Friday, December 19, 2008

A Long Bridge to Detroit

The automakers will receive their first installment of their bailout on December 29. It was not as much as they were hoping to get, and it was not nearly as much as most analysts say they are going to need.

While I was not supportive of the bailout, I must say that it is not as bad as it could have been today, nor is it as bad today as it probably will be in the next six months. Of course I have no way of knowing exactly how this will all play out, but it seems to be frighteningly similar to a Nigerian e-mail scam.

You know the story, Great Uncle Joseph Hazzid, a diplomat and businessman, was assassinated by rebels but left behind $25.2 million American in a bank in Lagos. Unfortunately, the family cannot access the money unless they find a most sincere and trustworthy foreign agent to assist them. This trustworthy soul will receive a full 20% of said funds as thanks for the assistance.

The fish nibbles at the bait. Correspondence takes place. There is a back and forth and trust is established. The money is very close to being free. But then a catch develops. A small pittance must be delivered to the family in advance to assist them with the paperwork. Later, another pittance is needed to free up regulators. Then another. And another. Every fiber within the fish says cut the losses...but the goal is so close at hand.

It is hard, of course, to consider $17.4 billion a pittance. Unfortunately, when it is compared to what will be necessary to elevate these companies to profitability, it is but that.

This deal does ask for the companies to strive for a new business model. Unfortunately for the executives, they have partners in this mess. And while one begrudging partner, the UAW, has been asked kindly to please deliver on some concessions, the second partner, the US government, which through shortsighted energy policy, monetary policy, heavy regulation, and its unrelenting pursuit of a cooler climate, caused most of this problem to begin with, has agreed to make no concessions at all. This money buys the government, from a practical standpoint, an electric prod with which to herd the cattle toward the government's desired corral. (This would be the big green corral where physics has little import and economics even less.)

The biggest fly in the ointment however, is the overall economy. A credit crunch that affects all but the most qualified of buyers is still in place. Unemployment figures are bulging like the midsection of a gluttonous Santa, and many people who are employed are not buying anything right now because a job is nothing to take for granted these days. Who is going to buy enough of these products to enable the Big 3 to get back on their feet in the short amount of time allotted?

In the meantime, where, exactly, will this money be used? Even with extended plant shut downs in vogue these days, UAW workers still receive 95% of their base pay. (Incidentally, how many out of work construction workers do you know that would like to have a deal like that?) And don't forget, legacy costs have not gone away either. I guess those $1 executives will come in handy.

This whole bailout measure was presented as a bridge loan to the companies. Only enough money will be given to the troubled automakers to allow them to get back on the path to profitability. It could not have been presented in any other way. Detroit was a good citizen fallen on hard times, its major industry having spread wealth across an entire nation. It needed help, and it needed it quickly. This was not welfare, it was a loan.

Washington responded in the only way that it knows how. With ponderous inexactitude, the taxman wore a white hat.

I grumbled and groaned during the whole process, but now that the first hurdle has been crossed, I am pulling madly for Detroit. The money is committed. It will be spent. As a Michigander that does not want to have to pull up stakes, I want this plan to work.

Not too far from GM world headquarters sits the 7,500 foot Ambassador Bridge. Upon its completion in 1929 the steel structure, which crosses the Detroit River from Detroit to the city of Windsor, Ontario, could boast the longest suspended bridge span in the world. It did that for all of two years.

The much longer bridge that was financed today runs all the way from Washington, DC. to Detroit. In order for this whole thing to work, I hope that the cars traveling along this new bridge to viability contain people who are as wise as they think that they are, have good reasons for the all the confidence that they enjoy, are a lot less belligerant than previous travellers, and very hopefully, contain only a few necessary bureaucrats.

We can always hope.

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