What to Do About the Big Three?

The government has an extremely unique opportunity presented from the chaos that has arisen from the economic crises, and that is to actually create the broad sweeping changes that the world is desperately in need of. So, why not be china for a day? These companies have obviously failed to evolve and meet consumer demands over the last decade and now are on the brink of extinction.

A bailout of these companies in my view is just another version of a trickle down effect policy. Bailout the big guys so hopefully they can keep employing workers for another year. Well look how well that worked with the banks, liquidity is still a huge issue and banks are basically just hording the bailout money. THERE IS NO TRICKLE DOWN. An auto bailout may prevent the collapse this year, but any drastic strings the government attaches on a bailout will be lobbied relentlessly and prevent any forward progress for as long as possible.

Obviously then, a new approach must be taken to try and solve these very serious problems. So,as you say, why not be china for a day? Socialize the auto industry. There would be no more need for time consuming debates over auto standards. There would be no more issue over job cuts. No more issues over bailout clauses. JUST ACTIONS. This option would allow the government to mass produce 100% electric vehicles, obtain economies of scale in production, and at the same time, would allow the government to provide these cars at cost to the American public. What better way to stimulate the economy, reduce foreign oil dependence, take a major stride towards solving climate change, and at the same time create a company that will soon have a competitive advantage over the rest of the auto industry once again.

Dr. Phil

I believe the auto companies should not be bailed out and if they go bankrupt so be it.

1. Bailing them out sends the wrong message to the executive offices and unions. It says there is no risk to executing a bad business plan for decades. The auto execs tried to make a case that they have a good plan and just need a short stopgap to get over the recent credit freeze. There's no credibility to them saying they have a good plan now because they didn't admit they had a bad business plan for the 10-20 years preceding the development of the Volt and recent cost cutting measures. They can't be trusted to serve more than executive pay and protecting union jobs/benefits.

2. We don't need, nor should we want, an auto industry with the capacity we currently have. We need more efficient cars that can connect to the energy grid, but we need less cars too. So having them go bankrupt and reorganize with fewer plants and focused on the right kind of models is exactly what is needed.

3. This is a perfect opportunity to have a Green New Deal (see recent NPR show) where the govt aids in retooling the closed factories and laid off workers to support the rapid growth of green industries. Governments sets the price signals, and the energy portfolio regs, and provides tax incentives and training targeted to retooling the portions of the auto industry that have been cut out.

I know at least 100 R&D engineers that have worked for the auto industry. All bright people who have been developing ideas in the labs for decades that the corner office has not seen fit to commercialize due to risk aversion. It's a shame, but let's put them to work in a new industry with fewer established competitors so they can get out in front. It's what Toyota and Honda did in the 70s creating the small car market, and it's what Toyota did again in the 90s with the hybrid market. They created and entered a market where there were no real competitors. It was risky, but they were committed for the long haul as we should be to a green revolution.

thx

Detroit had a hard time competing against foreign cars, so they turned to SUVs. For years, this meant less competition and big profit margins. Today, this is no longer viable. If the (world) economy is doing well, fuel prices are too high. If the economy is doing poorly,
what few cars are bought are less likely to be high-consumption models. Also, foreign brands now produce competitive SUVs, trucks, and minivans.

Yet in Europe, the same automakers are very competitive against the same (Asian) competition, and even the European domestics. This has been true for decades.

The Big 3 claim that they are being strangled by their employee benefits. Foreign automakers have their gov'ts take care of benefits, in exchange for a bigger cut of payroll taxes, and "transplant" benefits are (allegedly) less generous than the Big 3's.

History shows that any encouragement or regulation by the federal gov't will either be avoided or lobbied against. If we loan the automakers money and try to regulate, they will waste the money lobbying against the regulation.

The solution I propose is:

1) Increase the federal gas tax by $.10/gal each month for (the next) 3 years. Then consumers and automakers will have little doubt about the future of vehicles. The reduced consumption will benefit the environment, keep down the price of crude, and the federal gov't can
use the money to fix infrastructure, build trains, nuclear plants, pay down the deficit ...

2) Unburden the automakers by federalizing their employee benefits and replacing them with a new 50/50 payroll tax (20%?). US businesses have shown they can't control health care costs, esp the administrative
aspect, but are probably loathe to admit it. However, given the domestic automakers' troubles, maybe they're more willing than most to try a more predictable approach. Esp since they have a lot of experience with it in their overseas divisions. This could also be a good way to launch national health care. If other businesses like what they see, they can join.

