32 Comments

1. David Thomson:

The principle of moral hazard cannot be ignored. Human beings must learn that there are consequences to their actions. Bailing out the car companies and the foolish union members will only encourage them to continue misbehaving in the future. And how in hell can a politician or government bureaucrat begin to know how to manage the affairs of others? These individuals often prove incapable of even handling their own business.

Dec 17, 2008 - 2:42 am 2. AL:

Auto bailout is about saving essential industry with health care and retirement obligations to 450 000 retirees (GM numbers), which in tough economic times can not compete with automotive company with 258 retirees (Toyota America, 2006 numbers).

http://www.nytimes.com/2006/05/19/automobiles/19auto.html?_r=1

Dec 17, 2008 - 3:37 am 3. Kirk Petersen:

AL, it seems like you intend your post to be an indictment of Toyota. But I look at the same fact set and see an indictment of GM and the UAW.

Compare GM’s 450,000 retirees (receiving generous benefits and pensions) to the company’s 266,000 active employees. The retirees number is from 2006 and the active employee number from 2007, so it’s not quite apples-to-apples… but it’s clear that GM is paying a lot more people NOT to work than they are paying to work.

For decades, GM purchased labor peace by giving employees unsustainably high salaries and benefits — all while letting the UAW negotiate work rules that are consciously designed to be inefficient. All top management was doing was kicking the problem down the road. Now their successors face the day of reckoning.

Yes, it will be incredibly disruptive for the auto industry to go through a drastic downsizing via bankruptcy. Yes, real people will be hurt. But the longer the day of reckoning is postponed, the worse the problem will be.

Dec 17, 2008 - 4:51 am 4. Craig:

Nice article but not exactly timely. This is about 45 days after the fact.

Dec 17, 2008 - 5:03 am 5. Iman Infadel:

Who believes that this new Car Czar will limit his power to the union shops that recieve the bailout? After their government merger and they are still failing they will declare that the free market shops have an unfair advantage because they are not chained to the same beaurocratic bungling that they are. To level the playing field the government will force the foriegn owned plants to the comply with the same stupidity. They will either leave or go down with the rest of them.

Dec 17, 2008 - 5:20 am 6. Paul - Indiana:

The fact of declaring chapter 11 will not cause the auto plants to evaporate. What will go away are the rediculous UAW agreements.

Dec 17, 2008 - 5:40 am 7. Big Al:

I agree we are moving in a direction that seems to be socialist in nature. It seems to me to have started back in the 60’s when Johnson’s Great Society started promising something for nothing and has grown to the point that everybody thinks the government is supposed to be one giant safety net. JFK said to ask what you could do for your country, not what your country could do for you… somehow people got that backwards. Here’s a blog on the subject of bailing out the car companies and such:

CEO’s and Car Czar’s…
12 15 2008

All this rhetoric on the car companies, it’s almost become mass hysteria, or some kind of mob mentality. And nobody seems to be looking out for the little guy here. The guy that put in his life’s work, expecting a fair return for it all.
What exactly IS the car companies fault anyway? Haven’t they been giving us exactly what we asked for? Supply and demand, we asked, they delivered. Nobody forced those big SUV’s on us. Nobody made anybody buy a Hummer, or a big four door extended cab 4WD F-250 with a big motor. We wanted one. We wanted the comfort of a Crown Vic and the power of a big V8. That’s not the car companies fault.

Most of the problems that the car companies face are systemic and originated long before any of the current “3 CEO’s” ever took over those companies…

…read the rest of this post, and more on the subject, at Big Al’s Dismal Swamp
http://www.mydismalswamp.wordpress.com

Dec 17, 2008 - 6:00 am 8. Lynn:

I was reading that the Japanese auto market had it’s kick-start by the United States Government when they were given a contract to build military vehicles for the Korean War. I think that it wouldn’t be such a bad thing if our government kick started the American auto market, but I also see your point.

So….if you really think it would be a bad idea for them to get a government loan, ok, but are you sure you want to be responsible for thousands of workers in Canada, Japan, and the United States the loss of their jobs, a possible severe depression or at the least, deep recession? Do you really want to be responsible for the destruction of the BIG THREE? The American Automobile, nothing but a fading memory that bored children see in their school field trips the the museum?

Do you want to go down in history as the voice of doom for the US auto industry, the day the music died, the day we said bye to the American Pie?

Well in the end I don’t think it really matters. From the films on television it appears that most cars are made by machines anyway so one less can of oil to keep the machinery movin is one less dollar in the terrorists pockets. To hell with all of it.

