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Bailing out the Automakers?

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Started 3 years ago by noozer
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noozer
Columbus, Ohio
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A very good op-ed that speaks to the potentially signifcant impact of "diversifying our portfolio" of transportation investments. This is especially relevant, considering how dependent Ohio's economy is on the automobile industry. The writer makes some very good points.

November 16, 2008
Op-Ed Contributor
http://www.nytimes.com/2008/11/16/opinion/16goodman.html?_r=1&ref=opinion&pagewanted=print&oref=slogin
Have You Driven a Bus or a Train Lately?
By ROBERT GOODMAN
Amherst, Mass.
The federal government is giving General Motors, Ford and Chrysler $25 billion in low-interest loans, and the companies are asking for up to $25 billion more. These same companies have spent millions of dollars lobbying against federal fuel-economy standards and are suing to overturn the emissions standards imposed by California and other states. In exchange for the loans, Congress should first insist that the automakers stop fighting these standards. But it should also make sure that better outcomes will result from these billions than just fuel-efficient cars.
The Obama administration should ask the companies, as a condition of financial assistance, to begin shifting from being just automakers to becoming innovative â€œtransportmakers.â€ As Barack Obamaâ€™s new chief of staff, Rahm Emanuel, recently said: â€œYou donâ€™t ever want a crisis to go to waste. Itâ€™s an opportunity to do important things you would otherwise avoid.â€
As transportmakers, the companies could produce vehicles for high-speed train and bus systems that would improve our travel options, reduce global warming, conserve energy, minimize accidents and generally improve the way we live.
This better way forward has been kicking around Washington for more than 35 years. In a prescient 1972 article in The Atlantic, Stewart Udall, an interior secretary under John F. Kennedy and Lyndon B. Johnson, warned of Americaâ€™s excessive dependence on cars and called for this approach.

Posted 3 years ago #
johnwirtz
Evanston, IL
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I agree in concept. The government shouldn't blindly hand over money to the automakers. They should have to prove that they're going to do something productive with the money instead of losing it the same way they lost all the rest of their money. I think the plan to diversify makes sense, but it could also be tricky.
1. There isn't a large enough market for high speed trains or even light rail cars in the US to save the automakers. The government would have to create this market.
2. The automakers would have to quickly learn to create a product that could compete in price, performance, and design with all the other companies that currently specialize in these vehicles.
3. Shifting the production line of a factory as well as designing and constructing new transit systems will both take some time, and timing the two efforts to be completed around the same time could be difficult. So there's going to be a long period where the automakers are still losing lots of money. How much is the government to dump into their businesses until this new product line can pay dividends?

Posted 3 years ago #
lifeontwowheels
Highland West
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This has been an ongoing thread at bike forums the last few days.
I think the resulting job less and further spiral of economic woe would be horrific if the big 3 went belly up, isn't it worth considering that it may be better for us in the long run not to bail out?
Joe Sixpack start a business and fails in a year, where is his check? If you as a company don't have the ability to create a working business plan, turn a profit, attract a diverse customer base and adapt to market conditions then why should the government cut a check to get you out?
The feds have a lot better places to put that money. Why not a program similar to TVA or some of the works recovery programs of the '30s to enhance our national infrastructure? Offer work to these skilled workers improving our bridges, increasing our rail based transit and other needed projects.

Posted 3 years ago #
Coremodels
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Personally, I think this provides the new administration the perfect opportunity to aid the auto industry...on the condition that it's part of adapting to the requirements of the 21st century, and beginning to take the lead in creating the most fuel efficient vehicles made in the world.

Posted 3 years ago #
columbusdreamer
Wo TON
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the goal should be connecting our cities with high speed trains and having intercity transit that supports those trains Just like each road and high way. I don't care who builds them. if the big three go under it won't matter in the long run . Someone will take their place, they will prob. be very eco friendly as well. Also if the go under your car right now will become an instant classic!

Posted 3 years ago #
Coremodels
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if you really think the closing of the big three would be a bump in the road, I don't think you're looking at the reality of the situation.

