Much Ado about GM, Part 3 of 3

America cannot survive without an industrial base.  We cannot simply be a pure service economy anymore than we can be a pure agricultural one or industrial one.  Our nation is too complex, it's needs are too large to adhere to one type of sector.  The nation would be more at risk to economic cycles if it were to simply go one route or at the very least put most of its focus on say just services.  It would be like many towns in this country where there is only one employer or one type of industry supporting the economy as a whole.  One need only read the latest news about how the City of London is not doing so well because its Financial Services Sector has gone downhill.  Now take that onto an aggregate scale.

But we have alternative car companies who cares about GM or Ford?

Many are saying that it doesn't matter if General Motors or Chrysler or Ford disappear.  Americans will have Toyota or Honda or well name your foreign auto maker. Secondly, there are smaller start ups forming as we speak.  At the end of the day, these companies, well the former at least, are or will be hiring more of our people.  They have invested hundreds of billions of dollars into infrastructure for fabrication of automobiles and trucks.  And to paraphrase Larry Kudlow, how is it fair that we give a "break" to GM when Toyota was willing to open up plants in Alabama? 

Allow me to tackle that last part first.  There really is no question of fairness in regards to helping our domestic automakers versus foreign brands who have setup shop here.  The prime reasoning being is that companies like Honda were given massive incentives at the upfront cost to tax revenues, among other things.  Governors, mainly southern conservative Republicans, went out of their way to insure that the cost of business in relation to what it would be in say Ohio or California, would be substantially low.  One need only Google the plant deals these companies got, and you will immediately notice that they resemble those that baseball teams got for their stadiums.  Corporations, even Japanese or European ones, look for the lowest cost venue to produce their goods and services.  They opted for states like Alabama or Mississippi or what have you because at the end of the day they got assurances that they would not incur the "union cost" that their American competitors had.  This is key, simply look at where most of the foreign automaker expansion has been, in non-union states!

Now I know that Toyota, for example, has an engineering firm in Michigan and some facilities in traditional union states.  Still when it came time to open up a new facility, their first take was places where they would not have to deal with folks like the United Auto Workers.  Secondly, expansion into the United States occurred because they had established a well developed market for their products.  For them, it was getting their Camrys or Civics to the market faster. 

Regarding the smaller start ups, at present they have no real means competing nationally.  Tesla Motors is having problems where layoffs had already been in effect.  The others have no national network of dealerships let alone manufacturing capabilities to meet any real demand.  Of course this situation is fluid and could change should they get the problem financing.  The government or some other agency, be it private or public, could provide investment capital to these companies in lieu of the Big 3.  But so far, nothing of the sort has been proposed or initiated.  If the Detroit automakers fell, these smaller independent companies, despite their ingenuity would not be able to compete against the likes of Volvo or Toyota.

The Dragon's Shadow over the Eagle's Nest

Foreign companies like the ones mentioned here have already stated that the future for growth is China. Plans and projects are already underway there; with costs at a fraction of American ones and a potential market equal if not larger than the entire population of the US, you can see where their attention will soon be. And what of our market and workers employed by these companies? Sure they will continue to sell and operate here, but we won't be first on their minds when it will come to products or investment.

There may come a time when they may find that it would be better to close up shop here, well at least in terms of production, and produce their cars and trucks in China. These same vehicles could find themselves on dealership floors here in the US. But should the market prove to be bigger in mainland China, why bother with us? We will be, if not already, in a horrible economic situation with negative growth for some time to come. China, despite the economic hitting the skids, will still be growing (though at a significantly lower rate).

So why even bother bringing this up in a piece about GM? Alabama, Mississippi, Kentucky, and other American states. It is a reminder to all those in states where crazy incentive deals were made, that your jobs are only there so long as these companies can't find a better market. Now you could make the same argument about GM and Ford, afterall they too expanded into China. But between Honda or GM, which do you think we would have more sway over? The workers in these states have no collective bargaining deals like many of the other states. By the way, if we do help out GM or Ford, we should look into their China operations.

