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. Richert,
Thanks for your many excellent points.
As this thread is dabbling in the abstract, which I really enjoy, apparently, there is a concrete reason to believe that if the auto industry receives a government loan it won' save Detroit, according to an article written by Anthony Mirhaydari, titled, "Why Bailout Won't Save Detroit". It can be found at http://www.msn.com. Mr. Mirhaydari argues that the problem is vehicle density in the U.S. There are too many vehicles to sustain the Big 3's current production levels. He says there are 981 cars for every 1000 people of driving age in America compared to 613 in the United Kingdom and just 24 in China. This would result in less need for vehicle production and the consequences would be plant closures and layoffs. Any thoughts on the validity of this argument?
Scott (@50):
Your reading must be rather superficial, as the importance of savings is a basic tenet of the Misesians. Here's Hazlitt's chapter "The Assault on Saving" from his book "Economics in One Lesson"
http://jim.com/econ/chap24p1.html
Bill (@49):
No one predicts what the actors in the market will do. Nevertheless, there are immutable laws, such as: if the government prints more fiat money, the value of a dollar goes down. Surely you don't dispute that law. Another immutable law: a dollar cannot be in two places at once. If it is out helping the auto industry, it is taken away from some other activity.
Scott (@51):
I believe the practical effect of the bailout will be a merely temporary improvement in the auto industry, but an overall loss of national wealth.
Lucius (@54):
Sigh. I have repeatedly pointed out, here and elsewhere, the contradictions of the Misesians (and other libertarians). One such contradiction is that, yes, they will say that savings is essential. Yet they constantly use the term consumer, and when someone attacks consumerism or consumer culture, they will then come roaring back in defense of the "consumer."
Here's Jeff Tucker launching his attack on Rod Dreher: "Dreher follows in a long line of writers dating back to the Industrial Revolution - and a certain strain of post WW2 conservative writers - who loath consumer culture."
Here's J.H. Huebert defending the use of credit cards and arguing against restriction on them: "The Fed's latest efforts to regulate credit card issuing banks (and card holders) do nothing but distract from the real source of our economic woes. The Fed doesn't need to restrict consumer choice -- it just needs to restrict itself."
I could multiply these ad infinitum, but it won't make a difference. Hazlitt says otherwise!
This is precisely like the arguments I've had with our mutual friend Tom Woods. On the one hand, Tom will deny that Misesians believe in economic laws that are akin to natural laws. On the other, he will write things that only make sense if he believes that economic laws are "immutable" and "unbreakable." Then, when you point out that he's done that, he falls back on the first position.
It must be wonderful to have it both ways. It gets awfully tiresome, though, for those of us who are trying to have a reasonable discussion, rather than attempting to win an argument on points.
Frankly, I wish that our Misesian friends actually acted as if they believed in their theory of subjective valuation. If they did, they would be willing to admit that it leaves room for forming the conscience--for shaping the way we subjectively value things. What follows from that is that a sea change in the subjective values that people place on things leads to radically different economies and societies.
I'd almost be willing to accept Austrian economics, if the Austrian economists of my acquaintance actually began acting as if they did as well. Then we could spend our time more fruitfully, discussing the aims of human life.
I am more interested in the social element of allowing American industry to wither on the vine. The agricultural world and the industrial world are, relatively, socially conservative. The post-industrial world is soft and feminine and leads to what Dr. Paul Gottfried referred to as the therapeutic state. In my own experience as a small businessman, I have found the computer geeks and IT boys to be unmanly in the extreme, the sort who just voted the callow Barack Obama into office. The only future conservatism has in a post-industrial world is as a remnant.
Derek Leaberry (@57):
Very true. Of course, when I mentioned this at Takimag, Richard Spencer immediately jumped it and pointed out that the industrial Midwest voted Democratic in this election. I think that for many who instinctively oppose these loan guarantees--including many of the House Republican leadership who've spoken up about it--there's a sense that "these aren't our people."
But again, as I pointed out to Richard, these people are the Reagan Democrats. And some of us know why Reagan captured them, and why successive Republican candidates have lost them.
Wow, nobody else gets a pat on the back but Mr. Richert?
Well, I never...
This tit for tat is losing traction.
