Why Most Americans Don't Mind if the Big Three Fail

While asking Congress for billions in bailout money, General Motors (GM) CEO Rick Wagoner promised that "we will repay the taxpayers' faith."

Yo, Rick: What faith?

The CEOs of GM, Ford (F), and Chrysler clearly believe that the old adage is still true: If it's good for the automakers, it's good for America. Thus, the predictable doom-saying about how the entire U.S. economy will be reduced to ashes if even one of those bloated automakers is forced to declare bankruptcy.

Most Americans understand that the auto industry still provides millions of jobs and that this is a bad time to be throwing any more people out of work than necessary. But they slam on the brakes at the idea of giving Detroit billions in taxpayer money. A recent Gallup poll found that 49 percent of Americans oppose federal aid to the automakers, while 47 percent favor it. If that seems close enough for comfort, consider how telling it would be if half of the fans at a Yankees or Cowboys game were rooting for the home team to lose.

Congress seems even less supportive, with several members of the Senate Banking Committee ripping the Detroit CEOs a new tailpipe when they pleaded for aid at a recent hearing. Most Republicans and some Democrats oppose a bailout, and legislators seem unlikely to do anything until next year at the earliest, even though GM could be out of money by then.

These are the only domestic automakers we have. Yet they've become the scourge of their fellow Americans. Here's how it happened:

They alienated millions of customers. You have to try hard to give up 30 percentage points of market share, which is what the domestic automakers have done since 1970. The downfall began with the introduction of cheap cars like the Ford Pinto and Chevrolet Vega, meant to battle thrifty imports. Those cars and numerous follow-ons now wear badges of horror identifying them as some of the worst cars in history - with millions of owners to bear witness.

There was, for instance, that little exploding gas tank problem on the Pinto, which Ford denied for years. The Vega came with a cheap aluminum engine that couldn't withstand its own heat and often warped or melted before the car reached 50,000 miles. On Detroit creations like the Citation, the Nova, the Omni, the Aspen, the Fiesta, the Mustang II, the Skylark, the Cavalier, the Cimmaron, and many others, fenders rusted after just one or two winters, engines seized up, radiators leaked, switches broke, headliners drooped. In short, bottom-rung benchmarks were set. Millions of customers - many from families with a long history of loyalty to Ford or Chevrolet or Chrysler - swore off domestics forever. Detroit builds better cars today, but many spurned customers from the past don't care. To them, Detroit's predicament isn't a national emergency. It's justice.

Detroit lost its lock on Congress. When Congress approved $1.5 billion in aid to help Chrysler avoid bankruptcy in 1979, the vote in the Senate was a comfortable 53 to 44. In the House, it was even more decisive: 271 to 136. As there are now, there were critics who argued that a failing company should work out its own problems. But the automakers had factories in many states and deep leverage in Congress.

As Detroit drove its customers away, however, the importers that were getting a lot of new business began to build factories here, too - to lower shipping costs, insulate themselves from exchange-rate bubbles, and build credibility with buy-American consumers. Today, nearly every "importer" has at least one U.S. factory. All told, foreign-based automakers build cars or their components in more than 20 U.S. states, accounting for more than 150,000 jobs. And they buy parts from many of the same American suppliers that serve Detroit.

Result: A conflicted Congress. Influential Republican Sen. Richard Shelby of Alabama comes from a state with factories run by Hyundai, Mercedes, Toyota (TM), and Honda (HMC). No surprise he's a loud critic of a Detroit bailout. Republican Rep. Mike Pence comes from a traditional Rust Belt state, Indiana, with several domestic factories. But he recently argued - while standing in the shadow of a new Honda plant in his home state - that the Detroit Three would fare just fine in bankruptcy court. Back in Washington, the balance of power is tipping against Detroit, as healthier automakers create jobs in many states without asking for help.

The Detroit Three's workers became arrogant. Critics overstate the difficulties caused these days by labor unions, which have actually made significant concessions in recent years. Still, unions continue to demand benefits - especially healthcare - that many of their fellow Americans don't get. Everybody knows that corporations are methodically trimming benefits to cut costs, and some smaller companies don't offer health insurance at all. For entrepreneurs, paying for healthcare costs is one of the biggest barriers to starting a business. Many people struggling to cobble together a healthcare plan for their family resent union complaints about the erosion of cradle-to-grave coverage.

