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Let Detroit Go Bankrupt


FreshFish

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http://www.nytimes.com/2008/11/19/opinion/19romney.html?_r=2

 

IF General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won?t go overnight, but its demise will be virtually guaranteed.

 

Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course ? the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.

 

I love cars, American cars. I was born in Detroit, the son of an auto chief executive. In 1954, my dad, George Romney, was tapped to run American Motors when its president suddenly died. The company itself was on life support ? banks were threatening to deal it a death blow. The stock collapsed. I watched Dad work to turn the company around ? and years later at business school, they were still talking about it. From the lessons of that turnaround, and from my own experiences, I have several prescriptions for Detroit?s automakers.

 

First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.

 

That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota?s Avalon. Of course the Avalon feels like a better product ? it has $2,000 more put into it. Considering this disadvantage, Detroit has done a remarkable job of designing and engineering its cars. But if this cost penalty persists, any bailout will only delay the inevitable.

 

Second, management as is must go. New faces should be recruited from unrelated industries ? from companies widely respected for excellence in marketing, innovation, creativity and labor relations.

 

The new management must work with labor leaders to see that the enmity between labor and management comes to an end. This division is a holdover from the early years of the last century, when unions brought workers job security and better wages and benefits. But as Walter Reuther, the former head of the United Automobile Workers, said to my father, ?Getting more and more pay for less and less work is a dead-end street.?

 

You don?t have to look far for industries with unions that went down that road. Companies in the 21st century cannot perpetuate the destructive labor relations of the 20th. This will mean a new direction for the U.A.W., profit sharing or stock grants to all employees and a change in Big Three management culture.

 

The need for collaboration will mean accepting sanity in salaries and perks. At American Motors, my dad cut his pay and that of his executive team, he bought stock in the company, and he went out to factories to talk to workers directly. Get rid of the planes, the executive dining rooms ? all the symbols that breed resentment among the hundreds of thousands who will also be sacrificing to keep the companies afloat.

 

Investments must be made for the future. No more focus on quarterly earnings or the kind of short-term stock appreciation that means quick riches for executives with options. Manage with an eye on cash flow, balance sheets and long-term appreciation. Invest in truly competitive products and innovative technologies ? especially fuel-saving designs ? that may not arrive for years. Starving research and development is like eating the seed corn.

 

Just as important to the future of American carmakers is the sales force. When sales are down, you don?t want to lose the only people who can get them to grow. So don?t fire the best dealers, and don?t crush them with new financial or performance demands they can?t meet.

 

It is not wrong to ask for government help, but the automakers should come up with a win-win proposition. I believe the federal government should invest substantially more in basic research ? on new energy sources, fuel-economy technology, materials science and the like ? that will ultimately benefit the automotive industry, along with many others. I believe Washington should raise energy research spending to $20 billion a year, from the $4 billion that is spent today. The research could be done at universities, at research labs and even through public-private collaboration. The federal government should also rectify the imbedded tax penalties that favor foreign carmakers.

 

But don?t ask Washington to give shareholders and bondholders a free pass ? they bet on management and they lost.

 

The American auto industry is vital to our national interest as an employer and as a hub for manufacturing. A managed bankruptcy may be the only path to the fundamental restructuring the industry needs. It would permit the companies to shed excess labor, pension and real estate costs. The federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk.

 

In a managed bankruptcy, the federal government would propel newly competitive and viable automakers, rather than seal their fate with a bailout check.

 

Mitt Romney, the former governor of Massachusetts, was a candidate for this year?s Republican presidential nomination.

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Anyone think that had this been going on during the GOP primaries, he'd be saying the same thing?

 

not sure...but he did say he wouldn't support government help for auto makers during the primaries and I believe he won Michigan.

 

I think he said he'd help the automakers to win Michigan.

I was watching him today in an interview with Neil Cavuto and they put a clip from the primaries where he said Washington money was not the answer to help automakers. I was never a Rommey supporter, so I didn't follow much of what he did.

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Anyone think that had this been going on during the GOP primaries, he'd be saying the same thing?

 

not sure...but he did say he wouldn't support government help for auto makers during the primaries and I believe he won Michigan.

 

I think he said he'd help the automakers to win Michigan.

How did he say he would help them? With a bailout or by addressing the governemt's mileage requirement standards?

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Anyone think that had this been going on during the GOP primaries, he'd be saying the same thing?

 

not sure...but he did say he wouldn't support government help for auto makers during the primaries and I believe he won Michigan.

 

I think he said he'd help the automakers to win Michigan.

How did he say he would help them? With a bailout or by addressing the governemt's mileage requirement standards?

 

To be honest, I am not sure.

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Anyone think that had this been going on during the GOP primaries, he'd be saying the same thing?

 

not sure...but he did say he wouldn't support government help for auto makers during the primaries and I believe he won Michigan.

 

I think he said he'd help the automakers to win Michigan.

How did he say he would help them? With a bailout or by addressing the governemt's mileage requirement standards?

I'm not a Mitt Romney fan by any stretch, but I don't think he has waffled on this position. I never heard him suggest that simply giving money to automakers was any sort of a solution, though I never heard him speak on the subject so as to have to reject it either. That said, he did state during the primaries that his policy would be to "invest" those said billions in R&D on newer technologies for fuel efficiency, which is something I still disagree vehemently with. But his description of it here at least distinguishes it from a bailout moreso than did the stuff I heard him say in the debates.

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I would normally be in favor of letting unprofitable companies go bankrupt (regardless of size), but in this case I support a bailout because we risk a great depression if we fail to do so.

