Comment by JJ Hornblass on November 20, 2008 at 11:10am

Greg, thanks for posting. Certainly I agree with your sentiments on free markets. To a point.

Ideally, the Big Three surely should be left to succeed or fail on their own. But what if their failure leads to the failure of not just them, but the economy in the Midwest or manufacturing broadly or even the entire U.S. economy? Not each of those enterprises that fail with the Big Three should deserve such a fate. Not each of those enterprises would be guilty of inefficiency, poor government regulation, horrendous labor contracts, or executive greed, for example. This is the dilemma we face not just with the Big Three, but with free-market capitalism broadly: there exists the risk that "good" companies can fail because of "bad" companies.

Comment by David Ruggles on November 20, 2008 at 5:51pm

The Chrysler "bailout" was a 1.2 billion dollar loan guarantee on which the government made 300 million. I'm not trying to say this current situation is the same, but let's consider the ramifications of just one of the BIG 3 going into Chapter 11. The domino effect would bring them all down. The BIG 3 are much more dependent on common suppliers than ever before. If a critical supplier were to go down because they couldn't get paid from a BK manufacturer, it would even shut down production in South Detroit.

Comment by Mike Gibb on November 21, 2008 at 8:21am

But doesn't it stand to reason that other manufacturers would step in to fill the void, should any or all of the Detroit 3 stop manufacturing cars? If that's the case, wouldn't there be increased demand from those suppliers?

I'll preface what I'm about to say by noting that most of the food I ate and clothes I wore growing up were provided by two parents who worked in unions -- one of them for a member of the Detroit 3. To prop up a group of companies that are poorly run and lack the ability to compete in a global economy, simply because they are too big to fail, seems ridiculous.

Congress has asked GM, Ford, and Chrysler to submit a detailed business plan by Dec. 2 in order for it to reconsider a bailout. Getting those companies to initiate the kind of changes needed to turn around their businesses in short order is like asking the captain of the Titanic to do a U-turn in a bathtub. These companies need to undergo seismic changes in every facet of their operation, from R&D to assembly. This is not something that gets fixed in a fortnight.

This is not a time to be nostalgic for the glory days of the Big Three. The Big Three are gone. This reminds me of a scene from an episode of "The Simpsons." Set in the future of the show, Mr. Burns has been cryogenically frozen to allow scientists the time to find a cure for 17 stab wounds. In the scene, the scientists are excited when it's announced that they are up to 15. How many wounds will a Congressional bailout heal?

Comment by Greg Thibodeau on November 21, 2008 at 11:03am

The arguments that JJ Hornblass makes are emotional and not logical. Apply those emotional concepts across the board and watch the line for “free money” grow. Bus as we know nothing is free; this money is not free it comes from you and me. This upcoming Obama presidency will probably confiscate more of our money in the next four years to pay for these bailouts. My company, myAutolaon.com has been greatly affected by this recession, business down by 40%. We don’t expect anything from the US government or its taxpaying citizens...... JJ Hornblass, do you feel we should get in line and take your money? If you do, please just write us a personal check and send it to myAutoloan.com, 5005 W. Royal Lane, Suite 209 Irving TX 75063 c/o myautoloan.com bail out.

Comment by David Ruggles on November 21, 2008 at 11:35am

So do we bail out Porsche driving Wall Streeters and not the American Auto Worker? Do you not see that a failure would have a domino effect on the entire industry at a time when it could take the entire economy down at the same time?

Roger Penske has an idea. I want to make it clear I don't endorse this, I am merely putting it out there! From Dealer'sEdge.

"Roger Penske’s ideas for aiding carmakers

Would recognize automakers as a “strategic industry”
(11/21/2008)

DealersEdge Daily Headlines

Roger Penske has been successful in just about every venture he has tried, and that’s especially true of his automotive businesses. So when Roger Penske speaks of things automotive, people tend to listen. Here’s what he had to say to USA Today on the subject of government financial aid to domestic carmakers.



Roger Penske thinks he's found a simple answer to bailing out Detroit's automakers — a restructuring fee that would be added to the price of every new car.

Instead of government loans to try to bridge General Motors, Ford Motor and Chrysler through their financial crisis, Mr. Penske said Thursday that he likes the idea of a fee levied on every foreign or domestic vehicle sold that could raise billions a year for automakers.



