Auto Bailout

economy, Obama Administration

There appears to be general agreement across the political spectrum that the Big Three automakers are going bankrupt because their CEOs have made many really, really bad choices over the years. Joseph Romm has an article at Salon about this. Here is just a bit:

When I was at the Department of Energy in the 1990s, we partnered with G.M., Ford and Chrysler to speed the technological development of hybrid gasoline-electric cars, given that increased fuel efficiency and advanced hybrids vehicles were (and remain) clearly the best hope for cutting vehicle greenhouse gas emissions and ending our oil addiction. This partnership was an informal deal between the Clinton administration and the car companies. We did not pursue fuel economy standards and the car companies promised to develop a triple-efficiency car (80 miles per gallon) by 2004.

In one of the major blunders in automotive history, G.M. and Ford and Chyrsler walked away from hybrids as soon as they could when the Bush administration came in — and after taxpayers had spent over $1 billion on the program. Ironically, the main result of our government-industry partnership (which had excluded foreign automakers) was to motivate the Japanese car companies to develop and introduce their own hybrids.

Detroit also spent millions of dollars lobbying against increased fuel economy standards — “suicidally lobbying against its own inescapable future,” as Romm puts it. Of course, the Big Three were encouraged to fight fuel economy standards by the Right, which for years has crusaded against CAFE standards as an example of socialism

What I want to know is, if the Free Market is so all-fired miraculous, how did such a pack of meatheads rise to the top of the auto industry?

(Actually, I know the answer to that, and I think anyone who has ever spent much time in big corporations does, also. Most corporations don’t reward competence as much as they reward aggression. Every corporate big shot I have ever met has been an alpha-on-steroids type who cannot live with himself unless he’s led three frontal assaults, so to speak, before breakfast. Those of us who don’t have testosterone running out of our ears don’t have a chance to climb very high on the corporate ladder, no matter how good and how smart we are.

I figure this phenomenon is some vestigial social behavior left over from our early cave dwelling ancestors. We’re wired to defer to the big guy who presents himself as the biggest badass in the tribe. See also Matt Yglesias, “Confidence Men.”)

Where was I? Oh, yes … a lot of right-wingers now are blaming unions for the auto industry’s problems. If those greedy workers didn’t insist on being paid a living wage and decent health benefits, the saying goes, everything would be hunky dory. I don’t think unions are above criticism, but frankly, without them we’d have a sickly and underpaid workforce. And if paychecks are so squeezed no one has disposable income, who’s going to buy stuff?

The damnfool CEOs can’t add two and two together to make four half the time. They are idiot savants, of a sort. They know how to game the system for their own benefit, but the world outside of their narrow self-interests is a blur to them. They can’t see past the next quarterly earnings reports.

If the CEOs weren’t such meatheads, for the past twenty years they would have been at the forefront of getting national health care, to get health insurance costs off their backs. Why haven’t they done that? Because they are meatheads.

That said — I understand that allowing the Big Three automakers to fail would set off a chain reaction of job losses that could lead to as many as three million people losing their jobs.

So what are we going to do?

Josh Marshall argues that letting the auto industry fail is nuts. See also Fester, Publius, and even a couple of guys at Bloomberg. For a lot of reasons explained in the articles linked, if the big automakers went bankrupt they probably could not just reorganize and come back, leaner and meaner. And the loss of the auto industry would have a catastrophic ripple effect on our already wounded economy.

On the other side of the fence are conservatives and “free market” economists who would rather let the Big Three go under than allow any government interference with the Free Market. These are the same people who for years have fought CAFE standards and national health care. In other words, they helped create the problem. Enough said.

There are lots of opinions out there about what should be done. I personally would insist that anyone who has served on the boards of directors or as a CEO for more than a year should be told to go away. No golden parachutes, no bonuses. They can keep the stuff they’ve got, which I’m sure is plenty to tide them over. If they think they have more to offer the auto industry they can damn well get in line and apply for whatever’s available. At the very least, they should have no authority whatsoever on how the money the government gives them is used.

Will workers have to take pay cuts and lose benefits? I keep hearing that it must be so. I’d like to see some provision made for pensions and health insurance, at least. Maybe this is where we start building a real national health care policy.

