Editorial: In Defense of: Bailing Out Detroit

Phil Ressler
by Phil Ressler
editorial in defense of bailing out detroit

No, it’s not welfare. It’s a little bit insurance mixed with an old-fashioned helping hand that ought to be extended with a little discipline to Detroit’s rump. Bailouts, subsidies, tax breaks and other sundry government instruments to influence the economy are recurrent and mainstream in American history. Less here than most countries, but nevertheless persistent. So let’s not pretend the program to assist Detroit, or the banks, or brokerages, etc., are new. We have an economy with gross annual activity valued over $14 trillion dollars. The absolute numbers bandied about today are big; the proportional representation is more modest. $25B, $50B, $75B are barely a bump.

Still, in a free market country, new initiatives are controversial. On the one hand, purists root for creative destruction, but those minded like economists persistently miss the politics of the situation and the reality of keeping a vast nation functioning. Others, eager for socio-economic activism want to put a floor under the common man, but they often miss the inter-generational consequences of temporally-restricted decisions made today. They also usually lose sight of the bureaucratic permanence of temporary measures.

It takes both caution and daring to overcome both blind spots. Otherwise, the free marketers are like cranks in the neighborhood, who oppose anti-foreclosure measures and then lament the decay instigated by the boarded-up houses, brown lawns and squatters suddenly surrounding them. Detroit’s problem is your problem and mine, too.

I haven’t a shadow of doubt that the total labor pool in the American automotive manufacturing industry feels more than a little abandoned by the coasts. The vocal coastal intelligentsia isn’t sympathetic and Michigan, being in flyover country, gets little love. From management to the plant floor, the coasts are heaping disdain, but the “coasts” represent a psycho-graphic, not a geographic. “The Coast” is sometimes located in a landlocked place. People have to begin caring outside their immediate radius of relevance.

Buying American wherever possible isn’t a patriotic act; it’s born of self-interest. It’s also communitarian and improves an economy’s balance. The United States has gotten the world it wanted and worked very hard to get. After two World Wars and during a long ideological struggle, we willfully engineered both a subsidy and mindshare grab to put the world back on its feet. Direct contribution such as the Marshall Plan and far disproportionate funding & manning of the free world’s security requirements were central. But we also consciously funded rising opportunity throughout the globe by opening our markets more widely than any other major nation.

We recognized that poverty breeds gigantic trouble, particularly in countries with developed populations and modern technical and industrial capability. We wanted a wealthier world and we got it. Others seized the opportunity, not least Japan and China, and generated wealth for themselves far beyond what we anticipated we were inciting. Now here we are, competing in a world we instigated, and properly so. We *intended* to reduce our proportional presence in the global economy relative to 1945, by ensuring others would quickly grow.

In 1980, the US was still the world’s largest creditor nation. In less than three years we gave that up in a dramatic reversal that put us instead in the top debtor position. Only a portion of this was the government’s doing. Everyone today complaining about bailouts has helped to fuel this through insatiable appetite for imported goods exceeding our exports. This is not permanently sustainable, though the US has far exceeded most ideologues’ view of how long we could carry the load.

We gave up consumer electronics, including the valuable TV industry. Yes, domestic brands seeded their demise through their insularity and intransigence. The origins of the Sony Trinitron picture tube were American, but RCA, GE, Sylvania, Westinghouse, et al, did not see the value. However, in just over a decade, RCA for one was making domestic production TVs with tubes that were a product of US R&D, that had superior visual fidelity to Sony’s. But alas, it became uncool to buy domestic and no amount of product improvement could save them.

Sure, as the TV industry in the US was dying, minicomputers were in full swing and the ubiquitous personal computing was being born. But they could have co-existed, and with an American display industry in tandem with its computing industry, sector value could have been much greater, especially since both led to consumer HD.

This is where consumer responsibility for the economy we have kicks in, and it is what frustrates Americans in the domestic industry. There remain uncompetitive cars from the D3. But there are many competitive models that evaluated objectively ought to be selling much better. If you worked on the Malibu, how could you not feel like your fellow Americans aren’t with you when Camry’s still far outsell it. The Camry is a mashed potato of a car, devoid of differentiating appeal and by standards of touch, driveability, handling, appearance, space utilization, general quality of execution is inferior to the current Malibu. The Accord has gotten fat and soft. People scream for reliability and yet VW still sells Passats and Audis. Old Malibu? Sure. But this one’s *good*.

