on the insanity of an automaker bailout

The proposed US bailout of greedy financial institutions is crazy enough, but now there’s talk of bailing out the automakers? What in hell happened to the free market? US automakers are in trouble because they build shitty products that people don’t want to buy. And they haven’t retooled fast enough, as others have. Toyota’s not looking for a bailout, they’re just making better products. Honda’s doing OK. etc…

A US automaker bailout is just the government declaring “we know our products are shit, and we think you should keep buying them, so we’re going to subsidize the morons that run the companies.”

Companies that come up with brainstorms like the 3 ton monster truck “Escalade Hybrid” (now getting 18 miles per gallon! amazing!) shouldn’t be allowed to continue existing. They need to go away. It’s sad that people will lose their jobs, but the companies are zombies already. Lots of OTHER people are going to lose their jobs, without the chance of bailouts. Why are automakers special? Because we LOVES our cars. And burning oil. That’s the (North) American way.

30 thoughts on “on the insanity of an automaker bailout”

  1. I subscribe to your blog because I learn allot from it. But when I click on an entry like this it is like a get a breath of fresh air.

    Thank you for your open and honest sharing of your thoughts.

  2. While I share your attitude towards overweight, over-sized American cars, I think it’s a bit simplistic to say that the only reason we would bail out the industry is because “we loves our car.”

    The sad truth is that cars are the last vestige of American manufacturing, and are responsible for a very large number of jobs.

    Regardless of what we (or do not) do, the industry is due for a major setback and restructing. But simply “letting the market do what the market will do” (whatever the hell that means) is as irresponsible for the auto industry as it is for finance.

    A smarter government might offer (some) help to transition to smarter industry – including elimination (or at least refocusing) of the tax breaks that enabled the over-expansion of the light trucks market in the first place, as well as worker retraining.

  3. @ken – exactly. Let’s drop the subsidies on silly oversized vehicles. Keep the companies afloat, but on the condition that they smarten up and build vehicles that don’t destroy the planet in the process. Propping up companies that are responsible for much of the oil consumption is just making the problem worse.

  4. While I agree to some degree with your comments on the root of the US auto industry’s problem’s, and as a US consumer I avoided nearly all the US automakers on my recent car purchase for the reasons you list, I found myself thinking, isn’t this guy Canadian? You seem pretty fired up about what the US is doing with our tax dollars.

  5. Much of the auto manufacturing is in Canada – many of the jobs that will be lost will be Canadian. And our economies are so tightly connected, they might as well be the same thing.

  6. What’s even worse- while GM is asking for a bailout, they are telling locals that their shuttered plants can’t be sold to the competition. http://mikerobinette.com/?p=144 Face it, they don’t deserve charity until they change their thinking and the people on top. How could the board of directors continue to raise the salary of the CEO while market share dropped from over 50% to less than 25% They belong in prison- not in the c-suite.

  7. @David Esrati -

    Absolutely. It may be a politically naive desire, but I think both our markets and our politics would work much better if we sent more CEO/CFO types to jail.

    That, and reversing Santa Clara Co. v. Southern Pacific RR …

  8. All the U.S. Automakers have tried to do is be good corporate citizens by providing good pay, benefits and retirement to their workers. The problem is not the Automakers; the problem is that the government would rather get paid by special interests than to do what’s right for the people of this nation. The government should have protected manufacturing instead of allowing it to leave the U.S. (Industrial Exodus) which weakens our nation as a whole. Saving the U.S. Auto Industry is a matter of national security. I can hear the “Your Crazies” now but this is how it will play out if the U.S. Automakers are allowed to fail. There will be a massive loss of jobs 3 million plus which will cause the U.S. economy to dive into a death spiral. Without those middleclass jobs the government’s tax base will rapidly decline because the middleclass pays the majority of the taxes. Without that tax money the U.S. will not be able to sustain it’s military which makes fighting 2 wars impossible. The government will reduce it’s federal employee base which will include Homeland Security and that will leave the U.S. vulnerable to attack.

