Hallelujah! (UPDATE: Damnation!)

BY ANDREW COYNE

121208_coyne

Auto industry bailout dies in Senate

Thursday December 11, 10:49 pm ET

By John Crawley and Richard Cowan

WASHINGTON (Reuters) – The U.S. Senate failed on Thursday night to reach a last-ditch compromise to bail out automakers, effectively killing any chance of congressional action this year.

Republican-brokered talks faltered, leaving the chamber at a dead end on an approach for extending $14 billion in loans to avert a threatened collapse of one or more automakers, Senate Majority Leader Harry Reid said in remarks on the floor.

“It’s over with,” Reid said.

And with that dies any last lingering justification for governments in Canada spending billions of dollars they don’t have to prop up Detroit’s tottering Canadian transplants. I’d make the case for refusing a bailout even if the Americans had agreed to one — the willingness of other countries with deeper pockets than ours to subsidize industry makes any attempt to play beggar-thy-neighbour on our part not just ill-advised, but futile — but if Washington is not willing to blow its brains out, then certainly there’s no reason we should.

Amazing what a difference it makes having a few genuine free-marketers in the legislature, isn’t it?

MORE:

WASHINGTON (AP) – A $14 billion emergency bailout for U.S. automakers collapsed in the Senate Thursday night after the United Auto Workers refused to accede to Republican demands for swift wage cuts.

Senate Majority Leader Harry Reid said he was “terribly disappointed” about the demise of an emerging bipartisan deal to rescue Detroit’s Big Three.

He spoke shortly after Republicans left a closed-door meeting where they balked at giving the automakers federal aid unless their powerful union agreed to slash wages next year to bring them into line with those of Japanese carmakers.

By saying no to Detroit, the feds will be in a better situation to say no to all the other supplicants lining up outside their door: Nortel, Big Oil, the tech sector, the Atlantic premiers, the western premiers, the Ontario and Quebec premiers, etc etc. Whereas if they shell out for Big Auto, it will be open season…

Not that it isn’t already.

MOREOVER: We should be clear who the biggest winners are from this. It isn’t the taxpayer — although taxpayers will indeed be winners. It’s workers and firms in every other industry, who will not now see capital investment and consumer dollars diverted into staving off bankruptcy for GM and Chrysler that might have been available to them. There never was a good reason to favour autos over other industries. And subsidizing everybody in the name of equal treatment is even sillier. You can’t redistribute from everybody to everybody…

ARGH:

Dec. 12 (Bloomberg) — The Bush administration dropped its opposition to using the $700 billion bank bailout to provide financing for U.S. automakers, after the Senate yesterday failed to approve emergency loans.

“Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry,” Treasury spokeswoman Brookly McLaughlin said in an e-mailed statement.

The Treasury has used all but about $15 billion of the first half of the Troubled Asset Relief Program’s funds since the plan was enacted Oct. 3. Treasury Secretary Henry Paulson has until today repeatedly resisted calls to use the program to aid the automakers.

Sooo-eeee!!!!




Browse

Hallelujah! (UPDATE: Damnation!)

  1. Why do I have the sinking feeling that this means the Liberals/NDP will demand that Canada bail them out singlehandedly…

  2. The Republicans are full of shit. Labour costs are something like 10 percent of the price of a new vehicle. Besides, the Japanese advantage is not in price – US vehicles are on average $2,500 cheaper – but on quality.

    This is really a Republican attempt to destroy just about the only private-sector unionized industry left in America. The final death of unions will depress wages across the board, long after this recession ends.

    Notice that the Repubs didn’t push for cuts for white-collar workers or executives – only blue-collar workers.

  3. Ah who needs an auto industry or jobs? Sure it;ll sting a little bit when Ontario’s auto industry collapses but hey as long as we’re following free market principles it’ll all work out. You’ll see. Those laid off workers can just find jobs out West. What’s that? The oil price has collapsed? Hmmm…no biggie. Cyclical development. The free market will take care of it.

    Hey, I have another idea too: why if we get rid of those annoying regulations on our Canadians banks and let them make more risky investments if they like. They’ll be responsible. The free market guarantees it. Any that aren’t responsible will just be taken care of by the market. It’ll be fine. We have to harness the power of the free market.

  4. The right always blames unions. Well it wasn’t the unions that started the mess at the banks. Take away good paying jobs and you won’t have anyone to buy those houses. More foreclosures, more bank bailouts. I pity the Americans before they know it the banks will have all their money through taxes and the economy will have nothing to show for it. GM and Chrysler may have to fail because of poor business acumen, but because of the interconnectedness of the industry the American economy will suffer and thus so will the Canadian. Can’t wait to see the stock market tommorrow.

  5. It takes a certain kind of free-market callousness to exult “Hallelujah!” at a decision that will result, if the U.S. administration does not step in with funds from TARP, in the loss of at least a million jobs and the destruction of U.S. manufacturing capacity – probably permanently. The collapse of GM will mean bankruptcies throughout the supplier chain, making it impossible for anyone – including Japanese companies – to build a car in America. With sales down massively across the board, Japanese companies have neither the cash nor the economic rationale for buying up U.S. manufacturing plants. The jobs will just disappear, and the government will either spend far more than $14 billion paying welfare and medical benefits to those once employed and insured by the Detroit Three, or millions of families will be destitute. What kind of person celebrates this?

  6. The bailout of the BIg Three would have cost jobs just as surely, just not as visibly. The capital diverted into a probably futile attempt to avert bankruptcy — which does not mean everybody gets laid off, as your Million Jobs scenario implies — is capital denied to other, more competitive firms and industries.

    Why can’t people wrap their minds around a simple concept like opportunity costs?

  7. Jay – What kind of person celebrates this?
    ———–

    A true believer Jay, a true believer. And there is no more dangerous species in the world.

  8. The Republicans are full of shit. Labour costs are something like 10 percent of the price of a new vehicle. Besides, the Japanese advantage is not in price – US vehicles are on average $2,500 cheaper – but on quality.

    Who is responsible for quality?

    Gord.

  9. I could just as well say that you are a “true believer” in bailouts. Or a “true believer” that Ontario must be in the auto industry. These are “ideological,” indeed “fundamentalist” beliefs. They’re just not examined as such.

    Or how about we lay off the name-calling, and focus on the arguments?

  10. Andrew – the capital that would have gone into saving the Detroit Three (maybe still will) is so insignificant in an economy the size of the U.S. that I cannot imagine it would meaningfully tighten the availability of capital to other industries. Interest rates are dropping, not going up, and the lack of credit available is not the result of government spending, but of free-market excesses resulting the credit crunch. This doesn’t seem like a situation in which fears of “crowding out” are justified. Again, any cost to the government – in deficit spending – is more than made up for by the future spending that could be saved by not having to support millions of idled workers on welfare, in hospitals, or in prisons.

  11. No, no.. a true believer in bailouts would be someone who argues that bailouts were the appropriate response to all potential job loss situations at all times. Not sure even the NDP advocates that. But the auto industry is the hub of the Ontario economy and hugely important for Canada as a whole. Furthermore cars are one of the only REAL things we actually produce anymore – you know tangible things. Yes we still have a lot of wood and oil and minerals in this country but do we want to base our economy exclusively on that? I personally think it may be useful to have a manufacturing sector. Might come in handy at some point. Or maybe we should concentrate on the wholly artificial financial services sector in which even the U.S. federal reserve is unable to distinguish the imaginary from the real?

    Of course they’ll always be McDonalds :)

  12. re your 23:42 question. Because they have no interest in understanding concepts, simple or otherwise. They just want to score points on the comment list.

  13. Or maybe because its a situation that calls for more than “simple concepts”. Some empathy for all the people who may lose their jobs, for instance, might be appropriate.

  14. This falls squarely on the UAW who wouldn’t move to 2011 contracted wages early. By 2011 they are hoping that the billions put in will have the industry back semi-stable so they can start work-slow downs to “win” back the concessions. If you know that it can’t fail there is no incentive to make it work.

    I can’t believe the coalition stand that Canada needed to have the 30 billion being distrubuted right now. Can any taxpayer agree with this largesse??

  15. That “diverted” capital was coming from government coffers. If you are assuming it to be available to more worthwhile endeavours then you are assuming two things – 1) that it will be available and 2) that the government will pick the endeavour that is more worthwhile.

