Saving banks and car manufacturers

Sitting by the seaside I wonder what makes our cousins across the pond decide to pour $14 billion into car manufacturing, after they have poured an even bigger amount into banks. It is not like anyone actually likes either the car companies or the banks. Consumers have voted with their feet buying smaller cars for years. Time Magazine has a depressing series of pictures of closed plants in Detroit resulting from the run from these cars. We have let many industries downsize over the years, why not this one?



What would happen if the car companies were not saved and went into Chapter 11? In the short run they would probably continue operating. Costs would be reduced, parts would be sold off to other manufacturers, other parts would probably go through management buyouts and no doubt some venture capital companies would find interesting parts. Some parts would survive and start building more sensible cars, and many parts would be closed. Many people would lose their jobs and many dealerships will close, many more than have already closed and lawyers and accountants will thrive.



Now what happens if the big three are rescued? Costs will be reduced, parts will be sold off to other manufacturers, managers will buy some and venture capital houses will try to get parts. A fabulous amount of money will go into restructuring and legal costs as the government forces the companies to catch up with decades of development neglect to start building sensible cars and many people will lose their jobs. Many dealerships will close and lawyers and accountants will thrive.



In either case there is no doubt that a lot of people will lose their jobs. I am sure even the CEOs will have to take large salary cuts. Maybe they will even have to survive on a mere $1 million a year. Their benefits will go down. Just think of the hardship of having to fly commercial. How embarrassing! The dealerships will get no support out of this, except possibly financing for their stocks of cars, so most of the suffering ones will not survive anyway. The simple fact is too few people want the cars made by these companies today.



I cannot spot a major difference. The issue at the moment seems to be that the CEOs will no longer be able to travel in corporate jets. Those same CEOs who showed up in Washington having travelled on those corporate jets. I understand Lee Iacocca's motivation when he says now is not the time to change the team. But Lee, these people are on a different planet to the rest of us. We have learned from the banks that they do not have the ability to realize how badly they have managed their organizations or to take responsibility for the problems they have caused. After all, some of the bankers had big celebrations as soon as they had pocketed the government's money, and I have yet to hear a banker apologize for the mess they have caused.



So I look out over the sea and think of the three cars in my drive. Do I feel guilty? Not really. They all get about 40 mpg, they were purchased used and I use public transport whenever I can. Am I worried that I will not be able to replace them if these companies go under? Not for a minute. There is an oversupply of cars in the market and that will remain the case. With some luck we may even get car clubs by the seaside and public transport will get better. Then I can go down to maybe 1 car one day.



Am I concerned about the people losing their jobs? Very! Sadly I am seeing dozens of good and less good companies fail every day and many friends losing their jobs. They do not work for the big three or for a bank and they simply have to bite the bullet. Their support came in the form of a 2.5% cut in VAT. I have some sympathy for saving the banks, though I would have preferred to see a system change. I have less sympathy for the big three.



I wish the Congress wisdom with this decision, but despite reading many blogs and news items and spending a lot of time gazing out over the sea, I am lost when it comes to understanding what benefit that $14 billion will give the US, let alone the world.

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