Fighting to Preserve Liberty in America
As I check the current price of GM stock this morning, $31 per share, and I contemplate how in the world it is going to reach the $53 per share price Americans need to fully recover their “investment” in the automaker, a recent news story lays it on the line. It’s not going to happen. The Obama administration has announced that it is demanding that auto companies double the mileage that their fleets get, to 56.2 miles per gallon, by 2025.
The Democratic mayor of Lexington, Kentucky appeared on Fox News to discuss the money he is asking for to stimulate the economy. Despite being asked three times, he dodged and never answered the question about how many jobs would be created. Wasn’t that the whole point of the stimulus plan, to create jobs? His hodgepodge of athletic field construction, and garden walkability enhancement are pork, plain and simple.
Am I alone in thinking that we will be hearing a lot more of these stories? Also, consider the number of people needed in the government to oversee this kind of massive spending, who do not currently exist. Anyone want to bet on the amount of fraud and mismanagement of massive proportions we are about to see as your children’s future is squandered?
The conga line for companies with their hands out forms on the left. The next ones bellying up to the slop trough are GM and Chrysler. They need $25 billion to help them through a tough patch or they may go out of business. It is a loan? Is it buying a stake in the company? Is it that thing of which we dare not speak– socialism?
The question is are we, by the continued intervention of the government, managing our way out of a recession and into a full blown depression? For all the warm memories of FDR, the depresion lasted more than twelve years thanks to, “We’re from the government and we’re here to help.” Perhaps it’s time to take our medicine, pull the covers up under our chin, sweat it out, and get back on our feet.
Business, like many things, runs in cycles. There are up cycles and there are down cycles. We can’t eliminate them, they are a necessary part of the process. But just as there is no cure for the common cold, sometimes it is best to let it take its course as soon as possible and be done.
I don’t believe so. It was unfortunately necessary to end the panic. When lenders have no confidence that if they lend they will be paid back, and if they have non-performing assets and they can’t sell them because they don’t know how to price them, the whole system locks up. The system needs a lender of last resort and the only one big enough to step into that role is the government. However, that should be for the least amount of time possible.
The auto industry has had 35 years to figure this out. With the Arab Oil Embargo of 1973, Japanese auto companies made major inroads into the automobile markets. Imagine buying a car that got 20 miles per gallon, rather than 8, was better built, and cost less. Well, that’s what the Japanese companies were offering, but what did Detroit learn? Union contracts too expensive, let’s invest in robots and get rid of the expensive people! GM bought boatloads of robots and later ended up scrapping them. Why? Because the workers weren’t the problem.
Who transformed the Japanese auto industry? An American by the name of W. Edwards Deming. After World War II, Japan’s industry was in shambles. Deming went to help them get their industry back on its feet and taught them about statistics and quality control. They learned their lessons well. They focus on incremental changes every day. If someone sees a problem on the assembly line and takes action to stop the line, he doesn’t get chewed out, he gets applauded.
The Big 3 have had all this time to figure out what they were doing wrong and fix it, but what did they do? During the good times, they just rolled along. If signing a big labor contract kept the peace and kept the factories running, they would buy off the unions. But when the trouble starts, there’s no room to maneuver.
The Japanese saw the need to cut back further on fuel consumption, but they knew there was a limit as far as how much mileage you could squeeze out of a gasoline engine, so they came out with hybrids. Initially they were a novelty, but when gas was headed for $4 per gallon, they we economical. Where was Detroit on this? Lagging behind, of course. Don’t develop a hybrid car until your customers demand it, but by the time they do, they would rather buy the tried and true hybrids being built by Toyota and Honda. Ford promised to produce 250,000 hybrid cars but rescinded that pledge nine months later. Why?
“According to a Ford spokesperson, an internal panel of experts analyzed customer interest in hybrid cars and did not feel that there was enough demand to warrant the expense of building 250,000 hybrids.”
What was the price of a gallon of gas when they made that decision? $2.20, the lowest it had been in ten months. The other half of that article quoted above said, “Toyota remains top hybrid producer.” GM is now placing a very big bet on the Chevy Volt, which will be an electric car scheduled to launch in 2010. Although there is little fanfare, Toyota, Nissan and Mitsubishi are all planning electric cars in the next two years.
So why should the taxpayer be on the hook for the mistakes of the Big 3 auto maker’s management for these past 35 years? Perhaps they should just go into Chapter 11, reorganize and come out as more competitive companies. Why prop them up so that they can stumble along for another 5-10 years until the next downturn and come back to the trough? The stockholders have been electing the boards of directors for these companies for 35 years and buying their stock. The boards have been hiring the management team and providing them with their compensation. The management team has made the product decisions, negotiated the labor agreements, and all the other missteps. Why should American taxpayers have to step up to the plate and bail them out. They got themselves into this mess, let them get themselves out.
But that’s just my opinion.
