Tuesday, November 25, 2008

Bailout

- I want the American car industry to survive.
- I drive a Honda Fit (which, unlike many Honda models is made in Japan and imported)

There seems to be cognitive dissonance there. My position about cars has always been kind of free market. I buy the car I want or need, from whomever makes it. My last "car" was actually a Dodge Truck with a Cummins, which I had because I needed a truck at the time for a construction project.

In each case, the vehicle was the one I considered the "best" in its category. I voted with my money, and hoped that the manufacturers were taking note and building cars based on what was best for the market. If I bought a Honda, and so did a bunch of other folks, then the US Auto makers would see that, get it, and start building Honda-like cars. I live in fantasy land. Far easier to just start a round of name calling and saying that because people are not buying their cruft then somehow *we* are being unpatriotic rather than they are not building what we need or want. Market forces and supply side economics is all well and good till it takes your company out back and spanks it.

Reminds me for some reason of an old Ford commercial where people supposedly could not tell a Ford Granada apart from a Mercedes Benz. They did not mention how many free drinks they had at happy hour first. Since the automakers in the US could not actually build anything like a Merc back then, they tried to convince people via advertising that they were. It was so patently absurd, yet some bought into it... till they bought one. I talked to one guy who had done so, and he was disgusted. Mad at himself and mad at Ford. Bet he never bought another Ford. He said he wasn't going to in any case.

The closest thing to my Honda Fit available from GM is a car imported from Korea, or one built by Toyota and re-badged as a Pontiac. Ford and Chrysler don't even have that much. The SuperMini class is nonexistent with the latter two. If Ford did have something, it would probably be a relabeled Mazda 3. Aside: In the current situation I wonder if Ford will be able to hang on to Mazda. They need to.

Rather than building cars we need, the point of the car companies has been to build cars they want to build, and then try and build demand for those cars via advertising and branding. Uhmmm Hummer. Tasty. The point of the Hummer brand was not that people need such things to drive back and forth to work, or even to haul the kids to Fut Ball (Soccer) practice or bring home milk and eggs from the store. The point of the brand was to drive a modified Chevy Tahoe that cost less than half its selling price to build, no matter how inefficiently or badly built and no matter how unlike a real military Hummer it is. Not that we really need to be driving real MilSpec Hummers for any of those things either. You'd even have thought from the Hummer ads that they were cars for being green, since they often featured people out in nature, and the camera point of view zoomed back at the end to show the planet Earth. Yeah. Right.

Even worse is that there were some real opportunities there. The Chevy Tahoe chassis of the fake Hummer has plenty of room to add things like a Diesel hybrid power train, which at first would probably be big and bulky, gain experience with it, and then downsize the drivetrain over time for use in Honda Fit or even Smart size cars.

I do get *wanting* to drive a big car/truck. I loved driving my Dodge Truck. The Cummins was a sweet motor, and it got pretty good fuel economy for such a behemoth, and best of all, it would run on anything. BioD, DinoD, soy bean oil, peanut oil, used motor oil, even small amounts of ethanol were good as they "dried" the fuel (absorbed water so it could be burnt). I accidentally put in six gallons of Gasoline once in an otherwise full fuel tank, and being on a long trip, burned it without being able to tell it was there. Not recommended: probably took some years off the injection pump, but odd how I got 2 MPG better that tank full.

The Dodge was big, drove nice, felt safe, was comfortable on long trips other than the engine noise (later models are quieter), and had a nice high driving position. There were some problems with the body, letting me know I was driving an American designed car though. I had to keep fixing one of the back doors when the door handle would disconnect from the cable so that the door would not open. Finally had to fabricate a part to keep it from happening. Crappy design. Easy fix.

I took some friends from India to the store in my truck. They looked it over very carefully, and I could not tell if they thought it was crazy to drive such a thing to work or just simply amazing... in a bad way.

Funny thing is it was not a badly built truck: It is clear Americans can build good vehicles. See Honda's Marysville Ohio plant for details. Or Mercedes plant in Alabama. Or the Toyota plant in California. If the design is good, there is nothing wrong with the labor. It is just that the designers cut stupid corners and the results speak for themselves.

Take the GM alternator. Please.

