I think the amount of oversight, controversy, and political grandstanding over giving $14 billion to companies that actually make things is just insane giving the $700+ billion given, without any strings attached, to companies that move numbers around on spreadsheets.
I don't think that's logical. I mean, I agree that there should maybe have been far more strings attached to the $700 billion, but that doesn't mean there should have been less oversight of this one. (There's actually pitifully little.)
Admittedly my opinion, but I think that the predicament of the auto companies is mostly due to poor decisions that made the difference between small profits and massive losses. The losses at the I-banks are just pure unadulterated greed.
Additionally there are costs to compliance, and those are probably going to be greater at car companies (that have factories, dealers, financing divisions, etc, etc). The car companies have tighter margins and more costs to meet compliance. Banks move numbers around, not physical objects - their compliance could, and should, cost less.
The Fed should oversee the loans, and Congress them, just as with anything else. I don't consider myself informed enough to have a strong opinion about the $700 billion one. I don't have any moral objections.
I don't have any moral objections [to the $700b bailout].
So you're fine with the government taking your money (i.e. your property) and giving it to someone outside of the government for no reason other than "they're a big company"?
I'm totally open-minded on this issue, so I'd love to hear a well-reasoned argument as to why it made sense for the government to have done that. As it stands, I feel that it is quite immortal to redistribute property unjustly.
I don't consider myself informed enough to have a strong opinion about the $700 billion one.
They're playing poker with your chips. Isn't it worthwhile to understand their tactics (or lack of tactics)?
Well, the idea of the $700b worth of loans (which is not the same as $700b of giveaway, much of it will be recouped) is to prevent a depression, which would cost far more than the loans. We're in a situation where either way, the taxpayers lose. If those $700b of loans prevent us from losing $7 trillion, then it's worth it. They're not giving out the loans just because the companies asking for them are large. They're doing it to jumpstart the lending the entire economy depends on.
Is that a good idea? I really can't say for sure. The theory sounds good, but for all I know its misguided.
It's not worthwhile for me to try to determine that for myself. I don't have years to devote to the study of economics, which would be necessary for me to have an informed opinion on whether or not the loans will prevent far more than they cost. We can't all be economists, and anyone who isn't can't have an informed opinion. And even if I did have that kind of time, by the time I got that far it would be too late. And even then, the most informed opinions are still far from infallible. They're significantly more likely to be correct than the one I have now for sure, and they're the best we can do, but I'm not sure how much my one extra vote would matter.
That's the thing with government and capitalism, it's all about division of labor. I can't be informed about everything. I just try to vote for people who will get advice from people who are, which is why I base my votes more on a candidate's intelligence and epistemology than their stances and specialized issues such as economics..
Agreed. I know it's still not politically correct, but when I land in the US and get a rental car, I still ask politely for anything as long as it's not an American car :/
Well, I try to scoot around the issue asking for "anything japanese", or german, etc etc
If you get saddled with an American car, it can only go in straight lines, and probably has a big sofa as the front seats. They're just ridiculously bad cars. It's like they froze time in the 50s and kept making cars exactly the same.
I don't understand. You're saying that GM could build cars of similar quality to Toyota or Honda if they were only able to charge $2,000 more?
I defy any one of the big three to release a minivan comparable to the Toyota Sienna for anywhere near the same price (+$2k is fine).
And why does inexpensive have to mean low quality? From what little I know, the Japanese manufacturing mindset (read: The Toyota Way) is that high quality equals lower cost over the long haul.
I'm saying that if Toyota had to pay $2k extra to manufacture every one of their cars, they would either cost $2k more (thus significantly reducing their market share and volume, and therefore reducing profits, increasing relative proportion of fixed expenses, etc.) or would be significantly inferior to what they are now due to having cheaper suspensions, doorknobs, etc.
You're talking 10-20% of the manufacturing cost of the car in an industry that has spent 100 years reducing costs in every conceivable way. There isn't that sort of slack laying around. The only way to recoup that cost is to use significantly inferior parts.
My next blog post will address that a bit. It's already written, just hasn't published yet.
Agreed- they should cancel the union contracts and fire all the managers that signed them now. GM has 96000 workers paying the inflated health care costs of over 1M people. That just doesn't provide any competitive possibilities.
Still, it's far deeper than wages and costs.
What about the costs to the company for the warranty repairs? The big 3 were offering some very long term warranties for a while. If the sort of quality you are talking about is durability, that could end up increasing costs.
