The big three auto companies in the US appear to be in dire strife. If they go under, it really is going to put the whole national economy on very shaky ground and trigger a massive increase in unemployment.

So this prompts a whole set of questions….

Should they be assisted with a huge bail-out package or should they just be allowed to fold?

If they are to be bailed out, what sort of changes should they have to make?

Is this an excellent opportunity to move away from traditional gas-guzzling oil-dependent transport and take a huge step towards much improved energy-for-transport efficiency and renewable-energy-operated vehicles?

Or should the main focus be the maintenance of current vehicle stock by way of moving out of new vehicle production and fully into spare parts production?

Although this last option would mean the maintenance of millions of inefficient gas-guzzlers, it just might be more environmentally sound than producing millions of new vehicles to replace them. And it might just be the best option for the companies’ survival and the saviour of at least a large portion of the workforce.

What do OLOers think?

I think that by and large.. arrogant, over confident people who have had it too good for too long.. need to be dragged kicking and screaming to the judgement seat of 'imminent bankruptcy' as they suddenly see "no one" (i.e..customers) and realize they might have to sell the condo, the corvette and the Jet ski....before they will actually make a change to their outlook.

The glazed eyes on car dealers who went to Washington begging for a handout is an example of the above.

A tiny glimmer of hope is seen in the CEO's of GM foregoing some of their corporate jet usage... (but again..it is kicking and screaming, not genuine humility)

I'd want to see:

UNIONS forego many of the uncompetitive practices and payments which left wing union bosses have promised them (in order to be relevant and rate highly).

EXECUTIVES forego all bonuses, perks and anything above a reasonable salary

ALL focus on what is 'good stewardship' of the planet rather than pandering to ego and eccentricity.

This means a change of mentality from consuming to conserving.. and more effort is needed in the renewable side of things.. electicity based traction etc.

Yadayadayada

On a spiritual level... II Chronicles 7:14

http://www.biblegateway.com/passage/?book_id=14&chapter=7&version=31

A great question,
To answer it I thing it needs some examination of the fundamentals that have created the problems.
First is acknowledgement that these three were in trouble before the 'financial crisis' and those other corporations are time bombs for humanity.

Their problems are more to do with the inbuilt fundamental structural ideology that encourages behemoth corporations per se. Capitalism’s most basic tenant was the concept of a level playing field. (Notwithstanding the inequities that applied at the time i.e. level playing field was a nebulous abstraction not a reality even then).

Smith etc didn’t allow for the concept of Limited Liability Companies as independent legal entities. Neither did the framers of the 1862 “Companies Act” conceive of the ultimate and inevitable consequences including profiteering, manipulation and thereby activating ‘The capitalist 3rd law of Thermodynamics' i.e. everything tends towards entropy.

Note: “Any on going organization’s primary purpose is its survival”
Corporations have now like Frankenstein’s monsters taken amoral lives of their own smothering humanity’s strongest advantages its individuality/creativity.

Gone is the flexibility to respond timely to changing needs because of their maximize profits through “efficiency” ((limiting choice) while minimizing capital input (cash cow reasoning). (See US history of steel radial tyres).

Neither letting them crash nor bailing them out (like bandaiding a cancer lesion) are long term solutions.

Logic dictates breaking them up into smaller competitive companies forcing them to being responsive customer demands rather attempting to dictate to the market. This is the beginning of sustainable capitalism.

