GM Spirals the Drain (Part 2)

[Asher]

GM suspends production for the month of January in all its North American plants: http://www.cbc.ca/money/story/2008/12/12/gmcuts.html

[KrazyHorse]

Good. Might clear some of the glut of cars on the market.

[KrazyHorse]

Note that even with slack aggregate demand we'd rather be building excess crap which retains value than that which loses its value quickly like unsold new cars.

[DirtyMartini]

You think that symbolic stuff doesn't matter? Are you familiar with the concept of advertising? Have you seen the heat that some of the financial firms have taken for continuing business as usual (retreats to lavish resort settings) in the wake of their bailout? Do you think anyone seriously thinks the heads of the big three agreeing work for $1 has any impact on the financial viability of their companies? Of course not, but if such symbolic moves had no value, they wouldn't do it.

I freely admit that I know nothing about economics, but I know a little about human nature. If the big three get bailed out, and two months down the road there's a news story about how top execs at the companies have continued with the same salaries following the bailout and received their normal yearly raise (COLA or otherwise), it will hurt sales. Since the only thing that ultimately can save those automakers is for them to sell more cars, anything that negatively impacts their image causes them to sell fewer cars.

[KrazyHorse]

Originally posted by DirtyMartini
You think that symbolic stuff doesn't matter? Are you familiar with the concept of advertising?

Are you familiar with how large a new car is in terms of purchase decisions? I would really like to see something from you which demonstrates that CEO pay has anything but minimal impact on buyers' decisions when it comes to major purchases like automobiles.

[KrazyHorse]

A car is something that the average person spends a lot of their disposable income on. Like ~20%. People get angry about politics but can barely be bothered to go vote, which is almost free. You're telling me they're going to make a decision about ~20 000$ based on some anger about CEO compensation?

[DirtyMartini]

You seem to be operating under the assumption that the American consumer is well educated and rational and uses logic and reason when making purchasing decisions -- this if false. Car buying is all about image. Look at all those ridiculous "I'd rather push a Chevy than drive a Ford" stickers. Brand loyalty is huge. People buy cars from the company that they like. Period.

Executive pay has nothing to do with company image in and of itself. But it's pretty easy to imagine the idiotic "Wall Street Greed" rhetoric of the past presidential election tranform into "Detroit Greed" if a bunch of dudes making 50k and driving Chevy trucks thinks their taxes are funding the salary of some dude making 10 times that. Those "I'd rather Push a Chevy" stickers might become "I'd rather walk than fund those bloodsuckers in Detroit".

I agree that rationally, exec compensation is a stupid thing to dwell on and stagnating or reducing compensation has no real bearing on the health of the company. I'm sure you can argue that it would, in fact, be better to increase exec pay to lure the best execs -- I'd probably agree in theory. But people are impulsive and stupid. They're already pissed about the bailout. The big three have HUGE image problems to overcome. Symbolic moves that appeal to the drooling masses are about all they've got at this point.

[KrazyHorse]

Originally posted by DirtyMartini
You seem to be operating under the assumption that the American consumer is well educated and rational and uses logic and reason when making purchasing decisions -- this if false. Car buying is all about image. Look at all those ridiculous "I'd rather push a Chevy than drive a Ford" stickers. Brand loyalty is huge. People buy cars from the company that they like. Period.

I don't assume that the purchase decision is entirely rational. I do expect that only the marginal consumer will be affected by this issue. This is a HUGE decision in most people's lives. They go and visit multiple dealerships and look at multiple brands. Sure, image plays a role. Cars are status goods, to the extent that people can afford it. Basically, I think you're grossly overestimating:

1) The extent to which advertising and image change purchasing decisions when it comes to cars

2) The extent to which CEO pay will have an effect on consumer image of cars

I'm not going to be convinced that your concerns are any more than trivial unless you can back them up with some data.

[DirtyMartini]

Pretty sure such a study hasn't been done.

You may be right, and I'm just repeating myself at this point. But we are at a pretty unique point in the history of the automotive industry -- not sure there's an appropriate comparison to how f***ed over a lot of people are going to feel after this bailout. It seems to me the ones who are going to feel most f***ed are those who have also been most likely to buy American cars -- blue collar workers.

[KrazyHorse]

I think this argument has reached its logical conclusion barring the existence of such data then

[Zkribbler]

Jay Leno suggest subsidizing purchases of American-built fuel-efficient cars.

Let's say, the government would kick in $5,000 towards the purchase price. Would you think of buying a new car?

Link to GM fuel-efficient cars.

[Naked Gents Rut]

Why should we subsidize fuel-efficient cars built by American companies over better fuel-efficient cars built by Japanese companies?

[KrazyHorse]

Why should we subsidize fuel-efficient cars instead of doing the rational thing and taxing fuel use?

[DanS]

What is the rationale for subsidizing a Michigan autoworker against a South Carolina autoworker?

[Darius871]

I haven't read the whole thread, but what would be said of the separate argument that a bailout would be cheaper than creating a public charge? In other words, that it would be cheaper for society at large to pay 30 cents on the dollar to subsidize X amount of workers' jobs, as opposed to paying 100 cents on the dollar through unemployment benefits initially (and eventually welfare, food stamps, Section 8 housing, etc.) after they're laid off?

I heard the notion the other day and couldn't think of a good response, other than that the hypothetical numbers are factually unfounded, and that there's no guarantee how many would be laid off, and nor where they would eventually land, but I have to admit that obviously a huge chunk of them will be living off the government one way or the other...