Sunday, November 16, 2008
WHY A BAILOUT OF THE AMERICAN "AUTO" INDUSTRY WOULD HURT AMERICA
Who else should we help?
The auto industry is pushing for a bailout and asking the American taxpayer for $34 billion in loan guarantees, arguing they can’t survive without it. If we agree then we should also bail several others:
1. Starbucks. If they can no longer sell $4 coffee because of something as trivial as people being unemployed, then it’s back to the way coffee used to taste decades ago, and nobody wants that. For less than $1 billion a year, the taxpayer can support Starbucks' continued expansion into exotic places like Laundromats, gas stations, and empty lobbies of investment banks and hedge funds.
2. Toll Brothers and Kaufman & Broad. What if all builders go under? We can't afford to lose the entire industry, where would we live? What if a million aliens invade the planet and need a place to stay? They must continue building, let's give them $10 billion.
3. Sun Microsystems, to save the 8,000 job cuts just announced. They are getting hammered by new competitors that came out of nowhere, Amazon, Yahoo and Google, who now sell something called “cloud computing”, which sounds like excess computer capacity dumped on the market at a fraction of the cost? Totally unfair. Sun invented Java for God sake; send a few billion dollars their way.
4. My country club. Do you have any idea how hard it is to sell $200,000 memberships in this environment? The members are real good guys and could use the money. In the scheme of things, we'd preserve a national landmark for under $10 million.
Are GM, Ford and Chrysler THE auto industry?
Although Speaker of the House Nancy Pelosi concedes the automakers may not be well managed companies, she says we can’t let them die because without them we would have no auto industry. Really? Let’s think about this for a second.
So GM, Ford and Chrysler represent a large segment employing 230,000 workers. How about the “other” auto industry outside of Detroit, the thriving assembly plants in the Carolina’s, Kentucky and Alabama that employ 130,000 people, and make BMW’s, Toyota’s, Honda’s and Nissan’s? And the new technology car makers sprouting in California, Fisker Automotive, Tesla Motors, Phoenix Motors and Aptera who make hybrids that get 130 mpg and all-electric vehicles with a 250 mile range?
What happens without a bailout?
The auto industry and Congress need to take a page from high tech. There an entire life cycle may be as short as 12 years, you adapt or die, and there are no bailouts. In the late 80’s, the “computer” industry died. Companies that made “mainframes”, the industry’s mainstay at the time, got killed by minicomputer makers who invented a better mouse trap and choked them. Big mainframe manufacturers Burroughs, Sperry Univac, Singer and Honeywell, became extinct. IBM lost 75% of its market value but survived, changed management, dropped the "blue suit white shirt and tie" uniform, and reinvented itself into a new diversified information technology company. New entrants Digital, Prime, Data General, Hewlett Packard, Wang and Tandem took the leadership and replaced the old generation. There were no bailouts, just good old fashion capitalism in action and the marketplace voting with its wallet. Later, those same minicomputer vendors got clobbered by Microsoft, Novell, Compaq, Dell and Apple, repeating another cycle in tech’s history. IBM and HP reinvented themselves and survived, others didn’t.
You may get what you asked for, but it may not be what you wanted.
Should we help out dinosaurs who make cars nobody buys? Or provide low cost loans to new breed entrepreneurs in California, whose customers are on 2 year waiting lists, so they can expand their plants and meet market demand? Between GM, Ford and Chrysler, one of them may figure out how to survive, but they are yesterday’s story and their time has come and gone. Meanwhile the car companies in the South will continue to thrive, we should replicate their success and incentivize other successful car makers to move there and create jobs. And we should place our bets on the new guys in California, they are tomorrow’s car industry and America's future, that's where the money and tax incentives need to go.
Write your congressman; tell him not to be a girlie-man: don’t support the bailout, let capitalism work.