Harsh words from Senator Richard C. Shelby of Alabama, "the senior Republican on the banking committee, [who] said he would not support legislation to aid the auto companies and seemed prepared to let one or all of them collapse."
Representative Jeb Hensarling of Texas, chairman of the conservative Republican Study Committee [said]... “They are producing high-cost products that consumers don’t want to buy. And so now we have Washington on the verge of giving them a bailout simply because we have all heard of them and they have high-priced lobbyists."Fortunately, it looks as though there will be no auto company bailout. At least not until Obama and the new Congress take over.
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57 comments:
"Fortunately, it looks as though there will be no auto company bailout. At least not until Obama and the new Congress take over."
A whole two months to wait - it's a good job that Detroit's problems aren't a result of intractable structural problems rather than transient market conditions! They should be in good shape by January 4th. ;)
Let them die. Then the stranglehold that the UAW has on them will die as well.
The new Ford Renegade,
the GM Renaissance,
and I forget, what's the third of the Big Three again?
Sales are way way down. Even a well-run company would be underwater. It is curious the Japanese car companies are not crying; I wonder if the Japanese govt quietly lent them money?
Our guvmint should set up an FDIC-type program that insures a portion of every auto loan. That would increase the price of the average car for the car-buyer but it would increase car sales volume by loosening credit.
Republicans find principles. Meanwhile, they've been blocking CAFE standards for decades, which would have pushed American car companies to compete better. Like the man said -- the financial straits are not the product of our current economic downturn.
Snark aside, 50% higher labor costs aren't good either.
I agree with simon; watch the Detroit bailout make a big comeback in early 2009. And watch the narrative being established for raising taxes to pay for all this stuff, too.
Daniel,
Detroit's problems aren't because the government didn't raise CAFE standards. Most people like good mileage, and the Big 3 have been working on improving mileage. But they also saw people buying SUVs with huge profit margins and followed that market to their demise.
Regulation isn't a replacement for bad management.
Meanwhile, they've been blocking CAFE standards for decades, which would have pushed American car companies to compete better.
Most of the profits that the Big Three were making were on trucks (light and otherwise) and SUVs. As you yourself point out, their labor costs are 50% higher. That pretty much forces them to go for high margin cars with US produced cars-- and high margin cars are low mileage cars.
They produce fine high mileage cars in factories in Europe and Asia (where their labor costs are lower), but they can't import those either and count them for CAFE since CAFE distinguishes between domestically produced and foreign produced fleets of manufacturers.
Increasing CAFE standards would only have made them go bankrupt faster, unless CAFE standards were increased in a blatantly discriminatory way that only affected the non-US companies. You can't lose money on every car made and make it up in volume, and the Big Three will lose money on every small car made in the USA so long as their labor costs are what they are.
It is curious the Japanese car companies are not crying; I wonder if the Japanese govt quietly lent them money?
Japanese car companies are all making less money, but unlike the Big Three they're generally able to sell a car for more than it costs them to build it.
Meanwhile, they've been blocking CAFE standards for decades, which would have pushed American car companies to compete better.
I just don't understand this reasoning. Was GM incapable of making more efficient cars without higher CAFE standards? If so, how does simply changing the standards change their capabilities? Is the assumption here that Washington knows better than Detroit what kinds of cars people actually want?
The UAW has something of an overripe odor not dissimilar to the present incarnation of the GOP.
The Republicans are making little yipping sounds against the overhaul (after how many days?) of TARP and now this handout to Michigan. Good for them! Keep it up and you might win an election!
IMO the real reason for the bailout is union workers and their dues, which largely go to Democrats.
Michigan ought to go Thatcher Cold Turkey and learn how to be a capitalist economy again.
There's not much neutrality, cruel or otherwise in most of your posts.
Time to revamp the text in your header.
Republicans find principles. Meanwhile, they've been blocking CAFE standards for decades, which would have pushed American car companies to compete better.
Why is it the government's job to push car companies to compete better? (Even if your premise that it could do so were true.)
Parts for cars are almost uniformly equal between the big three, Honda and Toyota.
BUT
Honda and Toyota are non-union... at least until card-check becomes the law of the land. Then all domestic automakers will be swimming in the red ink.