Their cars became obnoxious. Detroit gets blamed for building too many big SUVs, but they did that because Americans bought them. Well, some Americans. SUVs and other light trucks became so popular that at one point they represented half of all new-car sales. But the other half of buyers, those sticking with sedans and subcompacts, increasingly resented all those 5,000-pound behemoths bearing down on them. The schadenfreude was palpable when gas prices rose to $4 per gallon earlier this year, and all those Frugal Franks delighted over the SUV owners who were suddenly shelling out $75 a week just to get around town. With "Detroit" synonymous with "SUV," the automakers' woes have now become a proxy referendum on a gaudy lifestyle whose time appears to be past. We're about to find out if it really is.

Comments

[bosun.j:]

Yet another shill for the Extremist-Capitalist tinkle down failed economic model.

2008 Nov 20 06:44 AM

[Jimmy Lathrop:]

A vote for the bailout is a vote for the obese Americans who can't squeeze into a normal car. Don't forget that we are also paying for those higher Medicare costs for heart disease and other chronic ailments that morbid obese people suffer from. Have another donut, Porky. Hope you choke on it so I don't need to sit next to you on my next plane ride. We'll bury you in your Escalade.

2008 Nov 20 07:01 AM

[sstro:]

I don't want to see them fail. I want them to run their business like any other company in this country. Who bailed out the mom and pop hardware store when home depot moved in down the street. Same goes when wal-mart came to town . I'm so sick of hearing that phrase, to big to fail. The attitude of the CEOs leaves much to be desired and the UAW which is the cause of most of the problems refuses to buge in a way that could really save jobs. They tell us filing for bankruptcy is not a option cause no one will buy a car from them.I have always supported American car makers just look in my garage. I for one think that if they don't file and get a bailout in anyway,shape or form I won't buy a car from them again where if they did and it was time to buy I would be the first to buy American. Bailout Mania must stop. You decide Detroit,lay your future on a bailout or go the American way and do the right thing.

2008 Nov 20 07:23 AM

[Repper:]

A rare, relatively even handed view of what's going on here. Americans do have a warped view of what these companies are now because of everything in their past. Too few of the criticisms I hear about them really hold any water:
1) SUVs were a product of consumer demand. CAFE standards only work if people want to buy small cars. They make every car as efficient as possible while meeting consumre demands (performance, etc).
2) Domestics have fuel economy as good or better than competitors in most if not all segments.
3) Domestic's quality and reliability is as good or better than foriegn competition in most segments.
4) UAW has made some concessions (though perhaps not quite enough)over the past several years.
5) Domestics are mostly ahead of the curve with alternative fuel technologies. (GM just made the mistake of putting their hybrid technology into the trucks they thought people would keep buying rather than having a direct competitor with the prius, but the Volt will leapfrog that.)
It's too bad all the changes they've made and work they've done to become competitive may be for nothing if this whole thing goes bad. And yes, bad for the automakers WILL be bad for the entire country. Yes, they COULD be leaner and more competitive if they shed some of their contractual obligations through chapter 11, but I am one of those that believe a chapter 11 would soon become a chapter 7 due to lack of sales. Those millions of jobs would be hit by that and our fragile economy would surely be in depression.
Also, even if they did stay afloat through a babkruptcy, whatever guaranteed loan(s) that would be needed to get them through a chapter 11 would cost the taxpayers much more than is currently under consideration.
I also believe that if they get some kind of assistance and do somehow make it through the other side of this economic crisis, they can and will be profitable with the changes they have/are making.

2008 Nov 20 07:52 AM

[Jimmy Lathrop:]

I am tired of the old consumer demand argument being trotted out to support the SUVs. There is consumer demand for child pornography and heroin. We don't subsidize those either.

2008 Nov 20 08:01 AM

[Jimmy Lathrop:]

Mon Nov 17th 07:19 AM | Rating: +1 0
Commented on:
GM Bailout Would Be Agony for Taxpayers
I am not interested in putting my tax dollars to work so that an auto worker in Michigan making $78 an hour does not have to make a co-pay on his universal health insurance. That is a spit in the face to all of the hardworking Americans in the South employed in factories owned by Honda, Toyota and Mitsubishi. People talk about not wanting to buy cars from a bankrupt company. The figures show they aren't buying them now anyway. The only argument for keeping GM dealerships afloat is that they are employing the out of work mortgage brokers who wrecked our economy and that's a poor reason.

