The latest wrinkle in the bailout merry-go-round is the proposal that we taxpayers should give billions of dollars to dinosaur automakers GM, Ford, and Chrysler. The touted benefit is that millions of jobs would be saved, but at what cost?
In the last two years, GM all by itself has lost about $57 billion. We can cite a variety of reasons: High labor costs; living off truck sales, and producing cars that no one wanted to buy; dicey arrangements with way too many dealers; rapacious unions; and terrible entrenched management.
Most people realize that any bailout would amount to little more than good money after bad. Clearly a Chapter 11 filing seems to be the best medicine, even if Big Three management fears that consumers would not buy cars from companies in bankruptcy. What a specious argument! Hundreds of well-known companies—especially airlines—have continued operating under bankruptcy conditions, with little change in the way they were perceived by consumers. (People always hated the airlines, and people always hated auto companies.)
Bankruptcy did allow these businesses to get out from under stifling union contracts and work rules, and in many cases, the bankruptcy judges forced changes in operations and management. At least, the companies were being watched very closely.
Industry experts note that with a bankruptcy done right, the companies could emerge with expansion capital, and they could retool idled factories with better car designs, and jump-start sales within their established brands. Moreover, the Big Three could keep running, and the job loss would be controllable. It remains to be seen, though, what will happen under a Democratic administration.
Obama could pull a Nixon, whereby a “conservative” president played against type and reached out the the Red Chinese. Likewise, Obama could call BS on both union and management and really offer some change in the auto industry. I offer no predictions here, other than to remind you that even the biggest liberals must realize that we are running out of bailout cash. When Barney Frank was asked where these massive bailouts should stop, he had no answer.
Moving on to the economic meltdown in general, one more factor should be considered, and perhaps it will be comforting to some: Consumer retrenchment, away from overblown luxury goods and services.
Suppose that a certain percentage of our pre-meltdown economy was based in these overblown goods and services. Let’s be conservative and say it was somewhere around ten percent. That would be more than enough to create a “slowdown.”
Maybe a lot of people woke up one day and decided to forgo their overpriced Starbucks coffee entirely, or replace it with the much less pricey Dunkin’ Donuts brand. While people will continue to drink wine, I’m confident that the utter snobbery I observed during a Williams-Sonoma cooking class in which the instructor assured us that to make risotto, you had to use $50/bottle wine, is fading fast.
Now that business casual has taken over even the Wall Street law firms, and easy care fabrics are available for virtually all kinds of menswear, there has to be a toll on clothing sales and dry cleaning revenues.
Many more examples of getting back to basics can be counted up. There is a trend to boutique law firms, and away from the giants. By the same token—although this will take a long time to really play out—parents are questioning the benefits of high tuition prestige private colleges, and as a result, even the Ivies have gotten more aggressive about finding financial aid for nearly all students. Ironically, the Ivies could solve any competitive issues if they just admitted that what they were really selling was networking, not education—but don’t hold your breath.
In short, people may be returning to value, and away from pure hype. That, along with lower oil prices, could be the silver lining in the current meltdown.