I think 2008 will go down as the Year of Ignorance. I hope this isn’t, broadly, the Millennium of Morons. It is upsetting for me to recognize enormous acts of verbal illusion (lying) on the part of so-called experts in order to further somebody else’s greed.
The election is over, so you should realize that I am talking about something else. And that is the wonderful bailout of the automotive industry that the American taxpayer will soon be financing. To a great degree, a lot of the same nonsense is going on in the entire surge of handouts from Congress.
General Motors has been very vocal and clever presenting its case for handouts. This effort started long before government started acting on the economic crisis. Clearly, GM is pushing their agenda to the front with talking points about enormous cash burns, nonexistent revenue, and the impending doom of bankruptcy. They say if we don’t send them money, a large segment of the economy will shut down and hundreds of thousands of people will be on the street. They say you can’t turn the enormous auto industry on a dime, it takes a long time to adjust their supply and labor contracts, it takes years to deal with this sudden global economic disaster.
If you don’t realize everything “they say” in the previous paragraph is pure nonsense, it is time for you to wake up and start thinking about what you are hearing. And no, tuning out critical observations like this doesn’t qualify as thinking.
Let’s look at a few critically deficient points from GM. Bankruptcy is declared by companies that can’t meet their financial obligations. This allows a company to avoid liquidation and get relief to continue operations until they can meet their financial obligations. So somebody at GM wants you to think they will liquidate while they talk about bankruptcy. Some large firms have gone through bankruptcy, survived, and thrived. Some airlines have gone bankrupt multiple times. While bankruptcy is a major thing, it doesn’t mean wholesale layoff, liquidation, or destruction of their supplier’s business.
What about that enormous cash burn? Perhaps that is another way of saying that they can’t control their costs. Majors costs for manufacturers are materials, labor, distribution, and advertising. GM also has a large loan operation. If you were to run your own small business, your main financial benchmark would be cash flow. Do you have more money coming in than going out? GM should not say one word about cash burn without providing numbers for income and cash flow, which are more important measures. Steve Ballmer doesn’t care if Microsoft spends $2 billion a month while it is making $5 billion a month. General Motors wants to exaggerate its problems (controlling expense) and skip the really important numbers.
Maybe GM is the Titanic, and it can’t turn quickly enough to avoid that glacier of economic doom dead ahead. Or maybe the truth is that they saw how things would fall apart a long time ago. Their loan business certainly started to implode in 2007 or earlier. All the auto makers get the best economic projections available, they know every facet of automobile and truck sales. They weren’t blindsided. Good or bad, they are seriously working on strategies to stay in business and do better than their competition. But there is one thing they can’t project until it is too late: when the economy will recover. If government money is an option to get through the downturn, it is possible to keep all the suppliers and employees on the payroll as long as possible to get the maximum market share on the recovery. With the taxpayer’s help, GM could possibly hold on through the collapse and remain large enough to seriously dent the dominant foreign competition and crush Chrysler in the Unites States.
Makes sense, doesn’t it?
The real question is, does it make sense for you to contribute to the automaker bailout fund? Maybe you’d like the Japanese automakers to take a hit at our expense. Or maybe you think the Big Three are just big crybabies that should get their act together based on the money we give them for their cars, no additional handouts required.
-- Walter Lounsbery, 11-7-2008