2008 Nov 20 08:04 AM

[777john777:]

hey capital hill, it's it's not a bail out. IT'S A LOAN. IF YOU DON/T BELIVE IN THE BIG THREE SO BE IT. BUT I THINK THERE WILL B HELL TO PAY. PS. THE SNOW BALL EFFECT BIG TIME.

2008 Nov 20 08:28 AM

[Bob M:]

If the Big 3 fail, they fail. The world seems to be making do without Packard, Pan-Am, & Smith Corona just fine. Know this though - I will never, Never, NEVER... own a Japtrap of an automobile. If I have to go to a MUSEUM to find a Mercury Grand Marquis by the time I'm my dad's age (30 more years), so be it. Homey don't do glorified motor scooters...

2008 Nov 20 08:32 AM

[john s. gordon:]

most people don't seem to understand that we have more than just an automobile problem here.

we have an industrial-base problem here.

we are fighting 2 wars (thank you emperor george dubya) and you can't do wars w/o an industrial base.

our industrial base has been sick since the 1981 r.reagan overvalued dollar policy, made it impossible for u.s manufacturers to compete in world markets.
> jack

2008 Nov 20 08:58 AM

[MPoz:]

To say that domestic quality is a good if not better than foreign is ridiculous. It is clear based on your assumption that you do not drive a foreign car. I own a mid size company and I have many domestic trucks in our fleet as well as foreign. The Toyota products have virtually no problems while the comprable Ford products have many more repair problems. Pick up an issue of consumer reports and look at Toyota and Honda's track record. I will grant you that there are other foreign car companies that have or are trying to gain considerable market share like Hundai that are probably not as good American cars. There are also many high line foreign cars that have far better quality, but are not affordable to most Americans.
Fuel efficiency in terms of Ford, I bought an 08' F250 diesel for my company and its fuel consumption is higher than its predecessor an 06' F250, this isn't an opinion it is a fact. It is irresponsible for any manufacturer to produce even one car that gets worse economy than the model year before it, at least keep it the same if not marginally imporved.
American car companies being ahead in altenative energies again is absurd, E85 not the solution, in fact an absolute flop! Ford has one Hybrid, the Escape, who really wants that car, that's their big effort into the market the Escape? Again, another problem with the American car companies, put technology into something that people would want to buy, that is attractive. For example: the Ford Edge is selling great, is it offered in a Hybrid? No, why because it is the same attitude as always why put money into something that is selling? American car companies have been afraid to tell their share holders the hard truth and that is they need to spend money on R & D to remain competitive in the future and so the stock price may not be high for next quarter. Honda has hybrid cars as well as a hydrogen model in limited availability. Look at Honda's website at what they've been doing and how they've been spending their money into research and what is in store for the future. Toyota has the Prius Hybrid, the Highlander Hybrid, the Camry Hybrid and two Hybrids in their Lexus brand name. How does Detroit respond? Escalade Hybrid, good job guys! They also have the Denali Hybrid and guess what? They're not selling, you could walk in and buy one right now because the product isn't great, but you will get all sorts of great financing. Not so true if you want a Prius, Camry, Accord or Highlander. There are waiting lists for these cars and you'll pay full sticker and not get zero percent. Explain why that is? Are people stupid? The answer is undeniable, American companies do not have the cars todays Americans want to buy. The American car companies and their unions have destroyed these companies, they have violated the trust Americans have put in them by producing sub standard vehicles for years or have only focused on brands that were selling like Ford with their trucks. Then gas spikes and Ford is in trouble because there small vehicle line up is a joke. Now the big three wants our tax dollars to bail them out of their flawed business model and their incompetent leadership. Add to this a fact that you many not know. The company that produced the Hybrid batteries for Toyota, Ford, GM and others was purchased not that long ago, by who? Toyota. You mean to tell me that the heads of our big three couldn't have had the same proactive vision and done the same thing and then they would have been truly a head of the curve. Now, Toyota is only giving them batteries per their contract that was made with the previous owner. A head of the curve, I think accurately is to say they are now clearly behind.
Bottom line, I would buy American all day long if the quality was good and dependable, but it's not! Toyota and Honda are not asking for a bailout, you've got to ask yourself why?. They look into the future and guess what? They will probably come out of this even stronger because of Detroit's failure to keep up with progress and forward thinking. I do not want to see anyone lose their jobs or for any families to suffer, it is not my wish at all, but the union system is also severly broken and needs to go away. Their attitude of greed, corruption, strong arm tactics, picketing jobs sites and complacency has got to end. These people need to join the regular rank and file and work hard, save money for their own future because the government isn't going to do it and stop looking for more handouts, because Americans can no longer afford it.