I had a Chevy 454 engine in a class A motorhome. A Holiday Rambler. Another time I had a different year model Chevy Suburban with a 454 rigged out for towing an Airstream. I just about decided to keep a spare alternator on the coach/in the truck because they died at 30,000 miles like clockwork, New. Rebuilt. Did not seem to matter. Talking to other RV'ers I found that story repeated over and over. Did not seem to matter even what year. It was a bad design, and it went unfixed , on and on. There was no fiscal reason to change it apparently. Heck, there was probably a nice revenue stream in it for someone. Yet other design alternators are built here in the states.. like the ones that go into the Honda's at Marysville, and they last just fine. I also had a Ford E350 based Class C RV, and it went over 100k miles and I never touched the alternator. The E350 had other design problems though: Ford's I beam front suspension was a terrible idea, and yet they kept that for years and years and years. The tire folks must have loved that, since the Twin I beam would not stay aligned for love nor money, and even finding someone who *could* align one right was not easy.

As a former mechanic, I could go on and on about the stupidities of American car design. To use the word "Conservative" in its most pejorative possible way is the best I can come up with. Never change. Never learn. Never grow. Fight progress at every turn. After the oil embargo of he 1970's showed us how vulnerable we were, instead of adapting and even spending some money educating the American consumer about the virtues of spending more for quality and more for higher tech, better fuel efficiency vehicles, they spent money on lobbyists fight things like CAFE. One of the scare-points that these people made about CAFE: That it would be bad for jobs. Now look at where we are. I am pretty sure I know who is really bad for jobs.

When the oil crisis was past, they dumped even the fledging attempts at making a decent or at least a fuel efficient vehicle and went back to making stuff like Hummers, Suburbans, Escalades, Tahoes, Excursions, and on and on. When they were making a 10-20K profit per vehicle, they were telling the unions that they needed concessions, then gave themselves millions in bonuses because of how well the company was doing.

That does not even count the fact that they fought against, or at least did not leverage *current* technology. How long have there been diesel locomotives? Ever since they retired the steam engine. The tech in not new. It is not expensive. It is not hard. Cummins and others have made small, high quality diesels forever. Take a small diesel engine, hook it to a generator, run it at a constant, optimized for fuel economy RPM, drop it in a small car, fuel it with BioD made from oil made from Algae grown in salt water, and you have *everything* you need to solve the auto industries problems. 100 MPG. Last 500,000+ miles. End of story.

Well, sort of. The auto industry will also have to make sure that they are sized correctly for cars that last longer. And that is part of the problem. Gas engines don't last as long, so cars built with them have to be replaced more often, so there is more profit there. The gasoline engine is the ultimate in planned obsolescence. Doing the right thing, and doing the long technically possible thing is stuck up against doing the more profitable thing.

The car industry... all industry really, needs to figure out that if we do *not* solve problems like that in favor of doing the right thing, then we are all going to choke to death on the poisons we have created. See Yeast making Beer for details. Hopefully we are smarter than yeast. Most of us. Doesn't count if you use your smarts for evil.

Humm: If you take all the people trying to do the right thing with their smarts, and balance them against all the people trying to do the wrong thing, does that net out to being as smart as yeast? 1 + -1 = 0.

There is profit in doing the right thing. Maybe not quite as insanely a huge profit, but that huge profit is short term. In fact, it is over. Profit has turned into needing a bailout. Hey! Can we (the shareholders) have those bonuses back? Turns out we some better things to spend it on.

I called this one "Bailout" because I have deeply mixed feeling about the proposed automotive Industry bailout. As I said at the beginning, I have always tried to use market forces via what I spend money on to try and influence the makers and sellers of things. In truth, I do not think "No regulations on anyone for anything" capitalism is working as well as the Conservatives have assured us it will. Their solution is frankly insane. Let the car companies die (but not Wall Street: Give them tons of money with no strings). Put out on the street over 3 million good people who mostly never did anything wrong (other than perhaps believe in the myth of "Trickle Down"), and in fact did almost everything right. The Conservatives of course are blaming their usual bogeyman, the unions. All smoke and mirrors so that no one looks at the real reason they got where they are, and dragged us with them.

If insanity is defined as doing the same thing over and over, expecting a different outcome, then the right wing economic plan is demonstratively crazy. Yet the Newt-pack would have you believe that it all came tumbling down because we did not believe hard enough. We did not deregulate enough. We failed the god of deregulation with our false and weak faith. We need to believe harder. We'll just keep paying this terrible price till we believe more and oh, give more too. The god of deregulation requires *serious* tithing.

The price of freedom unfortunately is eternal vigilance, and these folks have been stealing us blind and then blaming the hired help. To some degree this is our fault. We were not vigilant. We watched Fox News. We drank the Koolaid. Hannity and O'Reilly and Limbaugh and Colter et al were treated as if the bilge water they were pumping made sense. It sounded too good to be true (the entire right wing economic, trickle down story) and it was. Money for nothing and your chicks for free is in fact a recipe for dire straights. Apologies to MK and the rest of DS.

