GM Spirals the Drain (Part 2)

[Dinner]

Originally posted by DanS
Arrian: Yes, the AIG scenario.

Charge the big 3 the same.

[DanS]

The AIG scenario is interesting. GM may have made a mistake by asking for $18 billion, more than its share.

[DanS]

Originally posted by Oerdin
Charge the big 3 the same.

Perhaps you misunderstand. The goal is to avoid those scenarios, not create more of these scenarios.

[snoopy369]

Axing Saturn particularly makes little sense - it's the kind of car they should be making (small cars for people with a reasonable budget). Pontiac is the one I'd axe, certainly, and then one of (Cadillac, Buick), keeping Chevrolet (regular line plus trucks), Caddy/Buick (luxury line), Saturn (budget line), and possibly GMC depending on the balance sheet there (the commercial sales element could be a huge factor); but I'm also not the one with the balance sheet.

[Lord Avalon]

From the Detroit Free Press editorial page under "Another Point of View": Blame U.S. government for auto industry troubles

Don't blame the Detroit 3
The policies that ruined the auto industry

(Interesting how the Freep hardcopy has a different headline from their web post.)

By BARRY C. LYNN • December 1, 2008

A lot of people are angry at the Detroit Three automakers, including many members of Congress. And why not?

GM, Ford and Chrysler seem still too bloated and old-fashioned, their workers too pampered. For too long the carmakers have failed to design and bring to market the smaller and more fuel efficient vehicles we now want to buy. Yet it is important to put the blame where it really belongs, not on management or labor, but on Congress.

Viewed over the long haul, the all but complete bankrupting of the Big Three is a stunning event. Not long ago the American auto industry was the greatest manufacturing complex in the world. Had a competitor nation consciously intended to destroy this system the result today would surely count as one of history’s great coups. Yet no strategist in Tokyo, Brussels or Beijing cooked up this blitzing of Detroit. Rather it was the product of a set of incoherent policies made right here in America. The environment of law in which these companies had to operate in recent decades all but guaranteed their destruction.

So many factors work against America’s manufacturers today – tax policies, monetary policy, the structure of metals markets — that it’s hard to figure out what to fix first. But let’s consider four of the biggest, and these in relation only to the auto industry and only to Japan:

• Corporate Governance. American managers are expected to “share out” much of the profits they gather with investors. Japanese managers are expected to reinvest most of their profits in new technologies, machines, and people.
  
• International Trade System. The Big Three have enjoyed no protection on their home turf since the 1960s. The Japanese market, by contrast, is still far more closed than the U.S., which means Toyota and Honda are today still able to “tax” Japanese buyers to subsidize their operations in America.
  
• Energy Policy. Beginning in the 1980s Congress structured fuel efficiency standards in ways that all but forced Big Three to shift investment and marketing from next-generation cars to last-generation trucks. In Japan, the structurally high price of gasoline has for decades provided a strong incentive to invest in leading technologies.
  
• Industrial Unions. The Taft-Hartley Act of 1947 created a patchwork regulatory system that allows the same company to treat workers in different states in different ways. Unlike GM and Ford, which are held in place in union-friendly states by the UAW, Japanese firms that manufacture in America are free to invest wherever they wish. This happens to be, almost always, in “right-to-work” states.

Two systems. One marketplace. After 30 years the results of this clash are: Detroit is prostrate.

Washington should save the Big Three, for many reasons, not least because failure to do so will crash many innocent bystanders, including the Japanese transplants.

But we should do it right. That means redesigning our regulatory regimes so they begin to churn out the results that any intelligent society would expect — namely the best and most advanced products we can afford.

For many years now, the overarching regulatory structure in America has forced some of our brightest engineers to devote most of their energy not to building better cars but to devising ever more clever ways to restructure production systems to deliver more cash to shareholders. Hence the waves of outsourcing, consolidation, and offshoring that have entirely remade the structure of the industry.

Cash alone won’t save Detroit. Nor will busting the last remnants of those unions, nor cutting executive pay. Nor, for that matter, will a national “industrial policy.” On the contrary, what we need to do is enable engineers to develop private industrial policies that empower them to compete more effectively with teams of engineers at foreign-run companies.

You know who’ll help us do this? I recently spent two months in Japan talking to top auto executives and government officials, all of whom are horrified by America’s mismanagement of this and other vitally important industrial systems. If Americans decide to fix Detroit, one place we should turn for advice on how to run industrial corporations is Tokyo.

The single most important lesson the Japanese will pass on is that we must reduce the power of short-term oriented capital over our great industrial corporations. And indeed, we now know what happens when a society runs its industrial systems not to manufacture products but to manufacture cash.

You end up with neither.

_____

BARRY C. LYNN is a senior fellow at the New American Foundation, a nonpartisan public policy institute that “invests in new thinkers and new ideas to address the next generation of challenges facing the United States.” He also is the author of the 2005 book, “End of the Line: The Rise and Coming Fall of the Global Corporation.” (Doubleday 2005).

http://www.freep.com/article/20081201/OPINION05/81126100/1068/opinion

[DanS]

That op-ed is a flaming turd. The only one of the four items that makes any sense at all is the international trade item and even then only narrowly.

[snoopy369]

Originally posted by DanS
That op-ed is a flaming turd. The only one of the four items that makes any sense at all is the international trade item and even then only narrowly.

Indeed ... and this should help explain part of the reason that this mess is such a mess (there are a lot of people in this country who wholeheartedly agree with that op-ed)...

I particularly love the part about Energy Policy forcing the Big Three to shift towards trucks. That's hilarious...

[KrazyHorse]

Originally posted by DanS
That op-ed is a flaming turd. The only one of the four items that makes any sense at all is the international trade item and even then only narrowly.

I should get angry about Japan subsidizing my car consumption...why?

[DanS]

You shouldn't.

[Vanguard]

Originally posted by KrazyHorse


I should get angry about Japan subsidizing my car consumption...why?

Because subsidies are inefficient.

[Asher]

Originally posted by Vanguard


Because subsidies are inefficient.

I'm not sure you want to be arguing about what is efficient and what isn't, given that you are here defending GM.

[KrazyHorse]

There may be a deadweight loss with subsidies. But it is borne by the Japanese. There is a net benefit to everybody else.

[KrazyHorse]

I should say that this is only true for marginal subsidies. It is possible for subsidies to be large enough that you get into inframarginal territory and subsidies can cost everybody else as well. Car manufacturing is only a few percent of GDP, so I doubt this is the case here.

[DanS]

Originally posted by KrazyHorse
There is a net benefit to everybody else.

Not quite everybody else. The vast majority.

[KrazyHorse]

"Everybody else" in the aggregate. There can be (and are) isolated losses, of course.

If there is another country which is a net exporter of automobiles (call it "South Korea") that entire country will be harmed by the Japanese subsidies.