I'm currently up in Ann Arbor, MI and get all the Detroit radio stations. I just found out this morning that the Senate shot down the AutoMakers bailout package. They wanted ~$14 billion.
I'm actually torn on this issue. On the one hand, there are around 350,000 people employed by the Big 3 in Detroit, and another 600,000 that work for suppliers providing materials solely and directly to the Big 3. If GM and Chrysler go bankrupt, mostly likely all these people are out of jobs. As much as I like to think that these companies will come through this, and I believe they will, I also know I'm not buying a car from a company that is bankrupt. Who knows what kind of warranty or service you'll get. So essentially, estimates range that anywhere from 500,000 to 3 million jobs could be lost in 2009 if the AutoBailout doesn't occur.
On the other hand, I'm also a strong believer in our capitalistic, free-market economy. If anyone ever wanted to see evolution, they should only have to look at our corporations in America, where if you are a bad performer or your niche is no longer viable, you die out. Part of me says that Toyota and Honda, Nissan and Hyundai are the newly evolved car companies, and the old behemoths have simply been replaced. If they can't compete with these other companies, sorry.
I will say, however, that if Congress was OK with passing a $700 billion bailout of the financial institutions, with virtually no strings attached and no plan on how to disburse the money, what's another $15 billion for the car makers? They at least have a plan. I know, the auto industry has been bailed out before. But Lee Iacocca was required to pay back the loan the government gave him (through he tried to get out of it). Does anyone think that Citigroup will be paying back their loan? I sure as shit don't expect it to happen.
Congress wanted the UAW to take a big wage reduction. I'm solidly anti-union and for the following reason - if GM, Chrysler and their suppliers go under, all those blue-collar line workers will be out of work and pretty much unable to find other types of employment. Because they are a union, they won't be allowed to find other types of work. They fill a single niche, and apparently either can't or won't try to exist outside of it.
And now, when asked to take a wage reduction, they declined. Think of it this way: if someone told me that I could keep my job, the only job I'm capable of doing other than fast-food and janitorial services, but I had to reduce my pay from $75,000 to $60,000, I as an individual would do it. But since I'm in a union, I have to go along with the group and so we all get screwed. How long does anyone thing the UAW will last when one-third or more of its members stop paying fees and start collecting unemployment benefits from the UAW? At least there will be one less union in the world.
To be honest, I'm quite surprised Congress didn't enact the bailout. Both the Lameduck and the President-elect wanted it to happen, but enough other people didn't. I think if GM and Chrysler go down, and it's still not certain to happen, Detroit is going to be an even worse city to live in than it already is. Wow, is that even possible?
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2 comments:
Although I don't really agree with the bailouts, I do find it pretty hypocritical that $700b was given to companies who's only job is to WISELY INVEST AND MANAGE MONEY while the backbones of American corporations were denied a measely $14b. Nevermind that the auto industry has a history of repaying loans, never mind that AIG spent millions on lavish executive retreats only weeks after receiving their "bailout", nevermind that the big 3 probably wouldn't have had to ask the government if the financial companies hadn't themselves tanked. Congress really botched this one...
Agree almost 100% with Kevin with the exception of a finer point that most don't realize. The $700 billion financial bailout was essentially a cash infusion, with no other plan or expectations. The main goal was to open up lending - primarily among financial institutions. When banks don't lend money, the entire economy stops. Thus, even though I disagree with the overall concept of a bailout to the financial institutions, I do recognize that it has opened up lending. Unfortunately, problems run much deeper than that, so it was probably a bad idea.
As for the auto industry, I say let them burn. These companies are not strong, and have not been for years. They have a poor business model and awful union contracts that make profitability impossible. A bailout now will almost certainly lead to another in the future. By the way, why is the fact that a bunch of workers will be unemployed a reason to bail out the industry. Isn't that just a fancy form of socialism?
At this point, I see the auto industry at a crossroads. They can either continue to do business as usual and drive themselves to inevitable collapse, or they can change. It seems like the perfect opportunity to completely retool and push forward electric and hydrogen vehicles. I'm not just talking a Chevy Volt and a Ford hybrid. I mean getting rid of gasoline vehicles completely! It has to happen sometime. If they jump on it now, they can seize the technologic advantage and position themselves for the long-term future.
As for what will happen, it's a coin flip at this point:
Heads: Bush takes $14 billion from the already approved financial bailout, and gives it to the auto industry. Disaster is averted, and the Big 3 will spiral down the drain for another few years.
Tails: No bailout. The Big 3 will declare bankruptcy, dissolve the UAW contracts and restructure. A sleeker, more competitive Big 3 will emerge. Maybe they will really take steps like I suggested, but most likely they will go back to business as usual.
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