As GM Goes, So Goes the GOP
Understandably, Republicans are seething. When Hank Paulson demanded $700 billion to haul away the trash in the dumpsters of JPMorgan Chase and Goldman Sachs—assuring us we could hold a garage sale of the junk—they rebelled. They acted as the nation, by 100 to one, demanded. They killed the Wall Street bailout. The Dow quickly sank another 1,000 points, and, charged with criminal irresponsibility by the elites, the GOP buckled, reversed itself, rescued the bailout—and was wiped out on Nov. 4.
Now we hear from Paulson that the $700 billion Congress voted will not, after all, be used to buy up all that rotten paper on the books of the big banks. Some banks are using the cash to buy other banks.
So Republicans are right to be enraged. They are victims of the biggest bait-and-switch in political history. But they are now about to do something terminally stupid. With GM, Ford and Chrysler teetering on the brink, they are turning a cold stone face to Detroit and are about to follow the counsel of that quintessential Bushite Dick Darman, who said of our computer chip industry, "If our guys can't hack it, let 'em go."
America responded—by letting George H.W. Bush and Darman go.
Are Republicans aware of what they are about to do?
When workers, execs, engineers, dealers, salesmen and suppliers are all factored in, the Big Three employ 3 million people who contribute $21 billion a year to Social Security and Medicare, and $25 billion in federal income taxes. Add in all the businesses that depend on the auto industry, and we are talking about one-tenth of the U.S. labor force.
As columnist Tom Piatak of Chronicles and Takimag.com writes, 850,000 retirees, and their families, depend for pensions and health care on the Big Three. If they go under, the burden falls on us.
And to let the auto industry die is to write America out of much of the economic future of the planet.
In a good year, like 2005, Americans buy more than 17 million new cars, and West Europeans as many. Tens of millions in Eastern Europe, Russia, China, India and Southeast Asia are now moving into the middle class each year. These folks will all need or want one or two family cars. If we let the U.S. auto industry die, that immense and burgeoning market will be lost forever to America, and ceded to Asia.
"Who cares?" comes the free-traders' reply. Japanese and Koreans are setting up factories here. They can pick up the slack.
But that means Americans will work for and depend on foreign companies for a necessity of our national life as vital as the imported oil and gas on which our cars and trucks operate. All the profits of the mighty automobile industry in America will be sent abroad.
Before Republicans follow this free-trade fanaticism to their final interment, they might study the results of a poll by Peter Hart:
—Seventy-eight percent of Americans believe the U.S. auto industry is highly or extremely important. Three percent think we can do without it.
—Ninety percent of Americans believe the death of the U.S. auto industry would do great damage to our economic future.
—By 55 percent to 30 percent, Americans favor federal loans to save it. And by 64 percent to 25 percent Americans back President-elect Obama's resolve not to let the U.S. auto industry go under.
If the GOP blocks these loans, and the industry dies, the party can forget about Ohio, Michigan and the industrial Midwest. For the Reagan Democrats will never come home again. Nor should they.
By the choices we make, we define ourselves and reveal what we truly care about. Thus, consider:
We bail out the New York and D.C. governments of Abe Beame and Marion Barry. We bail out a corrupt Mexico. We bail out public schools that have failed us for 40 years.
We bail out with International Monetary Fund and World Bank loans and foreign aid worthless Third World regimes.
We bail out Wall Street plutocrats and big banks.
But the most magnificent industry, the auto industry that was the pride of America and envy of the world, we surrender to predator-traders from Asia and Europe, lest we violate the tenets of some 19th-century ideological scribblers that the old Republicans considered the apogee of British stupidity.
Nancy Pelosi is talking about tying loans to a restructuring of the industry. But Congress is not competent to do that.
What needs to be restructured is the U.S. tax-and-trade regime.
Dump globalism. Instruct Japan, Canada, Korea, Germany and China that if they wish to sell cars here, they will assemble them here and produce the parts here. And we shall have the same free access to and same share of their auto market as they have of ours.
To accomplish this, use the same import quotas and tariffs Ronald Reagan used to save the steel industry and Harley-Davidson.
