Cars, cars, cars

In the wake of GM and Chrysler bailouts and bankruptcies, I have absorbed a lot of information about the US auto industry.  It is interesting to see some of the scapegoats.  Here are a few things I've heard that sounded reasonable but turned out to be ridiculous:

GM & Chrysler are mismanaged.  It is more honest to say the were mismanaged, a long time ago, in the 1960's.  This was back when the car companies employed far, far more workers than today, and when the industry was in a post-war growth spurt.  Rather than disburse the earnings to the workers then, the companies decided to play the ol' Social Security slight of hand and just promise them money later.  Unfortunately for everyone involved (except the executives, whose families continue to be rich), the industry became more productive faster than the market became bigger.  From a high of somewhere in the range of 400,000-600,000 workers, GM's payroll dropped to less than 100,000 today.  They don't make fewer cars - it's just that, due to better design and production processes, automation, and other advances, they are able to make them with fewer people.  Unfortunately, all their legacy pension costs are still there; so every current GM employee must work hard enough for himself and a retiree somewhere.  Some would look at this and say, well, those pensions should have been socialized - which just bumps the risk up a level or two.  Or, that those executives in the 60's should have foreseen the massive productivity leaps and planned for it better.  But that's a little bit ridiculous.  The real problem was those executives writing IOUs rather than giving the money straight up to their workers in individual retirement accounts of some sort.  Pension, both public and private, are generally sunk by wishful thinking.

Detroit makes cars nobody wants to drive.  Pshaw.  Detroit still has a huge market share, and GM is the second-largest car company in the world.  For every Pinto there has been a dozen Corvettes, Mustangs, Caravans, Tauruses, Neons, Saturns, and other popular, quality cars.  Mechanics I have spoken to will vouch that there is little quality difference between the cars that come out of Detroit and those of other countries, dollar for dollar.

Detroit has been derailed by a sick SUV fetish.  Somewhat true - but only in terms of the lobbyists employed by the companies (at great expense) to get laws passed for tax breaks and emissions standards that favored large SUVs, trucks, and vans.  People wanted SUVs because gas was cheap; if the companies had been forced to respond to the market they would have done so.  Instead, they trusted their lobbying bubble too long despite oil price signals to the contrary.  Detroit was not the only ones pushing the tank version of the family car, but if anything it covered up the extreme and perverse financial situation with pensions for a few years longer, and instead of failing in good times when laid off workers could find work elsewhere, they failed in bad times (as per usual when government tries to legislate away economic ills, it just makes them worse).  SUVs didn't kill the big three.

So what now?  I'm a little flustered with the mass infusions of cash down the hole, and a little more so with the huge equity stakes the government took.  If you want to give the cash to get them through bankruptcy, then do so.  I get it.  You can't have people getting laid off into this economy, and I can see the advantages there.  But attaching strings of equity is silly - you have to divest at some point, and then how is it different from simply having given a loan?  Either way, you'll be starving the company of cash flow at some point - one from flooding the market with their equity, and the other from loan payments.  In the case of a loan, at least they can plan the payments.

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