PaleoCons are missing their chance by failing in a couple of ways. Mr. Buchanan's article says nothing new (plus the actual legislation mentions nothing about buying toxic debt, so I consider the shift in policy at face value an act of prudence). The general scenario of social harm estimated by the PaleoConsensus is a guess and not too far from the same fear-arguments used to support the Financial Bailout. So some numbers have been supplied, I have no idea if they are reliable. Furthermore, the attitude is that the situation at Big 3 D-day + 1 will be permanent in our country, which it won't. The idea that if the market would provide, then they would have provided by now is not proof of anything other than things take time. Perhaps the market would provide after the Big 3 go down, and the CEOs "retire" and Union collective bargaining agreements leave the books. Mr. Buchanan also makes a weird comparison to 40 years of bailing out failing schools. So either he is saying schools are less important than car makers or that our car makers have not been failing as long. Not sure. I'm sure an argument for the social harm of letting schools fail would be next... but less important?
Lucius, you need to step back and examine the conditions for free markets to exist. I believe there is this notion that firms are price takers. If a firm uses exogenous profits or subsidies to lower prices of specific goods beneath local market rates to push out local competition, that is not the free market at work. And the free market cannot compete with that either. This is how Wal-Mart moves into small towns and destroys the local lumber yard. However, the paleocons have failed to produce any shred of evidence that this is currently happening with Toyota or Honda. Subsidies that may have happened in the past make sense in such industries because they are industries of scale and can't become profitable until they get big enough.
ALso, Lucius, there is a notion that people have access to perfect information. As is evident by this "debate" not even some of the smartest conservatives around have perfect information, let alone all "consumers".
Show me that the Japanese are unfairly competing, show me that the Big 3 can compete and put a loan to good use (the '79 Chrysler loan is evidence *against* another loan, not for one -- they're still in trouble 30 years later in spite of paying them back!) and show me that the social harm would be proportionately worse than the social harm of the financial collapse (since so many were against that but for this, on practical arguments), and I will wholeheartedly back a bailout.
Otherwise the inconsistency of these philosophical arguments is leading to circular discussions and lack of progress.
Besides, if Mr. Buchanan is correct, then isn't another nail in the coffin of the GOP what y'all want anyway?
Scott,
Libertarians and some others on the right are just to have to agree to disagree. Our position should not be surprising, considering the history of internal improvements > corporate welfare.
I read an article in the Dayton Daily News a couple days ago that went something like this, "UAW head: No more concessions!". None? So GM and the other companies (as well as UAW) who made poor decisions shouldnt have to pay for their mistakes? Just take the money and run and forget the whole thing never happened? That seems to be what Pat and some others are saying.
Like I said on my past reply on this topic, nothing will change at any of these companies. Business as usual, and in 25 years, rinse and repeat.
R. McCabe (@60):
Toyota and Honda benefit from a sheltered market at home. Japan has a border-adjusted value-added tax that makes it essentially impossible for U.S. manufacturers to compete there. That results in higher profits for them at home, which functioned as exogenous profits that allowed them to enter the U.S. market (and could, even today, be said to help make it possible to continue to compete here, even as the gap between their labor cost here and the labor cost paid by the Big Three narrows).
Daniel Maxwell (@61):
So you're saying that these loan guarantees, in your opinion, will buy the Industrial Midwest another 25 years? If so, that's time during which changes can be made--and outside forces (the financial crisis, rising fuel costs) will provide more impetus than in the past.
To me, you've just made the best argument that could be made for extending the loan guarantees. My fear is that they wouldn't buy us 25 years, but only five. Still, five may be better than none.
Scott (@55),
It sounds like the statements you're cherry picking are about the Misesians' defending a certain brand of individualism. That doesn't change their basic defense of savings applied to prudent entrepreneurial investments (in contrast to Keynesian emphasis on debt spending).
I don't understand the point you're trying to make about there not being any such thing as economic laws. I've named two of them--surely you don't deny them, they're simple common sense.
As for subjective valuation, what's the problem with it if you're talking about brown shoes versus black shoes? or corn flakes versus truffles? Do they have an absolute value?
As for the more important things in life, I agree with you that there are absolute values, and that our governors have a duty to exercise their authority to a certain degree in deference to them. The prudential question with respect to the big three is: are we doing more harm than good?
Although I do not have voting information available to me at work, I think it is easy to surmise that Ronald Reagan did much better in industrial counties in the MidWest than did John McCain. If memory serves, Reagan battled Jimmy Carter and Walter Mondale to draws in places like the county which holds Flint and its suburbs, Summitt County. Yes, Reagan was a free-trader in philosophy but was open to protection when needed. Remember the car quotas he negotiated with Japan or the Harley-Davidson protection? With party leaders like George W. Bush and John McCain with their ideological free-trade blinders compacted into their cheeks, is it no wonder that the industrial heartland is giving the Republican Party a thumbs down? Political fealty must be earned.
