First they were against the auto bailout, now they're for it. How to explain such a rapid turnaround in U.S. public opinion? I mean, now 51 percent of Americans believe that the failure of U.S. automakers would cause "major problems" for the U.S. economy, and 15 percent think it would cause a "crisis," although, interestingly (and naively?), 82 percent don't think it would affect them personally. We also see that Republicans are split down the middle on the bailout, 51 to 49 percent, while 70 percent of Dems predictably support it.
CNN's Bill Schneider offers up "fear" as the reason for the reversed poll numbers, but he doesn't explain why Americans are afraid now when they weren't two weeks ago. Do we have Obama and the dastardly lib'rul media to thank for this rapid re-education of Americans? Or have cooler heads simply prevailed, after seeing our Republican President announce that the auto bailout was a fait accompli? Here's what hasn't changed in two weeks: Nearly two-thirds of Americans are still reluctant to buy a car for an automaker in bankruptcy, meaning that bankruptcy would probably kill GM and Chrysler, because they can't survive cost cutting and restructuring while selling even fewer cars than now, when auto sales are down 25-30 percent from 2007.
A new national poll Monday finds a majority of Americans approve of recent loans to big U.S. automakers, but less than 3 in 10 would support additional assistance.
Sixty-three percent of those questioned in a CNN/Opinion Research Corp. survey support the White House loaning more than $13 billion to American automakers Chrysler and General Motors, while 37 percent opposed the move.
In exchange for the loans, the deal calls for the auto companies to show by the end of March plans for viable new business models.
The poll numbers out Monday are drastically different from a similar poll from early December.
Sixty-one percent of those questioned in a CNN/Opinion Research Corp. survey out December 3 were against the federal government providing billions of dollars to the automakers, with 36 percent favoring such a bailout. Video: Watch why six in 10 support the bailout
Monday's poll shows 53 percent of Americans don't think government assistance for the automakers will help the U.S. economy.
But just 28 percent said they would approve providing the automakers with more money, while 70 percent said they would prefer to let them go bankrupt.
"The opposition to any additional assistance may be a reluctance to spend more money that they think the government may never see again," Holland added. "Only 28 percent say the auto companies involved in the current program will be able to pay all or most of the $13 billion back; one in five say they will not be able to pay any of it back to the government.
"This perceived lack of ability to pay taxpayers back may be one reason why the poll indicates auto executives are not very popular with Americans. Eighty-two percent of those questioned have a negative view of auto executives."
Union leaders don't fare well either: Sixty-one percent of those polled have a negative view of them.
Two-thirds of those polled said they would be less likely to buy a car from an auto company in bankruptcy.
The CNN/Opinion Research poll was conducted Friday through Sunday, with 1,013 adult Americans questioned by telephone. The survey's sampling error is plus or minus 3 percentage points.
Imagine if the automakers had been offered the same kind of government assistance as the banks. Detroit's Big Three would each get new government capital totaling many tens of billions to replace their lost equity, as well as government guarantees running into the hundreds of billions. And government, oddly, would ask almost nothing in return. There would be no "car czar" to supervise Detroit's management, no wage and benefit cuts for employees, no review of product lines, and no government-mandated restructuring plan. A pretty sweet deal.
But that's basically what the banks got. You might think that the banks had some friends in high places -- friends like Treasury Secretary Hank Paulson, former CEO of Goldman Sachs where Robert Rubin once was co-chairman; or Tim Geithner, president of the New York Federal Reserve Bank and treasury-secretary designate, a protégé of the same Robert Rubin who now is a senior executive of Citigroup.
The contrast between the proposed auto bailout and the bank bailout gives new meaning to the term "double standard." And the case of Citigroup is a very instructive place to begin.
Citigroup, once a trillion dollar behemoth, is one of America's largest three banks (the other two are JP Morgan Chase and Bank of America), and by any normal measure Citigroup is insolvent. Without the extraordinary infusions of government funds that Citigroup has received, it would be out of business.
Under the $750 billion bank bailout legislated by Congress at Paulson's urgent request, the initial idea was to buy up toxic securities clogging the balance sheets of banks, Paulson resisted the idea of giving the Treasury authority to aid the banks directly. In fact, the Democrats added this provision to the emergency law over Paulson's objection. Paulson, however, soon found that his half-baked plan to take securities off the banks' hands was unworkable. So he quickly reverted to the direct aid that he had opposed.
