I got into a lively debate yesterday with a fellow student about the bailout of the auto-industry. He said the social ramifications of letting them fail were too high. The impact on the local communities would be too high and so they should be bailed out by the tax-payers.
I said they were not cost-effective and there wasn’t enough demand for their cars to keep them in business. Even if the government gave them $25 billion, they’d plow through it and be back at the door asking for another handout. The government, too ashamed to admit it had wasted the first $25 billion would probably hand them another $25 billion. (This is called the Concorde effect, after the failed Concorde partnership between England and France which was a financial disaster).
I read some articles with also drew similar conclusions, but with different viewpoints.
In 2006, the average hourly wage of a person with a high school diploma was $13.46 per hour. For those fortunate enough to receive insurance and other forms of compensation, the average was $17.50 per hour in total compensation. These averages encompass all age groups.
That’s right, it cost Detroit 4-5 times more to hire unskilled labor! I think it’s the auto unions who are driving the US car manufacturers out of business.
I think its said that someone who spent 4 years in college and graduates with a student loan has to work for about $20-$25/hr while an unskilled worker makes more than that. Even grocery baggers in California supermarkets used to make $27/hr after working there for 7 years because of their union deal! That’s a pretty sweet deal if you can find it.
But moving on…
All of this brouhaha about bailing out the auto industry and how destructive it will be to the country - sounds a lot like the moans and groans of the steel industry (and steel unions) a few decades ago when the Japanese and Koreans were killing the U.S. companies with low prices for bulk steel. The biggies, like U.S. Steel and Bethlehem, went under.
And you know what? Small, progressive and aggressive steel companies arose in the U.S. - not for the cheapo junk steel, but for the better grades, for alloys and for hi-tech steels. And in a few decades, the industry bounced back better than ever. The U.S. was THE place to buy the good stuff. The Far East was where you bought the cheap bulk stuff. Did it ‘hurt’? Yeah, for a while, but you know, we got over it and came through it all the better. We just forgot what we learned.
How many innovative car companies do you think will start popping up in the U.S. when the dinosaur Big 3, and their fat-assed dinosaur management, are finally gone? I don’t think that innovation is completely dead in the U.S.; it’s just been shut down in favor of huge management bonuses paid for killing industries through blind stodginess. Let’s see, how many U.S. car companies were still trying to crank out SUV guzzlers when gas prices were scaling Everest? Let the dead die so that the living can grow.
Sorry, unions and union members, but the day is over that a dumb back can command a sizeable (read uncompetitive) wage and benefit package just for showing up to do a job that, in many cases, a monkey could be trained to do. Better get some education. The new companies will be high-tech - there will be plenty of jobs for those with a reasonable education and training. Dumb backs will get to clean toilets at a commensurate wage.
Hear that Fed and Treasury and Congress? Don’t waste money trying to resurrect dinosaur corpses. Put the money into opening up investment in new technologies, good products and well-run companies. Put the money toward training a labor force that can be part of competitive industries. And start the ‘do it or fail’ philosophy in the schools. First-grade would be good.
This reminds of an excellent book I read a few years ago called God Wants You to Be Rich: How and Why Everyone Can Enjoy Material and Spiritual Wealth in Our Abundant World. The author states the example of automated farming techniques introduced in the early 1900s, reducing the workforce required for producing food from 30% of the population to the 3% we have today. Did those people starve to death? No, they went on to find other jobs. I think society, (and by society I mean the US taxpayer) is better served by having an overpaid segment of society go find some other work to do.
And lastly, if the economics isn’t enough, lets look at how poorly managed these companies are.
The execs for the Big Three automakers each took private jets to their testimony before Congress yesterday. Average cost for the flight from Detroit to Washington? $20,000… Northwest had flights available that day for $288 coach, $837 first-class.
“It’s almost like seeing a guy show up at the soup kitchen in a high hat and tuxedo,” Rep. Gary Ackerman, a Democrat from New York, said of the dynamic trio. “Couldn’t you have downgraded to first class or something, or jet-pooled or something to get here?”
Maybe they should have driven?
The southern states make cars like Honda (NYSE:HMC), Acura, and Nissan (OTCPK:NSANY). They don’t have the high labor rates and are actually profitable car companies. Obviously they’re opposed to the bailout because it use’s their tax money to help the competition.
So what do you think of the car industry bailout?