Much as it pains me to say it, Mitt Romney’s op-ed in today’s NY Times is not only a deft political move (drawing on his childhood in Detroit and his father’s success in the auto industry as well as his own business turnaround experience), but also makes sense on the merits. At least I have the modest consolation of having gotten there first. Maybe he’s started reading BMG! Anyway, here’s his basic argument.
If General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.
Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course – the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.
Romney argues that, to succeed, Detroit must (1) eliminate the cost disadvantage relative to foreign auto makers; and (2) fire current management. For that reason, he rejects the idea of supplying additional funds to the companies as they presently exist: “don’t ask Washington to give shareholders and bondholders a free pass – they bet on management and they lost.”
His bottom line mirrors the “Chapter 11 with government backing” line that seems to be making the rounds.
A managed bankruptcy may be the only path to the fundamental restructuring the industry needs. It would permit the companies to shed excess labor, pension and real estate costs. The federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk.
In a managed bankruptcy, the federal government would propel newly competitive and viable automakers, rather than seal their fate with a bailout check.
One of my favorite sayings is that even a stopped clock is right twice a day.
Listening to Barney Frank yesterday, it became clear that the only function of the bailout is to preserve union jobs. But, in order to become profitable, each of the companies must shrink, drastically. Fewer brands. Fewer dealerships. Fewer models. Fewer factories, working fewer shifts. Like by shedding as much as 2/3 of its workforce. If the companies do not shrink, they will remain unsustainable, and will need to be bailed out again, and again. I don’t think that this is an acceptable use of taxpayer funds.
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p>Let them restructure in Chapter 11, and use some of the money not spent to help the downsized UAW workers.
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p>Some of the logic that Romney is using is from past bailouts, exhortations and proppings-up… The unions have made some pretty severe concessions and GM, in particular, generates only turmoil. It’s been doing this for years.
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p>I even think we’re past the ‘do not resuscitate’ stage. It only remains to declare death and move on.
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I think you are quite right here. Saving an unprofitable, poorly-run company in order to save jobs appears to me to be woefully inefficient.
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p>What I would rather see is (as I believe CMD implies) an increase in unemployment insurance funds and duration to help the downsized workers in the short term. In the long term, other, better auto companies will pick the bones of GM and expand their operations in the US. This will not save all the jobs, but I also disagree with the notion that all of the auto operations lost if GM/Ford go belly-up would simply disappear. Other companies will take up (some) of the slack.
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p>If it’s all about jobs, why not simply spend money developing a direct government works program? That way, the government (as opposed to poor management) would have control over the funds, and we’d build more infrastructure that way. Maybe this plan is objectionable, but it seems better and more direct than filtering money through failed companies in order to save jobs.
I think your plan hinges on a very tough sell.
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p>”the government (as opposed to poor management) would have control over the funds”
a poorly run company, better served by going bankrupt and coming back as an improved better organized entity, or are we bailing out a problem industry, still in need of massive change? The question is what is the best way to arrive at a good end? I fear the dislocation that would be caused by seeing GM/Ford/Chrysler go belly up in a sudden, uncontrolled way, not only for their employees, but also their investors, contractors, suppliers, and dealers that will also be devastated by the failure. A take their medicine approach doesn’t work if it doesn’t deal with the web of interconnections the industry has in the economy. Do the wrong thing, and the whole enterprise takes on the appearance of a gigantic domino set tumbling, one after the other.
And despite MI choosing to change its slogan to The Great Hate State in 2004, I still have friends & family there and can’t help but to be worried about the worse depths it would sink to if GM etc. folded completely and around the same time. The region has already been in the economic pits for some time. But I wonder, why are we talking of these car companies as if they sink or swim together? Do the suppliers rely on the continued livelihood of all of them? Why must there be a simultaneous hand-out? If there is to be governmental support, why can’t it be staged?
I’ve been thinking about this issue for awhile. I got in an argument with my company founder over it (the Big 3 are a significant source of my company’s revenue. We can survive without ’em, but we’d feel it).
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p>Basically, if one carmaker goes bankrupt, it very likely will have severe disruptions that will result in many of its suppliers also having severe disruptions. The Big 3 share many suppliers, so the net effect is that the failure of one is, in my opinion, very likely to take the other 2 with it, domino style. This is the Big 3’s current scare tactic, but I think it’s probably true.
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p>In a healthy economy, I’d say let ’em sink or swim.
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p>But this is not a healthy economy. Letting these guys fail will multiply and extend our recession for a long time, in my opinion.
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p>$25B in loans at 5% or whatever isn’t a bad deal; it’s better than what the US pays out on T-bills, so if they get paid back (as Chrsyler has in the past), it’s a modest income generator (but let’s call it even).
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p>My view is that even delaying the demise of the Big 3 for a couple years is worthwhile. Their fate was basically sealed in the early 1980’s when the automakers assumed low oil prices and ignored JD Power; they’ve been playing catch-up every since (as my boss said, “At this point [1981], if Bobby Fischer had been running General Motors, he’d have pushed over his king, conceded, and said, ‘checkmate in 27 years.'”).
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p>It’s easy to be righteous about this (let the bastards fail), but I think that’s cutting off the nose to spite the face, at least in the current economy.
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p>So count me in the “hold my nose and bail them out” category.
And it may extend to: bail them out, even if it means that they just shuffle along for two more years, and then fail again.
