Save the auto-industry! Don’t vote Democrat.
Recently the Donkeys (Democrats) have been demanding that the government “rescue” domestic automobile manufacturers (GM, Ford, and Chrysler). As they always do when they make a power grab to further control and steal from their constituents, politicians (namely Obama and Pelosi) have been speaking out regularly demanding “immediate” action by the federal government to give billions upon billions of dollars to these struggling domestic auto manufacturers.
The Wall Street Journal reported early Wednesday that Democratic leaders in Congress as well as the incoming administration from President-elect Barack Obama are formulating ways to include Detroit automakers in the government’s $700 billion rescue fund.
The Journal said Congressional Democrats plan to forward legislation next week to secure such a deal.
The move comes after House Speaker Nancy Pelosi called Tuesday for funds from TARP, or the Troubled Relief Asset Program, to be used in aiding near-bankrupt Ford, GM and Chrysler LLC.
Obama reportedly also is asking the Bush administration to free up funding immediately, the Journal said. Obama reportedly is seeking funds through the Treasury, Department of Energy and the Federal Reserve.
Politico.com also is reporting that Obama plans to appoint an auto “czar” to oversee reforms in the industry. That person would press for an “economically viable auto industry,” the Web site said.
Source: MarketWatch
A more short-sighted plan, I could not imagine.
The obvious crimes of this plan are in the taxation of the entire nation then redistributing that money to a small group of people – all while paying the government along the way to facilitate the forced transaction. While this is the more serious crime, I don’t want to sound like a broken record.
The problem, outside of the government theft, is that this plan will simply not work. Pelosi, Obama, and company were requesting a $25 billion rescue by the government for the auto-manufacturers. Naturally, this number has now inflated to an unknown figure as the democrats are now attempting to include the auto-industry in the $700 billion (before $250 billion in earmarks) bailout that was initially intended for the financial sector.
$25 billion is a lot of money to distribute from tax payers to three large companies (GM, Ford, and Chrysler). However, it will certainly become a far greater figure, especially if it is included in the $700 billion bailout. Recently, Ford and GM have stated that they will run out of cash in 2009. The problem is this: as of the beginning of 2008 GM had $25 billion in cash on its balance sheet and Ford had $35.3 billion. That means that within a two year period (perhaps less) these companies will have blown through a combined $60.3 billion in cash. Given that Chrysler will also be in on this $25 billion rescue, we can imagine that Ford and GM will be given a total of well under that $25 billion. If these companies keep burning cash at the rate they are doing today then this “rescue” will keep them afloat for another couple of months before yet another and another rescue will be required. This waltz between the government and the automobile companies will continue for years and will cost tax-payers billions of dollars.
So what should be done? Should the government just stay out of it and let these giant companies collapse and allow for hundreds of thousands of people to lose their jobs? Yes. There is a reason that GM, Ford, and Chrysler are in much more trouble than Toyota or Honda – labor unions. The domestic automobile manufacturers have signed huge contracts with labor unions guaranteeing certain levels of compensation to their employees along with a number of other benefits. The companies are forced to pay their employees so much that selling their automobiles becomes unprofitable and they burn through billions of dollars of cash. If these companies are left to the powers of the market, as they should be, they will likely either consolidate or go bankrupt. In the event that they are completely bought out then it will likely be by a company that has tons of cash that believes it can do something different to make the company work. If they go bankrupt then they will be protected from their obligations to their creditors and their employees, but will be forced out of business. However, their assets will be put up for sale, including the brand names. As such, a crafty company or a private equity group is likely to move in and purchase the assets of these failed companies, including the names themselves. The money from these sales will be given to the manufacturers’ current creditors as payment on the collateral that was defaulted on. The company or equity group that purchased the manufacturers’ assets will likely resume business as usual at the same plants producing the same automobiles. Additionally, they will likely hire back most of the old employees, but without that same labor union contracts that forced the earlier manufacturers out of business. In essence, if the market is left free to control itself then the companies will re-establish themselves as profitable going concerns and their employees will be able to rely on some job security that is currently deteriorating at a rapid pace.
The market is dynamic because people are dynamic. A market is simply a group of people that express their wants and needs through supply and demand and the language they speak is price. The current state of the domestic automobile manufacturers prohibits them from selling their products to the market at a price that enables them to be profitable. The market will eventually push these companies out of existence and replace them with something superior. Failure in the market is a good thing in that it allows innovation and progression. Sometimes destruction is the most beneficial to creation. The market knows this. The government does not.
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It’s not so much the workers of today that are draining GM of cash, it’s the commitments to retirement and healthcare that they made to the workers of yesteryear.
Awful to say, but when all of these retirees die off, the big three will be in better shape. If GM can just get enough money for solid R&D on one game-changing generation of fuel efficient cars (like what Ford had with the Taurus in 1986), along with a strong ad campaign for people to buy American, I think they can turn it around. If they’re only going to get enough money to keep the doors open for another year, then forget it. The government either needs to show faith and courage and go big with their investment or not give anything at all.
On a more broad note, we do need to get kids who aren’t going to college in a manufacturing job rather than working at Taco Bell or Chili’s. Otherwise, we’re just a nation of mostly number crunchers, people formatting excel spreadsheets, and service workers. Without the government as a catalyst for re-industrializing our nation, who will do it?
Why should the US government inject billions of dollars to simply save a dying industry. And I say dying industry not just as a reflection of the auto industry, but as manufacturing in the US as a whole. For the most part, the US has absolutely no comparative advantage to other nations with regards to manufacturing costs and efficiencies and no amount of government capital can change that. The US does not need to get kids who aren’t going to college into manufacturing jobs, they need to get those kids into jobs that have a future in American with regards to their permanence and importance. Injecting money can delay the inevitable but it won’t prevent it. “Without the government as a catalyst for re-industrializing our nation, who will do it?” I couldn’t have said it better… no one will do it, because it is not cost-efficient and profitable to re-industrialize our nation. If it was profitable and feasible, it would have already been done by the private industry.
