Auto Bailout – Part Deux

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Well it looks like its Merry Christmas to GM this year as the 13.4 billion dollar bailout was awarded by our beloved leader and chief. As you might have guessed from my previous post on the subject, I do not care much for this bailout, but then again I did not care for the overall bailout either. Companies start and end. They make and lose money and in the process give us new standards of life. The government tries to scare us into believing if any of these companies fail, they will bring the market down with them, but that is just complete bullshit. Do these people truly believe that the big 3 are the only companies in the world that make cars, and if they go down we are all fucked? The truth is that only a small subset of people would be in trouble, but the damage that this bailout will cause long term will be devastating to us all. There are dozens of Asian and European car manufacturers that have been clawing to try and get their vehicles here, since after all, we have had the highest percentage of disposable income per capita than most of the rest of the world. So what if GM is forced to close its doors. Its going to take less than a week for investors to come in, buy up the assets and before you know it, the doors would open and most of those workers that lost their jobs would be back at their stations. I say most, because the guys that come in drunk or are lazy would have to look for new employment opportunities in the service industry, which is the way it should be. Granted they guys left would be putting in modern fuel efficient 4-cylinder engines instead of 1950′s V8′s into modern frames, and the dealerships that currently dispense Saturn’s and GMC’s would have to re-brand, but the overall status quo would be preserved. They would still have cars to make, and we would still have cars to buy; except they would not suck.

Lets put aside all the reasons why the big 3 are in trouble for a minute and just concentrate on the philosophy behind this bailout and the principles of a free market. In the United States, we all enjoy a free market and capitalist ideals. The American Dream itself is a purely capitalist idea; Anyone can become anything they want, and by that we all mean rich. With this core value, we have built a free market economy, where anyone can start a legal business enterprise, and if they were smart enough and sold a product which is, or can be, mass consumed, could achieve the dream of becoming a part of that elusive top 1 percent. What most people don’t want to admit to themselves is that if everyone could reach the top 1%, then it wouldn’t be the 1%…it would be the 100%. What keeps the dream alive and has us all striving to come up with that big new thing that will make us millionaires is the fact that in healthy markets, giants do not stay on top forever. Markets change, technology advances and the companies either have to adapt or fail, and the small forward-thinking companies will eventually take their place. A completely free market, as we have all learned in our intro to Economics class, is not a good thing though. If left uncontrolled, large companies will unfairly crush competition by establishing vertical, or horizontal monopolies and undercutting any viable competition. So we have some laws and regulations in place to prevent this but the reality is that if a giant is forward thinking enough, it can go on forever, just based on the amount of R&D capital they have at their disposal.

The market, therefore, is a very brutal place, but what makes it solid and successful is that all who participate are governed by the same rules of the jungle. With the bailouts, the marketplace is no longer an even playing field. It has now become a socialist, yes, there, I said it, playground for the established. What is the point of starting a company that will be in direct competition with GM, investing enormous amounts of capital and time to come up with a superior product and try to take their market share, when as soon as they get in trouble the government steps in and bails them out allowing them to artificially compete without major effort on their part. What if my company cant keep up with GM due to my lacking funds in marketing, or my product being more expensive, or lower quality? Will I get a bailout? Of course not. So all are equal, but some are more equal than others. Wasn’t this how the USSR operated? Of course not, they also had healthcare for their citizens.

Giants, like the big 3, should have adapted their business strategies back in the 70′s to reflect the changing times. Instead they struck ridiculous deals with the UAW, continued to make vehicles from the dark ages and waved their cocks in our faces believing the whole time they were indestructible. Letting these companies fail would have been a good lesson for the rest of the world on how NOT to run a business. Instead all we are doing now is coddling three spoiled brats and wondering why they wont stop acting out and getting into trouble. The saddest fact of all is that the US manufacturers had one advantage that could have kept them on top of the markets for a long time: Patriotic Loyalty. Americans used to buy only American. They were cars built for Americans, by Americans and the rest of the world wanted to share in that sentiment. It was a huge advantage they had over all of the foreign auto makers, and all they had to do was keep up. If I can buy an American car that looked as good, drove as well and was as reliable as a BMW or Mercedes, I would have bought American without thinking twice. Instead of keeping up all they did was rely on the blind patriotic loyalty, until people started waking up and realizing how far the European and Japanese auto makers have advanced, and how retarded the US manufacturers had gotten. If you aren’t familiar with this sentiment, go test drive a BMW and a Cadillac, and it will become extremely apparent what I am talking about.

