RANTS #469

October 29, 2008

After the smoke clears, it's time for America, Inc.

By Peter M. De Lorenzo

Detroit. By now it should be obvious to even the most casual observers that the domestic automobile industry is on the verge of total collapse. Already reeling from the gas spike earlier in the year and the subsequent decimation of the light truck and SUV markets, the national financial and credit crisis has conspired to cut the amount of survival time for two of the three domestic automobile makers from years to just months, leaving General Motors and the Cerberus-owned Chrysler LLC on the brink of bankruptcy.

And it has also finally become obvious to even the most jaded anti-Detroit zealots in Washington and around the country that a collapse of the domestic automobile industry would be a cataclysmic event with devastating and far-reaching consequences that would threaten to shake this country's economic future to its core.

The urgency of this looming economic disaster - which initially was just a sideshow compared to the national and international financial crisis - is now on the front burner for this country's decision makers, and is one of the prime topics in the presidential race too.

It is clear that GM is in direct talks with the White House about receiving an early injection of money - from either the $25 billion already promised to the Detroit 3 or the $700 billion financial institution bailout package - in order to ease the financial blow to employees and dealers as a result of its acquisition of Chrysler from Cerberus. And that agreement may in fact have already been made.

The alternative? There is no good alternative. If GM were able to acquire Chrysler (although the financial wherewithal for GM to do it completely on its own just isn't there) straight up, the immediate cessation of most of Chrysler's operations and the brutal dismissal of 90 percent of its employees - not to mention the utter devastation to thousands of dealers across the nation - would plunge this country toward economic disaster on top of an already deepening recession.

The point of no return.

Free-market theorizing aside, we have long since passed the point of no return in this matter. If this country allows one of its key manufacturing pillars to slip into insolvency, it would set-off a dark chain of events that would reach into every sector of the economy and would not only devastate the states where Detroit has its manufacturing and parts facilities, but it would affect every state of the union too.

There are still some out there who don't believe this "Detroit thing" will have anything to do with their lives or livelihoods, of course. It's hard for some people to understand that because Detroit and Michigan ("The Flyover State") are viewed as relics from an ancient country no one remembers anymore, even though 1 in 14 jobs in the U.S. are still either directly or indirectly dependent on the domestic automobile industry. I really don't know how else I could possibly present those figures in order to get through to people out there that they should care deeply about what's going on in Detroit and Washington right now, because it's real and it will affect you, no matter where you are, or how flush your circumstances are.

Even though I am absolutely convinced that the idea of GM acquiring Chrysler is fraught with opportunities for abject failure on a grand scale, the White House will make the decision that a managed dissolution of Chrysler over time under GM's stewardship would be preferable than an immediate corporate blow-up.

But let's move beyond that for a moment. Let's operate under the assumption that with government assistance GM does take over Chrysler. Now what? Critics are quick to point out that Detroit can't continue to do business as usual and that accountability and some measure of performance deliverables have to be built into the "strings" of any loan package. And I say fine to all of that, except I must point out the reality that it hasn't been "business as usual" here and that Detroit has been racing to revamp its product offerings for going on five years now (lead time is not a concept that people outside this business find easy to understand).

A wildly naïve "whatever" consumerist mindset.

But I am really much more concerned about the negative and wildly naïve attitude that has been allowed to fester in and around Washington and across the country of late, the attitude that suggests that our manufacturing base and this country's ability to make things somehow doesn't matter in this brave new consumer nation that the U.S. has become in the 21^st century.

It's the same attitude that suggests - if not outright promotes - the idea that we can exist in some alternative consumerist universe of our own creation, a Starbucks Nation of "whatever" consumers who don't really care where whatever it is we're coveting comes from as long as its here, now and c-h-e-a-p.

This is the same attitude that has left this country ill-prepared for the burgeoning realities of this global world we're living in. And this "whatever" posture that has become far too commonplace in our nation, and the idea that this will all workout somehow - because it always has - is not only beyond scary, it's just flat-out wrong.

America at a crossroads.

