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The three best things I’ve read on the US car (auto) bailout …

… are this opinion piece in the FT by Joseph Stiglitz, this brief blog entry by Matthew Yglesis and this blog entry by Robert Cringley.

Stiglitz’s piece makes, to me, a compelling argument for letting the firms go into Chapter 11 bankruptcy, albeit (given the state of the market) with government guarantees for any further financing they may need for restructuring. The following four paragraphs are among the most succinct and clearly written on the US car industry:

 Wall Street’s focus on quarterly returns encouraged the short-sighted behaviour that contributed to their own demise and that of America’s manufacturing, including the automotive industry. Today, they are asking to escape accountability. We should not allow it.
[…]
The US car industry will not be shut down, but it does need to be restructured. That is what Chapter 11 of America’s bankruptcy code is supposed to do. A variant of pre-packaged bankruptcy – where all the terms are set before going before the bankruptcy court – can allow them to produce better and more environmentally sound cars. It can also address legacy retiree obligations. The companies may need additional finance. Given the state of financial markets, the US government may have to provide that at terms that give the taxpayers a full return to compensate them for the risk. Government guarantees can provide assurances, as they did two decades ago when Chrysler faced its crisis.

With financial restructuring, the real assets do not disappear. Equity investors (who failed to fulfil their responsibility of oversight) lose everything; bondholders get converted into equity owners and may lose substantial amounts. Freed of the obligation to pay interest, the carmakers will be in a better position. Taxpayer dollars will go far further. Moral hazard – the undermining of incentives – will be averted: a strong message will be sent.

Some will talk of the pension funds and others that will suffer. Yes, but that is true of every investment that has diminished. The government may need to help some pension funds but it is better to do so directly, than via massive bail-outs hoping that a little of the money trickles down to the “widows and orphans”.

I would perhaps suppliment Professor Stiglitz’s words by proposing that government support to workers laid-off as part of the restructuring could be improved dramatically over the provisions currently available. They should not only include lengthening the duration of unemployment payments and paying for retraining programmes, but also payments to help with relocation if anybody is willing to (voluntarily!) move to find work. An Obama administration might also be reasonably expected to look to Michigan for skilled manual labour in it’s push for infrastructure renewal/expansion.

Yglesis’ brief note observes a vital co-ordination problem when it comes to restructuring what is genuinely a global industry:

One thing here is that as best I can tell none of the five countries — US, Japan, Germany, France, Korea — with substantial auto industries are willing to let their national favorites fail. And yet there seems to be substantial global overcapacity in car manufacturing. If a few of the existing firms are allowed to fail, then the survivors will be in good shape. But if nobody fails, then all the firms worldwide will be left suffering because of overcapacity problems, all potentially drawing bailouts and subsidies indefinitely.

Finally, Cringely’s piece investigates how a successful US car firm ought to be run by imagining that Steve Jobs (of Apple) was running it.  The idea is not his.  Thomas Friedman briefly mentioned in early November that …

… somebody ought to call Steve Jobs, who doesn’t need to be bribed to do innovation, and ask him if he’d like to do national service and run a car company for a year. I’d bet it wouldn’t take him much longer than that to come up with the G.M. iCar.

It was something of a trite comment, and it was picked up by many people in the IT industry who got a little over-excited when imagining the details of what functionality the iCar should have (for example).  In contrast, Cringely looked at the most important thing that somebody trying to emulate Apple might bring to the car industry:  it’s design and manufacturing process:

… embracing these [new technologies] requires the companies do something else that Jobs came to embrace with Apple’s products – stop building most of their own cars.

There are two aspects to this possible outsourcing issue. First is the whole concept of car companies as manufacturing their own products. There is plenty of outsourcing of car components. Most companies don’t make their own brakes, for example. Yamaha makes whole engines for Ford. Entire model lines are bought and rebadged from one maker to another. But nobody does it for everything, yet that’s what Steve Jobs would do.

All the U.S. car companies are closing plants, for example, and all are doing so because of overcapacity. But what would happen if just one of those companies — say Chrysler — decided that two years from now it would no longer actually assemble ANY of its own vehicles? Instead they’d put out an RFQ to every company in the world for 300,000 Chrysler Town & Country minivans as an example. Now THAT would be a dramatic move.