At which time, the Japanese will close their plants and go home or south to Mexico.
Fortunately, it looks as though there will be no auto company bailout.
I sure as hell hope not. What a waste of money that would be!
The good news is that the Congressional Republicans are mostly immune to that "we bailed out the banks, why not the car companies" nonsense the lefties are pushing -- simply because they were hostile to bailing out the banks, too.
They were probably WRONG to oppose bailing out the banks, but it does give them the ability to appear consistent. Most Americans aren't bright enough to figure out why we need banks more than we need General Motors.
Shelby's Alabama has factories by Honda, Hyundai, and Mercedes-Benz.
The question that begs asked is: Why are Ford and GM products that are built in Brazil, Mexico and Asia profitable?
Same car - lower cost to build.
It's like we watched England become addicted to heroin, saw how he grew thin and weak, and was entirely enslaved by it, and said, Hey gimme summa that!.
It is inarguable that capitalism has been the only method by which the ranks of the wretchedly poor have been reduced. Socialist efforts have failed every single time. On occasion, even ardent anti-capitalists have acknowledged its superiority. But mostly socialists engage the wonders of free markets clandestinely, in an unacknowledge black market, or through perestroika-type bullshit 'reforms'; their secret shame.
And now America stands ready to take a giant swig of that powerful elixir that disables half of those who partake, and kills the rest. We think that this time we'll get it right, we'll drink just a little every day. Just a little.
And we are convinced we will do well, despite all of history pointing the other way.
Me? When health care gets effectively nationalized (eaten away from the edges, first by Medicare, soon by SCHIP expansion), I will be the first to push a physician's union, which will be great for MDs, not so much for you. We will strike or have work slowdowns when we want more money. We will be the UAW of health care. And the result will be as wonderful for medicine as it was for cars.
Enjoy.
Methadras said...
Let them die. Then the stranglehold that the UAW has on them will die as well
It is difficult to determine the weight to give various factors in the current financial straits of U.S. auto industry. Obviously, the rise of foreign competition has played a role. Many pubs like to use the problems facing the auto industry as an opportunity to bash unions (see methadras as an eg), however I am not sure that is the necessary and sufficient reason for the industries problems, although it bears some responsibility. Certainly, corporate leadership problems and government regulation may also play a role. However, we must also remember that our major competitor, the Japanese Automakers, don't have the financial responsibility for paying healthcare costs, since Japan has nationalized healthcare for at least forty years.....Healthcare costs in the U.S. have escalated faster than any other segment of the economy and our healthcare system is the costliest in the world. Of course, you won't ever hear the pubs or fox news business gurus ever share this piece of info with the public. The problems are complex and interconnected and playing politics and adherence to fictional economic or political theorizing at the expense of an empirical, comprehensive, and cold blooded analysis will only worsen our economic woes.
"Japanese Automakers, don't have the financial responsibility for paying healthcare costs, since Japan has nationalized healthcare for at least forty years"
Not quite. Japan has a system of compulsory universal health coverage, divided into two broad categories: National Health Insurance and Employees’ Health Insurance.
Employee Health Insurance covers people who are working for the government, schools, or medium to large companies. Employees of small businesses are under a different government-managed program.
”Premiums are based on monthly salary; half is paid by the employer, half by the employee. The average contribution is around 4% of the person’s salary. Those covered under Employee Health Insurance pay 20% of their medical costs when hospitalized and 30% of the costs for out-patient care. Co-payments may also be required for prescription drugs. Costs are shared by the patients up to a certain ceiling, after which they receive full coverage
…National Health Insurance covers workers in agriculture, forestry, or fisheries, those that are self-employed, and those not employed (including expectant mothers, students,
retirees, etc).”
So Toyota or Honda do well as companies, but Japan does poorly as a nation.
Now why might that be?
Perhaps someone knowledgable can answer this question...how are the health care costs handled for the US workers in Honda and Toyota plants? Is the reason those costs aren't yet onerous because the employees are relatively young and the companies are not yet dealing with retirement issues?
"Fortunately, it looks as though there will be no auto company bailout. At least not until Obama and the new Congress take over."
Yeah...those damn socialist Democrats!! How dare they give 50 billion to Detroit!!
