Thursday, November 13, 2008

...And The Honeymoon's Over

President-elect Obama is now pressuring President Bush to bail out the car companies.


So it's not enough, for Obama, to have government meddling in the financial sector. Now we have to prop up dying dinosaurs in the auto industry as well.

Here's what I don't get. We bail out airlines, despite the fact that Southwest's success demonstrates that we don't need to - airlines can survive on their own. We bail out car companies, despite the fact that Toyota demonstrates that well-run car companies can succeed on their own. Unlike the financial sector, whose failure can be attributed to a lot of different things, the failure of the American auto companies can be attributed to one thing - friggin' stupid leadership. The heads of the car companies hitched their wagon to the SUV/gas guzzler star, and when gas prices scared people out of large cars, they had no plan to switch to small cars.

So let GM fail. Let Ford and Chrysler suffer. Instead of rewarding companies whose leadership is idiotic with government cheese, let's spend our money on helping workers adjust to the disappearance of their employer. Seems to me some company, somewhere, will pick up the slack and start making more cars in GM's place. Which means that company will start hiring more. Creative destruction, people. If there's a role for the government in all this, it's to protect the employees who get caught in the middle. Otherwise, shouldn't we just let companies rise and fall as the market dictates?

In other news, this whole bailout thing could put us on the hook for (inserts pinky finger in mouth) five trillion dollars. That's really damn expensive.


Mike said...

"If there's a role for the government in all this, it's to protect the employees who get caught in the middle."

Pretty much. You make an excellent point about finding creative ways to help those employees beyond continuing to prop up their companies. As you say, bailing out these companies will essentially be rewarding poor planning and management. If there's a way to spare the workers who didn't make the poor decisions and were simply doing their jobs (or at least to limit the negative effect on them), then yeah, eff GM.

Jacob said...

Agreed all around, but I wouldn't lay the blame entirely on the leadership. These older firms have been crippled in part by very aggressive unions. That's another argument against the bailout: if one or more of these firms goes into bankruptcy, the assets and the business don't just disappear. What's valuable is salvaged and these kinds of contracts get renegotiated to something more feasible.

-Dave said...

The Big three should go bankrupt, and let a court restructure the union deals that have made them utterly and completely uncompetitive. Chrysler was bailed out decades ago, which got us.... where?

I read of $25 billion going just to support union health benefits.

I was going to cry foul, but when your'e the embattled minority, you need to pick your battles, and I ahve actual work to do.

Ben said...

So they should go bankrupt so that they can back out on a promise made to their workers. I like how you somehow make that sound like the moral option.

I'm not saying it won't end up that way. But the "good riddance to workers organizing" is just offensive. I suppose in an ideal world every employer would be a like Wal-Mart, busting unions and paying abysmally low benefits. But they sure are competitive! Can't deny that.

Ben said...

Put another way, I don't think a bailout (tossing taxpayer money at the problem) is the answer. Neither do I like bankruptcy and forced restructuring of collective bargaining arrangements (essentially silencing the voice of the workers and undercutting their reliance interest).

In my ideal world, the unions would be made to see that their current benefits are making things impossible to compete (if that's indeed the case...I still wonder how much of it is the poor leadership and tying companies' fates to poorly made gas guzzlers). Then, for their own self-interest, the unions would negotiate to reduce benefits somewhat. But I don't trust either companies or courts to look out for the interests of workers. I think workers themselves are far more likely to look for their own interest. Whether that will turn out to be enlightened self-interest or only short-term, well.....

Jacob said...

So what's your point, exactly? That unions should voluntarily renegotiate their contracts, but we should expect them to do so without the threat of bankruptcy looming over them? If the unions can renegotiate and save the companies, that's awesome. Go for it. But it's not like this problem hasn't been on the horizon for some time. Why didn't they change before? And why change now, especially with a friendly Democratic government ready to hand you billions of dollars?

This isn't glee at seeing a union get spanked. As long as they're not forced into it, I couldn't care less if workers unionize or not. But when it gets to the point of begging for tax payer handouts, we've got to draw a line. A functional, innovative market system has to be willing to let companies fail and restructure into a profitable organization.

Ben said...

I don't disagree with anything you said, Jacob. But I still see it as good thing that (1) workers have a voice, and (2) they not get their lugs cut out from underneath them. You work 40 years at an auto plant and part of the deal you've agreed to is that your health care needs are taken care of after all that time. That's a legitimate reliance interest. Then some bankruptcy court just comes and unilaterally takes that all away and you're left in your old age with nothing but mounting hospital bills. There's something very wrong with that.

Now maybe the fact of limited resources means the company can't pay for this healthcare/pension and still run a business. Then maybe there would have to be some cuts. But it seems only fair that at the very least the people who get screwed by this at least have a voice....a place at the negotiating table.

I'm not arguing in favor of taxpayer handouts. I guess I'm just arguing against those who do get "glee at a union getting spanked." They seem to see unions as some sort of extortion racket against poor defenseless companies. I see unions as the voice of the workers - often the only way they get heard and get their interests considered.

-Dave said...

Workers organizing in such a way that it destroys their employer should have their deals blown up.

Fighting for good benefits is nice. Getting such good benefits that you drive the company under - well, that gets you what you deserve.

Benefits are good, but if the employer can't turn a profit, your benefits are too expensive. The same thing, incidentally, goes for executive salaries in my book, but I suspect that the former is a VASTLY bigger burden than the latter.

Unions that see their perpetual existence as more important than the existence of the profit-producing company that employs them is ridiculously shortsighted.

-Dave said...

..."well, that gets you what you deserve."

Namely, it gets you $0 wage and unemployment. In order for there to be a job, there must be an employer. Unions that lose sight of the cooperative nature of the business shouldn't be surprised when their deals vanish.

-Dave said...

"(if that's indeed the case...I still wonder how much of it is the poor leadership and tying companies' fates to poorly made gas guzzlers)"

This is a chicken-and-egg thing, which I often see floated by people sympathetic to the unions.

How I see it is that companies put all that effort into high-profit vehicles because of the huge looming obligations they had - that is to say, unions made automobiles so expensive to make that the car companies HAD to chase high-profit gas guzzlers, while non-unionized companies were freer to innovate with lower-profit vehicles.