The Mercedes S class, for example, is still widely regarded as the showcase of things to come. New technologies, standards in beauty, comfort, safety and quality are all derived from this car. I ask you now, why isn’t the Cadillac this icon? It could have been, but instead looking at a Cadillac is like like looking into the past. Why isn’t the Corvette, a racing icon, as good as a Ferrari? Why do the big 3 have nothing in this country that can come close to rivaling anything that comes from Japan? In Europe, Ford has great cars (Focus, Ka, Fiesta, Mondeo) that give the Japanese and other European car manufacturers a run for the money, but why are they not here? We have the Focus here, but it has a horrible maintenance record in comparison with its Euro counterpart, and one of the greatest advances this company has made, the new diesel Focus, will not even be sold here. So Ford wants a bailout, but they sell their best stuff overseas and give us shit here…. WHY? The reason is that for every dollar that does not go into research and development, or quality of materials, or even little gadgets and details, goes directly into the pockets of the CEO’s and investors. Why invest $100 million into high quality plastics and leather, or independent suspensions, or fuel efficient engines, when they can buy another house, or private jet, or a Ferrari Enzo. These pricks in charge still refuse to take the smallest concessions in order to help their companies and for that I believe they should lose every penny to their name. A CEO of a Japanese Airline which is in trouble has gone as far as cutting all fringe benefits and refusing pay without any promise of a bonus at a later point, living off of savings, eating in the employee cafeteria, and putting in more hours than most of his employees, and these pricks wont even sell their private jets, not to mention the multimillion dollar bonuses they are still receiving for doing such a great job.

In my last article I mainly pointed the finger at the UAW for causing the failure of the big 3, and even though I still believe that they do have a big hand in the money and quality issues, I really wanted to clarify that they are not alone in guilt. Everyone involved with the big 3, which as of last Friday includes our government, is guilty and should be punished to some varying degrees. The concessions that UAW has been making in the talks over the last few weeks are not nearly enough to help, but at least they are willing to negotiate and help. Now that they money has been dolled out, I say the first course of actions should be the immediate dismissal of all CEO’s followed by a strict tax audit of their finances. I am sure by doing this we will be able to recover a good chunk of the money we just involuntarily gave them. This should obviously be followed by complete restructuring of the companies and modernization of their business plan.

Lets face it, folks, this money is gone, and we will never see it repaid, so instead I want to see quality cars made in the next 5 years, and I want each citizen of this country to get a fucking coupon for one.

The Automaker Bailout – EPIC FAIL

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It has only been a few weeks since the bailout of the US financial market passed through congress and the US auto industry has jumped up to get the slice of the pie. This isn’t the first time that US auto manufacturers asked for federal help, (see Chrysler bailout #1) and it certainly wont be the last, if they succeed that is. Gas prices have dropped and SUV sales have started to rise again, but they still want help. They need help because they cannot compete in any section of the market except in the SUV slice, and even there they are losing ground to overseas competition.

The question on my mind right now is, what the hell happened to free markets? It used to be, that if a company could not compete, it would die, and another would take its place. It was a process of ‘creative destruction’ and it is the basis of any free market. Keep up or get out, it is that simple. The big three, Ford, GM and Chrysler are asking for $25 billion dollars to keep up with foreign competition, and they threaten us with loss of jobs and general financial collapse if they don’t. In return they vow to look into alternative energy technology and fuel-efficient vehicles, but this is just political fluff to stay afloat for a little while longer. I don’t buy it.

By now, you might have guessed that I am opposed to this bailout vehemently and it has to do with their track record and their business plan. These companies have spent the better part of the last 50 years sitting on their asses, raking in profits while churning out the same lineup of vehicles with slightly different looks. At the same time their competition invested billions in R&D. Let’s, for example, take a look at a new V8 Mustang, one of the more popular American cars. It features a monstrous 4.6L V8 engine that only puts out 300HP. Subaru does that with an engine half the size and twice the reliability. Ford even brags about the Mustang having a solid-axle rear suspension, a technology that has not been used by any civil vehicle for 30 years. Yes, it goes fast in a straight line, but it also kill’s you when you try to turn, and that’s not much fun. In fact, going through the spec sheet for one of these I noticed that the things they tout about are simple bolt on upgrades, like new headlight bulbs and interior ambient lighting, and absolutely nothing substantial or innovative.

