Frum: Don't bail out the automakers
There was a time, says commentator David Frum, when GM was one of the biggest employers in America, but that's no longer true. Besides, even with a bailout, more job cuts are coming.
David Frum (Marketplace)
More on The Economy, Jobs, Auto Industry, Politics, Fed. Budget/Govt. Spending, America's Financial Crisis
TEXT OF COMMENTARY
KAI RYSSDAL: Given Henry Paulson's change of heart on how to handle the bailout, it's probably no surprise that companies from all parts of the economy are lining up to get theirs. Detroit being exhibit A. Commentator David From says we ought to think this one over carefully.
DAVID FRUM: President-elect Obama has expressed support for yet another bailout package for the U.S. auto industry.
Here's the case: Manufacturing is the backbone of the U.S. economy, and the Detroit automakers are the backbone of U.S. manufacturing.
There was a time when this argument was true -- back in the 1970s, when Chrysler extracted the first auto bailout from the U.S. government. Not any more.
Time was when General Motors alone ranked among the largest employers in the United States.
Today, UPS employs almost four times as many people as the two big U.S. companies, Ford and GM, combined. While the Big Two decline, Toyota USA, Nissan USA, BMW, KIA are all expanding -- and not asking for any bailout.
The Big Two remain important employers. Their troubles are felt up and down the manufacturing supply chain. But of course that is true for every industry.
Last week, the stock of Las Vegas Sands Corporation collapsed. Bankruptcy seems a real possibility. Indeed, the whole casino gambling industry in Nevada is facing the worst crisis in at least a generation, maybe ever. Casino gambling directly employs more people than the domestic automobile industry. Add in the supply chain for both industries, and casinos still employ almost half as many people as the automobile sector.
So what about a bailout for the casino industry? Ridiculous! Right? But why right?
Gambling is a vice, it's true. But automobiles emit greenhouse gases.
The answer is not to bail out both. It is to bail out neither.
We bailed out the banks, not to save the banks, but to save the rest of the economy. If a crisis in autos -- or steel or casinos or any other industry -- threatened to have a similar impact, then conceded, we'd have no choice but to intervene. But if not, NOT!
RYSSDAL: David Frum is a resident fellow at the American Enterprise Institute. His most recent book is called, "Comeback: Conservatism That Can Win Again."
Comments
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From New Rochelle, NY, 11/26/2008
Don't bailout the automakers. The difficulties facing the automakers are not new and have little to do with the credit crisis. It seems the current crisis present automakers and opportunity to ride the crisis and get a handout. Ridiculous! The automakers should declare bankruptcy and restructure.
From cadiz, KY, 11/20/2008
Sir you can't be serious, let big oil buy the auto industry. what do you suppose that would lead to. lol lol this is the most funny thing I have ever read. Gas at 4.00 a gal. cars would not last a year and they would fall into debt. the only way big oil has done good is by brute force. big oil has not the slightest idea of how a company needs act if competition is involved. Big Oil makes money by brute force and enslaveing nations. we best let automakers stay automakers.
From cadiz, KY, 11/20/2008
THE AMERICANS DO NOT MAKE AN INFERIOR AUTOMOBILE. We have improved and I hope Obama will move to save the jobs. folks american products should be the first on your list. we are not going to help ourselves unless we buy our products. yes I know all about the free market and how that is an issue and all that. we need to be free ourselves before we can have a free market and if we are depending on other countrys to free us we are silly. we must produce and buy our products more and more. what is free market ? it is competition and sales and availibility. that is why exactly why we must buy our own products. if we fall for all these non american products we will be the same as overseas oil . do we want to continue our forngien ( spelling I know ) dependance on cars and other good till we are treated by them like the oil companys treat us. wake up. you can laught but it is already happening . look what our gross domestic product looks like and look at our trade imbalance. Clinton was told by a team of economist that the usa would fall into depression because of nafta and the trade deficit. Facts are Facts.
