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.
Dave, I agree with you, and I think congress is going to pass a bill here pretty shortly aimed at the detroit automakers. GM has the Volt, and I believe Chrysler has something similar coming up. I don’t agree that you should nationalize the automakers, everything the government tries to run just ends up old and busted with more money thrown at it as the solution. I don’t want to see that happen to Chrysler.
I was talking kind of tongue in cheek. Nationalizing the automakers would be bad in the long run, I think. I do believe that if loan guarantees ARE made, they should:
1) Demand that top executives salaries be frozen and no bonuses be given until debts are repaid
2) Demand that “personal expenses” are run by the GAO for approval (no more frivolous private jet trips!)
3) Require a cash payback to the government if the companies are profitable in 2010-2012 possible in the form of stock options.
The first and second are so taxpayer money isn’t subsidizing overblown salaries.
The third is so that the government’s risk is balanced by a potential for profit.
Well, the reason Obama’s not yelling about it is because Democrats have been part of the problem with Fannie and Freddie. Namely Christopher Dodd and Barney Frank, part of the Senate committee that should have been taking action when these crap loans were being handed out. That said, I don’t agree with President Bush’s handling of the matter either. both parties are culpable in this mess.
I share you concern with the big three but something has to be done with the Execs and the MBA culture that has emerged where they “Take care of each other”.
With Chrysler they seem to be stuck on trying to make the ideas that Damlier came up with work. They need to start over, period. Ford and GM still have a chance. But have quite a way to go. They were able to do it in the late 80’s and early 90’s, I’m think it can be done again.
An interesting take on Detroit, and the state of the economy. Perhaps not angry enough, nevertheless I seek only to compliment the commentary. By now, it is no secret that the concepts that this President campaigned on were certainly not conservative. When it comes to money, he outspent everybody, leading into the tangle that we find ourselves in. Mostly, the taxpayers are being boiled in the oily ink of Federal Reserve Notes, guaranteeing about everything, except perhaps their own tax cuts! I believe one of the insider news portals for Detroit estimated that about 1 in 7 people are employed, across this great land, in, through, around, near or by the Automobile Industry. That should automatically garner immediate attention by politicians everywhere. Yet, they view Detroit like some sort of red headed step child, last to the table in all respects. We need to remind ourselves of the grief suffered by Chrysler Corporation leading up to the loan guarantees of 1980. It was touch and go all the way, with mostly Washington D.C. Congressional reps, and Administration compatriots that through up the largest road blocks. President Carter told Chrysler, “heal thyself.” I don’t know what sort of car he drove, if any, however, I suspect it probably burned peanut oil for motivation. Fortunately, some of his cabinet were sympathetic and while the struggle was momentous, the deal finally did go through. For his part, President Reagan also did not like the loan guarantee, however, it was already in play when he began his watch. He did chip in by getting Japan to voluntarily limit their imports, and made the US Government one of the largest purchasers of the “K” cars.
It doesn’t seem like we there are any cooler heads in Washington now, even though the Chrysler Loan Guarantee was one of the most successful and surprising programs ever wrought in “Foggy Bottom.” I do not believe that this Administration pays any attention to anyone unless they can wave bundles of cash at them. The 2006 change of Congress made the situation worse, as it seems that the leadership in the Senate and the House only seek to “blame Bush” for everything, and either will not or can not find a means to legislate changes to get the wind back in the sails needed to get out of the doldrums! Not what they were elected to do! Forget Bush. LEAD, get things MOVING.
It is utterly STUNNING to see how quickly, and yes, DECEPTIVELY the Congress, lead by Independent Committee Congressman Barney Frank, bored right into the tax payer pockets, leading probable economic strains for our great, great, great grandchildren. Thank you as well to the President that nearly melted the tip of his pen in application of his signature to make it so. What the ………. Freddie Mac and Fannie Mae are exactly WHAT? Qusai government, government or some sort of independent corporation. Anyone know? Well, you ought to, because the people that pay taxes are now full fledged guarantors, even though they have no ownership and NO SAY about it!
