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This is THE END. The auto industry is dead. Or just about.
It's amazing the stories you hear about car manufacturers from where I sit, in an educated mid-Michigan community that is perfectly suited to retrain autoworkers into just about anything technical that is not auto-related.
Governor Granholm was interviewed by the national media all week long, talking about how "the collapse of the auto industry would have a ripple effect throughout the nation." The entire Michigan congressional delegation -- Republicans, Democrats, Communists, Socilaists, all of 'em -- sent a joint letter to the legislative leaders and President Bush asking for help. Automaker leaders of Ford, General Motors, and Chrysler descended on Capitol Hill, begging for a Lee Iacocca-style loan out of the $700 billion bailout package, to be paid back with interest (of course).
Problem is there are not enough leaders in DC taking the bait. Matter of fact, neither am I -- and I am also a Democrat from Michigan. See, we had this discussion at work around the water cooler, and my boss said "people don't realize that the auto industry is so strongly tied to our national economy." I just thought to myself -- "bullshit." Sorry, outside of Michigan and Ohio, we might like to think that the auto industry is relevant... but it is not -- it shouldn't be if our future depends on it. It is a global industry now, with cars being built by different companies from different countries with different parts from all over the world. Where the hell were the pistons in my Canadian Buick Century made? -- same place as the Brazilian rubber Goodyear tires or the American engine block? I have no idea...
The problem is that the American auto industry had it coming, and the fat cats at the top have been nothing short of blind, deaf, and dumb... with the exception to line their own pockets. THE END has been 30 years in the making, and the auto industry missed the boat with future technology. GM leadership for years have called hybrid cars a "bad economic model." Problem is, hybrids are all that people have been buying the last year. GM had no models designed, no fuel efficient vehicles glimmering in showrooms. The reality is that the squeeze of oil has finally been the push that moves advanced countries on this Earth closer to a George Jetson world.
Now and forever people will be purchasing fuel efficient cars, and not gas guzzling Buicks, Chevys, and the like. Want proof? No more evidence than the 45% drop in GM sales last month coupled with a $18 billion (that's billion with a "B") loss this year which has the auto giant on its knees, with the gun of Treasury Secretary Henry Paulson pointed at their head. The fact that auto industry leaders never made contingency plans -- or better yet, diversified their offerings --- has spelled doom. The collapse in the US and international credit economy has done nothing more than hasten the death of this very sick and ill patient. Even if the auto industry did get the money, there's no assurances that it would help. Matter of fact, let's call it like it is -- it IS too late.
The only solution? What this industry needs is a swift kick in the ass. Leadership is all about taking risk and jettisoning the status quo. There is no leadership among the fat cats in American auto industry. Let this industry go bankrupt, which will force the leaders into a restructuring plan that will create Jetson-esque transportation for the 21st century and beyond. All those workers who lose their jobs... that is a tough issue, but that is why we have COLLEGE and COMMUNITY COLLEGES and RETRAINING. Get THEM folks EDJICATED. It's never too late, especially if you want to have a roof over your head and put food on the table.
Pensions? Retiree benefits? Come on, welcome to 2008. Anything beyond a 401-k is so 1950-ish. The fact that automakers have been so willing to shell out billions for decades to people not working has finally come home to roost.
There is this little matter of national security -- we do need a manufacturing base to be able to turn to in times of dire need, say if the Canadians or Chinese invaded and we needed our factories to make tanks, bombs, or bombers. But, bankruptcy can help get rid of all of the issues that have festered for years, and give America a new baseline for the auto industry that can design the industry for a more successful future.
Sure it will hurt. But so did having my appendix out last week. A few painkillers, and you'll get over it. And, so will America. It is time to move on.
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Hey, no worries! We don't need to make anything. Let the Asians make everything and we can buy it. We don't need to give them anything in return. Trade deficits don't matter. We can sell each other real estate and financial services, and use the wealth generated to buy real goods from Asia!