On Nov 20 07:52 AM Repper wrote:

> A rare, relatively even handed view of what's going on here. Americans
> do have a warped view of what these companies are now because of
> everything in their past. Too few of the criticisms I hear about
> them really hold any water:
> 1) SUVs were a product of consumer demand. CAFE standards only work
> if people wbut a fact that ant to buy small cars. They make every car as efficient
> as possible while meeting consumre demands (performance, etc). <br/>2)
> Domestics have fuel economy as good or better than competitors in
> most if not all segments.
> 3) Domestic's quality and reliability is as good or better than foriegn
> competition in most segments.
> 4) UAW has made some concessions (though perhaps not quite enough)over
> the past several years.
> 5) Domestics are mostly ahead of the curve with alternative fuel
> technologies. (GM just made the mistake of putting their hybrid technology
> into the trucks they thought people would keep buying rather than
> having a direct competitor with the prius, but the Volt will leapfrog
> that.)
> It's too bad all the changes they've made and work they've done to
> become competitive may be for nothing if this whole thing goes bad.
> And yes, bad for the automakers WILL be bad for the entire country.
> Yes, they COULD be leaner and more competitive if they shed some
> of their contractual obligations through chapter 11, but I am one
> of those that believe a chapter 11 would soon become a chapter 7
> due to lack of sales. Those millions of jobs would be hit by that
> and our fragile economy would surely be in depression.
> Also, even if they did stay afloat through a babkruptcy, whatever
> guaranteed loan(s) that would be needed to get them through a chapter
> 11 would cost the taxpayers much more than is currently under consideration.
>
> I also believe that if they get some kind of assistance and do somehow
> make it through the other side of this economic crisis, they can
> and will be profitable with the changes they have/are making.

2008 Nov 20 09:09 AM

[rdr4:]

There seems to be a presumption, on the part of the alarmists, that a failure of the big 3 would create an vacuum in the industry.
The demand for automobiles and trucks is not going away, it is being redistributed. Although it is possible that some other automaker might buy a substantial amount of the Detroit big 3 car makers distressed property to allow for the increase in their anticipated market-share, the foreign automakers seem to feel that the Detroit environment does not enhance their potential for producing a cost effective product.
Toyota, VW, Nissan, Honda, etc, appear to share that thought.

I have a 1996 F-350 diesel work truck pick-up, bought new. The glow plug condenser goes out every 3 months. The driver seat self destructed at 36,000 miles ( I weigh 180). The leaf springs broke although the truck was never overloaded. Ford did not even stock the springs. The transmission fell apart at 147,000. Now, the heater failed and Ford does not stock any replacement, nor is there a part available in the aftermarket. Yes, I want more of this, not!
Supporting Detroit is like holding a dead body above your head while swimming across a rampaging river.

2008 Nov 20 09:48 AM

[Repper:]

I'm afraid a depression in this country that would be caused by the immediate fallout of sucha failure would cause a great decrease decrease in demand. Yes some manufacturing would come back, but in whos' hands? Most likely foreign run companies. I'm afraid that would not be good for our countries future either.

I'm very sorry that you had/have such problems with your '96 Ford. It sounds like you got a real lemon, and that sucks. Your expreience will obviously steer you, and those you talk to, away from Ford (and probably other domestics as well). Unfortunately you should realize that there have been a TON of change made over the past decade. Every new generation of vehicle that comes out getts better and better in quality and reliability from any auto maker, and the domestic comapanies have caught up in those areas. but the perceptions caused by past sins will be extremely difficult to overcome.


