Over the Transom
It wasn’t that long ago that our family owned a boat. We’re not exactly “pleasure boating” types, so it wasn’t the sexiest boat on the lake, but it got us out to fish, water ski and cruise the Finger Lakes in 17 feet of aluminum-skinned, charcoal-carpeted luxury. It was comfortable, functional and reliable, and as aluminum boats go, I’ve yet to see one that looked better.
We did have a few harrowing experiences with our 17-foot Smokercraft, though. One in particular comes to mind when I think about the word “bailout” … a beautiful sunny day that found us going through our normal launching routine at the Honeoye Lake state-run boat launch. We removed the canvas straps that held the boat to the trailer, dropped and primed the 90-horse outboard, unlocked the winch and disconnected the trailer lights. Moments later, the boat was in the water and I started the engine to back it off the trailer. And then I stopped. Something wasn’t right. The boat was sitting a little too low in the water, and all of a sudden the engine’s exhaust – which vented through an above-the-water port while not in gear – was making a bubbling sound!
Lifting up the canvas flap that covered the battery box and transom, I found … a lot of water. Turns out no one had remembered to install the plug during our hasty preparations. Fortunately, the boat was still winched to the trailer, so all we needed to do was pull it back up onto the pavement and let it drain.
The point of this little story is not to say that America’s car makers have been hasty or negligent for the last century to find the wrong side of their transoms awash with water – the reality is quite the opposite. But when you find yourself in that situation, nose to nose with the briny deep (OK, OK, it was just 5′ of water, but you get the metaphor), it’s easy to panic. It’s human nature to shut down, ball up and throw reason and logic overboard in an attempt to keep yourself above the surface.
Earlier this week, the top officials of America’s “Big Three” car makers – that’s Ford, Chrysler and General Motors, for those living on the coasts – testified before Congress in Washington. They painted a grim picture of the American auto industry, and asked for $25 billion in federal aid to maintain operations through one of the most cash-starved times in their (and, indeed, our) history. There was no panicking, no one went into the fetal position; they just set the cards on the table. Here’s what we need. Here’s why we need it. Here’s what happens if it doesn’t come through.
Obviously, when it comes to this discussion, I’m biased. I work for General Motors.
I’m also a conservative, especially when it comes to fiscal issues. I was dead-set against our $700 billion splurge on the financial industry, just as I’m staunchly opposed to pouring taxpayer dollars into just about any other bottomless pit. There are a lot of legitimate functions and roles for government, but “financier of all who can’t find any alternative source of funding” isn’t one of them.
So how do I reconcile my fiscal conservatism with my desire to remain employed? The Big Three need cash, and they need it soon. The global credit market is as dry for corporations as it is for car-buyers, private investors are scattering like guppies in a piranha tank, and you can’t exactly stroll down to the local Savings & Loan and ask for twenty five billion dollars. You can bet that the recipients of that $700 billion financial-industry bailout aren’t going to part with any of it any time soon, either.
This all adds up to deep seas for the Big Three. The ship is taking on water, and the bilge pump (read: car sales) isn’t really helping matters. If the ship sinks, a whole lot of people (including me) are going to be left treading water. The next bit is important, though: abandoning ship is not an option. Too many people, too many businesses, too much tax revenue, and – perhaps most importantly – too many car owners depend on the Big Three to let that happen. What’s needed is a bigger pump. To find it, let’s look back a bit earlier in my history, when I worked for a 7-head startup instead of a global industry behemoth…
Businesses take out loans. It’s how Dice America (my former employer, and purveyor of Wi-Pics) got a sizable chunk of the money to make payroll. It’s how Ben & Jerry’s built their successively-larger factories in Vermont. It’s how I’ll start operations if I ever open a business someday. Unfortunately, loaning money to businesses is a risky endeavor – but that’s where government enters the equation. Since it’s in our nation’s interest to keep the citizens employed, government shoulders some of the risk when businesses need loans – through federal loan guarantees and underwriting. The People (yes, that’s us, by way of our elected representatives) take on the risk in order to keep The People’s economy moving, and keep The People employed.
The People also expect their money to be repaid. Loans to businesses are no less loans than are loans to individuals. While business loans are an investment in Our economy, they’re also an investment, and they’re not interest-free. They’re a rented bilge pump, sized just large enough to pump out the hull of the recipient business and keep things afloat.
So it must go with Ford, Chrysler and General Motors. None of these companies is asking for a bailout. They don’t want an army of federal dollars to come in, grab a cup of water and jump overboard, never to be seen again. What they’re asking for is a bigger pump. They need a loan – just like countless other businesses that thrive on the Opportunity of this nation – to keep the ship on the right side of the surface. Once the storm has passed, the pump can be returned.
Lots of folks in Washington have trouble with that logic. Some believe the money will never come back – which is the risk you take when you make a loan. But they’re not dealing with Ben & Jerry’s here. They’re dealing with three corporations that know their business. The auto industry isn’t fickle or unpredictable; it’s strongly tied to very specific markets in a highly causal way. Looking at how predictably car sales and use are tied to fuel markets and the availability of credit is a simple and strong testament to that causality. The interesting thing is – the federal government has an amazing degree of control over the things to which the auto industry must adjust.
The very people who are concerned about loaning money to car makers have regulatory power over the oil industry, the importation of raw materials, the availability of credit to car buyers, the leverage of labor unions and the availability of tax incentives – just to name a few factors.
Meanwhile, others on capitol hill complain that the American auto industry is just doing what it’s always done – that change is needed before American car makers will be deserving of taxpayer spotting. Apparently, they haven’t driven an American car lately, or haven’t paid much attention when they get into that armored Suburban that shuttles them around DC. It’s true that the American car makers have turned out some pretty awful stuff in decades past. Between quality problems, poor reliability or just plan questionable taste (*ahem*Pontiac Aztek*cough*), they’ve had their share of issues. But today’s American Car is a different animal. Cars and trucks from the Big Three consistently rate as high as, or (for a lot of metrics) higher than their import competition. Consumers no longer need to settle for an American car; they’re now world-class vehicles and they’ve got the experience of thousands of new car buyers, glowing reviews from pundits traditionally hostile to American automakers, and record-low warranty claims to prove it.
Ford, Chrysler and GM didn’t find themselves in financial trouble on account of anyone’s apathy – the financial crisis took everyone by surprise, car companies included. They aren’t out of cash from some perceived lack of ability of adapt or innovate – a look at the cars, or this summer’s car sales, indicates otherwise. But in a business where annuity revenue sources are few and far between, where cash depends on sales and sales depend on credit, cash gets very scarce when the credit market crashes.
Now, the Big Three need our help. Small businesses ask for our help every day, struggle hard to survive, and pay us back gladly for our generosity when they succeed. Now a few big businesses have swallowed their pride, admitted that they’re in trouble, and arrived at the table. As I type this, they’re now working on plans to show that our investment will be a smart one. We the People have the pump they need to keep the deck from washing over. Soon, they’ll be showing us how they plan to use it, and when we can expect to see it returned. Then, it’ll be up to us to make the loan.
For the sake of my job, and hundreds of thousands of others. For the sake of all those who put their faith in American car companies and drive an American car. For the sake of maintaining our Nation’s leadership in developing alternative fuels and drive systems, I hope we can find a way to come together and help keep the Big Three from sinking.