ABG

Let the Detroit Automakers Fail

I might also note that, at the top of one company, Ford, is Alan Mullaly, who has been trying to restructure Ford in an almost impossible situation, where he suffers from constraints from both the UAW and the Ford family. He is from outside the industry, and is the only CEO who might be worth keeping, IF he agreed to work for $1 per year, until the company got back on its feet.

Let the Detroit Automakers Fail

I might also note that even if the U.S. government went a bit further and agreed to backstop U.S. auto maker warranties, for a set period, to increase confidence in potential buyer's minds, it would still be much cheaper than outright handing over of $25 billion additional taxpayer dollars (they've already been given $25 billion worth of "retooling loans") so that three incompetently managed companies can waste it.

Let the Detroit Automakers Fail

Contrary to some of those who have commented here, I do not believe in "deregulation" of the financial industry. I believe in very strong regulation. Everyone needs to be forced to play by the rules. That should be the focus of such regulation, and if the Federal Reserve, Office of Comptroller of the Currency, FDIC, SEC and CFTC would simply do what they are supposed to do, we wouldn't be having the financial catastrophe we are in today.

I do believe in real capitalism, however, which is something that has not been practiced under the Bush administration. What we have seen is crony capitalism in the past, and, more recently, we have seen privatization of profits and socialization of losses in the financial industry. Now, the same folks who brought us bailouts for billionaires, want to bailout the dysfunctional Detroit auto industry. Detroit shares many characteristics with the banking industry, not the least of which is overpaid and incompetent management.

It is not the financial downturn that is causing the automakers to fail. It is a lack of desirable products that people want to buy. The Asian automakers are feeling some pain, too, but they are not collapsing. This is because, for years, as Toyota, Nissan, Honda etc. accepted lower profits, in pursuit of long term market share, GM, Chrysler and Ford were trying to maximize profit in the short term. Instead of capitalizing on the Japanese automakers' voluntary restriction of imports, that had been negotiated, back in the 1980s, to increase market share, instead, Detroit merely took the opportunity to increase prices. More recently, they were extensively lobbying Congress to prevent passage of critical CAFE fuel economy standards that would have saved them from the current situation. They succeeded, and promptly embarked on a short-sighted program of maximizing profits and bonuses for top executives.

Managerial incompetence and short-sighted thinking is so in-grained in Detroit that it cannot be removed with anything less than extraordinary measures. With the exception of the recent attempt by Cerberus to turn Chrysler around (which was timed terribly, unfortunately), the auto industry managers are an in-bred lot, with no new ideas. They have presided, for 30 years, over the destruction of what was once an iconic American industry. The latest financial crisis precipitated their demise, but, for many years, it has been a matter of "when" not "if".

The argument that Japanese currency manipulation is responsible for torpedoing Detroit's changes is not a good one. First, right now, the yen is valued higher in relation to the dollar than at most times in history. Against most currencies, the dollar is still selling at historically low values, even though over the last few months it has had an amazing upward momentum.

Indeed, the Asian car makers don't seem to find it impossible to build profitable cars in America. A large number of Toyotas, Hondas, and Hyundai's (S. Korean), sold in America, are made in America. These American production facilities are highly profitable. The inescapable conclusion is that there is no reason why Detroit cannot build good quality, reasonably priced cars except for managerial incompetence.

Contrary to the opinions of some, Chapter 11 reorganization will not destroy the American auto industry. It will only rationalize their operations, remove their management, and restructure them so that they can compete in the world economy.