I just can't put my finger on how I feel about the plea from Detroit automakers for gigantic loans from the federal government.
On one hand, the collapse of the "Big Three" would have devastating ripple effects on the U.S. economy, and it could likely usher in a depression. That's right, depression with a "d."
On the other hand, Ford, Chrysler and GM are being run ineptly, making bland, gas-guzzling cars, and somehow, they didn't see this coming. Do they really deserve any pity, and even if they get bailed out, how long can they stay in business by operating under the status quo?
First, a word of clarification about this bailout. Even if the three companies receive $34 billion in loans, remember that they are just that: loans. This isn't free money, it's a promise to pay back the government, and if the automakers can turn it around, it shouldn't be that big of a big deal, especially if the loans have interest tacked on. Keep in mind that while $34 billion seems like a tremendous amount of money -- and it is -- the 2009 federal budget is $3.1 trillion. We spend that kind of money all the time, and frequently much more. For comparison's sake, the United States has spent about $1.3 trillion on the war in Iraq from 2002-08. We live in a big, rich country that raises and spends a lot of money. It's a tough pill to swallow, but $34 billion, even if it was a straight-up gift, is a drop in the bucket.
Further, the auto industry directly or indirectly employs more than 2 million workers across the country. If most or all those people lose their jobs, they will not be easily re-employed, and the effects will be absolutely devastating. In an economy already stumbling around the ring, an auto industry collapse would be a knockout blow that would take years to recover from. The stakes are higher than ever, and an America without an auto industry would make the Great Depression look like a typical day on Wall Street.
When you look at it like that, it's obvious what to do. How can the government not bail out the "Big Three?"
Except that who knows if $34 billion will solve the problem or just delay the inevitable?
Apparently, between the bumbling management and its short-sighted unions, Detroit didn't see this coming. Instead of investing in greener, more fuel-efficient cars years ago like Toyota and Honda did, they waited until gas hit $4 a gallon. We've heard about the electric Chevy Volt for years, and it'll be years until it hits the market -- at an unaffordable $40,000 price tag. Instead, Ford, Chrysler and GM continue to build gigantic, uninspiring SUVs -- and when they make a small car, it's a dud (see the Chevy Aveo).
Seriously, I can hardly think of an American car I'd like to own. I've already bought a few of their foreign subsidiaries like Volvo and Saab, and frankly, those were buggy, weird cars, too.
Domestically, show me a reasonably-priced car that you'd choose over its European or Japanese equivalent. Jeep still makes unique and distinctive cars, but that's about it. The new Ford Flex is innovative, but it's still a big SUV. The Ford Escape Hybrid is OK but gets tepid reviews from experts. The Mustang is cool on the outside, but the interior build is chintzy. The Chrysler 300 is nice, but you can do better for $30,000. The Buick LaCrosse looks nice, but it's a Buick. Why wouldn't GM launch a brand (that's not Saturn) that appeals to buyers younger than 50?
Meanwhile, Toyota is building cars in the United States, keeping its union-free employees happy and well-paid. Subaru is donating $250 to charity when you buy one of its cars. Honda is focusing its time on the compact Fit, a new hybrid Insight and a fuel-cell vehicle already on the streets of California.
But let's just say that you're fine with driving around in a Cadillac Escalade that gets 12 miles per gallon in the city. Let's assume that gas stays cheap (but it won't) and you want to support your country at any cost and "buy American." Then you must be at least a little puzzled that the executives think they can stay competitive with the existing union structure in place, one that provides life-long pensions, salaries higher than job descriptions really deserve, and 95 percent benefits for out-of-work employees.
And the auto executives are just telling us now that they're in serious trouble?
Here's the thing: When the CEOs flew to Washington in their private jets, hats in hand, it didn't really matter how much those flights cost. The private jets aren't the problem, nor are their salaries or stock options. What matters is that the leadership of these companies is woefully out-of-touch. PR debacle aside, only now -- when it's probably too late -- are the Big Three talking about changing the way they do business, killing stale brands, bringing better models to market, and streamlining their businesses. The fact that they waited until the 11th hour shows that while they certainly need loans, they don't deserve them.
