December 9, 2008

Auto Industry bailout saga continues

This is such basic stuff!

An enterprise system, is a profit and loss system, and the loss part may
be even more important than the profit part. The crucial difference is in what
ventures are continued and which are abandoned. The crucial requirement for
maintaining growth and progress is that successful experiments be continued and
unsuccessful experiments be terminated.

--Milton Freidman

So if GM, Ford and Chrysler are failed experiments, should they not be discontinued? At least in their current form. It could be argued that at a $45/hour all in labor cost, the variables of the experiment have changed and the experiment can be retried. With the permission of the almighty UAW, and their puppetry in the Democratic party, I'd like to suggest that the experiment has indeed failed. If it hasn't yet, wait a few weeks and call me.

Luckily, there is the Chapter 11 mechanism that allows for a restructuring. Yes details would have to be worked out. But no, confidence would not be lost. The airline industry offers examples of restructuring without a commensurate loss of consumer confidence. And the red herring of subsidiary jobs being lost doesn't fly either. People will still drive. People will still need tires, oil filters, windshield, wiper blades, etc. The market is going to contract and people will need less cars and less parts and services if there are less cars on the road. But there won't be. There may be less American made cars (temporarily). But people will still have to use and buy cars. And if a smaller percentage of those parts come from American suppliers (again, temporarily during the restructuring) then so be it.

The pain is coming no matter what. But propping up a failed experiment so that you can do the same thing again in 7 years is the epitome of foolish action. The only thing worse is giving Barney Frank oversight of the whole mess. Alternatively, we can bite the bullet, pay the piper, whatever you want to call it. But what it means, what it requires is that real change be forced on those who have caused and ignored the problem. I'm not without sympathy. I'd hate to see Chevy or Ford disappear forever. I'd hate for millions to lose their jobs permanently. But that's not how it would turn out.

All that said, people opposed to the bailout have lost site of the scope of the issue. The automotive industry cost is a mere pittance. My last tally puts the automotive bailout at $34 billion. That's about $113 per American. The banking bailout passed by Congress is $700 billion, or about $2,333 per American. And the total commitment has risen to over $7 trillion, or 23,333 per man, woman and child in the country (legally). Perspective is everything. Crap sandwich does not do the whole rotting mess justice.

But just because the cost of a Big 3 bailout is a drop in the bucket, doesn't mean we shouldn't still try to do the right thing - let it be fixed rather than be kept on life support without the chance of healing itself.

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