And it isn’t like we were not warned. Several months ago, banks failures were speculation. Yes, several banks fail just about every year, but who the hell ever heard of them? The bank for sewers, sowers, miners, minors and manufacturing thread bobbins Inc.??? Come ON! Bear Sterns, down the tube in less than a couple days. In moves ENGINEERED by the TREASURY department and the Federal Reserve. And did you note that the takeovers are always accomplished on a week end before investors and depositors have an opportunity to react? As I write, I see the Lehman Brothers, well connected politically, is now HAVING to be rescued. So far, to my great wonder, tax payer bail out is not on the table. Of course, talks are still going on. If they fall through, guess who is going to bear the brunt of fiscal irresponsibility in a joint like Lehman?? AND WHERE IS THE INVESTIGATIONS? WHY IS THERE NO ONE BEING HELD RESPONSIBLE for these horrid, abject, outright CRIMINAL acts??
And Detroit? How about a small, yes SMALL pile of cash, say about 50 billion to get them over the tide. Frank discussion needs to be held about the logic of giving obscene salaries to people just because they are “elected” to run the respective automobile companies. How much is enough? How can GM continue to justify giving Wagoner the HUGE amount of millions EVERY YEAR while everyone else is being tasked in “giving” things, like PAY, up?? Iaccoca, not my favorite BTW, at least took a salary of ONE DOLLAR per YEAR until the company became profitable. He was already rich, so a few million one way or another to him should NOT have been his consideration. Resolving that, as they have in other automotive giants, like Japan, would go far to an equitable appearance in the automotive offerings. Technology is already here, or nearly there for Detroit to not only regain its dominance, but again lead the world. It would also involve the country’s leaders to stop bleating that “we can’t do that.” There has never been a time, in this country, that it could not obtain, or make the resources it needed. The innovation of the 1960s space race is but one example of the means people here can invent to achieve a goal. That combined with a meaningful, comprehensive, technologically advanced search for renewable fuels and energy would put America where it needs to be!
I was running off at the keyboard, and I did miss the point in my previous reply.
The suggestion of nationalization leaves me sort of cold. In that, to me, it gives the appearance of a means for some conniving person or group to engineer a means to exert total control through the manipulation of huge resources of cash. Agree or disagree with Pete De Lorenzo who pens AUTOEXTREMIST, because he has been tracking, attacking, and so far, hasn’t been off the mark about all of Detroit automobile manufacturers flaccid response to the markets, and Washington D.C. complete disdain for the same. It is remarkable that the perception of greater quality is attributed to the foreign manufacturers, with a special glance towards Japan. Even though some of the bigger Japanese marques are totally manufactured in the USA by good solid American Labor.
This morning, as I glanced through the news, the economic stresses of the current state of this country, and in the world, have shot down Lehman Brothers, put Merrill Lynch under, and caused AIG Insurance, the single largest entity of its type to restructure. All bail outs. All done on a week end. The situation where even BIGGER institutions come to the fountain with even BIGGER amounts of money. One good tip, and it could send a crescendo of failure that would push the USA, and the entire world, into a situation whereby looking back at the devastation caused in the 1930s depression would be like a cake walk! It seems to appear to me that the root cause is still not being addressed. The people involved in these ever larger “solutions” are not really “resolving” the situation, but are simply resorting to the good ol’ American way of just throwing more money at the situation. An unfortunate result is another long slide downwards in the value of the dollar. That particular situation invites another campaign for oil speculators to gouge an even bigger chunk out of America by zooming up the price of a barrel of crude oil….. AGAIN! Even as oil fell below $99 a barrel this morning when the same greedy pigs learned that the Texas oil refinery area in Texas was largely spared from damage via Hurricane IKE.
Certainly, Dave has some suggestions worth much debate. He always does. I like and respect his commentary because he has done some homework in putting the concepts to the keyboard. It is just that it seems to me that going national would erode the brand identity that we here have sought to maintain. Plymouth (may it rest in peace) was put to death in 2001, and some nearly 8 years later, we are still making a strong case that it was a dumb headed, arbitrary, move and as a division, Plymouth should be brought back. I see nationalization as an avenue that would never allow that to happen, and would blur all other manufacturers brands as well. Chevrolet/Pontiac might just as well become Cheviac or Pontrolet.
The unfortunate selection of Robert Eaton to head Chrysler which lead to the doomed “merger of equals” points out the fallacy of not only nationalization but internationalization as well. Look to BMW, a stand alone company, completely shattered, with no infrastructure in 1945, to see what a strong brand ID can accomplish.