Huzzah for the current Republican administration for giving 1 trillion+ to Wall Street...pure capitalism at its finest!!
The former UK Chancellor of the Exchequer says his country is headed for "meltdown."
The retired head of Goldman Sachs says this economic crisis will be worse than the Depression.
How long will it be before the bottom drops out of the stock market?
if the auto industry is going to follow academia's model with tenured employees and over generous pensions, then they'll need the equivalent of pell grants for cars and govt subsidized car loans too. otherwise they should run their business like a business.
However, we must also remember that our major competitor, the Japanese Automakers, don't have the financial responsibility for paying healthcare costs
Neither does Detroit. Their decision to offer gold-plated coverage even to Medicare-eligible pensioners was an unforced error; they were never compelled to do it.
The brilliant Republicans economic strategy. Lets see: Tell Autoworkers and the big 3 to drop dead. Deregulate the Banking industry and the GSE's. causing a financial meltdown. Then award $700 billion to Wall Street for their greed and incompetence.
Next, run up massive trade and budget deficits. Finally, support massive H-1 visa programs, outsourcing, open borders and illegal immigration so as to drive down wages.
Its a wonder any union members or anyone with a HH income of less than $50,000 votes Republican.
Anyone who thinks illegal immigration is a specifically Republican strategy, or that the problem with GSEs is that Barney Frank doesn't have enough control over them, has no business waxing sarcastic over anyone else's brilliance.
No bailout. Sink or swim. The unions have a big hand in killing the US auto industry. Hopefully they will sink.
RC--
The big problem is that no one anywhere knows how to stop what is happening.
If we had not done some of the financial company rescues, the entire global financial system might have collapsed.
In fact, it may still do that!
Money for the car companies will only put them on life support and delay the inevitable. And....even if the government were to do a $50 billion bailout today, the way things have been going, the car companies would be back in a month or two wanting another $50 billion.
Eerie is the word.
The issue is complex. While Big Three management is stupid and short-sighted, bankers are even stupider and more short-sighted, and we're bailing them out. One crappy firm, AIG, which by offshoring its profits evaded US taxes for years, has sopped up over 100 billion of taxpayer money with no end in sight.
CAFE standards eliminated the full size family sedan and wagon, which held six or nine people. But, families still needed to haul six or more people around: kids' carpool, or even the nuclear family taking Grandma and Grandpa out to dinner. CAFE standards did not apply to trucks or trucklets like the International Travelall, because they were used by people who needed them, like farmers, and their sales were relatively few in number.
Well, companies like Chrysler exploited that loophole with its Voyager, which held just as many people as the old family wagon. But note that Japanese companies like Honda and Mitsubishi quickly copied them. SUVs became popular, and again, Honda and Toyota, and even Mercedes, BMW, and, more weirdly Porsche, copied them. Americans wanted trucklets, not cars. Sometimes during my work commute, I would have the only car within sight, surrounded by SUVs, minivans, and pickups.
And these vehicles were highly profitable. For years, the Cadillac Escalade provided ten percent of the profits of the entire General Motors Corporation.
The UAW was strong into the 1980s, asking for more and more benefits each time the contract expired. The retirement age was lowered in the seventies, partly to provide good jobs to ghetto youth in reaction to the riots of the late sixties. To sweeten the deal, car companies promised the young retirees (30 and out!) with medical benefits till they became eligible for Medicare.
Since the 80s, the labor force has been slashed. But the overhead of retirees has not, although the Greatest Generation who worked for the Big Three during the boom years of the 50s and 60s are passing away rapidly.
In terms of health care costs, it is much cheaper to build cars in single-payer Canada than in the US. Thus Windsor plants will remain open while US plants will close.
"Regulation isn't a replacement for bad management."
Regulation can encourage better management.
"Increasing CAFE standards would only have made them go bankrupt faster."
This is an old canard. I trust companies to innovate within a regulatory scheme, to the extent that they're capable of innovating at all -- that's how capitalism works. And hypotheticals about when companies might have gone bankrupt is absurd when they are going bankrupt right now!
"Is the assumption here that Washington knows better than Detroit what kinds of cars people actually want?"
