It's one of the most famous sentiments in American business. Given the state of the U.S. economy, it's now one of the most chilling:
"For years I thought what was good for our country was good for General Motors and vice versa," Charles Wilson, president of General Motors, told the U.S. Senate in 1953. "The difference did not exist. Our company is too big. It goes with the welfare of the country."
In 2008, America's automakers are in the worst financial trouble since Wilson said that five decades ago. True to Wilson, so is the nation's economy.
More than one stock-watcher says GM shares are essentially worthless because the company's survival depends on bailout money from Washington. GM says it may run out of cash by the first part of 2009.
Ford Motor Co. burned through $7.7 billion in the third quarter - more than GM - and has cash on hand only because it mortgaged its factories.
Chrysler, privately owned and better able to obscure its finances, reported a sales decline of 35 percent in October, better than GM's 45 percent crash but worse than Ford's 30 percent fall.
Worried about jobs and their financial vulnerability, American consumers simply aren't buying cars at the moment, whether made in America or Japan or Europe.
Still, the U.S. companies' troubles are different and go beyond a downturn in the economy, no matter how deep it might be. Untangling them will require even more radical shifts than the industry has made in the past few years. It will also require billions in taxpayer dollars.
Plenty of blame can be directed at Motown for falling behind its overseas rivals and for betting the business on inefficient trucks and SUVs. The U.S. companies fought mileage standards repeatedly and lagged in green innovation. All that left the Big Three unprepared when gas prices spiked and customers wanted something else.
In another way, U.S. automakers have become a casualty of the expectation that health insurance is every employee's lifelong right, an expectation GM started and for decades satisfied.
Back in 1950, when GM and the United Auto Workers were negotiating a new contract, the union's leader argued for national universal health insurance. He also argued that GM should lead the way, since what was good for the company was good for the nation. But Charles Wilson - the same one - nixed the idea, arguing that companies should pay the cost of insurance, both as principle and for competitive advantage.
Today, for each car it sells, General Motors spends more on health insurance than it does on steel, a burden that is crippling the company's ability to produce cars at a price people are willing to pay. The same is true for Ford and Chrysler. In Japan, where health care is universal, the cost is substantially lighter on Toyota, Honda and Nissan. Of the major automobile-producing economies, only the United States and China don't have universal health insurance.
While restructuring the U.S. health care system has long been a necessity, it isn't going to get done in the next three months, when GM's future may be decided. First things first.
Whatever the problems in the U.S. auto industry, allowing GM, Ford or Chrysler to go under is unthinkable. Nationwide, the industry employs about a million people; several million more depend on it.
The closure of one Ford assembly plant in Norfolk materially harmed the economy of Hampton Roads. If the automakers were to go bankrupt - not an idle possibility at the moment - it would crater the economy of the Midwest. Foreclosures, the root of our economic troubles, would balloon.
Beyond that, there are the national security implications. The auto companies possess and deploy an enormous portion of America's industrial capacity. Without them, the United States would be unable to respond in the event of a major war.
Bailing out the car companies would likely cost a short fraction of what taxpayers will spend to shore up the banking industry. Nevertheless, Detroit and its unions will have to absorb some restrictions - on executive compensation, on union contracts, on the way they conduct business - in exchange for America's help.
This bailout will be counted in the billions. Detroit is lobbying furiously for it, providing plenty of reason for lawmakers to kick back against the pressure. But the U.S. auto industry's survival depends on Washington's intervention.
Wilson was right back in 1953: GM, he said, is too big. It is also too important to be allowed to fail.
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"Health care" isn't the cause of Detroit's problems
Today, for each car it sells, General Motors spends more on health insurance than it does on steel, a burden that is crippling the company's ability to produce cars at a price people are willing to pay. Of the major automobile-producing economies, only the United States and China don't have universal health insurance.