Citigroup got an initial $20 billion; then when its collapse seemed imminent it got another $25 billion in late November. Its stock price, which had been hammered, briefly doubled. The idea behind the bailout was to enable banks to resume normal lending, but so far the main beneficiaries have been bank stockholders and executives. In addition, Citigroup got another $306 billion in guarantees of those toxic securities. If they turn out to be worthless, the taxpayer pays.
What did the taxpayer get in return? Precious little. Citigroup has temporarily suspended paying dividends, and its executive compensation plan must be reviewed and approved by the Treasury. But there is no across-the-board pay cutting, no talk of top management giving up perks or working for a dollar a year, no government seats on Citigroup's board. And the Treasury is startlingly incurious about how Citigroup is running its business. There is to be no comprehensive review or restructuring along the lines of what is in store for automakers.
Citigroup will probably be back for more aid. But few commentators have been asking the question that is so widely posed when it comes to the auto industry: What if Citigroup went bust?
It would be a calamity if Citigroup just collapsed, the way the smaller Lehman Brothers did in September, triggering the stock market crash. But if the government were to conclude that Citigroup was insolvent rather than just throwing money at it, and sold off its healthy pieces to other banks while disposing of its devalued securities, the real world consequences would be fairly minor. Mainly, Citigroup's shareholders would be wiped out, but they have already lost most of their investment.
Indeed, one could make a good case that the effects of the auto industry collapsing would be far more serious than the orderly liquidation of Citigroup. In the case of Citigroup, other banks would simply pick up the business. But the auto industry is one of the two linchpins of American manufacturing, the other being aerospace. The spillover consequences to the economies of several states would be immense.
So why is the government indiscriminately throwing money at Citigroup while it is putting the auto industry through the wringer for a far smaller sum? The answer is that Wall Street enjoys far more political influence than any manufacturing industry. And as a consequence of that outsized influence, politicians, especially the crew currently running the Treasury (who come from Wall Street and will return to it), are largely passive when comes to insisting on changes in bank's business as usual. By contrast, most politicians will not give aid to automakers without a good hard look under the hood.
This saga suggests two policy conclusions. First, there needs to a single standard for all industries getting government aid, with plenty of accountability. Deciding just to let these wounded industries collapse may seem smart on the Wall Street Journal editorial page (which has now been proven utterly wrong in its extreme faith in markets) but it would be a disaster for the real economy. However with taxpayer aid must come greater accountability.
And that leads to the second conclusion. It's time for some serious public institution building. The Treasury has neither the will nor the competence to closely monitor and restructure Citigroup and other large banks now getting emergency aid because of the misfeasance of their executives. Not does the government have the capacity to help Detroit restructure the auto industry (An ad hoc "car czar" just won't do it, any more than Hank Paulson's ad hoc bank ubailouts have done it.)
We need something like the Reconstruction Finance Corporation of the 1930s, which did not just put money into failing corporations and banks, but actively managed turnarounds. And this, gentle reader, takes us into the long-forbidden territory of industrial policy -- a concept that both Republicans and Democrats, for thirty years, have been dismissing as a sin against free markets. How could the government possibly know enough to "pick winners"? That was the job of the free market, so the argument went.
Thanks to the general hostility to industrial policy, we have lost one industry after another and sent others offshore. And we are losing competitive races in industries like renewable energy where American technology was once the pioneer. Many of America's success stories, like aerospace and biotech and the internet, have in fact been the result of unacknowledged industrial policies; spinoffs of defense spending or biomedical research. These government policies did not pick winners; they created winners. But that result had to be incidental, because it was ideologically forbidden for industrial success to be the goal.
Lately the free market has been picking losers, big time. Worse, it has been creating losers, often out of once-sound enterprises. And the much maligned government has been picking winners. Actually it has been picking survivors in a helter-skelter process of triage, ever since Paulson and Fed Chairman Ben Bernanke began their spree of emergency interventions in the summer of 2007.
