There are many ironies in the Detroit Saga but most striking is the fact that state "socialism" may finally turn North America's car industry players into capitalists.
Workers will no longer have Cadillac benefits, thanks to pliant managements and an oligopolistic business model. They will have skin in the game. And their managements will no longer fleece shareholders while being overpaid for sitting atop a business model that depended upon an oligopoly and cheap oil. Both will have skin in the game at last and have to work harder and smarter than ever before or be carefully wound down by their government backers.
The Chrysler deal, bankruptcy and one-third ownership by two governments, will become the template for General Motors and Ford Motor Co. This is because the Chrysler bailout enhances the company's survival at the expense of the other two, also struggling. It will also be a template because the UAW and CAW have agreed to a new floor wage as well as agreeing to take stock in lieu of pension fund and health care obligations.
Fiat by Fiat
The Chrysler deal, involving comeback kid Fiat of Italy, will change the landscape. It was driven into the ditch by storied playboy, the late Giovanni Agnielli, but rescued. Now its professional management is making a swashbuckling entry into North America through Chrysler and thanks to backstopping by the American and Canadian governments.
The strategy is that Fiat's small, fuel-efficient car models will become a competitive advantage once the U.S. and Canada imposes severe fuel-emission standards. The Americans are also wisely considering tax credits for those swapping gas-guzzlers for new efficient cars.
Irony of irony, however, is that anything can happen because Detroit is going to be true engaged in free enterprise.
In the past, unions had a monopoly over Detroit's automakers, were able to extract uneconomic concessions and boards plus managers were mostly interested in their own pay packages.
Another problem was that working for these companies, whether blue or white collar, appeared to be a family affair rather than a meritocracy run by people who think out of the box and have international experience.
What's ended here is not the car industry but the American car industry business model which was fossilized and impervious to shifts in trends or competitors. They deteriorated in profitability as foreign interlopers nibbled at the margins of their market.
Meanwhile, managements and boards were preoccupied with lobbying Congress and state legislatures to prevent any emission restrictions on vehicles rather than developing innovative, profitable products.
In essence, the North America auto industry behaved like a trust-fund brat whose fourth-generation mentality consisted of keeping the cash flow going so that everyone could carve up the money.
The perfect storm of economic crisis, oil price volatility and American overspending brought the trust fund kids to their knees, both in Detroit and Wall Street alike.
So now what we will see, if this bailout and the two others in the offing for GM and Ford, really work is that workers and managers will have skin in the game, take paycuts if necessary and concentrate on selling good cars.
On the other hand, Chrysler may be too far gone to salvage and be forced into the arms of a struggling General Motors and Ford orphaned and at sea.
But I prefer to take the optimistic attitude which is to say that free enterprise may have finally broken out in Detroit and government ownership plus bankruptcy may turn them into capitalists for the first time since I got a driver's license.
Diane Tucker: Artist Tim Burke Recycles Detroit History, And Rescues Himself (PHOTOS)
Detroiter Tim Burke calls himself an artist, a scavenger, and a non-practicing alcoholic. Devoted to the reuse of refuse, the 40-something sculptor uses cast-off scraps...
Sheldon Filger: Chrysler Is Kaput
In just over half a century, how did Chrysler, and the wider domestic automobile industry, traverse the road from riches to ruin?
Capitalists always wish to sell this idea that everyone who owns a share is a capitalist. This just masks the real nature of the capitalist class. In my opinion to adhere to this broader definition of capitalist is disingenuous.
However, Ford is in a different place than GM and Chrysler...its bonds and stocks are rising because of reduced bankruptcy risk, increasing retail market share in the U.S. and Europe, and improving public perception from its refusal to tap TARP funds.
Capitalism is alive and well in Dearborn.
Today F closed at $5.88.
If you and drymartini1 have any other stock picks, please please let us know.
If you paid attention you would know that this is now in front of the bankruptcy judge. The president does not arbitrarily have the power to rewrite the bankruptcy code, nor has he done so.
More here http://my.barackobama.com/page/community/blog/richardgerber
Uggg - not a promising first line from someone claiming to be on the left
Please do not mix up socialism with what is being proposed for the auto industry.
That is not what the plan is
http://www.thedailyshow.com/video/index.jhtml?videoId=225113&title=the-stockholm-syndrome
and "The Stockholm Syndrome, Part 2"
http://www.thedailyshow.com/video/index.jhtml?videoId=225126&title=the-stockholm-syndrome-pt.-2
And which countries impose ridiculous requirements? What requirements would that be? Fuel efficiency? Bummer.
:-)
China and Japan mainipulate their currencies to keep them cheap to the dollar so their workers can pump goods into America. This too amounts to an effective tarriff.
When Chrysler/GM have to go to debt markets again and look at the interest rates that bondholders demand, we can rejoice. patience is virtue my friend !!
Good to see you writing for The Huffington Post, or was your article just picked up by HP. Either way, hope we see more of them.
GM and Ford are as competitive and move as fast as any other automaker worldwide -- they just happen to be hampered by a native climate where manufacturing for profit is impossible. Look where all manufacturing jobs have gone the last 30 years, and especially the last 15....not the USA.
To conservatives I say....The unions have nothing to do with this. The US health care system is far more to blame.....I don't see Mercedes or Toyota being saddled with retiree health care benefits back home. I don't see Mercedes or Toyota being forced to build the infrastructure that EVERY OTHER major industrialized GOVERNMENT IN THE WORLD provides.
To liberals I say.....The reason GM and Ford doesn't make small cars is cause YOU CANNOT MAKE A PROFIT BUILDING THEM IN THE USA. It's impossible and NOBODY does it. The Prius was paid for by the Japanese government - they funded the R&D and subsidized Japanese sales to the tune of $15,000/per. In the USA, we let big oil, et al, sway the California group that gave GM a reason to lead the way in EV's in the 1990's (Google: EV1 and California CARB). Bush's butchering funding to the USA Car program (Hybrid/EV -- EERE), dumping more money into the panacea of Hydrogen & tax cuts for 40k+ vehicles (big SUV's as small business write offs) didn't help either.
Socialism is when the profit of an economy benefits the working class which created it first, rather than first enriching the investors who let their money do the work. Socialism was not what was going on in Detroit. Both sides of my family, two generations, auto workers. Detroit was and is a place where workers had to fight for everything they got from Capitalists, and where the workers always were expected to be the first to give up any gains when times got tough. Just like now. Recession? UAW has to re-negotiate contracts, lower benefits. Funny how the Wall Street bonus contracts had to be respected, but not the those of the workers. Socialism? No.
Capitalism is the system they had, and have in Detroit: corporations that are run at the lowest possible cost, creating the cheapest possible goods, selling at the highest possible price to return the greatest possible profit to the investors. That's Capitalism.
Americans, and apparently at least one Canadian, don't quite understand what Capitalism and Socialism are. So here's this American's take:
"Capitalism - The Gift That Keeps On Taking."
http://www.huffingtonpost.com/michael-gene-sullivan/capitalism---the-gift-tha_b_170893.html