Cars, Banks and the Future of the Clean Economy
Yesterday, the Obama Administration's task force on the auto industry concluded that America's auto industry must downsize. Drastically. Cutting 50,000 jobs at GM--the company's proposal--is inadequate, the Administration concluded in its review of the GM plan. Nor can GM continue to sponsor so many brands which the task force dubbed distracting to management. Instead, the Administration believes GM should pare back to perhaps Chevy and Cadillac. As for Chrysler, the Administration ordered it to sell, ie. hand itself over to Fiat or file for bankruptcy.
At issue is the $6 billion or so the industry needs to keep going.
Does anyone else notice the irony that this pronouncement came on the heels of a plan to provide 1 to 2 trillion dollars to banks to take bad loans off their books with no concessions, no plan for a turnaround, no paring of brands, no industry review or task force, in fact, nothing at all required?
I support bailing out the banks. And I support doing it without micromanaging the business beyond changing management at the top--and securing warrants to reduce the cost to taxpayers--as I don't think government is well suited to managing businesses.
But I don't think anyone in the government including the task force after reading the industry's plans and conducting one or two trips to Detroit know more about cars than the car industry itself. Nor does anyone in the government know more about cars than about the banking industry which the government regulates and has been bailing out--and therefore learning about--for over a year at the cost of trillions.
One other thing about the government's dual standard for financial services and autos bothers me, namely wrapping condemnation of the auto business in environmental rhetoric. While the car industry took a hit from high gas prices last summer--an external shock it could not control--and has shown a consistent tin ear to fuel economy, its problems today have little connection to the environmental profile of cars. From a strict profit and loss perspective, investing in hybrids and electric cars--though critical to a future that may no longer exist in the United States--is not good for present cash flow.
The primary problem facing all the automakers today, not just GM and Chrysler but Toyota, Honda and the rest is that sales have fallen off a cliff becasue of lack of financing. Few people can pay all cash for a car. And currently only those with sterling credit can get a car loan. The auto industry, from Honda whose sales are down over a third to Chrysler, is a casualty of the financial crisis created by our banks. But it and the hundreds of thousands of Americans who work in the auto supply chain will now have to pay a far higher price.
The Big Three have one problem the Japanese carmakers don't, their legacy healthcare and retirement costs from when times were good and unions were strong. These have been exacerbated, however, by the stock market collapse--again a financial problem not of their making.
If America is serious about reaping the economic benefits of a clean technology revolution that encompasses transportation--as I believe we must be and the President has indicated he believes we must be as well, we can't do it with a gutted auto sector. By gutting the auto sector, we are only making ourselves more dependent on financial services as the chief engine of our economy--a strategy that has proven ill advised.
To rebuild our economy we need more engineering and less financial engineering. And to do that we will need a healthy auto sector. In a previous post I outlined some of the reasons that finance is advantaged in the policy process relative to manufacturing. Until we address the anti-blue collar, anti manufacturing barriers in our policy process, we will not succeed in placing our economy back on a sustainable path to long term growth.