I look at it from this perspective: what is cheaper right now? If you let GM fail, lots of suppliers will fail too, Ford and Chrysler might as well. You’re talking at hundreds of thousands, if not millions, of jobs lost – primarily in Michigan. You will need a lot of federal money to keep the folks on unemployment. If you prolong the companies’ demise by giving them the bailout money, you are keeping the jobs for a while. Yes, they will fail eventually, and we need to create different jobs, be it in roads and bridges construction, green energy or sending a man to Mars. But are we ready to accommodate all these new jobless folks? Last time I checked, the Fed predicted 7.6% unemployment in 2009 – not a good number in itself, so why pile the problems up?
I think it is cheaper to let the Big 3 run for a while and deal with them later when we get unemployment back to healthier levels of 6% and less.
Ford and GM stocks trade at a couple bucks per share. Not sure how much more investors have to lose.
Dear Dad – do you remember a while ago, when I was discussing my own politicl leanings, you said you didn’t get how I could also suppot Romney?
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p>This is why. This op-ed deliniates the Mitt that I know.
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p>Is he personally more socially conservative than I am? You betcha. Does that drive his instincts for governance? No way.
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p>I’ve said this before (yes, Ryan, we all know about Barack’s GPA) that Government needs a big infusion of smart and I deemed Romney to be the SMARTEST person in the race.
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p>Another thing…(where’s Laurel? Put your hands over her ears)…social and cultural issues have damn little to do with government. In an ideal world, they would have nothing to do with it. Terry Schiavo laws and mandatory anti-smoking laws are equally wrong – because they are equally intrusive into personal lives. Romney has shown restraint on this front by refusing to interfere with reproductive choice laws in MA, so I know he is able to concentrate on government instead of culture wars.
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p>The business of Amrica is business – not morality. CMD – that’s how I can support him.
Right, it’s too bad that that Mitt didn’t run for president in 2008. Maybe he will in 2012 — now that would be interesting, as I’ve said more than once before.
I think he is screwed for 2012 by crazy wingnut 2007 Romney, though.
romney played an important roll in the effort to strip same-sex couples of their right to marry in massachusetts. to say he has shown restraint requires one to wear very think blinkers.
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p>also, you may have missed it, but romney jumped right into the culture wars in both his bids for governor and president.
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p>full of it.
Last time I checked, same-sex couples got married…under Romney. His effort was half-assed in-state in that regard.
behind the scenes.
I voted for this Romney for governor, happily.
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p>I wish that he had stuck around, because I might have voted for him again. I might even have forgiven a little footsie with the religious right, because you have to win the nomination first, and for the reasons that you cite: culture war is sideshow.
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p>But I didn’t see that guy run for President. I saw a guy who seemed to double down on Bush (More Guantanamo!) which struck me, and continues to strike me, as not smart.
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p>Godspeed to him if the author of this oped can reconstruct the GOP around him.
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p>In any event, I appreciate the response.
scewered him quite well today reminding us all why he will be remembered as the ineffective one term gov who got outmaneuvered by Caribou Barbie for Veep.
Joe Biden was right. Obama IS going to be tested early in his administration. But by the UAW. If he’s for real, he’ll embrace the suggestion made by Romney (and others–good ideas don’t need to be partisan) that bankruptcy is needed to shake off stale management and bloated labor contracts. But if he’s just another Chicago-style Democrat pol, there will be a government bailout for the benefit of the UAW. I’m hoping, HOPING, he does the right thing and not the politically safe thing. We’ll know soon enough.
Stupid smart Romney. 🙁 It’s evidence like this (and Bizarro Mitth from ’94) that makes me think that if he had political integrity and lacked Presidential ambition, he’d make a decent Republican. Too bad he sold his soul to the base.
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p>[I haven’t read anything on the Detroit situation and have zero fluency in economic issues, so I’m aware that this may be a repeat or just naive.]
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p>Assuming there was money to be sent to Detroit:
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p>What if, instead of giving the money to existing Auto entities – Ford, GM, etc – the money is given as grants and cheap loans to only brand new start-up auto makers. The grant would come with requirements, like they have to be super green, have to employ in the US with a quota of % of jobs created in MI and areas where the auto industry already exists, and restrict current big automaker execs from participating in the new start-ups (I mean, you wouldn’t keep giving “loans” to your meth-addicted cousin who swears this is the week he finally gets a job).
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p>Then, if these start-ups become lucrative, then old Detroit we’ll restructure and model itself after these start-ups, and private investors/venture capitalists will want to provide cash for the old Detroit makeover.
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p>Currently, the competition against Detroit that is so critical to the capitalist model comes from Europe and Asia. Why not have Detroit compete with Detroit? And considering China is putting an obscene amount of new cars on the road every year, let both Detroits compete for shares in this emerging market? If only one of the Detroits (Old or New) succeeds – it’s good for America. If both succeed, excellent for America. If both fail…then it seems that it was an unavoidable collapse, but the industry that is left over has already gone through a radical re-structuring and whatever is built on top of the ashes will at least be pointed in the right direction.
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p>So, no money for existing Detroit – don’t enable the addicts. Fund only new and green competition – even if it means having a proven foreign automaker coming in and setting up a new, independent, fully-US brand in Detroit. Build in protections so that the people responsible for the current screw-up don’t get control of these new funds. It was said by more than one wise man that a house divided against itself cannot stand, but that’s the point. Time to tear down the old house and rebuild new houses.
