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  • The Big Three’s Plans for Change

    A few weeks ago, CEOs from Detroit’s Big Three flew to Washington in their private planes asking for $25 billion. They were ridiculed for flying private jets and Congress sent them home, demanding they needed a comprehensive plan to even consider loaning this kind of money to the automakers. They came back yesterday, making the 500+ mile road trip in hybrid cars, with a $34 billion plan. Let’s check out what these plans have to say.

    From Chrysler’s Plan:

    Providing Cars and Trucks People Want to Buy. “

    Now that’s a plan I can get behind. I don’t see any reason not to give them $7 billion.

    From Ford’s Plan:

    Success in the automotive business is based on product. No element of our Plan is more important than accelerating the development of new vehicles our customers want and value.”

    Well, now that they understand that to make a business profitable, they need to make cars people actually want, let’s hand over that $9 billion they’re requesting. Businesses have been succeeding and failing for as long as I’ve been on this planet, and forget the fact that Ford has enough liquidity to make it through the year, as long as the light bulb finally came on…

    From GM’s Plan:

    Taxpayers will be provided with a means to participate in growth in the company‘s share price based on successful execution of the Plan.”

    I’ll let George Mason economist Don Boudreaux handle this one:

    I remind these executives that each American is already perfectly free and able, with no action from government, to “get a stake” in these companies. Of course, few Americans now choose to do so – a fact that reflects the considered judgment of millions of people that these companies are unworthy recipients of investment funds. If millions of investors, spending their own funds, refuse to invest in GM, Ford, and Chrysler, why should Congress force them to make such investments? Why should we trust that Congress will make wiser investment decisions with other people’s money than these people themselves make with their own money?”

    And from G.M.’s president, Frederick A. Henderson:

    The first $4 billion is crucial. We wouldn’t have asked for the $4 billion if we didn’t need it.”

    That will make the taxpayers feel better. And what about the other $14 billion GM’s demanding? Sure, the Big Three’s plans are more comprehensive than what is outlined here, but it still doesn’t warrant Congress loaning $34 billion and holding taxpayers’ responsible. We’ve argued many times at Heritage that this loan is more likely to extend the status quo rather than lead to reform.

    What do the people think?

    The CNN/Opinion Research Corp. survey found that 61 percent are against the loans, while 36 percent support them. The poll also found 53 percent who said they don’t believe that aiding the automakers would help the broader economy.”

    The people have spoken. Comments are open. What do you all think?

    Posted in Economics [slideshow_deploy]

    12 Responses to The Big Three’s Plans for Change

    1. Danny, Ohio says:

      I listened to the press conference today in Maryland with Chrysler and the Auto Dealers Association. I am definately against the loan, however they did bring up some good ideas about tax incentives for car purchases through the end of 2009. Once again allow the tax deduction on a car bought before 2009, and deduct the interest, and eliminate or cut the sales tax.

      It sounds to me as if the Big Three are trying to lure in buyers now, with cars and trucks that will be obsolete in 2010. Does that make any sense? Re-tooling for Hybrid's?

      I think the Big Three need to get back to promoting the American Worker, and the Made in America brand. Get labor and management to cut wages and benefits, and lets build trust in our own products again. A major ad campaign to Buy American. I would, I think many of us would.

    2. Mary , Georgia says:

      I do not want our government to bail out the big 3 auto makers. Already California wants some money. I feel like the bailout to the banks has not been successful, and neither will these. The Big 3 and other companies should work with banks, and other businesses and cut their expenses, especially the union caused expenses to make their budget work. If Honda and Toyota can build great cars and sell them and not go broke, so can the Big 3. This money is not the government's money it is our money and our futures, and this will not work. We already have too much socialism in this country. Democrats are running the Congress. Have Barnet Frank, Chris Dodd, Charles Schumer and the others on the committee that pushed for the subprime loans in housing, put up their money. Not the Taxpayers money.

      None of them have any good business sense.

    3. George Ferrell, Char says:

      The unions demanding higher wages over the last fifty years are responsible for much of problem of pricing their products out of the market. The cost of production in this country by foreign entities is positive evidence of this catastrophy. Of course the workers are not to blame for all of this as the U.S. Congress has done it part in giving the unions too much power over industry. Here again politicians supported Labor Unions by legislation allowing the union management the right to ues Worker's union dues to be used for political purposes as they choose. So there is a lot of culprits to blame and I feel that it is not fair to use the honest taxpayers money bail them out.

    4. Rick, Pickerington, says:

      I do not want our government to bail out the big 3 auto makers. What is sad is the Democrats have to give the bail out because they want and need the union votes.

      It is hard to imagine that all of a sudden the big 3 need money to move forward. The automobile industry has had stiff competition for 30+ years now and should have been retooling, as well as rethinking how to stay competitve.

      When our steel companies were filing for bankurptcy I did not hear of any one saying "if they fail it would be the end of them"! It is time for management and union leaders to work together to finally once and for all to "fix" the problems of this industry. Teacher unions rise our taxes evertime they want money and now we have the UAW/big 3 management wanting us to bail them out. The writing on the wall and we are tired. Someone from Congress with any back bone would make the claim "Management and union employees work together or fail".