On Nov 20 09:48 AM rdr4 wrote:

> There seems to be a presumption, on the part of the alarmists, that
> a failure of the big 3 would create an vacuum in the industry. <br/>The
> demand for automobiles and trucks is not going away, it is being
> redistributed. Although it is possible that some other automaker
> might buy a substantial amount of the Detroit big 3 car makers distressed
> property to allow for the increase in their anticipated market-share,
> the foreign automakers seem to feel that the Detroit environment
> does not enhance their potential for producing a cost effective product.
>
> Toyota, VW, Nissan, Honda, etc, appear to share that thought.
>
> I have a 1996 F-350 diesel work truck pick-up, bought new. The glow
> plug condenser goes out every 3 months. The driver seat self destructed
> at 36,000 miles ( I weigh 180). The leaf springs broke although the
> truck was never overloaded. Ford did not even stock the springs.
> The transmission fell apart at 147,000. Now, the heater failed and
> Ford does not stock any replacement, nor is there a part available
> in the aftermarket. Yes, I want more of this, not!
> Supporting Detroit is like holding a dead body above your head while
> swimming across a rampaging river.
>
>
>

2008 Nov 20 10:00 AM

[john s. gordon:]

everybody hates ford?

it's true that everybody hated the pinto (uncomfortable seats).

i have a 2000 model v6 minivan (miles about 160k), it says quest on it but everything is ford parts. gives yeoman service. had one problem with a sticky throttle cable but that went away by itself (i didn't like the price i was quoted for a replacement part).

in 2006 i sold my 1994 e150 conversion van (over 150k mi). it had a problem w/the ABS but who doesn't have ABS problems. had a problem w/the hot water pipe to the rear cabin heater but that was caused by the conversion shop, not by ford. early on had problem keeping the front wheels aligned (i don't like that swing axle suspension) but once the techs in the shop were properly trained there was no further problem. wish i still had that van, my subaru can't haul enough stuff.
> jack

2008 Nov 20 10:49 AM

[bbowen7:]

If Detroit's message were that they have made significant progress (with credible examples) and that they have a viable plan to be successful after this credit crisis, the American public would be glad to help them over the hump. But instead, their message is that the sky will fall if they go bankrupt. People will invest in something viable, but not a failed proposition with their leaders flying their jets into Washington and their multi-million dollar salaries.

2008 Nov 20 12:07 PM

[Repper:]

Their message (if you actually heard it) DID outline the significant changes tha have been made in recent years, and how they feel they can be profitable again. It hasn't been "business as usual" in detroit for many, many years.


On Nov 20 12:07 PM rightinsanfrancisco wrote:

> If Detroit's message were that they have made significant progress
> (with credible examples) and that they have a viable plan to be successful
> after this credit crisis, the American public would be glad to help
> them over the hump. But instead, their message is that the sky will
> fall if they go bankrupt. People will invest in something viable,
> but not a failed proposition with their leaders flying their jets
> into Washington and their multi-million dollar salaries.

2008 Nov 20 12:29 PM

[Jimmy Lathrop:]

I'm tired of UAW members taking over this board.

2008 Nov 20 01:15 PM

[MPoz:]

They may have a lot of time to comment in the very near future.


On Nov 20 01:15 PM Jimmy Lathrop wrote:

> I'm tired of UAW members taking over this board.q

2008 Nov 20 06:23 PM

[bigmoney:]

I bought a brand new Ford F150 back in 1997 after college graduation. One of the main engine seals failed at 30,000 miles. Ford fixed it under warranty. A second main sealed failed at 85,000, quietly leaking coolant into the engine. That caused the engine to fail.

I called Ford to ask about warranty, recalls, and any other good faith remedy, and they told me "sorry, nothing we can do."

I bought another Ford (used), only because it was dirt cheap. If there are any major engine / transmission failures inside of 100k, then my next car will definitely be of foreign make.

Whats ironic is that US corporate CEO's are nortorious for earning much higher salary spreads compared to labor, and many people justifiy this with "they are paid what they are worth". I have read that Euro & Asian CEOs make a significantly less relative compensation, but there is little doubt that the likes of BMW, Honda, Toyota, et al are putting out a superior product. Not only are they more reliable, but they are more visually attractive.