If the government is expected to bail these companies out, and they should, then they should also clean house of the entire upper management teams and bring in executives who know a thing or two about agility. Poach executives from Toyota or VW or Silicon Valley. But expect this first round of loans to serve as the tip of the iceberg, then earmark billions more for future loans.
Yes, this sounds a lot like socialism, putting the nation's auto industry partially in government's hands.
Democrats don't like it. Republicans don't like it. Taxpayers don't like it, either. But it beats the hell out of the alternative, which will cause ripple effects in everything from national security to Social Security. It's a bad situation that can either get a little worse or a lot worse.
America can't afford to prop up an inept auto industry. But it can't afford to let it go out of business, either.
As much as I disagree with a bailout, I disagree on the reasons. GM DOES build fuel efficient cars, more than 15 models that get 30MPG or better. Their quality has also risen 10 fold over the last five years and they sell just as many cars as Toyota.
The real issue is their cost to do business. As much as liberals love unions, Unions are the exact reason that GM Ford and Chrysler are clinging. When it costs twice as much to produce the same product, you can see who will fail.
Honda, Toyota, even Hyundai are doing well with non union plants in the south, and a starting pay of $17 per hour isn't bad. And the workers are happy.
So do we force them to have a union and bankrupt the company? Or do we allow a business to run at a profit with happy workers? WalMart workers will tell you that a Union is not necessary for a happy, well paid worker and a viable company.
When my wife and I were shopping for cars about two years ago, the Prius (if you wanted one with any features at all) was $28,000. We test drove it and thought it to be slightly better than a Corrola which was $16,000 (it seemed a bit roomier on the inside) but not nearly as good as a Camry priced at $22,000. So it was my feeling that the premium was about $10,000. We'd need $4 a gallon gas to be a permanent reality to have a chance at making up that premium as a Prius only gets around 14 miles per gallon more than a Corolla.
She ended up going the SUV route with a Highlander hybrid where the premium was $4,500 more than a Highlander without the hybrid. The hybrid gets around 10 more miles to the gallon, so we'll recoup the cost, but not by much.
I think European cars have terrific performance but had nothing but quirky problems with the BMW X5 I owned. The Buick Enclave (Buick is actually making pretty cool models, but I do feel like an old guy) I now own performs just as well and I've had no maintenance issues, but I've only just crossed 50,000 miles which was the point that the X5 started having a lot of issues.
I also think that if we look at the cars most people drive (the mid priced sedans and SUV's) the American cars are just as good as their foreign counterparts. Fords have been nearly every bit as reliable as Toyotas in recent years. I don't think there's a huge difference between a Ford Fusion and a Toyota Camry, but the buying public thinks it's the difference between steak and hamburger.
Andy Tarnoff | Dec. 6, 2008 at 12:20 p.m. (report)
Good comments, Mike B. But to clarify, my base model 2005 Prius now has 50,000 miles on it and has more than covered the "premium" cost in gas savings. And as for the BMW trip, I didn't fly to Germany just to pick it up. I wrapped it into a vacation, paid for with the cost savings from the European Delivery Program. Once in Europe, we used subways exclusively. Finally, having owned a similarly priced Volvo (Ford) and Saab (GM), I can tell you that there is a real and substantial difference between the quality of European and American cars. However, the Prius is the chintziest $23,000 car I've ever driven -- but 50 mpg can't be overstated. Sad but true.
The CAFE standards make it impossible for US automakers to make money with the legacy costs that they have. It's management's fault over the years for sticking with a pension system that isn't sustainable and our government's fault for dictating what cars need to be made. It is also our fault because the perception that American cars are inferior doesn't really jive with the reality. We no longer want to drive American cars especially once we can afford a BMW or a socially aware Prius.
Unless you have excess cash on hand it is hard to justify the purchase of a Toyota Prius as the premium that is paid on them makes it hard to actually recoup the premium on gas savings. The people who drive these cars have enough money to pay a premium to show all how socially aware they are.
I've also noted that many of my "green" friends drive around in SUV's and have shunned smaller more fuel efficient cars. Why? Because small cars are no fun to drive.