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p>So, any chance a sophisticated version of this idea could work? Is this an alternative to a normal bailout? Could people who are against any auto bailout be for something like this? Or is my hypothetical too much a fantasy and unrealistic?
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p>Yup, that’s the problem. He may be smart and hard-working, but he’ll say and do anything to get elected, and really have no shame about it.
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p>Remember his criticism of McCain before the Michigan primary that he disagreed that auto jobs would be lost forever and that he (unlike McCain) would fight for every job? And now this op-ed? It’s like voting for him is a 3-for-1 special. You get his hair and two very distinct Romneys.
duly noted at the time. One wonders (as I’ve asked before) whether Romney has finally figured out that he cannot win a “mobilize the base” strategy, since they just don’t like him that much, and is trying something else (yet again). Talk about a turnaround specialist! 😀
From Art.
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p>Progressive? Perhaps in Mitt’s next attempt at a fairer whole will prompt him to run for Democratic Senate nomination (ha!)?
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p>Emerson also anticapeted Mitt in “Nominalist and Realist”:
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“It’s like voting for him is a 3-for-1 special. You get his hair and two very distinct Romneys.”
Excellent!
Although not on topic, I can’t stop thinking of how the Ford family has also run the Detroit Lions into the ground, unable to compete in an environment of enforced mediocrity.
If the Ford family somehow lets Matt Millen stay on as GM forever, certainly doesn’t reflect on their business acumen, to say the least.
As has been pointed out by others, the American automobile industry, particularly GM, developed into a dinosaur of immense proportions during the 20th century. Then came competition from newcomers that were much more agile, and finally the realization by the consumer that wasteful vehicles were not viable products for them to buy.
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p>They are now strapped with excessive costs for legacy workers and health care and pension commitments made when things were much better for them. They are unable to reset the conditions to a situation where they could realistically be competitive. So what will an infusion of taxpayer dollars accomplish? Maybe they can buy some time until a more favorable economy emerges, but will they achieve a competitive posture by that time? Not likely.
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p>Although bankruptcy may be the quickest way to reset their operation, it will come with much hardship to workers, retirees and suppliers, as well as the investors -and, with no guarantee that the future would be successful, just less burdened by cost.
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p>Maybe the “big three” will have to cooperate to come up with an innovative solution. One step may to reduce the duplication of product lines which now create an oversupply of the wrong type of vehicles. Early retirements may clear out some of the overpaid workers, but without pension reform that would only exacerbate the retiree/worker cost ratio. Bankruptcy may allow PBGC to step in, but that would be equivalent to a “bailout” in some respects, although probably with a lesser cost than maintaining the status quo pensions.
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p>But what about those suppliers who will likely take a bath? Would we want to get into the businesses of lessening their pain? That may be a slippery slope we do not want to take.
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p>Bottom line is there is no real good solution, only ones that are less bad than others. Let’s pray the best of those is chosen.
My biggest worry is not workers and suppliers. Many of them will have a very hard go of it, esepcially in the short run. But they have an opportunity to get back on their feet in new inudstries, other industries or even a revamped auto industry.
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p>I’ll even conceede that some labor costs need to be lowered to keep the companies viable–as long as they are met with similar belt-tighetening at the top of the labor food chain. (ex–When trekking to DC to beg for money, maybe they travel in one of their company produced vehicles, rather than taking the private jet?)
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p>My biggest concern are the retirees and soon to be retired workers in the auto industry. Here are people that worked their butts off for years, with the promise of a decent pension. There have been too many people in this country that have had the rug pulled out from them after they fulfilled their end of the bargain over many years.
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p>These people do not have the opportunity to recover from the industry’s “mistake”. If the “legacy costs” of these workers is too high for the companies to meet, let that be the first place any government money is spent.
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p>But the company made that promise (of a pension) and reaped the benefits of that promise over the years. To pretend that it was some sort of undeserved golden handshake that needs to be eliminated as if it were no more important than a going away cake in the break room is disgusting to me.
What really struck me in this piece that there is absolutely zero recognition about what this all means for the workers and retirees. Once again, Mitt shows that he has no clue what it means to really have to work for a living and what life might look like when you get laid off. It reminds me of the interview with his wife when they talked about having to sell mutual funds to “get by” while in college.
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p>He sure understands the business aspects, but has no clue what it means to the little gals and guys.
Mitt Romney as a businessman is still little more then a pirate maybe a nicer term privateer. His success is mostly been paved on cutting labor through layoffs and wage cuts and selling off what’s left at a profit over what he paid for it.
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p>The point of saving the big three has always been about the jobs and the people the guy making $57,000 gross a year working 40 hours a week building cars.
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p>Even Mitt got it right that the leadership of the industry is disgraceful. I posted on the earlier thread about the performance that was on the news last night. Mr Wogner should be flogged for his dog and pony show. This said I am sure he has never entertained giving up his stock options or his pay check or his bonus and don’t touch his Golden Parachute. Well lets look at that last statement Golden Parachute how many of the Wall Streeters, mainly responsible for this collapse, either refused, returned or said they would not take their separation Bonus. I only saw one reported and I saw stories that reported many were picking off the bones of those that collapsed to make sure they got theirs. Did anyone ever see Mitt as a businessman reject a bonus from a sale, No I don’t hear that comment from anyone. If Mitt was in Mr Wogner’s shoes I am certain he would be more forthcoming. If you think so I have a bridge for sale.