Part of the Detroit situation is that the core of the companies always seem to switch with every new fad, change of company directors, technological advance, or seemingly the direction of the prevailing winds.
Given the abject disdain from Government towards American auto manufacturers, in the end, perhaps nationalization would be the only possible avenue. A situation I believe America would regret.
I should mention that I wasn’t being ENTIRELY serious when talking about nationalization. I think it makes more sense than nationalizing mortgage companies but really… what MIGHT make sense this time is taking some equity as a condition of the loan guarantees — or forgetting “guarantees,” where you take all the risk and get none of the rewards, and simply loaning the money at cost.
Regardless, if the government steps in, I want it to step out with a PROFIT. No more risk without possibility of payoff, and no more rescues of irresponsible banks. The whole point of bank insurance was to let banks collapse without hurting INDIVIDUALS.
As for this latest fiasco, you can blame it on either party as having the major share, but I must point out that the bailout initiatives thus far have been proposed and pushed by the executive branch. The 2006 takeover in Congress ended many abuses including deliberately avoiding investigation of any defense contractor and some of the more truly abusive earmarks…while they did not fulfill their promise of ending all earmarks, at least we’re closer. Some of their critics in Congress seem to have conveniently forgotten how many years THEY had to end earmarks, too.
A credible third party is needed at this point but our news media are too concentrated and too heavily invested in the current system to really allow that, as far as I can tell. Ask yourself how many speeches they played from the conventions without interruption, careful selection, or talking heads in the foreground distracting everyone… or how much you really know about the two candidates’ history and stands. (When I say “really know” I mean apart from campaign commercials, PACs, and other sources of pure fiction and spin.) And if you are knowledgeable… how much of your information came from your national-corporate-owned newspaper and TV stations?
Nationalization would inevitably result in the same problem as private equity ownership (in the same firm) or mergers: we’d lose a lot of brands and models, and end up shrinking to profitability. The current no-loan alternative, though, isn’t much better.
It’s a pretty rough problem. Shame the executives are still taking the Delphi/American Axle strategy on comp.
I understand that you were sort of “driving by” in the nationalization commentary. I still applaud you for it. You know it deserves a look, and a debate. There are points in your analysis that could be converted into an avenue to effect some real changes!
And yes sir. No loans without a means of returning to profitability in order to effect PAY BACK.
As I referenced earlier in a previous post, there is just NO way that we, as citizens are getting anything other than issues that constitute “truth.” It takes meaningful, copious time, not a luxury that most Americans have any more, to get to the real issues with exerted research. Even then, there is always that doubt that it is on the face, that what it would purport to be. How substantive are the ads or the arguments when for a week, all we heard about was “LIPSTICK”?? Meanwhile, major financial institutions are falling over like dead flies in a DDT storm. How close are we, and the entire world, to complete collapse of the monetary system. And what preparation has been made if it does occur? And it could…..
The lipstick on a pig comment was from the McCain campaign, which has been caught on tape saying “This election is NOT about the issues.” It’s a great distraction, and typical of certain sleazy types - seizing on a few words yanked out of context and making them far more important than any real issue. In this case McCain had been recorded a while back saying the exact same thing, but for some reason when you say that about Hillary Clinton it’s appropriate and when you say it about Sarah Palin it’s sexist. Indeed, I’ve been impressed with the way ANY criticism of Sarah Palin has been rebuffed as sexism and/or “it’s her husband who wants Alaska out of the U.S.” (Which might be great for Alaska, and maybe justified, but losing that oil revenue, and the oil itself, would hurt.)
Obama for his part might be doing the same thing, but I haven’t heard much out of him lately, so I don’t know. Seems like every time I hear a media story about the campaign now that isn’t poll-related, it’s the McCain campaign attacking and Obama responding. If Obama is attacking, and I suspect he must be, it’s not making the headline news in these parts.
Citibank rescued us from having to watch yet a third financial institution go down in flames…
I believe you are correct about the campaign issue. Unfortunately, it does appear, and this is just IMHO, that McCain has thrown enough “substance” into the “fan” that it has diverted Obama from the issues that made his success in wringing out the nomination. His change theme has been usurped and flipped quite unobtrusively into the McCain camp! Suddenly the “mavericks” are leading the charge to change. The small sound byte techniques have shifted the sorely needed “change” issue, from the real change candidate to the real maverick candidate that looks like change. How effective is that costume? Well, as I see it, pretty darned fine, almost pushing Obama off the news altogether, in a near stunning victory for comments, news articles, and the bloggers!