And don't forget oil: Russia and the Middle East will gladly take our dollars backed by our real estate. No worries. Posted 11/15/2008 6:38 PMReply
Automotive industry impact on the domestic economy:
o 4 percent of GDP
o 18 -20 percent of U.S. retail sales
o 1.1 million annual exports – the largest U.S export sector
o 240,000 direct and 4.5 million indirect jobs depending on automotive
I'll pass on the retraining (I have a BSME and MSME. Lifetime member of Tau Beta Pi and have worked in the auto industry for 30 years) but most would lose their homes while they spend a few years on retraining. I guess we can all sell McDonalds to each other. I'm not buying the rest of your "viewpoint" either. Right now you believe in what you are saying, give it ten years a see if what you think then.
Bankruptcy may be right for a company but not for a whole American industry. The financial industry caused this for autos, not the autos! GO GREEN! Posted 11/16/2008 02:00 AMReply
Who says a bailout will fix the mess? The $700 billion banking industry has not freed up much credit yet, and that was passed a month ago.
It is simple economics. Until they build cars people will buy, they will not sell. And, they will not make money. At this point, I guess, use whatever stats you like. $18 billion in losses hurts, with a continued economic slowdown and lack of product for consumers to buy. It means the end. GM is burning through cash at $1 billion+ a month in losses. Amazing to run a company like that.
By the way, why are Americans outside of Michigan and Ohio not buying new cars from American manufacturers this year or next? Unreliable and inefficient compared to their foreign competitors. Here is a report, on American cars taking a back seat in 2009
http://autos.yahoo.com/articles/autos_content_landing_pages/729/2008s-bestand-worst-performing-cars/;_ylc=X3oDMTE2NGdhMnFiBF9TA
And, here it is for 2008: note all the Best Cars rated are by foreign auto makers
http://www.consumerreports.org/cro/cars/new-cars/news/2007/04/top-picks-for-2007-4-07/overview/0704_top-picks-2007.htm?EXTKEY=SP72C00&CMP=KNC-CROYPICARS&HBX_OU=51&HBX_PK=pi
American consumers read this stuff and that is why they buy foreign. Go out west (Calif, Oregon, Wash, etc.) and not even 1/3 of the cars on the road are American. It has nothing to do with American pride: rather, it is where hard working Americans outside of the auto industry want to spend their hard earned American dollars. Until the American auto industry starts cracking these lists, they are in trouble. By time they are ready to do it, at this rate, it will be too late. Posted 11/16/2008 08:57 AMReply
Without the Big Three, Michigan's economy will grind to a halt. Believe me that this is going to affect the earnings of any corporation that sells their products in this state, including Honda and Toyota. Construction projects will halt, retail sales will plunge, etc. Television stations / networks across the nation will lose millions of dollars in revenue as their largest advertising spenders close the doors. Technology companies out in Texas, California, Washington will lose millions as the Big Three stop spending money on new computers, technology, software, etc. The national construction companies that depend on huge plant projects will lose millions.
Employeed in Mid-Michigan for 20 years? My guess would have to be Dow Chemical. I know Dow has already gone through it's troubles, but think that Dow / Dow Chemical won't be adversely affected by a collapse and you are crazy.
A total collapse WILL lead to a economic depression in this nation. Mark it. EVERYONE will lose if a collapse is allowed to happen (even take a look at the latest Toyota / Honda sales numbers.) There will not be a single business in this nation that is unaffected. Here is a pretty good read on the matter:
http://www.autoextremist.com/current/
A bailout has to happen, but when the money arrives, it cannot be business as usual at the Big Three. Changes have to be made. How to do that I do not know...but I think it is clear that Bob Nardelli and Rick Wagoner have to go. Posted 11/16/2008 5:42 PMReply
You probably know this. My question is: why don't you think it's a big deal? You said hard working Americans spend their money on quality foreign cars instead of American cars, which is true. What do people in the US to afford all these wonderful goods from abroad? Have we made up for our losses in the steel, auto, electronics, machinery, shipbuilding, and soon aviation industries with other wealth producing industries? The answer is a resounding no! We ran away from manufacturing because the profit margins are small, it requires a well-educated work force, and we were going up against countries like Japan, Korea, and China with well thought out industrial policies headed by their central governments.