I've said this before and I will say it again: This nation is at a crossroads. Our idyllic, textbook, free-market notions and our "Aw, shucks, we just want you to play nice with us like we play nice with you" Jimmy Stewart-like attitude that we continue to try to foist off on jaded nation-state competitors that just don't care are simply obsolete in this new global economy we live in.

Other nations have taken advantage of Uncle Sam's quaint view of the world for years, to the point where they must privately refer to us as "Uncle Sap."

We've allowed other nations to come into this country virtually unimpeded, and showered them with lavish, long-term tax breaks and incentives for good measure. Yes, jobs were created, but now we're waking up to the fact that American-owned manufacturing strongholds are fewer in number because our manufacturing base has been slowly but surely eroded from within.

Just a few examples? We allowed Japanese automobile manufacturers to dump vehicles in this market - vehicles that carried none of our American workers' health care or pension overhead burdens of any kind - for years while the Japanese government did everything in their power to keep American made vehicles from being sold over there. We also watched as "Japan, Inc." willfully and consistently manipulated the yen in their homegrown automakers' favor - to the point that Toyota was making millions of dollars every quarter just on currency manipulation alone - while our own government shrugged their shoulders and mustered little or no protest, saying "Gee, we wish you guys wouldn't do that," or some such nonsense.

Where did all of this leave the Detroit automakers? The manufacturing powerhouse that forged this nation's middle class and once powered the "Arsenal of Democracy" in WWII? The companies that allowed millions of people to make a decent living, send kids to college, and allow communities big and small across this nation to thrive for the better part of 100 years?

Broke down and busted on the side of the road, that's where.

Make no mistake, Detroit was more than culpable for their predicament, that has already been well-documented by me and others ad nauseam. But trying to compete with Japanese vehicles that started out with a $3,000 cost advantage before they even hit the dealership lots while paying for health care and pension funding that grew exponentially with each passing model year was a debilitating, no-win game for Detroit. And now that game is well and truly over.

The time is now for "America, Inc."

After the smoke clears, the dust settles and the hand-wringing and political posturing stops over this Detroit bailout, this country will be faced with some difficult choices going forward.

Do we want to continue to compete in this brutally competitive global economy with hat in hand and shuffling feet, hoping countries treat us nice and with respect? Or do we wake-up, smell the coffee and realize that these countries are only in it for the money - our money - and they will do everything in their power to get their hands on it, even if it means turning us into a nation of consumer zombies with little left to stand on other than our revolving plastic.

If we want to shore-up this nation and we want to get this country back on track, then we're going to not only have to make some difficult sacrifices, we're going to have start playing tough in this new global marketplace. And that means that the gloves will have to come off in Washington. This country needs to start thinking in terms of "America, Inc." and that means first and foremost rebuilding our manufacturing base and supporting our American companies - no matter what sector they're competing in - because to not do so in this global economy borders on the criminal.

The reality about all of this is that countries from all over the globe love to do business here, and they love to do so for a reason. And that reason is because we don't ask them to sacrifice much to come over and set-up shop here. As a matter of fact, we make it real easy for them. Twenty-five years of tax break incentives? Sure, why the hell not! Free land? Come on down!

The bottom line is that this type of total economic acquiesence on the part of our government - at the national and local level - will have to change, and dramatically so too.

Don't agree with a "bailout" or "loan" for Detroit? Then what if every foreign auto manufacturer - whether they have plants here or not - had to pay anywhere from $250 to $1500 per vehicle sold (on a sliding scale) to do business here? (Because no matter how much they say that they've created jobs in the states they operate in and that they shouldn't be penalized for doing so, at the end of the day their profits return to their home countries, not here. And to pretend otherwise is to have your head in the sand.) And then what if that money went directly into a fund to help support American workers' pensions or an education fund for their families?

The idea that in this global economy our free-market policies will be accepted and embraced and that everyone will play nice with us because we want to play nice with them is simply absurd and woefully out of touch. America must change its ways if we are to survive as a global leader, economic and otherwise.

The bottom line in this discussion is that we have a multitude of problems in this country that will take time, sacrifice, hard work and collective effort to solve. And we're only going to be able to do that if we're unified as a nation, and we compete in the global marketplace as "America, Inc."

Thanks for listening, see you next Wednesday.