Dire straits

In reality, this isn't just about General Motors. This is more about what we as a nation want. Despite the moves by foreign automakers in their construction plans for new factories, at the end of the day the money goes back to their home nation. All those Priuses or Civics sold gets funneled back, after costs and other possible capital investments, to Japan. The same goes for anyone purchasing a Volvo or a Passat. Those companies have shareholders and societal stakeholders they are beholden to. While the former may also be in the US (Honda and Toyota have an ADR float on the NYSE) and their American divisions may pay some taxes, the bulk of the return on their investment goes back home. At the end of the day, regulatory authorities have at most sway over domestic operations and perhaps could cajole Tokyo for some concessions on this or that, but that's a stretch.

As stated earlier, we cannot have just one type of economy, nor have one sector dominate our economy. Yet we are now losing our industrial base. Oh sure, maybe not entirely, but the loss of the Detroit automakers is just another milestone marker on that downward slope blue-collar America has been on. One time in our history, all the radios and televisions (and later computers) were made in this country, yet today virtually no consumer electronics is made in this country! Are we to surrender our auto industry to foreign competition as well?

I say no, I say we take a stand. You know for years people have been complaining about how American car makes don't do this or that. That Ford stands for Found On Road Dead, or GM makes too many gas guzzling SUVs. Yet here, my fellow readers, here is the opportunity to finally change things! And not only that, if you're wanting to have a better environment for the future, this is one of the doors towards an era of green manufacturing.

Do you really believe China will adhere to greener principles in producing future fleets of autos and trucks? Do you think the future of blue-collar work is the liquidation of the unions or any kind of organized collective bargaining? Because I'd be willing to wager that entrusting foreign production sources to automobile making will not be in your best interests. For starters should more of this product shift to China, they will do what they can to make sure the costs are low enough to keep the work there. And in some ironic twist, any work remaining here will follow a similar path of sorts. States set to lose all those auto related jobs will soon scramble to do whatever it takes to keep or get future work. Who will be left to give that work? Companies like Toyota or Honda or Volvo or Daimler-Benz. What template will these “blue” states use to go after those jobs? Well the same ones that worked for their conservative kin down South.

State governments need that tax revenue to survive. Desperate times calls for desperate measures, as the old cliché goes. Do you really think those politicians, who in the past needed union support for votes, will stick to their old patrons if they thought it will hurt them? I know this sound ridiculous, but somewhere in the back of the minds of many labor officials, this thought is going through their minds. If politicians had a choice between the unions or getting a ton of jobs at the cost of a union, which route do you think they will go? Now the UAW may make a ton of concessions to help in these states regain those jobs, but at the end of the day things will not turn out well for organized labor. The screws will be applied to them the second someone from these car companies coughs.

Industrial Dreams

I want you to also look beyond the auto jobs. If we can not only fix our car companies, why stop there? We are starting a new age, in my opinion, of new possibilities. Sure things look dire, I mean we have incurred a monster of a debt and well there is so much to do to fix the past mistakes of the Reagan-Bush era. But you know we've been through worst and came through it!

The automakers are in a fetal position right now, we can mold them, make them profitable and prepared for the 21st Century. Never before has our side been in such a position with such leverage! I know many of you may not see that right now. But GM has been moving to shift towards producing energy efficient cars, in my opinion not fast enough nor enough work has been done towards this. Still, we got them going in the right direction. Here we can not only force them to stick to the current course, but get them going even further. As they recovery, and I won't lie to you it will be a long time, we the tax payer will prosper along with them.

Yes, that's right, I think it's high time that we get voting shares in the company. I mean, if they are to get access to taxpayer funds, then we should get special dividend-paying preferred voting stock. This is not exactly a new thing in the industrial world. In Europe and Asia, this is almost commonplace, those economies have one simple goal, to boost their industrial sectors so that more jobs can be created and/or maintained. We've been selling out the blue-collar working folk to lousy trade deals and preferred treatment to our competitors for a long time. Here we have a chance to change that and start looking out for our people. We can fix the auto companies. We can create a better product than our competitors. We can make it so that this problem never happens again.

Automakers should only be the beginning. Folks, we can start making products here, not just cars but other things as well. Why must we contend ourselves to just scraps from the manufacturing table? Don't get me wrong, the work already being done here is not crap, and I mean't no disrespect. But surely, we can get even more stuff done and on every rung of the value chain. Every year I see things slipping away from us, and every year I see everyone from the poor to the middle (and I dare say upper middle) class get more worse off. There was a time when we made semiconductor chips like those you see from Intel, now I see news of new plants opening up in China. These are engineering jobs that should be going to us.

