Categories: Andrew Coyne, Capital Read

Hallelujah! (UPDATE: Damnation!)

by Andrew Coyne on Thursday, December 11, 2008 11:08pm - 130 Comments

Auto industry bailout dies in Senate

Thursday December 11, 10:49 pm ET

By John Crawley and Richard Cowan

WASHINGTON (Reuters) – The U.S. Senate failed on Thursday night to reach a last-ditch compromise to bail out automakers, effectively killing any chance of congressional action this year.

Republican-brokered talks faltered, leaving the chamber at a dead end on an approach for extending $14 billion in loans to avert a threatened collapse of one or more automakers, Senate Majority Leader Harry Reid said in remarks on the floor.

“It’s over with,” Reid said.

And with that dies any last lingering justification for governments in Canada spending billions of dollars they don’t have to prop up Detroit’s tottering Canadian transplants. I’d make the case for refusing a bailout even if the Americans had agreed to one — the willingness of other countries with deeper pockets than ours to subsidize industry makes any attempt to play beggar-thy-neighbour on our part not just ill-advised, but futile — but if Washington is not willing to blow its brains out, then certainly there’s no reason we should.

Amazing what a difference it makes having a few genuine free-marketers in the legislature, isn’t it?

WASHINGTON (AP) – A $14 billion emergency bailout for U.S. automakers collapsed in the Senate Thursday night after the United Auto Workers refused to accede to Republican demands for swift wage cuts.

Senate Majority Leader Harry Reid said he was “terribly disappointed” about the demise of an emerging bipartisan deal to rescue Detroit’s Big Three.

He spoke shortly after Republicans left a closed-door meeting where they balked at giving the automakers federal aid unless their powerful union agreed to slash wages next year to bring them into line with those of Japanese carmakers.

By saying no to Detroit, the feds will be in a better situation to say no to all the other supplicants lining up outside their door: Nortel, Big Oil, the tech sector, the Atlantic premiers, the western premiers, the Ontario and Quebec premiers, etc etc. Whereas if they shell out for Big Auto, it will be open season…

Not that it isn’t already.

MOREOVER: We should be clear who the biggest winners are from this. It isn’t the taxpayer — although taxpayers will indeed be winners. It’s workers and firms in every other industry, who will not now see capital investment and consumer dollars diverted into staving off bankruptcy for GM and Chrysler that might have been available to them. There never was a good reason to favour autos over other industries. And subsidizing everybody in the name of equal treatment is even sillier. You can’t redistribute from everybody to everybody…

ARGH:

Dec. 12 (Bloomberg) — The Bush administration dropped its opposition to using the $700 billion bank bailout to provide financing for U.S. automakers, after the Senate yesterday failed to approve emergency loans.

“Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry,” Treasury spokeswoman Brookly McLaughlin said in an e-mailed statement.

The Treasury has used all but about $15 billion of the first half of the Troubled Asset Relief Program’s funds since the plan was enacted Oct. 3. Treasury Secretary Henry Paulson has until today repeatedly resisted calls to use the program to aid the automakers.

Sooo-eeee!!!!

Tags: auto bailout

More by Andrew Coyne

Ryan

I suppose another thought, slightly related.. if GM goes down, like I’ve said before, there’ll be more demand on the market being unmet. It might be worthwhile for another car company to buy up the GM plants here and retool them for their own needs. Having direct access to the US with now less competition, at a discount price and with probably government “encouragement” to do it…

I really don’t think this will happen though, I just can’t see GM US not being bailed out.
Sean Stokholm

By the way, feel free to make me an offer on my 1999 GMC Safari. Don’t be put off by the age of the vehicle, because I’ve had to replace virtually every frigging part on it in the last five years. Plus, it’s very low mileage as a consequence of sitting parked at the mechanic’s so often.
Ryan

I’m afraid to offer $2 for the off chance you take it! My Corolla’s running smoothly :)
john g

Anyone else find it ironic or funny that macleans is running advertisements for Chrysler in this thread?
Mulletaur

If the United States government insists on intervening in this failing industry, it should limit its role to assisting Ford, which appears to be better managed, in taking over General Motors and Chrysler. There will still be some economic displacement and job losses but at least we won’t have spent taxpayers’ money for nothing. However, allowing these two companies to fail going into a severe recession could just be the tipping point for a decent into a deflationary spiral. Governments, even those committed to free market principles, cannot afford this to happen as they will face a very angry electorate.
Sean Stokholm

“If the United States government insists on intervening in this failing industry, it should limit its role to assisting Ford, which appears to be better managed, in taking over General Motors and Chrysler.”

