Tuesday, November 18, 2008

Dinosaurs in Detroit

Much talk in the national media lately has focused on the so-called Big Three automakers and their plea to be given a part of the $700 billion bail-out to help them dig out of their current dire financial straits.

The Bush administration and many Republicans oppose the idea, while several key Democrats and president-elect Obama support the notion.

Me? I think it's a mixed bag, but I am somewhat surprised to find myself leaning more closely to the Republican opinion on this one.

Don't pass out just yet.

I believe that the Republican-dominated government of the past 8 years (and the Republican dominance of policy for much of the last couple of decades) were huge faciliatators of the rampant deregulation that helped foster the current economic meltdown. Now that the automakers are failing, too, it's not hard to see why so many of them would be opposed to helping them out: most of these companies are based in Detroit--not exactly a Republican base--and, well, unions.

Still, I find myself agreeing with them that maybe throwing a bunch of money at floundering car companies isn't such a hot idea.

The New York Times recently published an interesting article dealing with the issue, wherein it was proposed that part of the reason so many Americans are opposed to bailing out Detroit automakers is that the industry has been so resistant to higher fuel efficiency standards at a time when oil prices are through the roof and climate change is more severe than ever.

I think there's something to that. The Big Three spent millions of dollars to lobby Washington not to pass higher fuel efficiency standards, complaining that they simply didn't have the technology to make these modest changes. All the while their bottom line was suffering dramatically, factories were shutting down, and workers were being laid off. Oh, but they still had/have enough money to pay out huge sums for CEO bonuses.

You'll forgive folks if they're not terribly sympathetic to their plight.

What makes the situation so complex, though, is that Detroit's automakers have their fingers sunk so deeply into the American business landscape. Everything from the factories to the parts suppliers to the dealerships would be negatively impacted by one or more of the big companies going belly up. It would result in job losses on an epic scale, and no one relishes that possibility.

But it may have to happen. After all, I suspect that, in addition to the financial burden the $700 billion bail-out puts on taxpayers, another big reason for public resistance to such ideas is that we're supposed to have an economy based on merit. Companies that don't run themselves efficiently, aren't innovative and creative, fail. Companies that do all of those things succeed, and rightfully so. It's economic survival-of-the-fittest, (in theory) insuring that only the best business practices survive to serve the people.

Instead, here we are with companies that were allowed to grow huge and all-encompassing despite poor business practices, cronyism, and book-cooking (a lot of this thanks to the enabling acts of Republicans--and some Democrats--who were so gung-ho to deregulate everything). And now they're paying the piper and teetering on the brink of oblivion--only, the Vested Interests That Be are trying to use taxpayer money to save them. This flies in the face of everything we as Americans were taught about what capitalism ought to be.

Detroit could have learned a thing or two from the foreign automakers that moved their factories into the southern United States. Companies like Honda and Toyota make much more fuel-efficient vehicles and take very decent care of their workers, right here in America (side note: I find it ironic that the "American" car makers have most of their factories located offshore now, and a lot of the foreign car makers build them right here in the country).

Instead, they chose to plow ahead with their giant, gas-guzzling fleets, outsourced assembly, and big fat CEO bonuses. In their wake lies a devastated Detroit, where large swaths of once-glorious industrial buildings now sit abandoned in a post-apocalyptic-like landscape. Good jobs are hard to come by. Crime rates are high. Corruption infects the local government. Certainly, not all of that can be blamed solely on the automakers, but a large chunk can: after all, when a city comes to rely on one primary industry, and that industry then conducts itself selfishly to the point of negligence, it leads to massive layoffs and outsourcing and sucks much of the life right out of the city it once supported.

We're now looking at this sort of thing happening on a national scale.

In the NYT article, it's noted that Susan Tompor, a columnist with the Detroit Free Press, was moved by all this recent criticism of the Big Three to write "I never knew Detroit was a dirty word."

I would argue that "Detroit" isn't a dirty word, but "Detroit Automakers?" Not really winning any new fans at the moment.