Dec 17, 2008 - 6:04 am 9. Dr. Lumplevin:

As a dedicated Progressive since I took my first LSD trip in the 60’s, there is simply something ethereally orgasmic about watching the previous kingpins of our capitalist system lining up, quivering and cowering to see the likes of Reps. Barney Frank and Nancy Pelosi, sitting imperiously upon their regal dais, like two glorious leather-clad dominatrixes with fearful whips in hand, looking down scornfully upon the once-great captains of American industry and finance, who now grovel with their pitiful, beaten, hang-dog looks, tremulously shaking their awful, pathetic, little, tin cups. Has there ever been something so delectibly ironic? Excuse me. I must wipe away my tears of joy.

Dec 17, 2008 - 6:39 am 10. Thinking Person:

Has anyone else noticed the silence coming out of the UAW during all of the auto bailout talks? If they were truly concerned about the workers they have been collecting dues from for years, wouldn’t they be making concessions or doing ANYTHING to help keep the automakers afloat? If (really, when) the automakers are bailed out there must be renegotiating of UAW contracts. I will never buy another big 3 car if there isn’t. Surely by the time we’ve had to bail them out for the umpteenth time rolls around SOMEONE will connect the dots back to the UAW. Of course they’ll probably be making $120 an hour by then and work only on Wednesdays from 8:30am to 11:00am with a 30 minute coffee break in between. To sum up my venom….THE UAW DOESN’T CARE ABOUT THE BIG 3. THEY ARE ONLY CONCERNED ABOUT KEEPING THEIR STRANGLEHOLD ON IT’S WORKERS SO THEY CAN PAYOFF THE NEXT ROUND OF POLITICIANS TO KEEP THE CYCLE GOING.

Dec 17, 2008 - 6:59 am 11. cedarford:

While some rail at the G-Damn unions, it is worth remembering that the problem in Detroit, and in all other shuttered American industries from no-union Southern textile plants to all the unionless Silicon Valley work now done in China and India or by their H-1B workers is more attributable on a macro scale, to the Bretton Woods II agreement informally reached in the 80s. The idea was that the US would be the world’s consumer, Asia the manufacturer, and Asia would plow back their profits into allowing Reagan to grow the military and US government size AND push tax cuts for the well-off. Which, would according to some theorists back in the 80s, “Trickledown” from the wealthy to the workers, with rising prosperity for all.

The long-term belief was that we would get rid of “low-skill” jobs and replace them with high skill IT, financial consulting, “exciting new technologies” the world would look to America for.

Unfortunately, the Reagan people that started this rolling appear to be wrong. The 3rd World wanted those high tech jobs and wanted to be the 1st target of Venture capitalists bringing “new technology”, and high-skill services like software engineering, dsign engineering, drug R&D.

Thus Bretton Woods II transformed us into the world’s largest debtor nation, gave us a 1-trillion annual trade deficit bleeding our wealth away, gutted America of union AND non-union industrial jobs and services that can be done anywhere globally with modern telecomms. If certain jobs were not protected by US citizenship requirements, like military, police, lawyers, gov’t workers – we would see those jobs also under assault as 3rd Worlders trained in new academies, universities, law schools set up to provide their natives for being cheaper wage Marines, lawyers, teachers, cops – ready to compete against Americans for jobs in those fields, too.

We all know that Free Markets! untrammelled Free Trade!! are presently unsustainable. But many that grew up on Reagan ideology refuse to see what 30 years of that ideology running America has led us to – and prefer to rail against “those lazy union people, those pampered non-union Southern textile workers, those unproductive non-union Silicon valley tech employees…”

Also – Anyone who knows the Auto industry also knows the only reason those non-union car plants exist in the USA is that the “unfettered free trade!” proponents lost their case to destroy Detroit and go with 100% imported vehicles back in the 80s. Reagan found he had to threaten import quotas and demand that Japan and Germany locate plants here, rather than in China, to fully access the US market – to keep Detroit alive and create 200,000 new jobs down South – if by sacrificing his “Free Markets! Free Trade!” purity somewhat…

Dec 17, 2008 - 7:50 am 12. Thinking Person:

cedarford…..As we can now see with the big 3 automakers, it’s the market that dictates what it will and will not support. You can lambast the Free Trade Agreement all you want but when products are produced at an inflated cost and are substandard to other similar products available, the market will determine whom the victors are. Make a better product at a better price and the consumers will follow, thus more jobs. Easy enough to follow. Pricing employees out of jobs is the hallmark of the current union system in the U.S. Stopping free trade while keeping the same type of business model that brought us to this point in the first place will serve no purpose.