Lucius (@64):
You've misread me (or I've failed to make myself clear). I'm not saying there's a problem with the theory of subjective valuation; I'm saying, instead, that it should allow, say, a Catholic who believes it to understand that those who follow Catholic social teaching (for instance) would value certain things more or less than those who don't. And if enough people began to follow Catholic social teaching, that would then make "the market" a very different beast from what it is today. (This, by the way, is how I've always read Rerum novarum, etc.)
But instead, the Catholic Misesians of my acquaintance argue that Catholic social teaching, rather than being allowed to change "the market," must give way to the "immutable" "unbreakable" "economic laws."
Yes, the prudential question is, "Are we doing more harm than good?" Tom Piatak has explained in concrete terms why he thinks the loans will do more good than harm; I tend to agree, if only because of the social harm that is likely to result from a relatively quick collapse of the Big Three.
And I'll freely admit that my assessment of the harm that may occur is influenced by my lack of faith that "the market will provide."
Lucius,
I agree with this question: "The prudential question with respect to the big three is: are we doing more harm than good?" The difficulty is in identifying the harm that would attain from providing loans or other support to the auto industry. I think some opponents of such support believe that there would not be the more easily identifiable harm from denying support; believing that the auto companies could enter Chapter 11 and only one (probably Chrysler) would fail.
As I indicated earlier, I am skeptical of the utliity of Chapter 11. (I am generally skeptical of Chapter 11 and am not aware of a empirical examination of the effectiveness of Chap.11--i.e. how many debtors are successfully reorganized 5 or 10 years latter--if any know of one, I'd appreciate a link if you have it.)
To Mr. McCabe, I think the difference with the financial bailout is the nebulousness of the "frozen credit markets" that were identified and whether, in fact, the bailout made a difference. None of the commenters at the time could actually identify for me how these credit markets were "frozen" (I did here a piece on NPR with the CFO of a company who claimed he was not able to access short-term markets.) But have those markets unfrozen? (It does not appear so.) And while Paulson's shift to equity injections may be prudent (at least a better idea than buying toxic assets) that at least indicates that the legislation was flawed and should have been rejected.
I'm not sure how you quantify that a GM/Ford/Chrysler failure would be worse than the consequences of refusing the financial bailout. I can quantify job loss, loss tax revenue, lost GDP, etc., for the automakers, but what would we be quantifying for the financial markets? And, again, has that harm actually been ameliorated by the "bailout"?
Finally, I don't relish this sort of bailout. It's obviously the repercussion of a variety of factors, including mismanagement in Detroit. But I don't think that removes the practical question.
P.S. Getelfinger's comments on "no concessions" may be two-fold--first, the UAW has already given concessions, including assuming liability for retiree health care in 2010, wage cuts, and a lower new hire pay scale (Delphi has similarly seen dramatic pay cuts); second, it allows him to exhaust the process and, if/when more cuts come, he can tell his members he did exhaust every avenue. You have to get collective bargaining agreements ratified and there is an element of politics to that.
Derek Leaberry (@65):
I don't have the numbers in front of me, either, but Reagan won both Macomb County (Detroit area) and Genesee County (where Flint lies) handily in both 1980 and 1984. It wasn't a draw in either place; at least in the latter election, it was two-to-one.
Reagan paid fealty to the free-trade philosophy, but he was a pragmatist.
By contrast, here are this year's results for Genesee County:
Obama: 65.5%
McCain: 32.9%
Other: 1.6%
Scott (66):
"But instead, the Catholic Misesians of my acquaintance argue that Catholic social teaching, rather than being allowed to change “the market,” must give way to the “immutable” “unbreakable” “economic laws.”"
Which Catholic social teaching do they say should not be allowed to change the market? Rothbard talks about the theater-loving fellow who is happy to pass on buying furniture for his apartment in order to be able to afford theater tickets--not sure why the same shouldn't apply to the things Catholics value.
Perhaps we're getting into questions of separation of Church and state. Personally, I'm opposed to the separation, and I look forward to the day when a majority Catholic population amends the constitution to recognize Christ the King as head of state, and bans all but essential commerce on Sundays.
14Mark B wrote: “Much of the US trade difficulty is the result not of free trade, but predatory trade. An insistence, from the outset, upon trading on equal (not protectionist - just equal) terms would have avoided much of the current imbalance. This is the heart of Pat’s prescription. Our industries face incredible hidden taxes that their competitors often don’t. When entire country targets a specific industry, some response other than “let ‘em go” seems appropriate.”