Reciprocal trade. Even Democrats like FDR used to practice it.
COPYRIGHT 2008 CREATORS SYNDICATE INC.
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Mr. Meng,
Of course I favor the idea of a protective tariff, as does Mr. Buchanan. But if we keep letting American manufacturing be destroyed by foreign competition, we won't have much left to protect.
Mr. Meng,
You may also want to reread my original piece. Despite all the outsourcing by the Big Three, which I deplore, the fact remains that they purchase 80% of the auto parts manufactured in this country, and the average domestic content for all the Big Three cars put together is on the order of 80%, as opposed to 35% for all the foreign cars sold in America.
J. Meng (@101):
Civil discussion is wonderful; heated discussion is all right; but can we please stop with the gratuitous remarks about "inefficient pieces of crap"? I've never owned a foreign-made car, or even a foreign brand made here in America, and guess what? I've never had any particular problems with my vehicles. That extends from the 1970 model year Ford Maverick which my parents bought when I was one year old and which I drove until 1990, when I bought a Buick Skyhawk and my parents sold the Maverick to my uncle, who drove it for several more years. It had well over 200,000 miles on it by the time he retired it.
We would probably still own my wife's 1990 Chevy Cavalier if a dump truck hadn't totaled it. By the time it did, it had 150,000 miles on it. We bought a 1986 Suburban with 48,000 miles on it and donated it to charity (after having it appraised at $5,000) after we put another 75,000 miles on it. We bought a used Ford Aerostar at 96,000 miles and traded it in at twice that on our current 12-passenger Chevy Express, which just topped 50,000 miles and, though a full-sized van, consistently gets a respectable 16 mpg.
Yes, everybody knows somebody who's had a crappy American-made car, and some of us have actually owned one. Oddly enough, I've known just as many people who've had crappy foreign-made cars, but somehow, they always manage to justify the crappiness of their cars by pointing out that they paid less or get slightly better gas mileage.
If you want to comment on the quality of American-made cars versus foreign-made ones, and the comment is relevant to the discussion, go right ahead. But please, do a little current research first. Otherwise, keep your nastiness to yourself, please.
@96, Mr. Piatak, your argument is convincing if you are arguing for a reform of our national tax policy. If we were to raise the national price for importing all goods and services, we would then add to the political incentives a clear economic one for foreign companies to expand their factories here. I imagine being taxed on a bunch of individual parts would be less than being taxed on fully assembled cars, plus the sway with consumers as these cars would be employing more Americans than the old U.S. automakers did. The strength of our consumer market (although inflated) is too large for any such company to ignore, so they would definitely do business with us in the form of employment. But you have not mentioned separately how a bailout would not be a malinvestment.
Mr. Wilder, in several places, I find your arguments to be optimistic though confusing. I do not see how our Big 3 could possibly go forward without destroying all remnants of the union system and collective bargaining. You write derisively of employees having to make concessions. I suggest those would be better than losing their jobs. You write that bankruptcy would also wipe out shareholder value. This has already been wiped out, as a dollar of GM stock 20 years ago is now worth 7 cents.
This brings me to Mr. Richert @ 98. I understood your point clearly. Since I was unclear in making my point, I'll leave it to a much better delivery:
Dr. Joseph Dolan: You know, it's a shame about Ed.
Fletch: Oh, it was. Yeah, it was really a shame. To go so suddenly like that.
Dr. Joseph Dolan: He was dying for years.
Fletch: Sure, but... the end was very... very sudden.
Dr. Joseph Dolan: He was in intensive care for eight weeks.
Fletch: Yeah, but I mean the very end, when he actually died. That was extremely sudden.
In general, if fair competition is going on (I've seen no evidence that it's not, except for the U.S. unions and CEOs, who peddle influence rather than merit), creative destruction is a very important part of the health of any larger system. We have gained a false sense of control and importance when we have tried to control things like forest fires and river levels. Although the short term or local results are nice (and predictable!), the longer term result is a massive increase in the severity of kickback when a fire does break out or a flood does happen.