It could be argued that this may seem less efficient for capital but ALL things considered I doubt it. I remind everyone like the Indian chief said “when the water is polluted and the crops aren’t enough to feed the people try eating/drinking money”.
People are more important to money

Polycarp I often wonder why people put the boot into your ribs so hard.
Then you remind me with a post like that.
Left wing union bosses?
Well yes some left and right wing unions are involved in the car manufacturing business.
Can you understand just as the car is a product, one that sells based on price, value, economy and many other things a worker is too?
Workers need wages to live.
Or can you get your head around the fact workers wages are the fuel that drives every thing?
They only have purchasing power if they earn good wages.
How can it be that so many anti unionists are not anti profiteering?
I think it strange that if your God existed he may just want a more equitable world than you.
America long before the oil crisis made over sized tanks, wasted more oil than we use in years.
The fact they can no longer sell the wrong cars should surprise no one.
Make a new peoples car, one that is as good as the last named one and it will sell.
Bailing the car industry out is not about American greed or profit it is about jobs and the national welfare.

seriously, since none of you have the slightest power to influence events in oz, much less the usa, why not confine your discussion to things you know about, and can change?

lessee, that would be...

My opinion would be that this is the ideal time to let the dinosaur of US car manufacture finally become extinct.

There is the simplistic position that says if you are making a product that people don't want or can't afford, you don't deserve to be in business.

But the added dimension is that while such outdated and unprofitable practices are being artificially supported, there is no possible incentive to innovate, and every incentive to maintain the status quo just as long as possible.

The US has ample resources - financial and human - to invest in the kind of research that could change the face of personal transportation for the good - and for good.

But to back such development in the face of competition that is being massively subsidized by government and public alike would be business suicide.

There are so many lessons to be learned from the US auto industry, from manufacturing inflexibility through to unfunded pensions, but sadly I doubt they will be heeded for a while yet. Simply too many, too powerful vested interests.

If Capitalism is so gloriously successful, why do we keep socialising it's losses? If the shareholders plus the consumers can't support the industry, why burden the taxpayers with it?

Let "the market" sort it out.

If they can't make an affordable product that people want to buy, then it's time for them to go.

If it means fewer cars or fundamental changes to how society works, then so be it.

The US Congress has rejected the bail-out package,
and requested a detailed program for the future,
justifying the car industry's request for a bail
out.

It appears that the car-industry is subservient to
the big oil companies and is either not able or
unwilling to tackle alternative energy sources.

I believe the US Congress is expecting a reasonable
response in the energy-efficiency direction before
it will vote for the second time whether or not they
support a bail-out of the car industry.

It has been short-sighted of the car industry for
decades in persisting to humour the oil companies.

As a result in today's economic-crunch the car
industry is paying the penalty, not the oil companies.

Foxy,
You are as usual right.
I would add the big 3's reticence it two fold.
Return on capital and the associated cash cow mentality.
And being able to gain money for large scale research into alternative power sources.
Lenders are unwilling to be pioneers unless the interest rates are exorbitant.
Venture capital often places draconian caveats on such investments e.g. joint ownership etc.
The big 3 would try to isolate risky R&D financially from the parent company for the above reasons.
If the truth be known much of the money to the 3 probably emanates from Petro $.
I doubt that it’s as conspiratorial as it’s painted more like people lending to their advantage.

Ps your stats on the profiteering question is getting a bit of flak do you have a source doc.

Smile people will go nuts wondering what you’re up to :-)

Dear examinator,

I thought I gave the website to the
"Food is for Eating, Not Profiteering,"
article by Heather Pilatic.

All the stats are there.

Anyway, its:

http://www.panna.org/mag/fall2008/hunger/world-food-system

You know, I had to go back & check the topic a couple of times.

It was hard to believe it was not the 1970, & I was watching the stupid process that went on with British Leyland. Bailout, nationalise, privatise, & bailout again, with the slide to extinction.

Through out all that whole fiasco, dozens, who did not have the skill to run a school tuckshop, got their input into how to run a car co. I see lots here have the same belief in their ability, with no more reason, that I can see. That company was in heaps of trouble, because it had been used as an instrument of social policy for more than 15 years.

Between big government, & big unions, Leyland had no chance, the bailouts just extended the time frame, giving government more time to spin the story.

The big three have no chance while they carry huge retirement costs, & the US factories of their competitors do not. Any misguided efforts to force green ideals on the cars they produce will just hasten their demise. When the world is ready for such cars, Toyota, & Honda will make them.

