Some of you may know that I was born in Michigan and have family that has worked, and does work, in the auto industry. To my knowledge, none of them are corporate members, or have been, but they work for the Big Three nonetheless. I have a certain affinity for American carmakers and wish them success. I don't want to see Detroit continue to fail.
Right now, Face the Nation is on, and Rep. Barney Frank (D-MA) and Sen. Richard Shelby (R-AL) discussing whether or not to bail out the automakers. Of the two, I thought Shelby's answer was closer to what I would support, that Chapter 11 might be the best way to go - go through a restructuring, get out of the bad contracts, and require the industry to start over with new corporate structure. What concerns me is something I read on at least one other blog (I can't recall which), which essentially said that because of the credit freeze, the automakers would be unable to get bankruptcy loans (when there's a chapter 11 filed, there's a hold on all assets, so the day to day operations would need to be financed through loans) to meet expenses during a restructuring. What this means, as I understand, is that the automakers would face considerable difficulty in steering through a Chapter 11.
Now, I'm a little skeptical about that explanation, as I think the auto industry is big enough that money would find its way to them. But, that does not mean that there is not a risk there. The big question is, would Detroit be able to shift enough in philosophy to make a restructuring worthwhile?
There is a lot of finger-pointing over what's gone wrong over the past 20 years, but I think all can agree that continuing with the status quo is not the solution.
2 comments:
I have an idea...make a car that people want to buy and try staying ahead of the curve for a change. American auto makers were clinging to their SUV's, then gas prices skyrocketed. Japanese (and other) auto makers continue to kick them in the pants. More innovation, better design. Of course, having all those pensions to pay doesn't help them either. I get that. They need a complete overhaul but I think allowing them to just fail would have such a great ripple effect that we would all suffer even more...
Clinging to SUVs is definitely a contributing factor, but one has to ask "why?" It's not simply because of short-sightedness. The profit margin was higher for SUVs than it is for compact cars and per car, Detroit pays about $30 more per hour. In order to even stay close to competitive, they needed the SUV sales in the wake of an unrelenting UAW.
This does not absolve the Big 3 of culpability, as they still had the means to look ahead and/or cut their losses earlier.
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