    Japan protects it’s auto industry along with the rest of it’s manufacturing base so that’s why the Japanese Automakers aren’t asking for a bailout but they do support it for the U.S. Automakers. Why you ask, because the Japanese and U.S. Automakers purchase parts from the same manufacturers. The U.S. Automakers have attained matching or better quality in most every segment according to JD Powers for the last decade. The reason that people don’t buy them is that U.S. made autos cost more because they carry cost associate with pensions, healthcare costs and U.S. and Canadian wages. Again, all the U.S. Automakers have tried to do is be good corporate citizens by providing good pay, benefits and retirement to their workers. So, all of you that are driving foreign made vehicles (and buy foreign made products) you helped to cause the collapse of our economy because a country with a strong manufacturing base has a strong economy.

  9. @S.Smith -

    While I agree with you about the importance of the auto industry, there is a clear problem with simply validating poor choices made by their executives, just as there is with punishing workers for misguided business strategies that have never been in their control.

    The argument against producing world-enabled (i.e., fuel efficient and not butt-ugly) cars in Detroit has always been that there’s no need – demand in the American market is larger than they could ever fulfill.

    But with recurring scares over fuel supplies (and growing international markets of both consumers and producers), the American auto industry became increasingly narrow, maintaining profits via subsidies (mostly tax breaks for consumers, rather than genuine competitiveness.

    Eliminating (or at least re-targeting) these subsidies would help a great deal. Reformulating the US auto industry to compete for sales abroad would likely help them even more.

    There’s no reason why we can’t make the best (most fuel-efficient, durable, beautiful) vehicles in the world. But we need to get past the idea that we can have a thriving industry by focusing solely on American demand (artificial or otherwise).

  10. I do agree with all your comments on jailing greedy ceos and how the companies were mismanaged. However all your tree hugger comments about suvs and light trucks is bullshit. Chevrolet with is new displacement on demand 5.3 litre gets over 25mpg highway. Toyota doesn’t. how do I know ? because I own one and my best friend drives a new chevrolet 1/2 ton. consistent 6-7 mpg better. As far as the stop building suvs and trucks thing, most of you people must live in the city and furthermore must never have to haul anything. Do I agree they need to make good mileage, of course, but I ,unlike most of the small minded people on here, frequently pull a work trailer, so i want mileage with out sacrificing power. Oh and I’ve owned and abused Fords Chevys Dodges and Now a 08 tundra. I have never had as many trips to the dealer for broken things as with my Toyota, and Yes I am trading it for a Chevy

  11. @Jamey – unfortunately, you are the exception. Most light trucks (SUV) are never used to haul anything larger than groceries and soccer balls.

    The tax break was originally designed to support small businesses (e.g., farmers, ranchers), but quickly became a loophole for urbanites with self-image issues, and a high-profit niche for Detroit.

  12. @Jamey – the treehugger response to that is that the vast majority of large trucks on the road don’t need to be there in the first place. Most of them appear to be used as testicular enhancements more than load-hauling. Same with the giant SUVs. If the unnecessary large trucks were taken off the road, replaced with more sane and smaller vehicles, we’d all be better off.

  13. Who cares what the mileage on the vehicles are? The US is over $10 trillion in debt and climbing nearly three trillion a year.

    If you wish to invest your children’s future in US automakers, by all means cash out their college funds and buy shares of GM, Ford, or Crysler. However, why anyone thinks it is a good idea for the Federal government to do this on your behalf is bizzare. Your children will be paying this debt off for the next hundred years.

    Let them fail. It does no long term good to keep supporting failing companies. Ok, you borrow $250 billion to keep them around for say five years? Then what? If all you care about is jobs, hire 250,000 folks for ten years to twiddle their thumbs, or pick up garbage, or police the streets, etc.

  14. It looks like the folks in DC are hell-bent to give the stimulus package another try seeing as the first one didn’t have any real effect.

    This time it’s the car industry.

    While the sanity of blowing cash around and running the national debt up even further is questionable; it seems inevitable – so this time let’s target unemployment, create AMERICAN jobs and pump up the economy all at one time.

    Consider the following:

    Manufacturing costs of motor vehicles are 65% labor (i.e.: W-2 income), that’s not all direct but due to suppliers. GM alone has over 1300 suppliers. (That’s a lot of jobs!)

