Wednesday, March 11, 2009

Should the American Automotive Industry Be Saved?

Despite living in the Detroit area and working in the automotive sector, I’ve never mentioned the current plight of the American automakers, despite it being a major news story for the past several months. I have no idea if anyone outside of Michigan really cares one way or another about the subject, but what the heck – this is a blog and I have no chemistry items ready for today, so here’s my take….

As you might imagine, I’m generally for the idea of helping out the ailing auto industry. I admit to having a certain financial incentive in keeping the local economy from tanking even more than it already has. I also admit I probably wouldn’t care as much about the subject if I lived somewhere else. But I don’t, and since I’ve had a chance to see how the auto industry operates, up close and personal, I do perhaps have a little better idea about what’s happening than most people outside the state of Michigan, especially southern Republicans.

I’m certainly not an apologist for domestic automakers. I’ve laughed at, or cursed, many of their decisions over the years, and there have been plenty of instances in which I’ve thought the UAW should be blown up, but even I have to admit that things have indeed been changing (albeit slowly) over the last decade. Before I begin, I going to have to rant a little…

rant mode on
Forget all the crap you hear from politicians claiming that domestic automakers:
1. Haven’t changed for decades (hire a competent staff who has at least a clue about the auto industry)
2. haven’t worked on alternative energy vehicles (they could finance small countries with what they’ve spent in that area)
3. have been resisting tighter emissions and fuel economy requirements. (Okay, so that last one is definitely true, but name an industry that hasn’t. Energy related industries (a Republican favorite) like coal have resisted emissions and safety regulations for decades but haven’t been bashed for it the last 8 years. We’ll see if that changes now).
rant mode off

Look, had this crisis occurred ten years ago, I probably would have said, “Let them fail” too. They were behemoths, unable or unwilling to change, so perhaps a bankruptcy is what they needed. But after all the changes the automakers have gone through in the last 5-10 years to make themselves leaner, more responsive, and more cost effective, it would be a shame for them to fail now because of bad timing. Even the unions were beginning to understand that changes were coming, which I believe is one of the signs Armageddon is close at hand. It appeared that GM had turned things around. Their new cars were getting good reviews, they were selling well (before the credit crisis), the company’s cost structure was much better, the time required to design, develop, and build a new car was approaching that of their foreign competitors, and surveys indicated that they had pretty much matched the Japanese in terms of initial quality (it will be a few years before we know if how their 1-3 year quality grades out). Had the credit crisis not occurred when it did, we might well be reading glowing stories about how GM had turned it all around. But it did and so now certain decisions have to be made.

Do the automakers deserve to be saved? I don’t think they “deserve” it, but after all the changes they’ve made, they probably don’t “deserve” to fail either. Unfortunately, many of the U.S. Senators who bashed the automakers back in January were woefully ignorant (or pretending to be woefully ignorant -- surely their staffs can’t have been that misinformed) of these changes along with some basic facts about the automotive industry. Even if you ignore all the factual errors, the fact that the Senators which are pushing hardest for a domestic bankruptcy represent states which enjoy the presence of foreign auto plants and thus might benefit from such a bankruptcy lessens the validity of their arguments. Already, the argument that there is something inherently wrong with domestic automakers if they need to ask for government aid has been blown apart by the fact that even Toyota is doing the same thing. By the way, I should mention that those same foreign automakers have been quietly telling these Congressmen to tone down their rhetoric about the evils of government bailouts and the benefits of bankruptcy. A bankruptcy at GM would wipe out the already strained supplier base, which also supplies parts to the foreign automakers. Shutting down foreign owned auto plants in the south would not be particularly good for the people down there either.

Of course the real question is “What is in the best interests of the country?” Which will cost the country more? Bankruptcy or financial aid? And this is a question everyone must answer. If you don’t think a GM bankruptcy is going to affect you, you are kidding yourself. The domino effect of from a GM bankruptcy will take out a huge section of the economy, including areas that may not be apparent to people working in non-automotive areas. I’m not an economist, but it wouldn’t surprise me if such a collapse would prolong the current financial crisis by another 6 months, and that may be optomistic. Let’s make sure we get this right. Playing politics with this decision has the potential to damage the country even further.

OK, I’ll get down off the soapbox now.

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