The proposed bailout of GM, Ford, and Chrysler overlooks an important fact. The US has one of the most vibrant, dynamic, and efficient automobile industries in the world. It produces several million cars, trucks, and SUVs per year, employing (in 2006) 402,800 Americans at an average salary of $63,358. That’s vehicle assembly alone; the rest of the supply chain employs even more people and generates more income. It’s an industry to be proud of. Its products are among the best in the world.
Their names are Toyota, Honda, Nissan, BMW, Mercedes, Hyundai, Mazda, Mitsubishi, and Subaru.
Saverio Mondelli
on 25 Nov 08This brings to mind an old girlfriend’s father who used to tell me that I was destroying our economy by buying a Honda Accord. Little do people realize, the “foreign” car companies are actually more domestic than some of the American car companies.
The US is a free market economy. Even with thousands upon thousands of jobs hanging in the balance; it just feels “wrong” to give these guys a pass for failing to innovate over the past decade. We’re sending the wrong message to other industries.
“Don’t worry, if your business plan fails and you’re billions in the hole…we got your back.”
Tomas
on 25 Nov 08So what I think this is saying is: The big 3 didn’t adapt, or move with the times. Good riddance, it’s just business.
No?
Don Schenck
on 25 Nov 08Who will build our tanks, armored vehicles, etc?
Anonymous Coward
on 25 Nov 08That’s inspiring and hopeful, but it doesn’t make up for the fact that those companies are not headquartered in the U.S.
You don’t watch the Olympics, as an American, hoping China wins. I don’t watch our economy hoping foreign auto companies beat American.
I’d rather see that same quote above with 3 times the numbers and all the listed companies headquartered in America with the added text “due to American innovation.”
Joe Sak
on 25 Nov 08Hi, I’m an American taxpayer from Michigan and I’d like it if congress gave some of my money to companies who abandoned my state, making it the worst in the economy!
Thanks!
JD
on 25 Nov 08Saverio, yes! Hondas and Toyotas are assembled here. Can you imagine how much it would cost to ship cars over from Japan!? It’s just like thinking your Volkswagen is assembled in Germany when it’s actually assembled in Mexico.
William Young
on 25 Nov 08Saverio -
You, and many others, have missed a very important point. ALL of the automakers sales are way down. The difference is that many foreign automakers are already receiving assistance from their governments. (from this article: http://allbusiness.washingtonpost.com/government/elections-politics-campaigns/11694842-1.html)
“GM sales fell 47 percent in October, but Isuzu’s fell 49 percent. Chrysler sales fell 38 percent; at the same time, low-cost Kia’s sales were falling 40 percent. Ford’s sales were off 33 percent, while Nissan’s fell 36 percent. Overall, domestic sales fell 41 percent, and Asian producers dropped 29 percent. Toyota announced this week that it was stopping all production at its U.S. plants for two days because of falling demand. “
The Big Three have made mistakes, yes. But the current problems were caused by the financial crisis. How is it GM’s fault that people can’t get loans to buy cars with? They can’t get loans to buy Hondas or Toyotas either.
I live in Michigan and have had a largely automotive career. I don’t love the Big Three – I have a Volkswagen and a Subaru parked in my driveway right now – but people are going way overboard with the blame right now. If the Big Three were really as backwards I’ve heard people claim, then they wouldn’t be able to sell ANY cars.
I personally think GM’s strategy of selling large SUV’s was completely idiotic, given what we know about the world’s oil supply and associated volatility. But don’t pretend that GM was making a bunch of cars that people didn’t want. They sold like crazy, until the gas prices went too high. Now all I hear about is how people never wanted those big cars, which is absolute bullshit. They didn’t want them after they couldn’t pay for the fuel. GM was stupid and shortsighted, and so were their customers.
I’m not sure what I think of a bailout. It could be a good or bad thing. What I’m most tired of is people unfairly criticizing the auto industry. They’ve done plenty of dumb things, but there’s no need to make shit up.
Anonymous Coward
on 25 Nov 08@Don Schenk Europe, duh. Google for EADS vs Boeing on the Tanker contract.
Vlad
on 25 Nov 08You are aware that the big 3 are accountable for about 3 million jobs right?
I live in Michigan and have a lot of friends in the auto industry. Both of my parents work at Ford (doing software development work). Since I’m a car guy (foreign car guy, mind you, my first “domestic” car is actually a Mazda, which is partially owned by FoMoCo) and my friends are car guys (mostly Subarus) we’re in deep sh*t right now. Half of them have lost their jobs, and the other half have had to move out of their homes and now live in apartments equivalent to the size of a 6×9 cell. If the big 3 drop out, I can foresee my parents losing their home too.