Obama will bail the big three out, but not because he believes they can be saved, but to get the failure onto someone else's watch. When GM, & Ford go from Oz, Toyota will have to follow. The component industry will shrink too far for them to stay. Now would be a very good time to get out of the auto component business, but of course, with carbon trading in line, there won't be anywhere else to go. I wonder what it will be like, being the poor white trash of Asia.

The US has this chapter 11 bankruptcy arrangement which will allow
the companies to try and trade out of their troubles.
So I would not bail them out.
Our problem is the Ford and GMH subsidiaries.
Perhaps in the longer term they could be floated off to ever may buy
the shares in the local companies. This could be part of the program
to restructure the parent companies.

Anyone buying the assets of the locals could use them to produce
vehicles that are more suitable for the future.
Another question is could the local companies survive without the
backup of their parents ? They may not survive unless sold off.
It would probably mean the re imposition
of import tariffs. That would be a small price to pay.

Ludwig” The big three auto companies in the US appear to be in dire strife. If they go under, it really is going to put the whole national economy on very shaky ground and trigger a massive increase in unemployment.”

The thing which surprises me is the big 3 have survived this far. Apparently in Henry’s later years, Ford ran at a loss for every year between WWI and WWII, how is something which I do not fully understand.

For the past few years GM has been trading as a “junk” bond, again, the source of cash, not coming from earnings must be coming from either debt or asset sell offs. GM is further straddled with a debilitating employee welfare scheme which from my observation, reads like someone literally “sold the farm” but expected to still reap a cash crop.

If a business cannot finance its operations in the medium term, it does not deserve to survive, the same way a dinosaur which cannot find a reliable food source, goes extinct.

Business management is about competitive success, holding up the dinosaurs simply either denies or even burdens new business opportunities with a stone collar before they open for trade.

I would agree with wobbles “Let "the market" sort it out.”

The same happened in UK in the 1980’s when the dinosaurs and sheltered workshops of the socialist nationalized industries hogged skills, resources and tax payers subsidies to produce inferior services at exorbitant prices under monopoly circumstances which locked possible efficient operators out from competing.

Maggie T fixed those bastards.

The worst case is GM / Ford / Chrysler would go into Ch 11 and eventually be broken up, the profitable elements of these monoliths being salvaged and the unprofitable elements closed, their asset base being sold.

That is “How the market works”

Government bale-outs are where some politician uses tax payer funds to defer the hard decision and buys himself brownie points into the next election with niche sectors of the electorate.

I like Alan Moir’s cartoon on the OLO main page this morning: the US car industry portrayed as a great lumbering brontosaurus! http://www.onlineopinion.com.au/

I can’t agree that we should just let the proverbial dinosaur go extinct, which is what would happen if the market was left to sort it out. I reckon some very strong government intervention is warranted, in order to get the three big buggers to steer production towards greatly improved energy efficiency.

In fact the threat of their collapse, and indeed the weaknesses in the whole US (and global) financial system and economic structure, should be very good things for humanity….if they trigger reforms that are predicated on the achievement of …yep…a sustainable society.

I agree with Polycarp: executive salaries should be slashed. There might also be merit in reducing worker’s wages and extras, if it is a matter of doing so in order to secure the survival of the relevant companies...a la the survival of their jobs. Afterall, better that they all keep their jobs at a lower rate of pay than all or a large portion of them lose their jobs, yes?

“Government bale-outs are where some politician uses tax payer funds to defer the hard decision and buys himself brownie points into the next election with niche sectors of the electorate.”

I certainly hope that’s not the case Col. It appears that even under George Dubyashrub, and right at the end of the current government’s term (when their accountability is arguably nowhere near as good as it would be early in a term) the authorities are going to demand some pretty tough reforms before any money is committed to a bale-out.

Ludwig the problem with “government intervention” in any market

Imagine the Yangtze river, a fast moving river running over soft soils and rocks. It is prone to silting and thus to flooding.

