No help or wrong help for Detroit?

Discussion in 'General Motoring' started by Comments4u, Mar 3, 2006.

  1. Comments4u

    Comments4u Guest

    With automotive supplies (Delphi, J L French, and now Dana)
    running for bankruptcy protection, it must be wondered if GM
    and Ford can be far behind. The President has vowed no help
    for Detroit, and cautioned the automakers about their obligation
    to their retirees. Of course, when government spending exceeds
    income, the government merely prints more money, an option that
    is skewing the President's thinking.

    It would seem, as a self-proclaimed war president, the President
    would want to retain war capable American companies. Nothing
    matches this description better than the auto companies. And if
    he were to come to this conclusion, it is obvious he would throw
    money at the problem, as that is always his solution. Yet money
    for Detroit is not the answer.

    The typical demand of the critics is that Detroit must compete.
    The implication is that Detroit isn't building good products.
    What this ignores is two of the the big three factors of selling
    products: product quality, distribution, and quantity of

    "Build a better mousetrap and the world will beat a path to your
    door"? That's factor one, but its still not enough. Yet that's
    the shallow single demand of the critics.

    People will not make excessive efforts to seek out the best
    product. They will make reasonable efforts. It has to be
    convenient. Having a good product is not enough, and, in fact,
    terrible products capture market share. Yugo is a perfect
    example. If what the critics say were true, Yugo wouldn't have
    sold a single unit.

    Another enlightening example is the history of minivans. In
    the 80s, the Chrysler vans were the pick of the class. Yet
    mediocre products such as Ford's Aerostar and GM's Astro got
    significant market share. Even some of the hideous looking and
    ill handling conversions of Tokyo delivery vans by Toyota
    and Nissan were sold.

    The Ford and GM products sold because of great distribution. The
    Asian products sold because of reasonable distribution and the
    inability of their buyers to look beyond the nameplate and see
    the products for the mediocre commercial vehicles they really
    were, ill suited to passenger use.

    It can be expected that the President will remain in denial until
    the last possible moment. The ability to deny - and the ablity
    of the person to believe his own denial - dies hard. Even
    attending dozens of AA meetings can't change this.

    Then a public outpour of criticism, similar to the post-Katrina
    rantings, will prompt the President to throw money at the problem.
    This is not certain, but probable, as the President would first
    have to find an automotive services company run by cronies, in
    the mold of Haliburton, to which he could award the contract.

    The real problem lies in the quantity of competition factor. Its
    model and brand proliferation. Having a good product - or even
    the best product - isn't enough to overcome the onslaught of every
    automaker wanting a piece of the American market. The fact that
    most that attempt will eventually fail doesn't solve the problem.

    The actual solution is reduction in brands and models. A
    prohibition on new brands would prevent disruption by those
    marginal players likely to fail anyway. Telling Honda, Toyota,
    and Nissan they must each reduce the number of models offered
    by one or two would clear a market currently so crowded people
    can't even learn of all the choices.

    If brand and model limitation and reduction were enacted, the
    remaining question for the President would be whether
    Daimler-Chrysler, though not an American company, qualified as
    one that can be relied upon as a war industry, and thus provided
    protection, or as a foreign company to be ordered to reduce model
    offerings. Superficially, it seems foreign status would apply,
    and Daimler-Chrysler be considered an enemy company, not a friendly one.

    However, the practical matter is that Daimler-Chrysler should
    receive the same benefits as GM and Ford. The cooperation of
    Daimler-Chrysler in war production might not be voluntary, but it
    can be counted upon. After all, the President has the advantage
    of enforcement, since the US occuation forces from World War II
    remain in Germany. Protectorates tend to be compliant.
    Comments4u, Mar 3, 2006
  2. Comments4u

    Elle Guest

    That's one dangerous, fallacius, outrageous sound bite.
    The President and Congress are far more worried about the
    effects on the labor force.

    snip some sort of young person's semi-Socialist minded rant.
    Not that semi-Socialist is wrong. Just saying some people
    spend too much time proposing solutions instead of figuring
    out how they can implement them.
    Elle, Mar 3, 2006
  3. Comments4u

