Let’s All Take Some Blame for the GM Bailout
Did Low Gasoline Prices Act Like Low Interest Rates in Causing this Crisis?
The auto industry bailout looks like its going through. That’s nice for all of the UAW pensioners and the millions of jobs that depend upon the auto industry. But to justify all-but nationalizing the auto industry, Pelosi & Co. seem to have adopted a form of supply side liberalism. They’re going to force the car companies to build green cars without managing the demand for them.
We all want to call GM’s management inept. And surely they were. Just read Carol Loomis’s Fortune takedown from two years ago. But in our attempts to blame Wagoner and his posse, we’re forgetting our own culpability in this mess.
The administration never had an energy policy–but we never demanded one, either. Every time the price of gas rose from insanely cheap to ridiculously cheap to almost a fraction of what other countries pay, we got on our hind legs and complained loudly. Congress jumped in too. The Democrats complained about windall profits for the oil companies. Yet for the past several years we’ve shown we could absorb higher energy costs without collapsing the economy.
What if Congress had passed a $1 or $2 gasoline tax a decade ago? Hell, what if they had gotten some of those windfall profits? Think of the tax revenues that could have been squirreled away (enough to pay for the auto bailout or the infrastructure investment, maybe?)
The real benefit would have been a demand driven mandate not to build every car in the low corner of the fuel economy envelope. A gasoline tax would have made it harder for the Escalade and the Suburban, the Tahoe, the Navigator and all of those pickup trucks to become such ubiquitous hits. Toyota and Honda would not have followed the Big Three into the same over-weighted end of the design brief. And Toyota, once god’s gift to the auto industry, would not be suffering along with GM.
Just as the credit bubble was built on Greenspan’s short-sighted desire to keep the economy from feeling any constructive pain, cheap gasoline drove the auto industry off the cliff. They–the American companies and the Japanese–made the cars and trucks we wanted to buy. Cars that we could afford to drive because cheap gasoline made our reckless choices possible.
Until we take some responsibility for the cheap gas, we’re just scapegoating GM.
November 12th, 2008 at 10:39 am
Wow massive panic. I love it. Gonna buy here a little at a time. Those who were sitting on cash will be using it now.
November 12th, 2008 at 10:48 am
Let me make it clear. I don’t want banks or energy companies. I do want retailers and tech companies which have balance sheets better than 3:1 assets to debt.
November 12th, 2008 at 11:26 am
Barry, with that logic, Congress should pass a $5 per gallon gas tax today to prop up demand for fuel efficient cars. Then Congress could save all of that tax money and use it to bail out all Americans when their loaf of bread costs $10..
November 12th, 2008 at 11:33 am
Just to be clear, that’s not Barry’s post. Don’t take him to task.
To your point, bread wasn’t $10 this summer–and the rails have done a great job of moving goods with gas in the $4 range.
November 12th, 2008 at 11:37 am
Barry,
I drive a large van and would like to hedge against higher gasoline prices. While I realize there is no way to hedge against the tax increases you propose, can you suggest a way to hedge against oil/gasoline price increases? If buying future contracts for either oil or gasoline is an acceptable option, should contracts be bought that expire a year from now or something much less than that?
November 12th, 2008 at 11:38 am
I own a Nissan Sentra and drive 2 miles to work. My wife takes the bus. I disclaim any and all responsibility for this clusterf*ck.
Oil prices are unpredictable. Sort of like the price of the US Dollar or the Icelandic kronor for that matter. There is always an argument for letting Nancy Pelosi, Nikita Khruschev or Mao Zedong control the price in order to “cut waste.”
For my part I think we should start with a blue-ribbon commission in Washington which will regulate the number of wasteful blog posts in the blogosphere.
November 12th, 2008 at 11:57 am
Their failure was not that they fed into Americans egoistic desire for BIG status symbols, but that they failed to make high quality small cars to prepare for the inevitable increase in oil prices. This was exemplified by Ford’s former CEO Nasser who said he didn’t want to sell low margin “econoboxes”. Their failure was in not developing higher margin small cars like Toyota (and Lexus), Honda (and Accura) and Nissan (and Infiniti) did.
Detroit always equated small with cheap, unless it was a big engine sports car like Corvette, which always was a niche market. And so they missed the fact that many Americans really did want a more upscale small car.
Their model line-up was / is too unbalanced, which left them unprepared for $4 gas; exactly like they were caught with their pants down during the 1970s oil embargo.
Fool me once shame on you; fool me twice shame on me. They have no one to blame but themselves.
