[StBernard] Detroit Automakers a Relic of the Past

Westley Annis Westley at da-parish.com
Wed Nov 19 16:43:35 EST 2008


Detroit Automakers a Relic of the Past
by Michael Barone

Barack Obama has noted, carefully and correctly, that
we have only one president at a time. Yet on at least
one issue he has taken the lead and nudged the man who
will soon be his predecessor in a direction that he
might not have taken without prompting.

It is an issue, moreover, that points up the tension
between Obama's appeal to young voters and his calls
for creating a new America on the one hand and, on the
other, policies that he backs which seem designed to
freeze in place the America we have.

The issue is whether the federal government should bail
out, with a capital injection the size of what would
have been unthinkable four months ago, General Motors
and perhaps the other two U.S.-based auto manufacturers,
Ford and Chrysler.

As one born and raised in Detroit and its suburbs, who
once lived next door to Big Three factory workers and
later went to school with the children of Big Three
executives, I have mixed feelings about this proposal.
My native Michigan is ailing, with the highest unemploy-
ment in the nation, plummeting housing values and cas-
cading foreclosures. Its economy, despite the efforts of
two previous governors -- Democrat Jim Blanchard and
Republican John Engler -- is dangerously dependent on
what used to be called the Big Three and are now called
the Detroit Three.

The bankruptcy of one or more of them would deeply impact
the personal lives and dash the seemingly reasonable ex-
pectations of those who, directly or indirectly, have
depended on them. I can't help but think of these people
when the issue is raised.

And yet the implications of a bailout are frightening.
The Detroit Three were unprofitable well before the curr-
ent financial crisis hit, and GM is reportedly hemorrhag-
ing $1 billion a month. The huge cost of lavish employee
and retiree health care benefits, negotiated with the
United Auto Workers (UAW), makes it impossible for the
companies to sell for a profit anything but the big cars
and SUVs that, after gas prices hit $4 a gallon last
spring, almost no one wants to buy.

No one in the private sector is willing to pony up a dime
for this business plan. GM stock is below its 1946 price,
and one investment house has priced it at zero.

The Detroit Three are taking advantage of the passage of
the $700 billion financial bailout to argue that they,
too, need government money to go on. But as Megan McArdle
of The Atlantic argues, the finance firms are different.
If credit coagulates, everyone suffers, while if the De-
troit Three go bankrupt, their shareholders lose their
stake, employee and retiree pay and benefits are cut,
and real estate values go down in areas where the compan-
ies and their suppliers operate -- but life for most of
us goes on.

McArdle, native of a similarly bedraggled industrial area
.(Upstate New York) and an Obama supporter, further argues
that the capital invested in keeping the hulk of the Detroit
Three operating pretty much as they are, unprofitably, will
not be available to those whose startups could morph into
the Microsofts and FedExes of the future. We don't know who
today's Bill Gateses and Fred Smiths are, but markets sure
have a better chance of finding them than the federal govern-
ment.

Obama's presidential campaign was an entrepreneurial enter-
prise whose success owed much to harnessing individual init-
iative through an innovative management structure and creat-
ively using emerging technology. The campaign, as well as
the candidate, helped inspire under-30 voters, who preferred
Obama by an unprecedented 66 percent to 32 percent margin --
as opposed to his 50 percent to 49 percent margin in those
30 and over.

But keeping the Detroit Three in their present form, with
their extravagant health care benefits and the union's 5,000
pages of work rules, is an exercise in preserving in amber
the America of the past.

And of course the Detroit Three will not be the last flagg-
ing enterprises to line up for government subsidy. Michigan
is not the only state that has a talented congressional
delegation capable of enlisting allies on relevant commit-
tees and from states with economic stakes in failing com-
panies. Other unions, noting the UAW's success in maintain-
ing benefits, will be standing in line.

George W. Bush may well acquiesce in a Detroit Three bail-
out. GM could run out of cash over Christmastime (Big Three
plants don't operate between Christmas and New Year's),
well before Jan. 20. If so, I will feel happy for the res-
pite provided my friends and relatives in Michigan. But I
will wonder if in preserving the past we are giving up the
chance to get to a better future.





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