It was all there to see for anyone that looked with clear eyes. George H. W. Bush called it was what it was: "Voodoo Economics". Although this was a statement of fact (as much as any statements about economics are facts in any case), it was successfully treated by the smear machine like the term "liberal" and made into a dirty word / phrase. Even the guy that devised "Trickle Down" (David Stockman) for Ronald Reagan recanted it. We went with it anyway. We forgot everything Excel taught us about math (=sum() decreases, not increases, the total when the numbers it is summing are decreased) and said "Yeah: OK. Less taxes equals more money for the government, so we can all stop paying taxes and still have more lovely roads, bridges, and national parks to enjoy" Turns out Heinlein was right again (being right all the time can be annoying). TNSTAAFL: Not only is the moon a harsh mistress, but so is reality.

I am really really really really really happy that, despite how spineless the Democrats generally are, they did not let Social Security become invested in the stock market. Thank goodness for small favors, since they pretty much laid down for the rest of the program, including things like FISA. But I digress.

So... I think we have to do this bail out. 3 million or more jobs just can not be lost. Worse, some of the few manufacturing jobs we have left to, thanks to previous right wing leadership of things like our mills. WWII was won by being able to manufacturer the other side. But I digress... I think we also need to make sure that we get what we need out of this. They got what they wanted, including private jets that are "Not Negotiable" when it comes time to tighten to corporate belts. AIG got their money and went right back to partying. Enough of that stupidity. They have clearly not been worth what they were paid. Not even close. For all the industry leadership they have shown, I am thinking it is time to give them cubicles, pay them minimum wage, and have them fly steerage.

We do not have a lot of wiggle room here. The resources we once have have been squandered by the right wingers and their tales of economic myth. Reminds me of the old George Carlin joke about "Saving the Earth". The Earth, he noted, will be fine. It is just us humans that are in trouble. To be sure the human race will survive this downturn. The question is how deep and how long will the pain be. At the end of it will be have a middle class anymore? Or are we back to fiefdoms.

OK: Bailout then. With conditions. We gave running government as a corrupt business a try for 16-20 of the last 28 years (I tend not to think harshly of the Bush 40's years, even if his domestic policy was a zero and the only reason Gulf War 1 happened was because oil-friends of his had their country invaded. I am not a fan of anyone invading anyone else, no matter what the reason was they got help. As bad as that all was it paled in comparison to either Reagan or Shrub) . Now time to try running business as a fair government. We know what their needs and wants are, but we are going to be part owners, and now we get to say what our needs are. All future bailouts regardless of industry should have these same conditions. No more giveaways. If they don't like it, let them go bankrupt, buy them our of bankruptcy for cheap, and fire the lot of the so called management. Our needs are more important than their wants now. We need cars built right. We needs cars that get good fuel economy. We need cars that take advantage of current tech (BioD fueled diesel hybrids) for now, and we need to do research for the cars of the future. We need to not trust that these folks will do this. They have proven that they will not. Worse, they lied about who they were and why they were making cars. They called themselves "Car Guys" in interviews in the automotive magazines, tuning in to our love of cars and the road and using it against us, acting like they were just one of us, and really excited about that next new thing they were getting ready to foist off on us. The only thing they were really excited about was the money they were making selling us garbage.

I am not talking about matters of taste here either, like whether a Cadillac Escalade is a thing of beauty or was beaten with an ugly stick and then had some stuff bolted on it they found laying around the shop. I mean a good car as in safe and fuel efficient, using reasonable fuels that are zero carbon impact, and built to last out of materials that can be recycled. Do that first, then go back to beating them with ugly sticks if need be. There is no accounting for taste, but quit letting taste trump doing the right thing. BMW let Chris Bangle make some really ugly real ends on their 7 series a while back, but that is a matter of my personal taste, and I can still appreciate that the car under the sheet metal has some nice engineering to it. Peel back the sheet metal on an H3 and you have a gasoline powered solid rear axle Chevy Tahoe. I wonder if the alternators last any better yet?

You would be correct to note that America car quality is not as bad as it used to be. We are safely past the Chevy Vega and Chevette. Ick. Some even assert that Ford has reached parity. I doubt it. Ford does not make a single car I want to drive. While I hear the assertion being made, and see the study from JD Power and all... I do not believe it. I have eyes. I have rented Fords. It is true that they are not as bad as they used to be. I see no parity. I drove a Ford Focus recently for example, and it made me long for my Honda.. or even the Hyundai Sonota, Chrysler PT Cruiser or Chevy SSR I had rented before.

