Bailout falls flat, and Wall Street shrugs

A funny thing happened Friday. After the U.S. Senate killed a bailout for the Big Three automakers, the Dow Jones Industrial Average rose. Advocates of a bailout had made the consequences of letting Chrysler and/or GM go bankrupt sound calamitous. Investors on Friday didn't seem to think so.

You can't read too much into the wacky stock market these days, but you would think if investors really thought the bailout was the absolute necessity it was being sold as, they would have scurried for the bomb shelters. Now, maybe automotive stocks are so low that they can't really go much lower, and that's what kept the Dow rising Friday, but Wall Street must not have been too freaked out by the Senate's decision.

Among those urging the Senate to approve a bailout was UAW president Ron Gettilfinger. The UAW is worried about retaining American jobs, but the union balked at Republican senators' insistence that the union accept date-certain sharp cuts in pay and benefits. The proposed bailout is a floatation device for the industrial giants, but it's also aimed at keeping the UAW afloat. The UAW turned down a requirement to have the union accept $14 an hour reductions in pay and benefits, from about $62 an hour ($30 of that in wages) the Big Three pay to $48 an hour paid by non-union foreign auto manufacturers in this country. The UAW will take its chances with the new Congress, which will have many more Democrats who owe favors to the unions.

Now the White House says things are so desperate that the administration will try to scrape together enough money to tide the automakers over until the new Congress arrives. But skepticism about the Detroit bailout seems to be growing. The companies got themselves into this sorry state through mismanagement.

Here's a telling point: Detroit has spent millions of dollars paying celebrities to pitch their vehicles. Tiger Woods recently released GM from a multi-million dollar deal that had him endorsing Buicks. Country singer Toby Keith pitched Ford trucks. Paris Hilton did a Chrysler commercial. Rock singer Bob Seger sold his lyrics and voice to Chevrolet. Years ago, crooner Jack Jones sang about the Chrysler New Yorker. Altogether, Detroit spent untold millions on celebrity endorsements. Ever seen a celebrity endorsement for a Toyota, Honda or Nissan? These manufacturers realize they're selling vehicles, not vanity.

Letting an automaker or two slide into bankruptcy would be painful. But plenty of people in this country are in financial pain already, and they aren't begin bailed out.

What's good for GM is good for newspapers

Congress snubbed Detroit's automakers Thursday. The Big Three (GM, Ford and Chrysler) want billions in taxpayer money to prevent a collapse of the industry and the loss of millions of jobs. Detroit will be back later with a new proposal for bailing out the industry, but Congress doesn't seem particularly sympathetic toward the industry that once ruled America.

Congress has appropriated $750 billion to bail out the finance industry (banks, brokerages and others), but the infusion of cash with a promise of more to come has done little to reassure investors or to restore credit.

Everyone has his hand out in this financial crisis. Has Congress considered bailing out the newspaper business? Seriously.  Newspapers are facing the worst crisis since they were reporting the Civil War. Readers are fleeing to the Internet and other media. Advertisers are pulling back. Web sites such as e-Bay and Craigslist are killing classified advertising. As a result, journalists are being snuffed out like fleas in a flea dip. McClatchy newspapers, which boldly bought the troubled Knight-Ridder chain, has had to cut payroll and pages at all of its newspapers to make debt payments on its loan. Newspapers are offering buyouts. Great newspapers such as the New York Times and Washington Post are getting rid of reporters and editors. The Charleston Post and Courier has shed dozens of people with buyouts. The Greensboro News & Record has offered buyouts to everyone on the staff. I can certify that even small newspapers are being hurt. I am one of five people (so far) laid off by The Wilson Daily Times. News coverage is being curtailed.

The Founding Fathers thought enough of newspapers to write the First Amendment, which guarantees that government will not interfere in the operations of the press. Shouldn't the current Congress care enough about whether constituents are informed about important issues to provide a small incentive to newspapers that keep news staff on board or hire additional journalists or maintain the number of news stories they publish at pre-collapse levels? Perhaps a tax credit for the hiring or retention of reporters and editors or a credit for the purchase of newsprint and ink. 

If banks, brokerages, insurance companies and automakers get a government handout, why not newspapers?

Detroit wants your business, and your taxes

Members of Congress are eager to toss another $25 billion to the U.S. automotive industry, and industry sources are saying the money can't come too soon. Some are predicting that at least one of the Big Three automakers might not last until the Obama administration, which has supported a Detroit bailout, takes office. The New York Times is reporting today that Democrats supporting the bailout might not have the votes in the lame-duck session to salvage Detroit. Conditions in the automotive industry are dire, with billions of dollars in losses in the last quarter. The News & Observer is reporting that a collapse in Detroit will ripple through North Carolina's automotive supply industry.

But not everyone is in favor of sending taxpayer money to Detroit automakers who have failed miserably to innovate, upgrade or respond to consumer interests. By almost any measure, the Big Three have failed to be competitive with leaner, more innovative and more responsive Japanese and Korean automakers. Detroit is in this mess in large measure because it insisted on maximizing profits by producing huge, heavy, gas-guzzling SUVs. Other factors, such as labor costs, union restrictions, retiree health care and pension costs, play a role, but, fundamentally, Detroit has missed the boat on how to thrive as 21st century automakers. Japanese automakers are building quality cars successfully and economically in U.S. factories, so it's not just the American labor market that's the problem. Detroit trails in quality of construction, consumer comfort and satisfaction and reliability.

Full disclosure: I drive a 14-year-old Japanese-made car, and my wife drives a 7-year-old car made in America by a Japanese company. The two vehicles combined have more than 200,000 miles on them and remain reliable.

A bankruptcy by GM or Chrysler or Ford would ripple through the economy. Automobile manufacturing is one of the last heavy industries left in America. It would be painful. The question for Congress is whether the pain of bankruptcy would be worse than the pain of having taxpayers subsidize the poor decision-making of Detroit's management. One thing taxpayer dollars should definitely not do is accommodate a merger between GM and Chrysler, which has been openly discussed. The proposal is idiotic. Combining two losing companies does not create a winner; it creates an even bigger loser.

Both GM and Ford have new products in the pipeline that could make the companies more competitive. GM's Volt plug-in electric car is especially promising, if the engineering problems can be resolved. But unless the culture changes in Detroit board rooms, these new products, with or without taxpayer subsidies, will not turn the behemoths around. 

Detroit claimed to have learned its lesson in the aftermath of the disastrous oil shocks of the late 1970s, when its giant road hogs were driven from the market by smaller, more efficient vehicles designed to compete against Japanese and European cars. But Detroit quickly shifted to the manufacture of SUVs, taking advantage of Congress' exemption from mileage standards of "small trucks," which conveniently included big, gas-thirsty SUVs.

A bailout of the Big Three might be in the long-term best interests of the country, just as the 1979 loan guarantee for Chrysler proved to be a wise investment, but I'm not convinced yet.