Aporkalypse Now: The Bailout Boys
The auto industry's $50b bailout plan should, by all accounts, be a fairly controversial issue. Detroit wants a re-do after chasing SUV profits off a cliff, but can't even guarantee that $50b will be enough. So why are industry pundits so unified in their support for the industry plan? To be fair, there is some opposition to the bailout plan among the chattering classes. Curiously it seems to be limited to John McCain, SUV-haters and everyone on Wall Street. Oh yeah, and TTAC. Meanwhile every buff-book columnist and "car-guy" commentator worth his junket airfare is parroting the same two basic arguments. First: it's not a bailout. Second: America, Fuck Yeah.
The "it's not a bailout" meme began when Jalopnik's Ray Wert went on CNBC's Street Signs and argued that the proposed plan was "just" loan guarantees. As in "not exactly the same as Bear Stearns." Within days of Wert's Clintonian parsing, Danny Howess of the Detroit News penned a column titled "Big 3's $50b Plea Is No Bailout".
Howes even lets an unnamed "industry executive with intimate knowledge of the policy discussions" make the crux of his argument. "We're not saying give us money. We're saying give us a reasonable cost of capital to invest in the United States. This is not a bailout."
In reality, the distinctions between Bear's "emergency line of credit," and the low-interest loans that Detroit is requesting are largely academic. Detroit is joining Bear, Fanny and Freddie in requesting that American taxpayers invest in their future when Wall Street won't.
Wall Street makes decisions on dollars and cents, but Washington runs on emotion and spectacle. A day late and several credit-ratings short, Detroit and its apologists fled for the last refuge of the scoundrel: blind Patriotism.
For Angus MacKenzie of Motor Trend, propping-up Detroit is nothing short of a matter of national security. "Think about it," writes MacKenzie. "If you know how to make a car, you know how to make a lot of other stuff — everything from air-conditioners to aircraft carriers." Later he dedicates an entire paragraph to straight-out assertion that "Manufacturing — auto manufacturing — is a strategically important business." In short, Detroit must be sheltered from competition, whatever the cost.
And with that, MacKenzie weaves Detroit's woes into the fabric of American economic decline. Like the subprime mortgage crisis, the downfall of America's "manufacturing– auto manufacturing" sector was the result of an economic "imbalance" he argues. Besides encouraging a blind investment in auto builders, this narrative also conveniently absolves Motown's CEOs of all responsibility for their situation.
This isn't overly surprising, as MacKenzie tends to side with Detroit wherever possible. After all, when times are bad, ad budgets get cut first. When Detroit does well, Motor Trend does well. But there's a big difference from reading MT fawning over sub-par Detroit iron and reading MT suggesting that taxpayers hand over $50b to the sub-prime auto business. Especially when we're told that if "even one" of the once-big three make it, "it will have been worth the investment. For America's sake."
Peter DeLorenzo of Autoextremist notoriety isn't afraid to call Detroit's predicament like it is. But when he's done admitting that even $40b worth of bailout is "mind numbing" and undeserved, he can't help but cop out.
Like MacKenzie, the specter of a general malaise– this time as a cultural decline– takes center stage in DeLorenzo's analysis. "We cannot come to the table in this new global economy only as… a people who have completely lost the ability to create or manufacture things… because once we lose that, then the day we lose touch with the basic fabric of our nation won't be far behind. "
But clearly we haven't lost our ability to create or manufacture things. After all, auto factories in America build competitive products for profitable companies every day. They just happen to have names like Toyota, Honda and BMW.
It's easy to equate giving Detroit money with helping America, but what exactly are we trying to save? These three companies which have struggled to make competitive products or turn a profit for decades. A $70m lobby gorging on federal pork, from the $1b PNGV boondoggle to the ethanol lunacy. The Chrysler Sebring.
The American "automotive sector" has not failed. Nor have Americans forgotten how to make stuff. The Big 2.8's plight is the simple, inevitable result of tragic mismanagement. Using tax money to enable them, promoting this policy, is not patriotic. It's a complete betrayal of the principles of hard work and fair competition, and the necessary balance of risk and reward, that made this country great.[Ray Wert video; Danny Howes column;Peter DeLorenzo rant; Angus Mackenzie propaganda]
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Jurisb, I don't really know what to say, other than the fact that you have an odd, fictional view of the US economy and how it operates. It's pretty simple -- stuff made in Asia costs less to make than it does to make the same stuff in the US. Early on, US manufacturers failed because of their inability to compete while keeping their operations in the United States. But over time, they have learned the offshoring game and have exported labor costs to lower cost markets in order to reduce their expenses and keep prices low. There's a reason why there are more US factories in Mexico, China and India than there used to be, and it's not because of the beaches. The US has increased its trade deficit because it feeds economic growth to have cheap goods available for sale. This is not an engineering issue.