18. November 2008 by David A. Peterson.

The labor unions and the Democratic Party have given the Republicans a gift. Both have decided that the big three US automakers are too big to fail. It will not be long before the Democrats will pass an additional $25,000,000,000 to help these relics of capitalism “prosper.”

All Republicans would like to see the big three automakers prosper. If the US automakers can produce cars that people want at an attractive price then they should have the ability to stay afloat and continue to provide solid products from their US workforce.

Moderate conservatives like me take a more pragmatic view of the current auto maker’s situation. Here is my take on this current event:

By the middle of last year Chrysler, Ford, and General Motors finally breached the 50% point in US automobile market share. Their combined market share has been on a steady slide south since the 1970s.

Even in very good economic times you wouldn’t liquidate a US manufacturing industry that produces 50% of every new car sold in America. In today’s dismal sales forecast of 12 million new vehicle sold in the US the big 3’s share would equal close to 6 million cars and trucks. You can bet it takes a huge work force, supply chain, and general infrastructure to produce that many vehicles.

I heard an ultra conservative commentator actually say on Fox News that if they go under “…these workers and sales would be absorbed by other manufacturers.” He is correct about the unit sales but just about every automaker today has a bit of overcapacity in it factories. Those workers would be hard pressed to find a similar manufacturing job.

Imagine 3 million more workers trying to find employment in today’s job market.

Now if we do bail them out (which is going to happen no matter what conservatives think) and we can wait another 25 years then the market share of the big 3 US automakers maybe small enough at that time to liquidate the entire industry. It is a whole lot easier to absorb workers in an industry with a 2% market share vs. one with a 50% market share. So why is this an opportunity for Republicans? It should be just the opposite. As a free marketing leaning organization we look like we are backed into a box. In our box of tricks is “…let the market place decide, and government has no business being involved with private enterprises.” Both true but…
 
It’s way over due for Republicans to look at the message they are sending to the American public.  I know it’s hard for ultra conservatives to imagine but government does have to take an occasional stand.

The opportunity for the Republicans is to take a stand and wrap an effective message around conserving as many of today’s jobs as humanly possible and at the same time move the economy forward in order to create new jobs.

Notice the above paragraph mentions jobs and jobs. The current Republican message of bailout and handouts is nowhere in the statement.

In this case the bailout will preserve most of the jobs in the short term, and in the long term after the companies goes through their respective bankruptcy proceeding it will preserve many of the current jobs as well.

Here’s the kicker both the bailout and bankruptcy are going to happen, you might as well be a part of the solution that comes from these events. Also maybe, just maybe, if we can get these old relics of capitalism into the next decade then they may be able to hold on to their market share. How will they hold on? Because just about every car in the world is going to be replaced with something more fuel efficient in the very near future.

What a gift, what a message – “ As a Republican, even though I oppose the additional monies on a fundamental basis I do see where in this case it will sustain the badly needed automobile jobs in the near term and give the auto makers a chance to hire and train the workers that will retool our US automobile industry.”

Wow Republicans talking about jobs and job growth while they are helping to shape a legislative bill they don’t really like.

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17. November 2008 by David A. Peterson.

Time to flip the coin. Heads and the automakers get funding to allow them to live for a while longer. Tails and the automakers don’t get funding and they will die a slow but certain death.

Where do you stand on the issue? My guess is that most fiscal conservatives will vote for tails, and moderate Republicans aren’t sure what to do. After all didn’t the Republicans just lose an election, didn’t slightly more than ½ of the population vote to do it a new way?

Notice in our coin toss that either way, heads or tails, the automakers are in deep trouble. If events keep moving in the same direction then no amount of Chevy Volts will save this industry.

Should we let them fail? We need to define what failure is… All three automakers will probably have to enter bankruptcy fairly soon. You can’t keep bleeding cash like these companies have done in the last few years.

So if failure means bankruptcy should we as a country let that happen? The answer is yes. Bankruptcy doesn’t mean that Ford is going away and its plants will be liquidated. This type of failure doesn’t mean that all 3 million jobs will be lost. It doesn’t mean that this vital industry will cease to exist.

What it does mean is that the three US automakers have to get their legacy costs in line. It is the cost of doing business that has these automakers in a bind. Bankruptcy is the only way to renegotiate those legacy contracts.

Who made this mess and created these absurd legacy contracts anyway? Lately all fingers have been pointing to the unions but in retrospect it was the unions and the managements of these companies signing the contracts every couple of years. If management didn’t think they could turn a profit with the deals they were signing then why, oh why did they sign them.

Were the Board of Directors for both the unions and the companies involved alive during these negotiations? Did the respective boards actually believe that the pension obligations could be overcome by selling “x” amount of units at an ever increasing costs?

At this moment in time the only losers in the US automakers fiasco is their respective shareholders. They are going to lose every nickel. However our government wants us all to share the pain of the shareholders so billions of our tax dollars will be invested. This really isn’t a flip of a coin. Regardless of what you think about the debate some rescue package is coming.

Conservatives cannot bury their heads in the sand. They do have a chair at the table and an obligation to legislate the best deal possible for the taxpayers. The role for the Republicans during this crisis is to ensure that any tax dollars allotted towards these programs has some form of return.

In other words if you plan on using my tax dollars I want at least these three things:

•  A competitive cost structure for US automakers vs. foreign makers producing in the US. (I believe a bankruptcy judge will take care of this one.)
• An automobile power plant standard that will replace the internal combustion engine in phases. (I’m tired of hearing about this one – we all know we need a comprehensive energy program.)
•  A distribution of preferred shares purchased at the strike price of the pre-bankruptcy loan. (I’m mentioned this one before, if I’m lending you money then I would like the cash back with interest.)

This coin has already been flipped and it came up “heads” and “tails.”  We will end up bailing out these automakers and we will let them fail and go into bankruptcy. What will emerge is a more competitive automobile industry.

I wonder if one day Toyota will have so much market share and so many US plants that we will end up bailing them out – I bet we will get the same outcome on that coin toss as well?

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