And in response, Queen Jorge Antoinette, ever concerned that her friends on Wall Street will be unable to pay the mortgage on their vacation homes but indifferent to the real hardship his policies have caused middle-class Americans can only drawl: “Let ‘em eat cake!”
Mr. Richert @62, to the extent that your statement is true, then I would assume as a condition for supporting a bailout would be a reform of our own tax laws regarding conducting business across our national borders. I would support this wholeheartedly, not just in the auto industry, but in all business breaching our borders. The cost to maintain our economic sovereignty and national security should be borne most by those profiting from crossing it.
However, your point masks another point and a further condition for the bailout argument. Namely, there are intrinsic factors within the U.S. auto manufacturing industry that prevent us from competing even here! Those would also have to be removed as a condition for a bailout loan to be supported. If not, then it remains a debate whether it would just be cheaper for our country to support these people on the dole rather than support them via the auto industry. That is a simplistic argument, I always believe in the value of work to a man, but I hope you get my gist.
Those two conditions would satisfy my skepticism, that our automakers are truly ready to compete at first here, and secondly that our national politicians are willing to fight fire with fire in terms of regulating the terms of these so-called 'free markets'.
Mr. Wilder @67, you address my point of "proportionality". It seems logical and consistent to be against the financial bailout if one thinks the cost is greater than the prospective social harm of inaction. Extending, if one is for this auto bailout but was against the financial bailout, they must have some belief that the direct cost is worth it in this case but not the other. I am truly ignorant in this, but I do not understand how 240,000 auto workers spills over into 3,000,000 U.S. total workers. That is a 12 to 1 ratio, and it assumes that the harm done as a result of inaction will be static, that these 3 million people (if accurate) would never recover in any way. I have not been convinced of that permanent damage, so I see a sort of hypocracy in the argument. At the very least, I see it as equally nebulous.
That said, I agree with you that the financial bailout arguments were completely nebulous. However, all the friends I talked to in the financial industry said it was necessary -- their asses were on the line. The fact it has not worked yet is not surprising, is it? I don't think any of the initial 350 billion dollars have been spent as is evident by this change of course.
Otherwise, if you search through the legislation, which can be easily found on the net (I searched through the ~450 page .pdf file for the word "review"), I don't think you will find any wording in the legislation that "earmarks" the way the monies would be spent. It consistently said that the discretion was totally with the treasury secretary or his agents and that he only act in teh best interest of the tax payer. Although there are many flaws with that bailout plan, the points made by Mr. Buchanan miss the mark.
Prove that the bailout is an investment in our country and I'm for it. Otherwise, I think it is wellfare, and there might just be better ways to spend it than all of us trying to run a car company from here. For example, a direct $10 billion over 5 year plan for the autoworkers and related hurt workers might be enough to get them through. Meanwhile, let the companies die and in an act of creative destruction see if we can't restart some auto companies in the same 5 years without the unions and brain-dead CEOs. If you are continuing to argue that all of the sudden the unions are straightening out and will stay that way, I think you will lose that argument.
I am on the fence on this issue. It might help if someone would address Jim Manzi's arguments in detail as seen at
http://corner.nationalreview.com/post/?q=NGE4MGEwMTkwMzE3MGE1NWI4MGJkYTA4M2NkMTIwZmU=
In summary, the arguments about how the Big 3 are getting much more efficient have been heard constantly for 30 years, but they never catch up with the Japanese. And the discrepancy is not all based on taxes in Japan.
R. McCabe (@72):
You'll get no argument from me on the second (Chronicles has, for 20 years, been pointing out the need for this); on the first, I haven't seen anyone supporting the loans (or even leaning toward support of the loans) who hasn't acknowledged the need for substantive change in the American auto industry. Congress could force such change by approving the loans with appropriate strings; but if the Republicans refuse even to consider the loans, then the Obama administration might push them through without any strings, or with the wrong kinds of strings.
And yet, I've still to see anyone offer a single example of a startup that has done so. If the argument is that it won't/can't happen until the Big Three are dead and gone, doesn't that require a leap of faith that's even greater than that of those who think the loans might work?
Republicans are right to be enraged. They are victims of the biggest bait-and-switch in political history.
That's why Sam Francis called them the Stupid Party. I'll be glad to see the back of them, because they seemed to go out of their way to marginalize pro-lifers, limited government types, and assorted Christian moralists. They only wanted us to donate money, do lit drops and put signs in our yards for their marginal candidates. Ron Paul could have used some party support, but instead the machine puked out McCain, whose toadies then spat on Gov. Palin when the doomed candidacy failed. Nationwide, 7 million voters stayed home who had voted in 2004.
