It’s time to nationalize the auto industry

You heard me.

I’m fed up with these dithering politicians. They’re watching Detroit sink under a combination of mismanagement, bad timing, shortsightedness, and changes in the world’s economies.

The White House, after having stated its opposition to bailouts for private industry and big government and such, has jumped in to rescue every gathering of wealthy, irresponsible bankers they could find. The old Keating Five scandal, which at least one presidential hopeful narrowly escaped being discredited in, ended up not with the Federal insurance companies paying off depositors, but with a much more expensive series of bank rescues that left taxpayers holding billions in debt.

The White House decided they needed to save investment banks as well, because it would hurt the market if we let overpaid financiers take responsibility for their actions.

Most recently, two fat and foolish quasi-governmental agencies were rescued and nationalized, so that the mortgage industry could continue to write bad mortgages and have someone buy them. Keep in mind nobody would lose their homes if Fannie Mae and Freddie Mac went under; their mortgages have already been written.

Congress was complicit, rubber-stamping every foolish rescue.

Now, though, the situation is different. Instead of the financial sector, the auto sector is in trouble, and has been for quite some time. Detroit, fighting foreign automakers and suppliers who benefit from their own governments’ subsidies (and, to be fair, subsidized by states, counties, and cities where they place or renovate their factories), is in danger of serious problems if they don’t get capital, and the bankers aren’t lending. Not to them, at least.

Could the leaders of Chrysler keep the company going through 2010 if they put in their own personal wealth? Quite probably, yes. Steven Feinberg has quite the little bundle. Frankly, I’m a little dismayed Bill Gates has chosen to just dominate Ford’s stereo options, instead of buying one of the Big Three outright. No, the Ford family isn’t selling, but GM stock is less than half of what it was in February.

In any case, the Big Three once again just need a little bridge to move from yesteryear to tomorrow. The markets changed very suddenly, just as they did in 1973. The difference is that today they’re much more ready. GM and Ford cleverly developed their Asian and European engineering talent so they’d have expertise in small cars, efficient engines, and diesels without needing to buy companies and import it. Chrysler was working on similar plans (except keeping expertise in a single American building) but then Daimler came, and you know what their plan was - Chrysler could make trucks and minivans and re-sell old Mercedes designs, with small cars provided by Honda — then Mitsubishi — then Hyundai — and finally Chery. Daimler never did like the Neon or the A and B cars that were being worked on; they hated the PT Cruiser, too, for that matter. None got five star crash tests (the PT eventually did) and none had that satisfying Mercedes “two ton” feel.

Anyway…

The point is, GM has great technologies in hand, including electric cars, small turbocharged engines, advanced platforms to put them in, direct injection, diesels, and lots more. They just don’t have the money to go as far as they want to now. Ford is moving to convert their truck factories to Ka-class vehicles. Chrysler has the Phoenix, automated-manual transmissions, and technologies I can’t tell you about, not to mention GEM’s technologies and whatever might be left of the TEVans and EPICs.

They just need some money, preferably loaned at less than 18% interest, to get them past this rough spot, and preferably some understanding of their contribution to the economy.

The problem is, for some reason the Millionaire’s Club in Washington, DC doesn’t understand that the financial world is not just a bunch of people pushing papers. At some point wealth has to be created by actual people making actual things, whether those things are new pharmaceuticals, computer software, or vehicles. That’s not something easy for the lawyers, accountants, CEOs, and professional politicians within the Beltway to figure out. (Once most people get to the CEO level, strange things tend to happen to their minds… there’s a body of research on that including some fun studies by David Kipnis at Temple University which anyone who wants to criticize this paragraph should at least be familiar with.)

So we have the White House coming out against $25 billion in short-term loans to the domestic industry - an amount that would be easy for a Japanese company to get without even having to go to the government - and the Congress grilling Detroit execs, and with some justification. After all, when they were flush, what did they do with the money? They didn’t invest it properly, and GM and Ford were not as forward-thinking as they should have been. When customers didn’t care about gas mileage, neither did the Big Three. Honda nursed its reputation for thrifty small cars while Ford and GM and Dodge went into a race to the bottom of the fuel economy pack. (Again, Daimler takes the rap for Chrysler’s fall, since they were working on all sorts of fuel-saving vehicles by 1998, mainly to make a real jab into EMEA and South America.)

The problem is, of course, that you know the auto industry is a lousy risk. The executives take unrealistically high salaries and bonuses. There’s something wrong about loaning taxpayer dollars to companies that pay their execs millions of dollars a year and then claim poverty when the UAW and CAW come knocking. Every time one of those private jets takes a GM commuting executive from Florida to Detroit for the week, a newspaper will be photographing it. The Republicans and Democrats could very well make it a campaign issue - the profligate “other party” rewarding spendthrift execs for their own stupidity. For some reason this didn’t come up with Fannie Mae and Freddie Mac, but if I was Obama, I’d probably be yelling about it. (Perhaps he is and nobody’s reporting it, or I just haven’t tuned in at the right time.) I don’t know why, but paying Wagoner a few million per year in pay and bonus just seems worse to people than paying some Wall Street schmuck the same amount.

There’s also a lot of duplication of effort which hurts the automakers. I mean, look at the Big Three. Three similar (until now) pickups. Three completely different V8 engine series. There’s very little sharing.

Now, combine them all under government rule, and it’s a far different story. You can eliminate two marketing groups, three sets of terribly overpaid execs, and a whole host of other expenses. There’d be no overpaid execs flying around while taking out taxpayer loans, and the actual losses would be buried somewhere in the accounts, just like they will be for mortgage lenders. As long as all the brand names stay the same, the average Joe won’t notice much. Not only that, but then, when the economy turns around, we might actually make some money off the deal. As it stands with loan guarantees, the government doesn’t usually lose anything, but it doesn’t make anything, either.

What’s more, all those complaints about government regulation would go away, because they’d BE the government. Who complains about their own rules?

Besides, it would be consistent with the current political practice. All politicians say they’re for smaller government and against corporate welfare. That’s what makes nationalizing and subsidizing the auto industry seem like a natural fit: it’s exactly the opposite of their stated values.