In earlier posts, I've urged federal help for the automakers. It would be a calamity to lose this manufacturing backbone, which especially props up what's left of the middle class in places like Michigan and Ohio. There was a large "if," however — if the automakers fundamentally changed their business models to focus on green technology and building transportation for the 21st century beyond automobiles, particularly transit and rail.
Not surprisingly, none of that is coming true despite GM already receiving $13.4 billion in federal loans and Chrysler getting $4 billion. About the best GM can do is phase out the evil Hummer. Otherwise, it's business as usual and worse: cut 47,000 jobs worldwide, shut five more U.S. factories and phase out Saturn, the brand launched in the late 1980s as the reinvention of General Motors.
There comes a time to let go. It will be painful, but it's time. We need to let GM and Chrysler fail.
Failure is essential to a healthy free market. We've had a gamed market for so long, people may not even realize this truth. Your small business can fail, but not the large and politically connected companies. Failure purges unsustainable enterprises so new ones can be started. It teaches entrepreneurs so their next venture may well succeed, as von Mises noted. It focuses capital, innovation and labor on promising, emerging industries. The hard truth is this economy needs massive failures of insolvent big companies — otherwise, recovery will be delayed and perhaps made impossible. These companies are not merely zombies — they are zombies with lobbyists determined to take down the overall economy with them.
For 20 years, the Big Three have been trying the same play: cut back workers (hundreds of thousands of jobs have been eliminated); make working people give back their hard-earned, contract-based wages and benefits; close plants that towns depend on; diddle around with a few lookalike brands; keep executive compensation high, and look for a new fix — last time around it was trucks and SUVs ("I'm changing the planet. Ask me how!"). None of this has worked, as Japanese companies have leaped to leadership and built factories here. Peak oil and the subprime debacle have permanently crippled the sprawl machine, however much the idiot David Brooks wishes it were not so. Now we are being given more of the same, at an initial price tag of $16.6 billion for GM alone.
No. Hell no. No more.
I'm not impressed anymore by the automakers' bankruptcy threats, about how much it will cost the government. How much it costs the government will depend on tough leadership by the Obama administration and a legion of mean Justice Department lawyers. Send them into bankruptcy and let the shareholders and bondholders deal with it — it was their lack of oversight that helped bring on this final reckoning. Not a dime to the executives who led us to this draconian moment.
There's a place for government assistance, but not in propping up continued failure. Government aid should go elsewhere: to seeding new transportation industries in the Midwest — ones geared for the 21st century, not for 1965 — and for helping displaced workers and communities. This will be a wrenching transformation, but a necessary one. It would enable the United States to build and export products for a planet in peril, as the president used to say. These would be industries with a future. If we had the will displayed during World War II, we could convert many of these auto plants and suppliers to building, for example, light-rail systems and ways to retrofit suburbia for a sustainable future. There's also a place for electric cars and the infrastructure to support them. Talented workers and designers can adapt. But the leaders of the auto industry can't. They should now pay the price of failure.
A couple of months ago I would have disagreed with you but it’s becoming apparent that the crash is not only going to fundamentally rearrange the economic landscape, it’s probably going to alter the American Way of Life once and for all. There’s no way we can sustain it, and given the long-term outlook, we’d be wasting money if we tried.
The discontinuity between the affluence we’ve known all our lives and the straitened circumstances we’re approaching will be such a shock that it’s going to be interesting to see if this nation will survive it. We’ll muddle along, I suspect, but the bitterness and anger will be severe. JD Hayworth, btw, is helpfully suggesting Chuck Schumer and George Soros as the primary scapegoats. Now, what do they have in common? :::::tapping my fingers:::::
If the auto industry goes, it takes with it a couple of million jobs, and possibly the state governments of several Midwestern states. At that point, the apocalypticians (Kunstler, Orlov, Martenson, Celente, et al) serve up crow for Conventional Wisdom to eat.
Maybe there’s a rainbow behind all these storm clouds. Maybe we’ll be better neighbors and better citizens because we have no other choice. But that’s hardly a guarantee that the economic collapse won’t wound this republic so deeply that the future itself becomes the primary casualty.
I agree. Let them fail.
Now imagine offering $6.7 billion (half of GM failout) to a startup that would do what GM won’t. Imagine offering $2 billion (half of Chrysler).
I could do a better job with that. I’m sure someone else could too.
I agree with Soleri. A couple of months ago, I would have said bail them out. Now, however, it’s become apparent that these auto giants aren’t sustainable. It’ll hurt like hell, but it’s time to let free-market capitalism do its thing.