Wednesday, November 19, 2008

Let Big Auto Fail?

Really, let's think about it.

They've made whole fleets of useless, oversized cars. They've protested every attempt at imposing mileage standards. And now they're in trouble. They're prophesying doom and gloom for a whole plethora of vertically integrated suppliers and resources.

Here's the thing, though.

Either people want to buy those cars or people don't. Either people can afford those cars or people can't. All that government intervention can do is allow the automakers to make more cars that people apparently aren't buying.

Let's say that again.

All that government intervention can do is force more unwanted cars in to existence.

Why would we spend our national treasure in this manner? (Yes, I know it's actually low interest loans, but that still counts as money.) Why would we spend unwanted things in to existence? Why would we favour such use of precious mineral and energy resources?

If the big three automakers are failing, it's because they produce things that no one wants. If they want to attract more customers, make products that are desirable. Something in the fuel efficient, cost effective area might work better. If you want to save these companies, you're barking up the wrong tree. They have to save themselves.

On the flip side, it's just barely possible that we just don't need so many cars - or maybe we just don't need to be trading them in every two years. Maybe the credit isn't there to afford that lifestyle anymore. In that case, you're just building cars for nobody. Sure, the government can make them cheaper by floating low-interest loans through the car companies, but that's not going to make that big a difference.

Sorry, Big Three. If no one wants your products, why should taxpayers donate their savings to making them anyway?

It just doesn't make sense.

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Socially Active said...
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Socially Active said...

Please remember the massive retirement fund managed by these companies. GM in particular realized in 2006 that its retirement funds were not growing at the rate required for self financing. And aggressively managed these funds.

If it is ok to bail banks, why is it not ok to bail Big Auto retirement funds?

Greg said...

Okay, let's suppose we bail them out. Then what? They make cars no one wants? Then they lay off all of their workers anyway?

If we have to absorb pensions, we have to absorb pensions. But let's not blow huge wads of money producing products no one is buying and overcompensating executives just so we can indirectly get some of the money to go to pensions.

Ian said...

My thought was that this poses a huge opportunity. What I would suggest is that the government offers a bailout package that either nationalizes part of the company, or else forces them to shift their product focus.

This is a chance to create that "green economy" that Layton and Dion (and May) wouldn't stop talking about.

The job losses by the auto companies would be massive (if let to fail), but the potential to shift our focus is too great to pass up (but I won't be surprised when we do).

saskboy said...

Ian, great idea. Moore an I have been talking about just that too. It's an opportunity.

Greg said...

I don't know if there would be job losses. If people want cars, people will be employed making cars.

What has become obvious is that GM, Ford and Chrysler are not the companies that build the cars people want.

We could, as you suggest, force the Big Three to build the right cars, institute mileage standards, set executive compensation limits and bail them out.

Or we could let them fail and have their companies be carved up between better producers who already know how to make the cars that people want.

If, however, people simply aren't buying as many cars as they used to, how is bailing out the automakers going to solve anything?