Two options, dredge the river bed, painfully expensive but long term everything remains in balance.

Build up the banks of the river with levees, cheap and efficient and achieves the same results as expensive dredging.

Except, when there is a dramatic flood and the levees burst.

With the dredged river the burst is contained and effects only a narrow area along side the river.

With the “levee –built” river, the bank building and silting has gone on for so long the river ends up many feet above the level of the surrounding hinterland. When it bursts, the flood effects a far wider area than the narrow river valley and causes major devastation and losses.

Government, in supporting decaying and unviable industries is like the levee system of river containment, it is a cheap expedient until a major event occurs and when that happens there is wider scale devastation than would be experienced otherwise.

Better a dying industry is allowed to fail naturally, during times when the economic cycle is strong and investment is made in replacement opportunities, than waiting for a deluge and disaster to drag everything down with it, the dying industry and those opportunities which would have mitigated against wide scale devastation.

it is not a complicated reply
nothing need change

everyone gets their 4 wheel drive machines

but they run on joe fuel cells [leased]from govt] on a per mile carbon value[set at one third the price of gas]

it is made from a certain grade of stainless steel
it creates on site HHO gas [it implodes rather than explodes]

your petro combustion engines timming is advanced 25 degrees
[to reset the ignition cycle from explode to implode]

power on the UP-stroke
NOT the down stroke

a simple bolt on [at a cost of LESS than 100 mbucks]
give one to EVEry poor person

[the ritch let them pay tax on their polutions]

Col, I don’t want to see governments propping up decaying and unviable industries so that they can just continue on in the same old unviable manner. If these sorts of industries are to be baled out, they simply MUST be required to reprogram themselves so that they can not only be viable, but in a manner that is in line with the new world order of carbon emissions reductions and overall sustainability.

If they can’t do that, then yes, let them crash….despite the huge loss of jobs for innocent workers.

The big three have flirted with hybrid/electric vehicles, alternative energy sources and so on for many years. Now they need to be compelled to fully analyse the best options of those sorts and get stuck right into them, with great urgency.

If investment in replacement opportunities for these dinosaur companies is deemed to be the best course of action, then fine. But my feeling is that the established industries have a much better chance of converting to an environmentally friendly transport regime than something that has to start from scratch.

Ludwig, Col rouge,
Both of you seem to be taking a very narrow look at this problem.
The effect of their crash wouldn't just affect The USA
It would have an effect on all the big three's plants world wide.
Simply put Detroit guarantees finance or has constucted a debt tree on which all the satelites depend/are interwoven. If the HO goes so do all the branches.
In addition to this one needs to consider the impact of their combined debt failure on an already down financial market. Hence the front running idea is breaking up the behemoths to manageable sized debt concerns for others (the market) to absorb the debt as tax right offs. This way the financial system would totally collapse.
True it’s a poor solution but it beats a decade of depression.

Ludwig, wrong mate. You sound exactly like the ideology that destroyed the UK industry.

Routs were required to build a new factory in the wrong area, to employ workers of the failed ship building industry. Their end was just a matter of time.

Austin, & Morris were required to amalgamate, death was asured.
Leyland were forced to pick up the resulting BMC. Cars had to be built for export, death was hastened.

Any prescription of the type of product to be built is a sure way to guarantee failure. What you want to see built is not what the public will buy.

It cost GMH a billion dollars to develope the current Holden. I'm sure they, & Ford, & particularly Mitsubishi, wish they had gone smaller, NOW, but that was not the case, when development was strated. GMH will probably get most of that back in time, & get one more try, if GM is still there.

To develop a new smaller petrol car will have a similar cost, & should be viable, but something different, who knows? & what to develop? Should it be Fuel cell, Hydrogen powered, Natural gas, Hybrid, or perhaps full Electric? They will not get more than one go, so they had better be right.

