GM and Chrysler informed Congress they could run out of cash in weeks. We are about to find out how many weeks they meant. The bailout bill had passed in the House of Representatives, but Senate Republicans wanted further modifications made to the bill. The collapse of the bill came after talks broke down with UAW officials. The sticking point was wages. The US Senators called for steep reductions to take effect in 2009, calling on the UAW to put US autoworkers pay on par with its Japanese competition.ÂÂ
The UAW appeared willing to concede to this request, but not until 2011-when the current union contract is set to expire. The Senate wanted to see all participants take drastic, immediate cuts. The UAW’s desire to wait until 2011 assured that reluctant Senators would vote on to the bill.
Daily news reports cited the devastating effects a collapse of the Big Three would have on an economy already in recession, experiencing record levels of jobs losses and real estate foreclosures. Yet in a Marist poll, the majority of Americans were not in favor of bailing out these companies.ÂÂ
Here is my take on why-
1. The average American is already “bailout weary”. Bailing out the finance sector dominated headlines and news programs on an hourly, even minute-by-minute basis. When the Big Three came asking for money, the reaction was “Who now? And who’s next?”ÂÂ
2. Big Three CEO’s first visit came off as arrogant and out of touch on their first trip to ask for taxpayer money. They flew in on private corporate jets. They would not accept pay cuts. They blamed everything but themselves on their predicament. Again, this made the news everywhere. Yes, on the second trip, they drove hybrid cars. They said they would work for $1. They admitted to mistakes in quality, and not always making cars that people wanted to buy. This did not get as much attention, but this did-instead of the $25 billion they asked for at first, this time they said they would need $34 billion to survive.
3. A lot of Americans do not own an American car currently, or never have. How do you get public support to have your own tax dollars rescue a company whose product you CHOSE not to buy?ÂÂ
4. And on that note, the principle of Capitalism. If not enough people buy your product for you to remain in business, then you go out of business. Lights out. I know that sounds cold, but that’s Capitalism, baby.
5. A failure of the Big Three, and to an extent, the news media themselves, to articulate how a collapse of the Big Three could affect you-personally. The perception is, these are pretty much midwestern companies-that is where they make the cars, those states will be ones whose economies are affected. Ok, so they did point out that they also use a large network of suppliers that are necessary to build their cars and that a collapse of the Big Three would likely shut-down or drastically reduce the size of these companies. I fear this news fell on deaf ears-you mention a large, faceless general group of companies, and the public does not take notice, much less feel any sympathy towards.
It is the dealer network-the places in your community. Don’t let CNN fool you into putting the face of GM on Rick Wagoner. Your connection to any of the Big Three are the dealers in the area where you live and work. Imagine driving down the Auto Row in your town, and the lights are dark on all the domestics. The sales staff, managers, clerical staff, finance, mechanics, car detailers are now collecting state unemployment checks. People that live in your community, and help keep the local economy going. And the number of businesses in your community that benefit from those dealers. And you can be certain your town loves the property tax money they receive. With that in mind, are you positive the collapse of the Big Three would not affect you in any way?
The sad fact is that we are going to pay for this horrible mess one way or another. In 2009, we get a new President, and new members of Congress who are going to have to revisit this issue. The bailout loans were never a guarantee for success. Left on their own without the hope of these loans (for the time being), we just may witness how desperate the situation really is with General Motors, Chrysler, and Ford.
Hold on to your hats folks, the ride is about to get a whole lot bumpier!
Brilliant points Tom. I know it’s going to hurt but I bet when the Big 3 BS clears (and by “clears” I mean at least one of them goes out of business) then there can be some positive changes in the industry.
– a chance for small companies that are actually innovating to show us what is going on. I think that gov’s will be shoving incentives their way so there is some growth in a positive direction
-migration away from automaking into the growth industries of the 21st C. (the green economy)
-failing businesses can’t be held up by the people while they struggle to keep failing
Thomas L. Friedman (book: Hot, Flat & Crowded) has a great op-ed piece in NYT about Better Place as an innovative alternative to Big 3 – http://bit.ly/8GLN
Better Place is electric car company setting up recharging stations that will take 2 min to switch out your batteries for you. http://www.betterplace.com/
The D3 will get a lifeline, one way or another. Its imperative to conserve a manufacturing base in North America.
Last month we did a series New Reality on the D3 and dealers
http://stradaautostore.squarespace.com/dialogue2008/category/new-reality
Update: The White House appears to be the last resort, and George W appears ready to cast a life-raft, the details of which are not yet clear. My guess-enough money to last until Obama takes over and Congress returns to Washington.
Although some experts say Bush did not want it to come down to this (Bush is a free market guy), they agree he would not want his last days as President chronicled as the total collapse of the North American auto industry.
Yeah, cause Iraq isn’t enough to guarantee his dark spot on the history books!