White House readies rescue for U.S. auto industry

Saturday 13th December, 06:20 AM JST

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smithinjapan at 12:41 PM JST - 14th December

SuperLib: "My guess is that the government will step in anyway. In the end there's really no point discussing the matter with people who know little to nothing about the auto industry overall, is there?"

You're right that the government is going to step in regardless of what people think. Bush has already damaged the Republican party to the point of splintering, and destroyed his name. The election is over the Democrats won, so what does he care if he goes out with one more suicidal bang?

As for the rest of your comment, 'There's no point talking about this with people who don't understand' is exactly the type of comment we hear a LOT from people who understand little or nothing on the topic themselves, but assume an air of superiority and say this as 'the last word'. Taro Aso is a shining example, among others. Cheers!
Betzee at 01:45 PM JST - 14th December

The majority of GOP senators who voted against this were southern senators with foreign automakers in their states. They are looking for a way to break the UAW and allow their foreign automakers to take control. It is in their personal interest, their state's interest and not in the nation's best interest.

That's my opinion, adaydream. Now there's some evidence foreign auto-makers will scout globally for design talent, but there's a very real possibility the US auto industry the southern Senators are promoting would simply be shop floors where imported components are assembled. That means a whole lot fewer people would earn their livelihood from the auto industry than in the heyday of the Big Three.

The question is, what are we going to get with this bail-out money? In January Mitt Romney declared, "If I'm president of this country, I will roll up my sleeves in the first 100 days I'm in office, and I will personally bring together industry, labor, Congressional and state leaders and together we will develop a plan to rebuild America's automotive leadership."

Such talk reminded more than one person of the future promoted by the British Tory party in the 1970s. Needless to say, it didn't come to pass. Britain's Leyland went under despite a series of generous bail-outs to the ailing auto company. Those promoting this bail-out as a the solution to Detroit's woes need to explain how the outcome will be different. SuperLib kinda glossed over that in his posts.

Those who don't want to bail-out Detroit probably assume laid-off workers can find other work. Not in this economy, however. Regardless, this is my problem with the neoclassically envisioned model of globalization, namely those who lose their livelihoods can pick up and go elsewhere where there's work. It's a lot harder than it sounds. When I was in my 20s I gave up the life I had for the allure of the unknown. A lot of opportunities did materialize and I was in a position to take advantage of them. But I can't imagine doing that now. The sunk costs of life's accumulated decisions weigh you down and limit your mobility.

I guess I would put my money on entrepreneurs coming up with a new vehicle to replace those which run on fossil fuels. (Disclosure: I have in fact done that). This won't solve the problems of lack of opportunity for those with little more than a high school diploma but it will put the US back in the forefront of the innovation game.
Betzee at 02:00 PM JST - 14th December

Tom Friedman has written some great stuff:

As even General Motors conceded in its apology ad last week: “At times we violated your trust by letting our quality fall below industry standards and our designs become lackluster.” Walk through any college campus today. You don’t see a lot of Buicks.

Over the years, Detroit bosses kept repeating: “We have to make the cars people want.” That’s why they’re in trouble. Their job is to make the cars people don’t know they want but will buy like crazy when they see them. I would have been happy with my Sony Walkman had Apple not invented the iPod. Now I can’t live without my iPod. I didn’t know I wanted it, but Apple did. Same with my Toyota hybrid.

The auto consultant John Casesa once noted that Detroit’s management has gone from visionaries to operators to caretakers. I would say that they have now gone from caretakers to undertakers. If they are ready to bring in some visionaries and totally restructure — inside or outside of bankruptcy — so they can make money selling cars that people will want to buy, then I say help them. I’d hate to see the Detroit auto industry go under. But if all we are doing is prolonging auto undertakers, then we have to let nature take its course.
SezWho2 at 03:08 PM JST - 14th December

Loki520,

What name calling are you talking about? Is it the words ideologues and pragmatists that throw you? The Senate demand that the UAW reduce its compensation package to be on a par with that of non-union labor in foreign-owned plants is entirely adventitious. There is no reason to believe that the industry can reconstruct itself by requiring the auto-workers to give up their contractually bargained compensation.