It is no wonder then that they cannot compete when it comes to fuel-efficient vehicles. I will concede that this has a lot to do with the fact that gas has always been much cheaper and more abundant here than in most places around the world. There was no need to spend money researching and building better and more efficient vehicles, when the old ones were still selling like hot cakes. The 1970′s oil crisis should have been a hint though. 30 years later, they still consider 25mpg a good gas millage and now they expect us to bail them out for their short sided decisions. They also trying to sell us on the idea that they need this money to research fuel-efficient systems and electric cars, but what about the Saturn EV1, or the Ford lineup of hybrid vehicles? They have the technology, and have had it for a while, so what’s the money for? Even if they didn’t, the Tesla Motors company was able to make a beautiful and ever so fast fully electric sports car without billions.

I ask again, what the hell is the money for? It might have something to do with unions. I think one big problem that these companies have, that is not entirely their fault, is that they are slaves to the unions, most predominantly UAW. Don’t get me wrong, unions had their place in history and served a purpose, but now these corporations are full of overpaid and under worked employees that strike at the smallest inconvenience. They are forced to pay people outrageous wages (about $72/hr on average), account for over-burdensome healthcare and retirement costs and are stuck with employees who barely do any work, some of whom don’t do anything but sit around all day. They cannot even fire people who perform poorly and are instead forced to pay them six figure sums to quit. This leads to cars that are built poorly, look ugly and use old technology, not to mention the fact that they often lose money per vehicle made. The thing that these unions don’t understand, or simply don’t care about, is that they have brought these companies to their knees, and in turn are forcing them to fail. When they do fail, close their doors and no longer are able to pay, who will provide for their healthcare and retirement? I sure as hell don’t want to. So a company, like Toyota, who does not employ a unionized workforce, knows that all of its employees will show up sober and ready to work Monday morning cause they know they can easily be replaced. Unions are supposed to protect the workers from being exploited, but in realty they’re exploiting their employers to the tune of billions, that might get passed onto the rest of us.

So, what can be done to save the American auto industry? Throwing money into the union pit is like, well, throwing money into a pit. The only long term solution is to do away with unions. I don’t have an answer for how to do it, but I know as long as the unions control these companies, they will not be able to survive. The only solution I can think of is for these companies to go completely out of business (or at least close all US plants) and sell them off to 3rd party investors that will start from scratch. Anything short of a total overhaul will not fix the situation. I don’t condone outsourcing jobs, but when your own workforce is pulling you under, you need to get out of town and start fresh.

For the actual cars they build, they need introduce vehicles people want to own. They need to be good looking, well performing, fuel efficient and most of all quality built. No more steel wheels with plastic hubcaps, cheap plastic interiors, underpowered big block V8s and solid-axle suspensions. Modernize! Take a page from BMW, Honda and even Apple and see what they are doing well. Invest money in F1, Touring Car and Rally racing (not just NASCAR). A lot of modern technology has come from those motor sports.

Finally, the government. The cracker jack box full of idiots that run this great nation of ours. Please listen to what I say, because its common sense, and you all seem to lack it. STOP TRYING TO FIX THINGS, YOU ONLY MAKE THEM WORSE! The beauty of an open market is that it fixes itself. It is the collective body of consumers that run the market, and it is our confidence in specific companies and the market overall that drives its growth. When you bail out a company that should fail, it undermines the confidence and destroys the faith we have in the market. If they fail, they fail, but sooner or later there will be someone that will come along to replace them and the industry will recover, but it will be with quality and innovation. What you should do is put in incentives for companies to thrive and succeed. Insure the low return safe investments that should pay out, do pay out, even if the company tanks. Cut taxes on domestic vehicles, relax regulation and offer perks to those consumers that do purchase US vehicles. Stimulate the market, don’t try to control it.

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