Thursday, November 20, 2008

Detroit's driving me crazy

I'm seeing the pros and cons of an automaker bailout. My heart and wallet sees all those jobs held by many of my friends and family in Michigan that are STILL tied to the auto industry; my brain sees years of mismanagement and Bob Lutz blabber-mouthing and political protectionism. (Where are you now John Engler?)

But I asked a friend of mine in Michigan, who for years was in community economic development in the Great Lakes State, and I'll share her thoughts below.

As an aside, for a sample of the frustrations that folks here in California and other places in the country have with the auto industry, see Thomas L. Friedman's "How to Fix a Flat" column in the Nov. 12 New York Times.

Anyway, here are my friend's thoughts:

1. Putting a car company into bankruptcy is NOT like putting an airline there. I'll take a risk that the airline won't be able to honor my $500 ticket. Not so much the warranty on my $25,000 car. I believe Chapter 11 = Chapter 7 and they may as well skip the middle man.

2. Plus, it will put the suppliers who've been struggling for years straight into the tank. The actual job loss dwarfs the financial services sector losses. Of course, automotive engineers and line workers aren't as cool as derivative salemen. Nothing creative about these folks, nope. They just build things. (Yes - I'm bitter.)

3. Best case bankruptcy scenario and GM goes into Chapter 11, reorganizes, blows out their legacy and labor costs and emerges "lean and mean." The U.S. government has just gone directly into national health care without
passing go — and without planning for it. We'll dump all those retirees, and many of the active workers, onto the Medicaid and Medicare systems. I think this would cost significantly more than a bail out. Which is not to say we shouldn't go there, but a little prior planning would seem to be in order.

4. Re: Some of the supposedly boneheaded product moves made by the Big Three: All the foreign automakers followed the Big Three willingly into the light truck/SUV world, because they make money and — oh, yeah — we wanted to buy them. The Japanese automakers came to hybrids, and the Europeans to clean diesel, because their home governments adopted policies that pushed the price of gasoline up and created market demand for more fuel-efficient vehicles. It's no accident that electric/gas hybrids debuted in Japan years before they came to North America.
By contrast, our government adopted two equally short sighted strategies. They put the burden of fuel economy on the backs of the automakers, who logically argued that their customers were voting with their pocket books for low fuel economy. Then, they established policies that kept the pump price lower than it was in the 1980s, providing no market incentive for consumers to go for the more fuel efficient vehicles. You could not have designed a more perfect system to punish true innovation, and encourage growth of non-sustainable markets.

I'm not saying the Big Three hasn't done some really dumb things over the years. But there's more than enough blame to go around, and I don't quite know why it's more important to punish them for bad behavior than it is companies whose business decisions are responsible for the fact that many of us aren't retiring any time soon.

It seems to me that the financial meltdown has had a much more serious impact on Main Street — not to mention making the problems of GM in particular much worse than it would otherwise have been.

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