UW on Detroit

Inspired by this fantastic column from the Free Press…

People don’t like Detroit. Or at the very LEAST, they have a very, very negative opinion of the city. Reasons:

1. It’s corrupt, dirty and crime-ridden. True, yes, but what cities aren’t? I’ll agree that the city probably doesn’t deserve a $10 billion bailout like they want, but you can’t simply say “No, you screwed up, get out.”
2. Arrogant automakers. GM, Ford, and Chrysler have all felt like they have the power to tell the consumer what to own–an poor quality SUV that won’t make it past three years. People think the Detroit 3 only make cheap cars, gas guzzling SUVs, and they think Toyota makes great vehicles with great mileage. All of that are false stereotypes.
3. The UAW. In general, unions in this country are frequently treated like socialist jerks who kick and scream until they get what they want. Again, an unfair characterization, because while UAW hasn’t helped the Detroit 3, they were doing the same things during the 70s and 80s when GM was the most prosperous company on the face of the Earth.

Again, like Tompor argues, why do people (and Washington) care more about the New York banks than the Detroit auto companies? I think the above reasons sum it up pretty well.

I’d also agree with what Sen. Carl Levin’s suggestion that GM CEO Rick Wagoner should get the boot if this bailout plan goes through.

But at least we again see Obama is thinking of Detroit, with these comments from 60 minutes tonight:

For the auto industry to completely collapse would be a disaster in this kind of environment,” Obama said. “So it’s my belief that we need to provide assistance to the auto industry. But I think that it can’t be a blank check.

The City Council of Detroit needs a $10 billion bailout to survive:

The resolution specifically requests the council meet with Mayor Ken Cockrel Jr., Gov. Jennifer Granholm, the state’s congressional delegation, U.S. House Speaker Nancy Pelosi and officials from President George W. Bush’s office and President-Elect Barack Obama’s transition team.

Wow. $10 billion? Is the economy really that horrible? Is money being that poorly mismanaged? If the auto companies go down, this Onion article may become a reality.

It’s simple:

The potential failure of one or more of the three U.S.-based automakers would cut up to 2.5 million jobs in the first year as production ground to a halt throughout the industry, according to an auto industry consultant group on Wednesday.

Want to talk about high unemployment? Want to talk about unstable markets?

The failure of any of these companies would rock the economic state of this nation and destroy Metro Detroit as we know it.

I’m amazed this isn’t discussed more outside of Detroit.

In every article I’ve been reading about the Detroit Automakers since late 2006/early 2007, they keep refering to 2010 as the finish date–by then, they say, the economy will have stabilized, oil prices will be reasonable, and people will begin purchasing fuel efficient and hybrid American cars released by GM, Ford and Chrysler in 2009.

Well, 2010 is only 14 months away. And Ford still sees it as the finish line:

Ford now has $18.9 billion in cash and $10.7 billion in credit to survive until 2010 — a year that Mulally and other automotive executives have been eyeing like a finish line.

Mulally said he hopes that the economy will begin rebounding then, just as Ford’s stable of new fuel-efficient cars from Europe begins arriving in U.S. showrooms. The automaker by then also will realize the full savings of its historic labor contract with the UAW, which removes billions in health care liabilities from its balance sheet.

WHY IS THAT THE FINISH LINE? How can we know when/if the economy will stabilize? How can Ford say “we will survive” if they can only make it through 2010 under current conditions?

That includes the all-new 2009 Ford F-150 pickup, which is part of the company’s best-selling F-Series lineup and a longtime source of profitability for Ford.

The automaker also is to launch a redesigned Ford Fusion midsize car early next year. Ford has said the four-cylinder engine versions of that vehicle will deliver better fuel economy than the Toyota Camry and Honda Accord.

“We have a good plan. We’re making progress on our plan,” Mulally said. “We’re on our way.”

I just don’t get this. I don’t see a plan. I see a bunch of executives scared shitless because they can’t offer any real solutions.

I think there needs to be a serious “Buy American” movement. It was serious during the 1970s and 80s, when Toyota began competing on the global marketplace. It should be both grassroots (with free bumper stickers) and government-sponsored (Department of Commerce commercials about the importance of the Big 3).

Moreover, there needs to be some sort of tax credit for buying or leasing an American car (Say, $6000) and for buying and leasing an American hybrid car (Say, $10,000). There is already one for hybrids, but it is for every hybrid, including the very popular and posh Toyota Prius. Get rid of that and make it only for American hybrids.

Who knows, the 2010 date might turn out to be right–the economy is due for a recovery. But I don’t know if now is the time to make those sort of projections, considering the unprecedented instability in our markets.

Just weeks after GM officials were in talks to purchase Chrysler, it appears as if the world’s largest automaker is going down the tubes:

G.M. said its revenue in the third quarter declined 13 percent, to $37.9 billion, compared with $43.7 billion a year ago, on weak demand in its core North American and European markets.

Including the one-time gain, the loss was $2.5 billion, or $4.45 a share, compared with $42.5 billion, or $75.12 a share, in the quarter a year ago, a period that included a noncash charge of $38.3 billion on deferred tax assets.

The company also reported that it burned through $6.9 billion in cash during the quarter, and it ended the period with just $16.2 billion in cash reserves.

The rapid depletion of its cash position puts G.M. perilously close to dropping below the level needed to finance its operations.

G.M. said it had identified $5 billion in new actions to conserve cash, on top of an earlier plan to bolster its liquidity by $15 billion.

Still, G.M. said that it “will fall significantly short” of the cash needed to run its business in the first half of 2009 unless economic conditions improve and the company gets access to financial aid from the federal government.sdfa

The good news is that President-Elect Barack Obama appears to have the automaker’s interests in mind, mentioning them in his press conference as a critical part of the American middle class. At his side was Michigan Gov. Jennifer Granholm, who has been mentioned as a possible nominee for the supreme court in Obama’s administration.

Granholm is apart of Obama’s transistion team, and will likely be advising him on economic conditions in Michigan, where unemployment has hovered between 7.5 and 8.5 percent for the past several years.

I will stand by my previous statements: Obama’s election is fantastic news for Detroit. John McCain only showed an interest in the automakers during the Michigan primary when he was facing Mitt Romney, and the topic was a pretty moot point in the last two months of his campaign, when he suprisingly pulled all of his campaign staff out of Michigan.

Still, if GM has no capital, the city will suffer. President Obama, Governor Granholm and Mayor Cockrel (or his sucessor) will have to work very closely in 2009 and 2010 to prevent complete economic devastation in Metro Detroit.

Not a shocker:

Deep concern over the economy and hope for change were dominant issues for Michiganders in choosing a new president.

Nearly two-thirds said the economy was their main concern, and 95% agreed that the economy is in poor or “not so good” shape in the National Election Poll, an exit poll for a consortium of news organizations.

The early poll results confirmed in dramatic fashion what polls and the national political discussion have revealed for weeks — economic concerns are the driving force in the presidential campaign and voters’ decisions.

Those who said they were “very worried” about the economy chose Obama by a 2-1 ratio.

Speaks for itself. I find it interesting people trust Obama/democrats more to deal with the economy. I wonder if it’s a hope that the days of Bill Clinton will come back. Sadly, I think George Bush has done enough damage where that will never happen in Metro Detroit.

But on a broader sense, President-Elect Barack Obama represents an actual chance to reform Detroit. An actual chance to give serious funding to green energy, which will create new jobs and bring more prosperity to a crumbling city.

Words cannot describe how thrilled I am.