2008 Nov 20 06:27 PM

[bigmoney:]

>> But the other half of buyers, those sticking with sedans and subcompacts, increasingly resented all those 5,000-pound behemoths bearing down on them

Really, Detroit has been getting various plush "bailout" by Big Government for quite some time. From what I understand, Detroit doesn't make any money on the small cars that meant EPA / CAFE fuel consumption standards. So they make up for it by pushing the behemoths, which have very fat profit margins. These monster trucks are more like 8000 pounds, rather than 5000 pounds. I imagine these large vehicles cause anxiety among many people, encouraging the purchase of larger and larger cars, in a sort of suburban arms race.

Where I live, the transportation of choice among the suburban office proles is the Ford F250 diesel burning crew cab, or its equivalent. And the owners typically put the extra heavy steel bumpers on front and rear to increase their aggressive posture. I priced some of these in the past, and then easily push $50,000. I doubt very many people can afford that, so I think what happens is they setup some bogus LLC (corporation), and then take a giant "business" tax write off. A tax writeoff that is much more significant than the one Uncle Sam permits for the modest hybrid electric vehicles.

This is all ironic considering that the last Gulf War was quite conspicuously an oil war. I can understand the motivation for an oil war, but before doing that, you would think Government could at least stop subsidizing the 8000 pound diesel tanks that suburbanites prefer, when doing things fetching 50" plasma TVs' at the local Best Buy.

2008 Nov 20 07:23 PM

[raising4dau...:]

Poorly run, crony companies should not be bailed out. Try bankruptcy to reorganize. Get rid of about 50% of the salaried work force, 50% of your dealerships (like I need 15 GM dealers within a 10 mile radius), and break the union. Then you might have a shot.

2008 Nov 21 01:10 AM

[devassocx:]

Detroit has to shed the cost penalty of its unions. If it can't do that then it
will never profit.

Better to go into chapter 11 and reorg and if necessary go to the end of BK
so that some other investor group can take over and make a profit.

That is the way of capitalism and it works really well in a Darwin sort of way.

2008 Nov 21 01:22 AM

[littlemoney:]

I don't know whether we should help or not. Let us look at some numbers.I have heard 1 million people affected by a loss of the big 3. I also have heard of $78 as an hourly rate. A lot of the economists seem to feel 1 million is close, let us make it easy and let us take $50 an hour instead of $78. That would be over $100,000 a year. Now let us go make it a tax rate of 18% (that would be for someone making $40,000 a year). We are talking $18 Billion in taxes a year. Now add unemployment. A minimum of $300 a week for no less than 3 months. $3.5 billion. Now some will say they are reorganizing not going belly-up so not that many will be out of jobs. From what I have read it seems likely at least 1 will go under. None of the foreign companies will buy a company that is making vehicles that are made, by many comments, so poorly and with poor styling.
The unions are a neccessary evil. Without them we would have the companies firing people for little to no reason. I don't like the unions protecting people who don't work but that is better than firing for no other reason than to hire someone at a lesser pay.I have seen that both ways so I know that happens.

2008 Nov 23 11:28 PM

[TinyTim:]

the thesis of "giving Detroit billions in taxpayer money." is getting a little thin. the way billions are being thrown around now, it's way past the taxpayer money stage. nobody in their right mind thinks it will ever have to be or will be paid back, except in inflation or selling assets to some SWF. I wonder if they'd take New Jersey?

Airlines go backrupt 2 or 3 times and are still flying. What's the big deal? It's not like the Big 3 will lose any credibility.
Lousy engineering = poor long term reliability.
remember the term: planned obsolescence
Oh and I was very reassured at finding a pop can in the door of my Mustang. Or that silicone impregnated aluminum cylinder walls would hold up to steel piston rings in my Vega.

I get a kick out these big Escapades riding around with payday loans out to fill the tank. When gas hit $4.50, there were hundreds in the paper for sale. Some screwed up mentality may see this transportation appliance as a status symbol, it's really just a tool.
They need to go the way of the Studebacker and Nash.

And don't forget, it doesn't really matter to the CEO's. They probably even get to keep the Lear jets.

2008 Nov 24 04:49 AM