Petitions, petitions

Cartoon by Chris Britt for the Springfield State Journal-Register

Hat Tip: St. Louis Beacon.

Post headline explained here.

History repeating itself

The New York Times reminds us of a similar situation 30 years ago.

For Garel Rhys, head of the Center for Automotive Industry Research at Cardiff University in Wales, the trajectory of General Motors is reminiscent of British Leyland not only because of the former’s decision to seek aid to avert bankruptcy, but also for its slow, seemingly inexorable loss of market share. “Both had a history of being the biggest in their market but couldn’t adapt as they lost sales,” he said. “They couldn’t get customers back.”

Historically, British Leyland’s roots stretched back further than Henry Ford’s Model T. The company controlled 36 percent of the British market well into the 1970s, with mass-market brands like Austin and Morris and premium lines like MG and Jaguar. But rising competition from Japanese and German automakers, shoddy workmanship and a breakdown in labor relations brought the company to near bankruptcy by 1975, Mr. Rhys said.

Michael Edwardes, who took over as British Leyland’s chief executive in November 1977, recalled that when he joined, no one even knew whether individual brands were profitable. “It was a farce — no one knew what the costs were,” he said.

As it turned out, every MG the company sold in the United States resulted in a loss of $2,000 for British Leyland.

Wildcat strikes consumed more than 32 million worker-hours in 1977, and the company became a symbol of labor strife, with some employees walking out the door with spark plugs in their coat pockets and engines in the trunks of their cars, Mr. Edwardes said.

Mr. Edwardes immediately began reducing the company’s work force of roughly 200,000 — to 104,000 within five years — and closing 19 factories. He appealed to the Thatcher government for aid, arguing the money was needed if British Leyland was going to be able to afford to lay off workers while investing in new models.

Eventually, the government put up £3.6 billion, equal to £11 billion in today’s money. But the rescue did not do much to preserve British Leyland’s labor force or market share in the long term.

By the time it received its last government infusion of cash in 1988, Mr. Rhys said, British Leyland’s market share had slumped to 15 percent. British Leyland evolved into MG Rover, which was eventually acquired by BMW, then spun off, finally going bankrupt in 2005.

According to Mr. Rhys, just 22,000 workers remain at British Leyland’s successor companies, about 10 percent of its work force in the mid-1970s.

...

Despite the British experience, the case of Renault, which combined fresh money and new management in the 1980s, showed that government bailouts can be beneficial.

Lessons from Renault:

1. Cut costs by

a. Get out of non-core business

b. Lay off workers (if the UAW allows and/or at the cost of your life)

2. Privatize

Scare tactics used by the Big 2.5:


The U.S. Auto Industry & the Ripple Effect from GM blogs on Vimeo.

The Center for Automotive Research is a nonprofit research organization with industry, labor, academic and government ties. The 1 in 10 jobs claim is debunked here.

The case against the bailout has been made eloquently by Megan McArdle. The bailout is the Broken Windows Fallacy all over again. As Oliver Cromwell memorably said to the Rump Parliament

You have sat too long for any good you have been doing lately ... Depart, I say; and let us have done with you. In the name of God, go!

To GM, Ford and Chrysler, go to Chapter 11 or if that is not possible then go to Chapter 7, but In the name of the Taxpayer, go!

Update, November 20, 2008: The video on vimeo seems to have been removed. Youtube saves the day:

Megan McArdle on Losing a Job

But that doesn't mean I don't understand how awful and terrifying it is to have expected a certain life, and have it stolen away from you by a fate you do not very well control. In June 2001 when I graduated from business school, I had a management consulting gig that was scheduled to pay over $100,000 a year and had just moved back to New York. Two months later, two planes crashed into the World Trade Center, killing a number of people I knew and leaving the rest of us traumatized. Four days after that, I was working at the World Trade Center disaster recovery site, trying to come to grips with what had happened. Four months after that, the consulting firm, having pushed back my start date twice, called my associate class and told all of us that our services would not be required.

