No matter how far you've gone down the wrong road, turn back. (Turkish Proverb)
In my last post, I chronicled what I think has caused the collapse of the American auto industry: heavy retiree costs; poor timing; and the current economic slump.
As auto executives went to Capitol Hill with hat in hand (after stepping off of their private jets), the question of the day is: Should we bail out the auto industry? I'll outline my thoughts on that issue here, and would be interested in what you think.
I feel that I pay taxes to contribute to the general well-being of the community, state, and nation (which, ultimately, will pay me back). My hope is that those tax dollars are allocated to the beneficial initiatives that one person or business cannot afford alone: things like roads and infrastructure, national defense, police and fire protection, and the like.
I also hope that some dollars are dedicated to the cooperative "moonshot" projects that make our country, community, and industry great. These include things as grand as the Marshall Plan to rebuild Europe after World War II or actually going to the moon in the Apollo missions, as well as more pedestrian initiatives like DARPA (the defense research agency which spawned the internet and many other technology advancements) and SEMATECH (the government-sponsored semiconductor industry consortium which helped build huge international advantage for companies like Intel and AMD).
So is bailing out the auto industry (and its suppliers and all of their employees) worthy of such "moonshot" status? I think that it is… IF… It is in the national interest to preserve the domestic automakers. The ripple-effects of the collapse of these companies, the loss of so many jobs, and the subsequent social and economic ramifications could push the overall economy into a state of depression.
While I think that preserving the American auto industry is a potentially noble pursuit (worthy of my tax dollars) and I think that it could contribute to the well-being of my country and community, I haven't heard a plan to preserve the industry.
I don't think a bailout is warranted until 3 basic questions are answered:
- What is going to change? Before we can devote tax dollars to companies which are burning cash at record speed, we need to know what is going to change… None of the executives or labor leaders have offered any ideas on why a big pile of money will change their pattern of losing it. A government bailout won't help until the companies do business differently. And the Big 3 haven't talked about doing business differently.
- Where are the cars? Where are the market-changing cars that the market wants? Until Detroit has innovative and desirable vehicles which people will buy, they won't be economically viable. The Big 3 executives have offered lots of promises, but not much evidence that such vehicles are ready to go. And there is no talk of an inspiring "moonshot" project to make Detroit vehicles worth buying again.
- What happens to the retirees? Detroit is struggling in part because of its massive pension and insurance obligations — much of it for retirees. How are they going to restructure those obligations without a) unloading them on taxpayers, or b) depriving the retirees of promised benefits? So far, I've heard nothing productive in this regard.
A bailout will fail if all it does is prop up an already-failing industry. Until the companies and the congress talk about permanently and productively changing the way the industry operates, a bailout just staves off the inevitable.
Detroit has been on the wrong road for 35 years or more, and they're running out of fuel. We shouldn't give them more gas until they change where they're headed…
[where: Detroit, MI]
One thought on “The Big 3: Thoughts on a bailout”
While I’m a capitalist, I believe government investment in industry in certain cases is warranted. This is one of those cases where it makes sense, but only under certain conditions — and by the way, it needs to be an investment, not a bailout. I believe any changes should be to improve the long term viability, not to merely to improve current cash position. Here are some possible investments:
1. A fund that would invest in R&D of more high-tech and safety features, and alternative energy vehicles.
2. Fund that will provide pension relief and also fund initiatives that will overhaul worker compensation, retirement benefits, etc.
3. I wouldn’t necessarily say this last proposition is an investment, nor do I think it can realistically be part of a package, I believe for any kind of plan to work, something like this has to happen: transition to new management. The industry needs new blood… executives from other industries, executives from foreign auto manufacturers, etc.
In essence, a plan like this would probably not stave off bankruptcy or mergers. It would promote the long term viability of American made cars, and potentially put America back in the lead in auto innovation.