Generalissimo Toyota.
Spoke Thursday 4 with Peter Kent, Minister of Foreign Affairs (Americas) for Canada's Conservative Party, and learned that the Canadian government is preparing worst-case scenarios in the event of a General Motors bankruptcy filing at year's end. How do the dealers get paid, how long do the lines of credit hold, how do the workers get paid or relocate. Canada has plants and workers from the Big Three as well as the big foreign makers. PM Stephen Harper was in Woodstock Ontario today at the opening of a $1.1 billion new Totyota plant (above) that is a huge boost to southwest Ontario. However the Washington hearings of the automakers (right) appealing for bridge loans are a centerpiece for Ottawa. Peter Kent is deeply, sincerely of the opinion that GM must not be forced into bankruptcy. This would be an unknown risk to the Ontario economy, where so far unemployment is not dire and the car sales have held steady. Plenty of anecdotes suggest that a GM failure would lead to a death spiral. I mentioned that Chris Dodd said in the hearings that car dealers in Connecticut were not getting paid quickly for the rebates they were offering customers. Peter Kent said that they'd heard the same problem in Ontario. The whole auto chain is unreliable. The quote 
today from Rick Wagoner is that GM needs a check for $4 billion by the end of the year to meet its obligations. He is threatening bankruptcy, and I do believe the senators heard today candor mixed with a grim realism. Detroit has awakened from the long delusion. Is it too late? Yes. Will they get the money for 2009? Yes. Tomorrow the unholy gang goes to the House side to repeat their despair. As of now, Detroit does not have the votes for the bridge-loans. My colleague Thaddeus McCotter will be on the Finance Committee to propose compromise. He is pro Detroit and against more TARP, and he will make the excellent point that Citi has received $45 billion of TARP without substantial questioning while GM needs not quite as much but it must survive mockery and class warfare on TV. This is a cliff-hanger, and the car that is teetering is built by Colonel Motors.
"Colonel Motors"!!! That's hilarious. They're going to be down to "Buck Private Motors" in a few more months at the rate they're going.....
Astute observation. Cliffhanger - no. GM will get the money, if only to show good faith by Democrats toward their union supporters. Not that it will ultimately help GM (and all the others). GM will and should go bankrupt. The only question is when. It isn't entirely GM's fault. The auto industry is one of the most highly government regulated industries in the nation (along with banking). More political interference in the auto (or any) business - as all the strings sure to be attached to any loan would imply - is hardly a way to find permanent free market solutions.
It is also interesting to note the sad spectacle of former titans of American industry groveling at the feet of hack politicians. Will this be the template for ourselves down the road? Or have we already reached that point where party loyalty alone secures our existence?
Now let me get this correct. The government of the United States of America is going to lend $9B. to Chrysler which is owned by Cerberus Capital Management the largest private equity firm in the country. Perhaps Cerberus can ask China or Japan for a BRIDGE loan. What is happening to our Constitution?
I've been following this story with ambivalence - going from pro bailout to con. My fear is that if the bailout goes through it will be full of strings that give the greens de facto control of the companies. I'd prefer a straight forward loan with no strings attached - like the bankers got. That being said, I've been thoroughly disgusted by the treatment these men have received on capital hill. My dream would be for these men to let it fly to these clowns in congress - Pelosi, Reid, Franks, Dodd, Schumer - the list goes on. Give them an earful about TARP, about Fanny and Freddy - let it rip! New royalty where supplicants have to appear before them, prostrate themselves, humiliate themselves while they sit in judgement and who cares how just or true your cause - they don't like how you do your hair or the suit you wear or the tone of you voice. Think the movie American Graffiti and the proud place the American car used to hold in this culture - and this is what it's been reduced to - horrifying! I'm fully ready to concede that detroit's management has been mediocre, but, that doesn't matter, they are still many many rings up on the food chain above this vicious horrible bunch of lawyers and syncophants now in power. I'm mad, really mad right now.