Bear Stearns going down the tubes? Yes, let that one live, but with a shotgun merger. Here's $29 billion. Lehman Brothers? Absolutely not, time to draw the line. Oops, better save A.I.G. before it takes the whole economy down Here's another $85 billion. Better make that $135 billion. Citigroup? Whatever it takes.
The problem is not that government, in an emergency, is picking winners. With the economy tottering on the edge of a depression, there's no good alternative. The problem is that Paulson and company, who do not really believe in government, have been doing a lousy job at it.
The new Obama administration has to create a lot of government capacity and competence if it is to save the private sector from its self-inflicted wounds. And it needs a single standard.
A bankruptcy filing by General Motors Corp. or Chrysler LLC might send the U.S. economy into chaos within weeks if it led to a shutdown at the companies.
Industry experts and economists say the automakers would close plants, fire tens of thousands of workers and cut production. That would cause many of their suppliers to collapse, triggering more job losses, straining the cities and states where the car and parts companies operate, as well as federal safety-net programs.
It would also deliver another psychological blow to consumers and a major shock to Main Street following the crises on Wall Street.
"The auto industry is a key element in the economy," said Bob Schnorbus, chief economist at J.D. Power & Associates in Troy, Michigan. "Anything that disrupts it is going to slow the economy down more than we have already seen."
Economists say it's difficult to estimate the full impact, given the large number of possible scenarios. The outcome hinges on which companies filed for bankruptcy and when, and whether they would be able to continue building cars and trucks while in reorganization -- assuming they don't go into liquidation.
"It would be unprecedented," says Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut. "So it's hard to say exactly what would happen."
'Cascade of Failures'
Still, a GM or Chrysler bankruptcy "would be the start of a cascade of failures," says Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Michigan. "The economy will be in chaos within weeks."
The Bush administration said today it will consider using money from the $700 billion bank-bailout fund to prevent GM and Chrysler from "collapsing." On Dec. 11, the Senate rejected a short-term aid package for the two automakers.
The effect of a bankruptcy on growth would be significant, although economists say it won't be as great as in decades past. Gross domestic product fell at a 4.2 percent annual pace in the fourth quarter of 1970 -- when, like today, the U.S. was in a recession -- following a 67-day nationwide strike against GM. Today, auto production accounts for only about 3 percent of GDP, Stanley says.
"It would obviously be a sizeable jolt to the economy," he says. "But the sector is not as important as it was."
Even so, statistics from the Center for Automotive Research in Ann Arbor show 239,000 people work in the U.S. for GM, Chrysler and Ford Motor Co. The center, which does research for the auto companies, estimates total job losses would reach 2.5 million if GM failed and 3.5 million if all three auto companies went out of business in 2009.
Retail Impact
That includes 1.4 million people in industries such as retailing that aren't directly tied to manufacturing. Economists say each manufacturing job is responsible for an additional six jobs outside the industry.
Many analysts say the Center for Automotive Research totals are exaggerated. The actual number of losses would depend on whether Americans keep buying cars and trucks. While a Chapter 11 bankruptcy would allow the automakers to continue making vehicles while they restructure, GM, Ford and Chrysler have argued deliveries would drop precipitously as customers balked at buying anything made by a company that might not be around to fix it.
U.S. auto sales plunged 37 percent in November to a seasonally adjusted annual rate of 10.2 million -- the lowest level in 26 years, according to Autodata Corp. in Woodcliff Lake, New Jersey -- compared with 16.1 million a year earlier and 10.6 million in October.
Closing Dealerships
Dealerships are already feeling the pinch. The National Automobile Dealers Association, a trade group based in McLean, Virginia, estimates that even without an automaker bankruptcy, 900 dealers will close this year and 1,100 next year, most of them GM, Ford and Chrysler franchises. The association says the three companies have more than 13,000 dealers nationwide, employing more than 700,000 workers.
The ripples of failure would also spread quickly to auto- parts makers. "There's a fairly large number of suppliers out there very squeezed on cash right now," says Jim Gillette, director of supplier analysis for CSM Worldwide, an automotive consulting firm in Northville, Michigan. "Vehicle volumes are so low, regardless of a bailout, that suppliers are still in trouble."
Production Problems
Because many of these business work for all three companies, widespread closures would lead to production problems at Ford, even if it didn't file for bankruptcy protection, officials at the No. 2 U.S. car company have said.
