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I've reassessed what I've read about the big three automakers over the last several weeks, from family friends article in the WSJ to The NYTimes editorials oscillating between bailing out, letting one fall, or letting them all fall. Why not consider the problem (as Eno might say) more "Obliquely": not as containment of an automaker failure, but rather one of finding the most efficient allocation of resources which are being wasted.

What are the resources? First, people. The expertise in manufacturing, the factory workers, the salespeople, designers, warehouse workers, and on and on. If the companies go under, it means all that experience, as well as the goodwill and culture of the people of GM, Chrysler, Ford... goes away. Second, the assets. The buildings, machinery, IT systems - the long term investments in capacity which are in some ways the root of the problem in building cars which nobody buys. Third, the capital. The money to buy raw materials, the money tied up in inventory which doesn't move, the money waiting to be paid back on loans that are ever-escalating in their defaults.

Before thinking of these assets, let's come clean with the knowledge that it's the american public which will decide what to do. Whether we (in the agency of the government) 'bail them out' (Option 1), e.g. americans continuing to capitalize creating cars nobody buys, or they're in Chapter 11 (or 7, or...) (Option 2), when again it's up to the government to decide how to manage the assets. So given in the large part that decisions will be made through agency of government, I'd pose a question - why wait for bankruptcy court, why wait for elaborate bailout plans? Why doesn't the government simply cut to the chase and buy Ford, GM, Chrysler (Option 3) - nationalize the companies, and then look at resolving their internal issues. Or, alternatively why doesn't the government set up a corporation that buys assets in the company which they need to shed - or would be shut down under restructuring (plants, staff) (Option 4) for purposes I'll touch on later.  

What would the government do with these assets? First, of course, would be to put in more effective management. Next would be to shed assets in order to reduce capacity, and streamline the core automotive operations. Those assets could be redirected into new or emerging industries - spun off into for instance windmill manufacturing - build the engine, the frame and the container, nothing but a big car without wheels propped up on a pole. Set up the companies, set up tax breaks for their manufacturing, make them public again and get out of the business. Of course, the government could simply set up substantial tax breaks. subsidies, or guaranteed contract purchases for windmill industries and have Ford, GM, Chrysler immediately shift plant production (option 5) to use excess capacity, reallocate capital and labor, or perhaps better spin off companies (option 6) to use those resources independently of current management.

But perhaps I'm being too prescriptive with windmills. If I recall my Jane Jacobs, the real long-term value here is to perform "import substitution", and then slowly those assets create export industries. How about the US buying all excess resources from the big three, and having a commission on "import substitution" to set up seed industries in those plants (option 7) to build things americans use which are currently built abroad. I'm starting to get very Idealab here. What's the big industry that we really aren't pursuing - robotics! Let's get back to assets.

The US, after absorbing the assets through a variety of avenues could broker (Option 8) their resale to companies seeking expansion in any industry. Then there is the nightmare idea - use them for military MRO (Maintenance, Repair and Overhaul) (Option 9) instead of outsourced execution via the endless list of outsourced public/private partnerships.  And lastly, imagine, just imagine if the US were to embark on a very large term rebuilding of our transportation infrastructure. The plants are perfect for building the very heavy machinery for road building, tunnel boring, digging, and shaping we need (Option 10). So in a kind of oddly symmetrical sense, we're back to an idea of car company assets being used by the country in general for transportation, but not for cars.

Summary: 1) Bailout 2) Bankrupcy 3) Government buys 4) Government buys excess capacity 5) incentives to shift production to alternative industry 6) incentives to spin off excess capacity as alternative industry companies 7) based on a commission 8) or brokered after purchase 9) or for military purposes or 10) infrastructure purposes.

Be kind. My first Diary.

Originally posted to joetex on Fri Nov 28, 2008 at 07:11 PM PST.

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Comment Preferences

  •  Diarist is making his argument from the world of. (2+ / 0-)
    Recommended by:
    dansmith17, Unenergy

    logic and cost benefit analysis.  That ended this week with the bailout of Citibank, and probably before with AIG and others.

    As I wrote in this diary, were have entered the world of "Alice in Wonderland" so get with the program.

    And if that's not enough, get a load of this.  It was broken right here. "Enron wants their own retroactive bailout"

    Of course the big three will get their bailout, then the ship builders, then the real estate agents.....and this is under the conservative Republicans.

    Don't know how the Dems will top them, but I think they might.

  •  i vote for option 3. (1+ / 0-)
    Recommended by:

    boot management out of the plane w/out any parachutes, much less golden ones.

    who cares what banks fail in yonkers - as long as you've got a kiss that conquers.

    by rasbobbo on Fri Nov 28, 2008 at 07:32:13 PM PST

  •  That's a thoughtful question (2+ / 0-)
    Recommended by:
    BTower, chrome327

    I take the view that the valuable part of the Big 3 is not their car-making capability. It is their industrial capability. The Big 3 are the linchpins of the last industry in America that can produce high volume, multi-system, engineered products.

    The last.

    When an industry dies, the most significant losses are not the factory workers (in a humanitarian sense, yes - in a functional and technical sense, no). The most significant losses are the designers, engineers, factory supervisors, technicians, marketing experts, buyers, and even the accountants and finance folks. These are the skilled trades and professions that cannot be replaced quickly.

    Letting the Big 3 go into Chapter 11 (or, worse 7) would put the American auto industry industry at great peril - and we have nothing else.

    Government ownership won't help keep the industry together. Like an athlete, an industry needs constant practice and competition to maintain its edge.

    The best choice would be to do what a good bank would do. Lend the companies money, but demand covenants about how they will invest it and demand that they meet their obligations. The covenants can include virtually any requirement that makes sense, including conditions that resemble 5), 6) and 7).

    -2.38 -4.87: There are no nationalists in a global financial meltdown

    by grapes on Fri Nov 28, 2008 at 07:42:59 PM PST

  •  GM is running out of time (0+ / 0-)

    GM either gets a boatload of cash in the next 45-60 days or they will be forced into bankruptcy.  Incentives for consumers to buy autos won't work fast enough for GM to stay afloat.

  •  The automakers seem to me the least (3+ / 0-)
    Recommended by:
    BTower, dansmith17, chrome327

    egregious bailout.

    At least with the automakers  a bailout immediately saves a good number of jobs.

    I think all the bailouts were a bad idea.  And worse they are being managed by people that claim they could not see these economic troubles coming.  The people managing the bailout are either stupid or they were lying.  

    It could be argued that the bailouts to all the banks have made it harder on the automakers.  All these other companies get some monopoly money and the financial position of the automakers is made weaker by the trillions going every where else.

  •  Just to nitpick one particular comment... (2+ / 0-)
    Recommended by:
    BTower, chrome327

    and I've seen it in other places as well, but what's with the idea that the Big 3 are building "vehicles nobody wants to buy"? Isn't GM, if not still #1 in North America, at least the #2 seller behind Toyota (and if they're #2, it's only by a few thousand)? Isn't Ford pretty much in line with Honda, if not ahead? I thought Chrysler was at the very least solidly in the top 5, no?

    "And when justice is gone, there's always force."

    by soundchaser on Fri Nov 28, 2008 at 10:27:27 PM PST

  •  Right on (1+ / 0-)
    Recommended by:

    The entire market cap for all three is less than $$10 billion, yet they are asking the government to bail them out with 25 to $50 billion. This simply  makes no sense. It would be far more economical and effective to just buy them out. Of course what makes this impossible is the ideological appraoch to government decision making.

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