    Can we expect a follow-up Hallelujah if that happens.

    Today it was announced that Canada had slipped to third place in auto production … in North America.
    Third of three. I guess it could be worse.

  16. The risk is now if the US wont (cant?) spend to “protect” their industries, they can take a cheaper route: legislate. Trade barriers, tariffs etc. Its also gives the Conservatives no model for their own stimulus except to wait it out some more and see what the US does…which wont play well this January.

  17. Shame about the green shift. Shifting the economy away from gas guzzling cars and towards more environmentally friendly vehicles, mass transit and the like. Now we’ll just shift away from cars to . . . what, exactly?

  18. Blessed news!

    Corporate welfare, bite my bottom.

  19. BC Voice of Reason: “This falls squarely on the UAW who wouldn’t move to 2011 contracted wages early.”

    I don’t suggest for a second that the unions are blameless in all of this. But is absolutely no responsibility to lie at the hands of the “management” who “managed” to lower their quality standards while increasing the amount of their bonus, stock options, perks and salaries? Do you know how much a private jet costs? And GM needs THREE?

    These are employees just like the unionized workers. They didn’t invent anything, they didn’t invest anything, and by the looks of it they are LOUSY at their jobs! Why on earth don’t you feel their excessive remuneration also requires they take the fall? Same for the bankers and stock brokers. Why are white-collar entities exempt from your wrath?

  20. BC Voice of Reason, voluntary reductions in salaries might be in the interest of the companies, but not the workers because that won’t save jobs in fundamentally unsound businesses, just reduce the cost of layoffs for the companies and hasten the workers unemployment.

  21. “The collapse of GM will mean bankruptcies throughout the supplier chain, making it impossible for anyone – including Japanese companies – to build a car in America.”

    What nonsense. Not a few airlines have gone bankrupt. One can still fly.

  22. “This falls squarely on the UAW who wouldn’t move to 2011 contracted wages early. By 2011…”

    If they’re not willing to move this far on wages, why do I care if they lose jobs … enough to want to bail them out with my money?

  23. BC – The UAW could work for nothing and it wouldn’t change the situation.

    And the $30B is the representative Canadian amount that was the determination of the G20 at a meeting attended by Mr. Harper. He was a willing participant then. The Coalition was only echoing something he was part of.

    The US government threw over $300B at financial institutions ( not counting massive amounts from the Fed) – with nothing coming out the other end yet and no mention of re-writing compensation agreements for anyone. From CEO to mail room boy.

    The auto workers mistakes are that they wear the wrong coloured collar and that they dared to be unionized.

    I’m not silly enough to expect things to be fair. But call it what it is.

  24. “That “diverted” capital was coming from government coffers.”

    No, it was coming from deficit financing.

    “If you are assuming it to be available to more worthwhile endeavours then you are assuming two things – 1) that it will be available and 2) that the government will pick the endeavour that is more worthwhile.”

    I’m assuming private citizens will spend it on what they want, not propping up uneconomic companies. But you don’t get that. To you money disappears if it’s not spent by government.

    1) available to whom?
    2) why does government have to make this decision? why can’t people when they buy things?

  25. We need jobs. We just don’t need anymore automobiles.Fossil fueled or less fossil fueled.
    We are already overcongested.
    Recall the gas guzzlers, the nosiest ones, and turn them into electric, quiet ones. How fast do we really need to go to destroy ourselves even further.?
    Americans kill themselves and each other 46,000 times each year.
    War on the roads. Weapons of mass destruction.
    Even the UAW have said they would prefer to build light rail and electric.
    Take the $25 Billion they spend on advertising and do something else with it!

  26. mynalee johnstone, per kilometre travelled, is there a safer mode of transportation, aside from airplanes?

  27. Jenn / Sis The UAW was asked (or demanded by US senate) to roll wages to same rate as Toyoya wages..as a condition for the bailout.. They gave a quick no thanks… No matter which way you look at it they had a chance to be reasonable and get the bail out and they decide against it.

    Maybe they should talk to the Air traffic contollers unions

  28. I don’t understand people who don’t capitalize their own names. Is it a self-esteem issue?

  29. Two points:

    In part, the rejection of the $15 billion package in the US Senate is simply an attempt by Senate Democrats to force the Executive Branch to use part of the $700 billion TARP moneys to give the Big Three $15 billion bridge funding until the Obama administration takes office and the Big Three develop acceptable recovery plans. In short, the bailout is far from dead.

    Even if one believes that the Big Three (or one or two of them) should be wound up, this would need to be done in an orderly fashion over many months to avoid major economic damage. Alternatively, arguably, there is room for sucessors (by consolidation and merger) to the Big Three to manufacture about 2/3 the number of cars (better chosen and built) the Big Three currently produces. The goal should be to get to this restructuring with the minimum of hardship. Canada should participate in that restructuring with Canadian Federal and Provincial aid to maximize the benefit to the Canadian economy.

  30. Who is responsible for quality?
    Gord.

    Mostly – Whoever designs the cars. Or more accurately, whoever approves the designs of the cars. Nice subtle poke at the workers there, though.

  31. Trent:

    The workers raise the cost of each American automobile by well over $2000 per unit compared to the American companies’ competitors.

    Now, yes, I do blame management for agreeing to this stupidity. That said, that’s > $2000 less quality the US car makers can afford to put in each vehicle, which kills them on the lower end markets, and the medium price range too (somewhat).

    So the workers have to take a cut — particularly in pensions — or they won’t have jobs.

  32. * a sizeable cut

  33. Also, Trent, the foreign automakers are more efficient, can bring in contract workers when needed and let them go when needed.

    There’s much less wasted effort with highly skilled electricians and so forth sitting idle for periods of time as often happens at the big 3. Instead, they’d be assigned other tasks: i.e., they’d work harder for their average of $29 an hour less in compensation (but still in line with other manufacturing jobs).

    Finally, there’d be less stupid provisions in contracts tying the big 3 automakers hands by maintaining only certain production runs at a given factory, necessitating more factories and thus more workers and fixed costs.

    The big 3 need to consolidate their network of factories to stay competitive with the transplant foreign producers based in North America.

  34. “The US government threw over $300B at financial institutions ( not counting massive amounts from the Fed) – with nothing coming out the other end yet and no mention of re-writing compensation agreements for anyone. From CEO to mail room boy.

    The auto workers mistakes are that they wear the wrong coloured collar and that they dared to be unionized.

    I’m not silly enough to expect things to be fair. But call it what it is.”

    1. The bailout doesn’t cost 300 billion dollars. It meant the government lending money and buying strategic assets in order to prevent banks from failing. The ultimate cost will be far lower than 300 billion – when the US bailed out Mexico’s financial system the US government actually made money. That probably won’t happen this time, but you are talking about a cost that will be far below 300 billion.

    2. The economy isn’t just a bunch of industries that do stuff. Different sectors of the economy are more or less important. If a bank fails – the government would have to spend billions upon billions because of FDIC. Alternately, if it did nothing and just let the bank fail, millions of people would lose their savings. New enterprises that wanted to start up would have nowhere to lend money from. If you look at the great depression, the problem wasn’t in the real economy, it was in a financial sector that was rapidly evaporating because, in part, the government did nothing. If you bail out the auto industry, but not the financial sector, then you have a bunch of cars, and NOBODY able to borrow money to buy them.

    3. There seems to be a debate here over whether the problem with American cars are labour costs or quality. This argument is based on a fallacy. What matters is not the absolute cost of some unit of labour, but the cost of labour RELATIVE TO THE VALUE OF WHAT IT CAN PRODUCE. So, if an American worker is paid the same as a Japanese worker, but makes a lower quality product, then yes American wages are too high, and must be lowered, otherwise it will be less profitable (or unprofitable) to build in America.

    4. Why the hell does the US, or Canada need an auto industry anyway? People have this vague sense that “oh auto jobs are like good and stuff” because automobiles were a core industry back in the 1950′s. Look at the increasing number of countries that can produce good cars relative to the 50′s. The way to stay rich isn’t to stick in old industries, it is to become a leader in new industries, which have higher productivity growth rates. If you look at part of why the British declined economically in the early 20th century, it had a lot to do with the considerable power of old-growth industries like textiles and steel, that cartelized and held a lot of sway with the government. Or to put this in another way, it is like Canadians in the 1860′s bailing out the Hudson’s Bay Company in order to preserve the hunting and trapping industry, instead of building the Canadian Pacific Railroad.

