It’s hard to read the news about the auto industry and not clench your fists at the outrage. GM and to a lesser extent, Ford and Chrysler, are asking the American taxpayer to bail them out, but what is their position?
- The unions say they are not going to negotiate anything to help the situation
- The CEO of GM says that they are not filing for Chapter 11 and not preparing to file, despite that they may run out of cash by the end of December. Not even as a contingency, Mr. Wagoner?
- Wagoner refused to consider resigning, even if it would help them get aid
- GM’s board is supportive of Wagoner
This company negotiated an agreement with its union that pays them almost full pay if they are laid off. Let me get this straight. You lay people off, as painful as that may be, to cut costs. GM negotiates an agreement that keeps the costs, but sends the people away. From their perspective, it’s free labor, they pay for it either way so put them to work! But no, I’m sure there are union restrictions about what you can put them to work doing.
Remember the Dot.com Bubble?
In 2000 we saw the Dot.com bubble. What was the fallout? Millions were lost on Wall Street. Companies by the bushel basket went out of business. Thousands were thrown out of work. How much did taxpayers cough up to bail them out? Nothing. The market dealt with it. The strong companies re-grouped, the weak fell by the wayside. John Chambers, CEO of Cisco Systems, changed his own salary to $1 per year until he righted his ship. Today Cisco has $26 billion in the bank and Chambers is still at the helm. Nice work, John. It wasn’t done with arrogance and going hat in hand to Washington looking for a hand out.
Deja Vu
In the 1970s and 1980s in the UK, British Leyland, maker of the Triumph, MG, Rover, Jaguar, Austin and five others, was in need of a bailout to keep going. The British government complied eventually pumping in $16.5 billion in taxpayer money to the company. It limped along for another few years and then went out of business. It sold its Jaguar and Land Rover brands to Ford, which then poured $10 billion into Jaguar. It recently sold both brands to Tata of India, getting back about half of what it paid for the brands.
Did the British economy go under? Is the British military without tanks? Let’s not forget that the Jeep was made by American Motors. Where is American Motors today? A company named AM General makes the military Hummer. Guess what the “AM” stands for? GM, Ford and Chrysler combined made about 17 million vehicles in 2007. Does anyone think this demand will vanish if GM, Ford and Chrysler vanish? Of course not. Either GM, Ford, and Chrysler will re-make themselves, new companies will emerge, or U.S. based foreign companies will grow to take up the slack. The jobs will move around. The demand is there, the supply will emerge to satisfy it.
The Way Out
The way out of this mess is to go Chapter 11, reorganize, renegotiate onerous labor contracts, sell off properties no longer needed but tied up in commitments to bonds that were sold to attract a factory, etc. The government should do their part and dump the CAFE standards. Americans will still want high mileage cars and companies will build them. It may not be GM, Ford and Chrysler who build them, but if they trim down, maybe they will. But they do make a profit on their premium models and light trucks. Let them.
But keep your hand out of my wallet.
