The point of this document was supposed to be the presentation of the plan to achieve these operational improvements. But there’s no there there. I guess somebody who’s never read a real business plan might mistake this document for one, but it’s a joke. It’s basically a list of assertions of amazing improvements, entirely discontinuous with actual performance to date, that they will achieve. What's missing is any real indication of how they will go about accomplishing this.(Citation via Sykes Writes) The evaluation offers a policy implication.
[The proposal] exists to provide political cover to members of Congress. But if that’s the case, it’s an unintentionally beautiful illustration of why industrial policy fails. It’s both economically crucial and very hard to allocate capital well; that’s why people who are good at it make so much money. Businesses struggle to do this well, and they’re really trying. What do you think the odds are that this is a wise use of money, when the people involved are barely pretending to try?So far I haven't seen anyone suggest we owe Saddam Hussein's heirs an apology, for rejecting his report to the U.N., which had some details right.
Michigan writer Dan Calbrese offers a similar evaluation.
(Citation via Betsy's Page). He makes two additional observations. First, he's reinforcing the assertion I've made, repeatedly, about the downside of the blue-collar middle-class economy the latest bailout is supposed to preserve.GM’s business plan would be lucky to earn a C at a respectable business college. That might be better than sending your CEO to Washington on the corporate jet and having him explain that you just really, really need the money, but it’s still not good.
What’s more, what little substance the plan contains, GM is in no position to deliver.
UAW President Ron Gettelfinger said in November that the UAW has given enough, which is perhaps why GM’s request from the taxpayers has risen 50 percent. Will the union reverse course? And if it does, what does that do to the larger American labor movement, which would be essentially admitting that it had demanded too much from the employers it always portrayed rhetorically as greedy fat cats hording unlimited reserves of cash?
The reality of that industrial state was one of concentrated industries refraining from price or product competition and buying labor peace with a slice of the monopoly profits. As long as the efficiency losses from the restriction of output were borne by people in the developing world, other U.S. workers had no reason to object. The bailouts, however, are an attempt by people who battened off that inefficiency to be kept in the same relative position, only more evidently at the expense of other U.S. employers and workers. Perhaps the legacy car companies ought talk about making restitution to the rest of us.
Then comes evidence that the legacy car producers were selling a sub-prime product.
Within the document, GM admits something onerous – something that should raise a huge red flag for any thinking member of Congress. Up until recently, GM had financed more than half its customers’ purchases through its GMAC financing arm, and the vast majority of the customers it financed had credit scores under 700.
Now that the credit markets have become stingy, GMAC can no longer finance those customers, and that means it can now self-finance only 6 percent of all its sales.
This is crucial. GM reports its market share at 22 percent (oddly up from 20.5 percent just weeks earlier), but it appears that some 44 percent of its sales were self-financed deals with customers who pose at least some risk of default. Now that the credit markets are no longer willing to take the risk of underwriting such madness, GM asks the taxpayers to do so.
Taken together, the proposal does not impress Mr Calabrese.
The rest of the document is typical political pandering and emotional appeals about GM’s past, none of which make a bailout of the company from this point forward a smart business move.
Reason's Shikha Dalmia suggests the legacy car companies are facing an extinction level event.
Silicon Valley has demonstrated that competing effectively in a dynamic world requires egalitarian workplaces where smart people can think freely, unencumbered by the traditional trappings of status and power. But the Detroit Three have yet to learn that lesson. The plush corner office—still very much a prized thing—goes not to those with the most creative ideas to generate new efficiencies or products, but to the best ass-kissers. Indeed, in one of these companies, managers (drawing six figures) accompanying a boss on out-of-office engagements have standing instructions to be prepared with information about the nearest bathrooms to allow him or her to answer nature's call without losing a single moment. Is it any surprise then that their CEOs had no sense about how taking a begging trip on corporate jets would look to the thinking public?
Even though all car makers are suffering due to the economic downturn, only the Detroit Three are facing a mortal threat. America's other auto industry—composed of Asian transplants—will survive just fine.