Dec 17, 2008 - 8:18 am 13. Andrew Ian Dodge:

The US is not learning from the mistakes made by the UK with their auto-companies. The unions will end up destroying the big three and the only thing to stop them is declaring Chap. 11.

Big auto has got to learn that if you make expensive rubbish then you go under…that is the way life works.

Dec 17, 2008 - 8:54 am 14. Cybergeezer:

So, here we have another dinosaur that has outgrown its cage; If we keep feeding it and get it a bigger cage, it will only be happy until it outgrows the new cage. And the rate it will eat will never drop off. It might have to eat its master. (Why does this remind me of an opera?)

Dec 17, 2008 - 9:25 am 15. Good Ole Charlie:

Cybergeezer:

OK, I’ll bite…The Ring Cycle, especially Goetterdaemmerung. With the UAW as Hagen, stabbing the Good Guy, Siegfried, in the back. The Big 3 as Gunther, the foolish king of The Gibbichung, and Obama as Guetrune.
And you know how it ends: the Universe goes up in flames taking Wall Street (Valhalla) up in flames with it.
The last line is not my interpretation: it actually was Wagner’s who was an early idealist socialist. And Siegfried was modeled on Prince Kropotkin, I believe.
“Life imitates Art.” How true…

Dec 17, 2008 - 9:55 am 16. cedarford:

Pat Buchanan – Do these Southern senators understand why the foreign automakers suddenly up and decided to build plants in the United States?

It was the economic nationalism of Ronald Reagan.

When an icon of American industry, Harley-Davidson, was being run out of business by cutthroat Japanese dumping of big bikes to kill the “Harley Hog,” Reagan slapped 50 percent tariffs on their motorcycles and imposed quotas on imported Japanese cars. Message to Tokyo. If you folks want to keep selling cars here, start building them here.

Fear of Reaganism brought those foreign automakers, lickety-split, to America’s shores, not any love of Southern cooking.

Do the Republicans not yet understand how they lost the New Majority coalition that gave them three landslides and five victories in six presidential races from 1968 to 1988? Do they not know why the Reagan Democrats in Pennsylvania, Ohio and Michigan are going home?

The Republican Party gave their jobs away!

How? By telling U.S. manufacturers they could shut plants here, get rid of their U.S. workers, build factories in Mexico, Asia or China, and ship their products back, free of charge.

Republican globalists gave U.S. manufacturers every incentive to go abroad and take their jobs with them, the jobs of Middle America.

And, for 30 years, that is what U.S. manufacturers have done, have been forced to do, as their competitors closed down and moved their plants abroad in search of low-wage Third World labor.

It wasn’t union jobs for the most part that have been lost.
People that think that Free Trade!! will magically work if we only get rid of unions knows nothing about what jobs and industries were targeted for successful destruction in the past. Which ones are being targeted now, to be taken away from Americans. All while our market is somehow, by certain ideologues conviction – morally obligated to remain open to them. All while Elites demand certain jobs – in their legal, academic, banking, medical, and security professions be protected by “US citizen required” shields against competition…

Again, the only reason there are ANY non-union auto jobs in America is because Reagan wasn’t a mindless Free Trader..

Thinking Person:
cedarford…..As we can now see with the big 3 automakers, it’s the market that dictates what it will and will not support.

No, the Free Market is trumped by present global labor cost strategy. The product accepted by the market is one thing – where it is made or where competitive products are made is a function of cost of production….and right now, 2 billion unemployed or underemployed Asians with “lowest bid labor cost” have the determinative edge until we wake up to the destruction of the American economy.

The “wise hand of the free market” may dictate that the Chinese make better and cheaper ChinaStuff. And the Chinese will respond to those market forces. They will not screw their people by foolishly outsourcing their jobs and technology and industries.

Thinking person – Make a better product at a better price and the consumers will follow, thus more jobs.

You are blinded by your ideology.

Dec 17, 2008 - 10:27 am 17. Professor Guvinoff:

Bailing out any organization that forgot how to swim is the best way to sink everything in the end. Just ask yourself who is ultimately going to bailout BBB (Big Bailing Brother), when he runs out of juice after having done “all that is humanly possible” (and more…) to prevent all these “unacceptable economic catastrophes”?

Bankruptcy is still the best mechanism known to civilized man when it comes to salvage whatever is worth salvaging in the eyes of all the stake holders concerned. Several US airlines went through that recently, and came out more functional than they went in.

If it was not so, they would have preferred to liquidate instead of restructuring. Bankruptcy is not a death sentence, it is a provision for the breathing room needed by those who are disposed to discuss changing the rules, if they see the game as amusing enough to be played again.