The auto makers must be forced to face reality and prepare to be competitive in the post-internal combustion engine world. Grants, loans, whatever, lots of strings, performance benchmarks, no excuses.

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  1. Xecklothxayyquou Gilchrist  •  Nov 15, 2008 @9:16 pm

    And if paychecks are so squeezed no one has disposable income, who’s going to buy stuff?

    Right. Even Henry Ford knew that!

    I personally would insist that anyone who has served on the boards of directors or as a CEO for more than a year should be told to go away.

    Agreed here too. I’m really tired of hearing about how great these bozos are and that they deserve guaranteed nine-figure golden parachutes because they “take all the risks”.

  2. khughes1963  •  Nov 15, 2008 @9:49 pm

    The only thing the golden parachutes do is to insulate the execs from the economic consequences of their poor decisions, and the economic realities ordinary people like us face daily.

  3. Steve from Canuckistan  •  Nov 15, 2008 @10:55 pm

    I’ve heard estimates of between 1and 4 million jobs in the USA alone depending on whether just one company folds or if the whole pack goes over the cliff. I haven’t heard any estimates for Ontario yet but suspect they will be very high. We assemble more cars for the North American market than Michigan. Some Canadians’ are worried that one condition for a US bailout will be the repatriation of all assembly back to the states. As in the US there are many Canadians who are deluded about the economic impact if they go bust. As you state the same hypocrites on the right who fought tooth and nail against CAFE standards are now saying let em go bust. I wouldn’t be surprised if many of these same people drive big ass SUVs. I think some of them are relishing the thought that the UAW and CAW will be brought to their knees in bankruptcy court not thinking of the wider catastrophic economic impact. As tough as it is to feel sorry for the boobs running the BIG 3, the BIG 3 is in a sense a victim as well. The worst or maybe second worst credit crunch in history is spreading it’s poison through the world economy. One manifestation of this problem is that many former car customers especially in the US including car dealers can’t get financing and no one knows if or when that will change. Here’s distressing commentary on our present economic situation from the Toronto Star. Richard Gwyn states that ” So far, just about every optimistic forecast has proved to be exaggerated, and every pessimistic one to be too rosy.”

  4. joanr16  •  Nov 15, 2008 @11:04 pm

    When gasoline is $4.00 a gallon, sales explode for the few available hybrids, while sales of SUVs and big pickups plummet. Then the meatheads think, “Derrr, we should be makin’ fuel-efficient cars, maybe?” Now that the price of gas is low-ish again, it’s instant amnesia for the meatheads (both the auto-industry CEOs, and the people driving obscenely huge gas guzzlers).

    Somehow we need to maintain a brisk market for hybrids and smaller, fuel-efficient vehicles, and so far, high gas prices have been the most effective motivator. Some clever person is going to be a big, Al Gore-type hero if s/he can come up with a way to excite the market, without the overall economic stressor of $4.00-a-gallon gas.

  5. moonbat  •  Nov 16, 2008 @12:18 am

    The approach I like – and wish I could find a link to – is to let management fail but save the workers. I don’t know if this takes the form of letting the Big Three go BK, or the workers are helped to take over the car companies or what, but it at least saves the industry, and the local economy, while not rewarding incompetent management. They’re not entirely to blame, as the unions got too powerful for their own good, but it was management who steered the companies into the ditch.

    I’m reminded of the various nostalgia vehicles that appeared – the T-Bird, the Mustang, the PT Cruiser, etc – that relived Detroit’s glory days – while Toyota was rolling out Priuses by the boatload. I don’t know if you could find a better symbol for how these companies were stuck in the past.

    It’s interesting that the Detroit auto industry is famously cratering, but the other auto industry in America – the European and Japanese plants scattered throughout the South and the West are humming along. Somebody’s got a better business model.

    The general thrust of your post made me recall Jimmy Carter’s solar collectors atop the White House, which Ronnie Reagan tore down. More fantastically far sighted right wing “thinking” at work. Our entire country has lost so much ground during these last 25 years, on so many fronts. It absolutely disgusts me. I’ve heard America compared to a large, magnificent trust fund, that’s been hopelessly mismanaged. For years.