    An auto bailout is bad for taxpayers, it is bad for the Canadian economy and ultimately not even that great for the workers, whose jobs WILL be obsolete at some point in the future. This is why you should get an education kids – it gives you the flexibility to survive the death of an industry.

  35. “There seems to be a debate here over whether the problem with American cars are labour costs or quality. This argument is based on a fallacy. What matters is not the absolute cost of some unit of labour, but the cost of labour RELATIVE TO THE VALUE OF WHAT IT CAN PRODUCE. So, if an American worker is paid the same as a Japanese worker, but makes a lower quality product, then yes American wages are too high, and must be lowered, otherwise it will be less profitable (or unprofitable) to build in America.”

    American workers who are members of UAW — as opposed to many of the workers at the foreign transplant plants located within the United States — cost $29 more per hour on average and are less productive per employee.

  36. So, Andrew.. let’s talk opportunity costs then.

    What’s the cost for 60,000 EI cheques from people formerly employed by the Auto Industry?
    How about another 40,000 for the parts suppliers?

    And that’s assuming that only 50% or so are let go, and not including any job losses from the resultant ripple effects across Ontario.. Future Shop employees better start looking for a job in something other than retail sales pretty quick here.. oh wait.. thats’ what they’re trained for. Hm. What’s the opportunity costs of building a new University building to house the glut of people that are going to be looking for retraining all at once? Or alternatively, what’s the opportunity costs when post-secondary admission requirements rise to 95% or better in order to control enrollment?

    Here’s another fun one, one of the ways that it’s widely expected the auto industry will restructure under bankruptcy is to cancel the pensions being provided to former workers. Anybody want to calculate the opportunity costs of grandpa losing his pension and no longer being able to afford his medication?

    Christoph: Airlines going bankrupt isn’t the same because there’s always been major players left in the market. If the Detroit 3 go, that’s all three of the major players. Part suppliers will go belly up, drastically increasing the cost for the foreign industries to get new parts due to a lack of competition in the marketplace, thus making it non-profitable to build over here since they’d have to ship everything in anyway.

    In normal circumstances, letting the Detroit 3 go bankrupt would have been the right move. Right now it’s not the right move, as the financing crunch will compound the effects. On the bright side, Argentina is now moving forward with solid socialist/communist enterprises, so I’ve got that to look forward to. Although it took them a few years to get past the barter stage.

  37. If companies are allowed to enjoy the upswing in markets, they are also to be part of the down turn.

    The same counts for workers.

    In good economic times people reap the benefits and in bad economic times people must share the losses. What have we come to expect? That there be only upswings? And we hold organised religions for folly?

    Major adjustments are in order.

    Letting some go bankrupt might set some things into a new sense of order. And built-up can start from there.

  38. This is but a temporary setback. The auto bailout will be back in the New Year, and we’ll be sucked into it just as surely as they will. And after the auto industry, it will be just about every other struggling industry. Nobody considers opportunity cost (which is what Andrew is talking about when he speaks of lost jobs in other industries that won’t benefit from bailouts) but everyone responds to layoffs that are announced on the news. The only opportunity costs politicians consider is measured in votes, not dollars.

    Squabbling over how much autoworkers cost is pointless. Just like all the yapping over quality and new hybrids and that sort of nonsense. I don’t care how much – or how little – autoworkers cost. I don’t care if GM invents space travel for the masses, or a car that runs on dirt, and emits pure oxygen. The companies are losing piles of money, despite 6% tariffs that are still charged against numerous Japanese imports. That means the North American auto industry is no longer viable. Let it go under. Yes, it will cost millions of jobs. Just like bailing them out will cost millions of jobs. We just won’t know where those other jobs would have been. Opportunity costs are invisible.

    If the commenters on this board had their way, we’d still be bailing out candlestick makers and wood stove manufacturers; both of whom were devastated by the invention of electricity.

  39. T. Thwim thinks opportunity costs can be measured in EI payments. If that’s the case, then surely he must also be willing to count the future EI payments to workers in all the other industries that will NOT receive the necessary capital investments because the government misallocated billions worth of investment capital into the auto industry. A dollar spent on the auto industry is a dollar not available to be spent or invested anywhere else. That means someone else will need EI, which must be counted against the EI cheques received by the autoworkers. But T Thwim will come up wtih some reason why we should only count the EI paid to the autoworkers, and not other more obscure opportunity costs.

  40. “American workers who are members of UAW — as opposed to many of the workers at the foreign transplant plants located within the United States — cost $29 more per hour on average and are less productive per employee.”

    They are less productive than that because they also produce less per hour.

  41. Yeah, Hallelujah–mindless ideology still rules.

  42. Hooray for the free marketeers!–they got us in, they’ll get us in deeper.

  43. Indeed I shall, Ranter.
    Concentration.

    The problem that the auto industry presents to us is its sheer size. When the ripples come from disbursed companies across the country, they aren’t as hard or as deep, and some cancel others out.

    However, when they come from a single giant stone thrown into the middle of the economic pond, the resulting wave can wash out a lot more.

  44. And I should really learn to watch my posts more carefully. Typos abound it seems. “dispersed”, not “disbursed”.. guess I was thinking about funding.

  45. It seems to me that there are a lot of valid points being made here from a number of different ideological perspectives. There is no doubt that the auto industry needs to be radically re-engineered. we need to move away NOW from the gaz guzzlers to smart green forms of transportation. and, yes, maybe labor AND executive compensation packages also need to be reconsidered.

    however we also need a bridging strategy to protect people and the economy while this transition is underway. one of the reasons i liked the green shift is that it used the profits from the fossil fuel-based economy that is clearly unsustainable in the long-term (or even in the medium term) and proposed to use them for more productive purposes. how about though instead of just income taxes we divered those monies to a massive R&D and economic strategy to move towards new energy strategies/technologies and new kinds of jobs?

    it’s a very complex problem. people need to put away their ideological short cuts and put on their thinking caps.

  46. Sure, the Detroit 3 were poorly run for decades and probably do not “deserve” a taxpayer benefit. Nonetheless, if they fail, there is a strong case to be made for a ripple effect on the entire US economy. Half of the Tier 2 and 3 auto parts manufacturers would also fail. There would be long-term loss of confidence in the American economy as a whole, not just the financial sector.

  47. here’s my new plan for economic stimulus

    1. GOC dumps a few billion into GM Canada and Ford Canada
    2. Reverse takeover
    3. ???
    4. Profit!

  48. “Sure, the Detroit 3 were poorly run for decades and probably do not “deserve” a taxpayer benefit. Nonetheless, if they fail, there is a strong case to be made for a ripple effect on the entire US economy. Half of the Tier 2 and 3 auto parts manufacturers would also fail. There would be long-term loss of confidence in the American economy as a whole, not just the financial sector.”

    I don’t care about what the auto industry “deserves”, I care about what is best for the economy. If an auto industry bailout is good for the economy, the burden of proof is on you to demonstrate the following:

    1. Not that there will be ill effects to avoiding a bailout, but that a bailout in the auto industry will be more effective in the aggregate to spending the same amount of money elsewhere.

    2. That in spite of the bailout, the auto industry will re-tool and make itself more efficient (which will almost certainly involve some right-sizing).

    2 a. If you think the government should put conditions on the bailout, justify why you think governments will be able to come up with more effective ways to run the auto industry. What I see being more likely is that the strings attached will include not firing workers, increasing the percentage of American/Canadian parts, or making more environmentally friendly cars – all of which make the auto industry LESS efficient.

    3. That such re-tooling would not occur without a bailout. For instance, I think without a bailout Chrysler will die for sure. In the ashes of Chrysler’s demise, however, Ford and GM actually get some breathing space.

    4. Why you are only looking at primarily bailing out American car companies, and not spending similar amounts on Japanese companies, which also employ many Canadians and Americans. Why should we care whether Canadians build Japanese cars or American cars?