Parts makers including American Axle & Manufacturing Holdings Inc. and brake and powertrain-system makers ArvinMeritor Inc. and Hayes Lemmerz International Inc. employ 526,000 workers, according to U.S. Labor Department statistics, down more than 300,000 since 2000. Gillette predicts another fifth of them will lose their jobs in the coming year even if the automakers get bridge loans.
That will mean higher unemployment costs for states, which pay an average of $279 a week for benefits for 26 weeks, according to Jennifer Kaplan, a Labor Department economist. The payments can last as long as 39 weeks in some states, including Ohio, where GM has more than 11,000 employees, according to the company's Web site. The jobless rate there was 7.2 percent in September.
[Let's say only 1 million people lose their jobs and collect $279 unemployment benefits for 26 weeks: that's $7.2 billion in gov't spending. This is not to mention lost tax revenue from their wages. If 2.5 million people lose their jobs and collect unemployment, the cost to government would be at least $18.1 billion, not to mention the lost tax revenue from wages. Still think a $15 billion loan is a bad deal for taxpayers? - J]
Retiree Pensions
Hundreds of thousands of auto retirees who depend on the companies for pensions and health insurance would also be affected. Bankruptcy could throw them into federal government programs -- including the Pension Benefit Guaranty Corporation and Medicare -- just when rescue packages and government market actions are ballooning the federal budget.
The effect would be multiplied by an estimated decline in tax revenue for federal, state and local governments of $108.1 billion over three years if the U.S. automakers' operations were cut by 50 percent, the Center for Automotive Research says.
A collapse would quickly spread to financial markets, said Eric Selle, an automotive-credit analyst at JPMorgan Chase & Co. in a research report last month. GM, Ford, Chrysler and their credit operations comprise 10 percent of the high-yield bond market, he said, and any failure would have major implications for credit-default swaps, asset-backed securities and commercial paper. It would be "the credit crisis, part II," he said.
Federal Reserve Chairman Ben S. Bernanke signaled less concern about the potential impact for the bond market in a Dec. 5 letter to Senate Banking Committee Chairman Christopher Dodd.
Losses Recognized
The automakers' bonds "already trade at 20 to 40 percent of par value, suggesting that many of the losses that would be associated with a default have probably already been recognized," he said.
Even if the automakers get loans to continue operations, the economy is going to take a hit. All three companies have promised to cut workers and close plants as a condition of receiving aid. And today, General Motors said it will close 30 plants for at least part of the first quarter, cutting production by 250,000 vehicles. Honda Motor Co. said it will eliminate 119,000 vehicles from its North American production plan.
That means "suppliers are going to go under in the next few months, even if a bridge loan comes in," Gillette says. "The only solution is to sell more cars."
Over $30 billion in lost taxes and increased public spending in 2009 if the Big 3 decreases its operations by only 50%. And Republicans in the Senate are balking at a $15 billion loan. They have forgotten not only the public interest, but also simple math.
The Big Three automakers' troubles are wreaking havoc on state and local budgets far beyond the Rust Belt. And a collapse of even one of Detroit's car manufacturers would hit governments while they are down.
States and cities around the nation are already slashing budgets and services as the deepening economic downturn shrinks their coffers. To close their budget gaps, governments are cutting public health programs, reducing aid to public school and universities, and laying off workers.
Problems in the auto industry are only exacerbating this turmoil. Not only have nearly 800,000 people lost car-related jobs this year, accounting for 40% of the increase in unemployment, but auto sales are at a 26-year low and at least 660 dealerships have closed their doors.
This means state and local governments are collecting less in personal income taxes, corporate business taxes and sales taxes -- all critical to funding their operations. State tax revenue fell 2.6%, when adjusted for inflation, in the third quarter, according to preliminary figures from the Rockefeller Institute of Government.
"If we see a significant falloff in employment and a continued decline in auto sales, the states are really going to see it and feel it," said Scott Pattison, executive director of the National Association of State Budget Officers. "It just hits so many sources of revenue."
Collapse would hit states hard
Any additional weakening of the auto industry would further reduce government revenues, while increasing the amount the public sector has to lay out for unemployment benefits, welfare and Medicaid, experts said.
