Should we bailout the auto makers?

[NeilBlanchard]

Hi,

How much profit did car companies make on each SUV? Where did that money go?

The success of the economy is based on the success of the middle class. Other people’s success helps the rest of us. The same cannot be said for company profits — unless they continue to innovate.

The wages at the non-union auto plants are just about the same as the union ones, I think. The biggest differences come from health care expenses, and from continuous innovation.

How many models does Toyota/Scion/Lexus have? About 16 or 17?

How many models does Honda/Acura have? About 10 or 12?

Someone listed 127 GM models…

All companies should use the year that a vehicle is built as the model year. This takes the pressure off of making change for changes sake. It also (hopefully) will reduce the prevalence of planned obsolescence; and increase the durability and the recycle-ability of the materials used. All these things would greatly lower costs over the long run.

All design changes should be based on functional improvements. Imagine it: higher and higher reliability, better and better efficiency, continuous safety improvements, more and more recycled materials, design changes based on owner’s needs — what a concept!

[QuietOC]

No.

[sun.moon]

sorry, but... Yes

[jhhoffma]

Ain't brand marketing great?

Why we need the same 7-8 vehicles with 4 different skins/interiors is beyond me. I guess you need to cater to each of the following: young/first-time car buyers (Pontiac), the nuclear family (Chevy), old people (Buick), rich(er) people (Cadillac). I guess you could throw in the Adventure/Pimp crowd for the Hummer and the Alternative crowd (Saturn).

But nowadays, the brands are so similar, it's hard to form an identity with the badge, and THAT may be one of the biggest problems GM has. Brand dilution. Too many options spreading out the cost. It's okay to make a boring car, as long as it's a good one (look at the Camry). Ford used to do it all the time with the Taurus, but screwed it up by trying to make it hip and refined (Ford Five Hundred). Guess what? Most people who will own one of these cars just WANT A CAR, not a statement vehicle. The biggest statement vehicle I ever saw was a beat up old station wagon with a R2D2 dome where a sunroof should be. That statement was, "I'm a dork." But every urban youth and their mom has an Escalade or a souped up Civic/Celica/Scion/etc now, so where's the novelty in that statement?

But back to the difference between Big3 and the rest. Unions have become a cancer in the auto industry by demanding more than the company can afford to give. It's not just the health care (though that's a big chunk), it's the inability to fire an underperforming worker because he can file a grievance. It's having to give more hours to the guy with seniority instead of the guy who produces the most.

Don't get me wrong, I come from a family of auto workers in Michigan, and there are times when the union has done good. But mostly they just look to preserve their own existence at the cost of everything else.

I will say that GMs quality has been vastly improved over the last 3-4 years, but it will take a lot more to regain the trust in the US auto industry vs. the craftsmenship coming out of the "foreign" auto makers.

[croddie]

The success of the economy is based on the success of the middle class. Other people’s success helps the rest of us. The same cannot be said for company profits

I don't know what this is on about. Company profits go to shareholders. The effect of company profits is via the effect on shareholders, and on investment/keeping the company afloat which can have wider economic effects for better and worse.

Also the lower classes and upper classes are also important. A lot of unskilled work is still needed in the economy. And the highest earners pay almost all the taxes and own, direct and create businesses. The middle classes can be most important in elections because they can be the pivotal voters but don't get carried away with this line of thought.

[jaganath]

the highest earners pay almost all the taxes

you have to make a distinction here between wealth (capital) and income. those who have a day job and a relatively high income are taxed disproportionately (at least in UK and most of EU). those who have a lot of capital (many times inherited wealth) are taxed relatively lightly or not at all (with the aid of handsomely-remunerated tax professionals).

the irony of the current woes of GM et al. is that GM is currently working on what may be the most game-changing vehicle for decades if not since the invention of the ICE, the Chevy Volt. it would be the EV1 all over again if that programme was allowed to die simply because of some temporary financial difficulties. however GM's financial problems started way before the current economic downturn, and are caused by an ageing, costly, unionised workforce, and a terrible product lineup and brand strategy, apparently predicated on the idea that crude oil would stay at <$10 for the rest of eternity. whoever does their economic forecasting should be shot, or at least made to eat very fatty fast food for the rest of their natural term.

