I'll answer that question later...but, first, you can't have it both ways. America is in dire financial straits, something has to be done. One side of the fence wants corporate welfare, the other wants wants everyday worker, consumer welfare. I personally believe we need a little bit of one and a lot of the other. How does a country with a "free market" business environment justify bailing out large, failing corporations? Maybe the failing corporation had a bad business model, or poor executive management. So, does it really make sense to take money from well run, tax paying companies and give it companies on the verge of bankruptcy? Most proponents of this are against social welfare.
Back to the GM/Chrysler financial fiasco....here is what's wrong, keep in mind their bad business model has been bad for long time, it's just been extremely "intensified" with the current state of the economy. I will focus on GM here but most of these facts apply to Chrysler and Ford....
1) GM has way too many dealerships - over 6,300; Toyota, for example, only has about 1,400. In most metropolitan areas dealers are competing against each other. The number of American auto dealers must reduced. GM has their hands tied here as every dealership is protected by every state's franchise law. Basically, unless GM declares bankruptcy (Chapter 11) they cannot terminate a dealership. Some states have recently passed legislation to provide franchisees even more protection. Their other salvation could be that GM's finance division, GMAC, which provides the floor plan for many dealerships, could take over a dealership if they don't pay their bills. You ask, what is a floor plan? It is simply a short term loan for a dealership's inventory. Most dealers don't outright own the vehicles on their lots.....just like most Americans don't outright own their car.
2) Too many product lines - GM has 8 while Toyota has 3....think about the overlap in their corporate structure, ie marketing, R&D, manufacturing.....etc.
3) Bad products - Many Americans have turned to foreign brands that are made better with higher safety ratings and better gas mileage. Toyota and Honda have multiple plants on US soil. Some reports even indicate the source material/parts for these foreign lines sometimes exceed those of the US automakers, in other words, that Chevrolet truck may have more foreign parts than that Toyota Camry you see. For many years consumers tolerated poor quality control on the US branded fleet. This is just an example of setting the "bar" too low. You have to wonder if unions have caused some of this. Although, the premise (and origins) of a labor union was a great idea, they are now part of the problem. Unions must share some of the blame in driving US manufacturing overseas (that's another topic unto itself). It is sad we have gone from being a country heavily involved in manufacturing to one of the world's largest importers of manufactured goods. It feels like our primary product manufactured now is the financial transaction; and, thanks partially to the unregulated collateralized debt obligation (CDO) product our (and the world) economy is in the crapper. Back on topic....
So, who do I think should bailout the US automakers? How about someone with a vested interested; someone who needs/wants to keep large, gas guzzling vehicles on the road...Exxon. These guys made about $40 billion 2006, about $40 billion in 2007 and $45 billion in 2008. Doesn't it just make so much more sense? If the Big 3 are going to given money for their failed business model shouldn't it come from Exxon (or Chevron & Conoco) instead of me and you ? Well, if that doesn't happen the Chapter 11 deal will have to do...
6 comments:
Your analysis is a bit flawed, in that if the feds passed a law exempting GM from suit or obligation under for whacking their franchise agreements, then they would be free to put the dealers down.
However, their union obligations are probably even more critical....and bankruptcy would allow them to cut a lot of those issues out as well (like the $20 billion they owe the union for med expenses for retirees-which would fall onto taxpayers anyway).
Also, they need to quit offering rebates-it destroys current and residual values of vehicles and devalues the brand. Honda doesn't offer rebates and doesn't deal that much on price.
The bigger question is, why would you continue to give money to an organization which has been headed south and been mismanaged for decades a new lease on life?....the answer is not the blessed taxpayer and blue collar worker, it's quid pro quo and the good old boys' network.
I don't think there is any chance that federal legislation will be passed that will exempt (or more like override state law) the US automakers from their franchise obligations. Congress is too interested in keeping their constituents happy. Passing legislation that overrides state franchise agreements would be political suicide. Chapter 11 is the only way out of that one.
Union obligations should be another post in itself....
I agree with the last comment. In a pure free market, laisser-faire environment, the government would do nothing here. The additional bailout $$$ is going to happen - I just wish they wouldn't take my hard earned money to chase a failing business(es).
For it being Laissez-faire or other-even countries with more socialist production/economic controls decide on a case by case basis if they will intervene in industry or take some parts over, as opposed to master planned production economy. Some intervention may be required, but only for businesses which are healthy.
From a security standpoint (as in if we were in a war, we would need to not be dependent on other countries for our vehicles) it would make sense to keep indigenous production, but that is not the reason being given.
The bigger fear is pumping enough money into them, they still go bankrupt and the bill is higher than if you would have let them go belly-up at first.
I would let GM go down, let Chrysler reorganize and let Ford pick off assets from both of them. Biggest savings overall.
Call Barack...we have found the new car czar...and, his name is - Mr. Anonymous.
Well, your site would only allow anonymous comments now...got kicked back with using OpenID.
Wow, turned out almost like I said.
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