The man of system will now fix the auto industry

by Russ Roberts on March 30, 2009

in Man of System

The President spoke today about his latest attempts to save the auto industry. You could teach a semester-long class in economics from this speech. So many errors and insults to the intelligence of the citizenry. The boldface and non-indented stuff is mine.

One of the challenges we have confronted from the
beginning of this administration is what to do about the state of our
struggling auto industry. In recent months, my auto task force has been
reviewing requests by General Motors and Chrysler for additional
government assistance as well as plans developed by each of these
companies to restructure, modernize, and make themselves more

MY task force? Hmmm. "The" would have been better. Or "Our."

Our evaluation is now complete. But before I lay out what
needs to be done going forward, I want to say a few words about where
we are, and what led us to this point.

will come as a surprise to no one that some of the Americans who have
suffered most during this recession have been those in the auto
industry and those working for companies that support it. Over the past
year, our auto industry has shed over 400,000 jobs, not only at the
plants that produce cars but at the businesses that produce the parts
that go into them, and the dealers that sell and repair them.

The 400,000 figure is a made up number. It's just a guess. He just wanted to make it sound as big as possible. He has to. The UAW is so small, just 190,000 workers. One estimate of the bailout of the auto industry is $130 billion. That's only about $684,000 per worker. What a bargain.

More than
one in 10 Michigan residents is out of work — the most of any state.
And towns and cities across the great Midwest have watched unemployment
climb higher than it's been in decades.
The pain being felt in places that rely on our auto industry is not the
fault of our workers, who labor tirelessly and desperately want to see
their companies succeed. And it is not the fault of all the families
and communities that supported manufacturing plants throughout the
generations. Rather, it is a failure of leadership — from Washington
to Detroit — that led our auto companies to this point.

Year after year, decade after decade, we have seen problems
papered-over and tough choices kicked down the road, even as foreign
competitors outpaced us.

Kicking problems down the road? This from the man who has promised trillion dollar deficits for years.

Well, we have reached the end of that road.
And we, as a nation, cannot afford to shirk responsibility any longer.

Nations don't have responsibility. And I have no responsibility for the auto industry. Neither do you.

Now is the time to confront our problems head-on and do what's
necessary to solve them.
cannot, we must not, and we will not let our auto industry simply
vanish. This industry is, like no other, an emblem of the American
spirit; a once and future symbol of America's success.

So the first reason to save an incompetent industry with your money and mine is because it's a symbol. Are you kidding me?

It is what
helped build the middle class and sustained it throughout the 20th

This second reason is no more persuasive. It implies we owe the industry for its largesse of the past. It is an industry. We owe it nothing. It is not a sentient being. And the statement ignores the reality that bailing out incompetence punishes the middle class.

It is a source of deep pride for the generations of American
workers whose hard work and imagination led to some of the finest cars
the world has ever known.

More irrelevance. Why doesn't he bring back the long-ago outstanding American shoe industry? The once first-rate American TV industry?

It is a pillar of our economy that has held
up the dreams of millions of our people.

More blather. it is not a pillar of our economy. It is not a pillar of the workforce. And it's no longer a pillar of anything. It's mostly broken.

But we also cannot continue to
excuse poor decisions.

That's it? We have to save this industry because it's a symbol, and it used to be successful? Not persuasive.

And we cannot make the survival of our auto
industry dependent on an unending flow of tax dollars. These companies
— and this industry — must ultimately stand on their own, not as
wards of the state.

Good points. Unfortunately, these are the only two really good sentences in the whole speech.

That is why the federal government provided General Motors 

and Chrysler with emergency loans to prevent their sudden collapse at
the end of last year — only on the condition that they would develop
plans to restructure.

What about Ford? Oh, I forgot. They're fine. But I thought the industry was dying. No, it turns out, only part of the industry.

 In keeping with that agreement, each company has
submitted a plan to restructure. But after careful analysis, we have
determined that neither goes far enough to warrant the substantial new
investments that these companies are requesting.

I'd love to see the methodology of that "careful analysis."

And so today, I am
announcing that my administration will offer GM and Chrysler a limited
period of time to work with creditors, unions, and other stakeholders
to fundamentally restructure in a way that would justify an investment
of additional tax dollars; a period during which they must produce
plans that would give the American people confidence in their long-term
prospects for success.