Well, Tokyo clearly know better than Detroit what kind of cars people actually want. The shift away from gas guzzlers has been coming for a long time. But Detroit was never interested, because they didn't want to cut into the short term profit margin.
"Why is it the government's job to push car companies to compete better?"
The government has a massive interest in supporting what remains of the manufacturing sector in the United States. Today's capitalism is not simply the unfettered procession of market forces. Government is an absolutely essential partner. To pretend otherwise is to create a straw man.
I'm going to end here by referring to the man who said it best. Alan Greenspan admitted that it was a mistake to think that banks operating in their self interest would be enough to protect the long term interest of their investors and stockholders. Detroit auto makers were not acting in their long term interests by holding desperately onto a clearly doomed profit model. They failed to innovate, and their government enablers failed to create a climate that would encourage them to innovate. Whether it was the absence of higher CAFE standards or some sort of market incentive, or even a different health care environment to help cut automaker costs, government helped Detroit fail. Seriously, who hasn't seen this coming for 10 years? Anyone?
Whether this means there should be a bailout is a different story. If there isn't a change to the business model, then a bailout is good money after bad.
Let them die?
Reminds me of the Reagan-era "let them freeze in the dark."
The working classes in Michigan and Ohio will be devastated if the Big 3 aren't bailed out. Thank god the financial classes in NYC won't be, eh?
This space and the Republicans look ugly form here in the Midwest. Guess that's why the electoral map turned out the way it did. Here's hoping we can keep our head above water until the end of January . . .
Pogo:
Thanks for the enlightenment!
best
In both the financial and auto markets I see an intractible problem. Companies become too big to fail. They can't be allowed to fail because of their impact on the rest of the economy. They can't be allowed to fail because congress can't take the heat of the subsequent dislocation.
I dismiss the idea of regulation because regulation kills competition. It increases start-up costs for new companies and locks in archaic business practices. It helps big companies get too big too fail.
I wonder if a simple cap on market ownership would work better than the incessant yank of government lawyers on our clumsy corporate giants.
So I'm thinking of one big regulation rather than a thousand small ones.
Meanwhile, they've been blocking CAFE standards for decades, which would have pushed American car companies to compete better.
I suppose you're right, because the CAFE standards had to be avoided by subterfuge in order to maintain profitability. Detroit doesn't make money on smaller cars that fit into a CAFE regime. So the big three either would've gone bankrupt sooner, or would've been forced to try to break the unions sooner. Or both.
But I don't think you meant your comment that way. I gather you think the CAFE standards were designed to make US automakers more competitive. This is, of course, laughable. CAFE standards are the most hypocritical way possible to deal with energy conservation, and therefore the least effective.
You want people to use less gas? Charge more for it. Tax it. Take that fight to the people and win it.
CAFE is such a cop-out. It is designed to hide the cost of becoming a more energy-efficient nation, so rising auto prices are blamed on the automakers, not the politicians. And it has loopholes like the "truck" designation for SUVs that renders it useless anyway. Close the loopholes you say? The Michigan Democrats would never allow that. That's what I mean by hypocrisy and wimpiness.
What about bailing out people who live in Brand Name Cities in spite of well-known, historic, likely-to-be-repeated ecological problems? New Orleans? (Hurricanes) San Francisco, Los Angeles, Hollywood, (Earthquakes)? Malibu (mudslides, wildfires) Galveston? Miami? Why should I pay so someone can live in a picturesque environment? I understand all your arguments about letting the US automakers fail. What about the construction workers, pharmacists, teachers, who live in Michigan because of family ties. Tough luck?
What about the construction workers, pharmacists, teachers, who live in Michigan because of family ties. Tough luck?
Bankrupty doesn't mean the big 3 evaporate. They go into receivership. They're still running. I'm not going to say the ripple effect won't be profound. But it shouldn't be overstated.
And it's not as if sticking to the unsustainable model for the past 40 years has prevented the closure of factories. Over the long haul, making the automakers more productive will have a positive effect on Michigan's economy. Bailing them out only delays what is inevitable. The world where automakers with double the labor costs of their competitors will thrive doesn't exist.
