It is not wrong to ask for government help, but the automakers should come up with a win-win proposition. I believe the federal government should invest substantially more in basic research ”” on new energy sources, fuel-economy technology, materials science and the like ”” that will ultimately benefit the automotive industry, along with many others. I believe Washington should raise energy research spending to $20 billion a year, from the $4 billion that is spent today. The research could be done at universities, at research labs and even through public-private collaboration. The federal government should also rectify the imbedded tax penalties that favor foreign carmakers.
But don’t ask Washington to give shareholders and bondholders a free pass ”” they bet on management and they lost.
The American auto industry is vital to our national interest as an employer and as a hub for manufacturing. A managed bankruptcy may be the only path to the fundamental restructuring the industry needs. It would permit the companies to shed excess labor, pension and real estate costs. The federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk.
In a managed bankruptcy, the federal government would propel newly competitive and viable automakers, rather than seal their fate with a bailout check.
The biggest problem you have is to overcome is the belief, that these car makers are American companies. They are multinationals who owe no loyalty to Detroit or the USA, they will make their vehicles wherever is cheapest. They will tempt you with the promise of keeping plants open with just one more subsidy. They are making vehicles no one wants to buy, because they are subsidized. Make them compete on the open market, and their shareholders will force them to change. The cry to protect your manufacturing industry is their greatest lie, and also their greatest weapon. How much have they spend on modernizing their plants? How much are they spending on R&D;? Call their bluff!
Jon R
There is too much investment of capital in the US auto maker to suggest that most of the work will move off shore. I have a small vested interest in GM staying afloat being entitled to a small GM pension some years down the line. The banking crisis which is largely the result of political pressure on banks is the root cause of immediate problem The larger problem for auto industry is unreasonable labor contracts and to a degree the dealership system. Bankruptcy could allow both to change, just like Kmart’s bankruptcy allowed it to void a number of leases in area where they had over expanded. I agree there should be no bailout until after bankruptcy. Remember, bankruptcy is not the same as going out of business.
Scott (#2) is right about bankruptcy being (probably) a necessary component of a solution to Detroit’s problems. Remember, several airlines have gone through Chapter 11. They continued operating and (at least in the case of Continental) seem to have come out of it able to operate.
In the long run I believe that restructuring the American-based side of the auto industry will be a good thing – that dam is going to burst sometime so why not drain some water out now? Except that the only problem with now is that it will exacerbate the current economic collapse, although it’s arguable whether it really will make a bad thing worse. The short-term pain amelioration may or may not help take anyone anywhere.
There is a lot of wanting to treat symptoms and not the disease in our policies today.
I am shocked to find myself agreeing with Mitt Romney!
We better maintain some military manufacturing in one or all of the three auto companies in their bad straits. Don’t let sum of the nuts in the rest of the world get the idea that could theu could perform a military strike on us just like Hitler and Tojo did.
Harvey,
In response to the Japanese attack on Pearl Harbor, the US declared war on Japan. At that point, Nazi Germany issued a declaration of war against the US pursuant to its treaty with Japan and the US reciprocated. There was no military attack by Germany against the US that served as a [i]casus belli[/i].
As local Michigan Republican congresswoman Candice Miller pointed out – Mitt doesn’t live here in Michigan, of course he is taking the standard republican stand.
I find it quite disingenuous that the congress by Bush’s urging GAVE 700 billion to the New York banking houses, and can’t find 25 of that 700 billion as a LOAN to the auto companies. When Chrysler was loaned money in the 1970’s they paid it back with interest 7 years early (3 years instead of 10). The big 3 is asking for a LOAN to help with liquidity -not a bail out like the bankers.
Nationwide 1 in 10 jobs have some sort of connection to the auto industry (manufacturing, parts, plastics, metals) and here in Michigan (especially here in Detroit) you have residual effects to local businesses that directly and indirectly do business with the auto companies or their employees. At my parish we grew from about 50 to just over 200 people on Sunday from 2001 to 2006. In the past two years we lost 47 people because their auto related employment ended and they had to move out of state for work (thankfully, ASA only dropped 13 from two years ago to last year, and should rebound a few more this year D.v.). And although the effect of the bankruptcy might not be as acute in other communities, we are talking about suppliers not getting paid and going bankrupt, and lawfirms who help both losing contracts, and employees being laid off, and houses being foreclosed because they can’t meet the mortgage – plus the local community tax base continues to shrink so they lay off employees. And then the local diner loses business because there are fewer people coming in so they lay off two waitress, who now can’t support their families. It is an ugly cycle here for a country that wants to either punish the executives (who also support the economy and give millions to local charities – I know – I serve on a foundation with one) or the union autoworkers who just want to be paid fairly and afford a house and send their kids to good schools so they don’t have to do manual labor when they grow up.
All because they balk at a loan to the car companies, but can GIVE 700 billion of my tax money to the bankers.
And I say all this as a midwest Republican who went to University of Pennsylvania and learned economics from the Wharton Business School professors…..most of my fraternity brothers now being wall street banker types.