Posted 3 years ago #
Daz
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Coremodels wrote if you really think the closing of the big three would be a bump in the road, I don't think you're looking at the reality of the situation.
Bingo. The destruction that would come from it would be like nothing we've seen in most of our lifetimes. Thousands upon thousands of people who have VERY specialized skills would be left jobless in an already bombing Michigan economy.

Posted 3 years ago #
gramarye
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Coremodels wrote if you really think the closing of the big three would be a bump in the road, I don't think you're looking at the reality of the situation.
This may be true, but if you allow that to completely end the discussion, then you're allowing the automaker execs to use their own workers as hostages--human shields. "Bail us out, or they lose their jobs." Also, I think there's something more than a little perverse about throwing billions at the automakers and then watching them turn around and use a generous chunk of that lobbying for more.
The nightmare scenario for what would happen in a bankruptcy is that all three Big Three automakers are liquidated in a short span of time, the factories dismantled, the assembly lines slagged for scrap, and then ditto all the various parts suppliers scattered throughout the industrial Midwest. That's unlikely, however. A more likely scenario is that once the union contracts were tossed, they would become attractive bankruptcy asset sale targets for the automakers who already make fuel efficient cars, i.e., the Japanese. The existing shareholders--who at this point deserve what's coming to them, since at $3 a share are basically investing in the possibility of a federal bailout--would lose. Junior bondholders might lose as well. Senior bondholders would be paid out of the asset-sale proceeds, or could have their debt interest converted to an equity interest in a new company.
Economic nationalism is what's really motivating this (that and powerful Democratic politicians from Michigan heavily backed by unions who know what their employer's bankruptcy would likely mean for them). Americans just don't want to see American-icon corporations being bought by Japanese or European makers.
It's true that even in a buyout scenario, many would lose their jobs because vehicles that aren't selling would likely see their production facilities axed. So what? I understand the desire to protect jobs, but is the world as a whole going to be worse off if the Ford Expedition, Chevy Suburban, and GMC Yukon vanish? Even if 100% of the bailout money went to workers instead of shareholders and bondholders, is the greater social good best served by keeping a few people at work a year or two longer producing these things that can't support themselves and come with their own drawbacks, only to have those people need more federal help when the current outlay runs out? Also, keep in mind that much less than 100% of the bailout money would go to workers. Some would go to executives, some to bondholders, some to shareholders, some to lobbying for more bailouts. Lather, rinse, repeat.

Posted 3 years ago #
Coremodels
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Don't get me wrong gram, I'm in absolutely no way endorsing a blank check bailout. I do believe, however, that the creation of green industry is the next internet, and losing all positioning in automobile manufacturing surrenders a significant portion of that industry before it even begins.

Posted 3 years ago #
Ndcent
OTE
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I drive a '96 Chevy.
:!:

Posted 3 years ago #
gramarye
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Coremodels wrote Don't get me wrong gram, I'm in absolutely no way endorsing a blank check bailout. I do believe, however, that the creation of green industry is the next internet, and losing all positioning in automobile manufacturing surrenders a significant portion of that industry before it even begins.
I suppose we disagree in part on this if by "green industry" you mean "fuel efficient vehicles." Note that Obama is proposing a $7000 tax credit to get people to buy green cars. No one ever needed a tax credit, let alone one of such magnitude, to get them to join the Internet bandwagon. It was and is worth full price.
Cutting-edge technology with health care applications--genetics, robotics (including AI), nanotechnology, biotech--are far more likely to be the next Internet. Those certainly are "greener" industries than the old Rust Belt industries were, but they aren't direct replacements for them.
Also, even if green cars were the Internet of the future--do you seriously think keeping GM limping along is likely to give us any competitive position? Is $25 billion now and another $25 billion under consideration a fair price to pay for what we're likely to get out of those expenditures (I refuse to call them "investments" because I don't consider the nickel I accidentally flushed down the toilet an investment)?

