The Big Three auto makers have their hand out to Washington right now, looking for some love from the government. The amount they need is around $25 Billion dollars in restructuring, loan guarantees and general financial padding to get through the next couple of years.
This isn’t a big surprise as Ford, GM and Chrysler have been posting huge losses and lousy sales figures for several quarters as other brands have been eating the Big Three’s market share for years.
The reason the Big Three are in trouble is simple: The products suck.
As an admitted gear-head, I have a reasonable appreciation of what makes a good vehicle and enough common sense to see what the implications of an auto industry bailout might mean: It leads to contradictions but we can deal with that later.
To wear the ‘free-market’ hat for a moment, the products offered are some of the most bipolar ever. You have hulking SUV’s that are hybrids; flexfuel 2-ton pickups and rebadged offshore transportation appliances that combine all the enjoyment of a colonoscopy with the ride quality of a blender full of pea gravel.
This is what you get when you have accountants building cars and is exactly what the Big Three have been doing for many years. My free-market hat says "Wave Bye Bye to our Auto Industry!"
However, like all questions, there are two or three sides to this equation. Another side says that North America has lost too many industries already. We’re coming close to a continent that doesn’t actually make things; all we do is service-sector each other: The clerk from Wal-Mart going to Pizza Hut once a week where the server saves his tips to go to Wal-Mart once a week to buy something. This isn’t a viable economic model even in academia.
The Auto industry in North America employs approximately 1 in 10 people. This includes the sub contractors and support companies. We have to count the sub contractors in the pile for a good reason. GM does not make a lot of the components that go into your family transportation. It’s farmed out to companies like Lear-Siegler or Magna. As an example, a lot of the drive train, lighting and interior trim of the Chevy Silverado pickup truck is made by Magna and shipped to GM’s Fort Wayne Assembly.
Looking at another side of the equation:
There are between 3.5 and 4 Million people employed by the Big Three slice of the auto industry.
The financial services (read that as Wall Street) sector employs barely a half-million people.
One of those two groups actually makes a product. The other shuffles paper.
One of those groups is deeply invested in the Republican Party as the mechanism to allow rampant financial shenanigans the defy all common sense and even the basic rules of arithmetic.
One of these two groups is getting a $750 Billion dollar bailout from the US Treasury. (Hint: It isn’t the auto industry)
Now, which is more deserving? Based on past performance and economic impact, the auto industry is significantly more deserving of assistance. Also based on past performance, the auto industry can and has shown that they can change very quickly. GM, to their credit, is playing catch up with the green movement. Ford, less so while Chrysler is wandering in the desert looking for a clue, but they’ll get the memo shortly.
Interestingly enough, the Big Three need a modest $25 Billion to get them through the bad times. Wall Street, via Henry the FrankenFinancier, has no clue as to how much, except to say they need more. More and More, then some more and $750 Billion is only the start.
The difficulty is that if the Treasury opens the wallet to the Big Three, the fear is that there will be too many hands out. The airlines will want some, along with the coal industry, the trucking industry, the rail roads and agribusiness monsters like Monsanto or Archer-Daniels Midland will all cry poor. The solution is to tell the airlines and such to pound sand into a bodily orifice.
As an aside, up here in Ontario, the Premiere had a meeting last week with GM, Ford, Chrysler, Honda and Toyota to listen to their concerns. The Big Three said Give Us Money. Honda and Toyota said, "Nope, we’re good thanks." This tells me that the non-Big Three have their collective stools assembled. The Big Three, less so.
Final judgement? The Big Three have more economic impact over a wider area than Wall Street ever will. They deserve a bailout with several strings attached of course. Perhaps take the $25 Billion out of the TARP $750 Billion.
For Wall Street, based on past performance, $25 Billion would be considered a rounding error.
RoadDave 