Why are we so mean to the car companies (and nice to the banks)?

We should treat the car industry like the way the military grants contracts. Tell the big three - the first to make 100 mile per gallon car that fits all the safety qualifications (and blah blah) gets a contract with the American public's money. It would benefit us all to actually have an automobile export market that could rival the Japanese and Germans. As for the banks - I hate bankers.

@usalorenz - I wish that were how the government contracting process works but a great deal of our money goes to purchasing goods and services that do not live up to their claims. Then these companies get "follow-on" no-bid contracts that pay them substantially more than their original contract to "fix" the problems. This magazine recently had a piece on government contracting that lays out some of these problems. We have yet to fully discuss is how this Bush government in particular has turned our contracting system into a highly opaque patronage system that simply drains money from US finances and provides very little of actual value.

@Justin - Why can't the banking and financial industry be subjected to the same treatment by Congress in that they have to come up with and submit a plan for how these firms plan to restructure themselves so as to be profitable ventures going forward? My main problem with the financial industry bailouts was that I have yet to see how any of this is requiring them to change their business models and figure out what their appropriate size should be. This isn't an issue just about the money, it's also about fairness and equity in how the government interacts with business, industry, and its citizens.
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For example, one of the industries you have used for the successful bankruptcy argument is the airlines. Right now, I'm not sure they are any more stable than they were after 9/11. But, regardless of their current stability, I think many of the unions had a point regarding how much their members were asked to give up (oftentimes after having made large concessions previously) only to have the bankruptcy court approve huge compensation packages for executives. I'm not trying to argue that life is always fair or that unions shouldn't have to make concessions, but we seem to be completely unable to devise equitable solutions to our problems.

Banks are different, as you say, not so much in the fact that they can affect everyone, but that there's such a likelihood that if one big one goes down other big ones will probably follow.

And if they all go down, you haven't just lost a bank, you've lost banking -- a critical service to our economy. This means for the short- to medium-term the economy would likely be unable to access credit etc. while things reorganized.

If a strong company sees opportunity and can't borrow to take advantage of it -- well that' very expensive to our economy.

On the other hand, with the bailout of the Big Three, we are "simply" worried the loss of three huge companies that provide a whole lot of jobs and a pretty large share of our industrial base.

A collapse will be bad for people in the auto industry and the communities they're closely tied too. It also would leave some worried that "we don't make anything real" any more. This is bad, but what it won't mean is that we won't have cars or trucks available. Toyota, Honda and not to mention whoever picked up the old GM/Ford/Chrysler factories on the cheap could step in and keep selling cars.

[Just to hammer this home: Imagine the auto industry failed meaning no new cars and that most part manufacturers disappeared for a few years. Now, that would get expensive to our economy, but we're not worried about that.]

Now, this doesn't mean we should keep the auto companies alive. It just means it's a different equation.

With the auto industry, we're asking: Can these companies be saved and made self-sustaining? and Is it cheaper to save the companies instead of picking up unemployment / retraining / etc.?

Those are very different questions than what was being asked about with regards to the banking industry.

What aengblom said.
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"With the auto industry, we're asking: Can these companies be saved and made self-sustaining? and Is it cheaper to save the companies instead of picking up unemployment / retraining / etc.? Those are very different questions than what was being asked about with regards to the banking industry."
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I'm already convinced of the need for comprehensive restructuring.
The question is what form should it take. There are three prevalent
strains of thought.
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1- Force the UAW to shed the legacy costs. All retired workers will
receive social security and full medicare. That ALONE would make GM
profitable.
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2- Force GM to shed unprofitable lines and dealerships. Pare down to
Chevy, Cadillac and maybe, Saturn. This ALONE would make GM
profitable.
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3- Force GM and Chrysler to combine reducing unprofitable lines and
dealerships. Ford is strong enough that they should be extended a
line of credit to access if they need it only upon condition that the
government gets warrant/ preferred shares.
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Ultimately, the issue is who takes the hit....the retirees, the
workers, management, the dealerships, the taxpayers, etc...
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This is the real question. But I think what Obama is asking himself
is how do you minimize the hit to the taxpayers....I agree on principle that the company or companies that need to go through bankruptcy (or some version thereof) should do so.....BUT ONLY if it won't cost us (the American taxpayer)more money. I'm not so into cutting off my nose to spite my face at this moment in history.
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Further, I think the reason that banks aren't held to the same scrutiny in terms of what there plans are for restructure, etc. is that 1) the government has a substantial function in determining what that structure will be and 2) revealing or laying open a bank's plan would indicate precisely where they were weakest and feed fear and irrational market responses.