The American Auto industry needs to be put down. It's a dinosaur that we are holding onto for sentimental reasons much like the space shuttle. Think of how they have chosen in the past to the meet their profit margins-marketing and selling more horsepower, more luxury, bigger is better. They simply don't have the mental equipment to retool themselves to compete globally today. They are lost in a sea of companies which use planned obsolescence very effectively, like walmart. The Auto industry has always been stuck between trying to provide a reliable, safe, functional product and finding ways to have the customer come back next year. The imp here is greed. The Profit Margin At All Costs. This is what you get when you have MBAs in charge of anything real- total disconnect from the product they are selling.
I'll agree that the auto industry is part of the real economy, but they have been floundering for years, flooding the market with inferior products. My neighbor and his wife have 3 cars and 2 trucks! And he's a plumber!!! Happy Birthday America!! You have reached Critical Mass. Have a cookie.
If you want to save the auto industry- force the banks to save them- although tarp is un/fortunately frozen under it's own paranoia.
UAW and AFL-CIO are terrified of bankruptcy for the Colonel. Wage and Benefits givebacks will anger the Union rank and file and endangers Union management. UAW will offer minimal givebacks, having bought last month's election. Like their masters in the Ivory towers in Detroit and DC, UAW is thinking short term at the expense of long term security and prosperity.
Compare this situation to the airlines: Big, bloated bureaucracies with Unions who can bring the company down in a matter of hours: Pilots, Stewards, and Repairmen are highly trained and not easily replaced. Highly regulated by Government. Many, many Failures. Branniff, TWA, People's Express are all gone. Jet Blue and Southwest Air thrive with simplicity and lean business models. Delta, AA, and United are all about perks for their frequent fliers while abusing the customers who fly 3-4 times a year.
Are the Big three necessary? People claim we need the big three to build our defense hardware, Trucks Humvees, etc. I don't see John Deere and International Harvester asking bailouts? DARPA is using a Subaru car engine in one of their un-manned helicopters. Democratic congress scoffs at energy independence, yet insists we need transportation security.
To slightly change the subject: PM Harper of Canada just SUSPENDED parliament. Unprecedented. As an important member of the G8, I find this shocking that a Premier would take such action during a financial crises. Even more surprised the Crown (AKA Governor General) approved Harper's request.
This is all getting way too complicated. It's very simple: government has no business interfering in private industry. Let the companies fail. Let all companies fail that cannot make a profit. Regardless of size. Then, new ones will spring up that can make a profit by making a better product. Better product, more productive workforce, happier taxpayer, less government debt. If we have a deep recession and some pain as a result of it, let's have our recession and bear our pain and quit being in denial about it and get it over with and then resolve to be healthy from then on.
By the way, I think the fact that the chief executives of these companies can waste a week or two in D.C. while their companies are foundering, does a nice job of illustrating how largely worthless they are. Congress should send them all away empty-handed, with their tails between their legs.
This is all starting to look like something out of Ayn Rand, minus the bad writing.
Ayn Rand wasn't so bad, and yes it is like Atlas Shrugged.
Lou:
The bottom line is that if a car make can't build cars and make a profit, they shouldn't be in business. This is all about socialism. Guaranteed outcomes through central planning. even if they car companies get the loans, that does not mean they still will be in business in a year or two. In a capitalist world they would have to file chapter 11 and restructure and get out or companies like Toyota or Honda would buy them them. To be fair to the American manufacturers, foreign automotive sales in Japan (and other countries) are limited by the government. Why we never fixed that I have no idea. The bottom line is they can't make a profit and be competitive in price, let alone quality. It's time to rip the band-aid off.
You know what, I really like the idea behind Atlas Shrugged. As a small business owner who works about as hard as the people described in that book, I keep trying to tell myself I should just shrug and let the Democratic vampire bats discover what it's like when they bleed their victims dry. But, to my surprise, I can't shrug. I think I'm an automaton, a robot, somebody who is just wound up by a mainspring to always work his hardest and do his best. I've been lowering my unit prices like crazy though. I'd rather give a deep discount to my clients than pay more in taxes to a corrupt, inefficient, lazy socialist government. My plan is to pass increased productivity on in the form of lower prices to our clients and keep profits just low enough that my taxes won't go up. I don't really give a hoot about money or what it can buy anyway - just have to make enough to keep the womenfolk happy.
As for Ayn Rand, well, she never used 50 words where 500 wouldn't do, but she sure had the right idea.