November 24, 2008

Big Three in big trouble? Too bad.

I was hoping to say something original and provocative about the Big Three’s recent attempt to get a government bailout, but I’m finding myself drawn to the ‘survival of the fittest’ camp. It sounds like they could use a shake-up; the North American auto sector has had this coming after years of mismanagement and ambivalence to customer needs.

This isn't as big a deal as they're making it out to be. These companies aren’t going anywhere in the long-term. North Americans will still need cars once this awful recession is over. And once the dust settles, auto manufacturers will emerge from this crisis leaner and meaner than the bloated incarnations they are now.

Moreover, people need bailouts, not corporations. The government should save the money they would otherwise waste on these companies and spend it to support those people who are about to lose their jobs. Giving the Big Three a wad of cash would only result in a retrenchment of the current paradigm. What’s needed is a complete collapse so that the auto sector can reinvent itself for the 21st century.

It sounds heartless and Darwinian, but it’s true. Recessions and shake-ups happen because corporations that work within uber free markets cannot self-regulate. The banking/credit crisis has proven this. Capitalism works to eat itself, which is why we get correction periods every now and then. The current recession is merely the elastic band swinging back from its over-extension.


Anonymous said...

Slight disagreement on the last paragraph;

I'd argue that shakeups happen when something new in the market occurs (horse-and-buggy to cars) or when a corporation poorly regulates itself (akin to the persons who regularly open *every* email they get and don't use spam filters).

That said, I believe the latter case typically involves the leadership of the company feeling that keeping the company competitive is not as valid a tactic for their own gain as 'mining' it for their own gain would be (ie, the Enron situation - the company could neither grow and did not have competition, so the leadership saw it as a finite pool of resources and sought to maximize personal gain from it).

A recession is slightly different - the business cycle was demonstrated to be caused by Central Banks by F.A. Hayek (Economic Nobel-Prize equivalent, 1936) - basically the central bank guessed (since it can only guess, there is no competition to provide price signalling) wrong as to the value of its money and the markets, after initial acceptance, swings the other way to balance everything out.

Also, I'd like to point out that I think you really countered the idea that not bailing them out is heartless when you pointed out that a bailout would result in retrenchment - which would only make the situation worse and force us to make the decision to pay for it again in the future, right? So your Darwinism isn't being mean and cruel and killing bunnies, it's pointing out how something works and what the best way to solve that problem is.

Anonymous said...

But... Obama is pro-bailout! Obama!

James said...

I just got a fancy Chrysler ad in the mail and it was printed on fancy paper in full colour. Anyone who knows a thing about marketing will tell you that this has the lowest ROI of all common advertising campaigns. Not only did they waste their money on this, it was the same old campaign they have been trying for years.

"Get an employee discount" but it is full or restrictions and you don't even ed up paying much less at all. It is a perfect example of a failing company set in its ways that is unwilling to change.

ANYONE STUPID ENOUGHT TO WALK OFF A PRIVATE JET WITH THEIR HAT IN THEIR HAND DESERVES TO BE BANKRUPT. They have a sense of self-entitlement that needs to be taken away from them ASAP.

Nato said...

The big three are in a serious enough cash crunch to where they probably are going somewhere, without some source of credit. Ordinarily they'd get loans from the market and divest something, but the contraction in liquidity has been so sudden, and has (not coincidentally) been accompanied by such a drop off in sales, that liquidation would be the most likely end for all three, possibly damaging the auto manufacturing industry in the US for a generation, or permanently. The supply chains are all tightly linked and there are tremendous efficiencies in the US industry. The issue is that the Big Three aren't so big any more yet established retiree benefits as if they would always grow and lifespans wouldn't lengthen. Something like 15% of every Big Three car made in the US goes to retirees. That's the big thing that has to change. One of two things can happen: they figure out how to get out from under that albatross (in the process leaving who knows how many retirees in the lurch) or they massively increase their market share. Somehow, I don't see the latter happening unless somehow GM's electric car allows it to negotiate the shift to post-petrol. Even if it's an awesome car, they just don't have the cash to survive that long.

I don't know what the right thing is to do, but I definitely think Congress was right to send them back to the drawing board.

dharmicmel said...

the entire situation with regards to the Big Three just stinks, because it is so 20th century in its attitudes, and its ways and
they live and operate as though, as it has been pointed out here, that profits go on, indefinately; it's the thing about endless progress and endless profit, and, we are entitled anyway; what's in it for us, right now colors everything; the future, the people, the resources, the children are non-considerations for the long run; yes, we give lip service to the long run, but that is mostly as far as it goes
and life extension?
that doesn't compute