What do companies get when they act responsibly? Government-subsidized competition.
On July 5 in the swing state of Ohio, President Obama treated voters to his campaign-2012 synopsis of
the 2009 auto industry bailout: "When the American auto industry was on
the brink of collapse and more than one million jobs were on the line,
Governor Romney said we should just let Detroit go bankrupt."
His message was clear: The Obama administration’s 2009 decision to bail out the auto industry allegedly saved it from the fate it would have suffered had Romney’s approach—bankruptcy—won the day. The map below, adapted from the Ohio affiliate of the U.S. Census Bureau, shows automobile assembly plants in the Midwest and South, and helps to illustrate the “industry” in question. Red indicates companies rescued by the bailout; green indicates companies that didn’t participate in the bailout. Also in his speech, Obama noted that top-down economics doesn’t work, and that risk-taking, hard work, and taking responsibility should be rewarded. The irony in that was easy to miss: The bailout was the government version of top-down economics, and the companies that had responsibly prepared themselves for surviving a downturn were not rewarded, they were penalized.
• The choice in 2008-2009 was not bankruptcy versus no bankruptcy; instead, the choice was between precedent-driven bankruptcy and White House-driven bankruptcy—rule-of-law versus rule-of-czar.
• The taxpayer bailout was not applied to
the “American auto industry”—instead, it was applied only to the two
failed companies, GM and Chrysler, bypassing companies that had been
sufficiently prepared for the downturn, including Ford, Honda of
America, Toyota, Nissan, BMW, and others.
• Orderly, rule-of-law bankruptcy might have
led to continuing operations under restructuring for GM or Chrysler, in
which case many auto-making jobs would have remained in Michigan.
• Alternatively, orderly bankruptcy might have
led to a shutdown of GM or Chrysler and an open auction of
assets—probably to surviving companies—in which case car buyers would
have shifted to surviving companies’ products and auto-making jobs would
have migrated to those same survivors. (When a grocery store closes,
its customers don’t stop shopping, they take their business elsewhere;
car buyers behave in the same way.)
• The notion that the White House should
intervene with a specially designed bankruptcy process, thereby
sidestepping rule-of-law bankruptcy, originated in
the Bush White House in 2008, not in the Obama White House in 2009. A
more honest name for the program would therefore be the “Bush-Obama Bankruptcy/Bailout” for Detroit’s two failed auto companies.
• Ironically, top-down economics was the de facto remedy applied to “save” GM and Chrysler—but in this case “top-down” was the government-knows-best
notion that political wisdom, trickling down to displace a century of
evolved bankruptcy case law, was supposedly a superior alternative for
the two failed companies. Top-down economics, the politicians’ version
of “intelligent design,” directly rewarded GM and Chrysler with
special-interest life support—instead of indirectly rewarding their
surviving competitors with new customers and the necessary additional
workers.
• For the record, the only thing that
“saves” any company, not just auto companies, is a sufficient number of
buying customers—not the government, not union bosses, and not
incompetent management. It’s a truth that all but two of the
American-based auto companies understood sufficiently to withstand the
2008 downturn without help from the taxpayers.
As of the 2008-2009 crisis, American workers in companies such as
Ford, Honda of America, and Toyota had won the marketplace battle
against GM and Chrysler for survival during hard times. They had planned successfully
for a “rainy day,” proving their competiveness in the auto market.
Unfortunately, however, they couldn't compete against the politicians in
power, the rule-of-czar bankruptcy process, or intelligent design
economics. When government wisdom, not consumer choice, decided which
companies deserved to be kept alive and which types of cars consumers
should decide to buy, it was the two failed companies that were
rewarded; perversely, hard work and acting responsibly was not. What the
responsible companies got was government-subsidized competition.A more intellectually honest synopsis for Ohio’s voters would be something like the following:
When GM and Chrysler failed, Governor
Romney’s approach would have been a rule-of-law bankruptcy process,
followed by consumer-driven selection of the pecking order for
American-based car companies. Instead, both the Bush and Obama
administrations favored White House-directed bankruptcy, followed by
life support for the two failed companies.
That begs a question: How many jobs in Ohio and elsewhere would the
car-buying public have awarded to the responsible companies if Romney’s
preferred approach had been the policy? Unfortunately, we'll never know.
The unemployed who would have
had new auto-making jobs don't even know who they are and therefore have
zero political clout. That's a fatal disadvantage against the
politically connected crony capitalists and union bosses who are skilled
at employing intelligent design economics to protect themselves.It’s also standing in the way of a new Golden Era for the U.S. economy; in the July 6 Wall Street Journal, Michael S. Malone summarized the problem in his article, “The Sources of the Next American Boom”:
Getting there won't be easy, as we are
currently governed by leaders who want to manage our complex and dynamic
economy from the top down, to tame entrepreneurs with regulation, to
tax the productive and, ultimately, to pick the next generation of
winners. That's never worked well and it isn't working today.
Not only will we never know the number of auto-industry jobs that
would have migrated to Ohio and the Sun Belt, we’ll never know the
answer to a final hypothetical question: Instead of spending taxpayers’
money to bail out two irresponsible car companies, might it have been
better to invest it in a useful infrastructure project such as wider
highways leading away from failed companies and towards the more
responsible ones in Ohio and points south?We shouldn’t expect an answer to that question anytime soon, let alone during campaign season. Steve Conover retired recently from a 35-year career in corporate America. He has a BS in engineering, an MBA in finance, and a PhD in political economy. His website is www.optimist123.com. |
The musings of a politically incorrect dinosaur from a forgotten age where civility was the rule rather than the exception.
Webster
The Constitution was made to guard the people against the dangers of good intentions." --American Statesman Daniel Webster (1782-1852)
Friday, July 20, 2012
The lesson of the Auto bailout.
I have stated many times and it says on my profile that I am a former Ford Motor company employee so I have an interest in the industry. I accepted the buyout when Ford closed my Taurus plant here in Atlanta. I don't hate Ford Motor for what happened, Ford was in trouble and was trying to turn around. I got a generous severance package and I am still a vested employee which means that I will get a pension(small one) when I retire. Ford mortgaged themselves to the hilt to finance their turn around. It was basically " go for broke" either change or become a footnote in history. Ford unlike GM and Chrysler refused the government buyout. Ford was successful, they have profitable cars and trucks and are doing well and is respected in automotive circles. GM and Chrysler far less so. GM is accused of "cooking the books" or flooding the lines and dealership lots with cars that they cannot sell. This is a repeat of the notorious "Car bank" that Chrysler was best known for in the late 70's, a car bank is the number of cars that are over 90 days old that are sitting around with no buyer. This is bad business practice that inflate the numbers in the short term (like elections) but like cholesterol will clog up the arteries. There is a lawsuit in new york on this issue. I still own stock in Ford and I am glad that I do. I still drive Fords and will continue to do so.
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