The Marc Steiner Show

November 19, 2008

Executives from GM, Chrysler, and Ford visited Capitol Hill today to beg for a bailout of their own.

They faced strong criticism from Congressman Spencer Bachus, who mirrored the sentiments of many when he said, "My constituents do not understand why their tax dollars should go to support what they consider less efficient businesses."

Are the American auto companies just too big to fail? What would happen to the U.S. economy if they did fail? What can be done to make the best out of a bad situation?

Our panel today included:

  • Lester Spence, Professor of Political Science at Johns Hopkins University
  • Bala Submaranian, professor of Economics at Morgan State University
  • Sarah Hubbard, Vice President of Government Relations for the Detroit Regional Chamber of Commerce.

Written by Marc Steiner

Marc Steiner

The Marc Steiner Show airs Monday thru Friday from 10AM to Noon on WEAA 88.9 FM. The show covers the topics that matter, engaging real voices, from Charm City to Cairo and beyond. Call us at 410.319.8888 or email us to participate live in the show, or share your comments on our site! Aren’t in Baltimore but want to listen? Stream the show live.


Comments

  1. Unchallenged assertions were made in this program that the Detroit 3 aren’t responsible for the mortgage/credit imbroglio. Not true, at least in the case of GM.

    GMAC has been a problem for GM for a long time.

    <a href="http://query.nytimes.com/gst/fullpage.html?res=9e0ce5d71f38f933a2575ac0a964958260">GMAC defrauded</a>

    GMAC entered the mortgage business in 1985 and aggressively moved off-shore to countries where, until 2001, regulations were less onerous than in the U.S. In 2001, GMAC placed ads in the U.K. boasting of being the largest subprime lender in the U.K. GMAC was the largest subprime lender in Spain at one point. After 2001, following passage of the Commodity Futures Modernization Act of 2000, they redoubled efforts here, boasting of being one of the largest banks and one of the largest mortgage lenders (commercial and residential) in the U.S., particularly to bad credit risks. Some of the billions of losses reported by GM have been submitted by GMAC. GM is burning cash? Sure, partly to prop up GMAC, which was a wholly-owned GM subsidiary until November, 2006, when Cerebrus bought a 51% interest. GMAC financial services include credit cards, by the way.

    <a href="http://www.mtgfoundation.com/2007/03/gmac-mortgage-takes-huge-fourth-quarter-hit.html">Subprime lending not such a good idea</a>

    <a href="http://www.cnbc.com/id/24949744">ResCap prop-up</a>

    <a href="http://articles.latimes.com/2008/sep/04/business/fi-gmac4">ResCap closing offices</a>

    <a href="http://www.rebuild.org/news-article/gmacs-mortgage-unit-may-not-survive/">ResCap may not survive</a>

    <a href="http://www.citytowninfo.com/lenders/gmac-mortgage-corporation">GMAC financial services</a>

    <a href="http://en.wikipedia.org/wiki/GMAC">GMAC wiki</a>

    What say you? Should we prop up GMAC? Should we bail out Cerebrus? I say no.

  2. I appreciate Prof.  Submaranian’s argument that the industry needs consolidation in the long run. The validity of Sarah’s position seems self-evident, however. I mean, if I have a choice between buying a car from Toyota, which is profitable, or from a bankrupt GM, what would I do? Buying a car really is different from buying a plane ticket.

  3. Commenting in the blog about the meeting at Sheppard Pratt, I requested that you explore why we (Chamber of Commerce in particular) are so wedded to employer-based health care. Prof. Spence made a very interesting and enlightening comment about this, that I wasn’t aware of. I still would like to see a fuller examination.

    Also, Marc made a comment about sharing the cost of healthcare between public and private sectors. I don’t know what he meant by this – I don’t know if Marc knows what he meant in detail – but it has interesting implications that seem worth following up on.

    Blogistan is full of commenters proposing that a way to help the Detroit 3 is to lighten the healthcare burden. They often talk about "universal" care, which of course can be very different from single-payer (government) care. One idea is to enroll auto workers in a Medicare-type plan, with existing private plans somehow becoming like Medicare Part B. I have no idea if this idea will gain any traction at all absent a national policy for all employers. Seems doubtful, though, doesn’t it?

  4. My brother lives and works in a Detroit suburb. He isn’t in the auto industry – he’s a civil engineer, and he works for a civil engineering firm. He has been with the company for decades.

    He sent me an email yesterday – he’s laid off.

  5. Steven’s (Stephen’s?) suggestion was outstanding. See why I like the Steiner audience so much? I was glad to hear that Michigan is working in this direction.

    A Canadian company, Arise, developed cutting-edge very productive technology for making solar cells, but could not build a plant in North America because of an inadequate market for solar cells. The German government sought out the company in 2006 and offered to provide half the cost of building a plant in Germany, up to 50 million euros, and reduced help above 50 million euros. In other words, they promised a minimum of 25 million euros, about 35 million Canadian dollars at the time. Arise now has one prodution line, whose output is booked for 5 years. They plan to install 3 or four additional production lines (I forget which) in that building, and are prepared to build 3 more buildings as they become necessary.

    That plant could have been built in Michigan.

    In Montana, Governor Schweitzer’s initiative to grow wind power has done fairly well, but it’s hampered by the difficulty of getting hardware. So, a facility to manufacture turbine blades is being built near Butte. It’s owned by a German company, though – Americans don’t do that kind of thing. Pfft.

    This kind of retooling, and the development of American markets and manufacturing capability, certainly will be helped by Obama’s promise to inject $15 billion dollars a year into these efforts. I wish it would be more.

     

  6. Perhaps ironically, the practice of paying employees who do not work mimics the customary (informal) but entrenched Japanese practice of not laying off employees, doesn’t it?

    Industry constriction is not only a Big 3 problem. Sales have decreased for pretty much all automakers, not just U.S. ones. Although Toyota expects to report a profit this year, it will be substantially smaller than last year. I think Honda is the same.

    The practice of not laying off employees inhibits the Japanese makers faced with the desirability of retrenchment. I wonder how that will work out?

  7. Isn’t it kind of weird to talk about what to do about the Detroit 3 and not say one word about how they function as global enterprises? Is GM losing money in the U.S. but making money from operations in China, Brazil, Ireland, and Germany? Is it sick in sixty countries? Talk about business model – the acquisition of foreign nameplates hasn’t worked very well in some cases, and in other cases joint ventures with foreign makers have been troubled. Lots of talk about the UAW and the benefit burden, but this is relevant only in the U.S., right?

    All these factors, and more, seem relevant.

  8. Professor Spence is correct. Remember some years ago, when legions of "expert" mouthpieces were testifying that Americans needed gas hogs because big vehicles were safer than smaller ones? Here’s the result:

    When I walk to the SuperFresh on 41st Street, I pass a house where a woman is getting into a Ford Expedition. At SuperFresh, I see her park in the lot. In the store, I see her paying for her groceries, and we leave at the same time. On my way home, I see the woman park the beast.

    This woman lives one block from the store. True story, I kid you not. Of course, she needs to use the vehicle entrance to the lot instead of the pedestrian entrance I use, so that part of my trip is two blocks for me, about a half mile for her.

  9. If a U.S. dealership is clogged with unsold Blazers, why doesn’t it get restocked with Opels or high-efficiency low-pollution diesels or whatever GM sells in the rest of the world?

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