    I think the burden of proof is high, and anyhow, we have seen this fail before. In the 80′s the auto industry got lots of breathing room, when the Reagan administration placed VER’s on Japanese cars (“voluntary” export restrictions – basically they threatened tariffs unless the Japanese exported less). They took that opportunity to make dumb investments and not change their ways. They have yet to develop small cars which would sell far better internationally.

  49. I see a lot of aspiring central planners here who think they can calculate the impact of these firms failing and somehow put a bunch of pillows in place to make sure nobody gets hurt.

    A while ago someone came up with an idea that allows failing firms to obtain protection from their creditors so that the people running the companies can actually figure out how to do that without a bunch of angry bankers breathing down their necks.

    I hope that the real reason the executives of these firms don’t want bankruptcy protection isn’t that they don’t understand how their own companies work. But it’s possible. If that is the case, does it make sense to give them more money so they can keep doing what they’ve been doing? Isn’t that the AA definition of insanity?

  50. “I see a lot of aspiring central planners here who think they can calculate the impact of these firms failing and somehow put a bunch of pillows in place to make sure nobody gets hurt.”

    —-

    Yeah, Steve, that’s called the welfare state. “Pillows” like social security, unemployment insurance, decent public education, etc. But here we’re getting to the heart of the matter aren’t we? You want us to go back to the jungle, while others think the state has a role and obligation to protect people from the more perverse and vicious effects of the market.

    Your position may have the advantage of greater ideological simplicity, but mine is more humane.

  51. Hosertohoosier,

    1. I don’t see how one is supposed to “prove” that there is no better conceivable use for these funds.

    2. I completely agree with you on this point, the auto industry has to demonstrate a plausible long term roadmap of how they will become competitive again.

    2a. Government conditions are not always a bad thing, especially when the gov’ts in question act reasonably. The government can rely on expert opinion to help them set reasonable conditions.

    3. This is analogous to a patient on life support being asked to “prove” to his doctor that he will die without life support. The bailout was taken seriously by the US gov’t because there was a consensus among industry experts that bankruptcy was a serious risk for each of the Detroit 3, including Ford.

    4. If the Japanese companies needed it, I would support a North American bailout that was limited to their North American plants. But they don’t, so it’s a not an issue. I don’t care whether Canadians build cars for Americans or Japanese but the simple fact is that if the Big 3 die, maybe 50% fewer cars will be made in North America, which will result in permanent job loss. Future investments in auto production will only happen in lower cost countries.

  52. The only reason these companies were able to become such behemoths was because of interventions in the first place. I don’t know why people think they can justly rally against the “free market” when we are nowhere near that set of rules.

    These companies are a drain on long run growth because they divert resources that could otherwise be used in productive sectors.

    I don’t know why it is considered noble or “caring” to grant one side of a contracting party (unions) legally protected monopoly power over another party at the expense of those not part of the this party.

    If we were an economy further removed from the technological frontier, I could see more of a reason for this sort of mid-tech bailout, but given our relative position in the world – we owe it to ourselves and the rest of the world (those not at the frontier) not to skew prices too much (even though it makes us feel good) .. and allow for an efficient allocation of resources to pursue growth. Growth is not going to come from making more cars. There is a global overcapacity for automobile production, we are producing the inferior product. The resources that will be available to other industries if the big three fail are much much more than the bailout dollars… they include the human talent and ingenuity and labor that have been locked up into these companies.

    “But what will people do?” … that I can’t tell you. That’s the scary part. When my cousin lost his job in manufacturing, could I have told you he would be employed in the cell phone industry? Nope, it didn’t exist in any meaningful capacity at that point. People don’t lose their job and starve. We have safety nets in place, and people with meaningful skills will be employed, and those that were taking advantage of the system (labor’s monopoly power) and did not have meaningful skills – well they were employed at someone else’s expense, and I hope they take advantage of the retraining programs available in Canada to develop some meaningful skills.

    Andrew Coyne, Always a pleasure – keep up the good work.

  53. 1. There are many metrics you could look at. I think a simple one is productivity in the industry – an industry that tends to exhibit rapid productivity growth is a better place to sink one’s money than an industry without. Does that not sound like a fair suggestion?

    So according to the economic census of the United States…
    Motor vehicle shipments
    1992:
    value: 151,682,059,000
    employees: 227,757
    Value/employee: $665,982 (keep in mind that a lot of that value comes from capital and supporting labour, which is why auto workers don’t make
    Lets compare to some other industries…

    Aircraft
    Value: 104,848,000,000
    Employees: 548,113
    Value/employee: $191,289/worker

    Mfg. Food and kindred products
    Value: 406,962,767,000
    Employees: 1,502,794
    Value/employee: $270,624/worker

    Mfg. Electronic equipment
    Value: 216,764,287,000
    Employees: 1,438,798
    Value/employee: $150,656/worker

    Mfg. Chemical industry
    Value: 305,420,096,000
    Employees: 848,637
    Value/employee: $359,895/worker

    Okay now lets look at 2005

    Motor vehicles:
    Value: 259,466,871,000
    Employees: 175,108
    Value/employee: 1,481,754/worker
    Productivity: +122%%

    Chemicals
    Value: 604,501,182,000
    Employees: 761,158
    Value/employee: 794,186
    Productivity: +120.67%

    Food:
    Value: 534,878,165,000
    Workers: 1,438,834
    Value/employee: 371,744
    Productivity: +37.4%

    Aerospace
    Value: 137,105,142,000
    Workers: 182226
    Value/employee: 752391
    Productivity: +290%

    Mfg. electrical equipment
    Value: 112,007,985,000
    Workers: 293,763
    Value/Employee: 381,287
    Productivity: +153%

    So, an auto bailout will likely have a greater effect on productivity growth than say, agricultural subsidies, roughly the same impact as subsidies for the chemical industry, a marginally lower effect than aid to the electrical equipment manufacturing industry and far less than aerospace.

  54. Superb post, Coynus Ex Machina! No corporate welfare!

  55. “There are many metrics you could look at. I think a simple one is productivity in the industry – an industry that tends to exhibit rapid productivity growth…

    Dude. Compare them to output — quality and quantity — of other employees in the same industry.

    The foreign transplant companies kick the Big 3′s rear end, partly because of better management (I freely admit) and partly because of much lower labour costs, plus more flexibility in how to use labour.

    When that last bit is factored in, I wouldn’t be surprised if the Big 3′s UAW workers were half as productive per dollar.

    Incidentally, I was wrong when I used my memory to say the Big 3 have a disadvantage of over $2000 per vehicle. The real figure is closer to $606 although that’s without the freer labour practices the foreign transplant companies have. I’d imagine that would boost the number significantly, but not to $2000.

  56. The auto sector is not in trouble – GM and Chrysler are in trouble. Honda, Toyota, VW, etc are doing fine and people are buying their cars. That is a lesson that the others need to follow. People will still buy cars, but GM and Chrysler need to seriously rethink what they are producing and how many of those cars they need to produce. That is something they should have been doing a long, long time ago. I will be purchasing a new car in the next two years, but it will likely be a Honda to replace the one I have now.

  57. There is one glaring omission in all the posts so far. If all the ‘Big Three’ were to disappear, would there be a proportional drop in overall vehicle sales in North America? NO. The remaining industry would pick up the slack and benefit accordingly. I am sitting here in my ‘import’ car dealership and it is uncharacteristically quiet. I say ‘import’ because more than three quarters of the cars we sell are built in North America. Yes, some of the profits generated by transplants end up overseas, but I don’t think that justifies throwing taxpayers money at a problem that is extremely more complex than cash flow. The ‘Big Three’ have made their own beds, let them sort it out on their own.

  58. The problem is not the auto sector or the unions. It’s GM and Chrysler and their boneheaded managerial decisions. Bailing out incompetence is never a good idea.

    On the other hand: Harper is set to bail out some of his cronies in case he gets turfed in January. Hey Coyne, you getting a Senate nod or what?

  59. GM workers average an hourly wage of $39.86. With another $33.50 of benefits on top of that. That’s 150 K a year for manual labour. An the unions refused to accept a pay cut.

    Bankruptcy does not mean they will go out of business. It means judges will step in an rip up the union contracts, dismantle the ridiculously complex and archaic dealership system, and force the companies to get rid of unprofitable lines.

    The Big 3 have systemic problems that go much deeper than the current financial turmoil. Throwing money at them is just that – throwing money at them. Unless they fo through a massive reorg then there is no point in giving them money. Chapter 11 is the quickest and most effective way to reorganize.