 

I don't know what to think anymore...this is one of those things that 'damned if you do, damned if you don't'

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I would normally be in favor of letting unprofitable companies go bankrupt (regardless of size), but in this case I support a bailout because we risk a great depression if we fail to do so.

One of the things I try to explain to people when saying why this is a bad idea is that this isn't a choice between saving these companies or not - no amount of money given to these companies will correct them. It is an arrogant notion among politicians that they have the power to save an industry and save jobs. In reality, all they can do is take money away from people who have been responsible and have made good business decisions and give it to people who haven't. And that doesn't solve the problem. These companies are going down, its just a question of if the rest of us are going down with it.

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Precisely.

 

People who think that letting these companies fail would result in a depression are completely ignorant. This is only paving the way for stagflation and the creation of more devastating moral hazards. It's foolish to believe that a government raid on our treasury would bring about long term benefits.

It's important to remember that there is no treasury, no money there. We have a 10 Trillion dollar debt. The only thing government can do is literally steal from every person who has money in US dollars by creating more inflation to pay for this stuff, and it is simply immoral.

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I would normally be in favor of letting unprofitable companies go bankrupt (regardless of size), but in this case I support a bailout because we risk a great depression if we fail to do so.

 

I don't know what to think anymore...this is one of those things that 'damned if you do, damned if you don't'

Pretty much.

 

I do think, however, that the current proposed legislation has been generally misinterpreted as a bailout, when in reality it was going to be a more traditional loan with strings attached. Regardless, it looks like it's not going to happen anyway.

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I do think, however, that the current proposed legislation has been generally misinterpreted as a bailout, when in reality it was going to be a more traditional loan with strings attached. Regardless, it looks like it's not going to happen anyway.

You're completely wrong. This would be a loan at a below market interest rate with no prospects of collection. In other words, this is a give away. At least with AIG the interest rate is high and they have valuable assets to sell-off to pay the loan.

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I would normally be in favor of letting unprofitable companies go bankrupt (regardless of size), but in this case I support a bailout because we risk a great depression if we fail to do so.

 

I don't know what to think anymore...this is one of those things that 'damned if you do, damned if you don't'

Pretty much.

 

I do think, however, that the current proposed legislation has been generally misinterpreted as a bailout, when in reality it was going to be a more traditional loan with strings attached. Regardless, it looks like it's not going to happen anyway.

Even if you actually believed this is a loan with all these conditions, riddle me this:

 

The whole point of taking this action is the belief that we cannot allow the "big three" to go out of business, so what happens IF the car companies either violate the terms of the loan or simply fail to pay it back because there business is still not viable? Do we let them fail at that point, after we've already stolen $25 Billion from the people, or do we throw more money at the problem?

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I guess a lot of people in the circle-jerk here don't mind losing the 3 million jobs connected directly or indirectly to the Big Three, not to mention what would happen to the remainder of the steel industry, the glass industry, microprocessor industry, etc. If Detroit fails, what do you THINK is going to happen? Because that alone will cause the unemployment rate to jump 1%, maybe more through the connected industries.

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I guess a lot of people in the circle-jerk here don't mind losing the 3 million jobs connected directly or indirectly to the Big Three, not to mention what would happen to the remainder of the steel industry, the glass industry, microprocessor industry, etc. If Detroit fails, what do you THINK is going to happen? Because that alone will cause the unemployment rate to jump 1%, maybe more through the connected industries.

Most people on here have already effectively handed those workers their pink slips. :rolleyes:

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I guess a lot of people in the circle-jerk here don't mind losing the 3 million jobs connected directly or indirectly to the Big Three, not to mention what would happen to the remainder of the steel industry, the glass industry, microprocessor industry, etc. If Detroit fails, what do you THINK is going to happen? Because that alone will cause the unemployment rate to jump 1%, maybe more through the connected industries.

#1 - Some jobs need to be lost. Perhaps we haven't beaten this dead horse enough on this board, but the same way that so many .com businesses from the 90s had to fail, that the jobs of most milkmen and ice cutters became obsolete, there are simply jobs that will not survive. Now I might think it reasonable to spend money to help auto-workers train for new jobs if we at least had the money (and we don't). We could never have saved those jobs, but even if we could - at what cost would it be to the rest of us?

#2 - Detroit is already failing. This notion that giving these guys another few Billion with which to fuel up their private jets will save any jobs is naive. Government cannot save the Detroit Autoindustry. Only the Detroit Autoindustry can save itself.

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So I'm somewhere near serious considering picketing outside D.C. asking for the Government to bail out me and my business - I have a hospitality recruiting business and the sales drop is noticeable in this economy; imagine being the business that makes it's money by charging a fee to employers to find them an employee...especially when people just aren't eating out anymore.

 

So good idea to picket or bad? I do provide/find jobs to many people and if my business fails the ripple effect will be large! Obviously it's tongue in cheek, but the point would be made somewhat, no?

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So I'm somewhere near serious considering picketing outside D.C. asking for the Government to bail out me and my business - I have a hospitality recruiting business and the sales drop is noticeable in this economy; imagine being the business that makes it's money by charging a fee to employers to find them an employee...especially when people just aren't eating out anymore.

 

So good idea to picket or bad? I do provide/find jobs to many people and if my business fails the ripple effect will be large! Obviously it's tongue in cheek, but the point would be made somewhat, no?

If you've got the money and the time to make the trip, have at it! And record it while you're there. But take a jacket - I can tell you from experience that the National Mall isn't exactly a warm place this time of year.

 

If you can't make it up there though, you could just protest outside the Federal Reserve branch on 36th Street on Saturday as part of the whole "end the fed".

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