Do we really want governments to start picking favourites in this way? (Which is kind of the problem with these corporate hand-out things in the first place).
oompus boompus

“Sorry Andrew. Why won’t the government just let the invisible hand guide us into a depression!?”

You’re not being guided into a depression by the invisible hand. You’re being guided into it by govt central banking and you will remain mired in depression for 10+ years because of the deluded and self-serving govt attempts to fix the problems they created. Rothbard’s “America’s Great Depression” (free online) will show you how the scam works. It covers the last depression up until approximately the time of FDRs takeover (when things really went downhill).
http://carnewsandviews.com jwl

Was just watching Jane Galt talking about bailout on Blogging Heads and she raised a point I hadn’t thought of: nationalizing the US auto industry is bound to lead to a lot of WTO lawsuits from other countries or they are going to expect some quid pro quo for allowing the US government to subsidize automakers.
Ron

I agree: No bailout with public money for private industry. If it happens, bankrupcy for the big 3 will force the addressing of any and all issues in the automotive manufacturing business.
don craig

Let’s see GM unveiled its electric car, the Volt, about 3-4 months ago when oil prices were in the mid $200s at that time, the head Professor of Economics at the Univ of Toronto said “It’s 50/50 that GM will go bankrupt before they get the Volt into production.” It appears he was being very optimistic. Let’s not waste very much of our money on the inevitable.
Brian B. Wolf

How can some idiot make a comment “Labour costs are something like 10 percent of the price of a new vehicle. Besides, the Japanese advantage is not in price – US vehicles are on average $2,500 cheaper – but on quality.” ….this is a contradictory statement moron….unless of course you are part of the problem(union!) and not part of the solution!

I will NEVER buy a North American vehicle as long as the UAW/CAW are part of the labour equation. These overpaid floor sweepers are just that. They should be paid by performance, 100% quality and profitability of the company. Or $10 an hour – that is what their job is worth in the real world.

The Japanese, Koreans and Germans build QUALITY into their cars (I know, I own 3 German cars) and their labour component is NOT a factor.

Get rid of unions altogether! – in every industry.

SOLUTION – Since the US is getting rid of millions of illegal aliens, there will be a huge opportunity for the unemployed UAW/CAW good ol’ boys to fill these positions…..can you spell Taco, Amigo???
Sean Stokholm

Just for fun, I thought I’d share more of Brian B. Wolf’s insightful thoughts from a comment on another blog…

“If the world is to get along, segregation is necessary. All non-muslims should live in the Western world and all Muslims should live in te Islamic world – countries that are predominantly Muslim. That way the Muslim view would not be slanted. All of the core values and principles would be preserved including Sharia laws.

From a Christian viewpoint, we don’t want our values or principles diluted by entertaining islamic culture into Western society. We have the same rights, as Muslims, and will not accept anything less. So please inform all Muslims to leave the Western world, since many of them are so unhappy, and move to a Muslim land of their choice.

Please lets focus on what’s best for the world and for our future generations.”
mynalee johnstone

Christoph: Like I said: 48,000 fatalities a year and I dont have the statistics for injuries. I d known that we spend trillions to support the use of automobiles.: a mile of road averages a million dollars, a traffic light is $50,000. Then add on police surveillance, street cleaning and clearing, coroners and court cases, parking spaces and more parking spaces,crime,road maintenance,traffic monitoring,fast food,and malls and more malls,etc.,etc./
If you chose to be a pedestrian or cyclist you wouldn’t have to ask the question about safety. My life is threatened everyday just to cross the street on a X walk. There aren’t even buses in malls. People with small children and seniors dont have enough time to get across the street on lights and … even in a snow storm or heavy rains, drivers still think they have the right of way. No courtesy. A moral malaise came with the use of the automobile.
Our society was built for and about it. We must rethink mobility and we must redesign society to live without them
Even IRAQ is building a carfree city.
I will go to my grave protesting this overuse of these stupid expensive ,earth destructive things.
Even China had to regulate use during the olympics.
The only time I can enjoy some peace and quiet is when there is a snowstorm and people have to wait for the snowplow before they start revving up.
Traffic drives me CRAZY.
Forever, ranting, yours truly,
Auntie Automobile.
And by the by, I went to university by train.As a rural Canadian,we went to the big city by train.
The fastest way to get to the suburbs from downtown Vancouver is by train.
We used to cross this nation by train,built by the blood, sweat and tears of a lot of Chinese and other “immigrants”.
Who killed our public transit:? the automobile companies.
What keeps us using automobiles:? Our own selfishness and mindlessness.
Jean Proulx

mynalee johnstone – good rant. there’s a lot of truth in what you write. unfortunately things will have to get much worse until people are willing to think as creatively as you. speaking as a bus and subway-suing urbanite, i long for a utopian future of quality public transportation and high-speed rail between major centres. and no more suburbs and sprawl.
Christoph

Look at the plus side, Andrew.