Lipstick on a pig. How meaningless is that? How about Lipstick on the Wall Street Bear? Same thing. Sarah Palin’s commentary about Pit Bulls and Soccer Moms may have elicit in drawing peels of laughter, however, in my gut, I think that this lady is more akin to an Alaska Wolverine than a dog. Having spent some time in Alaska, even the hardy native Inuit people fear that creature. In that sense, the natives in Alaska call the Wolverine “crazy bears”. Brother, that is where the Lipstick stops.
The real issue, today, again, is the economy. So far, all I have seen is talk from everyone around ,AT the problems, and nothing in respect ABOUT the problems. Meaning I what to hear WHY. So far, no one is saying. That smells to me. Smells like an uncovered cess pool of high up executives, and oversight mechanisms that are implicit in criminal activities stealing from the citizens of this country. The Modus Operandi seems to always resort at just tossing money at the problems, instead of seeking the root cause and killing it! Once and for all. Show me a leader willing to take on that. That would be the person to vote for!
Just one more thing. The American Automobile Manufacturers, largely I am referring to Ford, General Motors, and Chrysler, are not doing enough.
How they must feel when they see BILLIONS of dollars tossed out, almost cavalierly in “saving” poorly managed MONEY companies. With America powered in it’s economy by the automobile industry, the good folks running those industries need to get on a public pulpit and point out how THEIR FAILURE WILL destroy the economic engine of this country!
AIG? That isn’t even a BANK! Its an INSURANCE company, and now, YOU and I, and everyone here in this country owns about 80% of it. Who ever………….. well I don’t want to enter into digression.
So, if AIG isn’t a bank, and the Fed saved it, then why not the American car companies? They are not even asking for rescue, just some LOAN GUARANTEES! Of which, when extended, all have been successful, and the wildest was for Chrysler back in 1980 that was REPAID, WITH INTEREST, YEARS ahead of schedule. Same situation exists right now. The programs, vehicles, and technology are IN PLACE. All they need is a little help, and the Fed can actually make money out of this program. With interest. How much disdain does Detroit have to endure before they get off and start projecting what their bankruptcy would mean?
There’s oversight?
The short-selling phenomenon has been insane.
Concentrating power in the Fed, as the Fed chief is demanding and as the White House is agreeing - is insane.
Congress is as usual being spineless and going along with it.
Another $85 billion gone today, into buying out AIG.
General Motors, Ford, and Chrysler are spinning down and the Business Week says on TV that we can buy Toyotas.
The idea that we can have a country with prosperity but no jobs has taken root and is no longer commented on.
Today someone suggested this was a deliberate move to destroy the economy so Carlisle Group, Cerberus, etc. can sweep in and buy out all the country’s assets - cheap.
Dick Cheney never did sell his stock, as I understand it. Bush Sr. is heavily into Carlisle. Makes me wonder. I don’t normally believe conspiracy theories but…
… either that, or the government is desparately trying to stave off the worst depression since Roosevelt tried to put an end to depressions (and he would have been successful had the SEC, S&Ls, etc not been so deregulated).
Yet Bush still is escalating military spending and has yet to announce a goal for the occupation of Iraq, or any sort of condition that would allow us to withdraw… even after the Iraqui government politely asked us to start leaving.
Someone called me about 4:00 pm this afternoon, leaving a message on my machine. Unfortunately, it was sort of garbled, however, it did sound like my son stating the TODAY that car manufacturers were meeting with Nancy Pelosi, the House Speaker, wanting money. I can’t contact him as he is in Japan now. Anyone can confirm this?
You know too that this take over or buy out of AIG has some real Constitutional challenges. Where does the authority come to just spend 80 billion of the tax payer dollars to buy into a PRIVATE company that in reality is beyond the scope of the Treasury or the Federal Reserve. I am waiting for that shoe to fall. Then what?
OH BTW, one thing I can confirm is that I have to take my money out of Washington Mutual. They put themselves up for sale today about 5:00 pm. Essentially, no one is going to want them, so what befalls that institution in the near term? If they can’t solve their own problems, who is going to? Bet the Fed will ignore this one.