No bailout for you
Today I’m introducing a new blog category: Simplistic solutions to complicated problems (SSCP), where I’ll propose my solutions to the big issues facing the world and then you all can tell me why they wouldn’t work or even better, what it would take to get it to work. I generally have only a superficial understanding of things so hopefully this won’t devolve into name-calling too quickly.
This whole auto industry bailout thing has been bugging me lately. Some up front disclaimers: First, I live in Hawaii – there are no automobile manufacturers here, except the guys that build drift cars in their garages. Second, I have never owned an American automobile – the ones that I have driven as rental cars convinces me that this is not likely to change anytime soon.
Accountability is a big thing to me – you make a mess, you fix it or suffer the consequences. (The shorter version of that is one of my mantras: “Plan ahead or suck it up”.) It seems to me that these companies screwed themselves up by designing and building vehicles that people don’t want. Even though gas prices have fallen, people have realized that rolling behemoths aren’t sustainable and are a bad idea in the long run.
For any other company, if you’re selling something no one wants to buy, you go out of business. Instead, the big three American auto makers are asking the government for $34 billion dollars to allow them to keep on doing what they’re doing, just for the sake of staying open. Even if they get the money, they still need to sell cars to make money to pay the loans back. Last time I checked, economy still sucks – who’s going to buy any cars, especially ones the public has already shown they don’t want?
I get that there are a lot of jobs on the line, but how is that different from everyone else’s risk when they choose a profession? Say you’re an accountant and your firm goes under – you find another job. Same thing if you’re a mechanic, or a pilot or whatever.
So anyway, my simplistic solution to rescuing auto companies is this: Instead of handing over money to the companies that have already demonstrated poor business sense, the government offers rebates to people that buy vehicles that meet some fuel efficiency standard from said automakers.
To put it in perspective: For $34,000,000,000.00, the government could rebate $20,000 per car for 1.7 million cars.
This would incentivize people to buy American cars, make purchases that they may have been putting off, as well as make more sustainable vehicle choices. While not getting free money, the auto companies in turn should see increased sales and have incentive to design and produce more fuel efficient vehicles.
Yes? No? (Putting on my asbestos suit…)
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By the lone gunman, December 5, 2008 @ 9:32 am
I think I heard this solution on Perry and Price in the AM a few weeks ago when the whole Auto bailout thing was hatched. The solution makes sense to me… If I was given $20,000 that I HAD to spend on an American car, or nothing else, I’d buy one. I thikn I’d actually get a truck and leave it parked on the side on the house… but I’d probably use it to go to Home Depot and do other truck stuff. I guess the only thing is that I’d still have to pay the insurance on the extra vehicle… I do not think that I would trade in my Toyota for an American car at this point… OK… maybe I wouldn’t do this until I had a little more disposable income… But I think it would definitely cause people who are presently looking to replace their cars to buy American and therefore help out Detroit.
By Not "The LG", December 6, 2008 @ 3:16 am
Whether American cars are any good or not is not really the question. The statistics produced by NADA (National Automobile Dealers Association) is that the Big 3 was responsible for nearly 52% (8.4 million) of all new car and light truck purchases in the United States in 2007. I believe this includes fleet sales.
Further, automotive sales represent around 4% of the gross domestic product, a very large contribution. Add to this parts manufacturing, distributing, wholesale / retail sales, and service and the affect the industry has on the GDP is greater still.
With the whole industry contracting, who is the American government going to want to help out? I would suspect they care less about the success of a Japanese automobile manufacturer since their losses should mean better fortune for the Big 3. More success for the Big 3 would mean a bigger economic gain.
Therefore, I believe the bailout is trying to achieve 2 things. (1) To slow down the recession (maybe avoiding a major collapse is a better way to say it) and (2) how to better position the Big 3 versus its competitors. It’s a long term objective as well as a short term fix.
Also, I think this should be looked at as an industry rescue and not as a bailout of individual corporations or profession. To clarify what I’m trying to say, is that I don’t think you can put the rescue in the hands of the consumer. The consumer still has free choice to select the manufacturer of their selected vehicle even if restricted to the 3, so the infusion of cash through sales may not meet the needs of all 3 companies. And failing to meet the needs of even 1 of these companies still means an overall contraction or a net negative economic impact.
In addition, depending on the size of the corporation in the industry (not just the vehicle manufacturer itself) down sizing or right sizing of a certain magnitude may not be an option. It’s possible a company would still not be able to meet its debt obligations, equipment lease commitments, ground lease rents, and whatever other locked in financial burdens it has to make it work for those creditors.
Oh, one more thing, the automotive industry is not in control. A lot of what it is dealing with is a result of the misadventures of the financial industry. Cash has dried up and would be buyers can’t get loans. Thus, I think the hope is that getting the financial industry back on their feet and stabilizing the automotive industry will in turn help to right the economy. Money and cash will return and consumers will return to purchasing vehicles, other consumer goods, and new homes.
