This week it looks like we’ll see whether the American car industry will be thrown a lifeline. GM, Ford and Chrysler want $25billion in soft loans. If Congress doesn’t agree to hand over the dough immediately, GM will very possibly go insolvent in early January. And shut down. Holy cow. Think of the consequences.
Momentous weeks of lobbying and political posturing in America are coming to a head. The Big Three say they are responsible for one in 10 American jobs – either through direct employment, or their suppliers or dealers. As well as a similar proportion of pensions and healthcare. There’s no NHS there, remember, so corporations pay their employees’ health insurance. And if corporations die, it’s jeopardised. Gulp.
It’s GM that is the big worry. Chrysler is smaller. Ford made big borrowings two years ago to put cash in the bank for rainy days like these. But in the absence of either a bail-out or a miracle, GM will simply shut its doors within months or weeks.
Essentially then, the US government is held at ransom. Hardcore Republicans argue they’re being asked to bail out an industry that’s simply uncompetitive.
But realists of all political persuasions point out that losing all those jobs will cause a massive hole in tax revenue. And an even bigger bill in providing at least some sort of safety net in benefits. And finally, the risk of a general slump by putting such a hole in an already critically battered national economy.
Estimates for all those potential costs to the US Treasury vary, but they’re always in the hundreds of billions.
In other words, viewed purely short-term, net-net it’ll be cheaper to save Detroit than let it die.
Of course it isn’t that simple. As the Big Three let market share slip through their fingers these past years, they’ve thrown hundreds of thousands of line workers out of a job. But the United Auto Workers has done a good job of protecting their benefits as part of redundancies. So some politicians are questioning a bail-out on the grounds it would give ex-assembly workers a better future than your average American Joe.
Then there’s the question of whether these companies deserve saving. Again the right-wingers argue that if they are rescued then the same will happen time and again. In fact it has happened before, with the Chrysler rescue of 1979.
They also point out that this $25bn is in addition to a different $25bn already agreed, which will be loaned to Detroit to fund economies in fuel consumption. The Japanese and Germans building and selling cars in America are well on course to meet those consumption targets without help.
This argument is backed by the West- and East-Coast chattering classes. The New York Times’s big-shot op-ed columnist Thomas Friedman went so far as to suggest GM’s management should be fired wholesale and Steve Jobs brought in to run the company for a year. ‘I bet it wouldn’t take him much longer than that to come up with the GM iCar.’
Even the most ardent admirer of Apple – or even Toyota, darling of the Friedman tendency – would say, if they knew the first thing about the car industry, that Friedman is talking is utter cobblers here. But that sort of thing sums up the mood: GM, Ford and Chrysler have been broken for years and deserve to be finished off.
Not so fast. Chrysler is probably unfixable, yes. But Ford and also GM were on a well-documented upward path before the general economy went so sour so fast. Their transformation strategies are simple to state, hard to perform. They’re aiming for greater efficiency, more flexibility, and lastly – crucially – better smaller cars.
They were getting there. But the credit crunch exposed the fact that they hadn’t fully turned-around and were still vulnerable. The credit -crunch started by myopic, greedy banks which are getting bailed out, let’s not forget.
The Detroit of today is getting punished for what Detroit was yesterday. At times over the past decades the Big Three’s bosses have been lazy and dumb and they’ve given pointless vehicles to their workers to build and their dealers to sell.
They over-relied on cheaply made big SUVs in the cheap fuel era. But they had to, because that was the way to make the fastest return for the shareholders at quarterly results time. Short sighted management is almost non-optional in the American capital system. European and Japanese shareholders look for longer-term results backed by solid investment.
To be literal, it’s a long time since GM, Ford and Chrysler actually were the Biggest Three. Their declining market share has put them in an impossible bind. They as they reduce their numbers of workers, each remaining employee has to pay the pensions and benefits and healthcare costs of more and more of his or her retired and redundant ex-colleagues.
Toyota, Honda, Nissan, BMW, Mercedes and the rest, with their far newer American factories, have a younger healthier workforce who don’t demand such an overhead of social care. Not yet anyway.
It’s a tragic irony that if GM goes down, one of the great problems of the car industry will be solved. It’s chronic over-capacity – too many expensive factories across the industry, too many workers. The remaining firms will be able to ramp up production to replace lost GM sales, and run their plants more efficiently. But what a sudden, catastrophic price for GM factory towns everywhere.