April 1, 2009
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The bailout, the auto industry, and why we need it, whether we like it or not.
I’ve found myself in the middle of a of a number of discussions since the head of GM quit. There seems to be the misconception that President Obama “made” him quit, in such a manner that the President told the guy that he was fired. People seem to gloss over that the head of GM stepping down was a requirement for GM to receive more government money. GM could have said no, would probably eventually fail, and the guy would be out of a job, but things would be a lot worse. I’ll get to the worse part toward the end.
There’s the misconception that the President can fire anyone he wants and has some type of control over companies. This glosses over thet fact that GM CHOSE the money, and the fact that the government has a vested interest in the company now. I haven’t found anyone that could articulate the “plan” that the auto industry had after the last bailout. There didn’t seem to be one. It seems responsible to require that some things be done properly when you’re working with borrowed money. An example would be a student getting a scholarship, and then not going to class. The college turns off the money, unless the student starts doing the proper work. The student can choose to leave, but if they’re broke, their options for education are limited. And if they were rich, they would not care.
Now the failure of the American Auto industry is not just a failure of some business. And I’m not going to touch on how it effects the economy in Michigan, but that can be important, too. The auto industry isn’t like a McDonald’s or a Pepsi. And the government’s interest in the company is nothing new. Just look at everything the government has. The government buys American, because it supports American businesses, which supports American businesses. Radios are made by Motorola, computers are made by Dell. In the Army, AAFES ties and MREs are made by the blind, in America. Even the cheap furniture is manufactured by convicts in American prisons. Government likes to buy from American-based companies.
Now, back to the auto industry. Go to your nearest police station and tell me what you see. Chevy Monte Carlos and Impalas, Ford Escapes and Crown Victorias, Dodge Charger’s, etc. This is the same on city, state, and Federal levels. The Hummer isn’t just for soccer moms and preppy jerks with too much cash. It’s a HMMWV, which troops need in combat. Fire Department command vehicles are in the same boat. If the auto industry fails, what happens to the fleet? Who makes the parts to keep the vehicles running. There’s a small chance at an aftermarket industry, but you’ll need new cars so you don’t go from repair to repair trying to keep a vehicle running.
They can stick with the American cars, but that’s just staving off the inevitable. Cars will break, and so begins the process of cannibalizing your fleet for parts. This is done very well by the Army, but even they have to buy equipment eventually. Vehicles will dwindle, and new ones will need to be purchased.
The other major auto makers are based in Japan, South Korea, China, and Germany. Three of those are in a pretty unstable part of the world. South Korea has the North looming over it, we’re not best buddies with China, and Japan is cool, but if things break out over there, Japan will probably do what it does best and try to convert to a war economy. Oh, and South Korea and North Korea both hate Japan. Replacing the entire fleet with a foreign based company means that when they don’t like us, or things go bad, we suffer. Think of oil, but on a higher level. Then we start the cannibalization again. You can go with Germany if you don’t mind choosing between BMWs and Smart cars. Try catching a crook in a smart car.
I’m not saying that the bailout is a good thing. I’m just saying that compared to the alternatives, on a global-economic scale, it’s better than the alternative. Other countries have vested interests in their companies. Italy gives property tax breaks to vineyards. The French government installed listening devices in the headrests of their business class seats to steal company secrets and feed it to French companies. Economic infrastructure is important to every country.
Everyone says “we shouldn’t do that.” Call me when you have a realistic plan for what we should do.