Posted 3 years ago #
Coremodels
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gramarye wrote
Coremodels wrote Don't get me wrong gram, I'm in absolutely no way endorsing a blank check bailout. I do believe, however, that the creation of green industry is the next internet, and losing all positioning in automobile manufacturing surrenders a significant portion of that industry before it even begins.
I suppose we disagree in part on this if by "green industry" you mean "fuel efficient vehicles." Note that Obama is proposing a $7000 tax credit to get people to buy green cars. No one ever needed a tax credit, let alone one of such magnitude, to get them to join the Internet bandwagon. It was and is worth full price.
Cutting-edge technology with health care applications--genetics, robotics (including AI), nanotechnology, biotech--are far more likely to be the next Internet. Those certainly are "greener" industries than the old Rust Belt industries were, but they aren't direct replacements for them.
Also, even if green cars were the Internet of the future--do you seriously think keeping GM limping along is likely to give us any competitive position? Is $25 billion now and another $25 billion under consideration a fair price to pay for what we're likely to get out of those expenditures (I refuse to call them "investments" because I don't consider the nickel I accidentally flushed down the toilet an investment)?
Well, couple things. First, I'm not really sweating the "green car" tax credit, because as part of getting rid of the Bush tax credits, aren't we getting rid of his SUV credit as well?
As to the green industry and fuel efficient vehicles, I certainly believe it's a part of it, yes. I think surrendering our potential for participating by losing any manufacturing capability would carry serious consequences in our vying for position in that market.
Finally, the 25 billion is a loan...and I personally believe that with necessary measures to make the industry sustainable (like fuel efficient vehicles), it would be an investment overall.

Posted 3 years ago #
gramarye
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Coremodels wrote Well, couple things. First, I'm not really sweating the "green car" tax credit, because as part of getting rid of the Bush tax credits, aren't we getting rid of his SUV credit as well?
I actually hadn't heard that. The "SUV credit" (actually a deduction) was not a Bush innovation; it was actually reduced in 2004 from $100,000 to $25,000 (with the rest of the purchase price allocated to depreciation). It's a small business deduction that applies to all vehicles over 6000 lbs. GVWR, which includes a lot of pickups as well as many SUV's.
Also, I have no particular principled objection to the credit. I was merely using its existence as evidence that green cars are not the Internet of the future, because if it's such a weak market that consumers need to be paid to buy them, it's not like the Internet, the use of which was immediately apparent and which has only grown.
As to the green industry and fuel efficient vehicles, I certainly believe it's a part of it, yes. I think surrendering our potential for participating by losing any manufacturing capability would carry serious consequences in our vying for position in that market.
This isn't Civilization II. Manufacturing ability is not generic. I would agree that we don't want to lose all manufacturing capability, but not losing any? That's a recipe for no innovation, ever, because that's what happens if you completely insulate people from the consequences of building outmoded, undesirable products.
Finally, the 25 billion is a loan...and I personally believe that with necessary measures to make the industry sustainable (like fuel efficient vehicles), it would be an investment overall.
On this, I partially concede. Loans =/= grants. Fair point.
I actually also believe that "with necessary measures to make the industry sustainable (like fuel efficient vehicles), it would be an investment overall." I just don't believe that Washington is going to be able to make Detroit adopt such measures. The unions and industry lobbyists are just too powerful.

Posted 3 years ago #
Coremodels
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gramarye wrote This isn't Civilization II. Manufacturing ability is not generic. I would agree that we don't want to lose all manufacturing capability, but not losing any? That's a recipe for no innovation, ever, because that's what happens if you completely insulate people from the consequences of building outmoded, undesirable products.
I actually don't think we're too far off on principle here, because I don't want a dime of bailout without stringent requirements and oversight to make sure that they are conditional on exactly that type of innovation.

Posted 3 years ago #
Rockmastermike
CORNspiracy HQ
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gee maybe the automakers can sue the bankers for screwing up the economy and trashing their credit reliant business. Or maybe they can sue the Fed for not magically fixing everything with voodoo economics.
or maybe they can just sue OPEC for not dumping oil on the market as cheaply as they always did and wrecking the market for the massive gas guzzlers the automakers built their entire future around while they gave nothing but lip service to fuel efficiency and watched customers steadily move to Toyota (for a long time).
or maybe they can suck it up and admit they really have nobody else to blame that they were working with a dinosaur style business model sitting on top of a house of cards. They were losing money for a long time before the credit markets dried up and it's their own fault for not adapting to reality as quickly as Honda, Toyota, and others.
No, this current problem is just the last straw in a long series. When was the last time GM had a really "good" year?
It's just too bad that if they suddenly fail at this point the entire problem ends up falling mostly on the backs of the low level workers who can least afford sudden retirement and the taxpayers who will be paying for their food stamps and other needs in direct and many more indirect ways. I'm sure the CEO of Ford will receive enough of a salary this year to keep him at least fairly, if modestly, comfortable for the rest of his natural life if he decides not to ever get another job.
At this point we're screwed if we bail 'em out and screwed if we don't. I think those who have access to real information and the power to make these decisions need to stop arguing ideologies and politics and do some math to figure out which way ends up screwing things up the least. We can argue ideology and stuff here where it's harmless, but those in power need to be more pragmatic.
The whole thing just really burns my biscuits.