November 12th, 2008 at 11:59 am
Have to agree with John. Many of us have long been in favor of higher gas taxes, or better yet carbon taxes. I’m not ready to absolve the auto industry of their problems, either. They could have negotiated more favorable contracts, they could have helped push for national health care, they didn’t have to spend so much money advertising trucks and SUVs, and they didn’t have to fight CAFE standards.
I get a farm magazine, Progressive Farmer, and this past issue was pretty astounding. GM shipped a big, glossy calendar with every issue that mostly advertises their trucks and SUVs. Even with that, they took the back cover of the magazine for a truck ad as well. Dodge bought a full two-page spread for their trucks. I didn’t see a Ford ad; I guess they’re being responsible. The auto industry has been doing this kind of advertising for years because it works. Their advertising played a large roll in the increased public appetite for trucks and SUVs.
My conditions for an industry bailout: no advertising on anything that doesn’t get 28mpg or better combined – and flexfuel doesn’t count, bonuses and golden parachutes are banned, no one can earn more than 25% more than the staff level below them, no one may earn more than the US President, and an immediate end to any jobs bank.
November 12th, 2008 at 12:00 pm
I like, john haskell have never owned an SUV. My wife worked about a mile and a half from our house. I was a few miles away. So, I don’t feel guilty, just po’d and having to pay for all the fat idiots in their fat vehicles.
The problem shows crazy old Ross Perot was right. He proposed a $1/gallon gasoline tax fifteen years ago. Use the money to pay off the national debt and the tax to give an incentive for fuel efficiency.
Think he was right about the “great sucking sound” too.
BTW, we did have a mechanism in place to give an incentive to buy more fuel-efficient cars: It was the gas guzzler tax. Would have done something if enforced. I remember a 120 lb lady lawyer friend who insisted on buying an Escalade back in the early part of the century even though she had to commute 30-40 miles each way to the office. If the gas guzzler tax had been enforced, it would have added $8k to the cost of about $40k at the time. But as wikipedia says: “This does not include minivans, sport utility vehicles or pick-up trucks.” I suppose that last was John Dingell’s doing; he’s the shill for Detroit.
November 12th, 2008 at 1:49 pm
The only agreement I, (as a representative of society) is that “we” were sucker enough to continue to buy humongous SUV’s because the Big 3 advertised and pushed to sell them for big profits. Strange how the foreign manufacturers recognized the strategy that needed to be followed (fuel efficiency, quality, etc.) and made a success of it in the U.S. They are being hit now, not because of many bad decisions, as the Big 3 has made in the past, but because the economy is presently in the tank. Watch who comes out of this economy hit first when it starts to pick up. The only thing that will change that is if “we” are sucker enough to take the hook from the Big 3 if they are bailed out and go back to the same old rag.
November 12th, 2008 at 2:02 pm
Mike in Nola,
I’ll agree that there was a great sucking sound, but it wasn’t to Mexico like he presumed… and the basis for his anti-nafta agenda.
Perot was wrong about protectionism.
He just didn’t see the incredible sucking sound from India and China.
chuck
November 12th, 2008 at 2:03 pm
“They–the American companies and the Japanese–made the cars and trucks we wanted to buy. Cars that we could afford to drive because cheap gasoline made our reckless choices possible.”
Yes, and this profligacy has driven our foreign policy – Question: other than oil of what stategic importance is the Middle East? Answer: None.
How many wars have we fought in the past 10 years over this non-stategic bit of land?
November 12th, 2008 at 2:35 pm
Chuck:
I don’t think he was wrong about protectionism just because he didn’t foresee that once manufacturers got their appetites whetted by maquiladora factories just on the other side of the border, they saw no reason not to move them further afield.
And, as is now becoming apparent, the whole globalization and free trade theory was based on the faulty premise that we could get by without making anything for export, but just by borrowing from those who sold us the goods in order to finance our trade deficit. This was the major cause of the debt that is now being unwound.
November 12th, 2008 at 2:44 pm
BTW, don’t know if anyone remembers this further example of really stupid energy/industrial policy:
http://abcnews.go.com/Technology/Hybrid/Story?id=97505&page=1
November 16th, 2008 at 5:43 pm
I think your article chooses to ignore history – remember the GM EV1? This is a case of “be careful what you wish for”. GM fought the California Clean Air policies and won – or did they lose? GM chose to pursue gas-guzzlers and ignored all of the warnings about the oil crisis. Ovonics conveniently disappeared – taken over by who? – an oil company. One would not have to be a conspiracy theorist to smell fish. So, GM made its own bed and now must lie in it. The GM Volt looks like good technology, but is a case of too much too late – price-wise. A bailout may happen and may succeed short term, but long term there are many worries. Chapter 11 could be better in some respects, but risks the consumers abandoning GM. Perhaps the die is cast.