  60. Leo ….Hallelujah!

  61. The way I understand it, the bailout that didn’t pass yesterday will be put back on the agenda when the new Congress starts its work, sometime in early January I think. Dems have a sizable majorities in both Houses when new Congress begins and the unions, which raised $100 million for various Dem campaigns, will be looking for some payback I imagine.

    Detroit 3 are the ones with the problem, not the entire auto industry. There are reports over the past few days that Chrysler doesn’t really have a chance at survival next year, unless they are given tens of billions of $$$ or car sales rebound considerably. Ford isn’t having a short term liquidity problem but will need some money eventually.

    Legislators are right to look at UAW. Why can American workers in Texas produce quality Toyotas but American workers in Michigan produce dire GMC/Ford/Dodge? One significant difference is the UAW.

    Anyways, I shudder at the thought of the Car Czar that’s about to be appointed. You know the joke about a camel being a horse designed by committee? Well, I think Detroit 3 are about to start producing lots of camels.

  62. Who is responsible for quality?
    Gord.

    Mostly – Whoever designs the cars. Or more accurately, whoever approves the designs of the cars. Nice subtle poke at the workers there, though.

    Trent,

    I would counter that all of the employees are responsible for quality and I wasn’t trying to be subtle.

    Gord.

  63. It’s good to see a lot of discussion about whether or not the government should spend this $15 billion to help out the auto industry. One does wonder though where the discussion has been vis a vis the financial industry.

    While the right hand refuses to give out $15 billion to the big three, the left hand is busy shovelling HUNDREDS of billions of dollars at the financial industry. They couldn’t give Citigroup $25 billion fast enough.

    Which is not to say that the auto industry should get money because the financial industry is getting money, but still. I have extremely little confidence that anyone is paying any attention to the hundreds of billions of dollars that is being rained down on the financial sector for, imho, equally dubious effect. Numbers like 7 trillion dollars are actively discussed on my T.V. every night, and the Senate has a meltdown over giving the car companies $10 billion less in loans than what they initially asked for? It’ not so much that the American government has refused to cut a cheque to the Big three that bothers me, as that they appear to have given the financial sector a Mastercard with an unlimited credit amount while simultaneously lecturing the CEOs of the car companies. There’s something about forests and trees… what was that again?

    Anyone think the Chairman of Citigroup would have taken the bus to testify before Congress?

  64. Andrew, it’s easy to be so jubilant about no corporate welfare when it’s someone else’s job. The only thing that got us out of the Great Depression was massive government spending.

    Anyway, I suspect all your glee is for naught. The White House is going to give them the money away, in all probability.

    You can rage against it then: secure in the knowledge that you’re all right, Jack.

  65. “One does wonder though where the discussion has been vis a vis the financial industry.”

    Lord KO

    Lou Dobbs agrees with you, as do I. Dobbs is on permanent outraged mode recently and doesn’t understand how all the hundreds of billions of $$$ have been spent to little effect and why so few reporters are reporting how incompetent Paulson and his ‘plans’ have been.

    If I was an American I would have blown a gasket long ago. Why did automaker CEO’s get summoned to Congress to explain why they are so incompetent while not one Wall St pooh bah has received similar treatment even though they have received vastly more money and have caused way more harm.

  66. The economics debate is fun but the reality is that this is primarily a political issue in both countries. The US Senate knows they have a Presidential backstop – Bush and/or Obama – and Harper knows if the US jumps in, he has absolutely no choice but to follow if he ever wants to be president… oops, sorry, meant ‘win a majority’.

    May I boldly suggest, that at this stage we need to figure out how to do this with minimum harm and maximum benefit for all. ‘Cause the bailout (or pick your own term) is going to happen. It’s just a question of how to turn it into something less destructive or even (dream on) positive.

  67. Exactly. Its not as if the economic crisis is threatening the jobs of pundits and professional defenders of monetarism. So yeah they feel perfectly free to proclaim ‘Hallelulaj” at the prospect of thousands and thousands of jobs going poof!

  68. Shawn in Montreal

    The only thing that got the Americans out of the Great Depression was the rest of the world starting a world war and the Americans began producing weapons for anyone who had cash or credit.

  69. Hi, long time reader, first time commenter. I agree that the auto bailout is a bad idea. Yes, whie it is only a small amount compared to the national budgets of both countries, it does open the floodgates of corporate welfare, which leads to deficit spending and less money for the truly growing industries. It’s been shown time and time again that Keneysian policies of bigger budgets do not work (the Trudeau and Mulroney government of the 70′s & 80′s proved this).
    While I can understand the autoworkers are afraid to take a pay cut (who wants a paycut?) the demand was not unreasonable (my friends at Toyota make at least $25/hr) and is better than having nothing at the end of the day. As for the call to cut white collar salaries, you should keep this in mind. Cut management salaries below what they could make elsewhere, and they will walk. Why? Because there is a market for white collar jobs. I doubt there is a much of a market for the line workers (definitely not at current wages) so cutting their wages won’t lead to a loss in experience.
    I’m not trying to be callous, just calling it as it is.

  70. Have to agree on this one despite my pinko-lefty leanings bailing out a dinosaur doesn’t help anyone – the industry needs to retool. It could even be the first steps in a green revolution for North America. Bombardier deserves our money more frankly.

  71. If I was an American I would have blown a gasket long ago. Why did automaker CEO’s get summoned to Congress to explain why they are so incompetent while not one Wall St pooh bah has received similar treatment even though they have received vastly more money and have caused way more harm.

    Exactly.

    Also, I don’t think I’ve ever had anyone shorten my nom de plume to ‘Lord KO’ before, and I think I like it! Makes it sound like I’m getting ready to fight in the UFC or something!

    LOL

  72. Jean, where exactly did you notice that I said we should get rid of EI, public education and the welfare state? Not bailing out the automakers means just that and it means we have more money available to fund social programs instead of overpaid executives with questionable business practices.

    Re. comparisons to the bank bailouts: unfortunately the banks are being supported because the entire economy depends on people knowing that the accounts they use to pay their bills aren’t going to evaporate in a bank run. The US administration has handled this with the same jaw-dropping incompetence as they have every other crisis they’ve faced. Maybe Obama can keep Bush on as an advisor and do the opposite of everything he suggests.

  73. Good post, HtoH. Actual, like, information.

    Time for the weekly Shenping rant on finance & economics.

    If you look at almost anything manufactured & sold in the States with a known brand name, the largest single cost is usually advertising. Advertising adds more to the cost of a new vehicle than labour, and if it comes down to a choice to money spent on quality control of money spent on advertising, advertising usually wins.

    The US auto industry has had a combative relationship with employees from the beginning. When management is willing to intimidate, beat up & occasionally kill employees to stop unionization, employees usually go for a more militant union. It says something about a company if employees would rather it go under than compromise. And the main reason Detroit has capitulated to the unions in recent decades was in exchange for union’s clout in lobbying congress.

    I think a lot of other states with auto manufacturing are opposed to the Michigan bailout. I recall reading that some of the Republican senators who opposed it represent states where the Korean & Japanese automakers have factories. Part of the reason they can pay less than Detroit is difference in the costs of living. Detroit is not a cheap place to live. These Senators prefer an increase in auto manufacturing in their states.

    There are other, smaller American car manufacturers. Tesla is in production now, although their electrics are luxury sports cars, & Aptera is taking pre-orders for $30,000 500mpg hybrids.

    The free-market guys would say to let Detroit fall & let the others take over. There’s a certain logic to this when you’re looking at diagrams and numbers on paper, but real life is messy. Besides the fact that manufacturing in the US has been relying on government intervention for decades now, and some major sectors like aerospace have never been able to survive without government help, every round of layoffs in history has a lot of permanent costs. Then there’s the costs of “economic friction”, which is basically all the crap that goes down in between the point an economic event happens in the short term & the market “correcting” itself in the long term. And in economics, the difference between short term & long term is defined as — wait a minute, it isn’t defined. As Keynes said, in the long term, we’re all dead.

