administration, but it's a Democratic initiative at a time when the Democrats ought to be planning a future under their new leader. Government cash for Detroit sends all the wrong messages.

How the Government Could Help

But wait -- didn't I argue that we ought to spend a lot of taxpayer money to intervene in the financial crisis? Yes. That was different. Any government intervention should fit three criteria:

Its primary focus should be keeping otherwise healthy institutions healthy (even at the risk propping up some businesses that should disappear). The ongoing Treasury Department intervention is rightfully designed to provide capital to viable firms that might otherwise get dashed against the rocks by this unique financial storm.
It should make the rest of us better off in the long run. One doesn't have to be a Wall Street investor to benefit from the Wall Street stabilization. We all need stable, healthy credit markets. Without that, this crisis will continue to spread like a plague.
It should be obvious how the intervention will restore a firm or industry to better health, rather than merely prolonging an inevitable decline.
Use the Money Elsewhere

The Detroit bailout fails on all three counts. Government money can be better spent. My first two (not mutually exclusive) choices would be a major infrastructure investment -- everything from fixing decrepit bridges to building high-speed rail links. Such a program would boost economic activity and leave us a more productive nation when it was done.

And/or I would use government resources to restructure mortgages at risk of default (with a significant penalty built in for both the bank that made the loan and the homeowner who can't make the payments). The key is to slow or stop the vicious cycle of foreclosure and falling housing prices: foreclosed properties are thrown on the market, which drives prices down, which puts more mortgages "underwater," and so on. Stopping that cycle is crucial to ending the crisis.

The federal government needs to act quickly and boldly. That's not synonymous with throwing money at unhealthy, irresponsible automakers.

 

[CSM]

I find this amusing, to say the least.

The auto industry is in trouble...no doubt about that and many are in danger of losing their jobs. What amuses me is that some of the posters advocating a government bailout are the same ones who advocate the destruction of the defense industry. Should not the same arguments apply? Cannot the auto workers find other forms of employment? Would not a shut down of the "military industrial" complex have just as severe an impact?

 

[busara]

The one way I would put it is not on there. And that is, yes I would bail them out under the condition that they restructure.

Unfortuantely it is sounding doubtful that the UAW is going to do that. The head of which was on the radio as late as yesterday saying they were going to concede basically nothing.

its amazing the workers would rather destroy the company than give a little to keep their jobs. the costs the big 3 pay the workers compared to toyota, honda, etc is rediculous.

 

[Bern80]

its amazing the workers would rather destroy the company than give a little to keep their jobs. the costs the big 3 pay the workers compared to toyota, honda, etc is rediculous.

True, but that is not unique to the auto industry. If you ask people what they would do given the option, most would say they would rather quit and find a new job than stay at their current one and take a pay cut.

 

[busara]

True, but that is not unique to the auto industry. If you ask people what they would do given the option, most would say they would rather quit and find a new job than stay at their current one and take a pay cut.

at my company there was mention of possible layoffs, and some employees suggested taking a paycut so everyone could keep their position. but i guess most people have no compassion

 

[Bern80]

at my company there was mention of possible layoffs, and some employees suggested taking a paycut so everyone could keep their position. but i guess most people have no compassion

It's a bit bizarre and counterintuitive to me. We talked about this a lot in a management course and crisis management. It's not even the last thing on the table, it's just plain not even brought up. First the company tries to do as much as it can to improve efficiencies and cut costs via cutting travel, unneccessary expenditures, maybe some innovation, then maybe layoffs or reduced work schedules, but you rarely ever hear taking a temporary pay cut as a solution. Think if the CEO of a company took a pay cut of a million dollars. Or there was an across the board pay cut of x percent. There just must be something so unpalatable about this that it isn't brought up.

 

[sealybobo]

I meant no, do not say no to Detroit. You stupid fucking sheeple. If they break up the auto industry, get ready for $15 hr jobs you fucking house slaves.

You don't realize your jobs are next.

You are in favor of corporations renigging on promises they made to employees? And you yourselves are employees?

American middle class people are really really dumb/slow/stupid/sheep.

 

[Kevin_Kennedy]

I meant no, do not say no to Detroit. You stupid fucking sheeple. If they break up the auto industry, get ready for $15 hr jobs you fucking house slaves.

You don't realize your jobs are next.

You are in favor of corporations renigging on promises they made to employees? And you yourselves are employees?

American middle class people are really really dumb/slow/stupid/sheep.

People who oppose the bailout are sheep? What alternate reality are you from? We've been hearing nothing but gloom-and-doom nonsense about how bad it will be if we don't bailout a business that is not viable and cannot compete in the marketplace. It's the people like you yelling "the sky is falling" that are sheep, buying into this propaganda. You also have no grasp of how bailing out failed businesses also hurts the economy, rather than helps it.

 

[Bern80]

I meant no, do not say no to Detroit. You stupid fucking sheeple. If they break up the auto industry, get ready for $15 hr jobs you fucking house slaves.

You don't realize your jobs are next.

You are in favor of corporations renigging on promises they made to employees? And you yourselves are employees?

American middle class people are really really dumb/slow/stupid/sheep.

Perhaps that is why they remain in the middle class. That's really counterintutive to many of your previous arguments. You think the upper class should just give dumb/slow/stupid sheep money just for the heck of it?

Slight problem with this your theory. it rests on the premise that the auto industry is WANTS and is looking to reneg on it's promises to it's employees. That hasn't been shown to be the case. If that's what they were after, all they have to do is file for bankruptcy. Secondly there is little reason to think this is going to lead to some trinkle down effect where companies simply start breaking contracts to make ends meet.

 

[Hum Dinger]

The best way for the auto industry to recover is to SELL CARS!

If the government has to give them some money (hopefully in return for some equity), just to get them thru this credit crunch, O.K. but...it's the SELLING THE CARS thing that counts.

Here's what they should do:

First, the auto industry & government have to come up with a plan to make the auto makers solvent into the foreseeable future - restructure.

Second, the government should regulate executive compensation - it should be proportional to profits.

Third, the auto industry should reduce the price of cars as much as possible to off load inventory.

Fourth, the government should use some of the $700bil package offer 0%, no down payment loans to all U.S. citizens for purchasing U.S. made cars. (maybe a tax break would be a better idea instead).

Fifth, the government should write the tax laws so that it would be beneficial for companies to start giving reasonable raises again (The true root of our present economic problems).

Sixth, the government should instate a 50% income tax increase on everyone who voted Republican. They could call it a stupidity tax.



Just joking - don't get your bowels in an uproar.

 

[xsited1]

Crap. I went to Public Schools and don't know how to handle so many negatives... If I vote Yes does that mean I want to say Yes to Detroit or No? Obama will know what to do. I'll just ask him how I should vote. PRAISE OBAMA!

 

[xsited1]

The best way for the auto industry to recover is to SELL CARS!

What a great idea!!!!