And in your home Commonwealth of Virginia, we got rid of a phoney liberal senator and replaced him with a real manic depressive. The Red State label was a phantom at best, after all, Virginia has only had 4 Republican governors, and one of those was a Democrat turncoat. And a mere 20 years ago the state legislature was 75% democrat. Perhaps in the next decade the Evil Party might make room for a few dozen Larry McDonald-style congressmen.
If any readers have ever visited Detroit's city museum, they will know that in the early 20th Century that city was home to over 300 automobile companies. OK many of them only ever made a prototype, but the people were resourceful and invented all sorts of product improvements. Now a century later we must bail out the Big Three. Oh Really! I remember American Motors -- number 4 -- bringing out innovative designs, the Hornet, the Gremlin, the Eagle were all produced to meet a demand for smaller cars by the market. The Pacer was years ahead of its time although there were some design problems a lack of V-6 engines and tinted windows to be precise. But the Big Three learned from their mistakes until Chrysler bought them out. Mercury is on the way out, Oldsmobile is gone, and Plymouth -- the brand which survived the Great Depression and the gas crisis -- was unceremoniously canned by the Germans.
Nowadays, well for over 40 years, congress has dictated how cars will be built, CAFE standards, air bags to protect future taxpayers from stupid cellphone yakkers, etc. The little guy has now been overwhelmed by a bureaucracy that requires every manufacturer to maintain an office on K Street.
My solution is to repeal bad laws, but Congress will not go along.
Huzzah! The election's over and the real Pat Buchanan is back!
I agree with every word he wrote. I just hope that the Republicans (and Democrats) take his advice to heart.
"That said, I agree with you that the financial bailout arguments were completely nebulous. However, all the friends I talked to in the financial industry said it was necessary — their asses were on the line."
Curious, why is it necessary to bail out financial industry "friends" whose asses were on the line, but not necessary to bail out auto industry employees whose assess also happen to be "on the line"?
" The fact it has not worked yet is not surprising, is it? I don’t think any of the initial 350 billion dollars have been spent as is evident by this change of course."
About $300 billion has already been spent. Congress is currently bickering over the remaining $50 billion. I guess your friends with exposed asses in the financial industry are going to need that money also? Can't see your way clear to help a few poor schleps in Michigan (granted, you probably don't know any of them personally) with $25 billion of the remaining $50 billion?
Mr. Richert, @75, this is a fine point. I guess my skepticism of Hank Paulson knowing what's best for our financial institutions (or the taxpayers) has carried over reflexively to wonder if it were possible for Congress to assert the necessary leadership. I want to pull the trigger as much as anyone, but throwing good money after bad doesn't make sense, that is what I am arguing against. But I am waiting for what's left of the GOP to step up and show some leadership.
As for 76, I can't help you there. I don't think any companies of the size in question ever start up. I'm looking for an alternative to what seems to be a losing history in Detroit. Could we not sell of two of the companies to create one super-U.S. company? Or sell off pieces of each to make 20 smaller car companies -- I just don't know how their manufacturing base is set up.
But your point is right, the simplistic argument by some libertarians that the free market will magically create giant car companies just falls flat.
Stats, I think you missed my poorly worded point. I was against the financial bailout in spite of many of my friends assuring me it was necessary. The previous poster had called the description "nebulous" and I agreed, in spite of friendly assurances. I was saying that the same seems to be true here as well, with people now lining up for this bailout simply because it affects their friends. But fear and haste seem to be ruling the day.
Thanks for clearing up my misconception about how much has been spent so far, but you can likewise keep your pity party and class judgments to yourself. If only my own dad or uncles or cousins had been so lucky to have a fat union job! I hope your friends come out all right, they certainly don't deserve what's coming to them.
The apparent total federal government commitment to spend our way out of this economic hole has reached $4.28 trillion. This is apparently more in adjusted dollars than we spent on all of WWII. I guess we might as well all line up and try to rip each other apart for what we can get.
I happened to be in my local Chrysler dealership today to get a seat beat replaced.
While I waited I talked with one of the salesmen I know about things in general. Talk drifted over to cars, then to financing.
He said as of today, if you wanted a new car loan, and had triple A credit, GMAC's best interest rate for a new car loan was 13%. I don't know what the A.P.R. would work out to be. I don't know if Chrysler is using GMAC or not.
He said that they were sending their customers down to one of our local banks for their financing. With Triple A credit, that bank was charging around 5 to 6% on a new car loan. Thats a 7% spread between the two.
