Bailout Hearings Take Two. A Checklist of Nonsense Put Forward By The Pundit Class

Posted by: David Kiley on December 3, 2008

The debate surrounding the U.S. auto industry has been raging for over a month. One one side are people and lawmakers who say that Detroit is not worthy of saving; that market forces should be allowed to cut them down. Let them file Chapter 11, and let a new U.S. industry rise from the ashes.

From my standpoint, that would be preferable. I write about the industry. So, a new industry would give me lots to cover. But I am not for denying a bailout. Over the last month, I have heard and read some of the most pathetic excuses for commentary and punditry I have ever heard on any topic.

Since this is a blog, I’ll simply rattle off some of the nonsense that passes for “informed commentary,” especially on TV.

1. MSNBC Hardball: Chris Matthews interviewing GM President Fred Henderson asks why anyone wants a Hummer. “There’s no room…it’s all machinery in there.” Apparently, Matthews has only ever seen a Hummer H1, and is unfamiliar with the H2 and H3 that makes up virtually all the brand’s sales. Hummer was a dumb thing to buy. But the host should know what he’s talking about. By the way, Hummer ran an ad on Hardball shortly after Matthews and Henderson both trashed Hummer.
2. MSNBC Morning Joe: It’s been painful some mornings to watch Mika Brzezinki as she clearly doesn’t think Detroit should be bailed out. The low point for me was when she was debating the issue with actress Mary Steenburgen. To what end, I’m sure I don’t know.
3. During the hearings last month, Montana Senator Jon Tester complained that it was getting too hard to find pickup trucks made in the U.S. He voiced his concern that any government help would be used to build more cars in Mexico and Canada. First of all, the only full-size pickups, which Tester was referring to, are some medium duty Dodge rams built in Mexico. Ford F Series, Chevy Silverados and the vast majority of Rams are all made in the U.S. What the heck was he talking about when he said it was getting hard to find a full-size pickup made in the U.S. He must be a Ram fan. But anecdotes are a poor substitute for facts or knowledge.

