Friday, 14 November 2008

Let Ford fail [updated]

If the government prints money to bail out banks, then why shouldn't it tax, print and borrow to bailout car-makers?

That's the 'reasoning' of GM, Ford and Chrysler in response to signs that consumers don't want what they're producing: their business model is failing, and in response they're calling for the same bailout crack the banks got.

Talk about moral hazard! Looks like everyone's been getting the right message from the multi-trillion dollar 'rescue' packages: that the US Congress is the ATM machine that can!

And of course the car-makers have friends in the US Congress who are desperate to buy votes show they care. "We've got to do this because the cost of inaction is so high to communities, to workers, to companies, blah, blah, blah, blah, blah, " whined Senator Sherrod Brown on behalf of the would-be welfare recipients.

Baloney. The cost to everyone for propping up a failed business model is enormous -- just ask the British taxpayers who nearly bankrupted themselves propping up the nationalised trade union-dominated coal, car and steel industries for decades.

Fact is, no business is "too big" too fail. The bigger they are, the more important it is that the resources they using aren't being mis-used -- and there's no worse use than producing stuff too few people want to buy at a cost that's more than they want to pay.

There's nothing wrong with bankruptcy -- the real assets don't go away, they're just put to better use. If the capital tied up in the failed business model run by the car-makers can be put to better use by someone else, then a bailout simply slows down the necessary conversion. I'm with Briggs Armstrong on any bailout for these knuckleheads:
The basis of GM's claim is essentially that they are too big or too important to fail due to their massive labor force. But how massive is their labor force relative to other American companies? It may be surprising that the following companies employ a larger number of workers than GM: Target, AT&T, GE, IBM, McDonalds, Citigroup, Kroger, Sears, and Wal-Mart. It is also worth noting that Home Depot, United Technologies, and Verizon all employ nearly as many workers as GM.
The question must be posed: Should the government bail out all 12 of these companies and, if so, at what cost?
No, of course not. But once you start bailing out the goose, then the gander is going to want his pound of flesh as well.
It is unethical to force taxpayers to pay billions of dollars in order to bail out a company with a failing business model. After all, they cannot even claim, as banks did, that it is an industry-wide problem. Because if it were industry-wide, Toyota, Hyundai, Honda, Volkswagen, etc. would all be joining their American counterparts on Capitol Hill with their collective hands out.
For years GM and Ford have produced a product that consumers do not value as much as the product provided by their competitors. Rather than changing their products or business model, they instead spent small fortunes on lobbyists. If the government does bail out GM, rest assured that this will not be the last time. But even if the government gives GM a check every week, there will come a time when no amount of government money will be enough to save them.
Exactly right.

UPDATE: Great comment from LGM:
Now there is only one option [the auto industry sees]: Government's got to do something about it. In a sense they are correct. The government does have to do something. It must get out of the way and stop molesting industry.


  1. At intrade you can the big 3 bailout contract for $ 0.92. I.e. a 92% probability it will happen.

    And it will.

  2. "It will" is different to "it should."

  3. The destruction of the US car industry giants has been proceeding for some years now. It's like watching a slow motion train wreck. Now the wreck is getting closer to the ending. The locomotive is off the tracks and the carriages are about to follow!

    The troubles of the US car industry are government derived. Over decades the US Federal and State governments have imposed regulation upon regulation onto GM, Ford and Chrysler. Every aspect of how they must operate their businesses, what products they are allowed to build and who they employ is regulated. Just think on that for a moment. Every activity is controlled, right from product design detail to employee superannuation and healthcare.

    The response to this nightmare has been that many of the brightest engineers and product development people have left the US car industry or even the US itself. After all, what innovate clever person wants to spend his or her time toiling away their best years, subject to a maze of arbitrary and often senseless regulation? What a painful existence. Similarly the management of these once great companies now mainly comprises of time servers and cronies. Perks and benefits, corner offices and superannuation have become more important to them than the business of making cars and trucks. Cynicism rules. Why give a shit about product anyway? Now there is only one option they see. Government's got to do somethning about it. In a sense theiy are correct. The government does have to do something. It must get out of the way and stop molesting industry.


  4. I'm a "Ford man"! I even owned one once. It was a piece of crap and I'll never do it again, but still I'm a ford man. Like United Airlines, these beasts (GM, Frod) should be put out of our misery.

  5. CF

    How can you be a "Ford man" when you don't own a Ford and you do not intend to own one again?