I don't know what the money offer is at Ford. It looks like GM/GMAC is trying to make their money in the loan business. I suspect they would be better off sticking to the auto business and leaving the loan business to others. I guess it will come down to deciding to be either in the finance business or the car business, but they can't be in both.
David,
The private company that owns Chrysler is the majority owner of GMAC. GM is now only a minority owner of GMAC.
Cline @17
I'm suggesting that Buchanan and others who speak at the
pleasure of NBC, CNBC, MSNBC, etc. need to be candid about
their apparent conflict of interest. Do not assume the public is
aware of of the GE connection.
Etienne Gervaise (@78) and R. McCabe (@81):
I'm no fan of bigness or centralization, and it's certainly true that the Big Three (GM in particular) got big in part because they wanted to. It's also true, though, that the diversity in the early auto industry celebrated in the city museum of Detroit (and even to a certain extent in the Henry Ford Museum) couldn't last. You can have a hundred different factories owned by a hundred different owners making ball joints, but the complexity of an entire car means that economies of scale do inevitably lead toward centralization. Perhaps the best that could have been hoped for was what did exist for decades--where the Big Three sourced each part from multiple suppliers.
Each of the Big Three retained many of the brand names that they absorbed, but internally those brands shared parts with other brands. The first car I ever drove was a Ford Maverick; part for part, with the exception of the trim, it was identical to a Mercury Comet. The first car I ever owned was an '86 Buick Skyhawk; externally, it was fancier than a Chevy Cavalier, and the base model came with more bells and whistles; internally, they were the same car.
I'm not sure how you get around economies of scale on a large-scale industrial product like a car. Take a much simpler product--the consumer p.c. With the research that Intel puts into reference designs, it should theoretically be possible for a thousand flowers to bloom in the generic p.c. industry--each company distinguishing itself on some measure of performance or design. Yet the move in the industry has been toward centralization, consolidation, uniformity. Even Apple today is using primarily off-the-shelf parts for its desktops (it still does some of its own motherboard design for laptops).
I'm not saying that any of this is good or desirable. I am saying that it's likely inevitable with an industrial product of the scope of the automobile.
What is interesting in all this that I think it could only be in the US that an auto-industry bailout is even up for argument. Can anyone name a government, country, nation that exists that would NOT bailout its auto industry? If Toyota were having trouble (and it will at some point) do you think for one instant the Japanese Government would opt to let it fail? I don't pretend to KNOW what should be done. There does seem to be something immutable about these things. People grow up and die, sunflowers grow and die, dogs grow up and die and I think companies grow up and die. However, at the same time perhaps we should focus on what should be done for our own people in the short term. Our people are in Detroit. After this I still don't know whether I support a bailout.
Chris Hewlett (@86):
Interesting point. It's already on the horizon. According to Bloomberg:
Honda, Nissan, and Toyota are in for rough times, too. Are they better able at the moment to weather them? Probably. But your point is exactly correct: If things get too bad, the Japanese government will step in, without any protracted debate.
Mr. Hewlett and Mr. Richert are correct. The Japanese view the auto industry as important and their auto companies as great national assets and emblems of national pride. They would certainly not let Toyota go bankrupt.
"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."
If the silly socialist GOP hacks you swoon over manage somehow to block the democrats' plan to take over the auto industry, that would be one in a row for them. It would be the first time GOP congress members blocked socialism's forward march through Congress. Don't worry, Pat. Your socialist pals in Congress will choose socialism, just as they always do.
I have always been amused at how conservatives jumped to the conclusion that you're different from the rest of the socialist GOP pompom shakers. I've always seen you for what you are. Thanks for reinforcing my image of you once again.
To Pat's fans here; shake those red pompoms,you brave brigadiers. ahaha
"As for saving the auto industry, I am much more inclined to waste taxpayer money on bailing out that industry than on all of the other unconstitutional bailout schemes the feds have concocted, including all of the wasteful foreign aid and the recent 700 billion dollar con job."
I'm not inclined to waste a penny of anyone's money but my own on anything. Why should Congress be allowed to claim the authority to appropriate money from taxpayers to give to anyone for any reason?
Where is the evidence that bailing out the big 3 will keep the US auto industry alive, anyway? The industry is doomed to failure by federally mandated union control and federal standards for automobiles. All of our money, stolen from us and handed over to them won't make that industry viable.
Let them die and the parasites on their carcasses might just die off with them.
No, American parasites will die off only to be substituted with Japanese, Chinese, Indian, Korean parasites. I suppose EE Roberts thinks that is preferable.
