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Save The Big Three?

by Ivan Seeking
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Ivan Seeking
#1
Nov15-08, 05:56 PM
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To bailout, or not to bailout, that is the question.

What about saving only two? I haven't heard that option discussed.
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turbo
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Nov15-08, 06:18 PM
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To what end, though? The top management in the big 3 have ignored all the lessons of the Japanese car-makers. Build to tighter tolerances, engineer WAY in advance of building, and re-tool frequently. I got burned by Chevy, Ford, and Buick when I was younger. Eventually, I smartened up. I bought a 4WD Datsun pickup during their first model year, bought a Nissan Pathfinder during its first model year, and bought a 240SX during its first model year. You'd have to be brain-dead to buy a major new model from the big 3 at roll-out, unless you like chasing recalls and warranty repairs.

The big 3 cannot be trusted to improve their business models if we throw money at them. I suggest that we help them by providing universal health-care coverage for all US citizens, and taking that overhead off them. If they can restructure, trim down and survive, great. If they cannot or will not take those steps, then they should be allowed to fail. In a real capitalistic system, inferior companies fail and superior companies thrive. Suppressing that correcting mechanism is unhealthy.

As an object lesson, look at Chrysler. We bailed them out years ago. They are building some of the largest, thirstiest pickups on the market today, and to avoid having to comply with CAFE standards, they successfully lobbied to have the PT Cruiser classified as a truck so its fuel efficiency could offset the inefficiencies of the RAM trucks. The PT cruiser is a light-weight station wagon built on a Neon chassis - it's not a truck by a long stretch, but it was a convenient cheat.
Ivan Seeking
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Nov15-08, 06:30 PM
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Whether this is discussed in formal terms, I'm not sure, but Obama has discussed the requirement for retooling as a part of the package. And I can see his logic here. Use this as an opportunity to recast the US auto industry for a green economy.

My perception of things leads me to believe that the markets will work, but only after far too much pain has been endured. So the government has a legitimate role in helping to make the transition. Why allow chaos to govern? With proper planning, a new economy could be expedited in an intelligent manner.

The justification: It is argued that US industry generally would suffer a catostrophic collapse if the big three go under. But then my next thought was, why all three? It is discussed as if all three are one. But like AIG and everyone else, the argument is that unless we want another great depression, they are too big to fail.

Hexnergy
#4
Nov15-08, 06:33 PM
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Save The Big Three?

hmmm Id say save them to avoid a chain reaction of job and money loss. You could lose the manufacturing jobs at the automakers... the jobs at the companies that supply them... the jobs from the suppliers' suppliers... home foreclosures due to no payment from recently unemployed... a whole bunch of related industries...
Ivan Seeking
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Nov15-08, 06:38 PM
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So my next thought was that we allow the government to make the final selection for the market. Kill the biggest beast, and recast and streamline the other two as a requirement of the bailout.
turbo
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Nov15-08, 06:48 PM
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Your points are well-taken, Ivan. I do not believe that we can legislate re-tooling schedules, design cycles, etc, though, and the big 3 have shown that they are unwilling to do these things, as long as they can scrape by. I had hoped that a little of Mitsubishi's philosophy would have scraped off on Chrysler, after their collaboration on the Diamond-star plant, but I don't see it. (I worked for a company that developed training materials and process-documentation for that plant, and I DID have hopes.)

Ford closed its Marysville, OH plant years back, saying that it was uncompetitive. Honda bought the plant, rebuilt the lines, re-tooled and started producing the Accord - the US-built car with THE highest percentage of US-made parts. They did OK. (understatement alert!) The only way that Ford could make its Taurus competitive in sales numbers was to "sell" the cars to Ford Leasing and blow them out to fleets like rental car companies. They had a hard time pulling this off, even though Honda did not engage in fleet sales and sold their cars at retail one at a time.

I'm not saying (or even hoping) that the collapse of any one of the big 3 would be an easy thing, especially in a depressed market, but like any capitalistic venture, if they fail, their competition will move in to fill the void. Nissan, Toyota, Subaru, and Honda may be foreign-owned, but if they are willing to jump in and fill the void, I have confidence that it will be good for our economy, because they plan LONG term. BTW, my wife's Subaru Legacy was manufactured in Indiana, and it is a VERY reliable vehicle, and handles a lot better than my Nissan 4WD pickup in sloppy conditions. It has also proven to be very reliable - we bought it used from a panicky professor just before the 3-year warranty ran out. He needn't have worried.
Ivan Seeking
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Nov15-08, 06:55 PM
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Well, I find myself at odds with my own lifelong philosophies. What you say makes perfect sense to a free-market guy. But, beyond the issues of time and pain, and ignoring the catostrophic failures of free market principles [too big to fail], I do see another twist. This may be the last chance to save the US auto industry. Mark Shields made this point the other night on the News Hour. We as a nation cannot afford to be uncompetitive in the global auto industry. It could take decades to recover from a complete collapse.
CaptainQuasar
#8
Nov15-08, 07:13 PM
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One of the things that occurred to me is, if a large percentage of the cost of an American automobile really is pensions and other things and that isn't just a fat cat boogeyman rumor, it might make sense to re-negotiate things like that with the unions as part of any deal to bail the auto makers out.
turbo
#9
Nov15-08, 07:31 PM
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Quote Quote by Ivan Seeking View Post
Well, I find myself at odds with my own lifelong philosophies. What you say makes perfect sense to a free-market guy. But, beyond the issues of time and pain, and ignoring the catostrophic failures of free market principles [too big to fail], I do see another twist. This may be the last chance to save the US auto industry. Mark Shields made this point the other night on the News Hour. We as a nation cannot afford to be uncompetitive in the global auto industry. It could take decades to recover from a complete collapse.
There are a lot of scenarios that have to be played out and evaluated. If Chevy drops a truck line where the trucks are assembled in Canada, the suspension and critical drive elements come from Germany, the engines are made in Mexico, and the wiring harnesses are made in Guatemala, there are going to be LOTS of repercussions. Nobody knows how all of that could settle. I still hesitate about throwing money at the big 3, because if they are "too big to fail", they are extortionists that are "too big to exist".
nuby
#10
Nov15-08, 07:44 PM
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What is the logic behind saving these automakers?