Sure, the executives at GM/Chrysler/Ford are morons (and should all be fired), but keep poking fun and you’ll get what you’re looking for, the next depression.
NY Times: How Many Jobs Depend on the Big Three?.
400,000 jobs is a bit less than 3,000,000.
Joe Sak
on 25 Nov 08I agree mostly with @William’s points, but I agree that a bailout sends the wrong message.
I agree that GM, et al’s failure to innovate was a twofold problem:
1. the average american consumer just didn’t give a damn about conservation until the financial crisis. in fact, now that gas prices are down again, I see a lot more SUVs out on the road than I used to. Don’t these people realize this kind of irresponsibility causes these things?
2. Analysts at the car companies had to have seen this coming, but short-term profits were much too important. Someone should have had the balls to stand up and say, no we’re not going to sell financially and environmentally irresponsible cars.
Let’s not forget that the American car companies, at large, decided to ship jobs out of the States and into other countries for larger profit margins. Now they want us, the people they crushed, to shell out what little we have to save their billionaire asses? The ONLY reason it’s even feasible is because MORE jobs will be lost if they go down.
But really this isn’t the time for blame. Something has to be done, and I think people should worry more about doing their personal best rather than waiting for someone else to improve their lives.
Anonymous Coward
on 25 Nov 08You are aware that the big 3 are accountable for about 3 million jobs right?
Yes. And if we bail out these companies then the government will be accountable for those 3 million jobs. Just what we need. NOT.
Propping up a dead system to maintain the status quo jobs leads to atrophy in so many other places.
Saverio Mondelli
on 25 Nov 08@William,
Even with that knowledge (that companies are receiving federal aid and that sales are dropping), that doesn’t change my opinion on the subject. Ford, GM and Chrysler all make great cars. I’ll agree with you that people do exaggerate the mistakes that they’ve made; however, their problem is that they’ve failed at dispelling the misconception that they make crap cars and they’ve failed to invest in R&D like Honda has done.
My biggest problem with the bail out is that companies are getting way too big and they have no problem collecting the profits, but when things go sour, they don’t want to fall flat on their face. Capitalism is a two way street. If we let these (or any company for that matter) get away with taking tax dollars to repair their mistakes, the future of America’s economy seems darkly lit.
Evan
on 25 Nov 08Rationally, it’s probably in our best interest to bolster industries providing us with 3 million jobs, and I don’t wish anyone financial ill.
Personally, I hope this shakes things up enough to put an end to the SUV and monster truck era. Why do people want such huge cars?
Dan Shields
on 25 Nov 08Yet its all right and so easy to give 25 billion to CitiGroup, thats in addition to the billions they already got. What will have more of an impact on the actual working people GM and big 3 going out of business or a bank with probably 1% of the workers the big 3 will loose if they have to go bankrupt.
GeeIWonder
on 25 Nov 08Rationally, it’s probably in our best interest to bolster industries providing us with 3 million jobs, and I don’t wish anyone financial ill.
Only if it’s in a sustainable way. Proppinng up a company that makes an infinite amount of unwanted widgets just because they hire people is not rational.
The automotive industry is a national defense issue though, just like farms. Once you lose that capacity, it’s gone.
Mike
on 25 Nov 08@Vlad
You’re a “car guy” and your friends are “car guys”, none of whom own an American car despite your vested interests (“I live in Michigan and have a lot of friends in the auto industry. Both of my parents work at Ford”).
Why are you complaining to us when you haven’t taken any action (buying a car that your friends/family make) to remedy the problem?
Grant
on 25 Nov 08@Anonymous Coward – Why should we place an importance on companies being “headquartered” in the United States? Most global companies not only have operations all over the world, they are also owned by stockholders from around the world. Why does the location of the headquarters building matter? Is it merely a question of national prestige?
@Vlad – Are American Auto Industry jobs good, dependable jobs? (I really don’t know) It seems to me that ever time I open the paper I read of auto workers getting their benefits cut or losing their pension. I’m not against giving money to the auto industry, I just don’t think it is a good investment to give the questionably successful auto companies a bail out. Why not spend the $25 Billion directly on the employees - helping them make it through these turbulent times, perhaps assisting them with further education / training?
Matt
on 25 Nov 08One of the most terrifying things in a free market economy is called “creative destruction”. It’s when the marketplace changes, causing companies to go out of business and increasing frictional unemployment as a result.
However, creative destruction is one of the most powerful forces in keeping an economy dynamic and vibrant. If a business is unsustainable, it ceases to exist.
I have to wonder if all we will succeed in doing by giving them a loan is to put more quarters in the machine to just buy a little bit more time. Without being forced to change, all we’ll get is more of the same poor performance from the Big 3.
It’s infuriating that the financial sector is getting as much money as they are, but they pose systemic risk to the entire economy. While the Big 3 failing would have a big impact, it doesn’t come close to the shock of the banking industry shutting down.
Greg
on 25 Nov 08@Grant: You don’t understand something here … these Union contracts are bullshit … that’s the problem here.
They’ve negotiated a no win situation. Either give them $ and watch their labor devour the money … or let them go bankrupt, reorganize and hopefully this time they won’t pay salaries not in line with everyone else in America.
If they took a getting real philosophy … the first thing we’d see is getting salaries under control and giving them incentive by being more productive … not punching the f** clock.
Greg
on 25 Nov 08@Grant: You say … Why not spend the $25 Billion directly on the employees. How does that keep the assembly line running … please enlighten me.
merch
on 25 Nov 08I’d buy American if the US car companies produced something that was worth buying. They shot themselves in the foot, looked at their wounds and now are bleeding out.
I loved an earlier post that suggested that the Big 3 use the borrowed money to retool their plants and build buses and fleet vehicles running on CNG as part of a “new deal”.
Why isn’t that car sold here? http://www.popularmechanics.com/blogs/automotive_news/4221669.html
8500
on 25 Nov 08The labor unions and GM signed an agreement to lower benefits and wages in 2007:
GM Labor Deal May Change U.S. Auto Industry from NPR
The problems are larger than just blaming labor contracts. That is a lazy answer to a difficult question.
Jake
on 25 Nov 08@JD: There is one major, major, MAJOR difference. Those companies were not looted by unions.
Grant
on 25 Nov 08@Greg - Sorry if wasn’t clear, but I never intended to advocate maintaining the status quo, especially existing labor contracts or to “keep the assembly line running.” I’m in favor of letting the Big-3 go bankrupt. The American Auto Industry, from basic supplier to dealer apparently isn’t working, so it needs to change; in our economy, that often means bankruptcy.
Ultimately, my point is this: if we are worried about millions of people becoming unemployed, let’s spend our resources on making the U.S. a great place to do business (highly-trained, highly productive employees, world-class infrastructure, etc.). Let’s not get caught up in protecting specific corporate entities. At the end of the day, if U.S. Citizens can invest their money in XYZ Foreign Auto Maker (owning / sharing the profits) and XYZ Foreign Auto Maker provides great jobs and direct foreign investment in the U.S., why should we favor GM or Ford over XYZ Foreign Auto Maker?
Benjy
on 25 Nov 08Vlad, you’re comparing apples and oranges. The Big 3 are resposible for 3 million jobs, including suppliers. The 400k number for those employed by foreign car makers is just their staff, not including suppliers.
Were any of the Big 3 to go under, one might reasonable assume that eventually some of the foreign makers would fill the void and buy some of the plants, hire some of the workers, use some of the suppliers, etc. It’s not an all or nothing proposition.
As for foreign/domestic arguments, does anybody know the breakdown of where dollars end up when, say, an American buys an American built Honda. How many dollars stay in the U.S. as factory wages, sales commissions to dealer, payments to domestic suppliers, etc. vs. how many go back to Japan as profits? And does one know the georgaphic breakdown of shareholders of the auto companies? There’s nothing to say that a majority of GM’s stock couldn’t be owned by foreign shareholders, or that more shares of Toyota might be held by Americans than Japanese.
carlivar
on 25 Nov 08I hate the argument that foreign cars are built here so it’s fine.
Take a look at the percentage of foreign-made parts on those cars. It’s very high. Even the steel is imported.
No one hears about a little 200-person factory going out of business that makes something like leather for steering wheels. The U.S. Big Three often use small American companies for their parts. Foreign companies don’t.
It’s better to say foreign cars are ASSEMBLED in America. If they have Goodyear tires, maybe there’s one little bit that was actually made in the U.S.
So please, stop with the “my Toyota was built with non-union labor in Alabama” argument.
Note: also ironic are folks that voted for a huge pro-union candidate and then drive cars from some of the most anti-union companies in the world.
UH2L
on 25 Nov 08I got tired of retyping my thoughts on the government loans for the Detroit 3, so I summarized everything here…
http://uh2l.blogs.com/things_ive_noticed/2008/11/weve-heard-a-lot-of-news-from-the-press-lately-about-the—dire-situation-the-american-automobile-industry-is-in-in-pa.html
This guy has some decent points but, it’s not about who’s to blame; it’s about what should we do now for the good of the country.
UH2L
Grant
on 25 Nov 08@carlivar—Actually, the amount of “domestic content” (parts made the U.S) is similar in cars made by both the “domestic” auto industry and the “foreign” auto industry. Below is the Chicago Fed’s look at the issue.
Chicago Fed Letter on Domestic Content of Vehicles
Grant
on 25 Nov 08Corrected link: www.chicagofed.org/publications/fedletter/cfloctober2007_243.pdf
Chris Carter
on 25 Nov 08My company just went under thanks to the financial crisis, can I get a bailout? Oh wait, I don’t have lobbyists or a corporate jet to fly to Washington DC, guess I’m out of luck.
What the Big 3 need are a good chapter 11 bankcruptcy. For those of you unfamiliar with Chapter 11, it is NOT “going under”. It is a restructuring where a trustee helps you reorganize your company. Management AND union organizers alike are afraid of that because it will expose and force renegotiation of all of their greedy sweetheart deals which add an extra $2000 to the sticker price of every car they sell.
Personally, I don’t want to buy one of the big 3 cars at this point, especially if they’re talking about forcing me to (where do you think the money for that bailout is going to come from?)
Sorry, but it was never in the government’s charter to prop up dying companies. The financial bailout was bad enough, lets prevent another mistake here.
Evan
on 25 Nov 08@GeeIWonder:
True. It shouldn’t come without strings attached, and I think one of those strings ought to have something to do with putting out a more forward-looking product.
Truth be told, I haven’t really made up my mind on this. Part of me really would like to see them take the hit and have to restructure, but it’d be nice if we could get that restructuring without injuring the economy too badly.
carlivar
on 25 Nov 08@Grant: interesting. My 2002 VW Jetta had a very, very low domestic parts content which is what made me think along those lines.
I don’t have time now to read the whole article you linked, but there are more domestic parts in the domestic cars judging by the first graph—it’s just closer than I thought (about a 15% difference).
Tom H.
on 25 Nov 08Don’t forget what is contributing to their failure. CAFE standards, the UAW, ridiculous legislation regulating how to operate dealer networks, etc.
There’s a lot at stake here, but the status quo can’t continue. It needs to be restructured and they need to be allowed to compete.
Once they have that they should trim the brands down to a 2 or 3 and focus on the profitable lines… just like any other business.
If regulation and ridiculously uncompetitive labor contracts continue it won’t matter what they do or what we give in taxpayer funds… they won’t be able to compete.
Anonymous Coward
on 25 Nov 08What the Big 3 need are a good chapter 11 bankcruptcy. For those of you unfamiliar with Chapter 11, it is NOT “going under”. It is a restructuring where a trustee helps you reorganize your company. @Chris Carter, while this is usually the way chapter 11 works, the credit crunch has made it increasingly difficult for companies to get the bankruptcy financing to carry them through, and more difficult for private equity firms to buy them/their assets, etc. It’s why companies like Linens N’ Things are liquidating instead of reorganizing. Whereas maybe one of the Big 3 might be able to re-emerge in more ordinary times, in today’s environment they may not.
Robyn
on 25 Nov 08I am another car person from Michigan. I work at GM. This is a good discussion but I want to add my perspective on the Peter Klein quote.
Peter ignores the fact that many of the transplant successes can be attributed to working with domestics. Toyota makes two of their best-selling vehicles (the Corolla and the Tacoma pickup) in joint venture with GM. The Toyota Matrix, another bestseller, shares a platform with our Pontiac Vibe. Mercedes participates with Chrysler and GM in a joint venture to develop hybrid powertrains. Ford, until recently, held a controlling stake in Mazda, and still shares many of its platforms with that company. Mitsubishi is a company that has received significant subsidies from Chrysler in the 70’s and 80’s and DaimlerChrysler in recent years. And GM once owned a 20% stake in Suzuki and shared some platforms with that brand.
The domestic and transplant auto industries are not as easily separated as Klein would suggest – why else do you think that the management of Nissan and Honda advocate assistance for the domestic industry? http://www.businessweek.com/globalbiz/content/nov2008/gb20081119_275356.htm?chan=top+news_top+news+index+-temp_news%2B+analysis Robyn Henderson
C
on 25 Nov 08Sure, the big three going under would hurt, but it also may create a mini-boom for the other car manufacturers. When GM stops making trucks, the US army (and other big purchasers) will need to get them from somewhere. It’s not inconceivable that Toyota would step in and pick up a GM plant to retool it to produce Tundras. Even on a bad year, GM sells a lot of cars and someone will have to make that up.
