Obama's flawed auto logic
President Barack Obama insists he doesn't want to run the domestic auto industry -- and we should all be thankful for that.
But his actions speak differently -- and we should all be worried.
"... I rejected the original restructuring plan" that Chrysler LLC submitted for government loans, he said April 30 in announcing his decision to force Chrysler into bankruptcy. "... And the standard I set was high -- I challenged them to design a plan ..."
That's a lot of self promotion and involvement from a guy who doesn't want to control the companies.
The president found a scapegoat in the hedge funds that balked at the government's "offer" to take pennies on the dollar for their secured investment
"... It was unacceptable to let a small group of speculators endanger Chrysler's future by refusing to sacrifice like everyone else," he said.
Pardon me while I puke.
Chrysler's secured lenders held about $6.9 billion in debt and a couple didn't want to take significantly less than what they were owed. The lenders that opposed hold less than 10 percent of that debt.
You mean to tell me that the president, who has authorized more than $19 billion in cash to the auto companies, with much of it likely never to be repaid, was willing to force Chrysler into bankruptcy over less than a billion bucks?
When you're doling out dump trucks full of cash, another Ram pickup full doesn't break the government's back.
The Truth About Cars and Trucks
The two parties that turned the Big Three into a perennially limping freak of unwritten industrial policy now will take formal ownership of their handiwork. The United Auto Workers (UAW) would own 39% of GM. The federal government would own 50%. The creditors will be shafted with just 10%. (In the Chrysler plan being discussed, labor would own 55%, making it effectively a subsidiary of the UAW.)
The day after any such settlement is finalized, the clock will start ticking down to the next collective-bargaining session between a monopoly UAW and what remains of the Big Three -- though now the UAW would be sitting on both sides of the table.
Nearly 25 years ago, a Los Angeles Times reporter innocently and accurately invoked the "M" word in describing the domestic auto sector, noting that the arrival of Japanese auto plants was "threatening the UAW's traditional monopoly on labor in the domestic auto industry."
The erosion of the Big Three's market share since then has really been the erosion of the market for monopoly labor-produced cars. The UAW standard tactic, "pattern bargaining," which it pursues without embarrassment, would have gotten Bill Gates thrown in jail under the antitrust laws.
When the L.A. Times wrote, the labor cost differential versus a Japanese plant was about $2,000 per car. Twenty years later, the cost difference was about $2,000 per car. Today's lament is, "The bankers have benefited from a bailout, so why shouldn't auto workers?" But they have, they have -- for decades. For the business model described above could not possibly have survived otherwise.
Return of Le Car
t's no exaggeration to say the rest of the story is told in Chrysler's bankruptcy filing. In search of a partner to underwrite development of fuel-sipping hybrids and electric cars that would be almost certain to lose money in the U.S. marketplace, Chrysler's Tom LaSorda spent two years seeking alliances with Nissan, GM, Volkswagen, Tata, Magna, GAZ, Hyundai, Honda, Toyota, Beijing Auto and others -- efforts that were "uniformly without success." Fiat, he said in an affidavit, was "Chrysler's last best hope."
Not since Renault teamed up with AMC to bring you Le Car has an odder pairing been seen -- or a less promising one.
Credulous media accounts insist the only challenge now is whether Chrysler can hang on for two years until Fiat begins churning out U.S. versions of its popular European models in U.S. factories. Goodness.
Unless gasoline prices go to $5 a gallon, Mr. Marchionne certainly is not so foolish to believe making and selling teensy eurocars in the U.S. is anybody's route to salvation.
Even in Europe, he has noted, a move to bigger, more powerful cars is underway. Motorists are getting fatter and older -- and unwilling to contort themselves to get in and out of a car.
He also understands that trying to beat Toyota at its own game is a nonstarter. Toyota sets a standard of quality and technology that all must meet -- that's the price of admission. But "what we have that Toyota does not have -- and I say this with all modesty -- is the great historical heritage of the brands."
Comment: Imagine an auto industry owned half by the UAW and half by the government. And the Dems and Labor collude! UAW feeds the Dems .... the Dems feed the UAW. I won't buy those cars!