4. A Hardball appearance by Congressman Zack Wamp (R-Tenn.) and Rep. Steve Israel (D-NY). Wamp compared Detroit’s inability to support itself with Volkswagen, which is building a state-subsidized plant in Tennessee. Perhaps Rep. Wamp might avail himself of some facts that VW will be receiving help from the German government, that the State of Lower Saxony has long held a big stake in VW, and that Germany has a national healthcare system that drastically lowers the per-unit cost of vehicles for Volkswagen. And how about that government subsidy from your state? Israel said he was a reluctant supporter of loans to Detroit, but only if the Big Three make commitments to flex-fuel chips in the engines so they can run on gas or bio-fuels. Ahem. The Big Three have put million of flex fuel cars on the road, and are enthusiastic about building more as it only costs about $50-$100 a vehicle. What needs to happen to make that investment payoff is an energy policy that will speed up the development of cellulosic ethanol and an infrastructure of pumps to gas up the cars with the stuff. That’s a government issue. Your department.
5. And then there are our Bankruptcy advocates like former Governor Mitt Romney, Cato Institute’s Daniel Mitchell, blogger diva Arianna Huffington. I have missed the part of their arguments where they say they would buy a new vehicle from a Chapter 11 car company, and would recommend their friends do the same. Chapter 11 is a dog that does not hunt in this story. The revenue crash at the companies would be so great from lost sales that it would soon turn into liquidation.
6. Mitt Romney and Businessweek's own Jack Welch: Get the government to guarantee warranties so people will have confidence in buying American cars from a bankrupt company. But no help from Uncle Sam, for the millions who suddenly don’t have healthcare coverage. What chapter of the bible is it that says care for your fan-belts, but not your diabetics?
7. Senator Lindsey Graham from South Carolina, who opposes the auto loans. He, like Alabama Senator Richard Shelby, doesn’t see why South Carolinians and Alabamians should pay (or loan) money to companies who pay their workers more than they make. First: employees at the BMW, Mercedes, Honda and Hyundai plants in those states make as much as they do because the UAW exists. Without the UAW setting a pay standard, they’d be making much less. Second: The next time a hurricane hits South Carolina or Alabama, will Michiganders, Ohioans and Pennsylvanians and Illini get to vote against FEMA money going to those states where people who insist on building houses on the sand and right next to water get Fed help over and over? How much Fed money has gone into the South Carolina coastline over the decades to help it recover from storm damage? Last time I checked, we were a union of states, not a Confederacy.
8. Give the loan money or grant money to companies like Tesla, which is smarter than Detroit. Okay…Tesla is an interesting car. But it will cost buyers upward of 100,000. And by the way…the company’s management can’t get them off the ground because they find that building, selling, distributing and servicing automobiles is a pretty complicated business.
9. GM isn’t worth saving. After all, it killed the electric car. If GM’s EV1 electric car had a workable business model, not only would GM have kept it going, but Toyota and Honda would be littering the roadway with electric cars by now. If GM vacated an obvious gold-mine opportunity, where are the other companies filling the void? Get over it.
10. There is no innovation in Detroit. They are only interested in selling gas guzzlers. No question, Detroit over-subscribed on building SUVs. But if you compare Toyota and Honda models against their logical counterparts at GM and Ford [Honda Accord vs. Ford Fusion and Chevy Malibu; Ford Expedition vs. Toyota Sequoia and Chevy Tahoe] you’ll find that the Detroit models are virtually tied or exceed the Japanese models. Toyota and Honda had hybrids on the road before Detroit did. And the Prius is a huge hit. But it’s not as if half the country was buying hybrids, or wants to. It’s not a sexy statistic, but GM’s hybrid buses that it has been selling to cities, saved more gas an emissions per year than the Prius the first five years the Prius was on sale.
11. George Will on ABC’s “This Week.” He says the Congress has already voted the Chevy Volt a failure by approving a $7,500 tax subsidy for people who buy one. This is brand new technology, which is expensive to get off the ground. Many people, me included, believe plug-in extended range electric vehicles are the key to reducing oil consumption and improving greenhouse emissions. New technology like this often gets subsidized by governments at first to help establish scale until the price per unit comes down. The Toyota Prius has enjoyed U.S. government subsidy too.
12. Two theories I have developed over the last month are perhaps worth considering as we try to measure the vitriol aimed at Detroit. First, the vast majority of TV pundits live in California, Washington DC and New York. These are three markets where the Big Three have long struggled as baby boomers who rose to economic success largely rejected their parents’ brands and rightly turned to Japanese and German brands of higher quality and greater prestige. Detroit brands are not fashionable in these places. It seems to me that perceptions and misinformed “facts” of the pundits about Detroit are rooted in the 1980s and 1990s when they were scowling at their folks’ Ford Tempos and Oldsmobile Cieras. 2. Very few people understand Wall Street or the banks or what has become of the money the banks and AIG got. How many people can explain a credit default swap? I can’t. But everyone in Congress, and most voters, have owned a car and think they know which cars are good and which are poor. So, my second theory is that Detroit is absorbing all the frustration over the Wall Street and bank bailout because people think they understand this better. They had little say over that bailout, so they want to make sure they are heard on this one in ever greater volume.
13. Throw The Bums Out!Richard Shelby, Arianna Huffington, Thomas Friedman and several members of Congress say that Big Three management must be replaced. This argument is understandable, but doesn’t seem to take into consideration the sweeping changes at Ford and Chrysler. You want outsiders? Ford hired Alan Mulally from Boeing, and he has done more to focus and restructure the company in two years than his predecessors accomplished in ten. Chrysler is managed by Bob Nardelli (GE and Home Depot) and Jim press (Toyota). GM is the outlier with GM lifers Rick Wagoner and Fred Henderson at the top. But to sweep all three companies into the same heap reveals a dated and out-of-touch awareness of what is really going on at these companies.

Reader Comments

Dearborn Observer

December 3, 2008 6:56 PM

Anyone with real knowledge or experience with the auto industry OEMs has been cringing along with you David. But the widespread ignorance among the pundit class only serves to highlight the obvious: the PR and lobbying machinery of the Detroit 3 is in even worse shape than their respective parent companies. Indeed the performance of the D3 at the first bailout hearings made it appear as if none of these companies has any PR apparatus at all. Job#1 for each of these CEOs (after getting through Q4 2008 and Q1 2009): totally revamp your PR machinery - because you're going to need it as you will likely need to keep going back to the well for more $.

Paul (Vw)

December 3, 2008 8:43 PM

>>> Richard Shelby, Arianna Huffington, Thomas Friedman and several members of Congress say that Big Three management must be replaced.