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p>Leadership as I have stated gets to much credit and to much money when times are good and when they are not they still get the money and little of the blame. Usually they just move on to the motivational speaking circuit or an new board room position at double their old rate.
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p>No company makes decisions as complicated or risky as the ones we have all fallen victims to with out the CEO giving his OK not on Wall Street not in an Auto manufacturer. Many times these very problems come in response to CEO’s setting policy and goals not looking at business in the long term but short quick gains.
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p>True the argument has been made and reasonably so that the Auto Industry as we know it is dieing on the vine because of decades of problems swept under the carpet for a later day. Yet I have to repeat myself that to allow it to collapse or shrink as rapidly as many now suggest would have a huge impact on our fragile economy even a PROFOUND effect in another time I may agree with taking a strong stand but as an Economist I cannot stress loudly enough that the effects now would be beyond comprehension. I cannot see a cheap or cheaper way right now to prevent our economy from slipping into what may be a deep Depression. Remember that one of the key indicators is high unemployment we have seen in the last 90 days a rather significant increase in Unemployment and the daily announcements are not looking bright. Did you miss the announcement by Citibank 53,000 potentially with the dismal retail forecasts we could see a slew of chapter 11 filings come January. With layoffs not far behind we could be looking at double-digit unemployment by February. Add in GM FORD and Chrysler as conditions of Chapter 11 cutting work forces by 1/3 and dealerships by ½ we could easily add another million to 1.5 million into the government safety nets. Increasing unemployment taxes on the balance of businesses at a time when their margins are also at a breaking point. Profoundly a domino effect that may demand government programs like the ones of FDR WPA, or a CCC but for a far larger population then in 1930 and no world war (hopefully) to help draw away the work force and eliminate a large % of working age individuals (reality folks).
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p>Now this does not mean that we should not take drastic steps to try in reverse the course of the Auto Industry with serious regulations and conditions. Now is the time to lay the seed money through a bail out to develop the technology that we will need to move forward with the big three or two or maybe eventually an all new one. I suggest that the government maintain some ownership to the technology that can be developed as part of the bail out and if the Auto Exec. Leadership does not shape up then we can award the technology to another group who can in the future.
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p>I must sound like a scratchy old record by now but I can not see a positive out come under any set of circumstances that could come out of forcing GM, Ford or Chrysler in Chapter 11 at this time
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p>As Usual just my Opinions
Don’t see why the UAW should get anything different, just because Michigan is a swing state.
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p>These companies will only have North American operations if they downsize, dramatically. Most UAW members will have to find some other work. Most UAW pensions will pay out at a fraction at best.
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p>Otherwise, let it die, so that there are zero employed UAW members, and the pension benefits aren’t so much dramatically reduced as they are eliminated outright.
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p>You aren’t fixing GM by cutting executive pay and making them build an electric car. Just isn’t happening, at it would be a gigantic waste of money to try. As pointed out elsewhere, you might as well use the money to re-start the WPA.
I had a retirement thing with the city that I paid into every week. Isn’t that how pensions work as well, and if so, how do companies get away with “seizing” or “denying” the funds you’ve already contributed? Am I confused about the structure of private sector pensions? Seems like a bit of a scam to me.
People had Lehman Bros. bonds, which are promises to pay money. There is no money, and they won’t get paid.
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p>Pensions are an investment in the company. As it turns out, pensioners were extracting, and companies were conceding, promises to pay that both parties had to know would be difficult to meet. So the promises will be broken.
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p>There are plenty of retirees who saved for their own retirement, and whose retirement savings has been decimated since labor day. Where is their bailout?
Whose promises have precedence? Pension holders or shareholders? I personally think that pension holders should have ultimate precedence because their work got the company to where it is, and because workers do not see their work as an investment whereas shareholders do, and also because between a current employee has a better chance of replacing income from a lost job, but a retiree has virtually no chance of replacing income from a lost pension.
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p>I think that a company should be liquidated before pension guarantees are forsaken. If demand is truly there in the sector, another company will form and take its place.
On the morning news, I heard a critic of the bailout bash the Detroit auto manufacturers for having higher costs than their foreign rivals.
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p>That raised a question in my mind:
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p>How much do the Big Three spend on health insurance for their employees and retirees?
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p>How does that compare to the amount they’re requesting from the government? If the U.S. government assumed that expense, would that close the gap between the U.S. car companies and their overseas competition?
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p>After all, foreign automakers have lower costs because those countries have national health insurance, taking that expense off the employer’s books.
Excellent question, and while I don’t know the amount the automakers are spending on health care I do know that while they’ve been crying about the cost of health care for years they’ve done nothing to try to address the issue on a federal level.
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p>To point, Thomas Friedman’s excellent pieceaddresses this via a quote from Dan Becker (formerly of the Sierra Club)
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A lot of what Romney said made sense at a base level, but I thought I detected some ideological propaganda there (anti-union), and I also question whether my perception has been jaded by years of Republican big-business propaganda. For example, does Ford need to cut $2k from its cars or position those cars better so that customers are willing to spend $2k more? It’s the difference between a race to the bottom and a race to the top.