That would be great. Give them a deadline and if they can't be viable by then, cut 'em loose. Alas, that isn't what he has in mind.

What we are asking is difficult. It will require hard choices by
companies. It will require unions and workers who have already made
painful concessions to make even more. It will require creditors to
recognize that they cannot hold out for the prospect of endless
government bailouts. Only then can we ask American taxpayers who have
already put up so much of their hard-earned money to once more invest
in a revitalized auto industry. But I am confident that if we are each
willing to do our part, then this restructuring, as painful as it will
be in the short-term, will mark not an end, but a new beginning for a
great American industry; an auto industry that is once more
out-competing the world; a 21st century auto industry that is creating
new jobs, unleashing new prosperity, and manufacturing the
fuel-efficient cars and trucks that will carry us toward an energy
independent future. I am absolutely committed to working with Congress
and the auto companies to meet one goal: the United States of America
will lead the world in building the next generation of clean cars.

How about the next generation of profitable cars? They are not the same thing…

one can deny that our auto industry has made meaningful progress in
recent years. Some of the cars made by American workers are now
outperforming the best cars made abroad. In 2008, the North American
Car of the Year was a GM. This year, Buick tied for first place as the
most reliable car in the world. And our companies are investing in
breakthrough technologies that hold the promise of new vehicles that
will help America end its addiction to foreign oil.

But our auto industry is not moving in the right direction fast enough
to succeed.

Mr. President, maybe you don't quite understand how capitalism works. It's a profit and loss system. If you make a phenomenal family sedan but it costs you $200,000 to make it, that's not a viable product. Making the most reliable car is irrelevant if an insufficient number of people find its price attractive. The Chevy Volt is already going to get a $7500 subsidy. I think that's enough. If it isn't, kiss it goodbye. It's making us poorer not richer.

So let me discuss what measures need to be taken by each of
the auto companies requesting taxpayer assistance, starting with
General Motors. While GM has made a good faith effort to restructure
over the past several months, the plan they have put forward is, in its
current form, not strong enough. However, after broad consultations
with a range of industry experts and financial advisors, I'm confident
that GM can rise again, provided that it undergoes a fundamental
restructuring. As an initial step, GM is announcing today that Rick
Wagoner is stepping aside as Chairman and CEO. This is not meant as a
condemnation of Mr. Wagoner, who has devoted his life to this company;
rather, it's a recognition that it will take a new vision and new
direction to create the GM of the future.

No, it's really a vote of confidence in Mr. Wagoner. Really. Not a condemnation. And besides, he devoted his life (his life!) to the company. What a saint. Actually it's fascinating that Wagoner gets thrown under the SUV, as it were. Even after switching from the corporate jet to the clown car and eating at Quizno's, it wasn't enough to save him. It's a black swan, really, that got him. It was the outrage over the AIG bonuses. Obama couldn't keep shoveling money into a dying company and give them free reign over their pay and everything else. Who'd have thunk it? There's no way he expected to be fired.

this context, my administration will offer General Motors adequate
working capital over the next 60 days. During this time, my team will
be working closely with GM to produce a better business plan.

 I'm glad he's hard at work. I think I'm starting to get it. It's his team. His administration. His ceaseless efforts.

They must
ask themselves: have they consolidated enough unprofitable brands? Have
they cleaned up their balance sheets or are they still saddled with so
much debt that they can't make future investments? And above all, have
they created a credible model for how to not only survive, but succeed
in this competitive global market?

I can see the finger wagging. Come on everybody! Let's put on our thinking caps! Such deep questions. What insight! I'm sure the devoted Mr. Wagoner never thought about them. Or maybe he didn't think about them hard enough or wisely enough. Can you imagine being lectured by the President about your field of expertise, a field he and probably even HIS team have thought about for a few months while you've spent years trying to succeed? I think I'd vomit if I were Rick Wagoner. This actually makes me feel sorry for him.

Let me be clear: the United States
government has no interest or intention of running GM.

Could have fooled me. Did he mean to add the word "forever" to the end of the sentence?

What we are
interested in is giving GM an opportunity to finally make those
much-needed changes that will let them emerge from this crisis a
stronger and more competitive company.

