Age is a very high price to pay for maturity. --Tom Stoppard
As I get more, um, mature, the more I understand that we (people, companies, communities) often aren't sufficiently motivated to make big, lasting changes until we reach the crisis stage. Gotta hit rock bottom first, all that stuff.
Time to tear off the Band-Aid. Things don't always have to go that far before good changes happen, of course. But I believe that's what's needed for the U.S. auto makers: They need to fundamentally change -- and I don't see much evidence that a government bailout will accomplish that. I think they need to face the music, even if it means reorganizing through bankruptcy.
In the red corner: Ideology! There's plenty of Big-I ideology to go around on this one.
- The free-markets people say "let Detroit succeed or fail on its own" -- although if we non-economists have learned anything over the last few months, we've learned that the free-market stuff is an admirable philosophy, but not happening in reality.
- Meanwhile, American Flag, Mom, & Apple Pie, Inc. (AFMAP) acts as if our rusty, trusty, Detroit-centric auto industry is a God-given right, and deserves a $25 billion Mulligan/freebie/handout. (Cue Springsteen singing Youngstown.)
And in the blue corner: Evidence! Looking at the evidence, I don't believe the auto makers should get a bailout from the U.S. government. Without repeating every detail and recapping every editorial, here are some highlights to support my argument:
- They've drained too much money from our economy already. In Just Say No to Detroit, an essay in Saturday's Wall Street Journal (behind paywall), David Yermack argues that the "The implications of this story for Washington policy makers are obvious. Investing in the major auto companies today would be throwing good money after bad.... GM has invested $310 billion in its business between 1998 and 2007. The total depreciation of GM's physical plant during this period was $128 billion, meaning that a net $182 billion of society's capital has been pumped into GM over the past decade -- a waste of about $1.5 billion per month of national savings. The story at Ford has not been as adverse but is still disheartening, as Ford has invested $155 billion and consumed $8 billion net of depreciation since 1998." Yermack claims we'd be better off simply writing checks to each GM employee... I think he has a point.
- Look to the future, not the past. In the New York Times DealBook column (yes, I said the New York Times), Andrew Ross Sorkin writes in A Bridge Loan? U.S. Should Guide G.M. in a Chapter 11 that an orderly bankruptcy for GM would be preferable to a taxpayer-funded bailout. This would allow them to tear up their crippling labor contracts and have a fresh start.
There's lots of evidence on both sides of this issue. But I believe the weightier evidence says Detroit has mis-managed and under-innovated for too long already -- instead of taking bold steps, they chose instead to hire lobbyists. Rather than throw more pearls before swine, I think it's more appropriate to continue providing assistance for programs like developing vehicles that run on alternative energy. And let the rest of the stuff sort itself out.
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