The big 3 approach to reducing costs has been inferior to the Toyota approach. The restrictive UAW work rules limit the flexibility of the work force and devalue overall productivity. They should compare the throughput and excess inventory of the manufacturers. You will see that GM makes too much too slowly, and thus can't respond to demand in a pull based manner as well as Toyota.
The money should go to startup car companies. BYD is valued at 2.5B and they have a huge cell phone battery business. For 15B we could easily start 10 car companies. Invest in the real future.
Oh I would never suggest that the wages are the only Union-induced problems. There's a whole laundry list of them. It's just the easiest one to tackle.
They wish. The UAW has a complete monopoly over their labor resources. In the case of a bankruptcy, the courts would have trashed those idiotic work contracts and brought in something more in line with their competitors. Bankruptcy would have also gotten rid of the dealer safeguards the are currently preventing the 3 from downsizing (shutting down a dealership usually means that said dealership needs to be bought out -- very expensive but the fact that GM has been doing this for the last several years shows how desperate they are to downsize their US operation).
With the bailout, all that pressure is gone. The only real way GM et al. have a way of pressuring the UAW now is to convince the UAW that they are willing to go out of business to turn a profit... no longer a credible threat because the next congress will happily bail out the UAW for the chance to waste more money on "green cars" (Ie. overpriced cars that nobody wants).
Toyota and the other foreign manufacturers were careful never to become too dependent on unions and they are also not subject to the two fleet requirements (too much, they are careful to skirt them) of the CAFE regulations thus giving them a credible bargaining chip against unions like the UAW when negotiations are necessary. For more info, see http://online.wsj.com/article/SB122584326266699163.html
I do not see why you must lower the build quality in order to lower the cost. Yes, lowering the build quality saves money in the short-term, but there are other ways to save money, no? As they're learning now, going the low quality route is actually very expensive (unprofitable) in the long-term.
Have you compared the big three and their Japanese rivals in terms of their manufacturing process?
No, but even if that's true, is it really fair or, in the long term, sustainable, to give the Japanese a $2,000 head start? You're requiring our companies to innovate away $2,000 worth of overhead just to achieve parity. Even if they accomplish that, the Japanese are just as bright as us and they'll do it right back.
And The Toyota Way was published 5 years ago and was a snapshot of the industry years before that. I promise you people at GM have read it too. I wouldn't deny that Toyota has probably done better until more recently, and that their actions therefore gave them more than the $2,000 edge. But $2,000 is more than enough to win.
I'm not trying to suggest that that $2,000 is the only problem, just that it's one that is insurmountable, and therefore needs to be fixed.
> They're ugly and crap because of the extra cost.
Crap, maybe, but not ugly. I find it hard to believe that the complicated ugly of US cars is less costly to manufacture than the clean lines of a VW. I think it's far more likely that the people deciding who designs what and what designs make it to production have no taste.
Ford trends better at design than the other two. Is that because they don't suffer as much extra cost, or because they're just more competent?
"They’re losing because every car costs $2,000 more to build due to higher wages and health care. That’s it. End of story."
If this is really the case than the US government should have agreed to some sort of specific bailout for the health care and benefits wages which are really dragging these companies down. If Toyota can work with US labor (well kind of, see source below) than there is no reason that the big three should not be able to.
Interesting side story. Toyota is worried because "Labor costs as a percentage of sales are growing faster than Toyota's profit margin" and there is now talk of unionizing to sustain labor wages. One of their own senior employees is quoted as saying, "I'm more than willing to work with that company to keep my job. But when they just take it because they want more, I don't agree with it at all."
(http://www.freep.com/apps/pbcs.dll/article?AID=2008112120001)
If Toyota gets caught up in this UAW mess too, I'm not sure how any company will produce in the US. Is there any foreseeable way jobs can stay here if the unions won't let the companies operate profitably?
whatever the auto makers do it's nothing compared to the f-ups of the bankers. even their loan is miniscule compared to the 2 trillion dollar loan we've already given the banking industry; not to mention the 5 trillion in free money and the complete lack of oversight and transparency for the bankers.
More attention should be re-diverted back to the banks...
Writing articles that seem to be well thought through. Although I, sometimes, find myself opposing his views, I have to say that they are always interesting. "If two people think the same , one of them is not needed". So we do need writers who bring a different point of view. I think that is what he does with his writings.