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p>Is it realistic to cut retirees loose? Seems a little evil to me — yet that is what Romney is all about, isn’t it? Cold, ruthless capitalism. Sounds great on paper, but what happens when tens of thousands of retirees get shafted, many of which are beyond the age where they can just pick up another job.
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p>And is the problem that the auto workers make too much money, or that their customers make too little and have to rely on credit to buy their product, which presents a problem during a credit crunch?
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p>I think we’re going down the wrong path. We are pursuing an economic model that rewards super-sizing. Big 3 is one too many players? How about consolidating them into the Big 2 and cutting overhead (a classic Romney maneuver)? That might have some short-term benefits, but it it best for the industry when there are just 2 or 3 ways of doing things? And can you say “oligopoly”?
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p>Wouldn’t it be better to have an economic system that actually had competition in it, maybe 15-20 car manufacturers each selling less? Sure, there would be more overhead, but don’t forget, overhead = good jobs = customers. When there are 15-20 different producers, that is 15-20 chances that innovation will occur. And if company #20 fails because of bad decisions, so what? Either the marketplace will allow another to take its place, or the slack will be easily picked up by one of the other 19.
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p>It seems to me we’re in this weird area where we want to see some things as global and other things as national. We might not have an oligopoly when all automakers across earth are considered, but we sure have one for domestic automakers.
that the concentration of marketing/manufacturing power in the automotive industry hasn’t served us well, and it would be much better if there was a lot more competition in the industry. Agreed. I would also like to expand that idea to the rest of our economy. I don’t think that the bigger is better, big fish swallowing the little fish, economy is good at all. Just look to the airline, financial services, communications services, and information media (print & broadcast) industries for examples. Take away competition and innovation goes away with it along with any semblance of price moderation. Also, let’s not forget the disappearance of differing points of view when the broadcast media concentrated as with the radio industry, and the FCC position on concentration of ownership within a single market.
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p>Romney should let Huckabee and Palin fight for the social conservatives. If he would stick to the economic knitting, he’d win the 2012 R primary with the McCain voters.
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p>2. Huge opportunity for Obama, but he’d really have to be ballsy. He’d say:
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While every American wishes them the best, these CEOs are unlikely to lead their companies to turnarounds.
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p>The same thing can be said about the expectation that Henry Paulson, and his handpicked czar of the $700 Billion dollar bailout, being the right people to lead that effort. Talk about the fox guarding the hen house.
…what does it mean to say the cost disadvantage that the Big 3 have with respect to foriegn manufacturers? You think GM’s labor costs are higher than BMW, Mercedes, Audi, VW, Porsche, Toyota and Honda in Japan? Not likely. (GM has been around for a long time so they have pension liabilities that younger operations do not have. You really think it is a good idea to take away pensions that average between $1500 and $3000 per month?OK, maybe if you are Mitt.) Plus what about all the plants GM and Ford have in the rest of the world? Can they make cars profitable there? Mexico where the wage rates are 10% of here?
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p>The FACT of the matter is GM had plenty of money to fund the pension and health care commitments it made to its workers. GM Management choose to take that cash over the years and pay dividends to stockholders, buyback stock (at $80 bucks a share, great investment today)and pay outrageous salaries to tons of executives at its various divisions. Yet there are cutbacks as we speak. The Moraine plant in Ohio is closing December 23, the last 1100 workers losing their jobs. This facility employed 4100 as recently as 2006. This is just one of many stories of this type. And you say the workers aren’t giving anything back? And the 100 local suppliers in the Dayton area getting hit too? Just union jobs? Go see the “For Sale” signs in this area. Go talk to the skilled workers taking janitorial jobs and the administrative staff working at McDonalds come January (met lots of them campaigning for Obama out there).
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p>Get rid of the management as step one. There are lots of steps to take to make the industry reasonably healthy again. But class warfare against working people should not be one.
I think a managed bankruptcy is a good compromise. The companies stay in business, but an unsustainable model is reformed. It seems there is a consensus they cannot continue in their present form.
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p>It is worth noting in all this, however, that Germany has a strong automobile industry and also relatively high labor costs. That suggests that this is part of a systemic threat to U.S. competitiveness.
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p>First culprit, in my opinion: our idiotic and way too expensive private health care system that is sucking up GDP share like there is no tomorrow. Single payer looks increasingly like a matter of national economic survival.
…single payer is the only way to rescue American Capitalism. Ironic huh.
…either he can’t add or shop or doesn’t understand models. He writes…
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p>Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota’s Avalon. Of course the Avalon feels like a better product – it has $2,000 more put into it.
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p>However, a quick check of similarly prices models with V6 engines and cloth interior shows the Avalon (the top of the line Toyota before you get to Lexus) at $28959 and the Taurus at $24950. So Ford is underselling the model by $4000. So what is the problem?
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p>It is the Big 3’s product differentiation strategy. I will assume that Mitt doesn’t drive himself much but if you want to compare the Avalon to anything in the Ford line it would probably be the Mercury Milan a much more interesting car than the boring Avalon. At the same price as the Taurus you get leather and some other options. But why does Ford offer a similar car as the Fusion, Milan and Zephyr (Lincoln)? This is what kills Detroit. The large divisions with lots of nameplates and huge delaer network competing against each other and riving down their margins.
I have a Taurus. It is a great car, if not exactly the sexiest beast on the road. Super-reliable, decent gas mileage, much cheaper than a foreign car to maintain. But, I bet at that price, it is stripped. Toyota loads more things in as standard equipment.