From cadiz, KY, 11/20/2008
we need to make it popular to buy american made , lets help ourselves folks. can we let five million jobs go to heii for the fad of it being popular to buy a honda , toyota, nissan. wake up folks to the winning american cars. this insane fad/idea must stop now! How do you suppose the youth are going to take it when they see that americans read in the history books that dad and mom and cousin jil and cousin jake passed up the american car dealers for a car maker from japan , china and who know who and where from . Heii folks I am just 62 years old and I have had a honda,toyota,hyudai,datsun,crosley,volks ,and all sorts of cars. but we need to turn back to our automakers and get on board because the big three are making great cars now. our cars are in need of a fancy slogan or advertiseing to catch the eys and ears of americans because the only time they will listen is if there seems to be something cool or catchy to woo fadie americans . I dispise the idea that we are saying that the auto makers have not served you better than the UNITED STATES CONGRESS. I AM A WHITE BOY AND I REMEMBER MY 53'FORD AND MY 58CHEVY MY 67 DODGE MY PONTIAC LEMANS. MY DODGE SUPER BEE. MY 2000CADDIE DEVILLE THE FLAGSHIP OF ALL CARS. I CAN TELL YOU THAT THESE CARS SERVED ME BETTER THAN THEY SHOULD HAVE WITH THE WAY I DROVE THEM. wake up americans and be americans , the congress has not served you nearly as well as a ford,chevy,or crysler. the sorry bunch can't sway me with putting down our ameircan automakers . I am an American and I will stop the thing of wallmart and stuff made in another country for the sake of my own self and so that my people can have a way and a life , where is our american pride . GM,FORD,CRYSLER ARE AMERICAN AND I WILL STAND WITH AND FOR THEM BECAUSE THEY SERVE MY KIDS AND HAVE SERVED OUR FATHERS. I WILL STEP BACK INTO THE AMERICAN HOME AND FIND AMERICANS. WE ARE MAKE OF BLOOD AND BONES AND GUNS AND GUTS AND PRIDE. THE AMERICAN CARS ARE NOW AS GOOD AS THE OTHERS , LET REWARD THE AMERICAN COMPANYS. NO COMPANY HAS DONE REAL FINE EXCEPT THE THUGS OF THE BIG OIL COMPANYS. WAKE UP AMERICA.
From cadiz, KY, 11/20/2008
I think it is best to look down the road a little and see the condition of the working man if we do not help the big 3 automakers. Five million jobs gone in one fell swoop. rubber workers, metal industry. supension,brakes, fuse,and componets of all sorts. fiberglass , glass, paint, wheels, my god you've killed them all. is this what an anxious leader would advise. or does on consider the popular thought of forgnien ( spelling sucks) auto makers to be over rated. the big three are making cars that are as good as the overseas models and we here in america are better on gas. the quality of the big three is better in a lot of ways. a nice buick is a good as a nice toyota,nissan,. and better than most. people we have to stop this shuit about how other car makers are better than our big three cars . we must start making it popular to buy a ford,gm,crysler. what are you guys thinking here . get off of it. congress has not served you nearly as well as a GM 3800 engine or a nice ford car, or a nice crysler car. we are listening to the wrong people here to make decisions about what is good for america. who the heii makes congress able to talk about quality and performance . aaarrruuugggghhhh
From ID, 11/19/2008
Are you serious?
Any idiot can figure out that casinos and the auto industry are not related!!! Who is going to spend money at the casinos if no one is making any money?!?!?!?!
And also, the Japanese government financially supported Honda, Toyota, etc. and look how successful they are!
Do us a favor and get an education before you post such dumb stories.
11/15/2008
There is no need for a taxpayer 'bailout'. Now is the time for BIG OIL to invest in automaker companies.
Exxon and the other big oil companies should not wait for the next Congress to impose a windfall profits tax when they can invest capital in the Big 3 automakers to ensure continued growth and profit for themselves (and save American jobs in the process).
Plus, what a PR coup. They could crow "Exxon saves the US economy!"
From Silver Spring, MD, 11/15/2008
Bailing out the automakers enables their disfunction.
American cars are still based on the british emirical measurement system. Automakers have had 40 years to convert to the metric system and have chosen not to do so. As a result, American cars require separate sets of tools from everyone else in the world. The result of that is that American cars only sell in the U.S. while the German and Japanese cars sell around the world.
The industry has complained for the last 40 years that it would cost too much to convert. In not re-investing in this conversion, they have relegated themselves to not being international players in this industry and, which has come home to roost in that they now lack the resources to stay in business domestically too.
American Automakers have chosen to focus on offering huge, gas guzzling cars because they have a higher profit margin than the smaller cars. They need to use this extra profit and re-tool. But the American people should not be expected to pay the automakers for this behavior.