Mitt Romney thinks bankruptcy would save Detroit.
http://www.nytimes.com/2008/11/19/opinion/19romney.html?_r=2
Lucius (@92):
Not quite. He's calling for a "managed bankruptcy," in which guarantees from the federal government would address the problems that Bill Wilder and Tom Piatak have pointed out with the normal bankruptcy process. And that would include:
I suspect that, when the rubber met the road (so to speak), you wouldn't find Romney's plan acceptable, either.
Mr. Hewlett,
You are again correct. If the Big Three collapse, the market for cars in the United States will be dominated by a new Big Three, Toyota, Honda, and Nissan, except this new Big Three will be headquartered in Japan. Some claim this will be an improvement, but I fail to see how.
(@94) Mr. Piatak, I have been divided on this issue, but I think some arguments are better than others (on each side).
The market for cars in the U.S. *already* is dominated by the new Big Three. A bailout of any form will not prevent what has already happened. In an earlier comment by Mr. Richert (@67), he mentions a "relatively quick collapse" of our Big Three. But that is not accurate, is it? This has not been quick, it has been happening slowly for decades.
If you are arguing for our duty to protect all these auto workers and their related communities, then we could do that without worrying about unions or American CEOs. That would mean employment of them by Japanese companies should be just fine.
If you are arguing for the U.S. macro problem of our manufacturing base being gutted, that too has happened over the course of years, this being a painful symbol rather than a big chunk. But a bailout will not stop the trend either, will it? It is not a reform but a palliative for friends.
Our country needs to stop throwing money around. If we deem it necessary, then it should accompany reform and a set of qualifying standards. Otherwise, we should not funnel welfare through corporations or fight symbolic battles.
Mr. McCabe,
If the Big Three collapse, the American car makers will go from selling roughly 50% of cars here to 0%, with the Japanese taking most of that market share, creating a new oligopoly to resemble the old oligopoly of GM, Ford, and Chrysler, with the only difference being the new oligopoly will be a foreign one, repatriating its profits to Japan.
Also, there is reason to believe the Japanese maunfacturing presence in the United States will decrease if they succeed in destroying their American competition. As I wrote in my original piece:
The major reason foreign car makers have plants in the United States is political, to hedge against the possibility of American protectionism. Once the threat of American protectionism is dead, because the American auto industry is dead, why would foreign car manufactuers keep building plants here, or even keep operating the plants they’ve built? Last summer, the Wall Street Journal quoted an unnamed Toyota executive as saying, “It’s much, much more profitable to produce cars in Japan and ship them all to the U. S. right now, if it wasn’t for the political problems that might cause.” Once there is no possibility of “political problems,” what would restrain Toyota from pulling all its production back to Japan, or shifting it to such low wage countries as Mexico?
What industries or services in the US are NOT being taken over by other nations? I think the situation has exceeded an ideological argument for or against a "free market" and is fast approaching a direct battle for the defense of the nation. Again, I don't know the best course; however, how much of this do we really control? If other nations are going to defend themselves then we have to defend ourselves.
R. McCabe (@95):
Just to clarify: I'm talking about what is likely to happen in the absence of government loan guarantees or (at a minimum) government-sponsored bankruptcy proceedings. At this point, there's no reason to believe that the collapse of the Big Three will be protracted. You're mixing apples (the long-term history of the auto industry) with oranges (the short-term result of this decision). My comment about the "quick collapse" is only in reference to the latter.
Mr. Richert @ 93
I have not had an opportunity to Gov. Romney's NY Times piece, however, the notion of a "managed bankruptcy" is not persuasive. First, bankruptcy in any form wipes out shareholder equity. A "managed bankruptcy" would effectively transfer the ownership interest of current GM, et al. shareholders to either the government or private equity. (One of the scandals of Chapter 11 is that it is, in my view--and I've litigated in about six Ch. 11 cases--effectively legalised theft of corporate value from shareholders to private equity.) If bankruptcy in any form is unnecessary to ensure reorganization of these companies--which they have already substantially effected on their own--then why should the ownership interests of thousands and thousands of shareholders be transferred to either the government or private interests?
Second, the "exit financing" required for a "Managed Bankruptcy" would certainly exceed, likely by multiples, the $25 Bn sought by the automakers as bridge loans from Congress. (A conventional Ch. 11 for GM would, in my estimate, require $20-25 Bn in DIP financing, a sum that exceeds by multiples the largest amount of DIP financing previously provided in a Ch. 11 case.) This is at least because all three entities would go through this process.
The only use of "managed bankruptcy" is to nullify the interests of suppliers and dealers, and force concessions down the throats of employees. (That last comment will doubtless evoke howls of approval from ignorant "conservatives" and libertarians who blame the UAW and its members for Detroit's ills.) I do not see why that should be tolerated if it is not necessary.