    I think on average 6% of people laid off end up permanently leaving the workforce, due to increased mental & physical illness from stress, substance abuse, suicide, etc. The Asian manufacturers would probably take some, but not all, of Detroit’s employees. Since this would be such a large layoff, with millions of people needing to uproot their families & retrain for difference jobs which may or not be forthcoming, the percentage of people added to the permanently unemployed will probably be higher. Their children will be more likely to be unemployed, more likely to join gangs, more likely to abuse drugs, etc.

    Some of the suppliers & sub-contractors would be able to re-tool & make parts for the Asian automakers, but the costs of this are very high. Factories would need to be moved to new states. Employees need to be re-trained. There would actually be a lot of economic spin-off from doing so, but it’s probably beyond the means of most of these companies.

    The problem is, this is probably going to happen no matter what the government does. If Detroit falls all at once, I hope the government has a good aid package for helping small suppliers & employees make the transition to however the industry restructures itself. Ideologically, I’d prefer this to an up-front bailout. Give money to companies that are innovative & responsible. Loan guarantees, tax breaks & subsidies for relocating factories within the US, that kind of stuff.

    The trouble with the free market is it’s a myth. Free market theories have never been successfully formulated beyond one-&-two-product markets, & mostly assume that companies don’t exist & everyone is born equal. Market efficiency is just a model that predicts share value (which is just expected value of future dividends) reflects the underlying value of a company. “Efficient” distribution of goods & wealth just means that you can’t make someone better off without making someone worse off. You can efficiently starve to death next to a mansion, and while efficiency arguments look good when discussing apples & oranges or consumer goods, you can also argue an efficient distribution of crack cocaine & baby formula among single mothers. There always has been government regulation as long as markets have been around, and there always will be. The thing about businesses is that they exist to make money for the owners (& in recent decades, management.) They don’t exist to do what society wants them to do. Every argument that supports free markets can be used to support me building a meth lab in your neighbourhood and selling to your kids, and somehow, I don’t think that would be allowed to happen.

    Okay, end rant.

  74. 1) Difference in Big 3 and Banks…… ALL world banks were/are bad in bad trouble (closest to being an exception is Canada). The root cause was government driven social engineering with mass rush to put people who couldn’t afford a house into a house. All the Bank C level (CIO, CFO , CEO) assets should be frozen and their pay be limited to 100K /year until the situation is normalized.. There is no auto crisis, there is a market driven adjustment that Toyota/Honda etc are winning. Bad planning from GM in the kindsof cars they are making, historically bad distribution network that no one cares to fix AND crappy quality by well-protected Union members. The Elephant in the room is stories we have all heard of alcohol/drug useage on the lines and the inability of management to address even the most obvious problems due to union strength. The banks failing have widespread global ramifications…. Any of the big 3 going bankrupt means a larger market share and more employment at competitors.

    2) The Big 3 white collars need to have wages cut in half. I have worked as a consultant in the GM Renaissance building in Detroit. A significant number of GM’s white collar workers are a hindrance to productivity. GM project management is like a Phd Lab experiment gone bad. Most work done there is done by consultants (very well paid) and the GM employees are basically bureaucrats that invent theory based standards and enforce them. There are very few that would be able to gain employment outside of government and academia. I would bet that when the CEOs got spanked by congress the first time they went back and got some consultants to put together their plan for round 2.

    Having a government appointed czar (government bureaucracy) overseeing the GM rescue plans (GM bureaucracy) will surely invent some monster we have yet to imagine. But they will have jobs , feed their families and have fun while the taxpayer dollars last

  75. Shenping – Rant, yes. But a good one.

    Off topic – (not really). It will be interesting to see what develops from the ABCP situation.

  76. Am I the only one who thinks that all these Cadillac ads we see on macleans.ca should be subtitled “After All, You’re Already Going To Pay For One…”

  77. “Amazing what a difference it makes having a few genuine free-marketers in the legislature, isn’t it?”

    Looking over the ranks of Congress, I’m guessing those few free-marketers are imaginary.

  78. Sucks being a worker.

  79. “Am I the only one who thinks that all these Cadillac ads we see on macleans.ca should be subtitled “After All, You’re Already Going To Pay For One…”

    Lord Bob

    I was thinking ‘By Hook Or By Crook, We Are Going To Get Your Money’

  80. I can’t help but think that future history books (in say, 200 years) will use our short era of an economy dependent (to large degree) on automobile making as a cautionary tale. Not unlike the experience on Easter Island, where in the face of dwindling resources and widespread starvation, the ruling classes dedicated themselves to building large stone statues. (Yes, I know we can use cars to get around in, but I think having a couple in each driveway is as needlessly excessive as giant stone sculptures).

    It brings to mind the Kids in the Hall sketch where an alien is questioning why they keep travelling to Earth to conduct anal probes on humans. When he suggests they ought to stop as it serves no purpose, his friend replies: “Do you realize how many people intergallactic anal probing employs?!” (http://ca.youtube.com/watch?v=aXfowQSAnqg)

    Anyway. as much as the collapse of the Big 3 will cause a lot of very real pain for the hundrends of thousands of workers directly and indirectly employed, in the long run it will be a part of a very necessary reconsideration and restructuring of our productive economy.

  81. It worked last time for Chrysler. The K-car, and the minvan. US earned money on that bailout which proved a remarkable investment for the American taxpayer. Granted, they hadn’t volunteered the money, but if I had a choice about where my tax money went we’ve save a bundle, starting with that “War on Drugs” (we’re smart enough, the Cons/Republicans assure us to spend our own money, but too stupid to know what we like to eat, drink or breathe.)

    I still think if the unions are so gung-ho to save their jobs they should offer to buy the companies. GM stock is low enough right now that I can afford it. You buy the means of production. You design your own cars. You bring to work every day the pride of working for yourself and nothing less than the desire to do as good a job as you’re capable of. Let the Japanese or Koreans or – soon, very soon – the Chinese compete with that. You receive in pay whatever the company profits. You don’t bother to strike. Where’s Lenin when you need him? I sniff a freakin’ revolution here.

    And I’m outraged that I can’t give my posts titles. How’m I supposed to attract people to read this when I can’t have some clever come-on? The Star lets me entitle my work (though occasionally they refuse to publish it. Odd.)

    And the VW van isn’t cool anymore. I think the 60′s are finally dead.

    And I’d like Maclean’s to keep doing retrospectives on the auto industry until they can explain to me how it is that almost every country in the world has a viable auto industry – Sweden, England, France, Germany, Italy, Korea, Japan, Russia, China, India . . . – but Canada, bellied up to the biggest market in the world (in terms of disposable income) never has, and even the Americans don’t seem able to manage it.

  82. I’m just curious, so don’t anyone shoot me. Weapons down… yes you too, there in the back. Anyways, let’s say the US doesn’t bailout the automakers. Fine. GM goes bankrupt and no longer exists in the US. Let’s say though, Canada bails out the Canadian side of GM. Essentially headquartering GM’s world operations now in Canada.

    Even with the market as bad as it is, surely it could be solvent if only GM Canada was alive. Wouldn’t they end up actually well behind in production if this happened, since we would have the entire US market for GM products to ourselves?

    Does this make any sense?

  83. Ryan,

    I see where you’re coming from, but the network of parts makers,product lines, management structure, etc., isn’t neatly cleaved along the border, so it wouldn’t be possible to simply split off GM Canada, for example. Also, the general culture of the Big 3 is both international and frigging enormous in nature – their practices and outlook simply wouldn’t translate to small-scale production and sales.

    But I should add that Canadian auto plants have consistently led among most of the Big 3 operations in North America for quality and productivity, and it’s shame that those plants are disappearing for that reason alone.

  84. Jay: do you consider 50 – 100 billion dollars insignificant?

    You make no sense, if the capital is such an insignificant amount of money, then you’d think that closing a money-losing plant or making a few capital cost changes would allow the car makers to survive.

    The truth is, this is not, by any means, an insignificant amount of money. 14 billion dollars is $15 for every single man, woman and child in America. We’re not just taking about workers either. It’s $30 per worker. For nothing in return. This includes people who do not own cars.

  85. scissorpaws “It worked last time for Chrysler”

    It did not work for Chrysler, unless, by your argument, the US government should transform itself into an investment bank! If instead, bail-outs are measured by their effectiveness of actually, I don’t know, bailing a company out of trouble, then it has failed spectacularly, because Chrysler has continued to be a weak company.

