Dear Senator,
I understand there will be a vote any day on the Big 3 bailout. As my Senator, I request that you reject this bailout as nothing more than rewarding failure. The management failed to negotiate profitable deals with unions and develop cars people actually wanted to buy. Unions failed by holding companies hostage in good times and running them into the ground in bad times. Government failed as it pushed ridiculous CAFE standards on carmakers that did nothing to curb gasoline consumption.
The entire domestic auto business, as it relates to the Big 3, is a failure and the money thrown at this problem will do nothing to get consumers to buy their products. Let them go bankrupt. There will be investors willing to buy the assets in bankruptcy and produce cars and trucks in these very same plants. Yes the unions will have to make huge concessions and I am sure new owners will change the management teams. This is a good thing and the only thing that will save Detroit.
Just as Pittsburg rebuilt itself after the bust in steel 20 years ago, Detroit will find it’s way too. Reject the bailout and focus on cutting government spending and waste. If the Big 3’s business plans were so good, investors would be buying bonds today. Government is no wiser than the markets and will certainly lose it all for the taxpayers.
Respectfully yours,
XXXXXXX
Showing posts with label Bail out mania. Show all posts
Showing posts with label Bail out mania. Show all posts
Tuesday, December 9, 2008
Thursday, November 13, 2008
Save the Automakers?
Throughout the course of the last 300 years, manufacturers have always been susceptible to the force the economist Joseph Schumpeter called creative destruction. What Schumpeter was talking about was the idea that new and better methods replace old and worn out methods of production. Essentially someone figures how to build things better, faster and cheaper. Those companies that cannot adapt get clobbered by competition.
Creative destruction is great for society. Think of it as a cleansing forest fire. Methods that waste precious resources and capital are replaced by efficient means of production. Companies that create products that society no longer values are also victims of creative destruction. Shortly it will be impossible to get a CRT TV. Why? Because people no longer value that technology and prefer the flat screens of Plasma and LCD. Fortunately it also happen with the 8-track tape.
So the real question is then, are the Big 3 really victims of creative destruction? It looks to me like they are. They are manufacturing products that people do not seem to want like big SUVs and trucks. They have employed billions in capital to make those products that no longer have a market suitable to make a profit. Maybe its the wage structure (argued that it is way to high to make cheap, fuel efficient cars), maybe it is the product mix (poor management and strategy) or maybe it better competition that is driving the Big 3 out of business. What ever the cause, they are wasting capital. The solution is not to through more capital at them hoping they will get better. It won't. Saving the Big 3 is like saving the cathode ray tube television or the 8-track tape.
Certainly jobs will be lost in the areas where GM, Ford and Chrysler operate. However preserving those jobs means that other people will not get access to the capital that would create new industries and sectors where American companies can be competitive in the global market. Furthermore, bankruptcy might be the best thing for the already deployed capital in Detroit. Reorganiztion would allow someone else to buy those assets for a market price that just might mean they could make a profit. Bankruptcy does not make assets vaporize. Just look at the airline industry. They have gone bankrupt dozens of times and the planes are all still there.
Two must read blog posts:
Megan McCardle
Carpe Diem
Creative destruction is great for society. Think of it as a cleansing forest fire. Methods that waste precious resources and capital are replaced by efficient means of production. Companies that create products that society no longer values are also victims of creative destruction. Shortly it will be impossible to get a CRT TV. Why? Because people no longer value that technology and prefer the flat screens of Plasma and LCD. Fortunately it also happen with the 8-track tape.
So the real question is then, are the Big 3 really victims of creative destruction? It looks to me like they are. They are manufacturing products that people do not seem to want like big SUVs and trucks. They have employed billions in capital to make those products that no longer have a market suitable to make a profit. Maybe its the wage structure (argued that it is way to high to make cheap, fuel efficient cars), maybe it is the product mix (poor management and strategy) or maybe it better competition that is driving the Big 3 out of business. What ever the cause, they are wasting capital. The solution is not to through more capital at them hoping they will get better. It won't. Saving the Big 3 is like saving the cathode ray tube television or the 8-track tape.