"some of its problems were of its own making, but government policies played a significant role in its decline. Its employees, while still paid better than their peers in similar industries, had given up perks and pay, and their ranks had been decimated. Then Industry B landed in a crisis that was mostly the making of Industry A."

Tell me you don't believe any of this. How are government policies (other than ones that the auto industry bought and paid for with its lobby) responsible for the auto industry's problems? The credit crisis has been the straw that broke the camel's back, but personally, I blame the camel for beating a tire iron against its back for decades more than I blame the piece of straw.

the reason that bank failure lead to the depression was because people lost everything they had sitting in the banks when those banks failed. With deposit insurance, that can't happen.

Let these big bank holding companies fail -- banks that are just banks should be protected, and the actual "bank" parts of these huge 'bank holding companies' should be sustained, but stockholders should be wiped out, and all the rest of the crap that these holding companies are doing should be dissolved/auctioned off to the highest bidder.

Unlike in the auto industry, there are more than enough banks to go around to pick up the slack once other banks start failing -- healthy smaller banks will survive -- and thrive -- by picking up the assets of the bank holding companies at fire sale prices.

@previouslyjustlindas: There are some pretty strong differences between a restructure of the finance industry and the auto industry. The auto industry makes a PRODUCT--that's their raison d'etre, and a big reason why they are failing is due to the failure of their product. The financial industry, on the other hand, does not really "make" anything. They just move money around. Their successes and failures are not nearly as tangible, and much of their success is interconnected with a million other industries. So while we can demand a restructure of the car companies and might even predict what that might look like, what would a restructure of the finance industry look like, other than more government regulation which isn't even in the industry's court anyway?

what would a restructure of the finance industry look like, other than more government regulation which isn't even in the industry's court anyway?

1) do away entirely with "bank holding companies"
2) return to the status quo ante regarding how banks can operate and were regulated
3) change the tax laws to favor "saving" over "investing" -- i.e. if you buy a bank CD, you pay little or no capital gains tax. If you invest in the stock market, your capital gains taxes are much higher.

Lulu Lulu, the auto industry is failing because of the failure of their product? I don't follow.

plukasiak, what benefit is there to the saving over investing you suggest?

I am not snarking or commenting, just honest questions.

@LuLu Lulu - I guess I wasn't specific enough. What I am looking for is specific steps a bank is taking to return itself to profitability. Today's best example is Citi and I asked more directed questions in my comment on that post. I would like to know what Citi is going to be required to do to continue to get money. It is not profitable in its current state, so shouldn't it have to come up with a restructuring plan on how to get itself out of the mess it created? Shouldn't it have to make projections about what size Citi should be in the future? Shouldn't it have to explain branch closures and projected cuts in staffing to justify the money it gets? Shouldn't Citi have to explain what businesses it plans to get out of? Shouldn't it be forced to reevaluate all its divisions for future profitablity? They need to be forced to put forward a forward looking business plan because banks like automakers cannot survive by continuing to follow their old ways of doing business.

@plukasiak,
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You say, "Unlike in the auto industry, there are more than enough banks to go around to pick up the slack once other banks start failing -- healthy smaller banks will survive -- and thrive -- by picking up the assets of the bank holding companies at fire sale prices."
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I can find no empirical evidence to support your contentions.
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#1- That there are not enough auto companies? Should that be "like" the auto industry?
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or
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#2- That there are more than enough banks with the healthier smaller entities of picking up the bank holding companies?
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All of the writing that I have had a chance to review indicates that the economy is full-scale in a period of contraction and businesses (of all industries) should be scaling back and matching up supply with demand. I do not see how or why there should be distinction between auto and banking or housing for that matter.

@formerlyjames: Didn't they? I mean, the cars coming out of Detroit were made for a 20th century market, and we aren't there anymore. They failed to adapt, instead stubbornly clinging to what they knew, and now they're in trouble. So maybe the product didn't actually FAIL, but it didn't progress.

@previouslyjustlindas: Maybe I'm oversimplifying because I am not so familiar with finance or tax law. But the finance industry relies on very nebulous concepts to make money, and what might look like a good idea for Citi today might look ridiculous six months from now, and the Citi executives will be excoriated for not seeing ahead. Who to loan to? How to invest? Which is the best market? etc.

It just seems like the problems with the Big Three are much easier to pinpoint--and improve--than the ones in the financial industry.