No "wasted" bailout money, more predictable markets, and a better balance sheet.

The gov't might need to trim the UAW health & pension benefits a bit, but it should be much less disruptive for all parties than bankruptcy. And the automakers can leverage their foreign operations to get a head
start on the new generation of vehicles.

Why are so many characterizing a social system legacy problem as an automotive energy technology and product competitiveness issue?
The most effective way for the government to extend a "rescue", would be to create an industrial policy environment with proper national, state, and local policies that create a more fair and more coordinated environment of competition.
In the past, it has been easy for local governments to subsidize building more manufacturing capacity only to cause a race to the "bottom" – all in the name of creating jobs. This is essentially the China phenomena. Because of the immense Chinese government-subsidized growth in manufacturing, the US will succumb with certainty. China likely has as many unemployed as the USA has working.
The absence of coherent national industrial and environmental policies leaves the USA with a “free market” that twists in the wind.
What is also absent in this discussion is the role of current energy industry. What is Exxon/Mobil doing to foster the next generation of energy supply? What changes are being made to stop the US government-backed oil industry subsidies?
Like other countries, the real opportunity is to allow US auto manufacturers to focus on creating the “new” industry instead fighting the legacy of social systems – labor, retirement, and healthcare. Governments, other than the US, appear to address social system legacy so that technology industries can focus on what they do best.

Thomas Friedman is not a God. Lead by example. Let all of us build a 11,000 square foot monster and see how that squares with the environment. The saying "do as I say, not as I do" comes to mind.

Tom, what concerns me with a bail-out of the auto industry is that by only pointing the finger at current corporate leadership, we fail to see the more larger and more complex picture. First, we got here because of a continuous and systemic problem dating back over 40 years and has its roots deep in the uniquely American short-sightedness of stockholders and boards where short-term value and wealth creation is the paramount corporate driver. Third, the unindicted co-conspirators in this value is us -- and our agents in the form of every 401K plan and teachers' pension fund administrator that directed its elected board members to continuously seek short-term profit and either direct or sanction the direction of corporate leaders. In America, few CEOs are compensated for far-sighted strategic vision; they are rewarded, instead, on short-term results. Add in the burdens of non-competitive union contracts, corporate pension plans and escalating health care costs, and you have veritable stew of intransigent barriers to long-term strategy and rapid innovation. Finally, Chapter 11 in this global economy is probably an impossibility as it requires both a sound restructuring plan, assured source of continued lines of credit, as well as reliable sources of income. Where might these come from? Not the banks? Not car buyers in this economy. Not international investors. The unfortunate optics of insulated CEOs who don't know better than to arrive in Washington via corporate jets only fogs up the real catastrophe of the American investing psyche. Pray that the Chinese can continue to buy T-bills!

Hypocrite=Tom friedman.
Read pages 364-365 of hfc,(think about the jist of the book)then reconcile this with the construction of a personal residence of 11,000 square feet. Who is the pig here?

Dear Mr. Friedman,

Before I begin, I must say: You are brilliant and I enjoy reading your thoughts. Thank you for sharing your perspectives with us. I am in no way as gifted as you are with expressing my views on paper, but that will not stop me from trying. I will do my best to provide my humble opinion on this topic. I will also precede my comment with revealing the fact that my opinion is based on my background in finance and economics. Because of this, I show little sympathy for businesses or consumers – as both are equally at fault.

A bend in the road is not the end of the road... unless you fail to make the turn.
~Author Unknown

In reference to the Big Three, I agree with your statement that reads “These companies haven't been innovative or competitive in the marketplace in a generation or more.” This is true. The reason that the Big Three find themselves in this situation is, without a doubt, their lack of innovation and desire to remain ahead of the curve. Most successful businesses do not react, but instead, anticipate consumer trends. Each of these companies is fully aware that the trends in the automotive industry are shifting toward fuel efficiency and cutting edge technology. While foreign companies have seemed to embrace these signals, the domestic companies have ignored them and, instead, have relied on marketing campaigns that revolve around our country’s lack of intestinal fortitude – convincing consumers that “buying American” is the patriotic thing to do.

