Digitalics

Ganders and Geese

November 7, 2008 at 9:33 pm 2 comments

Whether or not you believe the government should be “bailing out” Wall Street banks, I think it’s fair to say that the financial system itself is critical to the functioning of our economy. If it wasn’t, we wouldn’t see our current problems growing so quickly and pervasively.

The automobile industry is another issue. It’s certainly a smaller part of our economy, even after the shrinkage of investment bank market caps. And there’s no way I’d ever call it essential. Fundamentally, people aren’t buying cars, so what does anyone expect to happen? Why should the auto industry be different than any other industry that’s facing a deep recession?  And do you notice none of the foreign-owned manufacturers are crying?  All of them operate plants here, why aren’t they in dire straits?

All of which makes talk of a bailout of Detroit significantly more contentious, notwithstanding the recent pilgrimage of auto and union execs to genuflect before the newly vitamin-fortified Democratic leadership in Congress.

But OK, I’ll bite. The failure of any of Detroit’s Big Three would have a large impact on jobs, at least in the short term. And it would propagate to the auto parts industry, and probably a few service industries, as well as financial services (think GMAC). So let’s suppose that a bailout of some sort makes sense, and Congress decides to pump some of that rapidly vanishing $700M into GM, Ford, and Chrysler.

What are they going to do with it? How do we know they’re going to use it to solve their problems? Even more important, what sort of return should America expect from this “investment”? Are we just bailing out a bunch of fat-cat executives who flubbed their corporate strategy? I mean seriously, these incompetents have been lining their pockets with big bonuses, and now they want us to bail them out? WTF?

I have this strange feeling of deja vu.

Seems to me the same politicians in Washington that have been screaming for oversight of the financial services industry, and influence on how any bailout money is used, ought to be making the same kind of noises here. After all, what’s good for the goose is good for the gander. But so far, not a peep. Or a honk.

Here’s what I’d like to see:

1. The Chief Executive of any auto company taking government bailout money should be fired.
2. Suspend executive bonuses for the rest of the top management ranks
3. No dividends of any kind to be paid out to shareholders of the auto makers (sorry, Cerberus Capital Management, no quick exit here.)
4. Only two permissible uses for the money: reducing carmakers’ onerous pension obligations to a more manageable level, or retooling plants inside the U.S., to produce more fuel efficient and/or otherwise competitive cars

Think any of this is going to happen? Nah, neither do I. My bet is that the money will go out with only token strings attached to it.

And in 5 years or so, the Big Three–whichever ones are left–will still be limping around getting their butts handed to them by foreign manufacturers who are making better cars in U.S. plants for less money and selling more of them.

I think our goose is cooked.

Disclosure: I hold no position in any of the stocks mentioned here.

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