Even The Detroit Outsider was surprised by the perfect shitstorm that befell the Detroit 3 after they requested federal assistance. You can expect as much from Congress, which will take any opportunity to grandstand and posture and play the tough guy for their constituents. It's the American people whose disdain seems disproportionate. Apparently building and selling a shitty car is right up there with murder and child molestation. Even 15 years later, people don't want their family anywhere near you. Given the opportunity, apparently they'll sentence you to death for it.
The Detroit 3 financial aid battle has come to a head, and it looks like the Bush administration might step in and grant enough money to get the companies into the new year and new administration, a move The Detroit Outsider supports for the reasons outlined in Called to Serve. There's still significant resistance in Congress and among American taxpayers, and the topic will be far from dismissed even if Detroit gets a stay of execution. So I'll dissect what's behind this phenomenon and see if I can't convince taxpayers to save themselves.
The Detroit Outsider gives the American auto companies no quarter for their missteps. All of their current problems are linked to their shrinking market share, and that comes from years of predominantly lame products and boorish customer service. But seriously, how do U.S. citizens--regardless of the type of car they drive or have owned in the past--so readily throw American jobs under the bus? I guess if it's not your job or that of someone you know, it's someone else's problem. "That Chevy Chevette I owned is an offense so great that I'll throw myself into a darker economic climate out of spite. That'll show those car companies. What's that? My retirement fund went from small to puny? My favorite restaurant is closing because unemployed people don't eat out? My real estate taxes went up because the local car dealer is gone? I can't repair my Camry because the parts manufacturer is bankrupt? A new Volkswagen costs how much now that the American companies aren't here to undersell the foreign brands?"
There's nothing like self-interest to get people's attention. If any one (or perhaps two) of the U.S. automakers collapses catastrophically or files for bankruptcy, they don't just take their prospects for future sales with them. They complicate (at minimum) the repair of roughly half the cars in the U.S., including ones you and your loved ones may depend on. On top of that, every one of those vehicles instantly plummets in value. If you keep your domestic car indefinitely, you might be unaffected, but if you want to resell it or you wreck it, the buyer or insurance company is going to hand you a check you can use to buy this week's groceries. I hope you like walking.
Your American car is just another asset, like your house and other investments, that will have arbitrarily become worth less (if not worthless), making it that much harder to offset the money you won't have if you lose your job.
If you think bailouts are fatiguing, try joblessness
Right, right. Now it's all about bailout fatigue. After the Treasury threw $700 billion at Wall Street firms, to no apparent effect, Americans are concerned about throwing good money after bad. They don't believe the Detroit 3 represent a crisis, because they don't believe the banking sector was really a crisis. They feel duped; they got scared once again into giving up something valuable. Here's the problem: There was a mammoth crisis in the financial sector, and there still is. It's just moving slowly, helping to bring down companies the size of, say, General Motors. The D3 have been blaming their predicament on the frozen credit market as well as on decreased demand, higher raw materials prices and other factors. A perfect storm, they say. They're actually correct. They just left out one of the major components: having entered the storm weaker than their competition, which is entirely their fault. However, as the problem deepens and foreign governments from Canada to Sweden prop up their native auto manufacturing, the distinction becomes increasingly irrelevant.
Frozen credit seems to hit the auto market harder than some, because it goes beyond the issue of consumer financing. Demand is down to begin with, and anyone who does want to buy a car finds few lease offers and stricter loan requirements, but consumers aren't the only ones who buy cars. Dealers do. Lost on many consumers is the fact that dealerships have to finance the new cars on their lots until people buy them. Unsold cars are expensive, times two: Apart from not bringing money in, they gobble it up just by sitting around. To top that off, the most favorable financing historically has come from the automakers, and we know what shape they're in. This is why it's a recession. No one's in any position to help a brother out. It's like the scenarios above, where you, the consumer, are getting hammered from every direction. Your home is no longer a source of equity, interest income is a pittance and anyone who might otherwise have helped you out is in the same situation. The Detroit Outsider wouldn't have supported windfall-profit taxes on domestic automakers when they were netting $15,000 a pop on full-sized SUVs, and for the same reason I'd let the market, and bankruptcy if necessary, seal the Detroit 3's fate if it were 2006. But it's almost 2009, and the circumstances are extraordinary. The situation is delicate and desperate.
