Tuesday, December 9, 2008

The Industrial Evolution

This Wednesday, Congress will have the opportunity to vote on legislation that would grant the Big 3 automakers $15 billion in loans to save them from certain doom. I believe this number should be closer to $0. There is no doubt in my mind that the three major detroit car companies must readjust their leadership, and must file for some sort of bankruptcy protection in order to make the changes necessary to prepare for long term growth. There are several points that need to be considered when evaluating the collapse of the Big Three.

It may not be their fault, but the Big 3 saw this coming. It's obvious that car companies have no direct control over the price of gas or the availability of credit. The increase of crude demand in developing nations, coupled with the credit freeze that came out of the mortgage meltdown, has created a culture of frugality. But economists and experts have long stated that gas prices will only get higher over the long run, and that easy access to credit would eventually roll back. The Big 3 saw early electric cars fail, and resisted change out of fear. They saw a slowing economy on the horizon, but kept the assembly lines rolling. The same executives who ignored the warning signs must not be trusted to have the vision to see us out.

And I mean it when I say 'us', because the ripple effect of a complete failure of these companies would result in a lot less money being spent across the country and, ultimately, the world.

On the macro level, large amounts of layoffs can be counteracted by President-Elect Obama's plan to improve the infrastructure here in the United States. It worked in the Eisenhower years. Take people who work in car manufacturing plants, and after conversion training, put them in solar panel manufacturing plants. These measures protect our economy from future gas price increases.

Also, filing for Chapter 11 will enable these companies to deal with Union contracts in the event that concessions aren't made by the UAW. Some argue that such a signal of weakness would be detrimental to the images of the Big 3, but anyone who doesn't think that ship has sailed is fucking bonkers.

Ultimately I am glad that the number has dropped from $34 billion to $15 billion, but I feel that this number could be even lower. These companies simply can't make minor adjustments and cutbacks. They need to be running bare bones operations, from top to bottom, with the exception of the folks in R&D who will be spearheading the transition to a better fleet. Operational spending must be completely readjusted.

So by making loan amounts in the $5 billion to $10 billion range, more money can be provided to unemployment insurance, which will help prop up the middle class. What this means for you is that if you get hit by a layoff, the government will temporarily give you enough money to pay the bills and put food on the table while the Industrial Evolution takes place in the months to come. By evolving toward affordable renewable energy, and more practical lending practices at financial institutions, all companies, not just the Big 3, will be better positioned to recover from the recession, and a wider range of opportunity will emerge in all sectors of the American economy.


Adam Z. Winer said...

from everything i've learned, it sounds as though this country needs these "Big 3" to survive, whether they have failed as businesses or not. Do they deserve to fail and should their management be thrown out? Definitely. But the results would hurt this country in other ways to such an extent that it's something we should look to avoid.

theres the jobs selling cars, the jobs on the assembly lines, the jobs in selling auto parts, the jobs in marketing the cars, the jobs in researching for the carmakers, the people who sell gas to the people who drive the cars that no one is buying, the people who make loans to the people who buy cars... and so on.

It seems the management Will be thrown out, or at least re-modeled, so that sounds good to me.

David Pratt said...

But the fact that all those jobs are held under the thumb of the big 3 is just as bad. Ford, Chrysler, and GM have done more to keep competing business from emerging in the U.S. than any other conglomerate in any other field. They've used their muscle to make sure they were the only game in town, and now America has to suffer for it.

Adam Z. Winer said...

probably very true...

but i don't think this can any longer be about punishing these companies (or letting them punish themselves?) and has got to be about planning for a better future.

what's the very best way to get out of this current economic crisis? keeping jobs is probably a big one.

Jason Heat said...

I'm not saying that this is the case here, but keeping a bad system in place for fear of the short term is usually a good way to damn the long term.

Max Nova said...

Something that is missed in the whole US focus is that the bric countries (brazil, Russia, china, India) have at least 2.5 billion people and growing middle classes. The current demand of these countries will be passing the US soon. There is plenty of opportunity there. (and yes, I know it's bad environmentally, but I'm just thinking big picture)

David Pratt said...

Not considering the environment is the exact opposite of thinking big picture, really.