      If you are getting your butt kick by your competition – you better figure out what you are doing wrong and what they are doing right. It's a simple business stratey -competition drives our economy. If this bail out goes through they should never, ever complain again – not about the union holding them hostage or about Toyota, Honda, or KIA beating them. Explain why other auto manufacturers have moved here and are successful? They know they have a advantage and they are not strangled by a union.

      This bail out has created an excuse or the environment for companies to justify the lack of leadership. You can't tell the American taxpayers all of sudden we want you to pay for our screw ups!

      It's the same with our State Governors wanting money to fix their problems. When you are constantly increasing taxes, the consumer and small business owners end up moving or closing their doors. Look at the states that have high tax rates, New York, Michigan, Ohio, Pennsylvania, New Jersey, and California what is the problem – high tax rates.

      The big 3 have no excuses why they have failed – just look in the mirror.

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    6. TedN, St. Petersburg says:

      From above: "If you are getting your butt kick by your competition figure out what you are doing wrong and what they are doing right. It’s a simple business stratey – competition drives our economy."

      It also assures efficiency and maximizing value to customers and THE NATIONAL ACCUMLATION OF WEALTH. Subsidies, handouts, bailouts only sustains inefficiences and thereby errodes national wealth.

      The representative of the CT national dealer assoc (or similar) just testified that the average wage for dealer employees is $55,000 and that if help doesn't come – it will all go away. This confirms the vast problem associated with the misalignment of compensation vs. value. Question: What in the world does the average employee in a dealership to add value and justify a wage of $55,000? No wonder the dealership network needs to be revised and allow more efficient, cost effective sale and distribution processes (not allowed under current francise laws and another reason for bankruptcy is more likely to ensure long term continuance than a bailout).

    7. Daniel, Ohio says:

      Perhaps Ford and the others should take a look at what is happening in the Brazil plant that Ford owns and use this for a platform to change business practices in the U.S. It certainly has merit if not some out-of-the-box thinking….No Bailout


    8. Leona, Chicago says:

      Yes, the plant in Brazil is a good model, but remember, they can't do it here. The Government hands them too many regulations and demands, and they are severely hampered by the UAW in this country. They are not on an even playing field. The free markets work if they are really free.

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    10. Richard, Washington, says:

      George Mason Professor Boudreaux said it more concisely than I have yet heard it expressed. Basically, why does the government feel it's OK to invest in the big three when they have reached this point BECAUSE private investors find them to be a bad investment risk?

      The news media is making much of the fact they drove to DC for the second appearance before congress. The fact they flew their executive jets the first time is indicative of the problem. They are not forward thinking, and are compeltely out of touch with reality. It's pretty naive to think they have suddenly seen the light, and that all will be well just as soon as they get their hands on 20 or 30 (likely to ultimately be several times that amount) billion dollars of taxpayer money.

      The big three have not yet answered the question of why they are unable to structure themselves to profitability. It's not all the fault of the unions, although I do feel they have long-since outlived their usefullness and become a leech on the capitolistic business model; e.g. no one will pay me if I am laid off, so why would the auto unions force management to pay their members when laid off? A recent news item indicated that $2,000 of the retail price is related to union benefits. Management hasn't taken exception to that so assume it's accurate. That means on a $30,000 vehicle Union benefits account for 6 – 7 percent of the price – a lot.

      The big three have been ignoring the Japanese model: Increase efficiency and cut costs. Even thought the non-union employees in the Japanese U.S. may have lower salaries and benefits, they still seem to be maintaining a good lifestyle, AND THEIR JOBS ARE RELATIVELY SECURE BECAUSE MANAGEMENT UNDERTSTANDS ECONOMICS. I heard a comment on a news item the other day. When the public stopped buying SUVs because of high fuel costs, the Japanese quickly reconfigured U.S. production from SUVs to smaller cars, while Detroit still struggle with the issue, and are now asking for a taxpayer bailout. A Japanese plant manager commented that because of the level of automation in their plants it took almost no time to make major production changes. compare that to Detroit who shuts down for several weeks to make a model year changeover.

      Any government money (really mine and yours) thrown at this problem should be directed at minimizing the impact of losing one or more of the big three, not at propping up a losing venture that will eventually fail or become a government liability. Delaying the inevitable will only buy time for the top executives to arrange a soft landing at the expense of the taxpayers, employees, downstream suppliers, dealers, etc.

    11. Joyce, Detroit, MI says:

      Every person that is against the loan for the auto makers should be ashammed of themselves. You are not giving a loan to the auto executives, you are giving a loan so 6 million jobs are not lost. Most of the people that are against this loan are not from detroit. We are suffering already as our unemployment is amoung the highest in the US. We are losing our jobs and our homes. If the big three go under, it will be devasting for Michigan and for the other country. These executives will be fine, it's the hard working American's that are already suffering that will be hurt. I believe, if you vote against the loan, you should have to move to Detroit to feel the pain. Wallstreet does not need a $700 billion bail out. They did not have to go through everything the big three went through to get the money needed. It goes to show you, Republicans will always be for the rich. I thank God everyday that Democrats are taking over in January.

    12. john,orange ca says:

      They didn't listen to our cries for help when oil was skyrocketing,why do this government do as they please they are elected by us but yet continue to ignore us,CAPITOLISM=SOME SUCCEED AND SOME FAIL,DO NOT BAIL OUT THE AUTO INDUSTRY, I WORK AND I'M HAVING A HARD TIME PAYING MY BILLS CAN SOMEONE GIVE ME MONEY?

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