The American automakers have traded short term profits for long term strategies. In so doing they are using this to leverage us out of our tax dollars and as a means of breaking up the labor unions in order to lower their operating costs by eliminating the protections for their employees.
I think we will have plenty of taxes to pay for the current debt we've incurred, we can't and should not add tthis to the problem.
From Mpls, MN, 11/13/2008
Why does no one state the obvious- GM and Ford are not going away, bailout or no bailout. The question is whether the feds bail out the current top managements and the UAW leaders, and thus let them all keep their cushy perks (limiting executive salary would be meaningless- you could appropriate every nickel from every VP or higher and probably not cover a day's operation expense) and the industry gets protection against the other US auto-assemblers (NissanUSA, Toyota, etc.) located in Southern (right-to-work) states, whose employees make about the same wages, and get competitive fringe benefits, but have sensible work rules and no featherbedding.
If there was no bailout, the normal Chapter 11 rules would apply and they would continue to operate while all the contracts are re-written by the referee, labor, and suppliers- something that shoiuld have been done years ago.
From Castro Valley, CA, 11/13/2008
I understand the knee-jerk reaction to condemn the bail out of manufacturing companies, but there are some salient counter points to make.
The entire economy (other than oil companies) is hurting, but only in Detroit is it because they make an inferior product? GM in general and Ford in particular have been on par with Toyota for quality for the last couple years. This was not the case in the late ‘70’s when Detroit lost market share to the Japanese. It is difficult to shift the typical buyer out of what they have been buying. It will take a few more years with the higher quality before buyers realize American cars actually are a good product.
Part of the reason the economy is hurting is a lack of funds. Japanese manufacturers do employ Americans at assembly plants, but the bulk of their product still comes from Japan. More important is the flow of money. Their profits get deposited in Tokyo. This keeps them from being deposited at Bank of America so that they might be lent out again continuing cash flow for our economy.
How about proven history? Chrysler provided a return to the American tax payer of around $500,000,000. They also paid back their loan 7 years early.
Now, as to qualification: the Big Three are primarily manufacturers, but they also finance those cars, so they are lending institutions as well.
So, it doesn’t need to be a blank check, but, by all means, help them out.
From Kansas City, KS, 11/13/2008
"The main function of casinos is extraction -- i.e. extraction of peoples' money from their wallets." - Wes Sokolowski
That's the main function of EVERY business, not just casinos. Businesses provide goods and/or services in exchange for money in the hope of making a profit. I'm pretty sure that was explained in economics 101.
From las vegas, NV, 11/13/2008
Walking around "the Strip" last night I got to taste the effects of the economy on Las Vegas - many, many restaurants have closed within the last month. When a person gambles on slot machines they know what they are getting. When the Gov't gambles on automakers you get lame K-cars and end up with Snoop Dog playing golf with Lee Iacoca. Let the market prevail!
From Ann Arbor, MI, 11/13/2008
Might I point out that the auto industry saw the writing on the wall and started retooling a couple years ago to become much leaner. We need to give them a chance to complete that transformation and start bringing those new products to market.
Might I point out that we've given AIG $150,000,000,000, a company that knowingly engaged in reckless behavior. We've also given $25,000,000,000 to each of the top wall street banks, banks who landed us in this mess in the first place.
If we are willing to put an investment into these banks, we should be willing to invest in an industry that employs 3 million people that started its transformation years ago.
11/13/2008
Get rid of the unions and CAFE regulations and then we can talk about a bailout.
From W Bloomfield, MI, 11/13/2008
Where does APM find these morons & why does APM/NPR have the gall to call them experts? Psuedo-intellectuals like Frum always seem to come from soft, cushy teaching jobs, never from the industry that they are professing knowledge of.
FACTOID- If GM goes "toes up", then around 2.5 million manufacturing jobs will evaporate. We will also find thousands of small businesses that were co-located around these big or small plants to suffer huge income loss due to plant closings. The US will quickly find that it's only exports are wheat, scrap steel, wood, & jobs.
To see a real model of what will happen is the US mfg base dies, just look at the economic devastation that occurred in OH, PA, & everywhere there was a steel mill in the 80's-90's. Those areas never recovered.
Get off your cushy bottom Frum & stop being an academic parasite.