What sorry state of affairs is it when we think that combined 22 mpg is “decent gas mileage”? (I’m assuming you have the front wheel drive and not the 19 mpg all wheel drive version.)
I drive a 2004 Accord EX with manual transmission, and over the past 6 months, with a mix approximately 25% highway, 50% rural and 25% urban, I averaged 35.3 mpg. This on a car which was advertised to get 26 mpg (city) and 34 mpg (highway) when it was new. I expect that mileage number to drop to around 32 mpg average in the next (winter) 6 months, but still above the advertised average. Maybe it is because on very short trips, I elect to walk.
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p>So, why does the American fleet get only about 20-22 mpg?
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p>Although the car companies are taking the heat (and the losses), is it not we who are the culprits in this matter?
And that is for a family-sized car that can fit three kids, a labrador, and a full load of luggage. If there is another vehicle, that is not a tiny sardine can incapable of containing a family and its stuff, that does as well, I am unaware of it.
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p>On top of all that, it has lasted for 8 years and 150K miles.
CMD, I should have made it clear that I’m not upset with your choice of vehicle but the mpg it gets (more specifically, the mpg it got according to EPA tests.) Many people need larger vehicles for a variety of reasons whether that be a large family, a business (eg-contractors, plumbers, etc.) and others.
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p>Good on you for getting better than EPA test estimates. As others have pointed out, the average efficiency of vehicles in the US has gone from 23.1 to 24.7 from 1980-2004.
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p>If Detroit can make a 6000 lb, hybrid Chevy Escalade with all the accouterments and similarly large beasts there is no reason they cannot make the Taurus and similar family vehicles get better mpg.
If we assume a 15,000 mile annual mileage for a US driver… getting 20MPG will require 750 gallons/year, and 30MPG will require 500 gallons which leaves a difference of the 20MPG car owner buying 250 “more” gallons at today’s $2.00/gallon cost of $500 more per year. Strictly on a cost-basis, does this justify spending thousands of dollars more for the more efficient car? Obviously, $4.00/gallon gas would double the cost differential and further the argument but is that still enough? I’ve owned 3 Taurus cars and they were tremendous cars especially my 1993 green Taurus wagon which seated 8 comfortably, lasted 280K without a single major problem, used by 2 kids for years, got 27 mpg till it was towed away in 2006 and will go down in history as the best car I ever owned.
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p>Also, IMO, I think a lot of the criticism of Mitt Romney is not about “what” he said and more about “who” said it. Credit Obama with this story and the word genius would flood this blog.
Your math seems fine, but the cost argument needs some numbers behind it. Purchasing a more efficient vehicle does not necessarily mean spending “thousands of dollars more.”
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p>Comparing apples to apples we find the following, using 2008 models for all, capacity and fuel economy from fueleconomy.gov and pricing from cars.com:
Ford Taurus,
Passenger Volume=105 ft3(cubed)
Luggage volume=16 ft3
mpg= 18 city/28 hwy
cost=23,965
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p>Honda Accord,
Pass Volume=106 ft3
Luggage volume=14 ft3
mpg=22/31
cost=26,890
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p>Hyundai Sonata,
Pass volume=105 ft3
luggage volume=16 ft3
mpg=21/31
cost=$17,995
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p>Oranges, for curiosity sake
Toyota Prius,
Pass volume=96 ft3
luggage volume=16 ft3
mpg=48/45
cost=$26,995
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p>There are, of course, all sorts of other factors including reliability, warranty, looks, etc. not incorporated into the above model but we can see that more efficient vehicles can be and are produced that get better mpg for similar or less money.
Honda makes darn good cars, which is why they are expensive to buy, even if two or three years old. Also, it makes clear why a Prius is, at present, a bad deal.
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p>Not sure I am ready to trust Hyundai, reliability wise.
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p>The biggest problem of all, to my view, is that none of these companies makes a damned wagon. At some point it was decided that station wagons were about as sexy as Pee Wee Herman, and their function was replaced by SUVs. And SUVs do it very, very badly. Our Taurus, which is a wagon (since discontinued, argh) has more practical storage space than an Expedition.
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p>Only the Europeans are selling wagons now: Volkswagen, Volvo, Saab, Mercedes, and that’s it.
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p>Even Honda and Toyota discobtinued their wagons, and push you to “crossovers” which are SUVS, with all of their attendant problems.
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p>But that isn’t a Detroit problem so much as it is an industry thing.
They still make the Outback. Seems they rarely or never call it a “wagon”, but it is what it is.
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p>Also, many Prius owners (myself included) didn’t make the purchase decision based on cost-effectiveness. As with other products, some people will pay a “green premium”.
I find them just a bit too small to be practical. Not much space in the wayback for a big dog and luggage.
and PZEV
I’m still not clear why you’re hatin’ on the Prius but you’re 100% right on the lack of wagons. The wagon option went away with the advent of the minivan which, I assume, offered more net profit to automakers than wagons.
I have more hope for something like the hybrid Highlander (Toyota) or Fusion (Ford).
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p>The Prius isn’t properly comparable to the Accord, Camry, and Taurus because it is so darned small. It ought to be compared to the Civic or Corolla, and that is where it is clear that the green premium paid is pretty steep indeed.
