Driving the economy into the ground

Some random, uninformed thoughts about the coming end of the United States auto industry:

I'm enjoying the way a lot of Senators, pundits, and even the car company execs themselves are talking as if they just finished reading David Halberstam's The Reckoning, which was published over twenty years ago and made the case that the industry was...sorry about this...driving itself into the ground, basically by operating as if the 1950s never ended, that gas would always be plentiful and cheap, that Americans would buy any big shiny piece of metal as long as it went fast and said Ford or GM or Chrysler on it somewhere, that they would turn in these big shiny pieces of metal for new big shiny pieces of metal every four or five years, that the country would keep building more and more miles of highway and these highways would never fill up or become too expensive to build and maintain, and that there would never be any real competition to force the auto industry to re-think any of these assumptions.

You have to admire the patience with which the Unions went about destroying the industry.  Took them 70 fucking years to do it and they had to grit their teeth and accept thirty odd years of staggering success for the car companies.  Really.  Imagine how hard it must have been, given their nefarious plan, to sit back and watch the auto industry sell its cars like hot cakes throughout the 50s and 60s and even into the 70s and then again in the late 80s and early 90s.  It must have been especially tough to keep up the good fight while the car companies were slashing American jobs and outsourcing much of the manufacturing of parts and even whole cars to Mexico.  The Unions' best weapon for destroying the industry was well-paid union labor and there was less and less of that around Detroit.   "Don't worry,"  Union members must have consoled each other, "Pretty soon we'll get another Republican President who will let the economy tank in order to pay for a needless war and give his Vice-President's rich friends and cronies gigantic tax cuts and let a completely unregulated Wall Street devour itself."

The oil crisis staggered the industry, but it might have dealt with it by learning how to compete with the Japanese and the Germans except that Ronald Reagan came along in the nick of time to tell them they didn't have to.  Reagan, offering another one of those great, bold new ideas the Media praised Conservatives for, declared that conservation was simply being too hot in the summer and too cold in the winter, and to hell with it.   So instead of encouraging the industry to figure out how to build cars that ran well and drank less gas, he gave them permission to save their bottom lines and stock prices by selling lots of gullible Americans tricked-out pick-up trucks that couldn't really haul anything, were hard to handle, guzzled gas, and made life on the road more dangerous for everybody who did not drive an SUV.

The cars GM and Ford and Chrysler were building during the gas crisis were very, very, very thirsty, but they were also big shiny pieces of junk.  Knobs fell off, doors wouldn't close tight, they rusted out in a winter, they broke down a lot, they handled like ocean liners.  If you wanted a well-built car and you could afford it, you bought a German car.  If you could only afford junk, you were better off buying Japanese because at least they didn't need to be filled up every other day.  (Eventually, the Japanese stopped selling junk, too.)  To be fair to the Americans, this is one area in which the industry has improved over the last twenty years.  American cars are much better built now.  You can put 150 to 200 thousand miles on one, own it for 10 or 15 years, and still have to think it over before you decide it really is time to buy a new car, and even then "new" might be a relative term because you can get a "pre-owned" vehicle with 40 or 50 thousand miles on it that will last another 10 years, if you take care of it.  This is something for the industry to be proud of, but it's also a problem---because people don't need to buy a new car every few years, the industry can't sell as many cars as it's been building.

American auto workers should not be making less money or have to take a cut in benefits or say goodbye to their pensions.  But there probably should be fewer auto workers.   I'm not up to date on how automated the auto industry is.  I don't know how many jobs that used to be done by human beings are now done by robots but I suspect that it's not as many as can be.  But besides that, the car companies should be making fewer cars.  Not just because the economy's gone south and people can't afford to buy new cars but---see above---we don't need as many new cars as we once did.

Jobs should be phased out.  Over time.

We're about to phase out tens of thousands of them all at once, which wouldn't be a good thing even if the economy was humming along at a Clinton-era clip.  I don't care what you think of GM, letting it and Chrysler go under is not punishing the rich executives who screwed things up.  It's punishing the whole country.  The rich executives will be fine, because they're RICH!!!!!   The auto workers and the people who make the parts and the people who drive the trucks delivering all the parts and cars and the steel workers and the glassmakers and the salespeople and accountants and secretaries and mechanics at the dealerships and the parts supply stores are not rich.  They're barely middle class.  When they lose their jobs, they'll lose everything.  What are they supposed to do for a living?  And what about all the people who make their livings selling things to those people who are suddenly too poor to buy anything?  Toyota and Honda are not going to hire them all or even any of them.  Senators from states with non-unionized auto plants who are thinking those plants are going to get a whole lot busier once there's no competition from Detroit are dreaming.   There won't be enough of us left who can afford to buy any cars, no matter where they're made.