    1 in 10 Americans makes all or part of their income due to the automobile industry.

    Money turns over 5 times in a year. Thus a vehicle with a manufacturing cost of 20K produces 13,500 in W-2 income which in turn becomes a total of 65K in 12 months due to the 5 turnovers. (This isn’t magic, it’s simply how the economy works.)

    Our domestic car makers are saddled with legacy costs, most of which will reduce dramatically in 2010 due to contract changes. They need to survive to get there.

    Our own over-zealous government with a virtual alphabet soup of regulatory agencies has been no help either. Foreign competitors have worked off-shore collectively to meet various US gov’t. imposed emission and safety standards, thus dramatically reducing those R&D costs. American car companies are prohibited from that by our FTC.

    Make no mistake; it’s no surprise that once again government has been a major part of the problem.

    Here’s the solution.

    Instead of either shipping cases of cash off to car makers; or sending us all another check:

    Send out a voucher for say $1,000 good on a motor vehicle for the percentage of the vehicle that’s domestic. (Civic = 70% Ford Explorer=80%)

    Let those not interested in a new car sell or give away their vouchers (Ebay would be loaded with them in no time flat) and those that are so inclined can use as many as they can get their hands on up to the full MSRP of the vehicle.

    This would bail out the car industry without giving them a dime directly Further it would reduce the overall age of the nation’s cars which would in turn; increase overall fuel economy & decrease pollution.

    Strengthen the dollar!

    Since vehicles with a higher domestic content would be moving better this would reduce our imports, strengthening our dollar which would in turn further reduce what we pay for anything imported …like gas!

    Jobs

    Instead of simply bailing out a few big companies, this would cause such a run that it would create employment throughout the industry affecting over 1300 suppliers and their workers. That would give the economy good swift kick right where it needs one!

    Pays for itself!

    Since money turns over 5 times, and the vouchers are only good for the domestic content of the vehicle, every dime would be spent in the United States creating taxable income. What is the income tax on 65,000 anyway? (Remember? 20K manufacturing cost = $13,500 W-2 income x 5 = $65,000)

    Another Stimulus Package?

    I’m sure you’ll agree that this makes more sense than simply sending out checks; many of which will be used to buy new flat screen TV’s usually made in Malaysia or some such place.

  15. I just wanted to chime in on some points I read. First of all, I’m all for giving capitalism a chance and letting these companies fail due to poor management. Secondly … chevy IS amazing in how it can get such mind-boggling mpg out of it’s v-8 engine. I like someone else who posted on here actually have to USE a truck. The chevy v-8 get’s better mileage than my friends tacoma on the highway and doesn’t have to downshift up mild hills … that’s impressive. Surely someone can find a market for this technology, but is it the existing management team? No. This amazing engine is probably the result of some bright engineer buried in GM. Let him go work for toyoya, lol.

  16. I worked in the automotive service industry for over 20 years for GM DEALERSHIPS.There in a sinking boat that they put them self in building poor products and also some of the worst marketing around ,give them buckets to bail them self out ,not money so they can do it all over again and send all there fat cats on fancy vacations and 1/4 million dollor gifts,Let them cut some of the fat ,dead wood ,cut bounses ,raises and waste ,Im sure they will figure it out its not a free ride , I am unemployed after 10 years at a dealer that closed due to a decline in sales. Why is Toyota ,Honda,Nissian ect not looking for bailouts,what do they do we dont,Amercian Automakers Take NOTICE

  17. I actually agree with you on this score! However, you have to admit that a 3-ton hummer will be pretty cool to have in the post-apocalyptic mad max future we are facing.

