First, We Take Wall Street, Then We Take Detroit!
You know, after spending $700 billion to help the American economy not sink into Depression 2.0 … $25 billion for the Big Three is like the change you find under the couch:
With Congress preoccupied with the massive, $700 billion bailout plan for the financial industry, General Motors, Ford, and Chrysler have finally secured Part One of their own federal rescue plan. A bill set to be passed by Congress and signed by President Bush as early as this weekend—separate from the controversial Wall Street bailout plan—includes $25 billion in loans for the beleaguered Detroit automakers and several of their suppliers. “It seemed like a lot when we first started pushing this,” says Democratic Sen. Debbie Stabenow of Michigan, one of the bill’s sponsors. “Suddenly, it seems so small.”
But please don’t call it a “bailout”—Detroit is too proud for that. Exact details will come later, but the loans would probably amount to at least $5 billion for each of the Detroit 3, plus smaller amounts for suppliers. That would allow them to borrow money at interest rates as low as 4 percent—a steep discount compared with the double-digit rates they’re paying now. Over several years, the automakers could save hundreds of millions in financing costs. Plus, they’ll have five years before they have to start repaying the loans.
Now, I’m from Michigan and my parents are retired autoworkers, so I know how the economy of my home state lives and dies on “horseless carriage.” But this seems silly because the Big Three have done such a craptacular job at making cars that people want. They spent the last decade making bigger and bigger SUVs and when gas got expensive, they were caught with their pants down. Also, the government has given them money before and they wasted it back then too.
I agree with Megan McArdle:
Shame on the Bush administration for considering this. And shame on Debbie Stabenow, though I know she’s just pulling as much pork as possible for her constituents.
Yes, I favor intervention when it looks like there’s a risk of a really severe recession. But there is no such rationale here, not even arguably. It’s pure pork, with a soupcon of economic nationalism thrown in. If the Big Three can’t make autos people want to buy, then they should liquidate and open up the market to those who can.
13 Responses to “First, We Take Wall Street, Then We Take Detroit!”
Bigoil is behind the GM bailout.
They pressured GM to drop the volt back in 2000. Remember that “recall” of those electric cars? They took the lot of them and scrapped them in the desert in favor of producing the Hummer.
Now they're bankrupt as a direct result of that decision. They would be world leaders in alternative passenger cars.
BTW. I made some bad investments that cost me about 2 million in lost expected revenue about 15 years ago. I'd like the government to bail me out. In fact, I insist on it. They've set a precident for investment bailouts. My family's well-being depends on that money coming through. That 2 million would be a drop in the sea compared to what GM is asking for.
Congress can send me a check or money order drawn on a Swiss bank account.
This is indicative of a failed economic model…what are they teaching people nowadays?
You suck at business…so stick out your hand and a rich uncle will help you out.
Where's my 25 Billion?
Sorry, Sil. While Big Oil may have a stake in the outcome, the player behind the scenes in this Comic Opera is Big Labor.
Maybe those autoworkers can move to Japan and work for good car companies?
ChrisWWW — yes, it's a real shame how only the Detroit car makers use American workers. I keep hearing all the anger about how Toyota (for instance) has been sending Japanese workers to the US for its production facilities.
Sigh…
The Big Three and UAW overpaid-for-thirty-years-and-then-retire model has failed.
The automobile industry has thrived for ages in the United States — in the South.
If the Big Three are offered any money (grants or loans), the other automakers (who are doing well, unlike the Big Three) should sue to stop it or to be given the same, so as to end the interference in the market that such a bailout of the failed Big Three constitutes.
DLS said: “The Big Three and UAW overpaid-for-thirty-years-and-then-retire model has failed.”
My father put in 38 years at Ford Motor Company. And to this day he talks about the how many workers were overpaid for doing very little many times. Earning double and triple time on a certain shift while taking in a Sunday football game happened all the time. Those workers worked hard, no question. But Big 3 and UAW inflexibility, over-entitlement, and lack of vision screwed them.
While driving a hilo is a gravy job, even easier jobs like switchers were farmed out to outside contractors. Try putting in seats or dashboards when your 58 and have a bad back from over 30 years on the line. Yes, the auto companies, both management and labor, are guilty of excess, but they aren't alone.
Why did short soccer moms in the south drive Escalades instead of a Smart car or MiniCooper? I remember the profits and profits sharing checks at Chrysler around the time DaimlerBenz bought up Chrysler, those Durangos and loaded Grand Cherokess funded those profits, not a retooled Omni.
[...] course, there are those in the Blogging world who are taking the “Screw ‘em!” attitude towards the U.S. auto makers and blaming the unions. Which I think is absolutely [...]
Rudi — your comment adds an interesting twist to the overall economic discussions (imo). You said:
“Why did short soccer moms in the south drive Escalades instead of a Smart car or MiniCooper?”
Is this element of Demand not exactly the same as the role of borrowers in the mortgage / banking industry?
Do any of you actually live in/near Detroit? 1000s of people from Saginaw, Flint and Detroit are all out of jobs because of the Big 3 needing to close factories. It's terribly depressing to see the place I grew up turn into nothingness except abandoned buildings, failing schools. Michigan's economy was several months into it's own personal economic crisis before the rest of the country “caught up.” I hope and pray that this money will help the area and our workers and they don't use this money for cheap labor in places like China and India. This state needs the auto industry and the jobs. Without it we have really nothing much.
I was listening to NPR on WDET, the Detroit station this afternoon as Thadeus McCotter (R-MI) explained the actions for the $25 B. his appropriation was authorized on last years CAFE bill by John Dingell with the rational that Detroit would have to significantly retool its plants to make a fleet of cars to meet the CAFE standards. This was part of the bargain that got the CAFE standards bill passed. McCotter said the congress (Repubs?) forgot about it till this year. The money was already committed last year. They had to get the government to authorize to spend it. As McCotter explained, it at least is a loan with tangible assets that can be repossessed rather than a tricky financial instrument that is ethereal.
As for the UAW, they, in part, brought it on themselves by demanding things from companies rich enough to give it to them. There were other things also. The history of manufacturing and unionism affected both people and the companies that employed them.
As a Detroiter, I put myself through college solely by working factory jobs that allowed me to complete my degree without a loan. Other friends of mine did it for a summer and never did it again. Working a factory job can be dangerous, is certainly monotonous and wears out your soul. I could see it in the eyes and behaviors of my fellow workers.
I am conflicted as to whether they loans are working and wonder if they can continue to cut jobs and costs. But in the past months to this week, Ford announced an immediate retooling of a truck plant to make small cars (look ma – no bailout!), Chrysler showed off 3 potential electric vehicles and GM announced the building of an engine plant for small engines in Flint and the adding of the Volt production to a plant in Detroit, all by 2010. The change so far is great and requires even more change than has happened. The foreign auto companies had no such baggage and deliberately avoided all things like that. Most started far later. Is it reality that you can't give some help to companies that created this industry and put the world on wheels along with some European companies. These companies have already have and are still paying the price for their structures. Many have suffered and perhaps we can offer some reasonable assistance. The company I worked for , Massey Ferguson, didn't change. Now, it is gone from the US.
Correction. John Dingell pressed for this, but congress approved the bill.