Even a green person like Andy wrote several postings on how he flew over to Germany so he could by a BMW. What's the carbon footprint on that?
No bailouts. They cannot responsible predict and solve their financial problems, they go for Chapter 11 bancrupcy.
If government wants to help _american_ autoindustry (not 3 global companies who outsource jobs around the world), they loan money to japs to buy some of Detroit's machine-making plants, help sell other brands like Saab back to Europe to deal with and make it easy to continue parts manufacturing for existing automarket (giving quality of so-called american cars built in Mexica there will be big demand for parts for next 5 to 10 years anyways).
Show me the other 4 Talkbacks
9 comments about this article.
Post your comment/review now
Disclaimer: Please note that Facebook comments are posted through Facebook and cannot be approved, edited or declined by OnMilwaukee.com. The opinions expressed in Facebook comments do not necessarily reflect those of OnMilwaukee.com or its staff.
Recent Articles & Blogs by Andy Tarnoff
Published Dec. 9, 2013
It only took three years for Jess Stern, the owner of Stag Barbershop, to outgrow her space. Fortunately, the adjacent retail space directly to her north became available, and it was perfectly configured already, having been a barbershop decades earlier and some of the original hardware was still in place.
Published Dec. 5, 2013
2013 has been a good year to OnMilwaukee.com publisher and co-founder Andy Tarnoff. His family is healthy, his friends are (mostly) awesome, and business is great. And he did a lot of consuming. Here's what he enjoyed the most.
Published Dec. 2, 2013
I've never made a big secret about the fact that I'm not crazy about Christmas. As a Jewish person, I don't celebrate it, and growing up, it mostly served to remind me that I was different than my friends. Believe it or not, though, there are a few things I like about Christmas. As Hanukkah - the earliest one in a long, long time - wraps up, here are eight of my favorite:
Published Nov. 30, 2013
Spacehog was in a very different place last time it played in Milwaukee. It was July 1, 2001, at the Summerfest rock stage, and Spacehog was promoting its new album "The Hogyssey." That turned out to be the last major tour for the band from Leeds, although Spacehog began reuniting a few years ago and finally launched its fourth album, a crowd-sourced disc "As It Is On Earth," this spring. Now, they're back on the road, playing small clubs. Older, wiser but still prone to bouts of rock, we talked to drummer Jonny Cragg in advance of Spacehog's Dec. 13 show at Sturtevant's Route 20.
Published Nov. 27, 2013
National men's blog Gear Patrol listed Milwaukee's Sanford as one of its top 25 restaurants in the country this week. The award-winning restaurant is Wisconsin's only inclusion in its list.
Published Nov. 26, 2013
People ask me all the time what is the most important thing I've learned in 15 years of self-employment. That's an easy one: be agile. Trust your gut. Keep meetings short. Act on good ideas, don't try the bad ideas. Make good decisions even if they upset people occasionally.
Published Nov. 25, 2013
I've been playing Grand Theft Auto 5 on my aging PS3 this fall, and I love it. It's easily the best video game I've ever played. And it's probably my last. I grew up surrounded by video games, and at certain points in my life, I played a lot of them. But now I just have one game, GTA5. I don't anticipate playing another one ever again.
Published Nov. 22, 2013
Chicago native Mike Lowe got into TV news because someone told him he had a voice for broadcasting when he read the sports scores over his high school PA. He found himself as a political reporter because he just happened to be the one covering the political turmoil in Madison in 2011. Now, Lowe has his own branded segment on Fox 6, and he's being recognized for his work - the 34-year-old reporter just won six Emmys. But he's also modest and down to earth.
Published Nov. 14, 2013
If you have lazy people in your life, consider these gifts this holiday season. They'll thank you, assuming they get around to it.
Published Nov. 11, 2013
Until last week, I'd visited Orlando twice. Once, when I was about 5, and once on my way back from spring break when I was 21. Neither really prepared me for the Florida family vacation we took with my wife and 5-year-old daughter, but it turned out to be as perfect - maybe more so - than I could imagine.