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Monday, November 17, 2008

Getting Paid for Bad Decisions

I have three daughters that don't always pick up after themselves. Can the government give me a hand with that?

I have four cats, and it's very difficult picking up the hair, cleaning out the litterboxes, finding the tuna wet catfood that they like, etc.. Can the government give me a hand with that as well?

Yeah, I know that those examples are a little trite, to say the least, but I guess the concept is still the same, namely that somehow I need to be accountable for my own bad decisions (whether it be related to teaching my kids to pick up after themselves or in collecting cats), on a small scale, but somehow responsibility ends when the bad decisions get bigger.

Now please don't think that I'm somehow against any and every instance of government intervention into the business world, because I am not. I also realize that the 80's bailout of Chrysler actually made money for the government (Chrysler Chairman Lee Iacocca actually paid the money back, with interest, early). However, at what point does this end? In the auto industry, we have a HISTORY of businesses forgoing long-term profit in exchange for short-term gain. These people KNEW that gas prices were going to go up over the long term, but yet they still kept spitting out the large SUVs and putting too much of their R&D money into more of the same. A classic example of the worst that American business has to offer: short term profits ahead of long-term success. While Ford was putting out moster sized F-150, 250, 350 (some being so big that you swear they could turn, at a moment's notice, into a giant fighting robot), Toyota was putting out the Prius.

The Greed Heads in corporate offices aren't the only one's to blame here. Add two more to the list:

1. Union Members who believed that they were entitled to employment for a lifetime and who wanted to be paid for obstensively not working (the infamous "job bank" program, whereby laid off workers show up at a center and continue to get paid for not working). These same union members seems to feel that somehow their fortunes are divorced from those of their employers. The easy shot here is to blame management for giving in to the union demands, but as is the case with an unexpected pregnancy, it "takes two to tango". In the end, when it come to labor costs it's all in the math: GM pays about $70/hr for wages and benefits, Toyota pays about $45. Cultivating "us" vs. "them" attitudes may be good for union leadership, but I think it's also a big part of the failure here. While I don't have any ill-will towards workers (who were not designing crappy cars or pushing was doing that), the fact remains that they too believed in this fairy tale of "the never-ending paycheck".

2. Michigan Congressional delegation who were nothing more than puppets of a bloated industry that fought things like higer fuel economy standards like Bush fighting the Endangered Species Act. IF EVER there was a case of money corrupting politics, it's in this state (Michigan) and these elected officials.

So there you have it, poorly run companies, unions detached from reality and members of congress who were puppets of the previous two. And now they want money from all of us? Yes, sure, there can be conditions.

Am I against the bailout of these companies? I guess you've probably figured out that I am.

Many years ago, I found out that my own finances were not in the best of shape. I was in a position whereby someone else was taking care of that stuff, and I assumed it was ok. The greater sin was mine, as allowed someone else to be in charge of that without the support I should have been providing all along. Fair enough. However, once I found out just how bad it was, I took responsibility, didn't ask for dime from anyone, and set to work cleaning it all up. Years later, my house is paid for, and I have a total of $1400 in total creditcard debt. Superman? No. I just took responsiblity for the situation I found myself in and dealt with it. It was painful, it was difficult and it required sacrifice. It required humility on my part. But when all was said and done, I was better off for having dealt with it myself.

In the end, my position is simple: Detroit created this crisis. Sure, recent economic changes have made it tough on auto manufacturers, but well-run businesses have the resources to ride-out the bad economic storms. With the "Big Three" we have classic examples of unmittigated greed...from the board room to the union halls to the halls of Congress. Would bankruptcy create hardship for all involved? I am sure it would, but any solition that doens't involve some pain for all the parties involved (Managment, workers and Michigan Congressional delegation) isn't much of solution.

What's left? Bankruptcy, re-organization and consolidation. There will be much pain, and for that I am sorry. However, if there were to be a bailout, it would simply postpone the pain to a future year. Simply put, no amount of money can solve the fundamental problems here, because the people that run these companies and the workers build the vehicles seem to detached from the reality of the situation: competition that is better at building cars at a lower cost structure. Throwing $50 billion at the industry will not change that fundamental.

Think of the auto industry as suffering from a disease: throwing money at them would be like giving it something for the pain, however it doesn't threat the underlying cause of the illness. What's needed now is surgery.

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