Saturday, November 15, 2008

Bailing out the auto industry...

My Andy Rooney take on this:

I'm concerned about America's infatuation with throwing money at things. Money problems? Throw more money in the pit.

Lets take the auto industry: GM is basically out of business because they are losing billions of dollars every month. Why? Well, I'll tell you why: Because people are not buying their cars and trucks, they're buying other manufacturers stuff. GM has lost market share. It's very simple.

So, what does our government want to do? They want to take YOUR and MY tax money and give it to them to "rescue them." See, I am a capitalist. I believe that companies should rise and fall based on how they do in the free market. There is no need to rescue a company because the market has already decided they are done.

I have made a personal decision to buy Toyota when we purchased our last two family cars. I did this based on research, value, repair history, models available, and price. I chose NOT to give my money to GM, and I don't want the government to make that decision for me.

Lets do a comparison: The ice block delivery business was huge in the early 1900's, and there were many men and women employed in this industry. When the refrigerator was invented in 1911 - these companies started to fail. They lost "billions every month". They employed "thousands of hard working Americans". What if the government decided to rescue them? Throw money at the ice block delivery companies to keep them in business? What would have happened to the refrigerator companies? I'll tell you what: It would have significantly slowed PROGRESS. Innovation and the MARKET decided together that having ice delivered to an ice box wasn't as good as a refrigerator. Simple as that.

GM is an ice delivery company. Let them go if they can't innovate - don't SLOW PROGRESS!

Dear Government, let capitalism reign. Let good companies grow and poor companies shrink. Go ahead and let the bubble burst, it'll hurt for a while but the state of the economy in a few years will be much better than if you just prolonged the inevitable. Think of it like a forest fire, it's devastating when it's happening but in a few seasons you will see fresh, new, healthy growth.

Edit: Welcome reddit. For the rest of you, click here to see the other comments.

5 comments:

  1. This is a very good arguement and I completely agree with you. The auto industries had their opportunity to shore up but all they did was send lobbiest to Washington so they could keep selling their gas guzzlers. Now - here is another side to your Andy Rooney. If the auto industries go under it will more than likely propel the nation into a massive depression. It will put 1 in 4 Americans out of work because of the millions of people who depend on this industry. Not just the car makers but it will have a huge effect on the used car dealers because many of new car dealers will revert to selling used vehicles to try to stay in business. That will cause such a huge influx of used car dealers that you will see masses of dealers closing their doors. Right now more than 20% of used car dealers a month are going out of business. Your theory will cause more Americans to end up loosing their jobs - possibly including me. I may end on the unemployment line with millions of others.
    Another solution may be to abolish the unions - they have caused many of the automobile makers problems. The auto makers are forced to produce more cars than they need (thousands more)because it is cheaper to make the cars than lay off union employees. What about the union guy who sweeps the floors making 20 bucks an hr.? Is that justified when half of Americans are enemployed?
    Think about it.............

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  2. No "Anonymous", you think about it.

    Can you actually prove that the unemployment risk is so dire. I call BS on the claim in the first place. Most of the population is involved in service industries and of the "up-chain" industries involved, the US auto industry isn't even in the top ten. Far more jobs will be lost (with 100% certainty) as a result of the current Wall Street CDO/CDS and Mortgage dual crises in any case.

    But let's take a reality check on what these precious jobs are doing anyway.

    The CEO of GM recently announced it will take *4 years* to switch production of SUV-making plants to some other type of vehicle. But as far back 10 years ago Toyota could switch a plant's production from subcompact cars to heavy trucks in *3 months*.

    On the extreme side, *for the last 30 years* the German luxury manufacturer BMW has had its factories producing every car they sold from the same production lines (watching a single production line you can see: one car a 318, the next a 535, then a 730, then a 325, then an X3, etc.) by the same workers! Effective production switch-over time: 30 seconds. All this with only modest use of robots.

    Think about what this profound lack of flexibility in the US auto industry means when it comes to peak oil and changes in product demand caused by externalities that neither producer nor consumer can control or predict. If it takes 4 years to switch production there's a good chance the market trend or empirical discovery has *already changed reality and demand again* by the time they get the first new vehicle out of production!

    We engineers call this an oscillatory differential equation. Doctors call it cardiac fibrillation. Any are lethal if your goal was normal useful operation or life-giving blood flow or product innovation.

    Doesn't this sound familiar? As someone who has had a driver's license since the 1970s, I have driven plenty of US automaker cars, yet *never* bought one. This simply because of the lack of value for the price. US cars have, in my "limited" 30 year driving history, always been "late" to market and poor imitations of prior innovations in the the car market not worth the price asked. They have always been "trailing edge" followers or behind the innovation adoption curve and lately they've slipped complete off the curve.

    Now that we need to find ways of powering vehicles with alternate fuels, there will be no certainty in the direction of the "right answer"; there is no one to "follow" any more. Instead all vehicles will be leading edge experiments - exactly the wrong place for a technology follower.

    But even the innovative car makers now need to "innovate the way they innovate". The economic system can no longer be treated as an open system where selling a lemon isn't the car industry's problem. It is now a closed system where car makers must assure that going down the inevitable blind alleys coming doesn't waste too much of their time and resources but equally doesn't waste their customer's either.

    The Total Cost of Ownership will include more than years of use and salvage value: it will include how much re-use of major parts of the car occurs and complete fuel type switches like gasoline to electric to fuel cell to hybrid to natural gas - all in any arbitrary order as often as yearly at a fraction (< %10-20) of the current cost of buying a new car today. Short switch over cycles is key to this but also the vision and imagination of what it took at BMW to do JIT manufacturing of every product.

    I'm a US engineer with a business background. Sadly, the one thing I know in my head but also in my gut is this: the US auto industry is incapable of achieving or competing in this new challenge financially, culturally, creatively or technically. I could wish otherwise but believing that simply wishing something hard enough will create it as a reality is the realm of children or childish adults. It is a sad reality we must face realistically.

    The current US auto industry will almost certainly not be part of our future or our future solutions. If there are grown children who haven't left the house yet and now can't imagine how to survive without "daddy" handling things, that's no justification to keep "daddy" on life support. In the long term it won't change anything anyway. "Daddy" will still die eventually. This is unalterable.

    This is not to say there aren't many good and talented individual working in the auto industry but as an ensemble working together they can't get there from here. Those talented individuals' talents are being wasted working for the US auto industry and will contribute more working for non-US manufacturers or for the new crop of alternative US car makers like Tesla Motors who actually are innovating.

    It's time for the old guard to slip quietly into history. The US auto industry is so moribund that we are only delaying what is inevitable and doing it at the opportunity cost of denying far more promising projects funding.

    Now are you really going to say that protecting our auto industry is a good idea when it's this backwards? If so, there is a recent example of an industrial group that was so inefficient and backwards that it collapsed under its own weight: it was called the Soviet Union. You may have heard of it.

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  3. If they go bankrupt Toyota or Honda will buy up the factories. There's no reason to believe anybody would be out of work.

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  4. Jackpot! I had a very similar thought today, at aparentreason.com. It's bad enough that GM is asking for a federal bailout, but the fact that they A) aren't even attempting to find an alternate solution, and B) are threating the fed to take everyone else down with them is BS. Screw that, let's take our chances.

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