I trust companies to innovate within a regulatory scheme, to the extent that they're capable of innovating at all -- that's how capitalism works. And hypotheticals about when companies might have gone bankrupt is absurd when they are going bankrupt right now!
I also trust companies to go out of business if a regulatory scheme makes it impossible for them to make a profit.
Hypotheticals are not absurd when your recommendation of what to do right now is something that would push them farther into bankruptcy.
Well, Tokyo clearly know better than Detroit what kind of cars people actually want. The shift away from gas guzzlers has been coming for a long time. But Detroit was never interested, because they didn't want to cut into the short term profit margin.
Detroit produces and sells high mileage cars in Europe and Asia. They don't do it in the US. They don't even import those cars into the US, partially because it wouldn't help them with CAFE, which differentiates between domestic and imported fleet of the same manufacturer.
Detroit produces only gas guzzlers from their domestic UAW plants because those high-margin vehicles are the only ones that can possibly be profitable with that expensive labor. You can pay your labor 50% more than the other guys, but you had better be selling luxury goods.
Whether it was the absence of higher CAFE standards or some sort of market incentive, or even a different health care environment to help cut automaker costs, government helped Detroit fail. Seriously, who hasn't seen this coming for 10 years? Anyone?
You apparently haven't seen it coming, because you don't seem to understand the current situation at all.
Detroit's biggest health care expense is among retirees who are already eligible for Medicare. However, Medicare is not as generous as the health care plan the UAW negotiated, so the UAW won't give it up. A National Health Care system in the US wouldn't change that.
You also mention the Japanese car makers. Note that their US plants are doing fine; health care doesn't stop them. That's because they can actually make a profit. (And in Japan anyway, the company and the worker do pay for health care.)
I want to see all of the American automakers go bankrupt before Bush takes office.
That will do wonders for his legacy.
Am I cynical enough to believe the Big Three are purposely underperforming in order to get a Govt handout?
Not quite that cynical, but close.
Moon Rattled said...
There's not much neutrality, cruel or otherwise in most of your posts.
Time to revamp the text in your header.
12:39 AM
Interesting! If Althouse is equally offending lefties and righties she must be doing someting right!
Between the politicians and the media there is a torrent of misinformation being spewed around.
Then again there is a lot of misinformation floating around the blogosphere as well.
The entire US auto market has tanked in the past 60 days, and that is the real problem. People are not buying much of anything. Toyota and Honda have been hurt, but have the home country to tide them over.
The geniuses who ran the GOP into the ground will now make certain that no Republican presidential candidate can win Michigan or Ohio for the next generation.
Bye, bye Big 3. Bye, bye economy. Bye, bye GOP.
To continue....
The long term problems of the B3g were caused by the Big 3 and the UAW.
The short term problems are being caused by the pinstriped bonus-baby morons who call themselves bankers.
The Big 3 are spending about $6 - 8 Billion every year on engine and energy R&D, we can kiss that good bye. Let the foreigners do the R&D.
save_the_rustbelt - save us your hysteria. one thing about politics is that nothing is forever. If Obama could win Virginia, then Palin can win Pennsylvania.
I understand the point about health care prices. Go look at my first point on this thread, where I point out that having 50% higher labor costs makes it tough to compete.
However, the US auto companies have been fighting for a long time to prevent the world from changing. Meanwhile, it's changed. They were left in the dust. They're stuck in a different era. Part of that is due to high labor costs. I don't dispute that. Part of it is also due to them being more interested in lobbying to keep the world as it was than innovating -- or producing a working car!
And Thacker, did I make a recommendation? No. I'm talking about the past. Right now, they're going out of business. And taking a lot of people down with them as they do it, whether taxpayers generally or the people who directly or indirectly need them.
I don't know how I feel about the bailout. If I thought it would work, though, I'd be 100% in favor. That's my criticism of free-market "principles" here. Oppose the bailout because it's not going to work. Don't oppose it because you feel the need to draw an arbitrary, theoretically based line in the sand about government intervention into free markets (which happens all the time, every day, incidentally).
Brooks encompasses all our arguments, and manages to make the exact point that pissed me off in the first place.
1. "These companies are not innocent victims of this crisis. To read the expert literature on these companies is to read a long litany of miscalculation. Some experts mention the management blunders, some the union contracts and the legacy costs, some the years of poor car design and some the entrenched corporate cultures."