We all banter here about the anecdotal reasons to hold a grudge against any or all of the D3. But that is just an excuse. The reality is that Americans can save their own auto industry, right now, next year, in 2010 and beyond. All they have to do is to buy Detroit’s good, reject the bad, and let the government fund the “bridge loan” to restored confidence. Not doing so ensures one thing: YOU WILL PAY anyway. You will pay in social erosion and corrosion, higher social program and “safety net” costs, reduced confidence, reduced common interest, increased polarity between haves and have-nots and the opportunity costs of careers not moving forward.

Meanwhile, the Feds should wise up and link governance and management changes to availability of aid. Ford is a public company that must be untied from Ford family defacto control. GM’s executive team had their chance. They came into the millenium with a fat pile of cash and a plurality of the domestic market’s customers. As finance professionals often do when miscast as CEOs, they managed to the stock price until the price of the stock completely slipped from their grasp. Chrysler has been taken private and by comparison the team is relatively new. They have less claim to aid, but also less to answer for, for now.

We *can* let Detroit die. It’s just that we *shouldn’t*. It is true that Detroit will recover faster than pundits think, if the industry is allowed to fail. I saw Pittsburgh lose its place in the industrial realm in a dramatic five year crash between 1975 – 1980. Pundits, including many serious economists, warned that Pittsburgh wouldn’t “come back” for 50 years. By 1985, Pittsburgh was in resurgence and much cleaner, though smaller, and began showing up on lists of America’s best cities to live in due to the combination of low prices, economic diversification, cleaner air and water, and family orientation.

However, there’s no doubt that our national economy would be stronger if we had held onto much more of the steel industry, and it would be environmentally better to be making and shipping steel in and around North America rather than shipping it in from other continents on high-pollution cargo ships. With a stronger hand on the part of the Fed, the domestic steel industry could have retained a more robust position in the global market.

We need the Feds to be thinking bigger. Not nationalization, no. But the states cannot bail out Detroit, so as the holder of the funds, the Federal government should override state laws to provide shore-to-shore market consistency. And hit the reset button on labor/employer relations. It should place observers on boards, require election of new directors, with no incumbents, and force competitive search for new CEOs, with any CEO incumbents required to re-apply for their jobs if they still want them.

There should be agreed milestones for both further aid and lifting of Federal oversight. But all of this will be moot if large numbers of Americans stand back with folded arms, chanting need to see how current competitive cars fare in five years before they’ll try and buy. No marketing campaign should try to persuade us to buy domestically. Certainly, no legal structure should be erected to coerce us to do so. No appeal to patriotism is warranted.

Instead, the balance between the dynamism of individual freedom and considering social context is communitarian action. No one should have to tell you or convince you that there is intrinsic virtue and self-interest to buying American if your needs and even wants can be met by a competitive domestic product. It is, or should be, self-evident. We used to have this in greater measure in the United States, and certainly the Japanese understand this. No, transplants are not 1:1 replacements for domestics, in economic value. Americans are self-interested in the viability of the D3. They represent a huge economic presence, the demise of which will ripple into the furthest economic corners of the country.

Communitarian economic action relies on individual initiative to consider and use his or her buying power to help shape their world. People who use their buying power to advance Green practices without the zeal of enforcement are acting in a communitarian fashion, as are people who choose to shop locally rather than at Wal-Mart, or get their coffee from a local cafe rather than Starbucks. An economic communitarian will put aside small differences and prioritize social leverage, but retain the right to punish serious shortfalls in quality, execution and appeal.

A communitarian realizes that individual responsibility does not negate me in Los Angeles, for example, seeing Michigan’s problems as also my own. In the past 25 years, I have been continuously able to buy and drive engaging, entertaining, reliable, affordable American cars made by the D3. I avoided plenty that could not have performed. There’s nothing special about me. Anyone can do it. Starting right now.

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2 of 91 comments
  • Speedlaw Speedlaw on Nov 03, 2008

    The D-3 have made their own beds. In the family, there are three Acuras, all of which were made right here in the USA. Honda reliable the bunch. I used to have a VW Hecho en Mexico. Lotsa Beemers and M-B made here, and they (mostly) don't suck. This means that a lot of money is sent "overseas" instead of staying here. If there is a 200+ day supply of Vettes, how little could a base manual go for ?

  • Charly Charly on Nov 03, 2008

    Everybody is crying with this carmarket. But the foreign transplants have the advantage that they make cars than trucks and that it is cheaper to cut imports than it is to cut locally produced cars

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