If you watched Top Gear the other night you would have seen, what most of us car buffs have known all along. Hybrid, & hype are interchangeable, when it comes to cars. Almost as big a con as global warming, but who cares if they sell.

GM have spent a billion on fuel cell development, with no payoff & none likely now. They have a similar investment in battery development, for full electric comuters, with no pay off there either.

If they do get a bail out it's going to take some brave men to chose their direction with future products. I wish them luck, our future comfort is resting, to some extent, on those choices, in more ways than one.

Examinator, as I said in an earlier post, if GM go, so does our entire industry. Toyota are not big enough, in Oz, to support a components industry, large & diverse enough, to facilitate their production.

The break up idea has many problems also. Can Cadillac survive without Chev, or vice versa? Who owns the investment in Vaxhaull, GMH, Suzuki etc? Who picks up the huge overhead in the retirement benefits? Are there any more Chinese or Indian companies wanting a Rover, or a Jaguar, particularly now?

I suppose there are enough accountants & lawyers in the US to sort it out, but equitably? I would be surprised if all three of them have not been looking for some legal way to get out from under the responsibility of those retirement benefits, & some sort of bankruptcy deal, which does get them out, but keeps them trading, may be where all this is heading.

Hasbeen, I’m not quite sure what you say; “Ludwig, wrong mate” in reference to.

Of COURSE whatever is produced has to be saleable to the extent of making the companies viable.

So when I say: “Now they need to be compelled to fully analyse the best options of those sorts and get stuck right into them…”, saleability and company viability have got to be fundamental factors.

If the vehicles they produce are not as green as I would like because they won’t sell well enough, then fine, make them a little less green.

If the best option is to produce smaller petrol cars and just forego SUVs and steer clear of hybrids etc altogether, then that’s ok by me.

These companies have got to stand on their own two feet. So in the first instance, they’ve got to produce what they can sell and profit from.

But that doesn’t mean they should be pressured to make their product as green as possible.

Examinator, I hope this helps alleviate your feeling that I’m taking too much of a narrow perspective of this issue.

Ludwig,
Not really
I was refering to the post whereby you seem to advocate letting the market sort it out. In this instance crashing all three would end in disaster.

The problem with the market is that its so polluted and distorted I doubt that without help it won't be able or willing to sort it out.

Hasbeen,
when I said breaking it up I wasn't necessarily talking in terms of either continually making car or even by brand name. I was thinking in terms of opperative sub units.
I guess what I'm saying is that the old order has rusted into a situation/size that means unless they can dictate to the market in essence command economy mentality in reverse (which clearly they can't). The issue is that the market demand has an inate size limitation for a viable manufacturing corporation (this size varies industry to industry). In the economics /moral sense there IS a limit to growth

Examinator, it seems we have a miscommunication. I’m very strongly against letting the market sort it out. I’ve always advocated strong governance and I think that in this case government assistance, and insistence on rigorous reforms, is essential.

I agree that the market is “polluted and distorted”. And I agree that if these three companies were to crash, it would be disastrous.

.
A mistake in my last post: The second last line should read…

‘But that doesn’t mean they SHOULDN’T be pressured to make their product as green as possible’.

Hasbeen, you mean, ‘Rootes’ (Hillman/Singer/Humber) who built a factory at Linwood, outside of Glasgow opened in 1963 … after a gap of 30 years of previous car manufacture on Scotland and no local experience or production knowledge (but lots of part built car bodies running up and down the country).

It was an economic disaster even after Rootes were gobbled up by Chrysler and was closed in 1997.

It was typical of the arrogance of socialist governments at “picking winners” through sponsoring favoured businesses and funding stupid, stupid schemes with tax payers hard sacrificed taxes and NO ACCOUNTABILITY.

The Leyland / BMC shotgun wedding (with the socialist government holding the shotgun) was another disaster of epic proportions in which a successful heavy vehicle manufacturer was raped to drag an economic basket case, crippled with militant unionism, out of the pooh (could have been the model for the Australian “Button Plan”).