[xan_user]

No way jose!

Maybe Detroit can learn a hard lesson, finally.

Any bailout(s) should come from the bottom up.

The struggling corporations and banks blew it. Now its time for them to pay the piper.

[andyb]

If they were good car makers that put lots of effort into making compact fuel efficient good cars, and spent a reasonable amount of time, effort and money creating new fuel/power systems for the future. Yes.

As we are talking about GM and Ford, No.

Ford US has been funded by Ford Europe for years, they make good cars over here, and Junk in the US, I cant comment much on GM.

This is a very different situation from bailing out the banks, the entire US and World economy would be phuqt if the US and other government hadnt. The car makers have been useless for years, dont give them a penny.


Andy

[aristide1]

http://www.newsweek.com/id/168941

While it may be easy to blame everything on the unions there was also this little practice.

Never mind that management for generations willingly entered into the labor pacts, consciously trading salary increases for longer-term liabilities like guaranteeing health insurance for retirees. Such pacts allowed the Big Three to report higher profits in the short term, and pushed the hard choices to the future.

Not to totally single them out, but I suspect a number of towns have done the same with their local police departments, etc. Some short term relief for major long term repercussions. A politician can always think that they won't be in office when the problem starts to happen.

------------------------

To accurately describe what went on during the time I purchased my last GM car, which had more problems and recalls than all my prior GM cars combined, I developed this little phrase, which also remarks on the short term profit priorities of the company:

"There's never time to do it right, but there's always time to do it over."

-------------------------

The responses provide more insight than the article.

[croddie]

you have to make a distinction here between wealth (capital) and income. those who have a day job and a relatively high income are taxed disproportionately (at least in UK and most of EU). those who have a lot of capital (many times inherited wealth) are taxed relatively lightly or not at all (with the aid of handsomely-remunerated tax professionals).

Officially there is a capital gains tax, but yes there may be loopholes. Nevertheless when the money was made it was taxed and the differences between capital gains tax and income tax are subtle. I suspect (as do some eminent economists working on the subject - I am just a layman on this particular question) that there is no sound reason for different taxes (income, capital gains, corporate) and that they are all there rather than just an income tax because income tax is more visible and therefore more unpopular.

[jessekopelman]

Why we need the same 7-8 vehicles with 4 different skins/interiors is beyond me. I guess you need to cater to each of the following: young/first-time car buyers (Pontiac), the nuclear family (Chevy), old people (Buick), rich(er) people (Cadillac). I guess you could throw in the Adventure/Pimp crowd for the Hummer and the Alternative crowd (Saturn)

Actually the Big 3 have contracts with their dealers that prevent them from easily getting rid of brands. There would definitely be no more Mercury, if not for such obligations. After a lot of haggling GM managed to get rid of Oldsmobile, but if I remember correctly they wanted to ditch Pontiac too (that brand doesn't sell trucks and up until this year, trucks were where the money was for Big 3). Dealers actually have a lot of power over the manufacturers in some regards and this relationship has a certain share of the blame in the Big 3's collapse.

[Reachable]

The success of the economy is based on the success of the middle class. Other people’s success helps the rest of us. The same cannot be said for company profits — unless they continue to innovate.

The success of the middle class is defined by the percentage of the populace that belongs to it. An economy cannot be successful if there is significant poverty.

A billionaire only needs one washing machine. 100,000 poor people who can't afford one means 100,000 fewer washing machines sold. Those in the U.S. with adequate wealth can presumably afford American-made goods. Those with inadequate wealth must buy Chinese, etc. imports at Wal-Mart, which works in the direction of trade deficit.