Larry
From Richmond, CA, 11/12/2008
I agree with Mr. Frum's cold-hearted analysis, but I think we will end up bailing them out anyway. I have an idea, however. If we set conditions to the bankers for the bailout, why not set conditions to the automobile makers. Hmmmm... like limiting Their CEO and executive compensation to about 30X lowest employee wages. How about dismantling all their Washington lobbyists? How about embracing, yes embracing California's greenhouse gas law? How about making cars and trucks that will do better than 50 mpg? Heck, why not just make better cars and trucks for a change? Something that we all want to buy. I can think of a few more things and so can you.
11/12/2008
Bravo to Frum for speaking the truth. GM has been failing for decades. Answer: Chapter 11.
From V, WA, 11/12/2008
BAILOUTS ARE COMPLEX BEASTS, but this one is needed.
Here is a workable plan with common sense for the U.S. Auto Industry -
http://pacificgatepost.blogspot.com/2008/11/solution-for-detroit-gm-friends.html
Do not leave it to Paulson or Congress to come up with a creative plan or consider taxpayers' interests.
There is much creative talent hidden inside the U.S. Big 3 that has been smothered by mismanagement and the UAW.
From doylestown, PA, 11/12/2008
While I am almost certain that Mr. Frum had tongue planted firmly in cheek, I have to take issue with his glib and dismissive comparison between Las Vegas and Detroit. Las Vegas could not exist without massive amounts of energy to light the casinos on and off the strip, and without the massive expenditure of fossil fuels, and thus the creation of greenhouse gasses, in bringing gamblers and families from across the world to spend their money in the desert. While he may have a perfectly valid point, he might have chosen a better conceit with which to make said point. If I may say so, dialogue may be better served without so willingly giving in to the temptation to sound merely glib.
From IL, 11/12/2008
Where do they get these guys? A resident fellow who resides in Academia no doubt. Im certain his is a great institute, no doubt he should be in an institution.
From detroit, MI, 11/12/2008
I hate the idea of bailouts. Comparing automaking to gambling is a total joke.
Consider what an up and coming nation does first - they build an auto industry. They do not build a gambling industry. Why do you think they do that? Whats the value to society that can build cars?
Its possible that buying any car will be difficult if the big 3 go under. If one goes they all will have to be competitive with each other.
Read this....
http://detnews.com/apps/pbcs.dll/article?AID=/20081112/AUTO01/811120396/1148/AUTO01
From Chesterfield, MI, 11/12/2008
I wanted to reach through the radio and choke Mr. Frum. How dare he compare the Big 3 to Las Vegas. The auto industry deserves more of a "bail out" than AIG and the rest of those crooks. It is my money that the government is giving away.... how about asking taxpayers who they want to help?
From Annapolis, MD, 11/12/2008
K-I-A? Surely you mean KIA, say "key-yah."
From colorado springs, CO, 11/12/2008
We should let the US automakers go into bankruptcy. Bankruptcy does not mean the death of a company. They can wipe out all legacy problems and start with a clean slate after bankruptcy. This would make them more competitive and hopefully more agile.
From New York, NY, 11/12/2008
The problem with letting the U.S. automakers fail is that they are a significant U.S. resource for production during a time of war. There may be a time when we'd want/need to use them as we did in WWII.
From Naperville, IL, 11/12/2008
r/e David Frum
I listened increduesly as your commentator compared bailing out of the auto industry to bailing out casinos. The main function of casinos is extraction -- i.e. extraction of peoples' money from their wallets. Bailing them out would only cause more of their customers to go into bankruptcy. Besides, what is the wage comparison between auto workers and casino workers? I bet auto workers make more because they work harder and have more skills. The same goes for their suppliers -- i.e., steel, rubber, glass, fabric, electronics, etc. When I took economics I learned that for every $1 spent in the economy, it generates $5 worth of business in this economy. No where is this more true than in manufacturing. I think that the reason this country is in trouble is because we had actors and dancers running this country (e.g. Reagan) who opened up the ports to Japanese cars; while Japan had a 100% import tax on American cars! Is this fair trade, or globalization as it is now called. In effect, this was a bailout of the Japanese economy, at the expense of American manufacturing. Of course, Reagan was handsomely rewarded with a $2Million gift from the Japanese government -- some would call it a kickback.
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