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p>In any event, I don’t hate the Prius, it just isn’t practically useful for me, and therefore I dismiss it, for me. I do acknowledge that it has a certain “Look at how green I am” thing going that might occasionally cause eyeballs to roll heavenward. Though not nearly as much as the look at me aesthetic of, say, the H2.
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p>I do, however, hate the Honda whateveritis with the wheel half covered.
That is why it isn’t cost-effective, even at $4/gallon gas, to buy a Prius.
That’s actually not necessarily true.
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p>That first link is 2005 data, but this one from 2008 provides similar results.
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p>The short version is that it depends on the vehicle and what you compare it to, how many miles you drive/year, price of gas, etc.
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p>There is also, of course, the not-as-immediate factors such as limiting carbon emissions, reducing American reliance on oil, etc.
First I think it is imperative to not overlook the “warranty” and “servicing” factors which Jeremy alluded to. I loved my Taurus but it pissed me off to no end when I had to replace the brake lines on all my American cars because they do not coat them with plastic/rubber. I have 3 Saabs and I recently did some work on my 96 Saab 900 and the brake lines are coated from end to end and look BRAND NEW. Brake lines are needed have brakes Detroit. Whenever these lines have gone on the Fords either myself or my kids have luckily avoided accidents due to having NO BRAKES!!! Message to Detroit… pay the extra $.50 to coat the brake lines of all your cars!
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p>Lastly, while the list price of the cars where listed above, it should be noted that the real price people pay is far different with maybe a Taurus buyer getting a better deal than a Prius buyer laying list.
I find that now that I’m old and have kids in the back seat, I am much closer to EPA estimates than I was when I had my old Civic, and was young and single.
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p>It was a Civic Si, manual transmission, and was pretty nimble for a four-cylinder compact car. And, being younger I tended to accelerate much, much harder from any stop, and also tended to drive 20-25 mph faster on the highway than I do now.
…I went through item by item. Romney’s case would have been stronger if he compared the Camry. But again, the Taurus sold fine against the Camry and Accord for years until Ford let the product get stale.
Is he calculating the cost to remove the dog poop?
We’re willing to spend a trillion dollars on an industry that produced nothing and, in many cases, didn’t need the cash to begin with (the money went to healthy companies too that are now sitting on it, after all, waiting for the fire sales to commence).
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p>Now, we’re not going to dish out a tiny fraction of those costs to actually save jobs and real production? We’ve given into the right-wing politics of hatred for the working class and destruction of mutual prosperity? Pardon me if I’m sounding a little pinko right now, but this kind of chatter makes me sick – especially after we’ve seen the trillion so far to go into the financial sector and likely trillions more in the future. If GM auto workers went into work with a suit and a tie every day, you bet your asses they’d be bailed out.
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p>Ford and GM can be profitable again. They will be profitable again, as soon as this financial meltdown is over, should they survive it. If we let GM and Ford fail, or force them into conditions where hundreds of thousands are laid off and hundreds of thousands more lose benefits, pensions and wages, then we only risk the spread of this financial meltdown. We only risk more foreclosures. We only risk the further destruction of the remnants of what was a once-proud middle class in this country. Maybe people, even here, are willing to parade on that corpse. I’m not one of them, especially when there’s a real opportunity to do some good here, force some change while saving those jobs and hopefully putting these companies into position to create thousands more going into the future.
I have been predicting grimmer news here is some of it and I suspect in the next 2-3 weeks we will see much much more. THis is also the basis for my sticking to the opinion that bailing out the Automakers is distasteful but necessary only because of these conditions
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p>
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p>Article can be found herehttp://www.msnbc.msn.com/id/27806827/
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p>Also You know the quotes of Unemployment that so many scoff at here is just one industry that many I bet never even considered but all the same they are real people in real jobs with real families with real bills. More fish for the safety nets I guess and what will the net cost us? Hummmmmmm!
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p>As Usual just my Opinions
Unemployment History lesson
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p>Actual facts and Figures from the US Dept. of LAbor web site
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p>1920 5.2 %
1928 4.2
1930 8.7
1932 23.6
1934 21.7
1936 16.9
1938 19.0
1940 14.6
1942 4.7%
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p>not in this chart was the figure that Unemployment had dipped to 3.7% in 1929
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p>Now today
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p>From todays report
Bureau of Labor Statistics
Labor Force Statistics from the Current Population Survey
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p>Looks Peachy don’t you think
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p>As Usual Just my Opinions
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almost always worse than they usually look, in my book, because the feds stop counting after a person is out of a job for a set period of time. It, of course, does not mean they found a job… the feds just basically consider it that they’re no longer looking. Maybe, maybe not, but it still doesn’t change the fact that they’re still unemployed. So when the unemployment rate says 4-5%, it’s probably more like 10-12%… not counting those who are underemployed or taking part time work to get by, etc. I honestly bet that around 20% of this country are in that sort of fragile position – unemployed, underemployed, forced into working part time, at severe risk of being laid off, etc.
As the note at the bottom of this page reads, U-6 includes all of the discouraged workers you’re talking about (under “marginally attached”) and is generally thought to be the best measure of employment by actual labor market researchers like myself.
How typical of a Republican to so easily parse out the reasons why we should allow the Big 3 to go down. Notice Romney said, “insurmountable labor and retiree burdens.”