For the next eighteen months, I struggled to find a job, in the teeth of a recession that kicked MBAs especially hard. It was awful in a way that is difficult to describe to anyone who hasn't been unemployed long term; the thing makes you question everything about your life. I remember going to see Avenue Q on a date, and writhing in humiliation, thinking that my date must be identifying me with the aimless failures on stage. I was 29 years old, and living at home. I had money--I always managed to work. But as far as I could tell, I had no future.

When I finally did get a job, with The Economist, it paid about a third of what I'd been expecting as a consultant. I had about a thousand dollars in loan payments, and of course, I had to live in New York, where my job was. For the first time in my life, I understood what Victorian novelists meant when they described someone as "shabby". Over the years since I'd had a steady income, my clothes had stretched out of shape, ripped, become stained, gone out of style. I couldn't afford new ones. And I wasn't one of those whizzy heroines who can make over her own clothes. Instead, I frumped around in clothes that never looked quite right, and felt the way my clothes looked.

It took me a long, long time to crawl out of that hole. I'll never make what I expected to make as a consultant. I'll never have the job security that I had learned to expect in the pre-9/11 world. The universe will always seem a potentially malevolent place to me, ready to unleash some unknown disaster at any moment.

Read the whole thing here.

I am becoming a fan of Ms. McArdle

Bailing out Big Labour

These are the people for whom our heartstrings are being tugged. Below is one of the reasons (apart from poor management) why the Big 3 are on their deathbeds.


Hat tip: Mark Perry

In all fairness if the Big 3 go down, their ancillary suppliers will also go down and I don't know how much workers in those industries make.

Too big to fail

Most of the supporters of the auto bailout (and other bailouts) claim that the bailout is necessary because otherwise a vast population (of workers in these and ancillary industries) will be adversely affected, as hilzoy says of the order of 1-3 million.

Obviously the argument is that these institutions are too big to fail.

Let me propose some remedies. Let us first suppose that above "N" employees a company becomes too big to fail. The exact value of "N" is not important. There are two possible solutions:

1. No company will be allowed to have more than "N" employees. In which case it will never become too big to fail and thus we will never need bailouts again

or

2. if company has more than "N" employees, confiscate some proportion of the gross company revenue (I say revenue and not profits because profits can be whittled down by generous compensation to management and workers) which will be kept by the government and released to the company when it desperately needs some cash and this release can be decided by Congress.

Any feedback about the two solutions proposed above?

P.S. To be fair, I did not think of solution 1, it was thought of by a friend of mine. Solution 2 is obviously inspired by solution 1.

Bastiatian wisdom from Megan McArdle

Megan McArdle dispenses some Bastiatian wisdom about opportunity cost, and does it with compassion, here.

But it doesn't matter. These vital towns, where generations of people lived happy lives and raised fat, burbling babies to a middle-class adulthood, are all dying. Should the government save these places too? Shall we support Eastman Kodak indefinitely, whether or not it can produce a product anyone wants to buy? And Xerox, and Carrier, and a thousand companies you've never heard of? Shall we make it illegal to make a better product than American corporations? Why not just ban new products that make old ones unprofitable?

To do that, we'll have to take the money from other people, in other cities. Other businesses will not get the capital that we give to dying firms, so they won't expand. Some other families, not yours, will lose their homes because their business failed, or have to move away from home in order to get jobs because their area is in the doldrums. Meanwhile, everyone in the country will be slightly worse off, because we've shifted limited economic resources towards products they demonstrably do not want.

...

Moreover, it wouldn't be right to save it by destroying someone else's business, killing someone else's town. That's the choice we are facing. At its heart, economics is not about money; it is about resources. Every dollar sent to Detroit buys a yard of steel, a reel of copper wire, an hour of labor that now cannot be consumed by a business that actually produces a profitable, desireable product. It's not right to strangle those businesses in order to steal some air for the dying giants of an earlier day.

Dude, where's my bailout

Hat Tip: Reason.tv