As for company profits -- a private owner must decide whether to live high-on-the-hog with company profits or reinvest in the company to increase productivity. If it's de facto mandated that public shareholders get their share of the profits then those profits can't be reinvested. In any case, both high personal income and high profits should be taxed adequately.

[aristide1]

Those in the U.S. with adequate wealth can presumably afford American-made goods.

If you can find them. Sometimes it's just like buying clothes. You can look at the most expensive labels and they are all made in the slave wage countries. Look at Nike. The New Balance 910 used to be made in the US, the 920 (clone) is now foreign made from what I hear.

I can't afford an American car because I can't afford the down time. And it's not like the mechanics know what they are doing for really serious repairs anyway.

A coworker has a Chrysler 300. At 30,000 miles he replaced both tie rods, cost over $400. It was out of warranty but they covered it anyways. Doing the usual thorough job, they didn't bother to align the front end, so now he has to go back. So he pays even when he doesn't pay. Frankly its just sad and embarassing.

I suspect (as do some eminent economists working on the subject - I am just a layman on this particular question) that there is no sound reason for different taxes (income, capital gains, corporate) and that they are all there rather than just an income tax because income tax is more visible and therefore more unpopular.

Lower capital gains is suppose to increase investment. That's the theory.

[sjoukew]

Why we need the same 7-8 vehicles with 4 different skins/interiors is beyond me. I guess you need to cater to each of the following: young/first-time car buyers (Pontiac), the nuclear family (Chevy), old people (Buick), rich(er) people (Cadillac). I guess you could throw in the Adventure/Pimp crowd for the Hummer and the Alternative crowd (Saturn).

That sounds like Brittish Leyland, and that didn't work.

[xan_user]

I have owned eigth cars in my life.

The three that were made by US companies cost way more to operate due to constant expensive repairs, and downtime.

The other four have been Japanese, with no expenses other than tires,shocks, brakes, oil and the odd water pump. The Japanese cars also got better MPG and any parts needed were less expensive compared to their US counterparts.

Explain why I should, as "Joe" taxpayer, bailout a failing company that makes an inferior product.

They killed the electric car an now they want me to bail them out? Seriously this "bail out for the rich" is getting worse and worse by the minute.
I'm sure i'll be bailing out the loss of all the multimillion dollar homes that just burnt down in so cal, cause they choose to build their secluded villas in fire storm prone areas.

Next thing you know we'll be bailing out corn farmers 'cause the government isn't paying them enough to NOT GROW corn.

I guess socialism is OK, so long as it only helps corporations and the wealthy, not the working class.

[Greg F.]

On tonight's news they stated that UAW workers make an average of $74 per hour when you include all benefits. The non UAW workers in the USA make about $47. Now who knows if those numbers are correct. But even if they are ballpark figures it means that the wages are way too high. I don't make anything near to the $47 let alone the $74. How can I buy a car built with that kind of expense built into? Answer is that I can't and won't. So I say let them go bankrupt and come back without those high labor contracts. This will serve the UAW right. And it will serve the stockholders right, because they negotiated those contracts. Why should I, as a taxpayer, have to subsidize people making $74 per hour? When I don't make anything near to that much money.

[croddie]

There are good posts on the Becker-Posner blog pro and con:
http://www.becker-posner-blog.com/index.html

[aristide1]

I will say that GMs quality has been vastly improved over the last 3-4 years...

My question would be why was it even possible to raise quality to a vast degree?

Some bigwig would come out and say that as a good thing, but how would a person with a GM vehicle more than 4 years respond to that statement? The Pontiac G6 is still on the worst list over at Consumer Reports.

I went through half a dozen GM vehicles before I finally bought a new one in 1980. It had FWD techology that the Europeans had in the 50's and 60's. It had such hideous torque steer it became a real problem in the snow. And it had more repairs and recalls than all my prior GM products combined. In comparison my 2 Vegas were painless.