  6. erinyes  •  Nov 16, 2008 @9:28 am

    Here are a couple of things to think about:
    one of the main problems is how we have been conditioned to use the automobile as an extention of our personal id.My daughter will be 16 at the end of December. she wants a car, but she hes very a small window of possibilities as to what she is willing to call her own. She wants something cute or sexy (go figure). Her mom’s Crown Victoria is good on gas, has lots of room, and does well in the crash tests, but she’d rather be caught wearing clown shoes than be seen driving mom’s car.
    Having your own car is a symbol of freedom, yet in many ways we become a slave to the possession.. First is the cost of the vehicle, then maintenance, insurance, accessories, etc, etc, etc.
    Now regard the deaths and injuries due directly to the automobile. If “the terrorists ” inflicted this amount of carnage on America, nobody would leave the house without an armed guard.We seem to think of it all as a “cost of doing business”, acceptable risk.

    While stuck in Miami traffic last week, I was struck on how many vehicles on the interstate and surface roads had only one occupant and how jammed up the roads are. Multiply that times all the major cities on the planet………

    Now that oil has dropped to below $60,00 per barrel and gas down to about $2.35 per gal.,the incentive to conserve is drying up. The only way to reverse the damage to our world is to dramatically shift gears, develope sustainable forms of transportation that are not dependent on petroleum and end this insane military/ industrial/ petroleum complex that will devour us all.When you look at the “big picture” and think about the costs in dollars and lives to support a military who’s main purpose is to secure access to the global energy resources, and who will one day need to confront Russia and China directly over these resources, the alternative should be a no-brainer.

    You’d think that the big three ( perhaps now the big two) would take a clue and get busy with more effecient cars and wind/solar tech projects, but there is a behind the scene order that must first be satisfied. Conspiracy theory? ( stealth bombers, predator drones, hellfire missiles create jobs and profit and eliminate worthless eaters, keep the oil flowing.)
    You betchya! Wink………..

  7. Dave  •  Nov 16, 2008 @11:40 am

    Thomas Friedman @ NYP is interesting and frightening today.

    Looking at all the interconnectedness of the economic crisis, I’m starting to wonder whether we’re going to have to reboot the world to get past this. “Hi. You have food and I have 6 shiny rocks. Let’s trade.”

  8. biggerbox  •  Nov 16, 2008 @1:08 pm

    It seems to me the nation (world?) needs a massive conversion of our transportation fleet toward greener, more efficient vehicles, and it will also need a massive assortment of trucks and construction machinery to rebuild our crumbling infrastructure. Perhaps a way could be found to ‘pay’ the Big 3 to fill this need by taking over their health care obligations, which could form part of the basis for the national health care system we also need.

    During WWII we converted civilian manufacturing to producing jeeps, tanks, troop carriers and warships. Why can’t we have a crash effort to produce green vehicles and infrastructure? Of course, it would require replacing the morons who put the Big 3 into their current state with some forward-thinkers.

  9. Gordon  •  Nov 16, 2008 @1:40 pm

    Closely related: this nice chart (courtesy Matt Yglesias) clearly shows that business guys will choose a lower absolute rate of growth, as long their relative rate of growth is higher than those further down the ladder.

  10. Patrick  •  Nov 16, 2008 @10:48 pm

    In the case of the auto-makers’ bailout, it’s a relief to have a national issue that is so straightforward: American cars tend to suck therefore people are not buying them. If GM and Ford don’t want to go out of business, they should start making decent cars. To bail them out would be to reward their terrible manufacturing standards.

  11. Miller  •  Nov 17, 2008 @5:32 pm

    There is the disruptive technology dilemma for large companies. I.e. Big Stupid Company Inc is unable to invest in any market that doesn’t have an immediate $1 billion payoff.

    I think this is the original study (via Wiki):

    Bower, Joseph L. & Christensen, Clayton M. (1995). “Disruptive Technologies: Catching the Wave” Harvard Business Review, January-February 1995

  12. maha  •  Nov 17, 2008 @6:10 pm

    Miller — that would seem to be a big kink in “magic of the free market” economic theory.

  13. anon  •  Nov 18, 2008 @2:51 am

    Its simple. If we bail the auto industry out (and I agree, something seems necessary), then WE OWN THEIR ASSES. They WILL develop hybrid, alternative, high mpg cars. They WILL be union friendly, they WILL recapitalize and reinvest in their workforce and research. And when we jump they will say “How high?” They WILL otherwise STFU and get to work.

