Thursday, December 11, 2008

The Auto Bailout WILL Fail

GM CEO Rick Wagoner slipped. In Senate testimony he implied that a U.S.-made car with 75,000 miles on it has a lot of miles on it. That's precisely the problem. Toyotas are expected to go 200,000 miles, American cars 100,000. 

And during their shorter life, American cars break down more often and need more maintenance. The public knows that thanks to Consumer Reports and from their own experience. U.S auto execs, engineers, suppliers, and union workers all share in the blame. 

No matter how large the bailout (using working- and middle-class taxpayers' precious dollars,) unless US automakers create Toyota-quality, Toyota-longevity cars, the "Big" Three will never survive. And they can't create Toyota-quality/longevity cars as long as they keep using lifetime-job-security $75 an hour (including benefits) workers and inferior parts. (Mechanics tell me that U.S. car parts are lower quality.) Would you buy a $40,000 Chevy Volt or a $22,000 Toyota Prius? 

And next year, Toyota plans to release a next-generation version (more powerful, higher mileage, and using solar roof panels as a supplementary energy source.) Yet it will cost only slightly more than this year's model. And in 2011, Toyota plans to release a 100-mpg version.

The government isn't stupid. It knows the bailout won't work, even if its Car Czar demands green cars. Then why are the Democrats pushing to use our tax dollars to bail out the U.S. automakers? As payback to the UAW for helping them win the election, because the Dems know they'll need union support to pass future legislation and in the 2010 elections, and Michigan is a key swing state. 

Per my previous posts, bailouts will not work, punishing the good guy and rewarding the bad. That will only encourage more bad behavior. Perhaps more important, bailouts are a huge slap in the face to the innocent taxpayers and a stake in the heart of upstart companies, the linchpin of the American edge. Entrepreneurs now know they can never compete with the big companies because the government will always bail the big guy out as"Too Big to Fail."


Anonymous said...

Have you heard of the "American Automotive Reorganization and Recovery Plan" proposed by some Congress Republicans? The text is here:

Dave said...

Thinking back on your thoughts and ideas in a previous post -- It will cost approximately 125 billion dollars to keep the automakers afloat. That's 125 billion that could be invested in job training and transition. Health care and information technology jobs are secure and plentiful. You are absolutely right.

And I agree with your comments on the steel industry - a clear indicator of what was to come. The writing was on the wall twenty years ago for these automakers.

Marty Nemko said...

Yes, but it still uses taxpayer money to bail out those structurally doomed-to-fail companies. If no bank in the entire world is willing to lend the car companies money, how can we look the struggling working- and middle-class taxpayer in the eye and say, "It's worth taking money out of your little paycheck to prop up companies that no bank would lend to?"

Anonymous said...

You were right. It did fail. For now. It was just rejected by the Senate. My guess is that this isn't over yet.

I wonder how the stock market will look tomorrow.

Marty Nemko said...

What counts is not what the stock market does tomorrow. What counts is what the economy does long-term. No bailouts is a short-term minus and a long-term big plus.

Anonymous said...

Yes! It is a huge mistake for all the reasons you describe.

And didn't GM CEO say it couldn't survive beyond the end of the year? So when it does, it proves he lied to force a fast bailout? Or am I misunderstanding?

Anonymous said...

Thanks for writing this. As a prius owner people always ask me how I could spend so much money on a car which doesn't actually pay for itself given that gas prices are low again. So, if people already think 22K is too much to spend for a hybrid why does GM think they will spend almost twice as much for one? American automakers would be better off working on improving mileage on their SUVs which were their big cash cow anyway.

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