If America stops making cars, what will we make?  What industries will we have left?  Except for computers, we have no electronics industry here.  We have virtually no steel industry left.  We don't make our own clothes.  We farm less and less of our own food.   We build some appliances.  We make candy.  We make movies and TV shows.  But mostly what we do here is mine stuff and cut stuff down in order to sell it to countries that do make things and then we consume what they make.

There's a term for a country that exists in order to supply another country with raw materials for its manufacturing and to be a market for it---Third World Nation.

I understand while despising them Republicans who want to kill the auto industry in order to break the Unions and punish Midwesterners for voting for Democrats and sabotage the Obama Administration before it even takes office.  I don't understand why more Democrats aren't screaming bloody murder.  Evan Bayh, whose state is home to vestiges of the vestigial steel industry, not to mention auto plants and parts factories, and who really is concerned and wants to save the car companies, sounds fatigued by the whole mess.  Christopher Dodd sounds like a banker who wants us to feel sorry for him because he has to put the widow and orphans out on the street.  Harry Reid sounds the way Harry Reid always does in times of crisis when strong Democratic leadership is called for, like an apologetic and embarrassed husband with a bad back watching his wife struggle to move the furniture.

Of course I could be judging the Democrats unfairly.  The crisis is being covered as a business story and all business stories in this country are reported as if they're coming straight from the Chamber of Commerce's newsletter.  Angry, populist-sounding Democrats cause reporters to shut their notebooks  and turn off their cameras, anyway, whatever the story.  But as far as I've heard, only Barney Frank sounds mad.

And he's mad at Barack Obama.

I'm afraid that it's as dday says, the Senate's reluctance to help the auto industry, which has been trying to fix itself, to the tune of 34 billion dollars while writing a no-strings attached check for 750 billion and growing for the financial industry, which wanted the money so that it could go on doing the same stupid and criminal things it had been doing to cause its crisis shows:

...how completely in bed Congress is with the financial industry. The CEO of Citigroup didn't have to agree to take $1 in salary. The head of Goldman Sachs didn't have to drive to Washington. Nobody on Wall Street had to agree to major reregulation as a precondition for a bailout...

...if Detroit contributes to campaigns, Wall Street bankrolls them.

I'll give dday the last word here too:

It's still pretty shameful that an industry that pushes paper back and forth and pretends to create wealth can ask for and receive hundreds of billions of dollars by snapping their fingers, while companies representing working people that make things for a living have to grovel and beg. A deindustrialized America is an America that will not function as a first-rate power in the future.

Update:  Economist Thomas Palley writes, "The financial crisis that began in 2007 has been persistently marked by muddled thinking and haphazard policymaking. Now, the United States Treasury is headed for a mistake of historic and catastrophic proportions by refusing to bail out America’s Big Three automakers."

Read his post, Motor City Meltdown.

Hat tip to Stormy at Angry Bear.

Comments

[lina]

I love this:
"Harry Reid sounds like Harry Reid always does in times of crisis when strong Democratic leadership is called for, like an apologetic and embarrassed husband with a bad back watching his wife struggle to move the furniture."

I say bail everybody out, run the deficit up another trillion, usher in the green economy, and disentangle from the useless foreign wars. When everyone is working again retrofitting our existence with eco-friendly technology, the coffers will be filled back up in 5-8 years.

Politicians: stop whining. Just do it.

[uncle merlin]

"A deindustrialized America is an America that will not function as a first-rate power in the future."

What I have been saying for the last 7 years as an owner of a Company that actually MAKES something HERE to BUY with Local Dollars!

Yet for years I was beat up on price with Taiwan by people HERE who did literally nothing but make cell phone deals and never even carried the product to their customers!

Well I hear now all those "ASI- Ad Specialty People" are flat dead in the water. 'BOut Time!

If GM, FORD ,and CHRYSLER, WANT to stay in business then loan them the money to BUY, I SAID- TO BUY the patent license from TOYOTA, HONDA, and MITSUBISHI for Fuel Efficient Green Technology! They have no time to develop anything on their own now! It's too late!
Westinghouse was in this same position back in 1938:

WESTINGHOUSE in 1939 paid to BENDIX HOME APPLIANCES the tune of $125,000 in 1938 DOLLARS ( in todays market around $3 MILLION) for the patent license to build a WASHING MACHINE that RINSED better than their machine did! WESTINGHOUSE Went on to build 30 years of these successful washing machines for home and commercial duty after that purchase! And they did it all on US SOIL up to 1990 I might add!
Side Note:
Unfortunatly for Bendix Home Appliances they were an early victim of "Chop it up and Sell it Quick" and didn't survive after 1958, even though they had Literally Invented the Automatic Washer and Covered the Globe by 1939! Yes they even had stores in Pre-Communist China in 1939! And contrary to popular belief, Americans invented the front loader NOT Europeans, Miele and Zug were the first to catch on to the Bendix platform after the War and copy their design.

