Amidst the national election, the mortgage crisis, the banking bail-out, and everything else going on from endangered polar bears to Somali pirates, I’ve been listening to the pundits talk about throwing a $25 billion bone to the automakers. At first, I accepted the notion that cars are different from airlines. An airline can reorganize under bankruptcy without scaring off customers – buying a plane ticket isn’t the same commitment as purchasing a car.
So bankruptcy for “The Big Three” would be much more catastrophic. But lately I’m changing my mind.
If they do give Detroit a mere twenty-five billion dollars, I’m glad they’re talking about tying it to producing economical cars for the future.
It’s beyond exasperating that we have to bail-out businesses that made stupid choices. And I’m not buying the argument that they were just making the cars people wanted. Lots of us looked at SUVs and shook our heads. The oil crisis began 35 years ago, in 1973, and much of the world has been both preaching and practicing fuel economy for years. The Japanese automakers have done a fine job of making economical cars that people wanted just fine, and the Europeans, too.
I get the concept that carbuyers want to be sure they can get replacement parts for their vehicles before they commit. So their decision is driven by the long-term viability of a company.
But I don’t think that will be too difficult to implement in the Detroit automotive solution, for the carmakers are right – this isn’t just three carmakers, it is thousands of businesses who are very reliant on the big three. Whatever answer is achieved, all of these companies need to be part of the re-tooling necessary from the Big Three on down. Better to make that change now rather than string things along, right?
Here in the Bay Area, we had a city go into bankruptcy in recent years. The city of Vallejo, northeast across the bay from San Francisco, ran into trouble when lucrative contracts for the firefighters and police, especially pension plans, outstripped the city’s income. Oh, the news coverage was quickly full of dire forecasts. Bankruptcy! The sky was falling!
A lawyer explained to me that the legal counsel for cities such as Vallejo were often easily outmaneuvered by the high-powered lawyers retained by the pension funds, and that the pension fund lawyers were highly motivated, for good reason. If a city declares bankruptcy, all the debtors have to line up and renegotiate their contracts. So long as the city struggles to stay above water, the retirees keep collecting on lucrative contracts. The unfortunate side effect of this is that an inadvertent class separation is created.
I’m all for pensioners enjoying the just rewards of their working careers and living long and well in retirement. Really – I’m pretty liberal, and I like unions.
What I have a hard time with is businesses going under, unemployment rising, the nation sinking into recession, and a separate class of older citizens living better than everyone else, as the younger generations are shouldered with the burdens (and frankly, the failures) of the older generation.
Bankruptcy reorganization is picking up the pieces and re-structuring the industry so that it can move forward – if the carmakers are indeed really faced with chapter 11 reorganization. On NPR this Saturday morning I heard a bankruptcy lawyer speak on how he thinks the carmakers do have assets they can leverage to re-structure on their own, and that we taxpayers shouldn’t have to pay for their mistakes in building the wrong vehicles for the future.
Because they did. And frankly, some of the SUV owners I knew jeered about liberals and global warming. Sure, they loved the rolling luxury of the vehicles, but their pleasure was also occasionally tinged by figuratively thumbing their noses at leftists preaching responsibility. Owning a couple tons or more of rapidly depreciating rolling metal is already a burden for enough of them now; they’re getting their own comeuppance without anyone needing to rub it in. But do we taxpayers need to pay more for their and Detroit’s prior mistakes?
(As a side note, did you know that many SUVs are banned from driving on residential streets? For being too heavy? If only the laws were enforced … )
I’m sure it would be the least painful path for the auto industry to be bailed out when the lean times start to pinch. We all prefer the path with the least discomfort, making it easy — which is what the bailout would be, for them.
I’m not against federal involvement in the solution either – so long as any financial bailout is strongly tied to making the cars we’ll be driving in the future. Obviously, one of the first and most important points is that it absolutely shouldn’t used for executive bonuses.
And don’t even get me started about CEOs begging Congress for money, arriving with tin cups in hand – on their corporate jets.
So maybe bankruptcy isn’t the worst thing that could happen to the Detroit automakers. And maybe the threat of it might push them a bit harder to solve their own problems. And if we need Federal involvement then, we can pick up the pieces and move forward, hopefully with fewer Stupid Uneconomical Vulga-hicles.