Yes, the big three made mistakes, yes, there is plenty of blame to go around. However, if this vital American industry is to be saved, the key is to control the costs, there's no point in producing half as many cars if the cost structure is such that they continue to lose money on everyone of them. The solution is not about downsizing but about lowering production costs and this means getting into the head of UAW the undestanding that they have to make about only as much as the Toyota worker and that the "jobs bank" is a privilege that stinks to high heaven. Additionally, if a worker decides to retire at 55 or so years of age....Well, he can take care of his health benefits with a reduced pesnion until he can get Medicare. Or...... he cauld get another job or continue to work......just like the rest of us in that same age group.

Congress needs to truly break the stranglehold of UAW or nothing will work and all those 3 million auto-related jobs will be lost..... and yes, it will plunge the country into a real depression.

You don't have to be mean to the auto insustry, they deserve criticism but someone needs to stand up to the onerous labor contracts before the big three are truly dead and gone.

The car companies and the banks are managed and staffed by people. These people, like most people living in the United States, have become like the title to an old motion picture; "Dumb and Dumber."

We lack the sophistication to understand how we undermine ourselves with our daily decisions and our "ITS ALL ABOUT ME" cultural values.

Truly survival of the fittest is a bedrock principal and modern-day Americans for the most part aren't fit for survival in manufacturing or banking or much of any other field. We are reaping what we sowed and the harvest isn't very good. So, buy your foreign-made goods or goods made by foreign-owned manufacturers and think about who put you in the bent-over position when they decide to move those jobs and tax dollars to their home countries and Americans have to just stifle themselves.

@Lulu Lulu - I think there are many things that they could put forward, they are a business. Businesses have to do forecasting and projections all the time and banks are no exception. We know some of their flawed assumptions that got them into trouble (poor risk modeling, too loose of lending standards, etc.) So what steps are they taking to correct these problems? I haven't heard any answers yet. Your argument that their business relies on nebulous concepts to make money is only true in certain aspects of the business. There have been profiles of community banks that focused on more basic, core lending with more traditional standards that seem to be faring just fine. So, how do these firms return to more their more historical roles? If they aren't going to, what are they basing this decision on? The financial sector has to shrink in size. The question really is - can the banks participate in attempting to make a smoother, more orderly transition to a more sustainable financial sector or will we keep doing the same thing and eventually run out of any funds to give to any of them and face a massive banking catastrophe?

Actually, it's really simple.
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The guys running the bailout are from the finance industry. They get the system and understand the faultlines and the pressures that caused the companies to mess up.
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Paulson and Co. aren't from the auto industry. Or any manufacturing industry. They only have an outsiders view of the problems and reasoning and history behind them.
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Basically, it's a lot easier to tell some guy on the street to get lost and go out of business than it is to tell your brother or cousin. Hence the disparity. (or at least the psychological component of it.)

I imagine that the automakers will get their 25 billion dollars after they make an attempt to tell Congress what they plan to do with it. For me the big question is why do we allow and even encourage banks to destroy multi-trillion dollars of national wealth every seventy five years or so. Is this due to amnesia on the part of policy makers, or a deliberate determination that this is just the price we have to pay for financial innovation?

@ Sean,
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The auto industry as a whole isn't that difficult to understand. A company builds a car from parts by paying workers from the sales proceeds of said car. Said car is purchased by a customer who both desires and can afford to buy or finance said car.
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There is no rocket science here at all. Supply has quite simply vastly outstripped demand when there are 9.8 automobiles for every 10 Americans. In fact, this is true for just about every single car manufacturer with few exceptions. Toyota just recently slowed down production on Tundra's built in Texas and laid off some people.
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Now, granted it sucks for those people, but in a capitalist economy resources are shifted and diverted all the time to the most efficient uses. Citibank, likewise, is laying off 50,000 employees. Does it suck? Yeah, but this is what happens in a capitalist economy. We don't live in the USSR or Sweden. Our system is based upon mobility, flexibility and the adaptation of resources (management, workers, capital, supplies) to their most efficient utilization.
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There is no such thing as compassionate capitalism.

Want a reason to believe in Ford? I've outlined a few here: http://www.scottmonty.com/2008/11/how-you-can-use-social-media-to-help-us.html

Scott Monty
Global Digital Communications
Ford Motor Company

@bryanfromhouston

"There is no such thing as compassionate capitalism" - that's like saying the old adage "what doesn't kill you only makes you stronger..." - of course, we know that what doesn't kill you can severally handicap you from functioning again. We don't need to simply lay off people and ignore their transition into a new sector, there can be pillows for them to land on - I don't understand how in 2005 the ratio between ceo to worker was 411:1 http://sociology.ucsc.edu/whorulesamerica/power/wealth.html and we can still call that an efficient system? There is plenty to improve on in the capitalist system, for starters those most recently laid off should be able to get the most reasonable prices (and quickest transition - none of that mandatory crap) for a college education focused on either private sector jobs or government.
It is an efficient system - but efficiently brutal, and it doesn't have to be.