Posted 3 years ago #
Tigertree
771 N. High St.
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America needs to stop throwing money at problems and walking away. There is always a list of reasons why we need to throw money at something, give it no oversight and complain when it fails again.

Posted 3 years ago #
Rockmastermike
CORNspiracy HQ
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Tigertree wrote America needs to stop throwing money at problems and walking away. There is always a list of reasons why we need to throw money at something, give it no oversight and complain when it fails again.
+1

Posted 3 years ago #
dru
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they keep on stating that "1 in 10 jobs in the US is tied to the auto industry." i've even seen some say it is 1 in 8, 1 in 6, etc...
i would however like a breakdown of how many of those jobs in the auto industry are D3, and how many are employed by the likes Honda in Ohio, Subaru in Indiana, Toyota in Kentucky and BMW in South Carolina. Moreover, this stat includes suppliers, and it would be interesting to have some background on how many suppliers that service GM also service other non-D3 auto-makers in the US, and would likely continue to survive based on contracts with automakers that are functioning.
No doubt the failure of GM would be huge, especially here in Ohio and bordering states. But I am wondering, if one of the D3 goes down or 2 of 3 merge, what is the implication if all it means is people who formerly purchased GMs have to buy more Honda's, etc... that are also manufactured in the US? There's got to be a more sophisticated analysis out there of the ripple effect.

Posted 3 years ago #
gramarye
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Rockmastermike wrote
Tigertree wrote America needs to stop throwing money at problems and walking away. There is always a list of reasons why we need to throw money at something, give it no oversight and complain when it fails again.
+1
+1 to that +1.

Posted 3 years ago #
johnwirtz
Evanston, IL
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I thought this was interesting. Detroit (the city) seems to be changing, even if the Detroit automakers aren't.
Crain's Detroit Business wrote State House passes transit legislation
By Bill Shea
The Michigan House on Thursday approved transit-related legislation that paves the way for both a light-rail loop on Detroitâ€™s Woodward Avenue and a wider regional mass transit system.
One set of bills sponsored by Rep. Bert Johnson, D-Detroit, authorizes a nonprofit street railway company to build, own and operate a system on Woodward.
The company could acquire property through gift, purchase or condemnation, and could borrow money and issue bonds.
The bills allow the Michigan Department of Transportation to establish a â€œtransit development finance zoneâ€ within one mile of the railway system and through multiple municipalities to capture future increases in property taxes for railway operations.
Other legislation permits an annual state appropriation to pay for what the systemâ€™s revenues and tax increment funding donâ€™t fund.
There are currently two Woodward transit plans, one a privately funded $103 million project and the other a $372 million proposal by the Detroit Department of Transportation, that are expected to merge in 2009.
Woodward light rail, along with an Ann Arbor-Detroit commuter rail line being developed by the Southeast Michigan Council of Governments, is expected to be a key element of a proposed regional mass transit system that Detroitâ€™s mayor and the executives of Wayne, Oakland and Macomb counties will vote on in December.
Also approved Thursday was a bill sponsored by longtime transit advocate Rep. Marie Donigan, D-Royal Oak, to allow Michiganâ€™s tax increment financing law to be used to establish â€œtransit revitalization investment zones.â€
The zones would be designated areas stretching along transit routes in which future increases in property taxes could be used to finance transit operations and redevelopment.
All of the transit legislation now moves to the Senate, where it will be taken up when lawmakers return Dec. 2.
http://www.crainsdetroit.com/article/20081114/FREE/811149966/1069&rssfeed=RSS01

Posted 3 years ago #