    Brent P Guest

    Really odd considering that the perscription drug thing was motivated not
    only by the often mentioned profit motive for the drug companies but to
    serve as a way for companies like GM to end their coverage of retires and
    shift the burden to taxpayers.
    Considering the union contracts, they are basically running a
    welfare/entitlement government operation. They just don't have the power
    to print money or tax. (as you've mentioned)
    The solution is never controlled choice. That was tried with CAFE and the
    big three got drunk on SUV profits and lured back to where they were in
    the 1970s. What should be done regulation wise is remove CAFE. Ford and
    GM would be wise to give up their assinine opposition to world wide
    standards based one ECE standard for things like vehicle lighting etc to
    allow them to more freely move models between markets as demand required.
    That also goes into the union contracts which current restrict that.
    Chrysler already had a taxpayer funded bailout.
    Brent P, Mar 3, 2006
  4. Comments4u

    jcr Guest

    That was all returned, with interest.
    jcr, Mar 4, 2006
  5. Comments4u

    Brent P Guest

    And so? They still have had one and GM and Ford haven't. It was a fairness
    arguement being made.
    Brent P, Mar 4, 2006
  6. Bzzt! Chrysler never had any such a taxpayer-funded bailout. The
    government signed loan _guarantees_, which is not at all the same thing as
    giving a loan. The loans came from banks. Lots of them, all over the
    world. And Chrysler paid 'em all back, well ahead of schedule. Not one
    taxpayer-cent was given to Chrysler for a "bailout", pop mythology
    Daniel J. Stern, Mar 4, 2006
  7. Comments4u

    Brent P Guest

    Work the semantics any way you wish. Because ultimately, the taxpayers were
    the one on the hook if they went under.
    Brent P, Mar 4, 2006
  8. Comments4u

    edward ohare Guest

    Absolutely correct. Furthermore, the government, under the agreement,
    had first claim to all Chrysler's assets in the event liquidation
    became necessary. The asset value exceeded the loan amount to such a
    degree that the government never had any significant risk.

    Yet years later, we keep hearing the pop mythology you refer to.
    edward ohare, Mar 4, 2006
  9. Comments4u

    jcr Guest

    As soon as Ford and GM have a viable recovery plan (as Chrysler was
    required to do at the time...the numbers had to work), I wouldn't have a
    problem with the government lining up loan guarantees for them. The
    problem is that if they fail, then the taxpayer IS out the money (the
    government is basically co-signing their loans, in other words). Plus
    all the retirement guarantees.

    I was taking exception to the term ""taxpayer funded bailout". The
    Chrysler deal didn't cost the taxpayer a red cent. And Chrysler made
    good on those loans well before they were due.
    jcr, Mar 4, 2006
  10. Comments4u

    Brent P Guest

    And I was dealing with the fairness arguement. regardless of what it was, the
    government already helped out one automaker. How it turned out is not relevant.
    Brent P, Mar 4, 2006
  11. Comments4u

    jcr Guest

    How did the Chrysler financials of the day compare with the GM/Ford
    financials today? GM already has $270+ billion of debt (according to
    jcr, Mar 4, 2006
  12. Comments4u

    edward ohare Guest

    I don't know but part of the deal was a huge amount of debt
    forgiveness. The banks had to forgive debt, then loan **more**
    although those loans were guaranteed. I have a vague recollection of
    some little bank in a place like Rockford Illinois almost sinking the
    whole thing not wanting to forgive part of some small loan... under
    edward ohare, Mar 4, 2006
  13. Comments4u

    edward ohare Guest

    The government had no discernable risk. See my other post.
    edward ohare, Mar 4, 2006
  14. Comments4u

    jcr Guest

    It would be interesting to know the difference in the "risk profile" of
    that past deal with Chrysler compared with what might be able to be
    worked out with GM/Ford today. If it is a similar profile, it might be
    worth helping them. Of course the competitive dynamics are different
    now, especially with the Korean makers and the Chinese makers knocking
    on our door. I simply might be too much for the domestics to compete with.
    jcr, Mar 4, 2006
  15. So, if Chrysler had all of these assets, why did they need a
    government guarantee?
    Gordon McGrew, Mar 4, 2006
  16. Comments4u

    edward ohare Guest

    It needed a combination of lower debt and fresh cash. The banks wrote
    off a lot of the existing loans and the government guaranteed the new
    loans, taking first claim on company assets... meaning the remaining
    old loans had little security.

    Chrysler's assets were insufficient to secure more loans on top of the
    old ones, but sufficient so that the new ones against the assets were
    reasonably secure.
    edward ohare, Mar 4, 2006
  17. In the sense that banks pay taxes, then yes.

    Don't look at me, my bank invested in Enron. So An American company
    failed and this Canadian taxpayer was on the hook.

    I think they call this "pretzel logic".
    Richard Sexton, Mar 4, 2006
  18. Comments4u

    Brent P Guest

    No risk means the government wasn't needed. There's a flaw somewhere.
    Brent P, Mar 4, 2006
    St. John Smythe, Mar 4, 2006
  20. "Loan" vs. "loan guarantee" is not a question of "working the semantics",
    any more than "orange" vs. "carburetor".

    The taxpayers would've been on the hook if Chrysler had gone under, but
    guess what? The human race would've been on the hook if the Cuban Missile
    Crisis had gone differently, too.

    For such a little word, "if" has a lot of power.
    Daniel J. Stern, Mar 4, 2006
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