Bill Kristol Thinks We're Being Too Hard on the Big Three

Another Monday, another Bill Kristol column (alas). Today Kristol talks about the auto bailout and how harsh the CEOs of the auto companies are being treated. He claims that the left and the right are piling on to these folks and a lot of the scorn they are receiving is undeserved. While I have little doubt that many politicians' motivations in all of this is to get their face on television as a populist, for-the-people kind of guy (I'm looking at you, David Vitter), how much of the scorn is undeserved?

I'll go back to a few quotes from Bob Lutz, GM's vice chariman and car guru. He stated back in January that not only was global warming a "crock of shit," but hybrid cars, like Toyota's, "make no economic sense." This from the company that gave civilians the Hummer. But I ask you this question: which company is begging for our (read: taxpayer) money? Is it Toyota, where according to Lutz they make no economic sense? Or is it GM, Ford, and Chrysler, whose love of massive (unnecessary) vehicles which made their companies dependant on cheap oil, in an era where we were going to war with one of the most oil-rich regions of the world? Because, as we saw the price of oil go up we saw demand (and prices) for big cars like Suburbans, Explorers, and Hummers hit the basement while more fuel-efficient cars (such as hybrids) saw an increase in both demand and price.

So what about these companies? Letting them fall into bankruptcy, while being a good step for those companies' futures, would be a hard pill for the economy as a whole to swallow. If we give them the money they want, there is little guarantee that they will change their business practices and we could end up in this position again years (or decades) down the road. The problem here is the dichotomy between administration and laborers. It is clear that the majority of the downfall of these companies lies with the administration; they are the ones making the decisions and guiding the company. While letting the companies go bankrupt would allow the punishment of these ill-guided executives, it would also hurt the laborers. This is not to say that the UAW is innocent in all of this; their ability to get management to concede to costly demands has also hurt the company. But to say that every laborer is with the union would be a grave error. Having been in a union or two myself, I can tell you right now that the union does not, in any way, speak for every worker (for example, I am sure there are some GM workers out there who would have conceded a pay raise for the next two years in order to get the bailout through the Senate rather than risk massive layoffs).

As my friend Nate Kaufman pointed out two weeks ago, the price of gas is going back down. This will lead those with short term memory loss (remember the 70s?) to go out and buy back their Suburbans and Explorers, while those with foresight will remember the pain at the pump and get more fuel efficient, mostly foreign cars. What people tend to forget is that oil is a commodity traded on the international market. Combine this with the fact that the world is essentially at the mercy of an oil cartel, and you have a recipe for severe instability. Just because oil is down now, does not mean it will stay down.

The way I see the whole situation is like this: the auto companies are addicts. They are addicted to big cars, oil, and ignorant business decisions. In order to score these drugs, they need money. They're turning to the taxpayer, saying, "Please. If you give me this money I will clean my act up, get sober, and be a productive member of society." Anyone who has ever had any significant interaction with an addict knows that their words mean nothing; they will do anything to score. They may clean up for a week or two, but given the chance they go right back to the dope. The way to get an addict clean is this: they hit rock bottom and instead of enabling them, you get them into treatment. Sometimes they hit rock bottom on their own, other times friends and family have to bring rock bottom to them (refusing to talk to them or enable them). The addict realizes how bad their situation is and seeks treatment. Rock bottom for the Big Three would be bankruptcy, treatment would be the restructering that would have to occur under bankruptcy. The government has a choice: continue to enable these companies, or bring rock bottom to them and force them to restructure.



So back to the original question: do the execs of these companies deserve the scorn they've received, or should we, like Kristol would like, be a little easier on them? While we could look at years of mismanagement and the out-of-touch attitude that the Big Three have demonstrated, I think one fact is emblematic of the entire affair. When asked to come to Congress to make their case for a bailout, the three CEOs came in three separate private jets. So to rebut Kristol's assertion that the CEOs of the Big Three are being treated unfairly, they have thrown conventional wisdom to the wind, denied scientific proof of global climate change, and claimed that their competitors were bad businessmen. The private jet thing - that was just a big FU to the taxpayer. Peace.

Photos - The Big Three and Congress (ABC News), GM CEO Rick Wagoner (Political Bounce),

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 (HummerGuy.net), GM employees leaving work (Boston Globe)