The Senate demand is outside the scope of the problem whose solution is under consideration here. And what is under consideration is a stop-gap measure which is designed to see if the automakers, stockholders, labor and lending institutions can on their own devise a reconstruction plan which would merit continued government support after the stop-gap measure expired. The Republican Senators were fixed on the notion that union wages are the problem. They were not looking at the bigger picture. If you object to me calling such people ideologues, that's fine. I'm not attached to the word.

I think you can tell when someone is toeing the party line by seeing whether they think that (1) unions are indefensible and (2) budgetary comparisons are suddenly irrelevant. When you mix this with attempts to respond to an argument by attacking statements which were never made nor implied (e.g., "the bailout failed because an innocent person was killed in Iraq") you get a partisan response from the gutter.
zurcronium at 07:16 PM JST - 14th December

300 billion for citibank, 140 billion for AIG and then for the US auto industry. Nothing. Did the outright failures that are citi and AIG deserve to be bailed out by the repubs?

Its all politics really and has nothing to do with reality. That is the way of the repub senators in the south who want to protect their toyota plants. Simply amazing and yet another reason why the repubs are going down the tubes everywhere except the dipship south.
Triumvere at 09:49 PM JST - 14th December

People are operating under the assumption that a "bailout" is necessary to save the industry. That's an assumption that needs to be examined. From my point of view, the argument that bankrupcy, and the resulting restructuring, is necessary to save the industry is far more compelling. Lets face facts: Detroit will not reform itself. Either it must be done via bankrupcy, or of via Obama's "car czar" establing direct governmental oversight of the industry. The question is do you trust the gov't to get the job done, or the "natural" process of bankrupcy.
Betzee at 10:42 PM JST - 14th December

From my point of view, the argument that bankrupcy, and the resulting restructuring, is necessary to save the industry is far more compelling. Lets face facts: Detroit will not reform itself. Either it must be done via bankrupcy, or of via Obama's "car czar" establing direct governmental oversight of the industry. The question is do you trust the gov't to get the job done, or the "natural" process of bankrupcy.

The problem with bankruptcy is that it's the kiss of death as far as future sales go. Now who's gonna buy a car from a firm which has been through bankruptcy? It's too big an item for most consumers to take such a risk given that there are solvent alternatives.

It's very different from buying a plane ticket from an airline which has been through Chapter 11. We're talking about a six-hour ride versus a substantial purchase expected to last at least several years.
Triumvere at 12:27 AM JST - 15th December

I don't know; It's not like I'm an expert in consumer psycology, but it seems to me if they go through the processes and rebrand themselves as the "new and improved" Big Three, then I think people will buy the cars. It will be an uphill battle, to be sure, but then they are already fighting (and losing) such battle over consumer opinion now. In anycase, the "Big Three" need to get a whole lot smaller than they are currently. The issue with the "bailout" option is that, if the gov't doesn't do enought to force restuctring (management out, concessions from UAW, etc...) then the Big Three really will crash and burn in the not to distant future.
WilliB at 12:59 AM JST - 15th December

Triumvere:

" Lets face facts: Detroit will not reform itself. "

The only way to get out of the "legacy costs", i.e. the suffocating union contracts is by bankruptcy. No?

" Either it must be done via bankrupcy, or of via Obama's "car czar" establing direct governmental oversight of the industry. "

LOL! That would be a sight to behold! Obama and Nancy Pelosi micromanaging the auto industry? Maybe a people´s car, designed by committee, in the footsteps of the Yugo, the Trabant, or the Proteus? I´d LOVE to see that.
Betzee at 01:33 PM JST - 15th December

WilliB,

I looked in vain to see what you advocate as the solution, since you didn't offer one I assume you advocate "do nothing"?

I think Nick Kristof makes good sense:

Think of a bailout as part of the huge planned stimulus package. It’s much cheaper to keep people in their existing jobs than to create new jobs elsewhere.