A 50% reduction in the Big Three's domestic operations, for instance, would result in 2.5 million people losing their jobs, according to the Center for Automotive Research. That would drain $20.5 billion in personal income taxes at the federal, state and local levels in 2009, while forcing the public sector to spend an additional $11.9 billion in benefits.
[Gee, by comparison a $15 billion loan doesn't seem like such a bad deal, does it? -- J]
Every state would feel the impact. Even if only GM, the most troubled of the automakers, shut down, 914,000 jobs would be lost nationwide, according to the Economic Policy Institute. This includes people who work in the plants, in auto suppliers and in businesses that support the industry, such as nearby restaurants and shops.
Of course, Michigan, Indiana and Ohio would be among the hardest hit, losing 2.5%, 1.4% and 1.1% of each state's total employment, respectively, the institute found. But all would see some decline in jobs, with Alabama losing 1.1% of its state workforce and New Hampshire shedding 0.6%.
"When people lose their jobs, it has a disproportionate effect on the tax base because these are good jobs with good wages," said Robert E. Scott, senior international economist at the Economic Policy Institute. "The demand for services goes up, while tax revenue goes down. It's a real recipe for disaster for state and local governments."
The slowdown in consumer demand for cars is also putting a crimp in state budgets. Americans bought 37% fewer cars in November than they did a year earlier, government figures show.
Though precise figures are difficult to come by, this big-ticket item accounts for about 12% to 15% of sales tax revenues in many states, estimates the Center on Budget and Policy Priorities.
Alabama, for one, has seen a 10.6% decline in sales taxes from car purchases for fiscal year 2008, which ended Sept. 30, according to state officials. Gov. Bob Riley is expected next week to announce how he will close a looming budget deficit, which the Center for Budget and Policy Priorities estimates is at $458 million, or 5.5% of the general fund.
Americans have bailout fatigue after the greatest bait-and-switch scam in history was pulled on them with the Wall Street bailout. But the economic crisis and plummeting demand for cars are affecting the Big 3, too, and their current crisis might not have happened if it weren't for Wall Street's crisis. Refusing to give Detroit a loan now is like kicking a man when he's down.
"We wouldn't be here if it weren't for GM," said Sen. Bob Corker, R-Tenn., at hearings last week on the automotive bailout. Sorry, make that the automotive bridge loan -- as Detroit prefers to call it.
Corker was right. Chrysler is too small to be worth bailing out on its own. Ford Motor thinks it can survive the coming year without aid. But General Motors accounts for more than one-fifth of the U.S. car market, and it announced in early December that it was within weeks of bankruptcy.
Does a bridge make sense? That depends on what you're trying to span. Many Democrats would settle for a short-term bridge to a healthier economy, on the theory that rescuing Detroit now will be easier and cheaper than picking up the pieces later. Many Republicans, by contrast, want a long-term bridge to a viable GM, on the theory that taxpayers' money will otherwise have gone to waste.
The latter view would have been more justifiable a year ago than today. What if, as some credible economists believe, the economy is on the brink of a deflationary tailspin? In that case, now would be a particularly bad moment to consign GM to the scrap heap.
Maybe GM could enter bankruptcy protection under Chapter 11, restructure, and emerge stronger. But maybe not. If customers and creditors fled, bankruptcy protection might quickly bring about GM's collapse. "I think it is very risky," says Maryann Keller, a respected automotive analyst. A few years ago, in a stronger economy, the industry might have absorbed a body blow, but if GM were liquidated today, Keller says, it would take down much of the supplier base. Then the failure "spreads out all over the place."
The ranks of line executives and engineers are thick with members of the Obama generation, who barely remember when GM was fat and happy.
Last year, auto sales came in at about 16 million units, which was already low. This year's sales are running at closer to 10 million, which is a collapse, not a decline. Unless millions of Americans have suddenly decided to exchange cars for bicycles, sooner or later demand will return to something more like normal. At that point, GM might stabilize, or the economy might be able to absorb its loss. Even if all a bailout did was buy time, an extra year or two might be cheap at the price.
Still, for purposes of argument, grant the premise that buying time isn't enough. Assume that a bailout needs to buy long-term viability, not just short-term relief. What bailout critics are really asking boils down to this: Is there a business case for GM? They suspect that the answer is no.