@6 plukasiak
the actual "bank" parts of these huge 'bank holding companies' should be sustained, but stockholders should be wiped out

easy to say, and provides some nice, satisfying revenge, but tens of millions of ordinary folks have 401k retirement accounts, which have mutual funds, and millions of those accounts have bank stocks. my own 401k, invested in a variety of "good" mutual funds, is down 40-ish percent since september. people like me don't need any more help like yours, thank you.

To emphasize the point on the UAW, it is my belief that they are the root of the greater part of Detroit-itis, which causes cars and trucks to be crappy. No industry can wildly overpay a largly underskilled labor force, and still maintain a robust R&D program.

Yes, Detroit makes hybrids, but none are even close to the Prius, for which the waiting line is long. Yes, Detroit makes some gas-sippers, but none even close to the Civic. You can have your Yukon, I'll take a 4-Runner anytime.

For long, long ago, the UAW slipped on its blinders, and the membership as well, and personnally drove our Big Three into the ground. The story could have a happy ending but I doubt anyone cares enough to get done what needs to get done.... and believe me, what that is that needs to get done will bring some very long faces in the UAW and its past and present membership.

To emphasize the point on the UAW, it is my belief that they are the root of the greater part of Detroit-itis, which causes cars and trucks to be crappy. No industry can wildly overpay a largly underskilled labor force, and still maintain a robust R&D program.

stop with the lies about "overpaid" UAW workers already. Starting salary for "unskilled" workers is under $15/hr, and the average "unskilled" worker earns $27.81/hr.

The real problem is the "legacy" costs -- the costs that exist because of retirees (including surviving spouses). At the end of the first quarter of 2007, there were about 181,000 UAW employees at the big three.... PLUS an additional 421K retirees and 120K surviving spouses.

Clearly, the problem isn't with the UAW workers, but the costs that are born by the auto companies in terms of pensions and health care costs for retirees. Cutting pay/benefits for current workers won't make a dent in these costs, and "shrinking" the companies won't shrink the number of current retirees.

The solution? Government takeover of these costs, funded by taxes on cars that are built by companies that don't provide pension and health care benefits to retirees. Even the playing field, and American union workers are extremely competitive -- but when foreign companies show up and exploit centuries of racism that result in low wages and anti-union laws throughout the south by building plants throughout the "hate belt", when people complain about unions its pretty obvious that they are endorsing racism and discrimination as a means of keeping wages low.

I don't follow.
plukasiak, what benefit is there to the saving over investing you suggest? I am not snarking or commenting, just honest questions.

reduced risk -- both for the individual investor, and the economy as a whole.

Most "investment" does nothing to grow the economy -- most of it goes into pre-existing stocks. If anything, investing in "the stock market" is counter-productive to a sustainable economy, because the market is no longer about "the long term", but about arbitrage and quarterly profits -- and the demands to maintain stock prices and quarterly profits results in companies taking greater and greater risks until they fail.

We've fetishized the stock market (see the crybaby below, who is worried about his 401K -- he took the RISK, and now wants the government to bail HIM and HIS 401K out) and like some pervert who can no longer 'perform' unless it involves his fetish, the economy needs serious therapy that redirects 'drive' to healthier outlets.

easy to say, and provides some nice, satisfying revenge, but tens of millions of ordinary folks have 401k retirement accounts, which have mutual funds, and millions of those accounts have bank stocks. my own 401k, invested in a variety of "good" mutual funds, is down 40-ish percent since september. people like me don't need any more help like yours, thank you.

stocks are a risk. You took that risk. You lost. get over it.

All of the writing that I have had a chance to review indicates that the economy is full-scale in a period of contraction and businesses (of all industries) should be scaling back and matching up supply with demand. I do not see how or why there should be distinction between auto and banking or housing for that matter.

while there is a period of contraction throughout the economy, there is a huge difference between losing jobs through layoffs, and losing jobs when companies disappear. If GM goes down, the economy of entire cities and regions go down with it -- if Citibank goes down, that doesn't happen.

No one believes Detroit auto is vital. In fact most believe Detroit is a cancer that needs to be removed. They have had thirty years to fix their problems to no avail.

The banking industry deserves the same fate as Detroit. However, the idea of letting the banking industry crash is a nightmare no one wants to live.

The dopes running CITI and AIG would make great auto executives. Private jet fleets and corporate waste.