Painful as it's likely to be, perhaps it's time to let these companies fail. It could be done with forethought--a plan to help layed off workers retrain and/or move into different lines of work (and shift their health plans over to a new universal Medicade program). There are still relatively successful car companies operating in the country; some could go to work there, building the more efficient vehicle models of the future. Because the thing is, we're always going to need car-like transport. As big an advocate as I am for biking and public transit, I recognize that cars and trucks have become an integral and important part of our world. There is a way to build them to have less negative impact on the climate, and to design cities to be less car-centric. That's what we should be focusing on, and those businesses that work toward those ends should be given our full support.

If the Big Three make an honest effort to get in on that, great, help 'em out. If not? I'm tempted to say let 'em fall.


ellie said...

They're rapacious coprarate bastards, that's for sure, but this is a pretty bad time to lose over a million jobs, and the ripple effect is going to be terrible.
The bailout is over a trillion now, pumping 25 billion into a real industry insead of a fantasy finacial mess seems like chump change.
I think we should rebuild GM as a maker of rail cars,freight trains and large hybrid trucks.
The southern state Senators with non union auto building plants are all for killing off Detroit, and this is another opportunity for the Republicans to kill a union.

Emily said...

I'd be all for retooling GM and the like for hybrid, train, bus, and/or subway car production - I don't hold out hope for such an ambitious overhaul plan, though.

And you're right, I get the distinct impression that many of the Republicans opposed to bailing out the automakers are just stridently anti-union, and also don't have any of these companies making cars in their backyards, so either don't care if they go belly up or are actively out to shut down unions.

I guess what I'm advocating is not just dumping a bunch of cash on these guys and not asking for anything in return (which seems to have been our plan with the financial bailout, which is already failing spectacularly), but rather making sure to stipulate that either you make big changes now, or you're done.

Jesse said...

They did get themselves into this mess and I wish I could easily say, let 'em file for Chapter 11, but I can't for a number of reasons.

1) At least 3 million jobs are dependent on the big three. That doesn't simply include employees of those companies. If you've been following all of the part manufacturers that have been laying off employees as GM closes up shops then you understand the ripple effect magnitude of the situation. Also, thousands of dealerships that are specific to these three companies will be forced to close.

2) I don't know if you have a U.S. made car, but good luck finding a new part if these three companies have to go bankrupt before they restructure. Like I said above, auto part manufacturers that provide these new parts to the plants that build the cars also provide the parts that are used to fix your car. Don't be surprised if your mechanic says "I'll have to go to the junkyard to find this part."

3) I encourage you to take a hard look at Ford's business plan. Of the three companies they have been working very hard to move in the right direction, a green direction. They've been making risky, but important changes that they knew wouldn't be profitable in the immediate future, but would be profitable a couple years from now. Unfortunately for them the economy tanked before they were able to complete the changes and now they are hurting. The were doing the right thing, just had bad timing.

4) The government has set a precedent. They bailed out the financial sector which was arguably managed even worse then the auto industry. Also, the mortgage practices of the financial sector had a direct impact on where the auto industry is now. Foreclosed home? Sure aren't going to be in the market for a new car. Poor, but not bad credit? Good luck getting a vehicle loan in the current credit climate. The financial sector is responsible so the auto sector deserves a portion of that bailout.

5) The auto industry is 4 percent of our national GDP. This is one of the last remaining industries that actually produces something in the United States.

6) If these companies go bankrupt those millions of pensions will fall onto the back of the federal Pension Benefit Guarantee Corporation. The end result will be a massive federal bailout of the PBGC. Additionally, with company/union provided healthcare gutted the government would be liable for a 65 percent tax credit of pre-Medicare costs for auto workers. Roughly $3 billion per year.

In any other climate I wouldn't have as much of a problem with one of these companies falling into bankruptcy, but I don't believe the country would be able to withstand such a collapse.

The Lost Albatross