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Detroit Comes Begging
Can we save corporate dinosaurs that have been mismanaged for decades? Yes, we can!
By Rich Lowry
One of Barack Obamas acts of courage as a presidential candidate, his campaign maintained, was to give a speech in Detroit excoriating the auto industry for its carbon-emitting sins. Obama noted how the industry had long played typical Washington politics by hiring an army of lobbyists to get its way.
Well, Obama hadnt been president-elect for more than 72 hours before he suggested that auto-industry executives descending on Washington to plead for a bailout might get it. Can we save corporate dinosaurs that have been mismanaged for decades? Yes, we can!
The auto companies argue that they have been caught up in the credit crunch, and therefore deserve a piece of the financial bailout. General Motors sales dropped 45 percent in October. Ford and GM lost nearly $15 billion in cash between July and September, and GM says it might not have enough cash to operate by early next year.
But this crisis is only the punctuation mark on decades of decline. Once a market-dominating behemoth, GM had 50 percent of the U.S. market in the 1960s. It is down to almost 20 percent now. U.S. consumers have long been voting against U.S. automakers. Now, theyll be asked to put their tax dollars at risk to preserve the very companies from which they dont want cars.
The bailout would be of the United Auto Workers as much as of the automakers. Its the UAW that saddled the Big Three with unsustainable labor costs and obligations to retirees. Detroit has desperately been trying to get out from under this burden, but Ford still lost $1,467 per vehicle in 2007, while GM lost $729 and Chrysler lost $412. Where the UAW doesnt reign, the industry thrives. Toyota and others profitably manufacture almost 4 million cars in nonunionized states in the South.
The case for the bailout is that the job losses from a GM going down 100,000 directly, and many more indirectly would be too painful to bear, and the government would be left holding the bag on GMs pensions. This line of reasoning conceives of GM essentially as a job programs and welfare agency.
The cost of the government keeping the Big Three afloat would surely be more mandates for politically correct green cars. Holman Jenkins of The Wall Street Journal has pointed out the damage of already-existing mandates: The Detroit Three have been effectively required to build small cars in high-wage, UAW factories, though it means losing money on every car. If the Big Three have been inefficient until now, just wait until the Sierra Club is in charge.
A bailout of the automakers would signal a new era of government protection from competitive failures. Every other troubled business would show up in Washington, in the spirit of folk singer Tom Paxtons lines after the Chrysler bailout in 1979:
I am changing my name to Chrysler.
I am leaving for that great receiving line,
And when they hand a million grand out,
Ill be standing with my hand out.
Yes, sir, Ill get mine.
The Paulson financial rescue obviously created a dangerous predicate. But the financial system is uniquely fragile. Banks that are otherwise sound, and have been run profitably for decades, can go under in a panic. Wells Fargo, which took an equity injection under duress, shouldnt be confused with GM.
Washington Post business writer Steven Pearlstein suggests a compromise: Only commit government funds if the auto companies taking them go bankrupt. A bankruptcy court can reduce the obligations to retirees, make it possible for Chrysler and GM to pare back their unnecessary dealerships, and scale back wages and benefits. Top management should be fired. All of this can be set in a prepackaged bankruptcy that wont disrupt operations.
But that probably makes too much sense. Were a long way from the 1950s, when G.M. President Charles Wilson said, What is good for General Motors is good for the country. In a bailout nation, its the opposite.
Can we save corporate dinosaurs that have been mismanaged for decades? Yes, we can!
By Rich Lowry
One of Barack Obamas acts of courage as a presidential candidate, his campaign maintained, was to give a speech in Detroit excoriating the auto industry for its carbon-emitting sins. Obama noted how the industry had long played typical Washington politics by hiring an army of lobbyists to get its way.
Well, Obama hadnt been president-elect for more than 72 hours before he suggested that auto-industry executives descending on Washington to plead for a bailout might get it. Can we save corporate dinosaurs that have been mismanaged for decades? Yes, we can!
The auto companies argue that they have been caught up in the credit crunch, and therefore deserve a piece of the financial bailout. General Motors sales dropped 45 percent in October. Ford and GM lost nearly $15 billion in cash between July and September, and GM says it might not have enough cash to operate by early next year.
But this crisis is only the punctuation mark on decades of decline. Once a market-dominating behemoth, GM had 50 percent of the U.S. market in the 1960s. It is down to almost 20 percent now. U.S. consumers have long been voting against U.S. automakers. Now, theyll be asked to put their tax dollars at risk to preserve the very companies from which they dont want cars.
The bailout would be of the United Auto Workers as much as of the automakers. Its the UAW that saddled the Big Three with unsustainable labor costs and obligations to retirees. Detroit has desperately been trying to get out from under this burden, but Ford still lost $1,467 per vehicle in 2007, while GM lost $729 and Chrysler lost $412. Where the UAW doesnt reign, the industry thrives. Toyota and others profitably manufacture almost 4 million cars in nonunionized states in the South.
The case for the bailout is that the job losses from a GM going down 100,000 directly, and many more indirectly would be too painful to bear, and the government would be left holding the bag on GMs pensions. This line of reasoning conceives of GM essentially as a job programs and welfare agency.
The cost of the government keeping the Big Three afloat would surely be more mandates for politically correct green cars. Holman Jenkins of The Wall Street Journal has pointed out the damage of already-existing mandates: The Detroit Three have been effectively required to build small cars in high-wage, UAW factories, though it means losing money on every car. If the Big Three have been inefficient until now, just wait until the Sierra Club is in charge.
A bailout of the automakers would signal a new era of government protection from competitive failures. Every other troubled business would show up in Washington, in the spirit of folk singer Tom Paxtons lines after the Chrysler bailout in 1979:
I am changing my name to Chrysler.
I am leaving for that great receiving line,
And when they hand a million grand out,
Ill be standing with my hand out.
Yes, sir, Ill get mine.
The Paulson financial rescue obviously created a dangerous predicate. But the financial system is uniquely fragile. Banks that are otherwise sound, and have been run profitably for decades, can go under in a panic. Wells Fargo, which took an equity injection under duress, shouldnt be confused with GM.
Washington Post business writer Steven Pearlstein suggests a compromise: Only commit government funds if the auto companies taking them go bankrupt. A bankruptcy court can reduce the obligations to retirees, make it possible for Chrysler and GM to pare back their unnecessary dealerships, and scale back wages and benefits. Top management should be fired. All of this can be set in a prepackaged bankruptcy that wont disrupt operations.
But that probably makes too much sense. Were a long way from the 1950s, when G.M. President Charles Wilson said, What is good for General Motors is good for the country. In a bailout nation, its the opposite.