Additionally, the Big Three consciously sacrificed quality to increase their profits. In business, this is not unusual - companies are always looking for ways to increase margin by reducing costs. However, cutting costs typically means a business will lower its prices to undercut the competition. This did not happen as prices on the Big Three’s inferior cars remained similar to that of the superior competitor’s. This business model is not sustainable. Either 1) you brand your product as the low cost leader or 2) you continue to stay ahead of the curve and charge a premium for new technologies. Since the Big Three tried to have the best of both worlds (i.e. charge high prices for inferior products) at the expense of their consumer, I find it ironic that our countries leaders are relying on this same naïveté by considering a bailout funded by the consumer the Big Three previously took advantage of.

With this being said, the American public needs to read the signals and understand that they are the cause of this crisis. There are many lessons to be learned from this debacle and it is often hard to pinpoint the cause of an issue as large as this credit crisis has become. It is even harder to admit that you, yourself, are to blame – BUT the cause of the crisis is irrational behavior by the American consumer. Since a free market economy is based on rational behavior, this irrational behavior is a recipe for disaster. The effects we are feeling are a direct result of consumers acting against their own best interest.

Yes, these companies lacked innovation. BUT, business have had no incentive to spend money on R&D or stay ahead of the curve because we, as consumers, did not demand it. We continued to buy inferior products at exorbitant prices. Though there is irrational behavior in every industry, the severity of this is epitomized in the auto industry and highlighted by the high cost of an automobile. We, as consumers, need to start acting in our own best interest. Doing so will result in free market forces that will incentivize companies to act in a sustainable manner, invest in better technologies, and give the consumer what he/she demands.

For the same reason that animals run in herds (FEAR), Americans have stopped thinking and have lost the audacity to form an opinion of one’s own. Our complacency confines us within our own borders – fearing that what lies beyond them will take us out of our comfort zone. In my short 27 years, never have I witnessed success without some form of sacrifice or discomfort. We are a nation that has flourished from our predecessor’s tolerance for risk and uncertainty; however, we have grown to fear anything that challenges the norm. We have sacrificed progress for comfort.

With this being sad, the social and economic costs of the failure of the Big Three will be frightening. Jobs will be lost, cities will be devastated and worst of all – families will be put under immense pressure. However, with uncertainty, enlies opportunity. It is time we accept the bend in the road and start to turn the wheel (no pun intended).

A more sustainable solution would be for the government to use the proposed $25 billion and invest in a Manhattan Project to discover cleaner, more efficient technologies. The country that emerges as the leader in a “nuclear arms race” for sustainable energy will inevitably benefit from the economic and social impacts that such technologies will create. However, as you have previously mentioned, “the world is flat.” Though competition fosters efficiency, perhaps this ought to be a global initiative since we will are share in the rewards such technologies are sure to reap.

As an entrepreneur, I am excited about the opportunities that will emerge in the face of adversity. It is always good to keep in mind: Nothing worth having in life comes easy…

Hey Marle,

I think your spot on with your reply. Tom Friedman and several others on this post really don't have any in depth knowledge on this topic. Tom F has been ranting about all of the stimulus and such that we need to have in order emerge from the financial crisis, but when it comes to helping out groups, companies,or industries that he dislikes or that he doesn't happen to agree with, he doesn't want to bother with facts or appreciate the complexities involved. He would rather make sweeping generalizations and reinforce negative stereotypes. If you read between the lines he wants to imply that (1) ALL united auto union workers are lazy,stupid, and overpaid, (2) ALL managers, engineers, etc. that work for the US auto manufacturers are a bunch of overpaid and unimaginative idiots, (3) trading with people from the middle east is a bad idea, because they are ALL dangerous terrorists. Seems like an alternative form of racism to me. What he's really saying is "let Michigan and Detroit be damned"...let's give all the money to the banks so they can loan it to people who no longer have a job. Yeah! that will really help instill consumer confidence and get the economy turned around.

I am amazed that you are as dense as the Congressmen who fail to see that the REAL problem w/the Auto Industry is not the management, union, or autos produced now.
Supposedly, in the past, you had a "world wide vision" of current issues, but you are really blind with this one.