2. "In short, a bailout will not solve anything — just postpone things."
Both (probably) true.
But my favorite:
3. "But the larger principle is over the nature of America’s political system. Is this country going to slide into progressive corporatism, a merger of corporate and federal power that will inevitably stifle competition, empower corporate and federal bureaucrats and protect entrenched interests? Or is the U.S. going to stick with its historic model: Helping workers weather the storms of a dynamic economy, but preserving the dynamism that is the core of the country’s success."
Translation: will the country continue on the path corporate Republicans and plenty of Democrats have accelerated in the last many years, or will Republicans, now that they are out of power, stop enabling this crap? As if they can find principle after supporting eight years of Bush economic policies and bullying critics.
Alex said...
save_the_rustbelt - save us your hysteria. one thing about politics is that nothing is forever. If Obama could win Virginia, then Palin can win Pennsylvania.
You got a $1,000 to bet on Palin in Penn.?
"a merger of corporate and federal power that will inevitably stifle competition, empower corporate and federal bureaucrats and protect entrenched interests"
Gosh, add this to compulsory youth service and you can already see the New New Deal, like the first, so beloved by Mussolini, who said of FDR in 1933: "Your plan for coordination of industry follows precisely our lines of cooperation.".
The government has a massive interest in supporting what remains of the manufacturing sector in the United States. Today's capitalism is not simply the unfettered procession of market forces. Government is an absolutely essential partner. To pretend otherwise is to create a straw man.
And so it goes. To suggest that maybe, after decades of incompetence, corruption and destructive policy toward the auto industries (including giving the auto industries what they wanted, like protection from imports) the very idea that government shouldn't be involved is so absurd as to be unworthy of consideration.
I shall file this next to "everyone should pay the same for government" in my "Common Sense Ideas That Are Absolutely Unthinkable Today" folder.
Pogo,
While I'm not unsympathetic to your plight (especially because I know you inherited it rather than created it), doctors have been running to the government for protection forever.
Doctors sought and received a monopoly on health care (along with pharmaceutical companies). The results have been predictable.
The ultimate reduction of the medical profession to civil servants also seems a logical conclusion, however unwanted.
"doctors have been running to the government for protection forever."
Blake, you are absolutely right about this. Doctors have been the foremost among the guild mindset, demanding regulatory exclusions so that none but the High Priests of Medicine may practice its super-secret craft.
My colleagues loved mercantilism, preached capitalism, and practiced socialism.
I'd be all for the guild myself if we only had a really cool hat to wear or something.
But the white coat? That's it???
Who the hell came up with that?
Pogo--
What about that mirror you guys used to wear on your foreheads?
Or was that just old movies?
No, that was real, but it went away when electricity was widespread.
Two would've been cooler though.
Maybe you guys could get capes and carry around caduceuses?
I don't really get how people can say "let them die" I won't object to the idea that it has had poor management in the past, and the 80's cars were awful. However, the cars put out by the big 3 today are great cars! I love my G5, it's a great car!
My big thing is though, we sit here, and bash how crappy the auto industry is, but the fact of the matter is, the US wouldn't be here with out them. I mean, if we really are the kind of people who will look at a building block at the base of our great nation and think we don't need it at all, then I think we deserve the repercussions of what will happen to the country if they go.
15 billion dollars? We spend 8 billion each month for the war in Iraq with the assurance that it will never come back. Each month, 8 billion in the hole, gone.
The other point I'd like to make is, if they go under, no one will disagree that it will be bad. Bad things will happen, many lives will be devastated (mine included), and in 5 years, if we see cars driving places, I promise they will all be foreign. If there is a chance, even if it's a small one, that this money will save what makes our country great, then why the heck not do it! Why just watch it burn!
Last point I'll make. I'm in video production, and 3 months ago, I was unemployed for 8 months. I tried finding production houses to work for, and I found 3 that were interested in me. However, they couldn't hire me because they got most of their work threw the Big 3, and they weren't using them so much because of the economy.
I just can't stand listening to people say "let them burn." I mean, it's about the only think keeping Michigan from collapsing.
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