Let's Hope the Auto Bailout Has Failed for Good, We Might Even Get a New, Competitive US Auto Company

Let's hope that the auto bailout has failed for good. The fact that US auto companies (and more specificually employees) weren't willing to reach parity with the wages of their japanese competitors by 2009 was outrageous. For this stalwart it is a relief that this bailout did not pass, and I find the markets' negative reaction to the result very short sighted. This of course presupposes that the US and world markets' drop was indeed a reaction to the auto bailout news, as financial media ascribe. Nevertheless, assuming that markets did fall in reaction to the news, then their reaction is very misguided.

Rewarding and sustaining value-destroying companies is not good for markets, whatever the apparent near term jobs loss. Overpaid workers for companies which lose money are not value creating for an economy. Reallocating workers into positions which earn a profit for their companies is.

One crucial point widely ignored in all the talk of US auto industry collapse is that in the current situation we're actually just talking about the collapse of the current major US auto companies, in their current form, and not necessarily the industry.

Here's a shocker- Might the demise of the old actually leave room for the new? We might actually have new, leaner, efficient US auto companies emerge out of all of this, whether as a restructured companies based on the old or perhaps even (and this would be very exciting) a brand new companies. It was a pretty crowded space for a new US automaker to appear previously, especially with the fear of getting snagged by onerous employee contracts.

What if a new company could pick and choose the assets it wanted from the old dying companies, and employ the best US autoworkers avalaible with a salary system far less parasitic than the current UAW backed system?

There is definitely room for at least one major US home-branded automaker in the American popular psyche.  Just marry a truly American branding with efficient operations, good design, and strong marketing, and then perhaps you have a business. If the US can make iPods, semiconductors, and passenger jets, there's no reason why cars competitive vs. the Japanese are some sort of insurmountable task. Or maybe in the end, US companies have better businesses to pursue than auto manufacturing. This no one can predict for sure.

But I see no reason why the bankruptcy of the current US automakers' corporate entities spells the demise of the US auto industry. And in fact, it could actually spur a renaissance in US auto leadership once the field for US branded cars gets less crowded. Provided automaking is a profitable worthwhile business on par with other opportunities for US investment. From this perspective I feel then the failure of the auto bailout is actually positive, rather than negative, for the US economy, and in turn US and global markets.

Comments

[Anal_yst]

Joe, I was on the edge of my seat waiting for you to make a point that you came ever-so-close to getting to: The "US Automobile" industry, now, means alot more than just "firms whose corporate parents are domicilied in the US and pay US income taxes."

That is, look at how many workers foreign brands, operating in the US employ. BMW, Daimler, VW, Toyota, Honda, etc all have factories in the USA, as well as corporate and administrative offices. These functions employ a significant amount of people, and produce an equally significant amount of product.

If you think about it, who the hell cares where the corporate parent is from, besides for pride? If the car is made in the USA - like BMW SUV's (in South Carolina, I believe), as far as I'm concerned, its more American than a Chevy that's made in Mexico.

[Bill M]

I agree with the above post. People keep saying that Toyota is Japanese, in fact most Toyota/Nissan/*Insert Name* are built in the US using mostly parts from US Suppliers.

[Fed-Up with Ignorance]

I agree wholeheartedly! I'm so frustrated with the mouthing off of people around me for having this very same opinion. They are so blinded by emotion and crippled by fear that they may have better opportunities because of the prospects you discuss here that they are (in these parts of Detroit at least) Speaking as if the "Big three go under this whole country will see another Great Depression!" They act as if the only way to continue LIVING is to have GM Ford and Chrysler existing as they have. I'm so frustrated I could literally puke if I hear another person ranting and whining about how we are all going to be victims if "The Big Bad South" gets their way. You'd think they were ready to grab their guns and cause another civil war over this.

[Vincent (The Stalwart)]

I actually wrote the above post, not Joe. Its also odd how nobody thinks about the other stakeholders in GM such as well, the company's creditors. Can't the creditors cut some slack and take a haircut to help support the company. Why does the US taxpayer have to take the hit BEFORE the company's creditors. Well, it is simply because the bankruptcy process (ie. a process by which creditors may have to take a hit in order to keep the company afloat) is something the UAW fears. Since it could mean the end of their contracts. Thus a government bailout is not the last chance to save the automakers, but the last chance to save the UAW's cushy contracts. In a bankruptcy process, the US automakers are actually likely to still survive, though shareholders would likely be wiped out and creditors would take a hit. Oh and the UAW contracts would be made less onerous. Thats the main fear of those lobbying for a bailout. But again, let me return to the simple question to ask in order to expose the UAW's intentions - "Why don't we first go through a process whereby the automakers' creditors make concessions like most companies in similar situations?" ... because thats called bankruptcy which the UAW fears.

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