I lived in Tokyo in the 1990s, as perfectly reasonable arguments for government restraint led to acquiescence in the face of escalating economic disasters. Anyone who lived through Japan’s “lost decade” understands that the risks of inaction are greater than the risks of action.
Triumvere at 06:44 PM JST - 15th December

WilliB,

That's more or less what I'm thinking; I am fraid the gov't won"t go far enough to challagne the Unions (or the Management for that matter - let's face it, UAW is not he only ball & chain dragging them down.) And, while hybrids and fuel efficiency are good, the major focus needs to be put on making profitable cars, not economically friendly ones. (there's no reason you can't have both, but you need to have your priorities straight if you intend to save the companies.)

Betzee,

What can I say? Chapter 11 is a risk, one that may well blow up in our (America's) face. But I'm not seeing "bailout" as being a safe bet either. Hoe deep do we dig the hole before we finally have to bite the bullet? Or, do you think the car czar can put detroit back on the right track? Personally, I want the Management and the Union Heads out. I don't think Detroit has any real chance at innovation or efficiency until that happens.
Betzee at 10:05 PM JST - 15th December

Triumvere,

This is what NYT's resident neocon William Kristol has to say to about this situation. (I don't agree with his stance on where the problems with the industry lie but he is right on the money as far as the right's agenda as exemplified by the southern Senators):

[O]n the right, free-market analysts have explained that our regulatory scheme of fuel-efficiency standards is counterproductive. But despite the fact that the government is partly responsible for the Big Three’s problems, the right hasn’t really been stirred to enthusiastically promote a deregulatory agenda to help the auto companies. What excites it is mobilizing to oppose bailouts for unionized workers.

To get out the red Detriot will have to make cars people want to buy. Even though the price of gas has dropped down to levels not seen since the eary part of the decade, my guess is most consumers will be leery of buying gas guzzlers since it could (and will) shoot back up again. A lot of people who'd bought SUVs with borrowed money, sometimes in the form of a five-year loan, were stuck filling up those tanks last spring.

In a capital intensive industry like auto manufacturing, economies of scale are critical to profitibaility. You have to make and sell so many cars before you can turn a profit. This acts as a strong disincentive to get into new lines of vehicles, such as eco-friendly cars. If it will take Chevy years to sell 100,000 Volts, well they are years from profitability. By contrast, Toyota's Prius is already profitable. Those profits can be reinvested to make an even better vehicle.

Toyota is reaping the rewards of first-mover advantage; few people have heard of the Volt which has no performance track record. By contrast, everyone who wants to buy an eco-friendly vehicle knows about the Prius and that's the first vehicle prospective buyers will look at. Detroit has got some work ahead of it, that's for sure. But if we're going to plow public money into it, oversight is essential. That's what the car czar would provide.
Triumvere at 10:47 PM JST - 15th December

Betzee,

Fuel efficiency is undoubtably a critical part of the innovtion Detroit desperately needs. What I am trying to say is that any steps taken need to be practical first, and ideological second. Kind of like how cutting emissions is important, but you have to be realistic about what you can achieve, otherwise you risk cripppling your economy, and ultimately the abandonment of the targets you set (look what's happened with Kyoto...)
bdiego at 04:26 PM JST - 16th December

The White House is proving to be a chump just like their Treasurer. It's amazing how fast "We'd never just hand you money" caves into "Here you go!" The White House needs to understand, this isn't your money!

Too many people have their head in a hole thinking $14, $25, or even $50 Billion will result in anything but bankruptcy for GM and Chrysler. They're going to fail, and money on the scale we've discussed isn't going to solve it.
TooFarGone at 01:49 PM JST - 17th December

"582,000 Canadian jobs at stake if Big Three fail: study"

"The economic consequences of either a partial or total shutdown of the Detroit Three are stark," said the report.

"Either scenario is sufficient to push Ontario into a deep recession while the nation may barely escape one in the 50-percent reduction scenario."

Likin them apples, zurc and smithinjapan?

http://www.breitbart.com/article.php?id=081216191048.6a9sr3wo&show_article=1