buggy whip manufacturers Detroit automobile manufacturers want a $50 billion bite out of the $700 emergency rescue program, part of which has already been approved by the Congress:
With the nation’s automotive industry hemorrhaging cash, congressional leaders called on the Bush administration yesterday to offer government assistance to the car companies as part of the Treasury Department’s $700 billion emergency rescue program.
The call came one day after General Motors, the nation’s largest auto manufacturer, announced another multibillion dollar loss for the third quarter and said it was running out of money fast. Ford, the second-biggest car company, also reported heavy losses. Unless the government steps in, analysts warned, GM could face bankruptcy, endangering the livelihoods of about 100,000 North American autoworkers and hundreds of thousands of others whose jobs depend on the industry.
In a letter to Treasury Secretary Henry M. Paulson Jr., House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry M. Reid (D-Nev.) asked Paulson to “review the feasibility . . . of providing temporary assistance to the automobile industry during the current financial crisis.”
When Lee Iacocca secured a loan from the federal government to keep Chrysler afloat 25 years ago, it turned about to be a pretty good deal. It did keep Chrysler afloat and its employees off the unemployment rolls and within 5 years Chrysler had paid its loan back. The market for automobiles was growing as more and more people outside the U. S. bought cars.
A lot has changed since the Chrysler bailout 25 years ago. In 1980 the U. S. automobile industry employed 714,300 and its suppliers employed millions more. As of 2006 the U. S. automobile industry employed directly 377,000 people counting both hourly and salaried workers. The number of workers in domestic parts manufacturing has declined even more dramatically as much of that activity is being done overseas now.
Even more importantly the world has tremendously more automobile production overall than it did 25 years ago. In 1980 the total world automobile production was around 40 million units with U. S. production about a quarter of that. Now it’s more than 73 million units with U. S. production still about a quarter of that.
And China and India are coming up fast. Between the two they produce nearly 10 million units and I would expect that to double over the next 5 to 10 years.
The point in this is that not only has the employment landscape changed for the U. S. automobile industry, so has the marketing landscape. Is there really a niche for the U. S. automobile industry to expand into?
Here are some of the questions I think that we should be considering before handing over any cash to the domestic automobile industry:
- What are the prospects for the loan being repaid?
- Will $50 billion given to the automobile industry result in the greatest amount of economic growth for the country? Frankly, I think there are other industries that could make better use of the dough.
- Will $50 billion given to the automobile industry result in the greatest benefit to the people of Detroit and Michigan. I suspect you could divvy the jack up among the people in the Detroit metro phone book and get a better outcome.
- If you’re bound and determined to hand $50 billion to the automobile industry, what requirements will you place on them in the areas of corporate governance? The domestic automobile industry got itself into its current fix. If the rest of us get them out of it, we need to make sure we don’t do so just to have them come back for another handout a couple of years down the road.