A longtime GM customer says Washington needs to attach some strings to any financing help for a GM-Chrysler merger
Taxpayers are mad as hell about the looming bailout of General Motors (GM) and Chrysler. They just don't know it yet. That's because the fix isn't quite in. Auto executives and federal officials still have to figure out whether they'll pull this off by redefining GM as a bank and grandfathering it into the Treasury Dept.'s $700 billion financial industry rescue, or by carving off some of the $25 billion of federal loans that were supposed to encourage development of alternative-fuel vehicles.
Details, details. What's important is that once it dawns on people that they're about to become major investors in the long-failing enterprise known as the U.S. car industry, they'll hit the roof. And I don't mean a ragtop convertible roof.
This is an even more outrageous public expenditure than the Wall Street bailout. In that case, the public was incensed that rich bankers who had stuffed their pockets with billions during the good times were having their fannies saved by regular folks—with the strong likelihood that once things stabilized, they would get even richer. The Detroit bailout raises a more depressing scenario: There's no reason to believe anyone is going to get rich after this money goes down the rat hole. Or that the situation is going to stabilize. Good luck selling this to John Q. Public, who's been running away from GM's cars for the past two decades.
Remember the Plymouth Acclaim?
Let's be clear. I'm not a Detroit hater. I've owned American cars all my life, starting with a '61 Chevrolet station wagon in 1974 and including a Chevy Vega and Chevette, Ford Pinto and two Tauruses, and Plymouth—remember them?—Acclaim. Some of these car names live in infamy, but buying used and American gave me good bang for my auto buck and better quality than you'd think. Granted, I'm a bit less selective than most folks and I accepted compromises along the way. The Vega departed after its aluminum engine block caught fire. And the Chevette was kept running only with the help of a For Sale sign strategically placed over the rotted floorboard.
Was all that penny-pinching for naught, swallowed by my portion of a $10 billion federal handout?
The argument, of course, is that if GM fails it will take a couple million jobs with it, including those in auto dealerships, parts factories, ad agencies, and so on. This is a variation on the Wall Street ransom note, which said that if the banks went under, Main Street businesses would follow. I don't doubt that's true. Cutting adrift the biggest U.S. industrial employer just when a horrific recession is picking up speed might prove to be as smart as letting Lehman fail in the middle of a financial panic.
Here are My Terms
But at least in the case of Wall Street, we had a week's debate in Congress about what conditions to affix to the handout. We wound up with more oversight protection and some shares in the banks. If Motor City has us over a barrel, at least it owes us a similar discussion (maybe Senator John McCain will suspend his campaign again, too). In any event, here are my terms for handing a check to Detroit:
End of discussion about higher mileage rules. For years, honest efforts to boost fuel efficiency were snuffed out in Washington by Detroit and its fellow travelers in Congress. Enough. I say we build right into bailout legislation a 40-mpg average for cars by 2020. That's up from 27.5 today, and a big step up from the 35 mpg goal that Detroit is supposed to achieve. I don't care how they get there: Build cars that burn corn cobs—or For Sale signs, for that matter. Just get there.
I'll take mine in stock. Chrysler famously got bailed out by the U.S. back in the early '80s (before being bought, sold, and now apparently bought again) with loan guarantees that turned into stock warrants that paid off handsomely. Today, auto stocks are absurdly low: GM is trading at $6.25 a share, compared with almost $40 a year ago. The whole company is worth about $3.5 billion, roughly half the market cap for video game maker Electronic Arts (ERTS). Forget a loan; let's get in on the ground floor. If the combined GM/Chrysler can survive until the market picks up and savings from a new auto-worker contract kick in, you have to think the shares will be worth more than $6 and change. And if not, we're probably not getting the money back anyway.
No favoritism for factories. Detroit is actually pretty good about deciding which auto plants live or die based on their relative efficiency. So the last thing we need is Congress mandating protection for factories like it does for defense plants. But I would go a step further: Think about whether you need factories at all. Maybe it makes sense for core engine and other technologies.
Smart tech companies learned a long time ago, though, that their expertise wasn't in assembly lines. Maybe it's time for automakers to learn that lesson, too, especially when the global auto industry has a glut of car factories. This may not be practical for the next year or two. Who needs more layoffs now? But within, say, three or four years, why can't the carmakers contract out assembly to low-cost independent producers, and even competitors if it makes economic sense? Let's face it: The next wave of competition isn't from Japan; it's from China and India. And it's probably from cars that you and I can snap together in a garage.
A moratorium on truck commercials. Yes, the next couple of years are going to be painful. But less so if I could be assured that my football games on TV won't be interrupted by ridiculous scenarios where a ton of rebar is dropped 20 feet into the bed of a pickup truck or a truck has to navigate a gauntlet of giant smashing hammers. If you can't sell a truck on the basis of its looks and price, then maybe you shouldn't be making them.
I'm sure there are other demands that are just as worthy as mine, and I look forward to hearing about them. In the meantime, I find it helps to think of our ever-expanding investment in nationalized industry as a sort of parallel retirement account. A few banks here, some insurers and credit-card companies there. Add a couple of auto companies. What's next? Airlines? Newspapers? Pretty soon we'll have a nice little distressed asset fund going here.