Someone told me recently that Bob Lutz reads my column. Apparently, he really enjoys my pontifications about the hoax known as "global warming" or how we, as a country, need to drill offshore and anywhere else to supply our energy needs or how Washington should put new rules and regulations on the back burner until the industry can get back on its feet. I have a feeling he won't like this column, however. That's because U.S. automakers are taking advantage of the election season in order to get their hands on as much as $50-billion in taxpayer-supported loan guarantees to see their way through the rough times. They shouldn't get the money.
Trust me, I understand where the Big Three are coming from. Battered on the right and the left by stormy seas, they are looking for a safe harbor in an uncertain world. Why not ask for the money when the Feds are seemingly more than willing to give every sub-prime shyster (a.k.a., Fannie Mae and Freddie Mac) or down-on-their-luck financial services firm (Bear Stearns) an open invitation to the government printing press in order to keep the markets from collapsing? Suddenly, it's the American thing to do. A case can be made that Detroit cannot get its hands on money in the credit market, in part because of the battering the system has taken with high gas prices, an economic downturn, and the effects of the subprime mess. However, money isn't as tight as it should be to dampen inflationary pressures. Rather, lenders are-finally-wary of who they lend their money to. Detroit's automakers, like the city they call home, are not the best credit risk as there is little upside at the moment. Profits are non-existent, with no consistent light at the end of a long, dark tunnel.
Throwing money at the Big Three would do nothing to solve the fundamental problem. If anything, it would slow the rate of required change. GM, for example, could drag out the Delphi drama indefinitely instead of bringing the curtain down. Ford could keep its Automotive Components Holdings chugging along-dare I say it would be forced to by a union more interested in keeping its membership to the maximum in order to protect the income stream from yearly dues-instead of finding a way out of this mess. And Chrysler? Don't for a minute think that the folks at Cerberus wouldn't use the promise of a government bailout as a carrot to potential suitors.
The last thing that Detroit and its unions want is for the process to go through Chapter 11 bankruptcy. That would force each to answer for their sins, and hurt both creditors and executives. It might even cause a consolidation to take place, and would certainly lay bare the financial underpinnings of the industry. How many Middle America domestic car buyers do you think would feel sorry for workers and executives who make more than they do, and have better health care to boot? Not many, I'd wager.
Taking money from the government, on the other hand, would set up an even scarier scenario. Only a fool would believe that we would not follow the same road driven by Britain's car industry. Forced to consolidate by a government certain it knew better than the experts, the industry could not support the multiple names, brands, and markets served. With each merger, the larger and stronger of the partners exerted its influence over the others, slowly starving the brands that were not theirs, even if they had a better chance at survival. We all know how it ended. The Chinese now own what is left of British Leyland/Rover Group/MG Rover. Only Jaguar survived, and it is now owned by the Indians. Britain produces a large number of cars, but has no indigenous industry. And the unions that were certain they were in the catbird seat as long as the government subsidies held out are but a shadow of their former selves.
I am by no means one of those Wall Street types who thinks the economy can sustain the collapse of the American auto industry or that the shift of production from the domestic automakers in the Rust Belt to the so-called "New Domestics" in the South (and Ohio) is the natural course of events, and will result in a more efficient industry that makes the vehicles we drive more profitably and cheaper. That's because Detroit's fealty to the financial whizzes that has made things worse. Chasing high share prices and the blessings of Wall Street kept the focus on highly profitable light trucks for too long, and prevented proper investment in desirable cars of all sizes. No, this is one time Detroit's automakers are going to have to go it alone-for the good of us all.