Detroit bailout debate: 99% misinformation

December 2, 2008

Just about everything being said against this bailout is based on misinformation and prejudice. Narrative seems to be driven by preconceptions accrued over the last two decades, not from current facts.

Here are just a couple things I keep hearing that make me cringe:

If they were viable businesses they would be doing fine, like the Japanese

Everyone is struggling.  The U.S. got hit by the recession and credit crisis months before Japan and Europe, so our manufacturers have been taking a hit longer. Even so Toyota’s sales were 30% off last month.  And the whole Japanese market is experiencing the worse sales in over three decades.  True, Japanese firms are in a better cash position because they didn’t just come out of a massive turnaround.  Also true, due to their product mix Detroit has been hit hardest by the oil price shock, but this is not their fault….

They insist on making gas guzzlers when people want sippers

It takes 2-4 years to change an entire product line, and they are doing it.  The Japanese did not see $145 oil coming anymore than we did.  They simply have been making compacts and hybrids all along because it’s what their market wants (due to their gas being priced consistently at $4/gallon year after year).  You can’t fault Detroit for making SUVs.  People love them when gas is $1 a gallon.  The failure here is ours for not having a consistent energy policy.

We shouldn’t rescue everyone looking for a handout

Then why did we rescue the banks?  Arguably the car companies are about as important to our economy when you account for the 10 related jobs behind every auto worker (at suppliers, shipping, dealers, finance companies, service jobs around plants, etc.).  And still we aren’t willing to spend even 1/28 (one twenty-eighth !! ) on them?

Their problems stem from poor management

GM has completely redone its product line; their management team could hardly have delivered a better turnaround the last three years.  Ford somewhat less, Chrysler not so much actually.  Their new cars are sexy: Malibu and STS just won car-of-the year awards, and the Solstice is the coolest roadster around.  Quality is now on par with most imports, labor costs are much lower thanks to renegotiated contracts and pension restructuring, and GM has a terrific hybrid system that BMW and Mercedes are licensing.  Ford made money earlier this year before the crisis, and GM would have too except for subprime-related losses at GMAC and pension restructuring.  In the meantime Toyota has started showing cracks on its quality crown (Consumer Reports started actually testing them again this year).

It’s 25 billion into a black hole

It’s the same argument global warming deniers have been using for a decade.  Just because we’re not 100% sure it will work doesn’t mean we shouldn’t to do something about it.  The risk is high, but the potential reward is higher.

This argument was also used by Republicans against a Chrysler bailout in the early 80s.  Nevertheless they were given 1 billion, which they paid back with interest.  Even so, Richard Shelby has the gull to use that episode as argument against!  To paraphrase: “.. see, we gave them 1 billion and they still failed!”  Never mind they thrived for another 30 years until the current crisis!  This statement truly exposes the hypocrisy of their reasoning.


Ultimately this debate is about two things:  Republicans using their last shred of power to stick it to the unions before going into oblivion.  And Southern Republicans protecting foreign manufacturers with plants in Tennessee, Mississippi, etc.  Oh the ultimate irony of the ‘Country First’ party protecting the Japanese.  Their banners should read ‘Japan First’.

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