What does government has to do with that? Make a bankruptcy judge available, that’s what! Anything beyond that is foolishness disguised into wisdom. Anytime we need more of that, why don’t we just listen to what our politicans throw at their beloved megaphones? After all, we pay for it, don’t we?

Merry Christmas!

Dec 17, 2008 - 11:57 am 18. Justin:

(Overheard at a GM strategy meeting.)

“This is serious guys, we’ve got to come up with a plan that Congress will approve.”

“Well, I’m fresh out of ideas.”

“Hey, remember what the textile, the electronics manufacturers, and the telecom customer service industries did?”

“Oh man yeah! Let’s send some jobs to Mexico!”

http://www.bloomberg.com/apps/news?pid=20601109&sid=aImmc_hK.uGE&refer=home

Dec 17, 2008 - 1:46 pm 19. thegr8 1:

Do you want government who brought you the Post Office, Social Security, Medicare, and screw up everything else they touch be in charge of making your cars? Employees making double what Honda, Toyota, and Nissan employees make? I paid for a Japanese car I don’t want to pay in addition any tax money for American made, inferior cars. Get your act together Detroit, do what the airlines did after 9/11, go Chapter 11, reorganize, come out a better company and stay the hell out of my wallet. Same thing with the banks, homeowners who took out mortgages they had no business taking out, crooks on Wall Street and Washington who should be in jail, yeah you Dodd, Frank, Schumer etc., leave me the hell alone.

Dec 17, 2008 - 6:39 pm 20. LennyB:

However fashionable it may be to continually bag on public sector workers and their potentially incompetent future oversight of private sector endeavors, it is unnecessary in this case. No real free-market scorecard exists to measure the capabilities of the public sector worker — no doubt the many are undoubtedly worthless (as most people are), while the few may be (intermittently at least) brilliant. It’s like listening to someone bag on W’s IQ not realizing that theirs is, statistically speaking at least, likely to be lower. I personally hold that it’s just as easy to question the judgment and utter lack of invention of anyone who toils years away for a mismanaged private company in the blind hope that the union will be their salvation — without reading the writing on the wall and looking to convert their hard work to actually better themselves and their situation. If I had to categorize who the real obstacle to productivity and competitiveness is — the UAW union laborer, or the govt bureaucrat who is empowered after the bail out, I’d honestly have a hard time making that call.

However, in the private sector, there happens to be a scorecard — and when it’s in, as it is for Big 3 execs and labor reps alike, it’s in. You either endorse letting them burn and take solace in your rightful embrace of Adam Smith and Milton Freidman, or you endorse rescuing them from bankruptcy and are in fact a socialist. Take your pick. But before you do, recall for a moment what poison socialism is to all of human achievement.

Dec 17, 2008 - 6:45 pm 21. Justin:

Well we won’t have to wait for Obama to put the car in gear, our “conservative” government seems to have done that just fine.

http://www.breitbart.com/article.php?id=081216215816.8g97981o&show_article=1

But of course, today’s cars are usually equipped with overdrive too.

But I’ll relax, two months from January, the “Oxy-Messiah” will have his Disciples believing the Lesser shoulders all the blame.

Dec 17, 2008 - 7:25 pm 22. Eric:

If Washington takes an active role in designing cars for the Big 3 Americans will respond by buying fewer American cars thus hastening Detroit’s decline. What will the answer be then? Give away the cars at half price? Surely the execs in Detroit have to know that the bureaucrats will drive their companies out of business permanently. Even the government can’t pay the UAW to build cars that will never sell.

Dec 17, 2008 - 7:50 pm 23. Blue Collar Todd:

Why are some unions better than others? I’m in the oil industry and Liberals like President-elect Obama want a “windfal” tax on my employer. That is not going to help me in the long run. This is one union guy who does not support any of these bailouts.

Dec 17, 2008 - 8:10 pm 24. ILikeIke:

“Do you want government who brought you the Post Office, Social Security, Medicare, and screw up everything else they touch be in charge of making your cars? Employees making double what Honda, Toyota, and Nissan employees make?”

I don’t know…the Post Office is pretty reliable. They hit every home and business in my neighborhood on a daily basis, even when it’s snowing. Ten bucks says your neighborhood gets the same treatment.

Social Security? It works pretty well. Raise your hand, Social Security haters, if you plan on NOT cashing any checks you may get. Raise your hand if you wouldn’t take the death benefit if a loved one died.

John McCain gets social security checks, even as he rails against them, and that dude is rich!

The problem with Social Security is not that it doesn’t work…it’s that it works too well! There will soon be too many people taking out money and not enough putting it in. It’ll become insolvent, but it does what it is intended to do. So does Medicare.