So, what gives? How can we watch as these great industries dwindle year-by-year, and make up for it year-by-year by buying more manufactured goods from abroad? The answer is simple: we have the world’s reserve currency. All international transactions are priced in dollars. All commodities are priced in dollars. People treat the dollar like gold abroad. It ain’t gold, and we got the printing press. We just print more of these dollars, and use them to buy stuff from abroad WITHOUT actually earning these dollars. This means the Japanese must produce goods to buy goods. We can (although not too quickly) print more money to buy more goods. We look like we’re rich because we measure GDP by adding consumption, investments, government spending, exports, and subtracting imports. Look at that! Two of those numbers are spending: consumption and government spending. What would happen if we decided to replace consumption by production? Our country would have been in recession for decades!
How long can we do this? As long as foreigners think the dollars are worth something. If foreigners lose confidence in the dollar, we will have to be like any other country in the world. We will have to produce products and sell them abroad to acquire the necessary funds to buy foreign made goods. This is why losing the auto industry is dangerous. If it’s gone, what are we going to produce when the dollar is declining? Most of the goods we want are from Asia, and as we all know, they produce better quality goods than we do. Why would they need us?
I don’t know what the solution is, but enlightenedspartan said that we can just retrain the workers. In what industry? One in competition with Asia? In services? Should they retire? Are their new jobs going to be worth anything with a declining dollar? Posted 11/16/2008 5:43 PMReply
Beyond ridiculous. 4% of GDP is something like $250+ billion (billion with a B). Chop off 4% of our GDP and the nation is in a recession, which is going to lead to cuts EVERYWHERE. The auto industry not only buys car parts from suppliers, but also needs computers, IT expertise, electricity, credit, etc.
Maybe a good example of how the collapse of the auto industry will affect much more than just auto-related jobs is how the electric utilities in Michigan might be affected. Consumers Energy and DTE are currently planning several billion in new investments to meet rising electric demand. The planned investments would make them the largest investors in the state over the next few years if they go through. The auto companies are some of the largest customers of Consumers and DTE. I believe that the stamping plants use something like 20 megawatts of power each. Shut down the dozens of stamping plants, powertrain plants, assembly plants, etc. and you no longer have any need for multi-billion dollar investments, eliminating the need for plenty of well-paying construction, engineering, etc. jobs. Apply this to any company that does business with the Big Three.
Seems that a lot of the auto industry hate comes from California. Let's just consider California's industries and how they would be affected by the collapse of the Big Three. Obviously you think California, you think Silicon Valley. Home of HP, Apple, Cisco, software companies, etc. Obviously you have that the companies will no longer have a need for any of this technology, which should cause pretty large loss of revenue at these firms. On top of that, you have millions of unemployed workers who can no longer afford computers, iPods, etc. LA advertising firms? Good luck surviving the loss of the second-largest advertising industry (behind the beer companies) without making large cuts. TV shows made in Hollywood? GM spent some $1.5 billion in non-web advertising last year, most of it on TV. Not to mention dealership advertising on local tv networks. Tourism? The people wanting to visit warm, sunny California are from the Midwest and Northeast. Without good jobs, they won't be spending any money at Disneyland.
Thank goodness it seems that Congress understands something needs to be done, and fast. Unfortunate that Bush looks willing to sit by idly. Posted 11/16/2008 9:36 PMReply
http://blog.cleveland.com/business/2008/11/auto_industry_bailout_may_be_w.html
Quote: No one thinks that the failure of an auto manufacturer would pose systemic risk to the economy. Americans would just buy a different mix of cars.
http://www.washingtonpost.com/wp-dyn/content/article/2008/09/19/AR2008091903183.html
Quote: "We have business models that no longer work. This is putting the viability of many companies into question. Plus, you have a changing of the guard taking place, as new leaders are emerging.... The industry needs to be restructured, and we are on the cusp of an era which will have more clearly defined winners and losers.
http://knowledge.wharton.upenn.edu/article.cfm?articleid=1365
On the other hand, Quote: the collapse of the Big Three, or even just GM, could set off a catastrophic chain reaction in the economy, eliminating up to 3 million jobs and depriving governments of more than $150 billion in tax revenue over the next three years.
http://www.buffalonews.com/145/story/495283.html Posted 11/16/2008 10:17 PMReply
Here is some additional information I was looking for but couldn't find earlier this morning...