Finally, I second Mr. Piatak's comment about the "transplants" in the US. It was ingrained US hostility to foreign producers (and that alone) that caused Japan to build plants in the US. It located in largely Republican and nonunion areas (doubtless recognizing the confectionary patriotism of Republicans to ensure new loyalty to the Japanese.) That will evaporate with the "creative destruction" (an absurd concept if ever there were one) of the domestic auto industry.
Having now read Gov. Romney's piece, it is unpersuasive of the need for a managed bankruptcy. To the extent he advocates particular forms of transformation, those were all identified by the CEOs in their testimony yesterday. Two of those CEOS are "from outside the industry." (And as I noted from Tesla, such "outside the industry" executives have no assurance of success.)
The claim of needing to further reduce labor contracts ignores substantial reductions that have already occurred which have resulted in GM having fewer than half its number of employees as five years ago, and $1.5Bn less in annual labor costs. Further, the creation of the UAW VEBA will remove legacy health care costs from GM that produced some $7Bn in annual costs.
And anyone who thinks executive perks, bonuses and salaries get cut in bankruptcy is smoking something. Congress had to bank "KERP" plans (Key Employee Retention Plans) that were costly retention bonuses for the very managers who ran the company into bankruptcy. Those have simply been repackaged and continue to be rubber-stamped by our compromised bankruptcy judges.
Gov. Romney's had nothing within it that requires bankruptcy. I also note the glaring lack of any policy prescriptions regarding trade and tax policy.
@ Mr. Piatak, #94: You know something? You're good, really good; but, what else can one expect from a lawyer. You claim, "If the Big Three collapse, the American car makers will go from selling roughly 50% of cars here to 0%, with the Japanese taking most of that market share, creating a new oligopoly to resemble the old oligopoly of GM, Ford, and Chrysler, with the only difference being the new oligopoly will be a foreign one, repatriating its profits to Japan." So what? That seems logical to me in the strictly business sense. My question to you is this: Where were the managers of the American automotive industry "repatriating" their profits and their multi-million dollar bonuses? Why has the American automotive industry fallen to such a low? Why are they begging for a bailout? Are you going to blame the Japanese?
You claim, "Also, there is reason to believe the Japanese maunfacturing presence in the United States will decrease if they succeed in destroying their American competition. As I wrote in my original piece:
The major reason foreign car makers have plants in the United States is political, to hedge against the possibility of American protectionism. Once the threat of American protectionism is dead, because the American auto industry is dead, why would foreign car manufactuers keep building plants here, or even keep operating the plants they’ve built? Last summer, the Wall Street Journal quoted an unnamed Toyota executive as saying, “It’s much, much more profitable to produce cars in Japan and ship them all to the U. S. right now, if it wasn’t for the political problems that might cause.” Once there is no possibility of “political problems,” what would restrain Toyota from pulling all its production back to Japan, or shifting it to such low wage countries as Mexico?"
Oh, boo-hoo, please give me your hankie so I can dry these tears. If the United States automotive industry had no plants in Mexico, or were in the process of building new plants in foreign countries like India, I might see your point. Everyone of these U.S. companies have either overseas plants, or overseas ownership like Chrysler (which, by the way, takes away jobs from Americans) which means tthey are apostles of the Globalist agenda. Besides, the U.S. government offers no protection to domestic industry (not just automotive); why is that? Is it because the halls of Congress and the White House are filled with globalists? We wouldn't have to worry about the Japanese moving back to Japan to produce their cars, if we posted a high enough tariff to block any imports from that country. Personally, I like Mitt Romney's idea for salvaging the automotive industry in America, even though I despise his politics. But screw the idea of a bailout for Detroit. Let them show first that they really have the American people at heart, who have been working for them and buying their inefficient pieces of crap for years and years.
Bill Wilder (@99 and @100):
Thank you for your analysis. The fact that Romney did not even mention managed bankruptcy until the final lines of the piece did raise a red flag (if he had thought this through thoroughly, why wouldn't he lead with managed bankruptcy?), as did these remarkable lines:
On the face of it, the statement is absurd. There are, of course, other ways that Ford could absorb the difference in cost than in cutting "features and quality" (offering rebates and low or no-cost loans, for instance--or simply running at a loss, as Ford has done).
Thank you, too, for pointing out that the exit financing, which Romney wants Congress to guarantee, would run to multiples of the loan guarantees that the Big Three are seeking. Again, we may well find that the loan guarantees today would be the least expensive of all the options.