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Loan not good idea for U.S. car makers
The Chrysler emblem at company headquarters
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TEXT OF INTERVIEW
Scott Jagow: Time to visit with our economics correspondent. Chris Farrell. And the topic this week is the auto industry. There's talk of a loan to help GM and Chrysler complete a merger, or some other direct assistance to American car makers. But Chris, based on the e-mail you sent me, I know you think the government should keep its hands in its pockets this time. Why?
Chris Farrell: Well for one thing, I mean this sounds harsh but if GM and Chrysler disappeared, we'd still be able to buy as a consumer, we'd get cars from Ford, Hyundai, Honda, Toyota. There's plenty of car makers out there, so the consumer's not going to get hurt. And secondly, it's a competitive market. GM and Chrysler have made a lot of strategic mistakes, management has made some terrible decisions. And finally, I mean if you just look at Chrysler, it's owned by Cerberus Capital Management, it's a private equity firm. So the American taxpayer is going to bail out a private equity firm?
Jagow: Well, there are a lot of jobs at stake here, Chris.
Farrell: Yes. So my notion is, let's not give the money to Chrysler and GM and the management. Let's give it to the workers. Now if I do the calculation right and we're talking about $10 billion, that's about $70,000 per worker. As a voucher, workers can use it to retrain, workers can use it to move to a different part of the country. And of course some of it might be wasted, but it is a waste of money to put it into the companies themselves. We've seen disaster after disaster, whether it's in the steel industry in the past, where companies have not done what we expect them to the do with the money. What I would prefer is look, go into bankruptcy. We don't need a taxpayer bailout, so just declare bankruptcy. But if the politics are such that we are going to do some form of bailout, let's not direct it to the companies. Let's protect who we're really worried about, which is the worker.
Jagow: All right, so are you basically saying to give up on the American auto industry?
Farrell: Whoever can survive, survives. Seems like Ford's going to be around, right? And maybe a smaller GM or a smaller Chrysler, or maybe Chrysler disappears, a small GM -- I don't know how it's going to shake out. But as far as I know, there's lots of auto plants here in the U.S., there's no shortage of cars. We have a lot of auto workers, they just happen to be working for companies with names like Toyota and Hyundai and Honda. Yeah, we're going to have a shrunken industry, which by the way, has been shrinking. Let the bankruptcy system deal with it.
Jagow: All right, Chris Farrell, our economics correspondent. Thanks.
Farrell: Thanks a lot.
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First, let me say that while we probably should do something in the way of assistance, I've not read or heard anything about how to stop this from happening again. Maybe we should start by adjusting wages to the rest of the other car makers who are not in trouble and changing retirements from pensions to 401 K's like the rest of the other car makers. There has to be a reason why they are not in trouble and Detroit is. Also, I will remind everyone that as Detroit rose in power and destroyed everything and everybody that got in it's way...the Government helped not one of them...Tucker, Railroads, trolley systems, local small bus companies,etc., etc., etc....Detroit destroyed many small companies on it's way up...give them the opportunity to get in step and that's more than they have done for anyone.
Why are we bailing out Detroit? The executives have shown they are not competant. That money should be going to where it would do the most good. Start ups like Aptera and Tesla are putting out 200 mile electric and 300 mpg hybrids that WE NEED. They are hurting the most from this credit crunch. They show the most promise and they deserve our aid. When Detroit goes through another round of lay offs, companies like Tesla will be the ones hiring. A little better forsight right now is what the taxpayers deserve.
Mr. Paulson worked for GoldmanSachs, not GM. : ) The US government is solving the credit crisis (or theft in other words) by pouring money to cover the theft. How are they getting all the money? They are 'borrowing' money! Yes, more credit to solve the credit crisis.
Your story about the auto industry was cursory at best, and demonstrates a poor degree of knowledge about international econimics, and at worst is a myopic outdated U.S. centric set of principles that guide your thinking. Yes, the U.S. auto companies have made some poor decisions. How about the Asians and Eropeans, who's most recent new product introductions have been large, gas-guzzling SUV's and full-size trucks? Did you know the Honda Pilot has among of the worst mileage in it's class? How come NPR didn't call the Asians out on there poor strategic decision in launching the QX, LX, Tundra and Titan? What about the fact that Japanese, Korean, and Chinese companies do have governament support and the U.S. companies don't? And what about Health care? Some of those companies don't have to fund it like the U.S. companies do. Also, did you know that the Japanese government invested in Hybrid battery development years ago? Where was the U.S. governement? Regarding Europe, did you know that the government institured a gas tax which drove consumers to buy smaller vehicles? U.S auto executives advocated for gas taxes for years. Why didn't you advocate that? The U.S. companies did not force consumers to buy large vehicles. And what about barries to trade? Korea limits U.S. vehicles to a pittance. Japan has so many hidden barries, like inspections, that gaining any volume there is almost impossible. And in China, the government owns 50% of any foreign investment. So, do you think it's a fair marketplace? Do you feel the U.S. governement has been responsible to it's basic industries? We need a basic economy that's more than "services." If you are going to profess to be a econmics expert, you really need to take a more integrated global view, and look at fairness in trade policies.
Chris Farrell's comments led me to do a little economic homework of my own. Chrysler and GM comprise 44% of the installed capacity (approximately 18.6 million vehicles) for light duty vehicles in North America and an estimated 28% of the vehicle sales. While nobody may miss their brands if they were to fail, this capacity cannot simply be wiped off the slate. The remaining manufacturers cannot fill that void. More importantly, the supply base for all the vehicle manufacturers is very intertwined. My relatively small company ($200 million) supplies product to GM, Chrysler, Ford and Toyota. If GM or Chrysler runs out of cash or declares bankruptcy and stops paying their bills, we run out of cash and stop manufacturing without a major infusion of cash from the other manufacturers. This is the same situation at hundreds of other suppliers, many much larger than we. I am not thrilled about a loan to fund the merger. But bankruptcy is simply not an option. It's Armageddon.
I was surprised at Chris Farrell's superficial analysis that GM and Chrysler should be allowed to fail and that Ford is "doing all right." Despite my address, I'm not involved in the auto industry, but I AM a manufacturer. I make real things -- tangible goods that need to be produced in a physical location by humans and machines, not "financial services" that can go anywhere and often should.
My suppliers are also auto suppliers. Several key services that used to be easy to obtain are now difficult or impossible. Some materials now have extended lead-times because the economies of scale that the auto industry sustained have collapsed. If I can't buy steel tubing because the mill won't roll it every week because GM isn't buying, well, then I can't satisfy my customer in Brazil or Toronto or Wisconsin. I may lose that sale to a company in another country.
The issue isn’t easy enough to dismiss the way Chris and many of my fellow listeners have done. As Holman Jenkins pointed out in the Wall Street Journal October 22, our Federal government has been "in the car business" for decades, distorting the market and driving many bad decisions. GM, Chrysler, and FOrd mamagement aren't geniuses, but they are not idiots, either. Marketplace owes it to the listeners to look at this complicated issue with more than the feather-dusting Chris Farrell gave us.
OK so we let them fail and then we can not only buy all of our oil and energy from other countries but we can buy all of our vehicles to. How does that sound. Pretty soon we can import everything and none of us will have jobs. If we can bail out the greedy bastrds of Wall Street and the Banks why not bailout the people who really work fo a living.
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