Government Accuses Auto Industry of “Mismanagement?!?!”

As I watched the leaders of the domestic auto industry take their beating from the Senate Banking Committee on Tuesday, I couldn’t help being struck by the absurdity of these senators accusing the Big Three of mismanagement. These senators who chided the Detroit execs for making bad decisions are the same people who voted for the Iraq war. These very same senators who accuse the CEOs of mismanaging shareholder funds are the very ones whose policies have ruined America’s economy. These same senators who charge the Big Three with caving in too easily to the demands of the UAW are the same ones who rolled over like submissive puppies when the financial industry came looking for $700 billion and AIG needed $150 billion. They who complain that Detroit doesn’t build cars that people want are the same people who showed callous disregard for the people of New Orleans as they wallowed in muck for months on end following Katrina. These same senators who deride executive compensation packages are themselves lavished with lobbyist gifts and favors while they shrug off single-digit approval ratings. Never has such a level of hypocrisy been on such public display. I wonder how fast these same Senators would be on their knees before China, begging for money were it not for their ability to crank out new money on their own printing press to cover up their screw-ups.

Certainly, the Big Three are not without their faults. But considering that the American car market is sliced and diced into ever-tinier pieces and passed out to every foreign car-maker who comes along, for nothing in return, it’s really quite remarkable that they haven’t lost even more market share and that they’ve survived for as long as they have. If Congress insists on continuing to pursue such destructive, idiotic trade policy, then the least they can do is give the domestic car makers a helping hand.

Frankly, when you look at the performance of the Detroit automakers vs. the performance of Congress, we all may be much better off if we placed the operation of the federal government under the management of the Big Three.

4 Responses to Government Accuses Auto Industry of “Mismanagement?!?!”

  1. Pete,

    I disagree about the the Big-3 being automakers, they are empire builders who have lived at a false standard and employed an impossible business plan and it has now caught up with them. Anything that can’t go on forever doesn’t.

    The Big-3s problems began long before tariffs were removed. Their answer to the small efficient autos being imported by the Germans and Japanese in the late 60s, was to trot out America’s first disposable autos in 1971; the Vega and the Pinto.

    The Big-3 have known that oil was finite since 1956 but chose to focus on personal compensation rather than reality. There are consequences for such actions. Our government suffers from the same disease.

    Chrysler is owned by a vulture capital company for gosh sakes. The only answer is bankruptcy from which will emerge a company that is built on a business plan that sustainable long term or one that will go the way of American Motors.

    The arrogance of the Big-3 could be seen this week when they took three separate private jets to Washington to beg for taxpayer money. Stick a fork in them; their done.

  2. Pete Murphy says:

    Mike, bankruptcy’s not an option for any of them. No one will buy a car from a company in bankruptcy. If one of these companies collapses, it’ll take down all three along with the supplier base. The whole industry, including virtually every supplier, is teetering on bankruptcy. If one goes, it’ll drive the whole supplier base into bankruptcy, from which none of them will be able to emerge. Let them go and this country will plunge into depression. Guaranteed. And the Big 3’s legacy costs – pensions and health care – will be dumped onto you and me, the taxpayers. The only solution is to bail them out and simultaneously begin imposing tariffs on imports.

    I agree that the problem the Big 3 face is the same that the government faces. The Big 3 banked on never-ending sales growth, relying upon that to fund their pension and health care costs. This is the exact same scenario that the government uses to justify high rates of immigration to fuel population growth. We need more and more workers to support the cost of social security and medicare. As you well know, it’s not sustainable. At some point we have to bite the bullet and face the fact that we need to stop the growth and pay higher taxes until our population stabilizes. In the same way, we need to assure our domestic auto industry a certain percentage of market share to sustain profits while their legacy costs gradually unwind.

  3. Pete,

    Most of the airlines have filed bankruptcy and people still clamor to get aboard. Regardless of that, there comes the point when the chips must fall where they may. As you agreed, the business model is unsustainable and the culture must be broken.

    The autos would still be built by Toyota, Honda, Subaru, etc. who have countless plants in the U.S. built by American workers and paying American taxes and EXPORTING autos.

    New auto businesses would emerge and the parts makers would have to convert. We cannot pick and chose who gets rescued from this crises, the list of the needy is far too long.

  4. Pete Murphy says:

    Mike, the airlines can survive bankrupty because airline tickets don’t come with 10-year warranties and don’t require a service department and parts for the next ten years or so.

    If the Big 3 go away, the void would be filled by both more imports and more vehicles from the domestic plants you mentioned. But those domestic plants rely heavily on foreign-sourced parts. Those foreign companies you mentioned assemble some cars here because parts can be packed much more densely into shipping containers, whereas assembled autos take up a lot of space.

    Take a drive past one of those plants and you’ll see that there’s nothing around them – no parts suppliers to be found. On the other hand, southeast Michigan is so loaded with parts suppliers, it’s almost difficult to find the assembly plants amongst them. The supplier infrastructure that’s built up around them is enormous.

    The point is that, if the Big 3 go away, the vast majority of the work will end up in Japan, Korea and Germany and, very soon, China, either as assembled autos or parts. And our trade deficit will likely soar to a trillion dollars per year. Look at it this way: your proposal to simply let them vanish will reward these nations for their gross overpopulation and enable further growth. I know that’s not what you want.

    Earlier, you mentioned the Vega and the Pinto. They were crappy cars, no doubt. But they were responding to the first cheap Japanese cars that hit the U.S. market in the ’60s, which were even worse. I remember dealers painting them paisley and selling them as novelties. But Americans bought them in spite of the horrible quality. The pressure of the imports was already putting a squeeze on Detroit. Prior to that, American cars were the envy of the world. Another example is the Korean cars. When they first hit the American market, they were absolute junk. Yet, Americans snapped them up just because they were cheap. That’s what Detroit had to compete with.

    The problem with Detroit is not that the auto workers make too much money or that they get pensions and health care benefits. Rather, the problem with our economy is that fewer and fewer people are compensated so nicely because our demand for labor isn’t keeping pace with the supply, thanks to the trade deficit.

    I don’t think you’ve bought into my theory that the disparity in population density between the U.S. and nations like Japan, Korea, Germany and China is the root cause of the trade deficit. It has almost nothing to do with cost, quality, productivity or currency valuations. We’ve improved all of these dramatically over the years, to the point where it’s equal to Japanese cars and is better than Mercedes, and it hasn’t made one bit of difference. These nations are using the American market as a dumping ground for their overpopulation problem. They shunt the effects of their overpopulation onto the American market by exporting their unemployment. It’s impossible to “compete” our way out of a trade deficit with an overpopulated nation. For every improvement we make in cost and quality, they’ll simply match us dollar for dollar, as we’ve seen now for decades. The problem isn’t the imports alone. Frankly, I couldn’t care less if we imported everything we use (which we’re close to), as long as other nations buy just as much from us. But too many don’t. Not even close.

    This trade deficit is unsustainable and is the root cause of our economic collapse. Nothing will improve until we take substantive action to restore a balance, and that means either import quotas or tariffs, or something else that has the same effect (like the “import certificate” system proposed by Warren Buffett). We’ve got to draw a line in the sand and say “enough is enough.” If we let our domestic auto manufacturing collapse, likely taking all of our remaining manufacturing with it, we’ll never be able to draw that line. And maintaining our manufacturing capability is a national security issue too.

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