If you give them all 25 billion to survive another year or two, what happens if they are still failing and people still aren't buying their cars/trucks in a couple years? Give them another 25 billion?

The 'real economy' wants these car companies gone.. They've failed produce electric vehicles, and anything that the public might be interested in. I say let them die off, and make room for the new innovative companies.
CaptainQuasar
#11
Nov15-08, 07:58 PM
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Quote Quote by nuby View Post
The 'real economy' wants these car companies gone.. They've failed produce electric vehicles, and anything that the public might be interested in. I say let them die off, and make room for the new innovative companies.
Because of the substantial barriers to entry for starting a car manufacturing operation they don't just appear in a free market (not since the beginning of the industry when there were no big players.) Japan had to use heavy subsidies and protectionist trade arrangements during the first several decades before the products of its auto industry could compete on a global scale. China's car industry started while the country was still Communist. I don't know about India in general but I know that Hindustani Motors was founded as a project of a socialist government at the beginning of the last century, based on designs that were simply copies of some British cars. (Just like many of China's modern designs are copies of Japanese or Western companys' designs, violating international intellectual property law.)

So whether we preserve the old companies or federally subsidize and protect new ones, for there to be an American car manufacturing industry in the future it's not just going to happen as the result of a free market. So it's not exclusively a "too big to fail" problem.
mgb_phys
#12
Nov15-08, 08:33 PM
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my wife's Subaru Legacy was manufactured in Indiana, and it is a VERY reliable vehicle, and handles a lot better than my Nissan 4WD pickup in sloppy conditions. It has also proven to be very reliable -
Don't GM own part of Subarau ? Pity they haven't learnt anything from them.
Funnily enough I bought the Impressa beause it is only made in Japan - I wasn't about to trust the build quality of a car built in Indiana. When your customers are going out of their way to avoid USA built cars your problems go deeper than how to fit more cupholders.

Presumably the big three's demands will involve more rules to keep out foreign competition - probably starting with all the Toyota, BMW, VW, Mercedes and Subaru plants in the southern states.
russ_watters
#13
Nov15-08, 09:37 PM
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Quote Quote by Ivan Seeking View Post
The justification: It is argued that US industry generally would suffer a catostrophic collapse if the big three go under.
I'm not sure why that would be true. It isn't like they would just close their doors and cease to exist. Someone would buy them and restructure them. It'd be painful, sure, but eventually they'd all become divisions of Honda, Toyota, and Hyundai.
But then my next thought was, why all three? It is discussed as if all three are one. But like AIG and everyone else, the argument is that unless we want another great depression, they are too big to fail.
I'm not a big fan of that logic, but the difference between them and AIG (and some of the other banks) is that AIG is a facilitator for an enormous fraction the businesses and a failure of them would be catastrophic. I do think that the govt should have let some of the other large banks fail. Since most of the money in them is insured, I don't think it would have been as bad as people feared.
russ_watters
#14
Nov15-08, 09:39 PM
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Quote Quote by CaptainQuasar View Post
So whether we preserve the old companies or federally subsidize and protect new ones, for there to be an American car manufacturing industry in the future it's not just going to happen as the result of a free market.
Why does there have to be an American car manufacturing industry?
CaptainQuasar
#15
Nov15-08, 09:57 PM
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Quote Quote by russ_watters View Post
Why does there have to be an American car manufacturing industry?
Oh, there doesn't, that's definitely a valid topic for discussion whether we want that or whether it's too costly. I'm just pointing out that we can't expect to let the car companies collapse and in a few years see a new auto industry appear ex nihilo as nuby was suggesting, the jobs and the satellite industries involved that are lost will be gone for good.
Proton Soup
#16
Nov15-08, 10:34 PM
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i'm with turbo, i think it's extortion. let them fail. the plants will get bought for cheap by someone else that will do a better job. life goes on.
WarPhalange
#17
Nov15-08, 10:42 PM
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Doesn't Toyota manufacture a lot of their parts in the US? Maybe it's time for the US to take a slice of the outsourcing action?
CaptainQuasar
#18
Nov15-08, 11:19 PM
P: 705
That would be nice, but Japan and China have been intentionally been propping up the value of the dollar to make sure that things like that don't happen. (Not that this is a bad thing on the whole, don't bite the hand that feeds your economy out of mutual interest.)


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