I am no automotive expert, but I did spend a good portion of the past year immersed in General Motors. I was reporting a story for The Atlantic, a sister publication of National Journal, on the Chevy Volt, GM's ambitious effort to roll out a plug-in electric car by the end of 2010. Much of my exposure was to the engineering side of the company, and only a slice of it at that; but along the way I talked to senior executives and learned quite a bit about the company's culture and position. What I saw surprised me.
GM is a century old this year. It is large, bureaucratic, and encumbered by a variety of brands, dealers, labor contracts, and bad habits that no company would want to start out with today. Ironically, its problems were forecast with eerie accuracy 45 years ago by no less an authority than Alfred P. Sloan Jr., GM's greatest CEO. In My Years With General Motors, Sloan wrote:
"Success, however, may bring self-satisfaction.... The spirit of venture is lost in the inertia of the mind against change. When such influences develop, growth may be arrested or a decline may set in, caused by the failure to recognize advancing technology or altered consumer needs, or perhaps by competition that is more virile and aggressive.... This is the greatest challenge to be met by the leader of an industry. It is a challenge to be met by the General Motors of the future."
Few major companies survive a hundred years, much less manage to reinvent themselves as centenarians. Skeptics may be right to predict that GM will fail. But I think GM has a shot.
To be viable, GM needs four things: competitive cars, a competitive business culture, a viable balance sheet, and a viable business plan. The first is the sine qua non. GM's seeming inability to build good cars profitably for most of three decades has mauled its reputation.
In the car business, however, reputations lag reality. Today, GM's factories are only about 6 percent less efficient than Toyota's, according to Oliver Wyman, a consulting firm, and the remaining gap will shrink as new labor agreements kick in. The company's cars are winning awards and critical plaudits. The 2008 Chevy Malibu, a hit with both buyers and analysts, represents a breakthrough: a midsize sedan that can go toe-to-toe with Toyota's ubiquitous Camry without flinching. Whether GM can consistently replicate the Malibu and other recent successes remains to be seen, but the vehicles in the pipeline look promising.
GM has practically begged for a strong federal overseer with the power to force unions, dealers, and creditors to accept further retrenchment.
GM's culture was for decades synonymous with ingrown complacency. The divisions competed with each other, instead of with the best of the competition. One engineer told me how "blown away" he and others at Cadillac were by the arrival of the first Toyota Lexus 20 years ago: "There was nothing in that car that was new technology. It was just good execution of existing technology." In other words, GM could have designed as good a car but didn't.
What I found this year was a far cry from complacency. The ranks of line executives and engineers are thick with members of the Obama generation, who barely remember when GM was fat and happy. They are hungry to change the beleaguered company and prove its critics wrong. They are also piercingly critical of the old GM, candid to the point of eagerness in owning up to and analyzing the company's mistakes and faults. The decades of denial are over.
To succeed they will need a healthy balance sheet. Here, the problems are with legacy costs: uncompetitive pensions and benefits, rigid labor contracts, too many brands and dealers, and so on. The good news is that the company has succeeded at reducing its structural costs. It has shed more than 40 percent of its jobs and about 1,000 dealers since 2004; negotiated fully competitive wage scales for new hires; extinguished the Oldsmobile brand; and transferred retirement and health costs to its unions. The bad news is that those changes were sufficient only if everything went right economically.
In its rescue proposal to Congress, GM practically begged for a strong federal overseer with the power to force unions, dealers, and creditors to accept further retrenchment. GM wants the stick of a bankruptcy-like arrangement without the stigma of the real thing. In principle, a federal bailout could give GM a hard push into the future by wrenching its balance sheet into alignment with reality.
Whether that would ultimately work depends on whether you think that GM has a plausible business plan. The answer depends on which GM you're talking about.
One General Motors, of course, is the hidebound metal-bashing giant of yore. This GM is parochially American in its style and outlook, midtech in its engineering and design capabilities, wedded to the internal combustion engine, and multinational and multidivisional but incapable of exploiting global economies of scale. This GM would do things like import thoroughbred designs from its European Opel division for sale in the U.S., only to let the Detroit bureaucracy rework them into overpriced dogs.
