Wednesday, November 19, 2008

Chrysler, GM and Ford: Should They Be Saved?

They should have saved themselves long ago and, since they didn't, they certainly don't deserve to be bailed out at the expense of the U.S. taxpayer. There are two villains in this sad tale and they are equally responsible: the UAW and the companies in question.

The Magic Pinata. For decades, the UAW has treated their employers like a "magic pinata" that they whack during every contract negotiation for the purpose of extracting goodies. The pinata, in hopes of not breaking entirely, releases some goodies in exchange for the UAW's cessation of the whacking. The "goodies" have been increased wages and benefits and, over time, more job security. The periodic whacking has been enormously successful as employees at all of these companies have become the highest paid and most secure automobile manufacturing employees in the world, far out stripping the Japanese and the Germans (whose companies, incidentally are actually making money). Now, we find that those whackings have, over time, left the collective pinata empty. The unions, just as any other Socialist entity, had no foresight and no conception of the source of their largess and now they have to face the fact that there never was a "magic pinata" after all. Pardon me if I cannot muster any empathy for them or their plight.

The Profit Motive. The companies in question seemingly have lost touch with THE basic premise of business; the profit motive. They continued to sell cars at a loss, thinking, apparently, that they could "make it up on volume". This is insanity, squared. The graph below, from a "Corner" post by Jim Manzi, sums up very clearly the automakers' current situation (click on graph to enlarge).

The sad truth is that even if these automakers were intending to invest the profits from the millions of SUVs they have been foisting upon the American public for the past few years into into research and development, there never were any profits to invest!

Both the UAW and The Automakers have lived in a fantasy world for far too long. Each has forgotten the basic rules of the game and each has operated under the notion that they are "too big to fail". They are not.

It's time for both of these dinosaurs to either develop into viable and productive inhabitants of the 21st Century, or sink into the tar pit of history. They have the option of taking Chapter 11 bankruptcy which will force both the UAW and The Automakers to either embrace a workable business model and cooperate in the interest of their common survival, or die.

If they reorganize into a viable and profitable enterprise, they will be a shining example of what can be accomplished with common sense, common purpose and the true miracle of capitalism. If they choose death, let them be a cautionary tale about the pitfalls of excess. Either way we, as Americans, win.

UPDATE: While not in the same words, it appears that Mitt Romney has a similar stance.

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