Some of the money approved for the financial institution bailout won’t get spent on it.
Christoph

mynalee johnstone, you went on another manic rant, but you most pointedly did not answer my question:

“Per kilometre travelled, is there a safer mode of transportation, aside from airplanes?”

As an aside follow-up question, how does the cleanliness and environmental impact of automobiles compare to horses per kilometre travelled?

What did London look and smell like in 1800?
Fletch

For those of you who think government intervention in the economy is a good thing, I suggest you dig up an old copy of Saturday Night magazine ( circa 1987) and read Peter Foster’s The Destruction of Wealth, or Foster’s book Self-Serve. Self-Serve is about the creation of Petro-Canada, and particularly timely right now.

There are plenty of other quality pieces of journalism on the subject, but these two pieces by Foster were a turning point for me. Before that, I identified with the liberal screed as personified by Noam Chomsky and Naomi Klein (maybe even Jack Layton). I blame that on the educational system haha.

Full Disclosure: I am NOT Peter Foster’s agent.
http://ragingranter.blogspot.com Raging Ranter

Sandi, what’s an ideological remark? One that is thought out ahead of time? Or just anything that is against auto bailouts in general?
Jack Mitchell

Christoph: ““Per kilometre travelled, is there a safer mode of transportation, aside from airplanes?””

Motorcycles are safer, if you’re over 20.
Jaded

You don’t realize the chain reaction that will occur. It’s not just the big 3 that will be hurt. It’s the suppliers. It’s the foreign car plants that are in the South like Alabama, South Carolina and Kentucky. It’s the town. By the time you get down the chain, the US will lose about 30,000,000 jobs because of the GOP. I guess it’s easy for you to cheer because it’ll be the US in a Depression, not Canada.
tyronen

So the bailout money will be taken from money that was already set aside for bailouts. It will just go to companies that employ 3 million people, and who can’t file for bankruptcy because of a credit crunch caused by other companies that won’t be getting this money instead. Sounds good to me.
Mike

Most of the foreign competitors of the Big Three have also received substantial support from their governments at some point. Volkswagen was even founded by government, and the Japanese car makers have benefited greatly from both industry politics and trade barriers. ‘Pure’ capitalism without some kind of government intervention to promote national interest has never existed. On that premise, the question becomes how the usefulness of this particular intervention compares to others. Considering what’s on the line I’d say show me a better one.

What people in NA really don’t seem to get is that there is more to manufacturing industry than a balance sheet, and to what extent the ridiculous expectations for ROI that developed in the ballooning financial market have hurt that industry. What has happened recently in the pharmaceutical industry, for example, is that R&D people have been laid off because they did not help short term profitability – can do it cheaper in China, or just buy out some bright start-ups. I’m sure Andrew Coyne will enthusiastically approve of so much good economical sense. Well, wait and see where that will get that industry.

Shortsighted balance sheet-fixated group think is an important reason why Detroit has to play catch-up for competitive product. It is precisely because half-witted MBAs are running the show that NA industry is declining. Top execs in Germany car companies, for example, are usually engineers, and while they sometimes make stupid moves economically, they do pay attention to the company’s core competence.
Steve Wart

tyronen: “…a credit crunch caused by other companies that won’t be getting this money instead.”

Are you referring to pension funds that loaned money to banks who loaned money to people that couldn’t afford to it pay back?
http://demosthenes.blogspot.com Demosthenes

Shorter Coyne:

“As a well-paid columnist with a cozy spot on publicly-funded television, avoiding catastrophic job losses is meaningless to me, but my ideology and tax bill may be threatened.

“Let them eat cake.”
Peter King

Finally the chickens have come home to roost for the automotive giants who continued to produce inferior, massive , uneconomical and unwanted vehicles ( F 350, Dodge Ram, Magnum , Hummer etc.) despite all the signs of a need for smaller, economical vehicles. The auto companies are primarily to blame for their downfall but, equally so are the fat-cat unions who are blind to the reality of being paid a reasonable wage for quality work. What is better, a lower paid job or no job at all ? When the dust settles we can hope for more modest wages and pension benefits, auto manufacturers who build what we want, not what they can make the most profit on, and a humbled American public that finally accepts that the U.S.Dollar is no longer almighty and their cherished “free enterprise” system benefitted only the favoured few. If subsidies, tax incentives and loopholes in the emmissions requirements had not been allowed the U.S. might have had a viable auto industry instead of the financial disasters the Big 3 now are. For Canada to pour money into U.S.owned plants is pointless as they will go anyway, with our money or not.