Discussion surrounding the auto industry has left many of us scared, frightened, annoyed and confused, especially with Big Three CEOs feeding us a story based on fear regarding numbers of job losses and the hit to Wall Street. In the short term, GM going under would cause serious job displacement. But I don't believe it would be close to the 3 million count figure being bandied about. Neither do I believe GM's demise would mean the end of the American automobile industry. In fact, it should results in an increase in sales of Ford and Chrysler products. Here's where I am coming from.
Jobs are created by product demand, and demand for automobiles would not change. Instead of buying GM product, consumers would switch to other brands. In the short-term, GM jobs and those who provide GM parts would be displaced. However, as sales of Ford, Chrysler and imports increase, those jobs would return, both on the manufacturing side and on the parts side. As consolidation occurs, some jobs will be lost forever but in a Capitalist economy, that's a natural state.
In the end, whether or not the auto industry receives government backing, jobs will be lost and the economy will see a temporary decline as we struggle to return to economic well-being. Companies will go out of business and jobs will be lost. Again, this is a natural process, where weak businesses are weeded out and replaced by stronger businesses. In the specific case of the auto industry, as the remaining American car manufacturers and those foreign companies who manufacture cars in the US grow by adding former GM customers, auto jobs will return and Wall Street will get a boost.
A government bailout of GM, especially without the government first requiring GM to declare bankruptcy and get its own house in order, is not a solution. In this instance, we must insist that to receive taxpayer dollars GM, and any other company, must first declare bankruptcy. And even then we should not be eager to provide taxpayer dollars to bail out companies. In addition, if GM can't survive bankruptcy, it likely is inevitable that they will go away, with our without tax payer dollars.
The entire industry faces challenges, but enabling bad decisions is not the solution. Brands have disappeared in the past, and they will disappear in the future, in all industries. It is the nature of business and as it should and needs to be in a Capitalistic economic structure.
Short-term fixes are not a solution and $25 billion is a short-term fix that will not change the long-term future of the American automobile industry. Before a single taxpayer dollar is thrown at this problem, I believe GM, Ford and Chrysler must do everything they can internally, including downsizing in every area, from producing fewer brands and features to laying off employees.
Downsizing and renegotiating union contracts must be continued but doing so doesn't represent the entire solution. (It is noteworthy to mention that Ford downsized earlier this year by 15% and another 10% downsizing will take place in January, according to Scott Monty. In addition, Chrysler is invested in restructuring as is GM. Ford and Chrysler are not in immediate danger of failing; GM is on the brink. More needs to be done on the manufacturing end at each of these companies.)
I side with the view presented by Andrew M. Grossman, a Senior Legal Policy Analyst in the Center for Legal and Judicial Studies at The Heritage Foundation, in his paper Automakers Need Bankruptcy. In that study he describes the current state as follows:
"The Big Three are also burdened with obsolete and expensive business structures. All are top-heavy with management and bureaucracy, compared to other manufacturing industries. They are also bogged down by too many nameplates that, due to state franchising laws, cannot easily be folded into other brands.
"General Motors, for example, currently manufactures and markets automobiles under eight brands in the U.S., including Chevrolet, Saturn, Pontiac, and Buick, in a market where few customers perceive any significant difference among them. When the company did shut down one under-performing and duplicative brand (Oldsmobile) in 2004, it had to pay dealerships over $1 billion in "financial assistance" to avoid lawsuits, and four years later, it is still embroiled in litigation from former Oldsmobile dealers who declined to accept assistance or settle their claims. Their antiquated dealership structures also prevent the Big Three from instituting modern and more flexible inventory-management practices and selling cars over the Internet."
In short, it seems obvious to me that much more restructuring is necessary, and GM might have to fail for Ford and Chrysler to become healthy again. The natural order should prevail and if we are to use taxpayer dollars, there are more direct ways to stimulate an economy and serve our nation's needs. Imagine, if you will, what $25 billion could do if applied to infrastructure needs, such as bridges, power grids and roads and highways. Those project would create tens of thousands of jobs, putting money directly into the pockets of consumers.
I can only offer up only what I have learned through research and personal observation and experiences. In Capitalism, we entrepreneurs and corporate leaders suffer our mistakes. It hurts not only us but our employees. The results are painful for lots of people. I know from experience, having been downsized twice when I was in the corporate world: the first time I was an Executive Editor, the second time a VP of Marketing.
Nevertheless, decisions have consequences and for free markets to work to the advantage of businesses making smart decisions and consumers wanting value, consequences must be in place, rewarding good decision making and producing negative results for bad decisions. We should look at a GM bankruptcy, complex as it will be and as painful as it will be, as a beginning not an end, and an opportunity for Ford and Chrysler to take up the slack and for part suppliers to consolidate and meet realistic demand.
Our economy is driven by consumer demand and both the auto manufacturers and suppliers are producing far more then demand calls for. Therefore, it is likely GM will either get smaller faster or go away and the same is true for suppliers.
The Bottom Line: Before a single tax dollar is given to any business, that business must be required to declare bankruptcy and to get their house in order as best they can. According to the U.S. Bureau of Labor Statistics, last month about 137,000,000 Americans were employed, 13,000,000 of those in all manufacturing areas. According to the Center for Automotive Research, "Should all of the Detroit Three’s U.S. operations cease in 2009, the first year total employment impact would be a loss of nearly 3 million jobs in the U.S. economy—comprised of 239,341 jobs at the Detroit Three, 973,969 indirect/supplier jobs and over 1.7 million spin-off jobs." Keep in mind, the ratio will be 3,000,000 jobs lost worst case out of 137,000,000 Americans employed or two percent of all jobs.
Obviously, this is a worst-case scenario, and there is no indication today that Ford and Chrysler will fail in 2009. And if they are seeing failure in 2009, they, too, should first seek protection from bankruptcy, and then the Government should take another look at how best to create new jobs. No one wants 3,000,000 people to lost their jobs, but propping up a failing company is not the answer. In this instance, what is good for GM is not good for America. There are other transportation manufacturers who should be ready to fill the gap, including Ford and Chrysler. And for those jobs that go away permanently due to a GM failure, if we are to use taxpayer dollars, let's use them creating replacement jobs.
More on the Subject: Seth Godin, What to do about Detroit; Jim Kuhnhenn, Associated Press Writer, Obama aide promotes job plan, warns automakers; Scott Monty, How You Can Use Social Media to Help the U.S. Auto Industry; D.L. Hughley: Bailout a no go? (see video at the bottom of the page).
Your Opinion Matters: Nobody is a real expert in fixing seriously damaged companies or in predicting their future. And my opinion is just that--an opinion. So, bring it on. Speak up. Your voices here will be heard by hundreds if not thousands of readers as the topic spreads. Typically, these kind of posts get more than 500 hits on this site alone as well as trackbacks, mention on other blogs and a few Tweets on Twitter. So give us your thoughts. They matter.
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