We, for our part, need to get over the go faster, race for pink slips mentality of our collective youths, at least until we are racing with electric cars. We have to grow up now, and watch these people and demand that they do the right thing or get out and replace them with someone that will. We tried the self policing, let market forces rule, wolfs guarding our hen house thing. Give the auto execs ... more importantly, the people of the auto industry, the money they need to see it though, but on the other side have them building world class cars that we can be proud to buy. Vehicles that meet our real needs, not the pseudo-needs the auto-execs defined with advertising.

"Made in America" used to mean something. It still can mean something good. This bailout is our chance. We need to PWN these guys. Have them do it the real American way for a change... and make us proud.

4 comments:

Berkay said...

Hi Steve,

Hell of a post, I've learned a lot. auto bailout, what is the right approach, etc. has been in my mind as well, so your post hit the spot :)
I don't know much about cars so it gave me a different perspective.

Couple of places I have doubts:

- "Rather than building cars we need, the point of the car companies has been to build cars they want to build, and then try and build demand for those cars via advertising and branding."

Not sure this is accurate. I think the blame falls more with us (the public) than the car companies. I don't think the demand for big trucks was artificially created by car companies. They've responded to the demand from the public as much as anything. The bigger the truck the better it sold so they built bigger and bigger ones. Now that the gas has become expensive, the public demand has fallen, but if gas prices had not changed, I don't think the public attitude in this area would change. In Europe, gas prices are much higher (~3x) due to high taxes, and there is a huge car tax based on the size (engine, horse power,etc.) of the car. (In Turkey, a Jeep Cherokee costs 2.5x the cost in US). As a result, in Europe, cars are much more smaller.


"Put out on the street over 3 million good people who mostly never did anything wrong "

No doubt if the big 3 fails, the impact would be massive but how big I can't find a good source. Is 3 million jobs an accurate assessment. Seems like all the people throwing these numbers have an agenda, and I've been finding quite difficult to find independent analysis that addresses what would happen if there is a bailout, not a bailout? What is the scenario if the do declare bankruptcy? Is there only one scenario, etc.

Anyway, thanks for taking the time to write these down!


Berkay Mollamustafaoglu
http://www.mberkay.com

Steve Carl said...

I base the opinion about the car companies not building the right kind of cars on personal experience. For example: Chevy had an all electric car a while back, and they killed it despite the fact that they never met the demand for the car. They would not even sell it. They only leased it. When the leases were up, they crushed them all, even though people wanted to keep them.

Now they are building the Volt, and while it is not a bad thing to do so, there is nothing new about it from a technological point of view. They could have built that same car for years and years.

This ties into my concept of leadership and my complaint about them calling themselves car guys.

While we the public are not blameless, most are also *not* car people. They do not know the cost to the environment of soem of the choices they make, and the idea that bigger is safer is emotional more than technical.

If they were car guys, and they were leaders, they would be using their advertising dollars to educate, inform, and influence in a positive direction.

They are not leaders or car people because they have chosen *not* to do any of these things. The supposed subject matter experts have taken the cheap, easy, short sighted way out. If they had vision, and if they had leadership, ever since the oil embargo of the 1970's they would have been working to change the way people think about cars.

The 3 million number may be low. I got it from Keith Olbermann, and he and his staff usually have their numbers right. He broke them out the other night: 270k or so in direct employment, and 2.3 million is first tier affected: suppliers and so forth.

Berkay said...

Agreed. They certainly not shown any leadership, worse, they were even bad at following, slow to react.

I could never understand why they resist so much to change; your explanation makes sense.

I'm still skeptical on 3 million number as I cannot picture what would happen. Is the assumption that all the cars would come from abroad? Otherwise wouldn't all the business that supply to big 3 just supply to whoever produces the cars?

I agree that even the number is not 3 million, it would be a lot and likely to have major impact in the overall economy. I just hate this idea of rewarding failure. As you've outlined, with proper leadership, they did not have to come to this position.

Steve Carl said...

Would all the cars come from abroad? over half already do, at least as far as nameplate, but a good number of the non-big-three nameplate cars bought here are also made here, mostly in the south.

It is hard to know what would happen. Assuming that they would file Chapter 13, the intent would be that they would return to business, and profitability at some point. But in Chapter 13 all their creditors would be standing in line to get paid, would get pennies on the dollar, and there would be no resources to do what they really need to do: Make new, better cars. That requires R&D and re-tooling.