How can I make such a claim? I mean who are we to demand such jobs? Every product you see, every service you see, somewhere along the line, we the tax payer had a hand in its creation. The Internet? Taxpayer. Microchip Advancements? Our universities. The list goes on an on, but yet we didn't do much to keep the work here. In Asia and in Europe, they go out of there way to keep the work there and do what they can to maintain a healthy middle class (well the Europeans, Japanese, and Koreans do, not sure about the Chinese). Yet here we have a chance, here with taking over GM, Chrysler, Ford, we can. We can make an American version of the development programs that we see in Korea and Japan.

So what should we do if we helped GM?

The ideas and possibilities around the rebuilding of our automakers are numerous. So below are just some “pillars” that can serve as a foundation to restoring General Motors. But we also must be realists, I highly doubt that the government will raise tariffs any time soon or walk away from trade deals, no matter what Obama has said in the past. First and foremost, though, General Motors and the others must realize, that a simple hand out of cash will not happen. The automakers must come to terms that the old ways of doing things are over.

We the taxpayer will be become real part owners of these companies. There must be a new Board of Directors put in place, as well as a review of management. We must have true innovators and folks who won't buy the company's past party line. Since we are aiding in supplying capital, it is our job to insure that that capital is properly used. We need managers who are willing to find the fat in the company and cut it from the top down. The three main goals should be return to profitability, green manufacturing, and sustainability. The three must be implemented in a way that is synergistic.

In regards to factories, sadly we must come to one cold observation. The companies, all three, have built-in over capacity for what is being demanded. GM has too many product lines, and one or two will have to go. This, unfortunately will lead to some job loss, but if it means saving the remaining jobs, then so be it. For those who lose jobs, the government needs to establish some sort of job finding program or put them in some sort of good public works project (I just don't see why we can't bring back many of those alphabet organizations Roosevelt had?). The UAW and other unions involved should help in this coordination.

Retool the factories were energy costs can be kept at a minimal. Implement what technology is needed so that the factory's carbon footprint is small and if possible on a declining curve. Fresh management should find ways in recycling as much of a given facility's waste as possible.

All product lines should finally severe the tether between automobiles and the petroleum industry. As Dr. Thom Hartmann wisely proclaimed the other day, move the automobile into a flex fuel and electric situation. If newer technology arrives in the alternative fuel field, these companies should be able to quickly adapt. The auto industry must be made to work independent of what Exxon or BP wants, the petrol industry has in reality proven to not be the friend of the automakers. Indeed, there is opportunity here for our automakers to compete against them in the alt fuel field. For example, fuel cell recharging or down the road hydrogen distribution.

I think in regards to pensions and health care, that the government should move to provide an agency for this versus the automakers. In Germany, BMW doesn't manage the healthcare costs of its workers, the state does. Why should we continue to grant our competition such an advantage?

Now I'm not expert in product design. But I think it's safe to say, that unless SUVs can become energy efficient, then for the most part shouldn't be produced. Every product should be designed to meet a high fuel efficiency. Autos and trucks that primarily rely on gasoline must have a gas mileage far in excess of the paltry number it's allotted today. Some have said 30 Mpg, perhaps we can do even better than that. Hartmann noted that, if I recall correctly, that through flex fuel or perhaps electric, we could achieve even 100 Miles per gallon. Either way, one of the primary advantages we should be touting for our product line is that of energy costs.



Well that's really it. I would love to hear what you would do if given the chance. Please don't hold back, you're a smart crew. We need to maintain our industrial base, and have it grow. Not only that, as our planet grows sicker, we need to take the lead in green manufacturing. I can't stress enough, our environment is dying and so is our economy. Here, we take that stand. Here we change the course of things. Don't tell me it's not possible, dammit. November 4th showed me anything is possible now.



preferred shares, voting stock

I really like that idea, truly because we do need to mold our investment. That's the issue for me, if we let the same management run them after a bail out, it will assuredly be more of the same.

