Whorled View

October 15, 2008

Too much rescue too soon can be bad in some places

Filed under: economics,economy,Politics — lullabyman @ 2:02 pm

I read this this morning:

http://us.rd.yahoo.com/dailynews/rss/search/distributed+energy/SIG=124a73k46/*http%3A//news.yahoo.com/s/nm/20081015/pl_nm/us_autos_loans_obama_3

In short, it details one example how politicians are fast tracking debt relief for some companies in order to prevent job loss.  This, of course, comes at a time when politicians need Michigan which is concerned far more about job loss than in producing a competitive car for our times.  Some job loss however is a necessary and extremely difficult and unpleasant necessity for a healthy and promising future, and I think this is one of those scenarios.

“… make the brutal and painful adjustments now in all their unprofitable product lines, and the gov’t should be focused on relocating those employees to industries that need growth: like the energy industry which needs $300 billion of investment in the next 8 years just to stay afloat.”

There are emerging markets, take wind and solar manufacturing plants for example, and those industries need people. Our auto industry has long been over-run and controlled by Unions, making them less efficient and less competitive, with auto quality and efficiency taking a backseat to job count, employee wages, and employee benefits. Sometimes the only way to clean the clock is to clean the clock. As Neiche said, “What doesn’t kill me will make me stronger”.

Well, we need to get stronger.  For too long we’ve been making gas guzzlers simply because radically shifting our production line would result in job loss regardless of the state of the economy.

Somehow theres this belief that it’s not okay to rescue the banks that have practiced predatory lending, and people think the banks should be left to suffer the consequences, but doesn’t anyone realize that the US auto manufacture deserve all the blame for not already have converted all their cars to fuel efficient cars?  It’s not like they didn’t see this coming.  Peak oil has been an established fact for nearly a decade now, and all the models have pointed to today as being the point where oil starts going through the roof.

“… the auto-industry saw this coming a long time ago and did nothing about it. Why are we rewarding that foolishness with free grants when a loan should suffice?”

GM has said they have enough reserves in this market to make it until 2010.  Doing so will require some massive layoffs, and a complete retooling of all their lines but they can do it.  It’s likely however that by then once their lines are retooled to create a more competitive car for our times they’ll be bankrupt at that point.  That’s when this $25 billion will be put to best use – after the patient has been purged of the oil addiction he’s been suffering for so long.  If they give this money to the auto industry today it will be used to keep gas guzzling production lines and associated jobs afloat instead of being invested in the production of lighter cars, LiFePO4 batteries, and electric drive trains.

In the late 1980’s the US DRAM (computer memory) market was strangled by unfair trade practices by Japan.  In 6 short months nearly all stateside manufacturers went belly up or got out of the market entirely.  Only 1 survived: Micron.  They survived by swiftly laying off 80% of it’s workforce when their analysis foresaw that any other action, or failure to act, would result in bankruptcy.  The remaining 20% spent all it’s time in development for 2 years to design a manufacturing process that was so superior that Japanese companies couldn’t compete with even with their illegal and unfair subsidized trade practices.  Within 4 years Micron their superior process and product made them the price point leader, exploding with exponential growth.  It’s stock went up 20X over the next 8 years.  A lot of Micron stock-owning potato farmers in Micron’s Idaho became very rich.

That’s what the US automakers need to do … and be quick and decisive and make the brutal and painful adjustments now in all their unprofitable product lines, and the gov’t should be focused on relocating those employees to industries that need growth: like the energy industry which needs $300 billion of investment in the next 8 years just to stay afloat.

“It’s time to step back, think about the consequences and then act prudently and decisively.”

In the meantime a few billion should probably be given to be disbursed toward R & D only, and toward the tooling of product lines better suited for today’s economic and environmental climate.  If certain R & D metrics are not met that funding should be put away.

The gov’t should also underwrite and insure loans to the auto-industry.  Like I said, the auto-industry saw this coming a long time ago and did nothing about it.  Why are we rewarding that foolishness with free grants when a loan should suffice?  It’s time to step back, think about the consequences and then act prudently and decisively.

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3 Comments »

  1. This makes perfect sense to me. But sense is out of style. Whorled View for President!

    Comment by Joe — October 15, 2008 @ 3:23 pm

  2. >sense is out of style

    Ain’t that the truth!

    Comment by lullabyman — October 15, 2008 @ 3:54 pm

  3. Good points. American car companies are a joke and have been for years. The people that are to blame are those Americans that continue to buy giant SUVs and all the other gas guzzlers. Please, don’t complain to me that gas costs so much when you decided to buy the car with the worst MPG listed in the lot!!!
    But if anyone is going to make efficient cars on the mass scale that don’t cost more than six figures, which is what all the Silicon Valley start ups like Tesla, etc. cost, it will be American auto companies. So we need them to help us convert to better cars. I think the automakers are taking advantage of a week govt facing an energy crisis to more or less blackmail them into helping them when they could have easily done it 10 years ago, although most people in this country wouldn’t have paid for a premium auto with superior MPG then.
    It’s a Catch 22.

    Comment by Steve — October 15, 2008 @ 8:12 pm


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