Let Chysler and GM Die

You:  You heartless bastard!  What about the jobs?

Me:  Chrysler employs 60,000 people.  That's a rounding error in the total number of jobs lost since the current downturn started.  GM employs 240,000 globally, approximately 98,000 U.S.  Again, compared to the 2.5 million lost jobs since October, 2008 those aren't particularly meaningful figures from a national economy standpoint.  As Megan McArdle notes:

To put it another way, we could have taken the $8 billion or so we gave to Chrysler and given every one of the company's employees $133,000 to start their own War on Poverty, while still providing much of their pensions through the PBGC.  Of cours, the new Chrysler is going to cut many of those jobs, so the cost of actual jobs saved will probably top $200K per.  For as long as the company lasts.  Which most analysts do not expect to be long, given that their super secret surprise scheme for turning everything around is to have Chrysler sell retooled Fiats to a country with one-seventh the population density and almost twice the birthrate of Italy.

You:  But we need a car industry in America!

Me: Buy a frakken' Ford then.  The Flex is Laser Awesome!  Nature abhors a vacuum.  Where do you think all those automotive engineers are going to go?  Without Chrysler and GM, many will eventually end up at Tesla Motors, Advanced Mechanical Products, (AMP, get it?) or Fisker.  There is a brand new American Car Industry waiting to be born.  We just have to bury the old, dead one first.

You:  But what about the structural implications to the larger economy?  What about all the parts companies that feed into the auto industry?

Me:  Last time I looked, Toyota, Honda, Ford, Daimler, Porsche, Kia and Hundai all had auto plants in the U.S.   They buy parts too.  Also, see mention above about the green shoots of a new card industry waiting to be born.  Look, it's not going to be easy or painless.  Loosing a loved one never is.  But the old, dead trees have to be cleared away for the new shoots to see the sun and grow.

This isn't the same as the financial industry.  Lord knows I have issues with the work done to date on that crisis.  But when someone like AIG goes belly up, all kinds of nasty knock-on effects start to happen.  If Chrysler and GM were disappeared  tomorrow there would still be millions of cars in the U. S. and they would all start the next morning and they would all need parts and service until they were replaced by something else in a few years.

Yes, letting them go is a blow to national pride and a huge kick in the nuts to the economies of Michigan, Ohio, etc.  But propping up companies that have essentially been industrial zombies for the last 10 years anyway doesn't do us any good in the long run.  

It doesn't get us a leaner, greener car industry that will be competitive and sustainable and will offer jobs to many of those who will be thrown out of work by the demise of GM and Chrysler.  All the resources we could be using to do that are instead poured into the total life support measures of the brain dead legacy automakers.

As many economists have pointed out, we could take the same amount being used to bail out these companies (again!  Chrysler for the second time!) and give huge direct cash payouts to the affected workers.  Enough to pay for several years of mortgages, rent, tuition, etc while maintaining pensions through the Federal Pension Guarantee Corporation.

It's time to let our beloved car companies rest in peace.  We loved them in their prime but the quality of life for the past 15 years has been terrible.  They deserve to die with dignity.

Originally posted at the cman blog

  • thanks for sharing your views

    It’s sad that the workers have to pay the price for many years of bad management.

  • Bad management?

    Or was it the unions that made such excessive demands?  

    • give me a break, Bill

      We have a family friend who worked in GM’s electric car division during the 1990s. He told us around 1995 or 1996 that it was obvious the company had no real interest in developing an electric car–the office where he worked was just for show.

      For many years the Detroit automakers invested in lobbying Congress against requiring better mileage, instead of investing in hybrids and plug-in technology. They rode the SUV and minivan wave for a good 10 or 15 years, never putting together a plan B for when gas prices got much more expensive.

      That is bad management.

      Unions were just trying to make sure their members earned a middle-class wage with decent benefits.

  • Structural Issues

    The compensation difference between a car built in a Union GM plant and a non-union Toyota plant (just for example) amounts to maybe $200 per unit.  Union vs. Non-union wages aren’t the problem.

    Pension liabilities that were never properly handled combined with a demographic vise (retirees live a lot longer in 2009 than they did when these programs were set up in the 40’s and 50’s, like 15 years longer) are a big deal.  The non-US car makers don’t have that long legacy and besides they push all their employees to private 401k’s so the burden is on the employee not the company.

    Just plain shitty judgment.  As in the 70’s the US car makers fell way behind on trends towards lower-margin smaller, fuel efficent cars and instead decided to ride the high margin gas-guzzling SUV/Pickup market straight into the ground.  When gas prices shot up last year followed by the cratering of the economy whatever slim margin of error they had disappeared.  

    Without a single-payer health care system in the US it will be very difficult for any of the big car makers to return to profitability.  

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