I’m fed up that there’s a reluctance to use new technology and that manufacturing and design engineering is a dying art (see: unsexy) in this country. We’ve been seeing the fruits of technology in mainstream appliances in Japan and South Korea for years; why is America so late in the game? Why is it the LGs and the Sonys and the Samsungs that can put out the best fridge, TV, and Blu-Ray player? Where’s America’s technological showcase? There’s only one American company I can think of marketing a tangible gotta-have-it product to the mainstream, and that’s Apple. In the meantime, we must turn our heads to Japan and South Korea for everything else.
There’s been a disturbing and dramatic shift from America as a country of innovators, to America as a country of people dicking around with finances. With that industry effectively squelched, we have to turn to something else. I don’t see General Electric, America’s foremost manufacturer, doing much about it though. What kind of exciting technologies have they introduced in the last 20 years?
Tyler, those items probably are not manufactured in the United States because it would be too expensive to do so. Labor in the United States has become very expensive because the talent in the United States is so high — many citizens of the U.S. are better suited doing more intellectually oriented work that includes analyzing spreadsheets, as you pointed out. Physical labor has slowly been drained from out society and will likely continue to do so unless we throw ourselves back into the industrial age.
This reminds me of when the industrial age began and people decided that farmers needed help to stay afloat because that was a real job where necessities were produced. I closed this post with the line, “The market is dynamic because people are dynamic.” The United States is not a dynamic thing, the people that inhabit it and run it are dynamic. The United States doesn’t produce any refrigerators, people do. As people change markets change and the people of the United States have changed in the direction of a service oriented economy. This should be looked at as progress towards better, more efficient lives.
There is a term in economics called comparative advantage that, in layman’s terms, states that the country, company, or person that is the better than their peers at one given thing may not always be the one to produce that thing because their time and efforts are better suited producing a different thing that they produce even more efficiently relative to their peers. That is, if you’re great at making refrigerators and I am okay at making them then you would think you would make the refrigerators. However, if you are also great at engineering the design of computer chips and I am horrible at it then we are better suited having you spend your time engineering computer chips and me making refrigerators. That is essentially why there isn’t much manufacturing in the United States.
Tyler, it is impossible for one country to be superior in everything economically. Japan’s consumer electronics industry is a direct result of a high concentration of electronic companies within the country; they benefited greatly from each other in terms of costs and technological synergies. It is just like how Silicon Valley came to rise in the U.S.; the concentration of high tech companies become bunched together because they can benefit from one another. Yeah, America is losing the manufacturing industry, which was once a stronghold of the American labor force, but back then, we didn’t have the thriving tech industry we do today. America does the high skilled jobs because it is what we are the best at doing and we export our manufacturing because that is what those countries do best. Take a look at Intel, only 40% of their revenue comes from the US, but 80% of their costs and jobs are here; because US is great at research and development. It just goes about the essence of creative destruction which is probably the fundamental concept in a capitalist society which is that capitalism destroys industries, revolutionizes industries, and creates new industries all in the name of efficiency. GE hasn’t introduced many new technologies in the past 20 years because frankly, they haven’t been trying that hard to cause they know that its not what they do best. They have been moving towards the service industry.
I see no point in funding a failing cause. When purchasing a car one considers several things. One wants to feel safe in the vehicle, believe the car is worth more than what was paid, and, more importantly, they are concerned with its longevity. It seems as though manufacturers such as Ford have had some really terrible marketing ideas for a mediocre product and people have turned to other brands that take safety and good design as opposed to a mere patriotic attitude. The current state of these manufacturers was not made by one poor decision, it was created by many. After seeing the trend of failure I have to wonder why help should seem necessary. Should we keep these companies afloat just a little longer because we feel sorry for them? Absolutely not. It is not fair that taxpayers pay billions of dollars at the will of its government when sound business planning on the company’s behalf seems unlikely (or possible). Of all the things taxes may be used for this seems unreasonable. I don’t see how draining a nation of taxes for one last attempt is better than suffering lost jobs. Those laid off won’t be permanently out of work, the market will cycle and eventually offer new positions where old ones cease. Big Brother is far too eager to point out how many jobs may be lost without their help (funded by our paychecks). But then again the government is not in business to see that everything runs smoothly. If they let the market regulate itself who would get credit for it or profit from it? The government seems not to care as much for balance as it does overcompensating for bad decisions. It seeks answers that alleviate the problem, but their short-term solutions prove only to further cripple the nation. Like any other product, the government will never meet expectation, it simply is more profitable if they involve themselves in the drama and stick their fingers in our pockets when things get difficult.
Yes, government should have stayed out of it.
This is just another example of Who died and left you God, congress? Or who said, you have all the right answers?
You see several years back, Congress start discouraging what Americans wanted to buy. They added a gas guzzling tax on vehicles that could not meet a standard they see for mpg’s. Went up over the years progressively. Eventually pricing the vehicle out of more and more Americans affordable range.
If that was not enough, they say no exploration or drilling in America. Prices rose hgiher and higher at the pump to operate these vehicles.
Now I had to finally give mine up with regret. It was not they build a vehicle I did not want. Thanks to Mr. G, they built a car I could not afford.
Now Mr. G (God or Government) knows best. Wants to bail out those losing their jobs. Maybe they should bail consumer out with cash so they can afford again what they want?
Forgot, Mr. G knows global warming is a fact and that I ought to listen to his almighty voice from the White Hills of DC. Bolder dash.