I also had Mercury Gran Marquis which was quite decent. It had some of the usual Detroit problems. It had a mid-life crisis around 70,000 miles, whereas my Toyota didn't have its mid-life crisis until around 180,000 miles, and it's still going.

[xan_user]

......my Toyota didn't have its mid-life crisis until around 180,000 miles, and it's still going.

I don't even consider a Toyota broken in till after 150k.

Does the world even need more cars? We use them up like disposable diapers, as soon as the fresh smell is gone we toss 'em.

[andyb]

The politicians are still arguing.

http://news.bbc.co.uk/1/hi/business/7734702.stm

The only reason why they should be given a bail-out is to keep 4m people in jobs, but that is nonsence unless those people are making cars, and there is no reason to make loads of cars when youre not going to sell them.

Its still a big NO from me.


Andy

[xan_user]

So can't auto workers just take jobs back from all those 'damn' immigrants?

Surely someone with the skill set to build a car can pick produce or clean houses while Detroit figures out how to build a viable product.

[aristide1]

What's the use? You can't fix stupid.

[Blue]

I think bail-outs that are designed to save corporations are synonymous to automotive engineering defects that promote the sales of parts and associated repair and labor costs.

Our history has shown that decisions made in a court of law have set legal precedents for future cases. Should the same apply to business? Or do we play favoritism to those companies that we believe are more important? Perhaps we should have an electoral system that determines which companies survive, even though the popular vote may think otherwise.

There is something to be said for the free market, because at least that way all businesses are treated fairly...not just the big ones, or the little ones, or the ones with Caucasian workers, or the ones that are minority owned, etc.

[jessekopelman]

There is something to be said for the free market, because at least that way all businesses are treated fairly...not just the big ones, or the little ones, or the ones with Caucasian workers, or the ones that are minority owned, etc.

Something to be said, sure, but good luck finding a live example of a complete laissez-fair situation where the stakes are in the millions or higher. The auto industry is already full of regulation, handouts, and bailouts at levels ranging from local through national government, in this country and others. This is true for every large industry. I'm against the proposed Big 3 bailout, but it's hard to argue that it would be much of a change in business as usual.

[andyb]

The auto industry is already full of regulation, handouts, and bailouts at levels ranging from local through national government, in this country and others. This is true for every large industry. I'm against the proposed Big 3 bailout, but it's hard to argue that it would be much of a change in business as usual.

So the only argument here is that they are asking for £25 Biillion in one go rather than over a period of time....... Is this normal practise in the US.??? Have the auto industry really been given that many $$$'s over the years.?


Andy

[Greg F.]

whatever they ask for they will come back for more. We don't need GM building so many models, as was said in a previous post.
If they do bankrupt they won't go entirely away. It is thought that if Chrysler goes under Nissan will snatch up Dodge trucks and someone else will surely grab Jeep. Same with the others. Anything worth anything will be cherry picked by the others.
Where's my bailout?

[sjoukew]

If they did build brilliant cars which everybody liked, they didn't went bust.
If they had good management, they shouldn't run into such financial problems.
Giving them money now will probably not improve the situation and they won't produce better cars which are more desirable than the current lines. So I think bailing them out won't solve the problem.
I would let them all go down. Probably some new company will start making American cars again which are worth buying.

[Blue]

I would let them all go down. Probably some new company will start making American cars again which are worth buying.

That's probably easier to say when you don't live in the U.S.

[Blue]

It is thought that if Chrysler goes under Nissan will snatch up Dodge trucks and someone else will surely grab Jeep.

It's been speculated that Jeep may be the only thing worth saving from Chrysler.

[xan_user]

I would let them all go down. Probably some new company will start making American cars again which are worth buying.

That's probably easier to say when you don't live in the U.S.

I'd have no problem saying that.

Capitalism is supposed to let bad business' fail , not bail(out).