However, if someone is starting fires (to push the analogy) then I agree with intervention against both that person and that fire.
Mr. Richert, #105: sorry, if I offended you. I didn't mean to be nasty. Actually, I don't think I was. My point is this: As long as Detroit has been in the business of making cars, one would think that by 2008 they would have a vehicle that made over 50 miles per gallon as standard, that the evolution in research and development would have produced a safe, reliable car within a price range comparable to the average wage of the American working man and similar to the progress in the computer industry, where qualilty increases and prices decrease; and that the cost of parts and maintenance would be reasonable. But, they aren't, after a hundred years or so. Detroit sells images and we keep deceiving ourselves that we are getting a deal. The most expensive outlay in my life is the car: monthly payments, insurance, license, gasoline, and maintenance. Its like I live to make Detroit prosperous. That was once called slavery. I made a point of this earlier, by giving a comparison between Detroit's products with the sports industry. Millions of dollars in annual salaries go to individuals hyped as magnificent athletes. As a consequence, one would expect a commensurate performance, i.e., everyone hitting at least 500 homeruns a year; no fielder ever making an error; no-hitters every time a pitcher went to the mound, etc. But we don't get it and yet the fools that we are, we pay outrageous prices for a ball game and hot dogs and beer and get for the most part, mediocre play, which is only natural, because we're just human -- but drop the prices. That's all I am asking from Detroit, when they are asking $20,000-plus for a vehicle that hasn't improved where it counts. After all, a car is just a means of transportation, not a status symbol that their commercials want us to believe it is.
Mr. McCabe,
I favor a tariff system of some sort, but that is really extraneous to the issue at hand. The question at hand is do we act to try avoid the enormous economic, social, and fiscal costs that will flow from the failure of the Big Three, not what the ideal tax policy for America should be. And if you think that a US political system that has been systematically dismantling tariffs for years, to the great detriment of American manufacturing, will suddenly begin imposing them so as not to lose the foreign manufacturers who have moved some of their operations to the United States, you are much more optimistic than anyone here.
Mr. Piatak, as this thread carries on, having carried on as long in a previous article, it is clear this is a multi-faceted, confusing and subtle set of arguments.
My concern with losing the big 3 could be simpy broken down into two aspects: 1) the direct damage done to the people who would lose jobs (99% of whom are good, relatively innocent workers), and 2) the macro concern of a categorical loss of a sector of manufacturing in our country.
The loss of brand, identity or company does not concern me directly, nor does, in this case at least, the loss of the tradition of making cars. I do not care in the least if the Japanese "win" this one.
As to point 1, it would need to be argued that some sort of bailout would be more helpful to these people than wellfare and temporary unemployment or early retirement. (many companies across this great country of ours are straining under the bulk of employed baby-boomers who are at the height of their earnings potential but may lack the productivity they make up for with experience.) Furthermore, then, the style of bailout would have to be clarified. I personally cannot follow the arguments against or for types of Bankruptcy, but I find many of the arguments against Bankruptcy to be unconvincing. Also, for the bailout argument to succeed, we would need to show that Detroit could put it to good use, i.e., not just buy us 5 more years, not just buy us temporary employment, but that it is a true help in a storm. Detroit's own ugly history, dominated by idiot CEOs and heavy-handed union bosses hurts this case with very little room to move.
As to point 2, it would need to be argued that our country would be at a loss for not making cars any more. I have not really heard why that is true. Although I instinctively cringe at the concept of a total loss of manufacturing, I don't possess the macro picture to know what losing ownership of auto plants would amount to in our country. I have been in favor of protecting manufacturing in general because a huge number of guys I know need to work with their hands and bodies, and pouring a latte just is not the same as working making stuff.
Without being so damn logical, I could say this. At least in Japanese traditional culture, if a man dishonors his family, he falls on his sword. If the CEOs and unions came out and admitted their shame and fell on their swords, then sign the checks tomorrow and let the past be the past. Unfortunately, pride and honor are rare commodities in corporate elites, union elites and the halls of Washington D.C. -- all the parties trying to do this deal.