    Frickin’ stupid meatheads…

  14. anon  •  Nov 18, 2008 @2:55 am

    oops, sorry about the double…if you wanna delete the first, plz be my guest…

  15. s  •  Nov 18, 2008 @9:44 am

    ~laughing~ I love your post anon!
    Your plans sound more reasonable than many!

  16. Pat Pattillo  •  Nov 18, 2008 @1:10 pm

    I didn’t have to read mcuh before being compelled to comment…one of my favorite topics.

    “What I want to know is, if the Free Market is so all-fired miraculous, how did such a pack of meatheads rise to the top of the auto industry?”

    Endemic to corporations are all the human foibles we find anywhere in our society but in this case it takes the form of individual’s self-interest which may or may not be the interest of the larger corporation’s.

    There is planting the flag of victory in the jaws of defeat, throwing out a product that cannot stand on its own two feet in order to get a bonus by beating a deadline, there are near term risks given schedule of rewards and punsihments whenever the so-called nimble but actually stodgy corporation attempts to change…institutional rigidity and resistance to change from within. Thusly the message that change might not be good works its way back up to the top. But those at the top are no less immune to this sort of risk adverse thinking and this type of thinking predominates with top companies because they no longer think like they might have some competition.

    We are learning all over again why antitrust legislation came into existence. For the last 40 years we’ve been proactively betting the farm that all of that had been a terrible mistake. However the ones telling us this are precisely the ones who have been unable to change with the times.

    Government can solve this problem INSTANTLY with a combination of tax incentives, a whopping tax on fuel inefficient vehicles and passing stronger antitrust regulations. They owe the American worker this much.

    The problem with the magic of the market theory is that there are human beings involved with all the same shortcomings as the human beings the free market fundies claim are ruining things. The problem certainly isn’t the consumers who would love that 80mpg car.

  17. btchakir  •  Nov 20, 2008 @11:09 am

    Who do we trust least? The Bush Adminstration for the last eight years or the Big 3 Auto Makers?

    Here I am, a taxpayer among taxpayers grovelling in the miasma of the middle class and hoping like Hell that things will get better with the new Administration.

    Then I listen to the heads of the Big 3 automobile manufacturers on C-Span as it was re-run last night, begging for 28 Billion Dollars from the lame duck Congress – with no plan, no reasonable means of payback and literally no respect for the folks like us who the expect to buy their gas-eating SUVs. And these guys, as was pointed out by just about every television news program, all flew into Washington DC on their individual private jets at a cost that would probably pay the health-care costs for workers at one of their factories.

    Give me a break! Aren’t these the guys who killed GM’s original Electric Car program in 2006, when they had a successful vehicle being driven by 800 2-year testers, most of whom were happy as bunnies in a carrot patch with their cars? Then they were recalled and destroyed ending the program, most likely at the whim of the oil industry.

    And now they’re telling us how they will get us to the new hybrids and electrics and natural gas babies in the near future (but we don’t know how they will do it or what the money will really be spent on) and won’t we pleeez look the other way and give them the money.

    You know, I was suspicious in the last month when Paulson told congress to authorize the $700 Billion for the mortgage bailout because, if we didn’t in 48 hours or so the world would end. So Congress kicked over the first half of that money and…lo and behold… we don’t know how it was spent. Not on bailing out mortgages, because that situation has gotten worse. And Paulson now wants the rest so his banker buddies and AIG won’t miss their Christmas Parties.

    Who do we trust? Who do we believe? I’d feel much better if I knew that Obama has announced the appointment of a new Treasury Secretary that I thought could take all these guys by the scruff of the neck and shake some changes into them. Like sell the private jets. Like put your senior executives (and Chairmen) on the same salaries as Union employees. Like make all financing totally dependent on having plans and keeping promises.

    Why do I fear that this will never happen?

    Under The LobsterScope

  18. Mike G  •  Nov 21, 2008 @6:06 pm

    I think anyone who has ever spent much time in big corporations [knows]. Most corporations don’t reward competence as much as they reward aggression.

    You got that right. Some of the stupidest, most smug, arrogant and pig-ignorant people I know are in big corporate management — selfish, self-serving corporate politicians who excel at self-promotion and little else. They’d have fit right in with Bush’s collection of mediocre criminal cronies.

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