Certainly jobs will be lost in the areas where GM, Ford and Chrysler operate. However preserving those jobs means that other people will not get access to the capital that would create new industries and sectors where American companies can be competitive in the global market. Furthermore, bankruptcy might be the best thing for the already deployed capital in Detroit. Reorganiztion would allow someone else to buy those assets for a market price that just might mean they could make a profit. Bankruptcy does not make assets vaporize. Just look at the airline industry. They have gone bankrupt dozens of times and the planes are all still there.
Two must read blog posts:
Megan McCardle
Carpe Diem
Saturday, November 8, 2008
Bail Out Mania
First banks, then insurance companies. Now we are onto car makers. What could be next, fast food restaurants, maybe Internet companies? This bail out mania has to stop and before any bail out of the auto industry.
Bankruptcy would allow the car companies (two out of the three) to restructure debt, redo labor deals and set them up for a successful future. Government aid will just prolong the inevitable. After all, we already bailed out Chrysler once. If Chrysler would have been allowed to fail, Ford and GM might not be having the trouble they do today.
Labor unions are killing GM and Ford. When the were actually making money in 1998, the unions decided to strike at GM costing the company $2 Billion and leaving GM with labor costs that were $30/hr higher than the Japanese. The trouble is the GM workers were not $30/hr more productive than the Japanese. Therefore, GM could not compete long-term and we have the problem of today.
Of course management is not completely blameless. There strategy of larger cars and SUVs was fine with gas less than $1.50/gal. However, at $4 people began to buy other, smaller cars from the Japanese and park the SUVs (like we did). Detroit was not prepared for the abrupt turn in the market and should be penalized for bad strategy.
Finally, government is not blameless either. The ridiculous CAFE regulations for fuel economy are a joke. If the Government really wanted to encourage higher mileage cars, they should have taxed gasoline like the Europeans do. $7-$8/gal gas makes everyone economize, unlike CAFE standards. Washington was too busy getting fat off $0.35/gal in Federal gas tax with SUVs guzzling 15 MPG to want to do anything to stifle consumption.
So here we are with the Feds committing $25B for some electric car subsidy that is sure to be a complete waste and Detroit asking for another $50B in low interest loans. All this so Washington can save overpaid union jobs that will eventually bankrupt these companies any way. If it is so important to save these jobs, why not let the State of Michigan pay for it. Tax any union salary over $20/hr at 50% keep this problem up north.
$50B is over 8 times the market capitalization of Ford and GM today. A better idea might be to give each of the employees at both companies a couple hundred thousand and call it good. It would cost the exact same amount of money.
From AP today.
What Happened?
Bankruptcy would allow the car companies (two out of the three) to restructure debt, redo labor deals and set them up for a successful future. Government aid will just prolong the inevitable. After all, we already bailed out Chrysler once. If Chrysler would have been allowed to fail, Ford and GM might not be having the trouble they do today.
Labor unions are killing GM and Ford. When the were actually making money in 1998, the unions decided to strike at GM costing the company $2 Billion and leaving GM with labor costs that were $30/hr higher than the Japanese. The trouble is the GM workers were not $30/hr more productive than the Japanese. Therefore, GM could not compete long-term and we have the problem of today.
Of course management is not completely blameless. There strategy of larger cars and SUVs was fine with gas less than $1.50/gal. However, at $4 people began to buy other, smaller cars from the Japanese and park the SUVs (like we did). Detroit was not prepared for the abrupt turn in the market and should be penalized for bad strategy.
Finally, government is not blameless either. The ridiculous CAFE regulations for fuel economy are a joke. If the Government really wanted to encourage higher mileage cars, they should have taxed gasoline like the Europeans do. $7-$8/gal gas makes everyone economize, unlike CAFE standards. Washington was too busy getting fat off $0.35/gal in Federal gas tax with SUVs guzzling 15 MPG to want to do anything to stifle consumption.
So here we are with the Feds committing $25B for some electric car subsidy that is sure to be a complete waste and Detroit asking for another $50B in low interest loans. All this so Washington can save overpaid union jobs that will eventually bankrupt these companies any way. If it is so important to save these jobs, why not let the State of Michigan pay for it. Tax any union salary over $20/hr at 50% keep this problem up north.
$50B is over 8 times the market capitalization of Ford and GM today. A better idea might be to give each of the employees at both companies a couple hundred thousand and call it good. It would cost the exact same amount of money.
From AP today.
What Happened?
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