The situation at Chrysler is more challenging. It is with deep
reluctance but also a clear-eyed recognition of the facts that we have
determined, [my team and I–boy it's hard work saving the financial system, restructuring the health care system, our energy system and our tax system and then to make these kind of subtle determinations. But I can do it. And fill out my NCAA bracket.] after a careful review, that Chrysler needs a partner to
remain viable.

Interesting. Chrysler needs a partner. It won't be enough for Chrysler to ask themselves: have they consolidated enough unprofitable brands? Have
they cleaned up their balance sheets or are they still saddled with so
much debt that they can't make future investments? And above all, have
they created a credible model for how to not only survive, but succeed
in this competitive global market? Nope. No  questions like these for Chrysler. They need a partner. Actually, my first thought is that Chrysler needs a partner like a fish needs a bicycle but that's just my perspective. My team isn't very insightful.

Recently, Chrysler reached out [love this lingo–makes it sound so decent and open to change. Memo to the Prez–companies don't reach out. People do. Dance partners do. Estranged siblings do] and found what could be a
potential partner — the international car company Fiat, where the
current management team has executed an impressive turnaround. Fiat is
prepared to transfer its cutting-edge technology to Chrysler and, after
working closely with my team, [that would be the team that belongs to me, the team that is mine, the team that is no one else's, signed Anne Elk] has committed to building new
fuel-efficient cars and engines here in America. We have also secured
an agreement that will ensure that Chrysler repays taxpayers for any
new investments that are made before Fiat is allowed to take a majority
ownership stake in Chrysler.

Well this is a novelty item–interjecting the government into a private transaction. Could it affect the price the terms of the deal to know the President of the United States is shoving the deal down the throat of one of the players? Naw.

Still, such a deal would require an additional investment of tax
dollars, and there are a number of hurdles that must be overcome to
make it work.

Ohhhh. So it's not a good deal for both sides. So he hasn't actually weakened Chrysler's negotiating position. He's weakened his own. Oh, I forgot. He isn't spending his money. Just yours and mine. No problem. Another day of global stimulus.

I am committed to doing all I can to see if a deal can be
struck in a way that upholds the interests of American taxpayers.

Yep. There it is. I wish him luck. It's tough to fight for a good deal when you've told one party the deal has to get done.

is why we will give Chrysler and Fiat 30 days to overcome these hurdles
and reach a final agreement — and we will provide Chrysler with
adequate capital to continue operating during that time. If they are
able to come to a sound agreement that protects American taxpayers, we
will consider lending up to $6 billion to help their plan succeed. But
if they and their stakeholders are unable to reach such an agreement,
and in the absence of any other viable partnership, we will not be able
to justify investing additional tax dollar to keep Chrysler in

Phew. There's a cap on how much we taxpayers have to contribute. It won't be more than $6 billion. Peanuts. That used to be a lot of money. Not any more. And to save a symbol of the American economy it's a bargain at twice the price.

While Chrysler and GM are very different companies with very different
paths forward, both need a fresh start to implement the restructuring
plans they develop. That may mean using our bankruptcy code as a
mechanism to help them restructure quickly and emerge stronger. Now, I
know that when people even hear the word "bankruptcy" it can be a bit
unsettling, [Love the condescending tone here. Yes, you have cancer. But it's just a word. Don't get unsettled over it. It's just a word!] so let me explain what I mean [to you morons out there who think "bankruptcy" is a scary word] What I am talking about is
using our existing legal structure as a tool that, with the backing of
the U.S. government, can make it easier for General Motors and Chrysler
to quickly clear away old debts that are weighing them down so they can
get back on their feet and onto a path to success; a tool that we can
use, even as workers are staying on the job building cars that are
being sold.

So it's a tool. Fine. No big deal. Just a tool.

What I am not talking about is a process where a company is
broken up, sold off, and no longer exists. And what I am not talking
about is having a company stuck in court for years, unable to get out.