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p>Why do you turn your back on the unions? People shudder and cringe that assembly line workers make $81.00 an hour (including benefits, of course, which means they take home around $45 or so I guess). How much does the broker make an hour?
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p>Enough so that we bail them out, I guess. Goldman Sachs paid out $19 billion alone in Christmas bonuses last year. Bail them out… you betcha! But when it comes to the assembly line worker, the middle class, you turn your back and ask them to “cut back.”
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p>Wake up, people. Wall Street set this up. They knew Obama was going to “spread the wealth.” The “bailout” was a last grab by the Elite. Now they can sing “Deck the Halls” while millions of middle and working class people lose their jobs and what meager benefits they have.
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p>Shame on anyone who’d listen to Romney and turn their back on the unions.
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p>Workers of the World, Unite… indeed!
Sure, why not increase the minimum wage from $8 to $45? Wouldn’t it be good for all Americans to make this kind of money. Of course a hamburger at Burger King might cost $30 with fries ($12 more) but the workers would be happy. Of course they wouldn’t be happy when they got laid off since nobody would buy $30 hamburgers!
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p>And BTW, does anyone else acknowledge that you could hire trained monkeys to do much of the work in Detroit? So a guy stands there and car chassises roll past, he puts on a tire, tightens 5 lug nuts and another chassis rolls by, adds 5 more lugs… for $45+ and hour? Are you shitting me??? That’s a minimum wage job or $20/hour tops.
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p>Does being critical always mean “turning your back” on something? Look at the mess we are in due to our own State’s pension plan, look at the abuses of Boston Firefighters disabilty and pension plans? Don’t we have a right and a responsibilty of being critical of something that is viewed as wrong?
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p>If you want to be critical of a broker’s wage than do so but don’t balance this wrong by justifying another wrong.
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p>What is a “typical” Republican BTW? Being one of them I can tell you we need people like Romney and hopefully he will be there for us in 2012. Many of those middle class people who lose their jobs will have unions to thank for it.
… but as I recall GDP performance was always pretty good historically when the adjusted minimum wage was high. Not sure about the causation, but I wouldn’t want to ignore it.
Company-based benefits were originally the result of capitalists rejecting “socialized medicine”. Labor benefits have decreased steadily, and it would not be accurate to say labor has brought about this catastrophe due to overly-generous contracts.
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p>While I agree with much Mr. Romney says, I believe that any solution must be careful about putting many workers out on the street. It may happen anyway but solutions have to be carefully considered in the interests of all stakeholders.
Employer based health insurance was born out of a loophole in the wage and price controls instituted during World War II. Business was allowed to deduct the cost of insuring its workers as an operating expense. The benefit was used in place of salary increases and as a tool to attract the best workers. Reality based.
I caught a little of Romney on the Howie Carr show. I think that there is more to his agenda.
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p>He repeatedly listed the UAW as the #1 burden that Detroit had to be freed from. #2 was pensions. #3 was “real estate”.
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p>He also said that Detroit could compete “when its labor costs are the same as other countries”.
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p>I thought about it some more and realized that I don’t think I agree with Romney’s assessment that if Ford cut $2k from its Malibu, it would compete better. Why? Think about how cars are usually bought: on credit. You take out a 5 year loan and you pay monthly.
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p>Do you know what the payment difference is for $2k on a 5-year auto loan at 8% interest? $40 per month.
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p>How many people choose a car they don’t want for $40/month?
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p>Even Romney’s callers supported that. One said he was willing to pay more for quality. Yet Romney is talking about reducing the cost by $2k to compete.
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p>Romney kept touting Detroit’s high quality — meeting and sometimes exceeding foreign cars. What would cutting labor costs do to quality? Seems to me it would decrease it — you get what you pay for.
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the fact that Chevy makes the Malibu, not ford =p
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p>I do think that 2k added to the cost of building a car in America because of health care costs, etc. obviously hurts American auto companies in being able to compete, but not anywhere near as much as the fact that they haven’t been building cars that Americans want. I’ll go so far as saying that they’re starting to, but with so many bad years, they still suffer from a brand problem. They really need to do a PR whiz job to change that, but I’m not so sure they’re capable of that, especially in this business climate when just the words “new car” are toxic.
…GM has 7000 delaers in the US and Toyota has 1500. They sell about the same number of cars which means Toyota dealers are bigger and more efficient. Hmmm, maybe that puts some price pressure on GM products.
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p>By the way, Ford has announced its first Hybrid sedan for the early 2010 model year. The Fusion/Milan units will have a Hybrid option that should compete well against the Camry. But how many years after the Prius was introduced?
The anti-labor ideologies of the uncorrupted (i.e. nonreligious) Republicans of old are currently being proferred by representatives of the ostensible “Left.” Who needs “The Right”, when their most cherished ideas have so effectively infiltrated the ranks of the Progressive movement?
There will be Layoffs- but management will stay put.
The financial industry will recover, but foreclosures will be unabated. The rich will get still richer, and unfortunately we can’t all be engineers, lawyers, or biochemists. I don’t know what the answer is, but I don’t see much of a future for the working and middle classes in this economy, or with the current policy approaches on the table.
In this morning’s column:
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p>This criticism, of course, is based on the Mitt Romney that campaigned in Michigan in January.
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p>To me, the NYT column says a lot more about Mitt than Detroit.
I had forgotten about Mitt 2.1’s stance on Detroit.