Monday, November 17, 2008

GM and Others Beg for Money - Should They Get It?

As if $700 billion for Wall Street was not enough (though that plan seems to be a big mess more than a big help), now Detroit is running to Washington with their hands out. Leaders of what is referred to as the "Big Three" (GM, Ford, and Chrysler) will be in Washington this week lobbying hard for your and my money to save their failing businesses. The question is: should we give these companies money when they have been so irresponsible in the past?

There is no doubt that the complete collapse of just one of the three companies would be devastating to not only the manufacturing portion of our economy, but the economy as a whole. The problem is not only with the companies themselves, which employ about 240,000 workers, but their suppliers who rely on them to buy their products, which employ 2.3 million Americans. The "domino effect" (to use the justification for going into Vietnam) would be large and possibly debilitating to an already lagging American economy.

Given all of this, should we simply hand over $25 billion to these companies? Would they use it responsibly? Given the past three decades, the answer would be a resounding no. We all know what happened in the 1970s with the oil crises; what will it take for people to understand that history has a tendency to repeat itself? Instability in the Middle East has historically led to high oil prices. Why would companies like GM refuse to focus on gas mileage and instead build the biggest trucks they can that the people who buy them do not really need?

Part of that answer may lie in the ideologies of GM's vice president, Bob Lutz. Back in January, Lutz declared that Toyota's hybrid cars "make no economic sense." Yet it is Lutz who must get down on his knees and beg for money while his company circles the drain and Toyota is riding high, given that its Toyota Prius sales jumped 69% in 2007 and the car continues to be popular - with waiting lists popping up across the country.

Lutz also claimed at the same event in January that global warming is a "total crock of shit." Despite the fact that this is simply not true, it shows the utter disregard that companies like GM have shown to conventional wisdom. It was the Japanese car companies that specialized in fuel efficiency during the 1980s and focused on sedans and coupes rather than monstrosities like the Ford Expedition or Chevy's Suburban. Only one group of car companies now need handouts from the taxpayers, and it is not the Japanese ones.

So my initial instinct would be to say screw GM and their misguided executives like Bob Lutz. They got themselves into this mess, let them sink or swim. The problem with that is the people who make up the core of the company, the laborers, would suffer unjustly. While the argument can certainly be made that the utter strength of the UAW has hurt GM's ability to bargain and cost the company millions in supporting laid off workers and retirees, the company signed those contracts. The issue is that if we let GM die, we would be hurting the working-class folks who build the cars and had substantially less to do with the company's downfall than the executives. People like Lutz and others are rich, will be able to find other jobs in a matter of months and have the connections to keep them employed. The assembly line workers - for the most part - have none of those things.

So bascially we are left with two options: allow GM to go bankrupt or bail them out. The first option would somewhat punish the executives of the company, but would hurt the laborers more. The second option would simply reward incompetence at the exectuvie level, but stave off economic disaster - for the time being. Michael Levine at the Wall Street Journal is advocating for allowing GM to go into bankruptcy and restructure, and the New York Times has an article today about how the foreign auto companies would take over the roles of GM and others in the years to come. The only issue is that the temporary impact on the economy would be substantial. I am inclined to agree with Thomas Friedman in his Op-Ed from last Tuesday, in which he quoted Paul Ingrassia's piece in the Wall Street Journal last Monday, in which stipulations like getting rid of upper management, privitizing the company and massively revamping it would be attached to any money given to GM. I would add that the union gets absolutely none of the $25 billion and Bob Lutz goes to executive training seminars at Toyota and Honda to show how foresight in business prevents throwing temper tantrums for government money like a toddler at a candy store. Peace.

Photos - GM headquarters in Detroit (Wikipedia), Bob Lutz, in possibly the most symbolic failure of GM - a Hummer (, GM employees leaving work (Boston Globe)

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