The other GM is quite different. It is genuinely global, with executive talent that comfortably traverses borders (the Volt project manager and head battery engineer are both German, for instance) and with cars that are designed in Australia, Germany, and South Korea for cross-market manufacture and sale. It is aggressively positioning itself to lead the industry's expected breakout into electrification. Surprisingly, GM's executives see electric drive not as a threat but as an opportunity. They think the company's technological depth, global reach, and long experience with electric cars (dating back 20 years) give GM a competitive advantage for a task as daunting and costly as the reinvention of the automobile.
The business plan, then, is to gradually replace the multinational internal combustion company with a global electric drive company, leaping from midtech to high-tech and turning GM's sprawling size to advantage. This, and not just short-term solvency, was presumably what Rick Wagoner, the chairman and CEO, had in mind when he told Congress last week that GM's rescue plan "creates a blueprint for a new General Motors."
Whether a bailout can save GM depends, then, on which GM you think you're bailing out, the calcified shell of the old GM or the new-economy company struggling to emerge. Given the record, counting on GM to succeed would be rash. But consigning it to fail might be even more so.
Polls show most Americans don't want Uncle Sam to help the Big Three and I couldn't care less.
They're wrong, plain and simple, but it's not entirely their fault. The amount of misinformation floating out there on ye olde information superhighway and from TV anchors who should know better is staggering.
Certainly there's a bit of bailout fatigue. The $15 billion bridge loan that cleared the U.S. House on Wednesday is a lot of money. Senate Republicans slayed it Thursday and the deal looks dead.
This would be utterly devastating for the U.S. economy - not just Michigan's.
Now would be the perfect time for U.S. Sen. John McCain, R-Ariz., to be the statesman he is and end this political brinksmanship rooted in deep-seated denial of financial reality. He got hammered this fall for suspending his campaign to push for the $700 billion Wall Street bailout. No one could accuse him of playing politics now; this would simply be bold action for the good of the country.
The fact is, letting just two of the three domestic automakers go bankrupt means the death of 1.8 million jobs in just the first year alone.
Still don't care? Won't affect me or my state?
Try this. Taxpayers will see $66 million swirl down the drain in two years if just two of the companies go bankrupt. Bye-bye tax revenue; hello unemployment insurance.
The cost of bankruptcy is more than four times what the autos could get from the feds, according to a report by the Anderson Economic Group. CEO Patrick Anderson is a staunch fiscal conservative, so it's striking that he's not arguing that the free market should be allowed to work here.
The reality is, the more economically prudent solution is the bridge loan. Every taxpayer in America should be treated to a copy of this report.
Unfortunately, this won't stop the Big Three bashing because it's too much fun. What we have is an axis of ignorance of far-out environmentalists and free-market Republicans.
The left whines that Detroit's gas-guzzling dinosaurs rape the planet and there's karma in letting them wheeze out their last breath. Their greedy CEOs sucking up $20 million bonuses are the living symbols of what's wrong with capitalism.
Yeah, not very powerful stuff. That's why this hasn't really gained traction and even big-time liberals like U.S. House Speaker Nancy Pelosi are willing to lend Motown a hand.
The right, however, is scoring big with its version of economic nihilism run amok. It's the unions' fault, of course, and even reputable media are selling the falsehood that workers make $70 per hour. The New Republic has nicely debunked this myth and you'll notice that conservatives in Michigan, no matter how anti-union, haven't jumped on this bandwagon.
U.S. Sen. David Vitter, the Louisianan best known for using the services of the D.C. Madam, this week derided the bridge loan as being "ass-backwards" in a rambling speech that proved he knows a lot more about hookers than economics.
Southern Republicans smugly brag that their foreign plants will flourish if the domestic autos combust. Yeah, here's the problem. When auto suppliers start croaking - and they will - Honda, Volkswagen and Toyota will bleed, even more than they are now.
By the way, Japan, China and Germany haven't had any problem bailing out their automakers. Kind of an unfair disadvantage, don't you think?
Both sides agree that the Big Three got too fat and happy (true) and churned out cars people didn't want to buy (also true, but now even Toyota's sales plummeted 32 percent last month). Why? The credit crunch, which has pushed the Big Three to the brink, just as they were making the labor and technology overhauls they need to thrive.
Peel away the political spin, and that's the real cause of the current crisis.
