Automobile companies recently received a bailout from the White House. They promised to restructure, become more efficient, and gave the usual platitudes. These promises aren't new. The only difference seems to be that now, the Big Three are playing with taxpayer money instead of their own. Here are some excerpts from DaimlerChrysler's letter to shareholders, dated December 2000 (author excerpts in italics/brackets):
Over the last five years, [1995-2000] we have completely restructured and refocused the DaimlerChrysler Group...In the process, we have shed not only a number of loss-making and non-core operations, but we have also considerably improved the cost structure of our automobile operations in Germany... [Great! So things should be fine now...right?]
During the course of the year, we have also taken further important steps to focus our operations on the core automobile business...[But] competitive pressure in the US automobile market increased significantly, as evidenced by the strong rise in sales incentives or discounts which are up by over one third compared with a year ago, and are almost three times what they were in 1997... [Oh, I get it. It's not you--it's your competition. You can't compete on the open market. Got it.]
The management team has a wide-ranging mandate to reposition and restructure the Chrysler business to enable it to regain its strong market position and to become highly profitable again...
In order to restore Chrysler to profitability as soon as possible what is already clear is that we must also restructure the business--this will bring with it a cost. [Sounds like the job of the "car czar" has already been done.] This expenditure however should also ensure DaimlerChyrsler maintains its position at the forefront of the modern automobile industry. [Chrysler was mentioned as the most likely candidate for bankruptcy before the bailout.]
It boggles my mind that our government is using our money to finance companies that can't seem to ever get it together. In a hilarious press release titled, "The $13 Billion Industry Is In No Fear Of Collapse, But Why Take Chances?", Larry Flynt satirized the notion of bailing out troubled industries.
Jokes aside, when, if ever, does moral hazard trump "too big to fail"? This question isn't just idle thinking. The bailouts have exposed a core weakness in our political system. Apparently, if you can't compete on the open market, all you need is a bunch of lobbyists to convince your government to give you taxpayer money. Luckily, in this case, the political system actually worked--Congress rejected the auto bailout plan. Even so, the White House, over the objections of the public, provided the bailout money. George W. Bush in bed with the automakers and their unions? Historians will be amused.