  6. Like a lot of simple tribalism, there will be some underlying, but obscure reason. Maybe because I like the colour blue?
    I guess it's a bit like some people (lindsay Perigos Ma & Da come to mind) who are "for" labour becuase of a vague belief "like, they're for the poor people n that".
    It's not something I generally subscribe to (tribalism) and of course I don't let it govern my real-world behaviour (I drive sensible, reliable Japanese vehcles), but it's there nonetheless. "Go figure" as some would say (that dfinately needs to go on Mr PC's list).

  7. CF

    Which Ford motor vehicles have you actually driven?


  8. I owned a Euro model Escort overseas, but mostly rentals. Why, do you think I'm talking through me pooper?

    F100 truck - nuff said, but it was fun
    Falcon - (prob fairmont) rental
    LTD - borrowed
    Focus - a couple of times as rentals
    Cortina - the last model run, was prob 3 yr old when I drove it, so not really fair to judge, but it was a shit drive
    Ka - rental, handled well (shame about the spare parts prices, I'm told)
    Mondeos - rental

  9. Clunking Fist

    Re Cortina
    They didn't drive properly and could have been a lot better. The Cortina had a flawed rear suspension design. In essence the problem was poor geometry. It ruined the handling and the feel. It limited roadholding as well (bumps could cause the rear to loose traction or "skip" sideways). Rear steer was present. Feels terrible. Stodgy.

    As the car was built down to a price and parts were inherited from other models and previous iterations, the problem was left in production. The trouble was that the common Brit by and large knew no better. The Poms were well used to mass market cars being terrible- many were far worse than the Cortina. The bet was that the person who'd buy a Cortina was far more intersted in accessories and features and paint schemes and perception, rather than how the car drove. That bet was a safe one. Cortinas were a huge sales success.

    Interestingly the Cortina's flaw is simple eough to remedy on an individual basis (it would have required a not insignificant investment to introduce it to a transfer line though). What is required is to install a Panhard rod across the rear suspension, set to give a lower roll centre. Then one of the top trailing arms should be removed. The trick is to know which one to leave out and why. It's not a difficult modification to undertake, and not difficult to work out the geometry to achieve a surprisingly impressive result.

    Since those times Ford had a suspension expert (Parry-Jones) take up the reigns for Europe. He demanded that Fords drive and handle well. Originally the benchmark was the Peugeot 205GTi. Several were instrumented and tested to death in order to discover how the did what they did. Some other class leading vehicles were also tested and analysed as well. Parry-Jones influence has been carried over to all European Ford built cars. Some of them are excellent.

    Re F100
    This truck skips around at the rear and is uncomfortable to control on a bumpy or unsealed road. It was designed as a truck and is not really any good as a passenger vehicle. Much of the controllability problem on bumpy surfaces (and truck-like feel) can be alleviated by altering the mounting position of the rear dampers. They need to be set up to apply more control in axle roll. Move them as far outboard as possible. Truck designers generally don't do this because they don't think such matters as handling and ride are important. They just don't much know about such matters. They are into other things.

    Re Falcon
    The E-series XR cars, in particular the XR6, are good. If you get a chance to drive new Falcon I'd recommend you try one. The XR6T is a BMW M5 competitor at a fraction of the price. The whole range of Falcons work well. Good cars. Shame the styling is so conservative.

    Car design is very interesting. So is development. The stories behind each development program really should be told. Then you'd know why your car is as it is. Trouble is, it is not allowed for many of the stories to be told. Pity.


  10. Yeah, but are you a Holden or a Ford man?

    I can't say I drove them hard (other than my cousin's Cortina), as most were rentals.

  11. As you say LGM, Ford built basic conventionally engineered cars in the '60s and '70s in Britain. BMC didn't. They had innovative designs and pushed the envelope. And they ended up in the toilet. Ford has now taken the place of BMC, and the Japanese have taken the place of Ford - building boring cars well. I think we can predict what will happen next.

  12. Um, BMC didn't fail because it had innovative designs and pushed the envelope. It failed because it was strangled by the unions and then nationalised.

    Ford et all have already been strangled by the unions. Now they're going for the quinella.

  13. As LGM says, [Government] must get out of the way and stop molesting industry. Since they will inevitably continue to both molest and be incredibly stupid, that would truly make them a bunch of dozey fuckers, wouldn't it?

  14. Clunking Fist said: I can't say I drove them most were rentals.

    I think the correct phrase should be "I drove them like I stole them, as they were rentals". That's what rentals are for isn't it? Maybe it's just me - I drive like a man.


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