Talk about killing an industry! Today you walk into any HomeDepot and all the front loaders are made in Korea except for Bosch and Electrolux which are assembled domestically. Bosch & Electrolux are excellent products but they are made by Offshore Corporations in an Industry WE Invented!

Sound a bit like High Definition TV anyone??????????

MY Mother God Rest Her Soul: Always said "It's 3 generations from Shirt Sleeves to Shirt Sleeves" Well we are seeing that today all across AMERICA, INCLUDING Congress! No one seems immune to that!

I read a report 3 or so years ago. This report really drove home to me how far American's were letting their country SLIDE!

In the Report the simple question was raised " If we were to return to the Moon, could and would we build the Saturn Rocket Booster system again?"

Well the answer was astounding in the report: It was discovered that in the ensuing 40 years most of the Engineers had passed away, NASA had no hard copy blueprints on file for the Rocket, and the one person who did have a copy died leaving it to his Widow and she threw everything away! So it turns out the only known hard copy of the Saturn Rocket is rotting away in some land fill on Long Island.

Can any of you imagine what this would have meant at the height of the Cold War? It would have been treasonable!

Today I think it is one of the saddest tales I have heard and I am glad my Mother never lived to see it!

She loved Space Exploration, one night in the Early 1950's before I came along, she was walking with my Dad down a street and she spied a headline "Scientists bounce a Radar beam off the Moon" Right then she turned to my Dad and said "They're going to the Moon, we're going to the Moon". I think my father's response was a bit subdued being a Scietist himself, but Mom was proved right 16 odd years later in 1969!

Merry Chirstmas Mom wherever you are! You had it right!

UM

[Rana]

This does seem to be the season for screwing over small, local, domestic producers... it's not just the automakers who are facing a doubtful future while the work moves overseas. There's a law that goes into effect February 10th that mandates end-product testing for goods that may be used by children. It sounds like a good thing, especially in the wake of the scandals issuing from China, but here's the thing:

It requires a new test for each component - even if previously tested by the maker of that component - that goes into a new product. And this obligation applies to each new product line.

In practice, what this means is that if a small craftswoman is making stuffed animals to sell on Etsy or eBay, she has to pay for a test on each part of each new animal that is not 100% identical to previously tested ones. That means a test for the plastic eyes, a test for the thread, a test for each of the kinds of fabric that goes into it, a test for the stuffing. It doesn't matter if the manufacturers of eyes, thread, fabric and stuffing already tested them; she has to re-test them, because they are going into a new product. If she makes a red elephant and tests it, then a blue elephant or a red giraffe, she needs to test again, because they are different products.

And each test runs $100-$200. So a person selling unique handmade toys that use $20 of materials and sell for $40 dollars is going to have to pay several hundreds of dollars in testing in order to comply with this law.

Worse, any items that were made prior to Feb. 10th must also undergo such testing, if the person wishes to sell them after that date.

It's that bad; people on Etsy who make a living at this are freaking out in major ways, as are other small manufacturers of things like children's science kits. Large manufacturers aren't thrilled either, but they can weather the expenses more easily, due to greater capital resources and larger product lines.

Meanwhile, funding to the FDA and for inspecting containers at the ports - in other words, checking the products that are from known violators - is severely lacking.

For more info, see here, here, and here.

[Ken Muldrew]

Uncle Merlin,
Thankfully there's an *actual* Saturn V at the Kennedy Space Centre, so you can always get the Chinese to reverse engineer the blueprints (they're experts at that, absolutely killer; in fact, I bet they've already done the job--unasked!).

Rana,
Consumer protection laws are just on the books to punish enemies of the state. Keep up with your contributions to your local congressman and senator (and a token gift to the governor never led anyone astray) and you will be fine selling untested thread.

Lina,
You owe a lot of money; what if your creditors won't let you "just do it"? Maybe they have other plans for you.

