Wednesday, December 17, 2008

If Cars Could Sink: Obama and the Big Three Bailout

Obama has yet to take office. But when he does, the big 3 bailout and all the problems it presents are going to hit him like a Hummer. Or maybe a Chevy Suburban, or some other gas-guzzler. One thing's for sure, they won't be hitting him like an EV-1.

By January 20, GM and Chrysler will (probably) have received $14 billion. However, this is only a "stop-gap measure" to keep them alive until March. By then, they're probably going to need another bailout. Unless something crazy happens, like people buying their cars. And it will be up to Obama to decide whether or not to funnel them more cash, which the US Government doesn't even have in the first place.

Those of you following this will probably be familiar with some of the background here. U.S. automakers have taken flak for focusing too much on the "light truck/sport" vehicle market at the expense of less, uh, thirsty cars. In the past, their response had been that the light trucks, SUVs, and other vehicles suitable for urination-themed bumper stickers were the only thing that they made money off of. And they were making money. If it ain't broke, don't fix it, or you'll be broke. Besides, fuel efficient cars are ugly.

Then came that nasty 3 year long spike in fuel prices. People realized that not only did trucks cost more, but they used lots of gas. And since the truck/suv/good ol' boy demographic was also dealing with rampant foreclosures at the time, the profit margins of the guzzler-reliant Big 3 were in the toilet. If cars could sink, the Hummer would be the Titanic of our time.

Now, gas prices are back to where they were in 1998, which according to everyone five months ago was supposed to fix everything. If the whole world were a TV Show, the government would just give the car companies a chunk of money, they would start making trucks again, and everything would be back to normal in time for next week's episode. But it doesn't work like that. Even with low gas prices, it's unlikely that truck/SUV sales will rocket back to where they were - trucks still cost significantly more than smaller cars, and the general public doesn't see them as a worthwhile investment. Furthermore, there is no guarantee that gas prices won't shoot back up, leaving truck owners in the same mess they've now completely forgotten about. To become viable once more, the big 3 will have to find a long term source of income that gets more than 15 miles per gallon.

Enter Obama and the US Government. As many have pointed out, it would be really cool if we could take some of the oil companies' record profits from earlier this year and use that to bail out the car companies. Making this happen would be like getting Karl Rove to serve prison time: it would be logical, ethical, and completely impossible. And as we already know, there is no way the Big 3 could get back on their feet themselves, despite the fact that top execs from each company kept using private jets until they were scorned for doing so. If only they were executives at Cessna!

But the fact remains that a collapse of the Big 3 would spell doom for the 1-point-something million people who work in the business, and would be bad for the economy as well. I say, go through with the bailout, but make sure we get our money's worth. We the people agree to bail out you the car companies, for the benefit of us both. That makes every taxpayer a stakeholder in our great American industry, and we all need to keep car companies from doing stuff that isn't so great. First off: new executives. We need to send a clear message that the past actions of the car companies have consequenses. Not for the lower and mid-level workers, but for those who had a hand in putting their companies in the mess they're in now. They could have lowered the potential damage by investing more in fuel efficient cars, but instead they made things worse. If the car companies really are like sinking ships, shouldn't their captains go down with them? Second, undo all the damage you did. In the 50s and 60s, GM killed all but a few of the nation's streetcar systems and replaced them with less efficient buses - built by GM. Then in the 90s, they famously killed the electric car. Would you guys please stop killing things? The planned Chevy Volt is a step in the right direction, but who's to say that GM won't pull the plug, leaving the company 30 miles or so before it reverts to all-gas mode again? As for rail lines in our cities, they are an oft-maligned but much needed infrastructural investment, whose reconstruction would make life better in all of our cities. If GM begins making money again, a small portion of that money should go to rebuilding mass transit. And since train cars are usually made by private contractors, there's no reason GM couldn't make those cars themselves and recoup some cash.

Some might complain about the bailout on principle, and point out that the government is just wasteful. But having seen the effectiveness of how Obama ran his campaign, and the ineffectiveness of American car companies, I have trouble taking that statement seriously. Bottom line is, I trust the new chief executive more than any car executive.


  1. The Hummer is the Titanic of our society. GM built it but way too many bought it. Anyway, it will probably die along with a lot of GM. But I hope "The General" stays in business long enough to bring us the Chevy Volt...and a lot of their fuel efficient cars they hide in Europe and Asia but claim they can's sell here.

  2. I know, that's the worst part, that they're making so many fuel efficient cars that never come out here. I think just saying that "small cars don't sell in the US" is an unfair oversimplification of things.