Ludwig “Now they need to be compelled to fully analyse the best options of those sorts and get stuck right into them, with great urgency”

The sales of more fuel efficient cars is the “reward”, that’s called “commercial success" and produces sustainable business.

The problem is ‘attitude’ and failing companies end uip with the traits of most human failures, that being an enlarged sense of “self entitlement” and belief in a god-given right to suck the life blood from the tax payer and thus survive despite their failings.

(in the case of GM a friend of mine who used to work for them in Illinois advised me the GM problem was they convinced themselves they could not make small cars because small cars would not bear sufficient overheads, like big cars… dumb-a$$ed thinking in my book)

I come from the different school, where “success” means

delivering and being rewarded for what your customers value,

without the intercession of governments or special dispensation.

That’s the “REAL” level playing field.

Examinator, my view is holistic. You are being blackmailed by the thought of immediate pain of surgery, rather than understanding how the economic body could die without the operation.

Col Rouge, Ludwig,
I think you missed my point "what good is it if the operation is a success but the patient (world economy) dies?

I too am looking at the holistic perspective. Unlike you I believe that the market place is so corrupted/polluted that I doubt that the effect of these 3 behemoth corporations crashing would give a distorted effect world wide. The questions to me are: How do we handle the losses? How do we minimize the disasters?

There are obviously many reasons for the problems one is that these corporations have gotten so big, so cumbersome and consequently so market response constipated that in market terms no longer viable. The undeniable primary objective of any organization is self-preservation. It seems to me there is a finite point where a mega organization ceases being a tool to serve man (efficient usage of resources) it turns counter productive in that man becomes the means rather than the end ( see ‘who killed the electric car’). The complication comes when it becomes too integral to other systems that the consequences of its collapse (exit from the market) are unacceptable to the wider market. Often this means socialized bail outs which tend only to delay the inevitable.

As it currently stands Corporate Capitalism fails most of it's stated objectives, assumptions, criteria etc. Therefore I wonder if it isn't time to reconsider the direction of Corporate Capitalism per se. THAT DOESN'T MEAN wholesale destruction of the system, neither am countenancing an end of the world scenario.

PS Ludwig Miscommunication did play a part. Did you see the program on alternative fuels and the fate of the GM Volt? I rest my case.

Examinator “3 behemoth corporations crashing”

If these three were to collapse and no “government money” forthcoming, the following would happen

Receivership.

They would be a short hiatus in car production

From the ashes it is likely :

2 would survive in slimmer form, a lot of “fat” having been trimmed away and SOLD to new management groups or MBOed as per a Warren Buffet.

The third (likely Chrysler) would be broken up and sold to new investors, fire-sale prices but nothing wrong with that.

Toyota and a couple of other Asian manufacturers would be happy to pick up the slack and people like Repco support component spares sales.

Part of the present problem with their dealers is these 3 have withdrawn their bailment and stock finance from their resellers.

“Self-preservation” is achieved through market competitiveness and sustainable business practices, which includes giving the customer what they want at a price they are prepared to pay.

“As it currently stands Corporate Capitalism fails most of it's stated objectives,”

That is a gross generalization which covers a lot of entities, not just three car makers
But following on, state managed entities are the same, except the separation of powers (between operator and regulator) is lost completely.

“Minimizing the disaster” is not the best solution, it is like building up the levee banks of the Yangtze.
My experience of life is: “disaster” is only ever minimized by facing the reality honestly, head on and dealing with it now, not applying a bale-out band aid and hoping things will be better in the morning.
As for all the demands for more efficient engines and electric cars:
If the traditional vehicle suppliers are not addressing this market demand, there are plenty of other innovative vehicle makers out there. Why are the small innovators not rushing in to supply?

Maybe the “demand” is just some invented spin from “green” politicians and lobbyists.

The capitalist system is very responsive to opportunity. When nothing actually happens it is usually because the “demand” does not exist.