No that's something else. That's banana. Not bankruptcy. Banana—bad. Bankruptcy—no big deal–after all, it's a tool for moving forward. I wonder why he even mentioned a company being broken up, sold off, death, stuck in court (worse than death, evidently.) I guess some people associate those effects with bankruptcy. Who are those people? That's not bankruptcy. That's banana. Pay no attention to the word behind the curtain. And if you pull the curtain back–banana! Not what we're talking about.

is my hope that the steps I am announcing today will go a long way
toward answering many of the questions people may have about the future
of GM and Chrysler. But just in case there are still nagging doubts,
let me say it as plainly as I can — if you buy a car from Chrysler or
General Motors, you will be able to get your car serviced and repaired,
just like always. Your warranty will be safe. In fact, it will be
safer than it's ever been. Because starting today, the United States
government will stand behind your warranty.

Safer than it's ever been. Just imagine. This is the ultimate free lunch. By a GM or Chrysler car and your warranty isn't just compromised by the US taking over these companies. It's improved. This is a feature, not a bug! We're more reliable than the real companies. For homework, discuss how this incredible unconstitutional budgetary commitment (hey Congress, do you still exist?) affects GM's and Chrysler's incentive to produce first-rate cars that don't break down. And glad you're not intending to run the industry. You just want to guarantee its products with taxpayer money. Somewhere, Hayek is weeping.

But we must also recognize that the difficulties facing this industry
are due in no small part to the weakness in our economy.

Wrong. The economy is a small part of the difficulties. Disagree? I have a one word response for you. Starts with F. Ends in D. Four letters.

Therefore, to
support demand for auto sales during this period, I'm directing my team
to take several steps. First, we will ensure that Recovery Act funds to
purchase government cars go out as quickly as possible and work through
the budget process to accelerate other federal fleet purchases as well.
[We will of course only be buying the cars of the loser incompetent companies, Chrysler and GM. No Fords. That would be unfair. They're doing so well.] Second, we will accelerate our efforts through the Treasury
Department's Consumer and Business Lending Initiative. [Yes, let's return to the days where your personal situation didn't affect whether you got a loan. Loans all around!] And we are
working intensively with the auto finance companies to increase the
flow of credit to both consumers and dealers. [More and more and more and more loans. Can't have enough loans. That's how we got into this mess. Not enough loans!] Third, the IRS is today
launching a campaign to alert consumers of a new tax benefit for auto
purchases made between Feb. 16 and the end of this year — if you buy a
car anytime this year, you may be able to deduct the cost of any sales
and excise taxes. This provision could save familieswill cost taxpayers hundreds of
dollars and lead to as many as 100,000 new car sales.
Finally, several members of Congress have proposed an even more
ambitious incentive program to increase car sales while modernizing our
auto fleet. Such fleet modernization programs, which provide a generous
credit to consumers who turn in old, less fuel efficient cars and
purchase cleaner cars have been successful in boosting auto sales in a
number of European countries.
Yes, that is the goal of a successful economy. It's actually the goal of economic life. Car sales. Can you imagine that the Europeans have somehow managed to boost auto sales by paying people to buy new cars? Those Europeans are so ingenious. What will they think of next? Why not force everyone to trash their cars every year. That will really boost sales. Or slaughtering all the pigs to drive up the price. Oops, that's a mistake from the 1930s. Same mistake. Do we ever learn?

I want to work with Congress to identify
parts of the Recovery Act that could be trimmed to fund such a program,
and make it retroactive starting today.

Let there be no doubt, it will take an unprecedented effort on all our
parts — from the halls of Congress to the boardroom, from the union
hall to the factory floor — to see the auto industry through these
difficult times. But I want every American to know that the path I am
laying out today is our best chance to make sure the cars of the future
are built where they've always been built — in Detroit and across the
Midwest; to make America's auto industry in the 21st century what it
was in the 20th century — unsurpassed around the world. This path has
been chosen after consulting with other governments that are facing
this crisis. We have worked closely with the government of Canada on GM
and Chrysler, as both companies have extensive operations there. The
Canadian government has indicated its support for our approach and will
be announcing their specific commitments later today.

While the steps I am talking about will have an impact on all
Americans, some of our fellow citizens will be affected more than any
others. And so I'd like to speak directly to all those men and women
who work in the auto industry or live in the countless communities that
depend on it. Many of you have been going through tough times for
longer than you'd care to remember. And I will not pretend the tough
times are over. I cannot promise you there isn't more pain to come. But
what I can promise you is this — I will fight for you.

