Merry Christmas Detroit


Although Senate Republicans decided to give a big "humbug" to the auto industry, demanding that the UAW make huge wage concessions in exchange for a bailout, concessions designed to destroy the union, the White House has finally agreed that it must provide help before it's too late.

According to a White House statement I found at the Detroit Free Press site:

It is disappointing that while appropriate and effective legislation to assist and restructure troubled automakers received majority support in both houses, Congress nevertheless failed to pass final legislation. The approach in that legislation provided an opportunity to use funds already appropriated for automakers, and presented the best chance to avoid a disorderly bankruptcy while ensuring taxpayer funds go only to firms whose stakeholders were prepared to make the difficult decisions to become viable, competitive firms in the future.

Under normal economic conditions we would prefer that markets determine the ultimate fate of private firms. However, given the current weakened state of the U.S. economy, we will consider other options if necessary – including use of the TARP program -- to prevent a collapse of troubled automakers. A precipitous collapse of this industry would have a severe impact on our economy, and it would be irresponsible to further weaken and destabilize our economy at this time.

While the federal government may need to step in to prevent an immediate failure, the auto companies, their labor unions, and all other stakeholders must be prepared to make the meaningful concessions necessary to become viable.

As I heard Governor Jennifer Granholm say that she didn't think that the President would want to have the collapse of the auto industry being the last word of his presidency.

I know that there are many who do not believe that this is right or proper, who think that Detroit should fail. That Detroit cars are low quality, etc. But consider that they are making important improvements. Ford has made great strides, and will continue to do so if allowed to breath. GM needs to contract, and it will, I believe. Chrysler will likely morph into something different -- but consider that prior to the Daimler purchase, Chrysler was going pretty well. Chrysler's cars (sedans) may not be that valuable, but its Jeep products and its minivans and trucks still have an audience. Indeed, Dodge is building trucks for Nissan, which hasn't been able to build quality larger trucks. If given breathing room and some capital, they will turn things around.

So, while Scrooge may have spoken, my hope is that Scrooge doesn't have the last word!

Comments

Anonymous said…
That is my prayer, too. If any ONE of the Big 3 fail in the current economy, we will slide from recession to Depression--globally. And the GOP Senators are acting irrationally even from the viewpoint of purely partisan politics: They can never win the presidency without Ohio and OH has more Big Three plants than any other state than MI.

McConnell seems to have forgotten that, in addition to the Toyota plant at Georgetown, KY, there are 2 Ford plants and a GM plant in KY. Bob Corker seems to have forgotten the Ford plant in TN. And even the foreign, nonunion plants that Shelby and Vitter and DeMint love use the same suppliers as the big 3, so their states will also be hurt. And EVERY state has big 3 auto DEALERS (small businessman who raise much money for GOP candidates). So, even for selfish reasons, they should have backed a deal. But they hate unions too much. Also, I think they hope a Depression will be blamed on Obama instead of them.

How short-sighted.

Very strange to be resting our last minute hopes on Bush and Paulson. Why didn't Harry Reid threaten to use the "nuclear option" of abolishing the filibuster as GOP senators threatened in '05 when Democrats held up some of Bush's nominees? The right to filibuster is just a Senate tradition, not part of the Constitution. Reid could say, "This is too important. We will vote party-line to suspend the use of the filibuster and then vote on the bailout (now needing only a simple majority). The next Senate can decide whether to make the abolition of the filibuster permanent." That threat should get enough GOP cooperation to save the automakers--because without the filibuster, the minority is essentially powerless.
Anonymous said…
A guy at work had a copy of the legislation and had someone point out a major issue that is not being discussed. The legislation said all debt would be behind the government loan. As you can imagine... the bond holders went crazy. In fact, bankruptcy helps them as they can secure their claim.

Its been fascinating how this last week has exposed the underbelly of politics. Did the democrats really cry over the failure? They have plenty of Wall Street backers who own these bonds. Should I really cry there is such a thing as a job bank.. where people go to a building every day, not working, and collect 95% of their normal pay?

No offense Michael.. but I seriously doubt one falling will call a global recession. The press wants you to believe that, but that is not the case. In fact, think how strong Ford would be if the others failed? Stronger pricing power, better control of inventory, etc. Again.. the whole issue is simply supply. Too much American cars for too few demand in the US.

-Chuck
Anonymous said…
Anonymous, you are wrong on several fronts. 1)The UAW was willing to give up the job bank--and I thought they should. They were even willing to agree to deep cuts in salary--as long as management had to make similar cuts, but when they said that, Senators Corker (R-TN) & Shelby (R-AL) walked out.

2) In ordinary times, a bankruptcy would be better and, yes, Ford could pick up greater market share. NOT during this deep recession. Ford uses the same suppliers as GM and Chrysler (and so do the foreign cars built in the USA). If those suppliers have to lay off workers, it hurts Ford, too. Laid off workers do not buy ANYONE's car.

3) It wasn't just the media. As soon as the Senate failed to do its job, the other nations with automakers took action to prevent a ripple effect: Sweden (SAAB), Germany, France, Italy, South Korea, Japan--all immediately gave extra cash to their automakers. Pluas, the EU and Japan announced big stimulus packages. Canada wanted to loan GM money in order to protect Canadian GM workers (and Canada is our largest trading partner), but PM Harper had dissolved Parliament in order to avoid a vote of no confidence--so Parliament couldn't meet to loan the money.

The bondholders should get a grip: When the government bails out companies, it is ALWAYS the first creditor to be repaid--as was the case when Chrysler was saved in the '80s. (Every dime was paid back with interest, too.)

Thankfully (and it feels weird to say this), it seems that Bush doesn't want his "legacy" to include the failure of 2 American carmakers and Paulson knows that he will shortly be looking for a job and doesn't want this on his resume.

It feels strange to quote (positively) Dick Cheney, but he's right when he said to the GOP senators on Thurs., "If you let the automakers fail, we will be known as the Party of Hoover forever."

Until there are 5 profitable years for the Detroit 3 (with good, reliable, and GREEN cars), I will only buy American. I have never made such a pledge, before, but this seems a good time to be an economic nationalist. WE MUST rebuild our manufacturing base.
Anonymous said…
I wish the best with buying american, but sadly you will realize what everyone else realizes. American cars depreciate at an alarming rate, they are a horrible investment. A one year old Dodge truck at auction with 12k miles... $9,000!!! Thats a quick example.

Green is nice, but it doesn't sell and the margins aren't there. The reason the american manufacturers did so well was thanks to SUVs. The gross on an SUV is upwards of $2K plus, the finance (F&I) income is higher b/c the contract amount is higher, and SUVs run harder so the service revenue is greater. Throw in a million start up contractors for the housing boom and you had a great boom in cars.

Today we forcing green cars down their throats at exactly the WRONG time. If we are in recession, then gas prices will fall due to lack of demand. (unless the dollar collapses) Dealers are saying that now they are actually starting to move trucks, but the premium in green cars is shrinking. Its simple math.. why pay up for a green car when gas is cheap?

The point of a recession is to clean out the dead wood. Its not fun, its not pretty, there is pain.. but you HAVE to do it. The guy who knows how to build cars needs to transfer his skills to fixing cars. The white collar job needs to move to a different industry. Capacity is reduced to meet actual demand and therefore lots aren't full of unsold cars. The capacity is also moved to industries where there is demand.

The bottom line is the $14 BILLION is a drop in the bucket.. simply a starting point. They will be back again in the spring, and how do we give them then? Why does Ford have to keep competing with a non viable GM and Chrysler? As a tax payer.. is it a wise use of my cash to poor money into a non viable industry that has too much capacity?

-Chuck
Robert Cornwall said…
Chuck,

I'm not sure I follow your logic. We shouldn't buy American vehicles because they're a poor investment. But at the same time, forcing green cars on the US market is dumb. But where Toyota has an edge is in the green market.

I'm not a banker, but if you look at the ratings for safety that just came out, Ford came out on top of the list, beating out Honda. GM tied Toyota for the number of top rated vehicles. On owner satisfaction, Ford comes in just below Toyota, and Lincoln is third behind Porsche and Lexus.

The reason why American made vehicles get a bad name is that we keep believing the old saw that American made cars are poorly built. That is not the case any more.

Note again, it was Daimler that messed up Chrysler.

I find it interesting that the GOP likes to raise the patriotism flag, but when it comes to buying American, they seem not that interested.

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