I'm sure the Japanese had nothing to do with "currency manipulation" over the past years. Google "Mustafa Mohatarem", GM's Chief Economist and look through some of the documents/testimony to Washington.
Try this site as well. http://www.autoyensubsidy.org I'm glad it's such a level playing field. Here's an example: "Japan's yen subsidy provides the average imported Japanese car a $4,000 windfall cost advantage over U.S. automakers and other competitors in the U.S. market, ranging up to $10,000 per vehicle for higher end
imported SUVs," said Automotive Trade Policy Council President Stephen J.
Collins. "Japanese automakers today export 2.2 million vehicles a year to
the U.S. -- just as many as they did 20 years ago -- primarily SUVs and
luxury vehicles. Our companies welcome international competition, but it
needs to be fair. It is time to take action to correct the imbalanced yen."
How many of these top of the line vehicles do you drive? I lease two US vehicles and have no problems. A lot of this is perception. Again $4,000 to $10,000 to add value back into a vehicle could change this perception. GO WHITE! Posted 11/16/2008 10:58 PMReply
Take a look at the changes going on right now and tell me that the industry is not trying to restructure. These loans are necessary to ensure the makers have the time to restructure.
"No one thinks that the failure of an auto manufacturer would pose systemic risk to the economy. Americans would just buy a different mix of cars."
From an op-ed piece. "No one?" Drop even 4% of GDP and 4 million jobs and "no one" will be buying any cars at all.
"Quote: "We have business models that no longer work. This is putting the viability of many companies into question. Plus, you have a changing of the guard taking place, as new leaders are emerging.... The industry needs to be restructured, and we are on the cusp of an era which will have more clearly defined winners and losers."
This article is nearly three years old. Before any financial crisis, before all three companies were on the edge of disaster, etc.
You quoted a bunch of op-ed articles. The facts are that if the Big Three are allowed to die, millions will lose what are quite well-paying jobs. I have to say that more than the auto industry will be affected. I guess it is only my "opinion" that the country will fall into recession if the makers are allowed to collapse. Maybe we can recover 4% of our GDP by bottling farts and selling them across the globe? You propose moving towards a "knowledge economy." OK, great. But try and tell me that the high-tech companies will not be affected as the Big Three, companies with some of the highest R&D budgets, disappear overnight. The collapse of the Big Three will affect almost everyone in America, and for the worse. Posted 11/17/2008 01:10 AMReply
http://www.npr.org/templates/story/story.php?storyId=97093793
Maybe it will help people look beyond the auto industry to other possibilities as well as the stark realities - try to use a bad situation to your advantage with new ideas & leadership instead of digging a deeper hole...
Or, Peter Morici from Univ of Maryland School of Business
http://www.pbs.org/newshour/bb/business/july-dec08/automakeraid_10-28.html
Art Spinella, of CNW Market Research:
http://blog.cleveland.com/business/2008/11/auto_industry_bailout_may_be_w.html
Sorry... there are plenty of articles on both sides of the issue here. Posted 11/17/2008 2:47 PMReply
http://www.knowledgeproblem.com/archives/002736.html Posted 11/17/2008 2:57 PMReply
In fact, what have we replaced all our lost manufacturing industries with? Business and financial services? Retail? An industry with direct competition in Asia?
If you believe in free-markets, do you think that replacement industries and jobs will naturally spring up to replace the old ones?
Are you concerned that we have given up on manufacturing simply because it’s too hard, and we simply print money as a replacement?
Are trade deficits important? Are budget deficits important? I believe the trade deficits of the past 30 years show that America has replaced it’s manufacturing with nothing but money printing. We called it the service economy and told ourselves that we didn’t need to make anything because we can hire Chinese to do it cheaper.
What does America do to earn its imported goods?
Should we have a centralized industrial policy like Japan or China that protects domestic businesses? Posted 11/18/2008 03:36 AMReply
http://www.detnews.com/apps/pbcs.dll/article?AID=/20081120/OPINION03/811200376/&imw=Y Posted 11/20/2008 3:34 PMReply