    “almost every country in the world has a viable auto industry – Sweden, England, France, Germany, Italy, Korea, Japan, Russia, China, India ”

    Do you know anything about the English auto industry? It is, by no means, viable. They have lost 99% of their auto companies over the last 50 years. There is almost nothing left.
    Do you have any idea how bad the quality of a Chinese car is? Or an Indian car?
    You think Italy has a viable car industry? How about Africa? Or South America? Or the 180 countries in the world you did not mention?

  86. Ryan, your argument does not make sense, your GM Canada argument, because the problem is, GM is losing money for every car sold. So no matter where you put the headquarters, that has to change somehow.

  87. Well Sean, I surely would hope that their American counterpart going bankrupt would lead to changes here in Canada! There may not be sufficient parts makers here, though with the financial climate as it is, it would be interesting to see if parts makers would flourish or flounder to support the new GM Canada.

    Then again, I suppose it could just be built on such a faulty business model, that even with the new demand GM Canada would have for itself it’d still fail.

    Either way, I’m just not sure we’re as tied to GM US as we’re led to believe. There is a reason they aren’t named GM North America (or are they named that actually? lol)

  88. “GM is losing money for every car sold”

    Ya, but they make it back in parts within a few years. :)

  89. Ah, well hey, this is why I said to put all your weapons down before I threw the idea out there, sf!

  90. Ryan

    I don’t think that all the parts that are used to build Ford/GM/Chrysler vehicles are produced in Canada and, secondly, plants aren’t tooled to produce all the models the company makes. To use your GM example, the two Canadian plants produce Impala, Allure, LaCrosse, Silverado and Sierras. The plants probably can’t produce much else and some of the parts used in the vehicles likely come from abroad.

    scissorpaws

    The only countries with viable, domestic automakers are US, Japan, South Korea, China, France and Germany. Italy is arguable.

  91. Ryan it’s a fair question. As a subsidiary of GM, GM Canada is an asset that could be sold as part of a restructuring plan.

    And you may be right that there are firms in Canada that would be willing to pick it up. One advantage is that GM Canada has much lower costs than the mothership because of the Canadian health care system.

    The government doesn’t *need* get involved with that, but I’m sure that someone at Bombardier or somewhere similar would be happy to encourage some guarantees.

  92. “GM is losing money for every car sold”

    Yes, but they will make up for it in volume. :)

  93. The best ad I’ve seen is here

  94. Ryan,

    I think the existence of a GM Canada has more to do with a)the Auto Pact, and b)taxation type stuff than an independent “cousin” sort of relationship. That said, the Canadian auto sector is one we can be proud of. Hey, maybe we should appropriate GM Canada and nationalize it?! Buzz Hargrove could run it, and…

  95. Yup, AC, you can make all kinds of ideological remarks while you’re at home not worrying and even could buy a new car any time you like.

    Such heart.

  96. Ryan, I think throwing out an original idea is always worthwhile!

    I don’t know about GM, but I do know about my own multi-national corporation, and the company culture does seem to cross international boundaries to a large degree. In my company, the accounting is local but the product development is international.

    I also worked for another multinational, and there were some differences in that regard. I’d say every company is different.

  97. Ryan Your plan does work …. but why call it GM? Give the $3B line of credit to a group of successful Canadian entrepreneurs (Stronach/Baislie?) who would come in and buy up the GM assets in bankruptcy for pennies on the dollar and offer the skilled UAW workers the same deal ( or lesser deal with some form of ownership) as Toyota workers currently get.

    Failing that, offer the same deal to Toyota/Honda.

  98. I suppose another thought, slightly related.. if GM goes down, like I’ve said before, there’ll be more demand on the market being unmet. It might be worthwhile for another car company to buy up the GM plants here and retool them for their own needs. Having direct access to the US with now less competition, at a discount price and with probably government “encouragement” to do it…

    I really don’t think this will happen though, I just can’t see GM US not being bailed out.

  99. By the way, feel free to make me an offer on my 1999 GMC Safari. Don’t be put off by the age of the vehicle, because I’ve had to replace virtually every frigging part on it in the last five years. Plus, it’s very low mileage as a consequence of sitting parked at the mechanic’s so often.

  100. I’m afraid to offer $2 for the off chance you take it! My Corolla’s running smoothly :)

  101. Anyone else find it ironic or funny that macleans is running advertisements for Chrysler in this thread?

  102. If the United States government insists on intervening in this failing industry, it should limit its role to assisting Ford, which appears to be better managed, in taking over General Motors and Chrysler. There will still be some economic displacement and job losses but at least we won’t have spent taxpayers’ money for nothing. However, allowing these two companies to fail going into a severe recession could just be the tipping point for a decent into a deflationary spiral. Governments, even those committed to free market principles, cannot afford this to happen as they will face a very angry electorate.

  103. “If the United States government insists on intervening in this failing industry, it should limit its role to assisting Ford, which appears to be better managed, in taking over General Motors and Chrysler.”

    Do we really want governments to start picking favourites in this way? (Which is kind of the problem with these corporate hand-out things in the first place).

  104. “Sorry Andrew. Why won’t the government just let the invisible hand guide us into a depression!?”

    You’re not being guided into a depression by the invisible hand. You’re being guided into it by govt central banking and you will remain mired in depression for 10+ years because of the deluded and self-serving govt attempts to fix the problems they created. Rothbard’s “America’s Great Depression” (free online) will show you how the scam works. It covers the last depression up until approximately the time of FDRs takeover (when things really went downhill).

  105. Was just watching Jane Galt talking about bailout on Blogging Heads and she raised a point I hadn’t thought of: nationalizing the US auto industry is bound to lead to a lot of WTO lawsuits from other countries or they are going to expect some quid pro quo for allowing the US government to subsidize automakers.

  106. I agree: No bailout with public money for private industry. If it happens, bankrupcy for the big 3 will force the addressing of any and all issues in the automotive manufacturing business.

  107. Let’s see GM unveiled its electric car, the Volt, about 3-4 months ago when oil prices were in the mid $200s at that time, the head Professor of Economics at the Univ of Toronto said “It’s 50/50 that GM will go bankrupt before they get the Volt into production.” It appears he was being very optimistic. Let’s not waste very much of our money on the inevitable.

  108. How can some idiot make a comment “Labour costs are something like 10 percent of the price of a new vehicle. Besides, the Japanese advantage is not in price – US vehicles are on average $2,500 cheaper – but on quality.” ….this is a contradictory statement moron….unless of course you are part of the problem(union!) and not part of the solution!

    I will NEVER buy a North American vehicle as long as the UAW/CAW are part of the labour equation. These overpaid floor sweepers are just that. They should be paid by performance, 100% quality and profitability of the company. Or $10 an hour – that is what their job is worth in the real world.

    The Japanese, Koreans and Germans build QUALITY into their cars (I know, I own 3 German cars) and their labour component is NOT a factor.

    Get rid of unions altogether! – in every industry.

    SOLUTION – Since the US is getting rid of millions of illegal aliens, there will be a huge opportunity for the unemployed UAW/CAW good ol’ boys to fill these positions…..can you spell Taco, Amigo???

  109. Just for fun, I thought I’d share more of Brian B. Wolf’s insightful thoughts from a comment on another blog…

    “If the world is to get along, segregation is necessary. All non-muslims should live in the Western world and all Muslims should live in te Islamic world – countries that are predominantly Muslim. That way the Muslim view would not be slanted. All of the core values and principles would be preserved including Sharia laws.

    From a Christian viewpoint, we don’t want our values or principles diluted by entertaining islamic culture into Western society. We have the same rights, as Muslims, and will not accept anything less. So please inform all Muslims to leave the Western world, since many of them are so unhappy, and move to a Muslim land of their choice.

    Please lets focus on what’s best for the world and for our future generations.”