I posted in the Instapopulist how current the deal is the "same as the financial bail out" which probably means same executives, no conditions, no real oversight and maybe a very empty token amendments that reporters can misreport as doing something beyond show..

(Ali Velshi anyone?)

So, the grand debate in the Senate is next week and I hope all are letting their ideas be known to their Senators.

Note how the real corporate bills start in the Senate these days even though all bills are supposed to originate in the House?

Great series

I've been blogging over at about the importance of manufacturing for a country. You should know that according to the WTO, fully 80% of global interregional trade is in merchandise goods, and only 20% of trade is in services. That means that manufacturing is not simply one part of an economy, it is the single most important part of an economy. A big country simply cannot trade services for goods. The dollar will have to collapse in order for that to take place at this point.

That means that we are entering an emergency situation, one that has been building for decades (my intellectual mentor, the late Professor Seymour Melman [] warned about this for decades). As you point out, there is a veritable ecosystem of firms surrounding the auto companies; but over the decades this ecosystem has been clearcut. In order to rebuild the manufacturing system, I'm afraid, the government is going to have to step in big-time, and the best way to do that is to try to rebuild the infrastructure, which will offer a huge market for a regrowth of an industrial ecosystem.

Another problem is that the entire automobile industry is in trouble, because of the precarious nature of global oil supply. It is imperative that we move, not only towards electric cars, but also retool the automobile industry so that it starts to produce trains of various sorts -- high-speed rail, subways (there are no domestic subway firms in the US), light rail, freight rail -- all of these could easily replace the employment and industrial suppliers that are now part of the automobile industry. I've done my best to blog about high-speed and other kinds of rail -- which doesn't seem to get the kind of interest you would think it would from environmentalists -- and I think this will be a critical part of future economic policy.

Welcome to EP Jon Rynn!

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Gonna have to add you to my list of stuff to read.

Green Manufacturing

First, I agree with all of what you said about autos. I want to save them as well. In the next Administration there will be a push for Green Jobs. Manufacturing has to be the cornerstone of all green efforts it is just obvious.

The point on autos is that it is a major left/right fault line but that is not so historically if you look at the Republican Party of 100 years ago or even 50 years ago.

Green manufacturing is not just the means to make the captal goods to get us out of the energy and climate crises. Newer and creative forms of carbon sequestration will emerge from manufacturing itself.

- Steel proved this in the 70s with recycled scrap made in electric furnaces

- Carbon fiber plastics are massive carbon sinks

- Natural gas is a carbon sink when CO2 is added to make methanol

- Uranium refining now depends on TVA coal - that energy source can be non-coal, and coal liberated for cleaner uses

These are but a few and many are to be dreamed. What all these green processes - plus all green energy - have in common is manufacturing. Without a manufacturing base, there is no way out of climate or energy crises.

So autos are vital, the center of so many climate crisis solutions. And the center does not hold.

Burton Leed

Burton Leed

GMAC's $60Billion Portfolio

The GMAc porfolio is about $60 billion. Plenty of junk and bad loans there but plenty of good assets. If sold to banks and the Fed,there is plenty to go around for the whole Auto industry rescue.

Syndication of loans is key. The Fed could buy the loans. Then resell or collect. Not many auto loans go Repo but the repo business is picking up.

You say the banks don't want to buy auto loans? Think again.

Burton Leed

Burton Leed

Cerebus owns 51% of GMAC

NEW YORK ( -- General Motors dealers are complaining that GM's "captive financing" arm isn't doing what it was set up to do - help them move cars. And if it continues, they say, they could lose their lots.

"Unless immediately stopped, GMAC's actions will directly lead to the insolvency of a number of our GM dealer members and will significantly erode GM's California market share," Peter Welch, president of the California New Car Dealers Association wrote in an Oct. 20 letter to GMAC chief executive Alvaro de Molina.


They're asking for another four years -- in a just world, they'd get 10 to 20 ~~ Dennis Kucinich

GM Collapse would cost taxpayers $200 Billion

Very interesting article showing what we already knew here, a collapse of GM will cost more than a bail out will. (link to article).

Green Autos

I think this discussion is important.
One has to keep in mind that there is a crisis in economics, politics and social change alternatives. So a solution, would have to confront each of these.