Slightly Unrelated
on 25 Nov 08Let Big Oil bail out Big 3
Chris
on 25 Nov 08Most auto manufacturers are losing money. Toyota, Honda, Ford, Dodge, etc. They’re all doing terribly. Why? Because nobody can buy a car. I work and speak with dealers daily. Very few can get a deal done.
But the real reason GM, Ford, and Chrysler are losing MORE money than everyone else is because of their pensions. Toyota and Honda don’t have pensions. It’s not in their contracts. Its the same thing that took down the airlines when times got tough. Read this article and update yourself: http://www.tnr.com/politics/story.html?id=1026e955-541c-4aa6-bcf2-56dfc3323682
The whole notion that GM, Ford, and Chrysler are dinosaurs is silly. The technology that GM is working on in the Volt is 2-3 years ahead of the competition.
The funny thing is I remember when Apple was in trouble. Hardware and software HAD to be sold separately. OS 9 was ancient. The company is DOOMED. I’m betting that a fair share of people commenting on this blog are using Mac. Poor choices can get you in trouble really quick—but changing the team and reorganizing is what saved Apple. Even Microsoft helped save Apple.
You don’t just give the Auto Industry to Asia since you got into cash flow problems. File bankrupty and reorganize. Change.
CJ Curtis
on 26 Nov 08I haven’t done a lot of research on this subject, but from the research I have done, it seems that sales have been declining in the big 3 for an entire generation. So much so that their main issue is not poor sales, but retirement funds. This goes way beyond the current financial crisis.
I have mixed feelings about all this bailing out going on. First I think that if they can’t run their business, tough shit. But then again, what would that really do to the country?
But as far as the government is concerned, key employers such as the big 3 and other major players should not be getting special attention above and beyond the millions of small businesses all over the country. and historically, they really don’t care. capitalism breeds competition, which of course guarantees a certain level of failure.
Keith
on 26 Nov 08Mitch Albom said it best this weekend:
http://www.freep.com/article/20081126/COL01/811260327/1082
Really!?!
on 29 Nov 08The loses the “Big 3” are now incurring are incredibly huge and amazing and there is a reason for that. These companies have no “mojo”. There is too much us and them with unions and CEOs that are paid millions for doing a shitty job. I could of easily run GM into the ground for a fraction of what they paid Wagoner to do it. These companies need to die so a new American car company can come in and take their place. Perhaps one that is built as a 100% employee owned company (sorry, no unions needed, everyone is an owner) that has the common goal making sure all the owners (that would be everyone) of the company are happy and making a fantastic product that everyone loves and wants to buy.
Daniel Waite
on 29 Nov 08Saverio Mondelli: The US is a free market economy.
No it’s not.
If it were, there would have been no $700 million bailout (nor any of the countless others over the years). Such government action is called intervention.
You can’t have a “free market” and government intervention. It’s a contradiction in terms.
Clove
on 29 Nov 08Times are hard for all of us! Which explains why people aren’t buying cars… I can’t afford to buy a car. I’m FREE, I have the right to decide what I can afford. To say “they aren’t buying so we are in trouble! Well, um, stop giving them the choice!? Just give me some of their money straight from their paychecks!” WOW? So, where does it stop?
3 million jobs, I’m sorry for that! But I have my family to worry about too, like so many others, we are struggling. TOGETHER my husband and I make a little more than what the average auto assembler makes. So forgive me, but I find it so frustrating and yet so typically “American”... On the verge of failure and so desperate for help, the reps of the auto industry… each by way of private jet, taking limos from 5 star lux hotels; Each make million$+ salaries with million$+ bonuses of course unaffected by crisis, arrive to ask the government for MY money, and YOUR money The *ave auto assembly line pay is $63,000?? That’s a pretty good salary considering anyone in a similar position in any other industry is lucky to make $16-$23 hr.
A group of 3 million people is so large they’re in a position to help themselves. Faced with losing their livelihood and homes they could at least make some effort to remedy the situation.
Would selling the jets and flying commercial REALLY be such a hardship? Can CEO’s and such justify salaries in the millions while their industry crumbles? And BTW what exactly are the bonuses for:)!? A substantial pay cut at that level seems logical! And the workers, have they offered taking a 10-15% pay cut during this crisis? Offered to work an extra hour per day or 2 Sat. per month with no pay to save their jobs and families.
In my humble opinion NO BAILOUTS should even be considered until these kinds of efforts have been made.
This discussion is closed.