Why don't you COME to Mi, talk with the workers or with Mr. Gettleman who can speak much better than any of the big 3? You will learn the changes management and the unions have made over the last 5 years and some of that egg might come off your face. Do you realize that incoming workers will be paid $14 an hour? Feed a family on that.... Did you know that the union has taken retiree pension and health responsibility?

Shame on you MR. F, for not seeing the national implications of the "letting them go" philosophy that will release the trickle down disaster for 3 million workers. Shame on you for not seeing that both Toyota and Honda are losing customers too and that's due to the same reason for the big 3---not poor management, but "it's the economy, stupid!"

Think of the Tesla vs. GM debate as a skirmish in a larger battle that pits entrepreneurs and systems builders. Our problems are so global and systemic that we have to hand the reins (e.g. the national CTO job) to the latter.

http://blog.vanno.com/index.php/2008/11/23/te...

Tom, the big 3 failure is an opportunity. The truth is we will not escape the prognostications of 20 ECE if we not do mobilize assets within our borders--human, industrial and natural--at war time velocity. The deal can be made to transform the big 3 infrastructure to produce new ECE era vehicles NOW and believe or not, wind turbines, solar concentrators and solar thermal systams among others. FDR transformed all industries by almost "turning on a dime" and won WW2. All top management especially CEOs and their boards must be handed a "Loot Bag" on their way out--because the party is over. In this loot bag should be an invoice for all the evs GM crushed in the 70s and for the impact to western civilization on their continued big 3 cultivation of gas guzzlers to optimize profits. We should throw in a few sticks of sour gum to chew on--with long lasting flavor---enough to last the close to forty years they knew about the problem and ignored it. It is repulsive for these business leaders to have had a hand in robbing so many of a future, to now turn to their victims and ask for a hand-out. A new generation of green business leaders with IQ points above the price of a gallon must be brought in. Vehicles must be classified according to distance and capacity--and not just the safety scapegoat that all have used to push back alternatives--the local commute is the lion's share of auto use. Some of their plants could be used to build inter-city transport such as high speed railcars. Mobility must be redefined. "Complete roads" with lanes for bicyles, electrical bicycles and short-range evs are easy to transition to. Auto manufacturers need to become about mobility and not about cars that embue the buyer with status or sexual prowess or unfettered freedom. This is not the American (western) dream-- it is the western fallacy. 3 million persons in NA will be thrown into the unemployment line if monies are not invested--but this must NOT be a rescue package--it must be a re-engineering investment, with the public as shareholder. There are many experts ready to define this investment--we must appoint a team quickly before the bailiff knocks on their doors. Another question begs--why do we allow corporations to become so big that we have to intervene by fiat? Growth in a context of scale is the broken ideology of western civilization. These corporations must be broken up before their scale causes a recurrence of the problem. The NA gov'ts must also allow the smaller ev manufacturers to flourish and invest in their future--they have been and are ready to ramp-up vehicles off the line e.g. Myers, Tesla and Zenn. The Gov't must ensure in an anti-combines mindset complete democratization of our own North American vehicles. For now the public must own the big 3 if they are asked to invest. It is taxpayer money not government money and it is increasingly their future that is in check not the big 3.