On the flipside, what about the military? If low-paid government employees are useless and for-profit capitalists are efficient, why send the Marines to war when we could just send in Blackwater? Oh wait…never mind. (I’ll take the grumpiest grunt over any “security contractor” any day.)

Right-wingers masquerading as conservatives need to get off this idea that government programs suck by virtue of being a government program.

(And yes…I said right-wingers masquerading as conservatives. They are NOT the same thing.)

Dec 17, 2008 - 8:35 pm 25. johnc:

What drives me crazy is that these politicians are acting like they know how to fix the problem. These clowns could not run a lemonade stand let alone a car company!
Drop the corporate tax get rid of capital gains taxes and reduce the size of the government and cut spending and let the free markets work! Problem solved.

Dec 17, 2008 - 8:55 pm 26. Martge:

Who runs the Postal Service. Well the Post Master General tells them what to do and they step to it. Four years ago we moved into a garage apartment. Very nice and no noisy neighbors but, we didn’t get mail delivery. We went to the post office, we talked to the postmaster at the local office and nothing happened. We wrote to the PG in DC and he put it off on the area Post Master who said we were not going to get delivery. That we would have to ask our neighbor to put up an extra mailbox and we could walk the 200 yards to pick it up or get a post office box. That taxpayer money wasn’t used to pay for postal services and he made the decisions. So are they going to appoint a “car czar” to make the decisions like the Post Master General does.

Dec 17, 2008 - 9:40 pm 27. Thinking Person:

cedarford….I’m not blinded by my “ideology” as you characterized me. I’m one of those people out in the “real world” who works for a global company dealing daily with these issues. It’s nice to sit and pontificate on these things, but until you are immersed in it and see it from the inside out, you see how things “should be” not how they really are.

Dec 18, 2008 - 6:57 am 28. LennyB:

ILikeIke: well said.

johnc: you’re coming from the right place, and it would be an utter disaster to bail these companies out and have the guvment overseeing them. But I think there is a good point to be made here. Your real beef is not with the politicians you resent who couldn’t run a lemonade stand (clearly this is true, and will always be so — after all, they are blowhard politicians), but the execs who actually have run the company into the ground (and thus also couldn’t run a lemonade stand). Ideological rhetoric — even the right kind — will only get you so far if you’re not willing to call out the true villains. Bitch about the lefty politicians all you want, and bitch about govt bureaucracy all you want, but in my view the real villain here is the confluence of greed and foolishness. The greed of the CEOs, who in my experience acquire an arrogance that seems close to divine right but whose salary is rarely if ever justified — the CEOs who, like well-positioned politicians, are usually insulated from disaster by their own political cronies — the corporate boards, who generally have pretty sweet deals themselves. Politicians, the lot of them, and rent-seekers all. When half-witted capitalists fail, they give socialist politicians opportunity to screw up our free markets, as well as saddle us with damaged GDP. So I say, a half-witted capitalist is more dangerous (and deserves more ire) than a no-witted and utterly predictable socialist.

Dec 18, 2008 - 7:03 pm 29. Bilgeman:

Has anyone heard from Michael Moore about the Auto bailout?

He spouts off about everything else under the sun, I just wonder that if he’s commented on this, it hasn’t been splashed.

One would think that for a guy who :made his bones” with the masterpiece: “Roger & Me”, he’d be front and center on this.

Dec 21, 2008 - 6:30 am 30. Bilgeman:

#6 Paul in Indiana:

“The fact of declaring chapter 11 will not cause the auto plants to evaporate. What will go away are the rediculous UAW agreements.”

I’d guess that you’re half right.

The UAW Collective Bargaining Agreements will evaporate, but the Big 3 “Maquiladora” assembly plants in Mexico will certainly remain…perhaps even be enlarged.

Dec 21, 2008 - 6:33 am 31. aaron4unitruth:

There are many reasons why the bailout of Wall street and the auto industry is wrong but most importantly because the federal government is far more powerful than it was ever meant to be. Now the government can be a stockholder? Sounds too much like socialism.

http://www.theartdeptchronicles.blogspot.com

Dec 22, 2008 - 2:31 pm 32. +Baker:

The country is in trouble. Essentially what bailouts means is that the FED gets that money to bailout out companies by printing money out of thin air. When they print this money it causes too much money into the system and makes the dollar worth less and less.
If they keep up these bailouts you will see the dollar becoming worthless in a few years.

http://beyondsuccess.wordpress.com/2008/09/19/robert-kiyosaki-wa

Jan 13, 2009 - 1:59 pm