Why was UAW's head Gettelfinger omitted from your list above of those whom should be replaced (inferring you are thinking they shouldn't). Oh, wait, UAW does not advertise in BusisnessWeek does it? Does/has GM/Ford/Chyrsler?

Why not should add automotive columnists who claim the Malibu is a bad Taxi compared to the Toyota Prius-- based primarily on the legroom (note the Malibu had a divider in there where the Prius did not!) and the word of one Vegas cabbie. Note: the original blog entry was updated with the critical difference once it was brought out in discussion:

http://www.businessweek.com/autos/autobeat/archives/2008/10/worst_cab_ever.html

;-) All kidding aside, it's easy to nitpick careless statements by others and use that as a strawman fallacy to refute their position.

From Kiley: UAW Presidents are elected.

Chris

December 3, 2008 8:44 PM

David - Great post! There are a ridiculous amount of false statements being spread out there. And everybody seems to be focused on either the past or the other strange comparisons.

It's time for more solutions to be discussed. How can we save this industry and create a more sustainable model for car companies.

Real change would take some leadership from the state and federal governments. We just elected a future president focused on change - this might be a true test of how unique and fresh he will be.

Perhaps this is a good time to reach for the stars, for our country, the auto industry, and the planet.

The idea I like: Put in place a floor on gasoline, use those proceeds to provide financing for auto companies to build electric vehicles and incentives for customers to buy them.

Somebody with a serious voice needs to get the media talking about that.

flyerbry

December 3, 2008 9:09 PM

The Hummer H3 is tiny inside when you consider its exterior proportions. I have four kids and checked them out hoping they offered a third row. Not even the larger H2 has one! I ended up with a Jeep Commander. It is close to the exterior dimensions of he H3 but the interior is much more roomy and it has the third row.
However, I do agree with your overall statement, you're absolutely right, there is a lot of "opinion" being thrown around as "fact."

Paul (Vw)

December 4, 2008 1:52 AM

>>> ...as we try to measure the vitriol aimed at Detroit.

Are we supposed to pat the Detroit executives and UAW on the back and say "Good job!"?

With the financial meltdown, Wall Street has been criticized for its excesses. Detroit should be treated no differently. And I wouldn't characterize all criticisms as vitriol.

Oh, by the way, it appears that not just the pundits on the two coasts oppose the bailout:

http://www.cnn.com/2008/POLITICS/12/03/auto.poll/index.html

"Six in 10 oppose the auto bailout," according to CNN....The poll indicates that most opposition to the bailout comes from the West, where opposition reaches 67 percent. Sixty-one percent of those polled in the Northeast, 64 percent in the South and 53 percent in the Midwest oppose using federal dollars to help the automakers."

From Kiley: That poll is not a poll of pundits. And God help us if we keep going down the road of allowing the polling results of poorly informed voters to make policy that could be the difference between Recession and Depression.

Paul (Vw)

December 4, 2008 10:34 AM

From my posting >>> Oh, by the way, it appears that not just the pundits on the two coasts oppose the bailout

From Kiley >>> That poll is not a poll of pundits. [From Paul: which is what I noted] And God help us if we keep going down the road of allowing the polling results of poorly informed voters to make policy that could be the difference between Recession and Depression.

Great, suddenly the majority is stupid and poorly informed when they don't agree with your constituency (Detroit advertisers). Care to comment on the recent election results then Mr. Kiley?

Cameron

December 4, 2008 11:18 AM

David, thank you for a great post. I'm astounded by the number of folks who feel compelled to comment on a very complex situation and prove their lack of substantive knowledge.

We need to save our automotive manufacturing base, the impact of letting it go is hard to even imagine. Have mistakes been made? Absolutely. Do we need oversight? Absolutely. Do we need an automotive vision for the future? Without question.

I agree with Chris, we need to focus on the future and a sustainable solution, but in the meantime we need to find a way to not let GM go down, I fear the economic impact would be catastrophic.

It does bother me that there seems to be such a double standard. Everyone seems fine on handing vast amounts of money to Wall Street but violently opposes helping Detroit (it seems to me that both Wall Street and Detroit have let the rest of us down).

As always the conversation seems to be on either extreme and I'm certain the "truth" is someplace in the middle.

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