What next for Detroit?
Our “interesting times” got a lot more interesting overnight, when the U.S. Senate killed the proposed bailout for Detroit’s automakers.
- Bloomberg: GM, Chrysler Survival Options Narrow After Vote Fails
- CNNMoney: Auto bailout collapses in Senate
- Reuters: Senate plays role of Grinch for autoworkers
Solutions might still be found: the Treasury might be able to dip into some of the other economic-rescue funds at its disposal, or GM and Chrysler — the companies immediately at risk of bankruptcy — might find enough cash to tide them over until a new Congress, a new Administration, or both make headway in a different direction on a bailout.
Or, heck, maybe the banking system will get up off the mat and start extending credit to the troubled automakers on historically normal lines.
BWA-HA-HA-HA-HA . . .
*wipes eyes*
Sorry, sometimes I get carried away.
This whole Detroit-goes-to-Washington fiasco has repeatedly reminded me of a few things:
- More and more, it’s not “The Big 3,” but “Ford and the Two Really Bad Ones.” I’m biased because Scott Monty is my buddy and so I know more about what’s going on at Ford, but it’s hard to read things like this USA Today cover story and not conclude that Ford has done a much better job of tending to its knitting over the past couple of years. Still, a bankruptcy by GM, by disrupting the entire auto-parts sector, might end up bankrupting Ford despite its cash cushion.
- Private-equity ownership does not guarantee that companies — a Cerberus-owned Chrysler, in this case — will do things “the KKR way” and get their act together.
- Demagoguery reigns in Washington. There was enough posturing on all sides of this episode for a bodybuilding contest.
More to come later. These are just some of my pressing thoughts for now.
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Related posts:
- The Basic Basics: Don’t do something avoidably stupid.
- Company of the Day (11/03/2008): General Motors
- The “car of the future” isn’t even in the future.
- What does the future hold for the Detroit car makers?
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Photo by Torpe.
Category: Economics, Transportation
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5 Comments so far
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I think the really big pain in all this (and who I hope doesn’t escape unscathed) is the UAW. Mismanagement of the companies aside, they are a huge part of what’s wrong with the US companies.
As an American citizen, I’m very opposed to the bailout. But seeing that one of my larger clients is a group of family-owned auto dealers, I could probably turn a blind eye to the bail out. It’s amazing how the potential loss of clients makes me somewhat ok with something I vehemently opposed for the financial sector.
I think the thing is I see and know so many people that would be negatively affected by the collapse. And these are people at a very smartly run and long-standing dealership. They are the ones that could suffer for GM and Chrysler’s mistakes.
Plus the collapse would have reach into many other industries, especially in small communities. In our case, the dealerships are the biggest supporters of local media and other local companies. Plus they are one of the largest employers in their small town.
Interesting times we live in.
Thanks for the comment, Chad. As I’ve remarked before, what we’re really up against is two definitions of “should”:
1. What “should” happen to the car makers (or the UAW, or bad financiers, or whichever bad actors) so that they get their just desserts;
2. What SHOULD happen so that the economy doesn’t spiral further into recession.
The second question is hard enough to get a bead on even if it’s a strictly technical discussion limited to how much government intervention should occur, what shape it should take, how it would best be administered, etc. But thet you get the first question layered in on top of it, with all the emotional, philosophical, and political debate that it implies.
Tough to parse these issues out, especially since actors on all sides are under a harsh time constraint to act.
[...] this morning’s post still fresh in mind, I read these two items with [...]
So we have a gov’t that is billions/trillions in debt (lost count) telling the auto makers how bad they are at business and drilling the CEO’s (wanting them fired) and the same people can’t keep a business going (gov’t) and out of debt themselves. They should have also demanded that the UAW show up for these hearings. The UAW is the biggest factor to these companies going out of business. Unions have no business in business. Kill unions and let’s see this country prosper again. Toyota and Honda workers are doing just fine without unions. The only person a union benefits really is the union bosses. Thanks for killing the american auto industry UAW!
G Oliver: From where I sit, it sure does look like the UAW is part of the problem, and I’m with you in wishing that they had been brought to the table in those Washington hearings. As for the rest of your comment, I hardly know where to start. But here goes:
–It’s trillions of debt, and it has been since the 1980s. I don’t like it, either, but debt-making has been a strong bipartisan effort for many decades.
–The functions of government and business are very different. By all means, the U.S. government *should* be run better, but the fact that it takes on sovereign debt says nothing about the appropriateness for a U.S. lawmaker to criticize a Detroit CEO — especially since many of those criticisms are demonstrably correct.
–The UAW is not “the biggest factor to these companies going out of business” — especially since (1) labor costs are something like 10% of the Big 3’s total costs, and (2) none of the Big 3 *has* gone out of business yet.
–The United States remains prosperous. It’s facing tough times now, and a collapse by, say, Chrysler would make it worse, but to suggest that unions are *keeping* us from prospering . . . it doesn’t hold up.