But bailing out entities that long ago lost contact with market reality won't encourage them to reinvent themselves—exposing them to the full force of the gales of creative destruction will.
For the Detroit Three, it is 65 million BC—the year that the meteor landed and replaced the dinosaurs with smarter and more agile creatures. There is no point in using taxpayer money to postpone the inevitable.
This despite some seemingly perplexing evidence from the weekly production figures.
Most lawmakers aren't engineering, marketing, manufacturing, or finance experts. And they certainly can't predict what car buyers will want three or four years from now, when these Washington-designed models debut in dealer showrooms. Most lawmakers are lawyers. Lawyers don't produce consumer or durable goods, so they hardly are qualified to act as management consultants to the automotive industry.
Jaded by the congressional grandstanding, Americans actually think it's the lawmakers that produce products that nobody wants. According to the most recent Rasmussen poll, Congress's approval rating has been hovering around 9-12 percent for the past six months. On a ten point scale, congress would get a "1".
Meanwhile, those brilliant lawmakers demand that Detroit curtail production of SUVs, even though the SUV is one of the few products saving America's economy right now, with plants running overtime to meet demand. Recent SUV buyers also are quite happy with those products. For instance, the Ford Expedition gets a consumer rating of 9.1 on a ten-point scale. That's nine times as good as congress's rating.
Busybody lawmakers also pass fuel economy regulations that make full-size family sedans an endangered species, yet the powerful Chrysler 300 sedan also gets a consumer rating of 9.1.
I've sometimes suggested that the way to get high speed trains in the United States is to tax gasoline up to a price of $6 per gallon or so, with a dollar per gallon of that tax spent on high-speed trains. That never ceases to startle people. It is a recipe for all the usual public choice problems. It also might be administratively easier than continuing the fiction that the Mercedes M-class is a light truck, and all the other follies of automotive safety and automotive fuel economy, and it would damp the fluctuations in fuel prices that have contributed to the temporary revival of the sport-utes.
All those folks who unloaded their sport-utility vehicles when gasoline shot past $4 a gallon this summer might be developing a case of seller's remorse.
Americans love their wheels. The bigger the better, if the past is any guide. The ideals of personal freedom and mobility embodied in the automobile haven't changed in the least.
So, no surprise, with gas prices down around $2 again, the much-maligned SUV is making something of a comeback.
The details of the comeback are underwhelming.
Car sales on the whole remain a bust, and this comeback barely lives up to the name, considering the bleak conditions overall. Yet the General Motors assembly plant making Yukons, Tahoes and Escalades has put its workers on overtime. And dealers from Texas to Montana report that the big vehicles clogging up their lots for months like so much radioactive waste have started moving again, albeit at slashed prices.
The Law of Demand works. That overtime, which confessed sport-ute-phile Rush Limbaugh made much of when the article appeared, is actually evidence of the Automotive Welfare State at work.
In a 1979 speech, then United Auto Workers president Douglas Fraser objected to the automakers scheduling overtime in some plants while other workers were laid off, alleging that "it's cheaper for [the automakers] to work overtime than it is to hire new people." He proposed an increase in the relative price of an overtime hour.
If you have access to J-Stor, (The Review of Economics and Statistics 73, 1, February 1991: 40-49) you see the incentive to rely on overtime and the consequences it has on the size of the automotive work force. Ponder this: if more people were subject to the risks of being laid off by the legacy car companies, would the macroeconomic stresses be greater?
SECOND SECTION. An anonymous e-mailer, using the subject heading "Why don't you allow for comments on your Cold Springs Blog?" illustrates the quality of thought in the legacy car companies.
I am in Detroit, worked at GM as an economist and now in new vehicle technology, and you're full of crap. A typical academic who knows all (theoretically). Oh brother. Get some actual real world experience outside of academia, Steve, and then you can blab on with the journalists and other academics about how terrible the auto industry is, and IF ONLY we had a "real" capitalist state in the US. Though I imagine your perspective will be slightly different if you had worked in a real corporation and had to deliver products and money to the bottom line.
Clueless. The expression "ad hominem fallacy" is probably lost on such people.
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