  18. First of all when this new Tahoe/Yukon Hybred first came out I was looking forwards to getting one, yet to my total Shock!! I could not beleive the way they built it, yes it has a 300 volt Li-on battery thats good, but they went and put a 6.1 liter V8 gas engine to run the generator, I think its around 300 H.P. but wait a moment, I have a 3000 Sq ft house with a 33 H.P. standby generator that will run my 5 ton airconditioner and the rest of the house, now why does a an electric SUV with a very powerful battery need 300 H.P. to charge it? when my whole house will run on 33 H.P. this is the stupidity of the automaker,

  19. Arguably, it is the media for brain washing people that American made cars are shit. All we have been hearing from the media is how bad American cars are, and how bad their quality is, yet no one in the media says anything on the horrible warranty that the Tundra has had including engine, transmission and bed failures that have lead to recalls. How many people have heard of the class action taken against Toyota for premature engine failure and then failing to honor the warranty on one million vehicles for engine sledge? Would the US automakers have received nearly no media attention for the same thing?

    We have all heard when the US automakers hickup (which then gets blown out of proportion), but how often do we hear about something positive about them? They have quality and reliability that exceed that of import manufactures.

    Also, of the manufactures with cars for sale in the US, which brand has the most that get over 30 mpg? Hint, its not an Import brand.

  20. I didn’t realize I was part of “the media”. Or that I was brainwashing anyone about anything.

    I can say – of the vehicles I’ve owned and driven, my experience has shown that Toyota builds solid, well designed, quality vehicles. While Detroit’s output (of the vehicles I’ve driven at least) feels cheap, shoddy, ugly, poorly designed, and flimsy.

  21. The house better take a close look at the Auto makers asking to be bailed out. I work in racing and I don’t see John Force, a Ford sponsered race team in the NHRA (national hot rod assn) I don’t see any race team who is sponsered by the big 3 struggling. If they have money for racing they have money. I don’t understand the whole bailout deal anyway. I don’t see where it’s the governments problem that banks weren’t smart enought to get down payments for people to buy housed. I guess they should have looked a little closer at the credit of the people they were loaning money to. Most of the people who got low or no down loans and knew that huge payment was coming didn’t even care. They all bought more toys and new cars and the banks just let them all do it. I say your problem not mine. Mind your business and read your contract. I had too. I didn’t lose my house. I wonder who is going to bail me or my business out because money is tight and the economy is down?

  22. The purpose of the corporate media’s opposition to the bailout is to push the automakers into bankruptcy, where union contracts are torn up. That will lower wages and benefits for the auto workers.

    An attack on compensation for so many middle class Americans will drive down wages for tens of millions more who don’t work in the auto industry, which is precisely what the corporate owners of the media want.

    They don’t care if America is pushed into a depression. In the long run, the rich get a bigger share of the money in our society if the Big Three go belly up.

  23. Issuing debt to feed the bubble is unwise. Save the bailout money for the unemployment insurance is better than paying money to those fat turkeys. Those turkeys are due for Thanksgiving.

  24. I agree with most opinions posted her to an extent. yes I am one of the few that works my trucks. Do I feel they needed a bail out …YES… with strict stipulations. the greedy upper level employees and CEOs should be taught a lesson and fined, jailed, put on a blue collar pay scale, or all of the above. But they suffer from the same greed our govt reps do. THEY DO NOT CARE ABOUT THE MIDDLE CLASS!!! period. I Think a quick and painless solution to our truck and suv problem in the us is strip em down. I test drove a 2010 f150 platinum to replace my problematic tundra last week..$50,000.. that is not a truck for someone who is gonna use it as a truck. I say strip em.. rubber floor mats, crank windows, basic sound, manual 4×4,bench seat, with a/c being the only option. People that are gonna use them for work, which is what they are intended, wont care. And people who are gonna use them as a luxury vehicle will buy a car, like they should have in the first place. I SAY THIS EVEN THO IT WILL NEVER HAPPEN, as long as people keep buyin these luxury 4×4.’s..they will most likely keep making them. I opted out after i realized all the broken stuff i would have on the truck, from using it like a truck. Later.

  25. and for those who dont already know. Electric hybrids are a flash in the pan..They are overpriced, and lack reliability. The future is diesels,the only thing holding the high mpg diesels back is our own govt…epa standards do some research and tell me i’m wrong, every manufacturer is testing and perfecting diesels now..most of which are making 40 plus mpg in full size cars …. in your face toyota prius and civic hybrid!!!

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