All this being said, I’m not sure how I feel about the bailout. In general, a marketplace is supposed to take care of itself. However, when one marketplace (automotive) is affected by the failures of another (financial), what are you supposed to do? When industries so large begin to falter, how much can our government stand aside? When does the greater good begin to outweigh punishing those who’ve created the mess?
I think I could have added more, gone on tangents for added clarification, thought about this more clearly, but this is what I got. I’m certainly no expert, but these nevertheless are my thoughts. Maybe I’ll read this in the morning and feel like Jerry Maguire after he wrote his “mission statement.”
Your turn.
By the lone gunman, December 8, 2008 @ 10:22 am
NTLG, – turn in your calculator… Bob Sugar already has all your beans… There’s nothing more for you to count… Except for this one magic bean! Good luck with that, I hope it pulls a Tidwell and makes the recession go away.
I get what you are trying to say, but apparently 52% is not enough… I believe they were in trouble long before this recession kicked in. This recession pushed them over the edge.
So I wonder, why perpetuate something that isn’t working. Can’t just throw money at the Big 3 and think that that will save the industry… In the short term, this bailout may work, but I agree with others when they say that they should include a change in business philosopy and/or business model. There needs to be a culture shift in the American car industry… Or atleast, a stigma needs to be erased. Else it will just fail again.
Again… why buy a broken product? What will it take for you to buy an American car? Cuz if you don’t buy one, who will? The people who have been buying American this past decade? This recession aside, I don’t think it’s enough.
So ultimately, for something to work in the long run, there should be a consumer/improved product angle included.
By Kendra, December 13, 2008 @ 2:08 pm
My head hurts.
My short answer is that I agree with EGeek in general (with or without the $20K rebate). I do own an American car now — a Saturn, probably the only American car brand I would ever buy. I understand it’s more complicated than just a “bailout,” but these guys are greedy and should’ve been managing the situation from a long time ago with all the money they spend on employees retirement bennies and such. Even with assistance, I don’t think it’s going to solve any long-term problems and they will probably still end up being in the hole.
My next car is gonna be a Lexus IS250. Made in Japan or Canada. No American labor and employment hangups. My very oversimplified answer.
By Not "The LG", December 18, 2008 @ 10:44 pm
Dude, like I said, it’s a two fold objective. Short term fix (ie don’t let the recession kill America) and a long term objective (ie better position the companies to succeed against the competition).
Really, I don’t think we’re that far apart in our thinking. No one said to give them money without something in return. If that is the case, there would be no long term affect bundled in.
However, you can’t ignore the effect it would have on the overall economy.
Yes, they suck. Yes, someone needs to teach them a lesson, but what about all the millions of people affected because you’re trying to teach a few executive something about better business. This is more about the economy than it is about business.
Further, a lot of the parts manufacturers and suppliers of foreign automobiles are American business producing for both domestic and import vehicles. The loss of domestic products would be detrimental to their companies and have a trickle affect into the imports as well. So, the affect on the American economy as well as the worldwide economy cannot be minimized.
It’s all nice and sweet that politicians can stand up and make grandiose statements, but I think the reality in that is it’s more about future electability rather than what’s actually going to be beneficial. I’m not saying there isn’t truth in what they say, but what they say and what they end up doing don’t always seek the same objective. That’s just politics.
By Not "The LG", December 18, 2008 @ 10:47 pm
And Kendra makes a great point. The unionized labor of the autoworkers isn’t doing their best to try and help the situation either.
Sometimes you gotta step back to go forward, otherwise there may be no going forward at all.
But usually, just as much as politics is politics, unions are unions.
By Not "The LG", December 20, 2008 @ 4:11 pm
I think I may be the only one keeping this afloat, but Canada just gave the Big 3 $3.29 billion in aid as well.
And speaking of unions (okay so not really), albeit a different topic from the bailout, what’s the deal with Hawaii’s teachers? I mean c’mon, take the drug tests. Either that or go work in the private sector and get drug tested anyway.
That invasion of privacy excuse really gets to me. Show me one instance of where the testing was released unfairly or accidentally. Show me how taking the test or the results of them affected anyone in a negative manner when the results were negative. Show me how this does anything but attempt to keep our classrooms safer and the education more productive. Show me how “teachers” accepting responsibility and being an example for our children is a worse idea than telling our children to hide what they can.
HSTA saying that drug testing isn’t going to improve test scores and the issue is a distraction from how to make schools better is full of crap. If you remove a teacher who is on drugs, then it IS going to have a positive impact on students as well as their potential to perform better. And it’s only a distraction because the union is making it one. The goal is to improve the performance and safety of the educational and school communities.
Arghhh!!!
By Steve K David, July 29, 2009 @ 4:34 am
The unionized labor of the autoworkers isn’t doing their best to try and help the situation either.Oh, one more thing, the automotive industry is not in control. A lot of what it is dealing with is a result of the misadventures of the financial industry. Cash has dried up and would be buyers can’t get loans. Thus, I think the hope is that getting the financial industry back on their feet and stabilizing the automotive industry will in turn help to right the economy. Money and cash will return and consumers will return to purchasing vehicles.