I notice that most who favored both the Iraq invasion and staying until we achieved "victory" and the September $700 TARP fiasco are against bailing out the Big 3.
Maybe we should ignore their advice for once.
J. Meng (@107):
No offense taken. It's just that, after 250 comments over two lengthy threads, it gets a bit tiresome to have people continue to fall back on a line that Tom Piatak dealt with in his first piece over at Takimag.
On to other matters. Do I think that Detroit could make cars that are, on average, more fuel efficient than the ones they make today? Yes, and not just because the Japanese do, but because Detroit has. Sadly, in the American market, those models haven't sold--even to people who claim that they don't buy American-made cars because they aren't fuel efficient.
I didn't find the Geo Metro, Chevrolet Sprint, and Pontiac Firefly much to my liking, but those who place fuel efficiency among their top concerns should have. For the size of the cars, they received very good safety ratings; for the price, they received good quality ratings. The only thing they didn't have was a foreign name.
As for your comparison with computer production, there are a couple problems. First, if you're suggesting that internal-combustion engines should have seen the kinds of performance increases that semiconductors have seen, I'm afraid we're talking apples and oranges. There's a big difference between increasing processor speed and making the physical process of combustion more efficient.
Second (and I think that this is more likely your point), if you point to the quality of personal computers as somehow "higher" than the quality of Detroit-made automobiles, I'd like to know what kind of computer you use. The Macs we use here in the office (and which I use at home) are, in my experience, far more reliable and higher quality than the average PC running Windows. That said, the level of maintenance required to keep any personal computer running smoothly is considerably higher, in my experience, than the level of maintenance required to keep my car running smoothly. We just tend not to think of software upgrades, closing out programs when the computer slows down, virus scans, and the myriad other things we do every day to keep our computers in shape as "maintenance."
The number of people who've ever experienced the equivalent of a "blue screen of death" in a car (which, essentially, would mean the car simply ceasing to function while you're driving it down the highway at 70 mph) is next to none.
Frankly, if my car required the level of maintenance that my Macs (much less others' PCs) required, I would have traded it in long ago for a horse, because the horse would be lower maintenance.
pabloH@110:
An excellent point.
Mr. Richert @ 111
Your comments at the end remind me of the wry comments my wife's mechanic engineer father and brothers make--try hitting "CTRL/ALT/DELETE" when you're driving 70 on the highway. (I think they make that point in arguing computer engineers aren't realy engineers.) Oh, and they don't work the auto industry.
I agree with Pat on many things but this "party first" attitude sounds just like Democrats and neo-cons. Americans, while seeing Detroit as vital, also have huge problems with wealthy men flying separate private jets to beg the government for billions of dollars. They also see something wrong with throwing money at a failed enterprise, particularly when the executives of these corporations refuse to resign or file for bankruptcy. Detroit auto workers make twice as much money as non-union workers in the South. Start there.
Steve (@114):
Why would we start (or restart, after several days of extensive discussion) from a faulty premise? The wage disparity has been discussed, and it's not two to one.
@85 Scott
I understand economies of scale, and have no problem with the concept. My final point was congressional meddling in manufacturing probably caused many of the problems, especially on the pollution.
I recently watched the movie Tucker, if it holds close to the truth, the big guys had no problem maligning the little guy -- even though Tucker made his pile as a war profiteer. However, he did produce 50 cars and 49 of them still run, that's a better record than the oligopoly can match.
@96 Tom Piatak
GM and Toyota are pretty much locked at the hip. As are Ford, Mazda, Volvo and Aston Martin. From what my sources tell me, most European car manufacturers are Volkswagen-owned. Fords are made a a plant in Dagenham, and sales are OK. Maybe, the automakers would be smart to move 100% offshore and ship everything on massive roll-on-roll-off ships from cheap labor countries like Indonesia, Peru, and Sierra Leone. That ought to keep the prices down, and congress from meddling -- somewhat.
3 cheers for the global economy everybody! If the elites can't ram it down our throat, then they'll give it to us by enema.