And a good one, frankly, because with a single pen stroke most of the overcapacity would be removed from the U.S. car market. Chrysler would have to shut down all those plants and lay off all those people, true, but doing it all the way all at once would change the nature of the company’s labor agreements such that there wouldn’t be a whimper. When you are eliminating 8 percent of capacity the tussle is over WHICH 8 percent. When you are eliminating ALL capacity, there is no tussle.

So Chrysler reaches out to contract manufacturers in this scenario and you know those manufacturers would fight for the work and probably give Chrysler a heck of a deal. For current models, for example, Chrysler could probably sell the tooling and maybe even the entire assembly plant for a lot more than they’d get from the real estate alone. But that particular advantage, I’d say, would be unique to the first big player to throw in the production towel.

In this scenario, Chrysler becomes a design, marketing, sales, and service organization. What’s wrong with that? They can change products more often and more completely because of their dramatically lower investment in production capital. They can pit their various suppliers against each other more effectively than could a surviving car manufacturer. It’s what Steve would do.

This is brilliant stuff.

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On the fractious diversity of The Left (Updated)

I’m always surprised by “the left” (whatever that is). There seems to be a rolling, tumultuous mix of a thousand competing ideologies, but with people’s individual views overlapping dozens of them. How any broad grouping can possibly house somebody who argues that human trafficking figures are overblown and that many migrant prostututes chose freely to do so, big (p|m)aternalistic governmentalists, anarcho-greenie localists and pro-market World-Bank-supporting developmentalists all under the same umbrella is beyond me.

I read today in the Economist that Dilma Rousseff, a Brazilian politician who is currently chief-of-staff to President Lula in one of the most financially conservative, rightward-looking “left” governments of South America, was once a Trotskyist. The Wikipedia entry on her is clearly a highly-biased stub, but alleges (without evidence) that in the late 60s and early 70s, she was a member of a revolutionary guerilla group bent on taking Brazil down the route of outright communism. I might be completely wrong, but I think that you just don’t see that sort of change in extremes of position in “the right”, or if it does happen, it does so much, much less frequently.

To some extent, it seems that one of the key differences between the left and the right isn’t so much about ideology (although there is that) but about the practicalities of how to achieve their respective goals. Those on the left seem, on the whole, to prefer to stay in the stratosphere of broad, sweeping statements of ideological policy, while those on the right seem more likely to focus on the particular details of change. It’s a gross exaggeration to be sure, but I imagine that 80% of those on the left are more interested in where we ought to be than in how we can get there and that a further 10% seem to think that the only way to get there is in a single step by revolution.

Here’s a snippet from a recent interview of Karl Rove by GQ magazine:

What’s the biggest misconception about your role in the Bush White House?
That it was all about politics.

If that’s the misconception, what’s the overlooked truth?
Look, I’m a policy geek. What I’ve most enjoyed about my job was the substantive policy discussions. Being able to dig in deeply and, you know, learn about something, ask questions, listen to smart people, and form a judgment [sic] about something that was from a policy perspective.

The lefties may not believe him when he says that (e.g. Kevin Drum), but I’m inclined to agree more with Matthew Yglesis:

I don’t know about Rove in particular, but I’ve been consistently surprised since moving to DC of the extent to which the true policy geeks and the utterly cynical political operatives often really are the same people. These are the folks who while away their days ginning up dozens of bite-sized policy initiatives and selling them around to politicians. They’re the ones who give you your targeted tax credits, and they’re also the ones who are helping lobbyists sneak little tidbits [sic] in here and there. Hard-core ideologues often don’t care that much about the details, because geeking out over the details means you’re talking about incremental change.

Update:

Adam points out my literary ignorance (again) by asking if I’ve read “The Unbearable Lightness of Being” (Foyles, Amazon) by Milan Kundera.  Of course I haven’t, but Adam is kind enough to send me some quotes that go along with what I’m saying:

How nice it was to celebrate something, demand something, protest against something; to be out in the open, to be with others. […] He saw the marching, shouting crowd as the image of Europe and its history. Europe was the Grand March. The march from revolution to revolution, from struggle to struggle, ever onward.

[… chapters later …]

The fantasy of the Grand March that Franz was so intoxicated by is the political kitsch joining leftists of all times and tendencies. The Grand March is the splendid march on the road to brotherhood, equality, justice, happiness; it goes on and on, obstacles notwithstanding, for obstacles there must be if the march is to be the Grand March.

[…]

What makes a leftist a leftist is not this or that theory but his ability to integrate any theory into the kitsch called the Grand March.

*sigh*