The White House and Congress are near a bailout for the “Big Three” auto manufacturers with a $15 billion loans. This is supposed to be a bridge loan to tide them over until the market improves. Will the market improve enough to pay back the loan or is this a bridge to nowhere?
Daimler-Benz wrote Chrysler off their books and sold 80% of Chrysler to Cerberus. Cerberus is one of the largest private equity investment firms in the US with total assists over $24 billion, yet they lack the faith to make a loan to their own company.
Bankruptcy is still the best tool for restructuring any failing industry. Business cycles are a necessary part of any free market economy. Old industries and models must be replaced by new industries and ideas. This requires a shift in both human and material resources.
New industries require new skills. The government can best facilitate such a shift by easing reemployment of the workforce through realistic unemployment payments, education and a national health plan.
Healthcare and pensions are a big part the Big Three’s problem. For every dollar paid as wages, more are spent on benefits for current and retired employees. Portability of health, welfare and affordable housing can increase mobility of the workforce.
Government should not try to pick winners in the market place. Old industry and models become entrenched into the government through lobbyist, influence pedaling, and just inertia. When Morse introduced the electric telegraph, he had to overcome a congress that was sold on optical telegraph – flashing lights, mirrors and telescopes.
Edison tried frantically to get alternating current (ac) banned as unsafe. Using ac technology, Westinghouse drove Edison General Electric into bankruptcy, but GE emerged to become a pioneer and powerful competitor in ac.
Chrysler rose from the ashes of Maxwell Motors in 1915 by performance and safety innovations. It was reborn in the late ’70. After suffering loses from Dodge and Plymouth, Chrysler hired Lee Iaccoca, the former Ford CEO, who had been fired by Ford over his plain to market compacts.
While Iaccoca got government backing for loans, changes at Chrysler were well underway. He hired fellow renegades from Ford. The K-car, Omni, and Horizon are automotive history.
It’s been said that going to the moon was successful since it was a well-defined goal. Our primary goal should be greater than any particular market. It must represent a broad set of outcomes.
We stand on a technological threshold – a world industrial revolution. Technology offers glimpses of an abundant future, but it offers warnings. In the Great Depression many sat around asking, “How can this be happening, when everyday we hear news of astonishing inventions?” Change is coming. How we handle it matters.
The bad side of business cycles is vicious circles such as unemployment decreasing sales. Our goals must be global. They must sustain individuals materially and spiritually by giving them realistic hope and opportunity. These goals must be well defined and they must consider the whole.
The type of cars that we will be driving must be part of an integrated global energy policy. For example, cars with rechargeable batteries can take power at anytime from the electric grid thus increase the effectiveness of intermittent wind energy. Cars should be one apart of our transportation. Mass transit must be another.
Panic got us into the Iraqi War. Good planning prevents panic. The start of the twentieth century in the US was punctuated by a series of economic “panics,” which led to the creation of the Federal Reserve. Before we heave money in fear at every fiscal crisis, we might consider that we might need money later when we have a plan.
Photo Credit: Congressman Markey via Flickr’s Media Commons