But when economics get too complex, there's always the shorthand of blasting the Big Three titans for their nasty corporate jet habit.
There's a disingenuous double standard at work. The bridge loan pales in comparison to the tens of billions of dollars the feds have thrown at financial institutions like AIG and Citigroup. Their executives somehow escaped begging on Capitol Hill but the Big Three's humiliation (twice) provided hours of entertainment on C-SPAN.
At this point, the Big Three need a Christmas miracle. This is not a regional issue, but it's looking like Michiganders need to lead the way - and not just at the federal level.
Gov. Jennifer Granholm; Senate Majority Mike Bishop, R-Rochester; and House Speaker Andy Dillon, D-Redford Township, should be holding daily joint press conferences on the car crisis.
There are still some Mitten Staters who believe that Ford, GM and Chrysler are getting what they deserve and the rest of us will somehow be hunky-dory. They need to hear a strong bipartisan counterpoint to the dead-enders.
Letting the Big Three die isn't just cutting off our nose to spite our face. It would be a decapitation.
By Tom Walsh December 12, 2008 | Detroit Free Press
When Hurricane Katrina slammed into Louisiana and Alabama on Aug. 29, 2005, the automobile companies of Detroit did not harrumph that the gulf coast should have been better prepared.
They didn't sit back and wait for New Orleans to submit a detailed plan for future repair of the ruptured levees.
General Motors Corp., on Aug. 30, donated $400,000 to the American Red Cross 2005 Hurricane Relief Fund, pledged to match up to $250,000 more in employee contributions, and sent more than 150 vehicles to the stricken area for use in relief work.
Ford Motor Co. and the UAW quickly made a joint donation of $100,000 to the Red Cross. The Chrysler Group gave $150,000 to the Red Cross and $200,000 to local New Orleans charities. DaimlerChrysler Services chipped in $200,000 for the Red Cross and pledged to match employee donations up to $50,000.
The three Detroit auto companies together gave more than $18 million in cash and vehicles to the Katrina relief effort in the ensuing months. No strings attached.
The U.S. Senate's most adamant naysayers about whether Detroit deserves rescue loans should have thought about that before now. It might have made Thursday's futile wrangling over a compromise to get $14 billion in emergency rescue loans for GM and Chrysler a bit less tortuous.
U.S. Sen. David Vitter, R-La., for one, might have dialed down his earlier rhetoric.
Vitter said Wednesday that he plans to vote against the rescue because, in his words, it is "ass-backwards" to give money to the distressed companies before Congress sees more detailed survival plans.
Sen. Richard Shelby, R-Ala., should think about Hurricane Katrina, too. He has threatened a filibuster against the bill, calling it "a bridge loan to nowhere" and stating that Detroit's automakers should undergo a fundamental restructuring before they ask Congress for money.
None of the logical arguments made by, or on behalf of, Detroit's auto industry seem to resonate with certain congressional critics.
Not the fact that GM, Ford and Chrysler have slashed billions of dollars in costs. Not the fact that they have the nation's top-selling pickups and minivans. Not the fact that they have lots of high-mileage vehicles and more on the way. Not the fact an auto company bankruptcy would have a horrible ripple effect, wiping out scores of suppliers and making hundreds of thousands more U.S. workers jobless.
No, to the most adamant auto-rescue opponents in the Senate, Detroit doesn't make cars people want. It's a dinosaur not worth preserving.
Could the opinions of these senators be colored by the fact that the foreign-owned plants of Toyota, Honda, Hyundai, Kia, BMW, Nissan and Volkswagen -- which compete with the Detroit Three -- are located in their states?
Nah, let's not even go there.
Let's just say that since logic hasn't worked, we should fall back on a simple moral argument.
If you see a fellow American is drowning, gasping for air, do you quiz him for a while about whether he's drunk or why he never learned to swim better? Or do you throw him a life buoy and ask questions later?
That, it seems to me, is where we are with America's car companies.
You have done nothing and failed them, senators.
So now it's up to President George W. Bush and Treasury Secretary Hank Paulson to, hopefully, rush in with emergency aid from the $700-billion Troubled Assets Relief Program.
They could still hold the Detroit Three's feet to the fire afterward, empowering a strong auto czar to bring all stakeholders together to forge business models for these companies that can withstand future shocks.
