Let’s Try Again on…GM

G is for Gigantic M is for Meltdown

It’s got to the point where all you have to do is ask, and the billions come flying your way just because “you’re too big to fail”. It’s not a lesson any of us mere mortals can use, but if you’re a great big dinosaur of a car company, go right ahead.

General Motors we’re told by their auditors is at substantial risk of bankruptcy. That is not news. But it’s a useful little nugget to use if you happen to be GM looking for more cash to delay your collapse. Everyone knows the Obama administration is going to pay up, because the alternative is just too bleak to consider. GM goes under, and takes down the entire supplier structure which would be a body-blow to the rest of the world car industry, not to mention the hundreds of thousands added to the unemployment rolls in states that are already on their knees.

It’s a forlorn hope, but at least we should be a little imaginative in how we hand the money out this time. After all, we’ve kind of got these guys by the short and curlies. All we have to do (on behalf of the taxpayer of course, is twist). Here’s how…

The Definition of Normal by George W. Bush

normal is just a word

It’s more than a tad ironic that one of the last and most important acts of the outgoing Bush administration will be to attempt an end-run around Republicans in Congress and allow a bridge loan to the US automakers from the the $700 billion set aside all those months ago for the purchase of “toxic securities”.

The White House supported this turnaround with a fabulous piece of Bush logic. To wit; In normal times, the Bushies would have much preferred that the market decide the fate of the automakers, but these, it suggests, are not normal times, and therefore extraordinary measures are needed.

Not a bad version of the West Wing Shuffle, one might think. Except the logic has one drawback. It is as a result of years of allowing the market to take its ‘normal’ course that we are in the mess we are in now. One doesn’t test the beliefs of true free market ideologues during normal times. The only time they can be truly tested is in extremis.

“We Simply Cannot Ask The American Taxpayer To Subsidize Failure”

Study the words in the title, and take a think. Haven’t we already subsidized failure to the tune of hundred of billions in the last three months?

i speak with forked tongue

Before Mitch McConnell uttered the phrase above, he made sure to try to separate the bailout of the auto industry from the bailout of the financial industry. The financial bailout he said, was to shore up the entire economy. The auto bailout would support a single industry.

But McConnell’s cries of selectivism should fall on deaf ears. The US Auto Industry is no ordinary industry. It represents a big chunk of our albeit shrinking manufacturing output. It’s not as if the aluminum siding, or the garden furniture industries were looking for federal handouts. We’re talking about cars here. You can’t walk five yards in this country without seeing fifty. If the US car industry were to fail it would impact millions of Americans, would crush a thousand companies that rely on the Big Three, would severely impact the world auto industry, and would dig us deeper into recession.The truth is that sometimes principles have to suffer. But it’s not as if McConnell and his fellow Republicans can make any claim on ideological purity when it comes to subsidies.

Some Bailouts Are Big Gifts. Some Bailouts Are Bad Loans.

Maybe it’s the rise of the Internet that did it, but there are an awful lot of lemmings in the fourth estate these days. Once the zeitgeist gets hold of a word it’s everywhere fast. That’s especially true of catch-all terms that lose their meaning the moment anyone begins to dig even a tiny bit deeper into a story.

Take the term “Bailout”.

In economic terms it means ‘assistance to a financial or other institution in distress’. But assistance can mean anything from a loan that nobody else will give with very stringent terms to a total and utter gift.

There have been a ton of bailouts in the last few months. We don’t have to list them all, we’re just going to focus on two ‘institutions’, Citigroup and the Big Three Auto manufacturers.

Let’s look at what these two have in common. Both of them are vast with global reach and influence.  Both of them made awful business decisions in the short, medium and long term that led them to the brink of collapse.

Now let’s look at what people perceive they have in common, namely that both are “too big to fail”, another term of limited meaning. Citigroup is too big to fail because of the depth of its interconnected interests throughout the financial world. The Auto Industry is too big to fail because whole regions of the country depend on it for their economic welfare.

Finally let’s examine where they are different. Citigroup is a financial institution that buys and sells assets with client and depositor funds. It employs in the region 300,000 people worldwide. The Auto industry makes cars and trucks, is the backbone of US manufacturing and directly and indirectly employs around three million Americans.

It’s a tribute to how well the Finance, Insurance, Real Estate or FIRE sector has sold itself over the last twenty years of the Reagan Revolution that a bloated, shapeless and rudderless behemoth of a bank should be regarded so highly, while the jewel of America’s industrial crown should be treated as if it’s already on the scrapheap.

That contrast is perfectly reflected in the way that the United States Congress and the Administration has handled the ‘bailouts’ to Citigroup and the Auto Industry.

Ford + GM Have Been Making Small Cars For Years. In Europe.

Recognize these?

The one on the left is a Ford Ka, the one on the right is GM Vauxhall Corsa.

Small, good-looking, low cost, not at all thirsty, and sold in Europe for years.

Ford and GM during their latest congressional grovel sessions, said they’d tool up to produce small cars in the US. Great idea, except they’ve been making small cars for decades. Good ones too.

Here’s the rest of the Ford Europe Range, and here’s the GM Europe Range (brand name Vauxhall). Take a look. Would they be able to take on Toyota and Honda in the US? Definitely.

They both have great well designed ranges that could be really competitive in the US, with low emissions, great gas mileage (almost as good as a hybrid for way less money) and far better European styling than we’re used to here in the US even from the Japanese.

So why weren’t they for sale here?

The Idea That America Won’t Make Cars. Ridiculous.

america the proud

The Auto Industry defines America. There is hardly a major part of recent American history that isn’t profoundly influenced by cars, socially, economically, and politically. As the nation debates the future of its manufacturing heart and soul, it’s worth looking back a few decades in the shape of a list of manufacturers and their slogans or ‘taglines’. It wasn’t always the “Big Three”.

The list speaks for itself about the how much the nation’s vibrant multi-faceted, innovative car industry has been laid low in the past few decades.

The name of each manufacturer (and there are many) is followed by their slogan. Full of pathos, a vigorous, often naive optimism,  and an odd polite dignity, they tell of a time when American manufacturing ruled the world. Some of the lines are truly priceless. Enjoy.

What’s Good for America is Good For GM

Is this the future of the Big Three?

David Brooks in today’s NYT suggests that bailing out the Big Three US car companies is a bad idea. While I have some doubts about his ideologically driven “creative destruction” thesis, the notion that some US Government Car Czar is going to be able to prevent these monoliths from going over the precipice is absurd. They are beyond recall in their current form. I come from the UK and back in the seventies we experimented with nationalizing the once glorious British car industry. British Leyland was the result and it was a national joke.

There are many well documented reasons that the Big Three can’t be saved; ranging from massive legacy costs, onerous union agreements, byzantine, slow moving management, being enslaved by short term stock prices, outmoded technology, and of course bad, boring cars. These companies as they are now are from another era. They are inherently dysfunctional, and need to go.