Back in 1986 we bought our first station wagon to serve our growing family. It was a Chevrolet Celebrity and ran well for more than 10 years. I didn’t question the $200 “destination charge” on the invoice, but when we got the Chevy home, I noticed on the i.d. plate that it had been “assembled in Framingham, Mass.” Remember when they actually built cars right here? That was a lot of years and a lot if really bad decisions by the Big Three automakers ago. One of those bad decisions was to dump the highly successful, Celebrity line and focus on SUV’s. That’s what did in the Framingham Chevy plant and its 3,700 jobs in 1987, and what’s doing in the auto industry today.
Bob Herbert in the NYT quotes arch-conservative senator Richard Shelby of Alabama saying that “The financial situation facing the Big Three is not a national problem, but their own problem.” Folks on the left, including on this site, have similarly called for the failure option. So is this the coming together of Right and Left in the public good? I sure hope not.
Jonathan Cohn has a thoughtful piece in The New Republic on how bankruptcy is problematic for the automakers. His key point is:
In order to seek so-called Chapter 11 status, a distressed company must find some way to operate while the bankruptcy court keeps creditors at bay. But GM can’t build cars without parts, and it can’t get parts without credit. Chapter 11 companies typically get that sort of credit from something called Debtor-in-Possession (DIP) loans. But the same Wall Street meltdown that has dragged down the economy and GM sales has also dried up the DIP money GM would need to operate. That’s why many analysts and scholars believe GM would likely end up in Chapter 7 bankruptcy, which would entail total liquidation.
Do we really want to wipe out the American auto industry? It’s fine to talk about “creative destruction,” but Schumpeter’s famous phrase applies to a continuum of events and activities in corporations, ranging from downsizing and internal reorganization to outright liquidation. Creative destruction in a single corporate sector in an otherwise healthy economy is one thing, creative destruction in an economy undergoing a major general downtown is quite another.
The dilemma is that we need to do something quickly. My preference would be for a short-term injection of Federal cash to keep things going while a tough plan is worked out that will give the feds a major stake in the industry from which they can push for big changes in the ways that cars are built and what kinds of cars are built. For example, do we really want to strangle the Volt, the first plug-in car, in its cradle? In general, I believe that governments should produce public goods. I’m not generally in favor of governments going into the production of consumer goods whether it be cars or airplanes or hockey rinks or golf courses. But in these parlous times, “common sense” may be neither common or sensical. I vote for a strong federal effort to confront this crisis. Not to do so is (to use an old automotive metaphor) playing chicken with a big chink of the economy.