Sunday, November 9, 2008

Its Déjà vu All Over Again

From the here we go again department, the big three automakers are asking the federal government for a bailout. They are seeing the financial sector get this governmental windfall and, like a bunch of hogs, they want a spot at the trough. Article here.

I realize that if one or more of the automakers went under it would be disastrous for the economy. I live in Michigan. If anyone knows the effect of the big three on an economy, it’s the citizens of Michigan. At some point though we have to ask, when are we going to stop bailing out private companies?

In this case though, the more appropriate question is when are we going to stop bailing out private companies with a long history of incompetent management?

For those who have not followed the auto industry for the last 30 years, let me give you a brief history. This is an industry who:

    Had horrendous hierarchal employee structures. Now, a little clarification here, I am not anti-union and we cannot make a blanket statement about bad employees. I know a lot of GM and Ford workers and retirees and they are all hard working, good people. With this said, there were rules in place in which a production line would shut down waiting for a skilled trades worker to perform some menial task that any of the people on the line could have done but were not allowed to. I know of one specific skilled trades worker, my late uncle, who would be on a weekly bowling league or golf league while he was punched in and getting paid. He would tell me this was done commonly. It appears that they have fixed some of these problems but they took so long in doing it that the damage was done.

    They had a top heavy management style, especially GM. For decades GM loved management people. They would have multiple layers of management and a lot of their corporate decisions would be done by committee. This was an incredible waste of money and because of the committee system, it would take too long to make decisions, making them slow to adapt to changing market conditions and customer tastes. One prime example is the SUV. The automakers could not see that the public as a whole were rejecting SUV’s because of fuel costs but they stuck with them anyways and did not have a back-up plan. This is incredible because the American public has always been fickle about keeping the same style of car for too long. Just look at the history of the automobile. Types of vehicles (big cars, full-sized vans, economy cars, mini-vans, etc.) only stay hot for a decade or so. Yet they never seem able to get ahead of this and have a new plan in place.

    There was significant duplication. All three automakers had multiple divisions making the same car with different trim packages. This would often cause the different divisions to compete with each over for a limited market. Also there was significant duplication of management and factory costs making for a cumbersome, grossly inefficient system.

    They went through a period in which they were, quite frankly, making crap. For all of the anger over foreign cars (and for the record, I buy only American), the foreign market made a toe hold in part because for awhile they were building better quality cars. The US automakers developed an attitude that it was more cost efficient to save money making cars with less money and therefore higher profit margin and paying for the occasional recall or lawsuit. This likely was a decent financial decision but the foreign car market, assisted by their own predatory pricing and governmental subsidies, were able to come in and take a share of the US car market that they have never relinquished.

    Job outsourcing. While they are by far not the only corporation to send jobs out of the country, the automakers practically invented it and are one of the big proponents of the practice. Whichever side of this argument you come down on, there is one inescapable fact; if you eliminate good paying jobs and send them out of the country, you are cutting the number of people that can buy new $20,000 to $50,000 cars. The US automakers essentially eliminated their own customer base and now cannot understand why no one is buying their cars.

So now, after decades of running their companies into the ground, they want us to foot the bill for their mistakes. I say no, but then this was also my preferred approach to the financial industry. We need to let them sort it out themselves.

Finally I have a couple of other observations about this article.

First, I couldn’t help but notice that Nancy Pelosi is trying to push Bush to make a decision now. I find this curious because a lot of the issues they want to deal with, they want to wait until January to let a more compliant Obama make the decisions. They know they will get what they want. This is an issue though that has existed for over a month. Why it is a burning issue now, right after the election? Political cover. They know this will be an unpopular decision and they want the “bipartisan” label on it. You know, blame Bush. Bush needs to tell them to get stuffed. They want to bailout the auto industry, let them take the heat. This will be their trick throughout the next two years. They will get a couple of the liberal “Republicans” in the Senate and a dozen or so Republican House members to vote for one of their bills and proclaim it a bipartisan bill. The Republicans in Congress need to watch this and not allow it to happen. If they want to press their socialist agenda, let them we can’t stop it right now anyways, but do not give them political cover. Make them own it. If they are so convinced that the public has given them a mandate to make change, let them put their money where their mouth is.

Second, I assume everyone saw our Governor of Michigan Jennifer Granholm at Obama’s first press conference. She is listed as one of Obama’s economic advisers. Keep in mind she is six years into her position as Michigan’s Governor and we have the worst economy in the US. If this doesn’t tell you something about Obama’s economic plan for us, nothing will. Be afraid America, be very afraid.

10 comments:

Christopher Hamilton said...

Great post Chuck, I actually posted a small article I found from Bloomberg.com about this topic. I feel though that you did a great job explaining the crisis here and I will link your post in mine.

Brooke said...

These bailouts piss me off beyond all measure!

The gov't is taking money from OUR pockets to shore up their biggest tax-paying cash cows: Corporations "too big to fail."

We keep getting the double-screw.

MK said...

Good work chuck, yeah in most cases the government should stay out of private business and let them take care of themselves. As you can see the habit has been created, screw up --> cry to the feds.

Cut em' loose and make them learn, and they will.

As for the Democrats in Congress, give em' the same treatment they give to republicans.

Frank the Carpenter said...

We must not bail out General Motors.
This is America, if a company can not cut it, if they can not do as good as their competitors then they must fail, be bought out or sold.
Period. The Government can not save everyone that can not make it for whatever reason.

Chuck said...

Christopher, saw your post, good read

Brooke, think they'll lower the cost of cars? Not likely

MK, we're creating a class of corporations that expect entitlements

Frank, thanks and I agree. We would go through some pain but what e,erged would be a more responsible corporate atmosphere in the US

RightKlick said...

Now that we've started down this path, there's no going back.

Aurora said...

More bailouts; bigger and bigger government...yep, sounds like the left alright. The bigger the nanny state, the more dependent and the greater the voting base to keep them in power. It's a win-win for them.

Chuck said...

Rightclick, welcome and thanks for stopping by. Further, cool name. Your right, it's going to be hard to stop it. It is becoming an entitlement for businesses.

Aurora, how big can the gov go?

stormin said...

i've never understood the minds of Michigan voters. they've been a Democrat controlled state from top to bottom for many many years. it's been one of the most economically depressed states for many many years and yet they still think that the solution to their problems is electing more Democrats and their economic solutions.

Chuck said...

Stormin, realize that before this current crop of Dims, we had a Republican Governor and Legislature. Do you wanna take a guess as to how the economy was doing?