Complete red herring from the VP Editorial staff. The problem is with retiree health care, not health care for current workers. In other words, with people who are already mostly covered by America's universal healthcare system, Medicare. Why have the Big Three provided extremely expensive health benefits for retirees for decades, when there was a really very generous government program available? Because that's what the union wanted, and it had enough muscle to get it. Unless you actually do as Canada has done, and make private health plans illegal, there is nothing in a system of universal health care that prevents employees from asking for more generous benefits than the government provides. Which means that moving to universal health care will do exactly nothing. If the union can extract value in the form of expensive health benefits,
It comes as no surprise
That everyone is holding out their hands now that our "leaders" have loosened the purse strings. Do you really think that things will get better when they give them the money? Look at the other banks and companies that received money, the first thing they set aside to pay was for bonuses! It was in the news and are there any repercussions? NO! Nothing has been said, i'll never do business with any one of those listed. The best thing that congress could have done was to give each of us a stimulus check for a least 1,000,000. That would have solved our problems and been cheaper by far.
Folks,
When are you going to figure out that your government is going to do what it wants regardless of what we, the people, want? Now that the Democrats will be ruling the roost, it will only get worse. Once folks aren't allowed to vote for/against unions in private any longer, unions will once again carry major clout in business. Why do you suppose GM, Ford, et al are in financial straits? To a large degree, because of unionized workforces and huge retirement packages. That’s overly simplified, of course, but is a very large factor in the Big 3’s problems (not to mention people getting fed up with the junk they were building). Expect many more businesses to look to the government for succor in the coming year or so. The bailouts are now part of the entitlement process; soon government will own everything.
Detroit is already bankrupt -- time to make it official
This just shows what a fraud the Big Three have been. The fact is, they were only ever able to even report profits for the past ~50 years because they were allowed to rook the world into believing that pensions "didn't count" as real obligations. Anyone can run a successful business if they're allowed to delete liabilities from the balance sheet, throw off dividends extravagantly as if they were actually profitable, and then act surprised when the bill comes due and all the money's safe in a Swiss bank account. Face it, Detroit automakers have been bankrupt for years, and throwing good money after bad isn't a solution. Making it official will preserve the remaining good assets, and put them to work. Without bankruptcy, the US Treasury will merely be an unsecured lender of last resort, driven by politics, rather than a reasonable chance of being repaid. Do that with your money, not mine.
Where's my car?
So far every tax payer has had thousands of dollars taken from them to bail out such industries as mortgage companies and auto makers. That means I've paid for their services involuntarily. So....when do I get the car I've already paid for? When can I buy that house with the money stolen from me to shore up the greed of loan companies?
Auto industry & dem hypocrisy
My 2008 American muscle car is only 65% domestic content. There are toyotas and hondas with more domestic content than my ford. There are cars being sold under american nameplates that are made in Korea by Korean workers using Korean parts. (But be patriotic, buy a Chevy Aveo. LOL.) When manufactured in America assembly is done by japanese-made robots. The American auto industry has destroyed itself. The big-3 are part of the 'shipping jobs overseas' crowd that the President-elect wants to tax into a state of increased patriotism.
Dems, I challenge you to put your money where Obama's mouth was during the campaign: Bail out the American auto industry ONLY if they increase their use of American parts and American manufacturing facilities.
(BTW my brother maintains and repairs the welding robots at a Chrysler plant. I don't want him to lose his job but the hypocrisy of the unions and the democrats is unbelievable.)
Changing the tire on a burning car
As usual, Congress, having caused a problem, now seeks to fix it by changing the wrong policy.
The US auto industry, along with the rest of the manufacturing sector, is in trouble because the US, alone among industrial nations, derives all of its taxes through income and payroll taxes, while every one of our competitors has switched to border adjustable consumption taxes for most of their revenue.
Income and payroll taxes become embedded in the cost of everything we sell. So do the VAT taxes our competitors use, but they are rebated (border adjusted) when their goods are exported, so their products have an automatic 15 to 20% price advantage over equal US products both here and abroad. By international law, income and payroll taxes cannot be border adjusted. If we wish to save the auto makers, along with all of our other manufacturers, we must change to a consumption tax, like the FairTax.
AUTO INDUSTRY BAILOUT
ONLY VERY DRASTIC ACTION WILL SAVE DETROIT - There is a way
Here is a radical, but common sense and workable plan -
http://pacificgatepost.blogspot.com/2008/11/solution-for-detroit-gm-friends.html
It is this, or bankruptcy. The American Auto industry should be saved but under new conditions.
Do not leave it to the likes of Paulson or Congress to come up with a creative plan resembling interest in taxpayers' wellbeing.
There is much creative talent hidden inside the Big 3 that has been smothered by mismanagement and the UAW.