There has been a good deal of talk over the last few months about whether or not a carmaker bailout would occur. To everyone following this web site, the outcome was never in doubt. The Bush administration, today, announced a $17.4 billion loan to General Motors (GM) and Chrystler. This is just the beginning…
The Obama administration will be far more generous with donations of our money. You will hear two general excuses:
- The U.S. automakers are too big to fail; letting them crumble will destroy America’s industrial base
- Green “investment” in the automakers will create jobs and save the planet
Economic prosperity is not predicated on “creating jobs.” Jobs is a product of creating wealth. Redistributing wealth does not create it; in fact, there’s bureaucratic deadweight loss, and then inefficiencies in allocation because resources are going to politically favorable investments, rather than economically advantangeous ones.
A company can never be too big to fail. There’s a reason why organizations fail; it’s a natural feedback mechanism in Capitalism, where reality let’s us know when businesses are no longer creating sufficient value to warrant existing.
Detroit automakers are failing mainly because of rigid labor organization, enforced by union influence collaborating with federal power. Simply put, auto workers are overpaid on an individual basis, and labor contracts fail to provide flexibility in employment necessary to maximize human resource value. The class example are “Job Banks” in which union workers sit idle until tasks within the scope of work in their contracts are ready to work. Reality would dictate that workers always work, substituting tasks as it becomes appropriate.
Letting General Motors, Chrystler and Ford fail makes Americans face reality. They are not producing cars in ways that create value. Rather, the U.S. automotive industry has turned into a massive welfare system that sometimes makes cars.
Since regular Americans have no real power in politics anymore, we can’t really change the inevitable. America is socialist and will continue to be run by small groups of elitists who think they know what’s best for all of us. So, to at least take advantage of this idiocy I recommend everyone pick up Ford and General Motors bonds.
There is serious risk of partial nationalization, meaning that outright stock purchase for these firms is risky. Buying bonds is a safer route and comes with high return to offset risks.
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Why have capitalism and wealth become “dirty” words? Why is it okay for these same people who have turned their backs on the true economic prosperity accept the legacy cost for each and every vehicle manufactured in this country?
I’ve tired of arguing these points you have eleoquently stated – there are far too many sheep.
The automakers “accept the legacy cost” because workers have ALREADY paid for them by sacrificing some of their previous wages in exchange. These so-called legacy costs are the unpaid wages the workers sacrificed so they’d have those benefits later. It’s not additional money automakers have to pay out–it’s money they were already supposed to have put aside. But instead, automakers spent the money on executive salaries, bonuses, and stockholder dividends.
It would be hard to argue that Detroit auto workers have sacrificed any real wages. Union negotiations from already inflated positions to defer even further inflation, well beyond prevailing value equivalents, is not a sacrifice.
I agree on your argument about executive pay structures for failing companies…it’s just my opinion, of course, but I do not find it ethical for high salaries and bonuses to be paid while an organization is failing. Still, my opinion (or yours) should not be forced upon people who actually own the companies and want to attract what they hoped would be quality management.
As far as the dividend and stock related issues…owning these companies would have been a horrible investment decision. Dividends were effectively paid with debt proceeds raised from looting bondholders.
All in all, a very ugly picture in American history. The sooner these businesses go under the better. Perhaps then we may once again have an emergent, viable auto manufacturing industry.