Proceeds from the fee — he suggested $200 or $500 per car — would help relieve automakers of their health and retirement burdens. It could also go to buying out under performing auto dealers. Laws in many states prevent automakers from closing dealers outright.



He gave credit for the idea to Tom Dekar, of accounting firm Deloitte & Touche. Mr. Dekar said he only wants to float the idea as his personal view to enhance discussion to solve the crisis.



The proposal would recognize automakers "as a strategic industry," Mr. Dekar said. "Everyone is beating up the Big Three." But he says the criticism is unfair because Detroit's trouble can be traced largely to taking care of their workers in the industry's heyday."



Mr. Penske says he thinks even foreign makers would line up behind a fee because they have already said the Big Three's survival is critical to their ability to maintain their base of key suppliers.

Comment by Neil Schulman on November 21, 2008 at 12:01pm

Greg,

I have to disagree with you. While your Friedman-esque arguments would have been effective in a pre-New Deal America, we can no longer boast ourselves as a completely free market, so it's impractical to behave like we are one.

If we don't give any aid to GM and Ford, if they're forced into bankruptcy (or worse) it doesn't only hurt GM and Ford. It hurts companies like yours, it hurts Financial Services providers, it hurts third party manufacturers like Goodyear, it devastates the dealership level. Think of towns like Union City, TN whose economies are mostly supported by a Goodyear Tire and Rubber plant. What happens to the families who depend on industries which may wind up not being viable in an American economy that no longer boasts an auto industry?

Adam Smith never could have envisioned 21st century America when he was writing Wealth of Nations. Should we really hold onto his ideals, to our own detriment, just out of principle? Technology, globalization and short sighted corporate greed have made that ideal obsolete.

As Michael Douglass said when asked by a reporter if greed was not good anymore: "My name is not Gordon. It's a character I played 20 years ago."

Comment by JJ Hornblass on November 24, 2008 at 1:29am

Greg,

Perhaps I didn't explain myself well enough -- my apologies.

I am greatly sympathetic to the decline in business at your company, which is exactly why I question whether we, as taxpayers, should prefer bankruptcy for the Big 3 rather than maintaining their viability (and, in the case of GM, until 2010, when the company's new labor agreements go into effect). I don't think I am being "emotional" when projecting a significant negative economic impact on the US economy after even one of the Big 3 goes bankrupt. (See here for a good blog by Michael Smitka, a professor of economics at William and Lee University, on the potential economic effects.) Does that mean bailout funds should be thrown at the Big 3? I doubt it. Yet, it would be unforgivable to blithely allow GM or Chrysler to go bankrupt without considering the repercussions for companies like myAutoloan.com.

Comment by Greg Thibodeau on November 24, 2008 at 8:46am

Good comments JJ.....

Comment by Greg Thibodeau on November 24, 2008 at 11:54am

...but now I have a moment to better respond. Your responding to the fear (emotional) of other business going out of business and therefore the people working for the auto industry (manufacturers, vendors, etc...) will all lose their jobs thereby causing massive unemployment, further recession and maybe even depression. Fear is the emotion you’re reacting too. I don't see your worst case scenario happening. I see a Chapter 11 filing as a new beginning for these companies and the industry; that with out this new beginning and the wiping of the UAW slate that these companies can again compete in the world wide industry. Bailing them out solves NOTHING. Simply divide the bailout money by the big 3's burn rate and you see the time frame for your next bail out......this summer!!!!

So with this JJ, I have one question for you; What do you propose the US manufactures use the bail out money for?

And, emotionally, Id love to see them given billion of our US citizen’s dollars. Remember, the money does not belong to the US government; a huge bail out helps me and my company out – I’m looking at my economic principles and the bigger picture.

Comment by Greg Thibodeau on November 24, 2008 at 12:09pm

To fix the US auto industry 3 things need to happen - 1) UAW contracts need to be immediately reworked by competitively setting wages, working hours, benefits, etc...., 2) Congress needs to repeal all CAFE standards for 10 years, 3) rebate federal sales tax on all new cars sold in the US for 10 years.

This fixes everything and provides real incentives........problem is - it cant happen unless there is a BK filing.....UAW wont budge, Congress and the new president are to left wing and socialist to understand the hurdles of CAFE has had on this industry and to socialist give up on taxes, taxes, taxes.....

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