It's not the money that was bad
The $700 billion wasn't "bad money." The bad part was giving it to an administration that has consistently fucked up everything it has touched. Are we really surprised? If it weren't so damaging, this kind of dedication and consistency would be impressive. The errors made previously are behind the gridlock we see now. Much has been said about the Detroit 3's CEOs and their terrible performance on the Hill in November. Interesting how the guys who ask for a (then) $25 billion loan, not a $700 billion handout, are getting the scrutiny, the third degree, the public humiliation. The problem isn't that these guys don't deserve it; it's that the other guys deserved more. For simplicity's sake, let's pretend the $25 billion request was for a grant, not a loan. Even so, by my calculation Wall Street deserved 28 times as much scrutiny. That would be 112 days of Congressional hearings. The duration works out well, actually, because these companies don't build cars (or anything) and the CEOs would have to walk or bicycle to Washington. I don't want to see them on the Acela Express if their firms are in such bad financial shape. (Have you seen them trains? They're pretty nice.)
If we the taxpayers let the Detroit 3 twist in the wind, we exhibit the same myopia that put the automakers where they are now. Most frustrating to The Detroit Outsider is that people sneer at the prospect of companies sending jobs overseas yet are all too happy to serve the D3 a death sentence and hand the global automotive business over to foreign companies. Yes, the foreign brands build the cars here, and that represents jobs. But where do you think the profits go? In October alone, automotive products represented $7.8 billion in trade deficit. Ironically, it's positive revenue from overseas that has buoyed Ford and GM as they've stumbled their way through restructuring and cost-cutting. If the domestics fall, we send more of our automotive dollars overseas, and we get fewer back.
There isn't enough outrage about the inequity between the Wall Street bailout and Detroit bailouts. Yes, Wall Street had the benefit of coming first, but if they hadn't gotten $700 billion, the automakers' $25 billion would have seemed an outrageous sum. The D3 are getting some good with the bad. Ultimately the problem is that people think they know about the car market because they own cars, and they aren't happy about the bad ones they've owned. Conversely, you have no idea what banks do. The Detroit Outsider has no idea what banks do. What he knows is that what an American-based bank does can pretty easily be done by another American-based bank. The country has outsourced itself to near oblivion. When money and the transfer thereof are revealed for what they are--ethereal, intangible, ultimately meaningless--"stuff" starts to look pretty valuable. Whether you're talking about euros, yen or yuan, whether the dollar is up or down, a toaster is still a toaster. It's good to have, especially if you want to make toast. Ergo, it's handy to have the capacity to make the toaster itself. Or a car.
The national debt is more than $10.6 trillion. We're in hock to foreign countries that history suggests could become our fiercest rivals. It's not a good situation. But now you want to cut off the flow? Now we can't afford to throw a little more funny money at the rapidly vanishing American manufacturing base? The Detroit Outsider wishes he were sophisticated enough to express this more eloquently, but…what the fuck?
You don't need a study to know that the costs of failure would be greater than a bridge loan. Fortunately there is a study: The Anderson Economic Group and BBK business advisors reported that a failure of two American automakers would cost taxpayers $66 billion. The job losses, other economists estimate, would be in the millions when you factor in suppliers and other related businesses, including other automakers, dealers, etc.
It's the usual scenario that's so hard to accept: Pay now or pay later. If the Detroit Outsider harps on the Bush administration, it's only because it's the most recent and relatable example. There are a lot of single-issue voters out there, those who support one party over the other because, say, they don't want their taxes raised. So these voters pull the lever for George W., probably twice, and sure enough their taxes aren't raised. Instead trillions of tax dollars go into a voluntary war and we get the worst economy since the Great Depression, our job prospects evaporate and our 401ks are so fucked we can't bear to look at the statements. But at least taxes weren't raised.
Don't cut off your future to spite Ford's past. Contact your elected officials. They really do listen to their constituents, if only so they get reelected. The Web makes it easy:
You can pay now or pay later. Rest assured, you'll pay.