And finally Lance,
You sell your country short. I've been to the States many times, and the service industry is next to none. Nevermind manufactories, service is the future. ... I'm trying to be clever and flippant here but I'm just making an ass of myself. :-( It is true that the service industry in the States is second to none, and it's genuine (unlike elsewhere in the world where one can pay for insincere, but correct-by-the-motions service, but this is way off point). The US *is* ingenuity, inventiveness, and most of all, making things. Things that work. The US automakers already have the technology to build super-efficient cars, including hybrids (and clever hybrids, like the Chevy Volt). What they don't have is the industrial experience of making them by the hundreds of thousands, with reliability nearing that of their current line. That is what Toyota has been warning them about for the last 10 years (because if any of the big 3 fail, it gets mighty expensive for Toyota to build cars in the US, so they have been trying to ween their comrades off big trucks and SUVs). Technology, they have, technical know-how is lacking (the kind that comes from successive approximation--as Heraclitus warned, "though one thinks that one knows a thing, one has no certainty until one tries" (caveat, I think this may have been some other old Greek chap, but I can't recall, anyway...the sentiment is ancient...and important)). I wish I had something better to say here, to make up for my earlier foolishness. What about nationalizing the automakers? Bring Mikhail Gorbachev over for a speaking tour, "Actually, Ronald Reagan didn't win the cold war...I did, but not for the Soviet Union...for you! Now you will get to enjoy the fruits of socialism". If the threat of that doesn't get your Republican congressfellows to support a loan program, then I don't know Arkansaw!

I just looked back over your post to see if there was any way to redeem this comment or whether I should just delete it and forget about it. Obviously I should delete it, but I noticed the first line of your post was a disclaimer over random, uniformed thoughts. So I'll post this just to show you what genuine, random, uniformed thoughts really look like. Just so you'll know for next time.

[Ken Muldrew]

OK, well, uniformed thoughts are, well, uniformed. But uninformed thoughts...they just make no sense. Like those up above. Sorry...I'm polluting your blog.

[Michael C]

Great diary. Thanks, Lance. Wish it weren't so depressing.

But the fact is, the Big Boys - in the Senate and in the Media - all get stiffies thinking about the Big Boys on Wall Street. Manufacturing, on the other hand, is very retro and not kewl. MBAs have been heading into Finance (and consulting) for over 30 years. Only nerds go to manufacturing. Dirty dirty nerds. Very uncool.

Sic transit gloria.

[Alex Jokay]

Maybe I'm naive, but it seems to me that bankruptcy would create a golden opportunity for the foreign makers in this country to buy these failed companies and restructure them to perform as efficiently as their own American operations. Toyota could take over GM; Honda could gobble up Ford and Chrysler. This wouldn't please the unions, but it would give these stellar carmakers complete control of the U.S. market and likely result in better, greener products for all of us, and continued employment for a lot of people who'd otherwise have nothing. Who knows? Maybe they're circling like vultures this very moment.

[jim sevin]

It's Sunday. Open the paper (if you still get a paper) and look at the car ads. Look at what the Toyota dealer is selling a new Prius for this week; in Los Angeles he's got 20 on his lot and they're going below list. Used Priuses? Sixteen five. A 2 year-old Kia Rondo, a nice, reliable family car with 25,000 miles on it, is 10 grand. That's HALF what it was new. And these are the asking prices. The dealer, the salesman, the guy that sells the salesman a new cell phone, the hamburger stand across the street, and on down the line are in big damn trouble here. This is not just about American car makers. This is about America.

And meanwhile, ill-informed people write letters about how the lousy '82 Pontiac they drove in college (used, 87,000 miles on the clock) always made them late to class. So they won't buy a American car, and good riddance to the lazy car companies and their unions. Their leased Nissan Armada (12 city/17 hwy mpg) runs great.

You want to reduce the number of auto workers smoothly and save America? Stop the outsourcing of American cars. Slap a tariff on Mexican Fords and Canadian Chryslers and Korean Chevys. Build American cars in the United States. And quit giving tax dollars earned by American workers to foreign manufacturers to build plants here.

Oh, and hire Roger Penske to run GM.

[James Raider]

Perhaps a little creativity?

TAKE BACK CONTROL OF MONEY

The American economy rests on the back of the American worker and consumer. Taxpayers own the government and currency is only a tool enabling commerce.

Take charge of it. Get it working for you, not against you.

http://pacificgatepost.blogspot.com/2008/12/revising-government-relationship-to.html

Once this is done, the other problems will resolve naturally, including home owners making their mortgage payments.

[actor212]

Harry Reid sounds the way Harry Reid always does in times of crisis when strong Democratic leadership is called for, like an apologetic and embarrassed husband with a bad back watching his wife struggle to move the furniture.

Unless he's scolding Joe Biden about attending luncheons that Joe Biden had no intention of attending anyway.

Then he sounds like the former boxer he is.

"Bleeder Reid," they called him, a-yup. Used ta have ta fight th' last one on the card, cuz he'd leave the ring red as roses, they say.