  110. Christoph: Like I said: 48,000 fatalities a year and I dont have the statistics for injuries. I d known that we spend trillions to support the use of automobiles.: a mile of road averages a million dollars, a traffic light is $50,000. Then add on police surveillance, street cleaning and clearing, coroners and court cases, parking spaces and more parking spaces,crime,road maintenance,traffic monitoring,fast food,and malls and more malls,etc.,etc./
    If you chose to be a pedestrian or cyclist you wouldn’t have to ask the question about safety. My life is threatened everyday just to cross the street on a X walk. There aren’t even buses in malls. People with small children and seniors dont have enough time to get across the street on lights and … even in a snow storm or heavy rains, drivers still think they have the right of way. No courtesy. A moral malaise came with the use of the automobile.
    Our society was built for and about it. We must rethink mobility and we must redesign society to live without them
    Even IRAQ is building a carfree city.
    I will go to my grave protesting this overuse of these stupid expensive ,earth destructive things.
    Even China had to regulate use during the olympics.
    The only time I can enjoy some peace and quiet is when there is a snowstorm and people have to wait for the snowplow before they start revving up.
    Traffic drives me CRAZY.
    Forever, ranting, yours truly,
    Auntie Automobile.
    And by the by, I went to university by train.As a rural Canadian,we went to the big city by train.
    The fastest way to get to the suburbs from downtown Vancouver is by train.
    We used to cross this nation by train,built by the blood, sweat and tears of a lot of Chinese and other “immigrants”.
    Who killed our public transit:? the automobile companies.
    What keeps us using automobiles:? Our own selfishness and mindlessness.

  111. mynalee johnstone – good rant. there’s a lot of truth in what you write. unfortunately things will have to get much worse until people are willing to think as creatively as you. speaking as a bus and subway-suing urbanite, i long for a utopian future of quality public transportation and high-speed rail between major centres. and no more suburbs and sprawl.

  112. Look at the plus side, Andrew.

    Some of the money approved for the financial institution bailout won’t get spent on it.

  113. mynalee johnstone, you went on another manic rant, but you most pointedly did not answer my question:

    “Per kilometre travelled, is there a safer mode of transportation, aside from airplanes?”

    As an aside follow-up question, how does the cleanliness and environmental impact of automobiles compare to horses per kilometre travelled?

    What did London look and smell like in 1800?

  114. For those of you who think government intervention in the economy is a good thing, I suggest you dig up an old copy of Saturday Night magazine ( circa 1987) and read Peter Foster’s The Destruction of Wealth, or Foster’s book Self-Serve. Self-Serve is about the creation of Petro-Canada, and particularly timely right now.

    There are plenty of other quality pieces of journalism on the subject, but these two pieces by Foster were a turning point for me. Before that, I identified with the liberal screed as personified by Noam Chomsky and Naomi Klein (maybe even Jack Layton). I blame that on the educational system haha.

    Full Disclosure: I am NOT Peter Foster’s agent.

  115. Sandi, what’s an ideological remark? One that is thought out ahead of time? Or just anything that is against auto bailouts in general?

  116. Christoph: ““Per kilometre travelled, is there a safer mode of transportation, aside from airplanes?””

    Motorcycles are safer, if you’re over 20.

  117. You don’t realize the chain reaction that will occur. It’s not just the big 3 that will be hurt. It’s the suppliers. It’s the foreign car plants that are in the South like Alabama, South Carolina and Kentucky. It’s the town. By the time you get down the chain, the US will lose about 30,000,000 jobs because of the GOP. I guess it’s easy for you to cheer because it’ll be the US in a Depression, not Canada.

  118. So the bailout money will be taken from money that was already set aside for bailouts. It will just go to companies that employ 3 million people, and who can’t file for bankruptcy because of a credit crunch caused by other companies that won’t be getting this money instead. Sounds good to me.

  119. Most of the foreign competitors of the Big Three have also received substantial support from their governments at some point. Volkswagen was even founded by government, and the Japanese car makers have benefited greatly from both industry politics and trade barriers. ‘Pure’ capitalism without some kind of government intervention to promote national interest has never existed. On that premise, the question becomes how the usefulness of this particular intervention compares to others. Considering what’s on the line I’d say show me a better one.

    What people in NA really don’t seem to get is that there is more to manufacturing industry than a balance sheet, and to what extent the ridiculous expectations for ROI that developed in the ballooning financial market have hurt that industry. What has happened recently in the pharmaceutical industry, for example, is that R&D people have been laid off because they did not help short term profitability – can do it cheaper in China, or just buy out some bright start-ups. I’m sure Andrew Coyne will enthusiastically approve of so much good economical sense. Well, wait and see where that will get that industry.

    Shortsighted balance sheet-fixated group think is an important reason why Detroit has to play catch-up for competitive product. It is precisely because half-witted MBAs are running the show that NA industry is declining. Top execs in Germany car companies, for example, are usually engineers, and while they sometimes make stupid moves economically, they do pay attention to the company’s core competence.

  120. tyronen: “…a credit crunch caused by other companies that won’t be getting this money instead.”

    Are you referring to pension funds that loaned money to banks who loaned money to people that couldn’t afford to it pay back?

  121. Shorter Coyne:

    “As a well-paid columnist with a cozy spot on publicly-funded television, avoiding catastrophic job losses is meaningless to me, but my ideology and tax bill may be threatened.

    “Let them eat cake.”

  122. Finally the chickens have come home to roost for the automotive giants who continued to produce inferior, massive , uneconomical and unwanted vehicles ( F 350, Dodge Ram, Magnum , Hummer etc.) despite all the signs of a need for smaller, economical vehicles. The auto companies are primarily to blame for their downfall but, equally so are the fat-cat unions who are blind to the reality of being paid a reasonable wage for quality work. What is better, a lower paid job or no job at all ? When the dust settles we can hope for more modest wages and pension benefits, auto manufacturers who build what we want, not what they can make the most profit on, and a humbled American public that finally accepts that the U.S.Dollar is no longer almighty and their cherished “free enterprise” system benefitted only the favoured few. If subsidies, tax incentives and loopholes in the emmissions requirements had not been allowed the U.S. might have had a viable auto industry instead of the financial disasters the Big 3 now are. For Canada to pour money into U.S.owned plants is pointless as they will go anyway, with our money or not.

  123. Mike makes an excellent point about the way North American investors expect (ed) higher and higher returns on their investments. Publicly traded companies (not only the auto sector but other major sectors as well) become focussed on the short term, rather than the long term. Those at the top were rewarded with obscene bonuses for decisions that would ultimately lead to catastrophe. Leveraged buyouts became legal. Huge trades in totally rotten commercail paper, etc. etc. Greed!

  124. It’s still not clear why workers in the auto industry are so much more important than other struggling Canadian workers. To provide (or even consider) any kind of bailout or relief to the auto industry (or any other big business or big union group) is an insulting affront to every private business or private worker in Canada.
    As a private business person who has watched business drop 80% over the last year (most in the last few months), it’s very difficult to feel sorry for companies and workers who thrive on building an overpriced product which many Canadian do not want. And now we are being forced to pay for this arrogance?
    What are we thinking? Are we thinking?
    Dale

  125. If (when) we waste huge amounts of money bailing out the American/Canadian auto industry, what do you think will happen in 6 months to a year’s time? Of course, they’ll be right back at the trough demanding more money…
    If they could not make enough money to function in the good times, what makes us think they will be able to do better in these difficult times?

    Dale

  126. Subsequent to my Dec 12th blog I want to point out that failures in the automotive industry are not new. I am originally from England and recall that many longstanding car manufacturers have failed since I bought my first car in 1958 despite great styling. The reasons were – high insurance rates, emmissions and safety inspections, very poor quality (rust and electrical problems) and production costs pricing cars beyond demand. Tooling up requires time and great expense but, more important, is the need to guess what the future market will be.
    Most of the English manufacturers were absorbed and ultimately became owned by quality manufacturers. I presently own two “foreign” cars produced under Ford ownership and they are the most reliable I have ever owned out of 23 vehicles over 50 years. The secret is non-union wage rates and tighter quality control. If America is the “land of the free”, that implies the right to fail and the Big 3 should be allowed to do so. A leaner industry would result and the supporting parts industries would still be required.

  127. Sean Stokholm – thank you for re-quoting some of my prolific work!

    I lived in the East for 14 years of my life. They hated all that were non-muslims. Their holy book says that they have to kill all infidels….if you happen to be non-muslim, you’re fucked!

    So if you care to debate me about Auto Industry/Unions or Muslims, I would be happy to. My only request is….please do some due diligence and research before you accept my offer. Don’t use knowledge/information that is hear say or media slants….”if you come to a gunfight with a knife in your hand, you are gonna get killed!”…anytime pardner!

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