Thomas,
Where do I start?
First let me address any and all who so callously suggest that getting rid of the “legacy costs” is a good first or second or third step. How would you all feel if the government decided that everyone should give up some or all of their pension, 401k or whatever you call your retirement nest egg? Then they would use said money to right the whole economy. It is easy to spend another person’s money, easy to ruin another’s life. Ask all those that lost a chunk of their retirement and health care through the bankruptcy of Kmart or Delphi or all of their retirement through the collapse of Enron or any of the other major corporations that went belly up in the past decade. The Pension Benefit Guaranty Corporation is on shaky finances already, so if you throw the majority of the auto companies and their suppliers into bankruptcy I have my doubts that even a partial pension will be available for most.
Second. I love how you and others are damning the Detroit automakers for making pick-ups and SUVs just because that is what the public wanted to buy. Sometimes you sound like a California politician. They and their fellows want to damn the manufacturers for making money and blame the automakers for pollution and our dependence on foreign oil. If they really wanted to make a change then they should have legislated a change. I like your idea of a gas tax used to fund greener technology, but if you ask any politician why they did not legislate a change they will tell you that it would have been political suicide. Chrysler did not put a gun to customer’s heads when they cam into the showroom and order a car or SUV or truck with a “Hemi” engine, with the ever popular “more power” even though the mpg were pitiful and it added about $1,500 to their bill. Yes, Dingell and company did everything they could to control CAFÉ and in the past five years they have come to regret some of their actions, but in the end no one wanted to put through a bill that would cost their constituents more money to buy a car (the cost of cleaner technology and better gas mileage) and more money to fuel it. People do not want to be told what to buy or drive. But that has to be part of the solution.
Finally, let’s find a way solve the problem.
The voucher idea proposed by an earlier poster is one that I think has some merit. Now let’s try and modify it into a working proposal. The voucher would only be good if you were trading in a vehicle for one that got significantly better mileage and cleaner emissions. Perhaps a minimum of 10% and the higher the percentage the larger the incentive, up to say $10,000. All traded in vehicles would have to meet certain pollution and mileage standards or they would be sent out to be recycled. This would be a big step over the traditional scrap yard. Trained people (formerly unemployed) would tear down the car, sorting out every piece of scrap that can be recycled and streaming them toward the appropriate company. All proceeds from this would go back towards the purchase incentive fund. Those that are unable to by a new car would be allowed to use their incentive to purchase one of the used cars that meet government standards while getting the same prorated incentive (the greener the car, the higher the incentive).
The auto companies, dealers, their suppliers nor the companies receiving the recycled goods would not be allowed to make a profit from these sales and their employees (salaried and union) would not be allowed to earn bonuses nor receive raises (save COLA). The companies will be able to keep those monies needed to develop the next generation vehicles. We are not in the business of helping them make a profit, we are trying to save an industry (and many say the economy) and in doing so instantly and dramatically reduce our dependence on foreign oil and lower our carbon footprint. Another part of this program would be guidelines that must be met before anyone can buy truck or SUV. The days of tooling around in over-sized vehicles as a fashion statement must be over.
The development of the new technologies needed to power our vehicle of the future is not as simple or as cheap as you seem to think. I know that in the past you have referred to the huge development costs that go into bringing a new car to market. You should know that the cost of bringing one with an all-new power source is astronomically higher. I have seen articles where a working prototype is valued at more than one billion dollars. It is no secret why GM’s electric car (yes, the one from the movie) was only available to insiders and celebrities in the southwest and the same goes for the ever-troubled Tesla; battery technology is not yet at the point where these vehicles would work in the wintertime in the rest of the country. This is a real inconvenient truth and the reason that every major automobile company in the world has invested billions in companies that develop and manufacture batteries.
Ford was building and selling a flex fuel vehicle that ran on natural gas, but the infrastructure to fill these vehicles never came about and Ford, unable to continue to produce and maintain these at a loss, had to recall them all and get out of the business. Now you see Pickens trying to parlay his investment in the natural gas industry by getting the government to fund the building of this needed infrastructure.
So, with just those two examples (electric and natural gas) of innovations in energy, I think that you need to rethink your views of American auto industry and whether they oppose alternative energy vehicles.

Quite frankly, I am surprised we have not seen the connection here between the unique opportunity presented by the Big Three, the Recession, and marked drop in Oil prices. This is a unique opportunity that a well-thought out Strategic approach would move all outsourced work back to our Nation. I say it that way because we have a window of opportunity to take control, Nationally, and create the real New Deal. Nationalizing these assets now will be painful but gives us control. The petro-politics you talk to matter, now more then ever and needs a way to move jobs back to the US. This is a Strategic movement. I have not fleshed this thought out, need to do some more thinking, but this big thoughts need some good energy and oru best minds behind it.

It is real simple, let them have the money and insure that every part of those vehicles are made and built in the USA and every workers must give up 25%+/- of their salaries and pensions and that 25% savings should be used to hire the unemployed, kinda like share the wealth. it is highly unfair tha a working person who makes $10.00 per hour and a UAW makes 3.4.5 times as much, yet these two workers (who by the way, are wonderful people) both have to pay the same price for Milk, Food, Gas etc etc etc. the only problem is the $10.00 per hour worker is actually home with a starving family and is told he has no benefits and to apply for a Goverment handout. that is sad.

I know you think that is too simple, but is not!

Happy Holidays to all and may they all choke on their Turkey bones, those who screwed the AMERICAN DREAM.