Excuse me, Mr. President. You really are supposed to represent the nation, not the UAW. It's inappropriate to fight for one group by using funds from the rest of the country.
You are the
reason I am here today.

An awkward choice of words. It makes it sound like he owes the unions for getting him elected. Could that be what he meant. Not exactly as it turns out. or maybe it was a Freudian slip. Or a wink wink nudge nudge for insiders.

I got my start fighting for working families in
the shadows of a shuttered steel plant and I wake up every single day
asking myself what I can do to give you and working people all across
this country a fair shot at the American dream.

No comment other than to note that he seems to have no idea what underpins the American Dream–the rule of law, private property, the sanctity of contracts. Actually I have one other comment. This kind of sanctimonious nonsense about waking up every morning, blah blah blah really insults my intelligence and yours.

When a community is struck by a natural disaster, the nation responds
to put it back on its feet. While the storm that's hit our auto towns
is not a tornado or a hurricane, the damage is clear, and we must
respond. That is why today, I am designating a new Director of Recovery
for Auto Communities and Workers to cut through red tape and ensure
that the full resources of our federal government are leveraged to
assist the workers, communities, and regions that rely on our auto
industry. Edward Montgomery, a former Deputy Labor Secretary, has
agreed to serve in this role. Together with Labor Secretary Solis and
my Auto Task Force, Ed will help provide support to auto workers and
their families, and open up opportunity in manufacturing communities.
Michigan, Ohio, Indiana, and every other state that relies on the auto
industry will have a strong advocate in Ed. He will direct a
comprehensive effort that will help lift up the hardest hit areas by
using the unprecedented levels of funding available in our Recovery Act
and throughout our government to create new manufacturing jobs and new
businesses where they are needed most — in your communities. And he
will also lead an effort to identify new initiatives we may need to
help support your communities going forward.

This is really entertaining. To help you cut through the bureaucracy, we're going to create a new level of bureaucracy. And it's really special. It's a bureaucracy explicitly designed to help out one group of Americans.

These efforts, as essential as they are, will not make everything
better overnight. There are jobs that cannot be saved. There are plants
that will not reopen. And there is little I can say that can subdue the
anger or ease the frustration of all whose livelihoods hang in the
balance because of failures that weren't theirs.

But there is something I want everyone to remember. Remember that it is
precisely in times like these — in moments of trial, and moments of
hardship — that Americans rediscover the ingenuity and resilience that
makes us who we are. That made the auto industry what it once was. That
sent those first mass-produced cars rolling off assembly lines. That
built an arsenal of democracy that propelled America to victory in the
Second World War. And that powered our economic prowess in the first
American century.

Cue the french horns. Now the trumpets.

Because I know that if we can tap into that same ingenuity and
resilience right now; if we can carry one another through this
difficult time and do what must be done; then we will look back and say
that this was the moment when America's auto industry shed its old
ways, marched into the future, and remade itself, once more, into an
engine of opportunity and prosperity, not only in Detroit, and not only
in our Midwest, but all across America.

Now bring up the strings and the big red white and blue flag in the background. I'm getting goose bumps. Not.

Once again, let us give Adam Smith the last word:

man of system, on the contrary, is apt to be very wise in his own
conceit; and is often so enamoured with the supposed beauty of his own
ideal plan of government, that he cannot suffer the smallest deviation
from any part of it. He goes on to establish it completely and in all
its parts, without any regard either to the great interests, or to the
strong prejudices which may oppose it. He seems to imagine that he can
arrange the different members of a great society with as much ease as
the hand arranges the different pieces upon a chess-board. He does not
consider that the pieces upon the chess-board have no other principle
of motion besides that which the hand impresses upon them; but that, in
the great chess-board of human society, every single piece has a
principle of motion of its own, altogether different from that which
the legislature might chuse to impress upon it. If those two principles
coincide and act in the same direction, the game of human society will
go on easily and harmoniously, and is very likely to be happy and
successful. If they are opposite or different, the game will go on
miserably, and the society must be at all times in the highest degree
of disorder."


Add a Comment    Share Share    Print    Email

Previous post:

Next post: