Friday, November 14, 2008

Maverick


oops wrong soundbyte. I meant to say:

"Bailout."

But....really?

U.S. Representative Jeb Hensarling (who hails from the one other state besides Michigan that causes an inordinate amount of grief to our nation*), latched onto the "bailout" bandwagon when he told (more grief) Fox News: “You wonder where bailout-mania will end.”

Mr. Hensarling said American automakers should bear responsibility for their failed operations. “They are producing high-cost products that consumers don’t want to buy. And so now we have Washington on the verge of giving them a bailout simply because we have all heard of them and they have high-priced lobbyists.”

Ok sorry: this is where I must now intervene...and for reasons beyond a feral need to defend my beleaguered hometown. Because, not only is the above statement simply untrue (consumers DO want to buy gas guzzlers when gas is cheap), but there are several things that differentiate the Big 3 (an admittedly nostalgic descriptor these days) automakers from the financial services firms. Namely, the automakers have**:

  • high fixed costs for manufacturing
  • a heavily unionized workforce that adds a prohibitive cost element and restricts competitiveness globally
  • an extensive supply chain that impacts various elements of the economy (steel, textiles, electronics, manufacturing)
  • environmental implications which have only recently been uncovered and require regulation...nearly one century after the industry structured itself without these considerations
  • an aging labor demographic that, if abandoned by the existing pension commitments, stands to significantly...significantly drain the federal government's social services

None of the above conditions apply to the Wall Street firms. And, none of the above conditions are remotely likely to be re-created in another industry any time soon. And as such, the moral hazard moniker being used to avoid aiding the Big 3 simply doesn't stick here.

Oh, and isn't the proposal on the table for the automakers just for about $25B of the (as of today) $700B+ in assistance funds? So if moral hazard is irrelevant and just 1/28 of the $ set aside thus far is all we're talking about, what is the real story behind the lack of political will?

As much as I really wanted to get the hell out of Dodge (viva la double entendre) when I left the Great Lakes State, I sure don't want it to be a total black star.

*and provides yet even more grief in his role as chair of the paradoxically-named Republican Study Committee.

** credit for this list goes in part to Salon poster Elephantman who provided much insight into the unique history & economics of the auto industry

2 comments:

Vincent P said...

You may be emotionally biased, but your analysis seems fairly sound. However, 25B is still a lot of money even if it's not 700B. How about this instead: Toyota buys GM and Honda buys F and re-hires the workforce under their own contracts. When all is said and done, it is the 2/3rd premium GM and F pay for labor that is killing them. When the economy is strong and gas is cheap, it masks the labor costs they have to pay.

Anonymous said...

Biz,

I agree the worst-case fall out would be a catastrophe, especially for the Detroit area...but bankruptcy does come in several flavors. If we want to have a viable auto industry in 10 years, we have to do more than throw money at the problem.

The auto industry needs to get out from under the yoke of the UAW, and it needs new management. In bankruptcy, we can see both of these.
Yes it will be painful here in the D for quite a while...but that is where government funding can come in--ONCE the new rules of the road are set.

Giving money to the autos now is simply postponing the inevitable.

Martin Tibbitts