comes from Jonathan Rauch, writing in National Journal; having spent considerable time recently around General Motors for a story on the Chevy Volt, Rauch has seen quite a lot of the company’s culture and internal processes, and his report suggests a strong possibility that a government loan might actually work—that the company (and, one hopes, also Ford and Chrysler) might be able to use the time the loan would buy them to finish making the changes they need to make to compete on an equal footing with the rest of the world’s auto manufacturers. Rauch writes,
Today, GM’s factories are only about 6 percent less efficient than Toyota’s, according to Oliver Wyman, a consulting firm, and the remaining gap will shrink as new labor agreements kick in. The company’s cars are winning awards and critical plaudits. The 2008 Chevy Malibu, a hit with both buyers and analysts, represents a breakthrough: a midsize sedan that can go toe-to-toe with Toyota’s ubiquitous Camry without flinching. Whether GM can consistently replicate the Malibu and other recent successes remains to be seen, but the vehicles in the pipeline look promising. . . .What I found this year was a far cry from complacency. The ranks of line executives and engineers are thick with members of the Obama generation, who barely remember when GM was fat and happy. They are hungry to change the beleaguered company and prove its critics wrong. They are also piercingly critical of the old GM, candid to the point of eagerness in owning up to and analyzing the company’s mistakes and faults. The decades of denial are over.To succeed they will need a healthy balance sheet. Here, the problems are with legacy costs: uncompetitive pensions and benefits, rigid labor contracts, too many brands and dealers, and so on. The good news is that the company has succeeded at reducing its structural costs. It has shed more than 40 percent of its jobs and about 1,000 dealers since 2004; negotiated fully competitive wage scales for new hires; extinguished the Oldsmobile brand; and transferred retirement and health costs to its unions. The bad news is that those changes were sufficient only if everything went right economically.In its rescue proposal to Congress, GM practically begged for a strong federal overseer with the power to force unions, dealers, and creditors to accept further retrenchment. GM wants the stick of a bankruptcy-like arrangement without the stigma of the real thing. In principle, a federal bailout could give GM a hard push into the future by wrenching its balance sheet into alignment with reality.
I don’t know if I’m convinced, but I think we all need to think about this very carefully. The most important consideration here is that the automakers aren’t simply asking for money to prop up business as usual. Rather, as Paul Hinderaker puts it,
GM is asking for the stick of a bankruptcy-like arrangement without the stigma of the real thing. The bailout issue boils down to whether it makes sense to grant this. Bankruptcy provides a bigger, more effective stick, but it is not without risk. GM might not survive the loss of confidence associated with a bankruptcy, and its failure could take down much of the supplier base, with severe consequences for the larger economy.
This is not a possibility to be taken lightly; there’s a real risk in giving the automakers the loan they’re asking for, but there’s a real risk in not doing so as well. The core question here is the potential reward for each risk, and the likelihood of that reward materializing. There seems to me to be no doubt that the best-case scenario is of GM, Ford and Chrysler solving their competitiveness problems to the point where they can build better cars than their competition at an equivalent cost; the issue is which path is most likely to get us to that point, and what the downsides are for each if it doesn’t. There’s no way to be sure, but for his part, it’s clear which way Rauch leans:
Whether a bailout can save GM depends, then, on which GM you think you’re bailing out, the calcified shell of the old GM or the new-economy company struggling to emerge. Given the record, counting on GM to succeed would be rash. But consigning it to fail might be even more so.
It drives me insane that a 15-30 billion bailout of the auto industry ignites weeks of debate,whereas a 700 billion blank check to the finance industry is passed almost without comment by comparison. And $100 billion is already allocated…somewhere. Really, no one’s paying much attention. We’re too busy talking about whether auto execs fly in private jets. I wonder if billionaire investment-firm CEOs have private jets? We don’t know, because no one bothered to ask.
Of course, this is all from a congress with a, what, 20% approval rate? Or thereabouts? Does anyone wonder why this is?
I also find it absurd to the extreme that the same conservatives who call Barak Obama a socialist sign off on a 700 billion bailout of our finance industry. I mean, can we please stop pretending we’re capitalists? We’re not – we just happen to subsidize failed banking systems and warfare rather than public health-care and infrastructure.
An interesting choice. I wonder how long we’ll last.
To be fair, the conservatives who’ve been calling Obama a socialist have also been uniformly opposed both to the Wall Street rescue plan and the loan to the automakers. To be fair also, I wouldn’t call voting the first one down “passing it without comment by comparison”; without the severe market drop after the first vote, I don’t think it *would* have passed.
Do investment-firm CEOs have private jets? Not anymore (with a few exceptions).
Also, fwiw, the banking system going down takes everything else in the economy down with it–that’s how you wind up with a Great Depression. It does tend to be the sort of thing you want to avoid.
True, I just wish we had some better way in mind than a blank check. At the moment, we’ve giving money out and then asking where it will go – that seems sort of backwards.
It also doesn’t seem to be being used to actually shore up the economy. If banks just take the money, put it in a vault or acquire other banks, that won’t do anything to stave off a Great Depression. As we ask where its actually going, I’ll be curious to learn.
I take your point, though there are definitely Obama-is-a-socialist-but-I-support-the-bailout conservatives out there.
What’s behind this for me is that I don’t think our economy is anywhere near tenable long-term. I view collapse of our system as inevitable. There is no such thing as sutainable growth in use of resources, but that’s what we’re built on at the moment. And either we’ll collapse in a huge way, or we’ll have to go through the painful process of actually creating an economy that will function in a hundred years.
there are definitely Obama-is-a-socialist-but-I-support-the-bailout conservatives out there
Like who? I can’t think of any.
As for the blank check, that was to government. The Treasury wasn’t authorized to give money to banks, but rather to buy assets, as a way to keep liquidity in the system. So far, from a groundhog’s-eye view, it seems to be working.
There is no such thing as sutainable growth in use of resources
Here, we have to agree to disagree. Interestingly, it looks like Obama also disagrees with you, given his appointment of Ken Salazar to Interior; he’s no “drill, drill, drill” type, largely because he understands the countervailing importance of water in the West (I’m in full agreement with him on the Roan Plateau), but his record indicates someone who’ll work for balanced land use and precisely that sustainable growth in resource development that you don’t believe in. It isn’t, I think, a long-term strategy; but if Steven Chu at Energy puts the full-court press on developing the hydrogen economy, I think it will bridge the gap.
As a side note, it looks to me like Obama’s handing the Left carte blanche on abortion (with which he’s completely comfortable)–including, presumably, SCOTUS appointments–in hopes of keeping them off his back while he tries to steer a centrist course on pretty much everything else. It will be interesting to see if it works.