ON SECOND THOUGHT

Posted in Rants on July 1st, 2009 by Ed

This is somewhat brief, as I am in Athens doing a "real estate tour." I have a single eight-to-ten hour period to find a place to live before making the 12-hour return drive home, and if you have never had to interact with a realtor (in the process of being trucked among a dozen or so residences, many of them radiant examples of shitholeitude) for that long in 95 degree heat, I cannot in good conscience recommend the experience.

Now that GM has finally gone bankrupt – an end which has been inevitable for 15 years, obvious to any rational observer, and painfully protracted – it is a fascinating intellectual exercise to put Roger & Me on the Netflix list and give it another viewing. Moore's primary point in that film was that an employer should not be demolishing factories and terminating employees while making record profits. The company responded that it needed to cut back its workforce and infrastructure in order to remain viable.

Looks like GM was right, weren't they? Of course, the reason that they needed to make cuts so deeply and so urgently was the overwhelming shittiness of their products. That infrastructure and those UAW contracts didn't seem so onerous when they were sitting on 40% of the domestic auto market. Even 30%. It was only when they became an afterthought in sales (despite saturating the market with product and dealers) that their prophecy was fulfilled.

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EGO DEATH

Posted in Uncategorized on May 13th, 2009 by Ed

I drive a 2000 Nissan Sentra which I purchased new. It has 132,000 miles on it. It's gray. The exterior is a topographic maze of dents, streaks of paint from other vehicles, chips, and rust spots. It is, in the truest sense of the term, basic transportation. But it runs like a tank and excepting an alternator which gave up the ghost at 118,000 miles it has had no mechanical failures. I get up every morning and it takes me where I need to go. I win no style or cool points in the process, but cheap, durable, and reliable are all that I need.

Despite my bland choice of conveyance, I like cars. They're neat. I read blogs like AutoBlog, The Truth About Cars, and Motor Trend. But I also like reading about the space program, and that has never made me consider purchasing a space shuttle. Hence I can enjoy reading about exotic sports cars and new technology without feeling the need to spend. My car will do until it falls apart.

The preceding two paragraphs, assuming that my opinions on this matter are not rare, say everything one needs to know about why the American auto industry has become a joke, a collection of free market ideologues sucking the public teat and utterly unable, after 30 years of being spanked by the Japanese, to make a car anyone wants to buy.

Cars like mine – actually, Japanese cars as a whole – are derisively referred to on automotive blogs as "appliances." Boring, not "fun" to drive, and unlikely to make one's acquaintances green with envy. In contrast, partisans of American autos tout Detroit's proclivity for turning out cars for "enthusiasts," big hey-look-at-me cars with huge engines that go VROOOOOM! This point is not entirely invalid. Companies like Honda and Toyota make cars that blend into the background and last forever without the need for repairs every 5,000 miles. Driving a Toyota Camry is about the farthest one can get from automotive thrills without bringing mopeds into the conversation. Detroit titillates the 12 year-old boy in American males with their go-fast Mustangs, Camaros, Corvettes, and retro-everything muscle cars. Vroom.

The Big Three and their loyal fans simply don't understand that "appliances" are exactly what most American consumers want. We want a car that starts when it's cold out, doesn't require extraordinary maintenance, and runs for a decade or more. When Detroit monopolized domestic auto sales prior to 1970, the nation was experiencing a period of unparalleled prosperity. Not only did middle class Americans have the means to replace cars frequently but ample 1950s-style social pressures to keep up with (or preferably one-up) the neighbors. GM, Ford, and Chrysler responded accordingly. They made big, garish pieces of shit with V8s and attention-getting bodies. Why spend money on making a durable car? Everyone buys a new one every two years anyway!

New models were never really new. They were the same basic cars, year after year, which the manufacturers "updated" with their familiar bag of cheap gimmicks: chrome strips, tail fins, trunk spoilers, and "pizazz." When the Japanese finally figured things out in the seventies (Japanese imports were few and universally terrible before that) they marketed value, reliability, durability, and attention to detail. And when the American economy stopped growing like gangbusters many consumers realized that buying something that fell apart, rusted out, or exploded at 20,000 miles wasn't very appealing. The proportion of Americans whose self-esteem was tied up in the kind of car they drive was vastly overestimated in corporate boardrooms around Detroit. We happily drove the bland, pizazz-free cars if it kept us away from the repair shop.

Thirty years later and facing (or in the midst of) bankruptcy, Detroit is still trying to sell American cars with tail fins, racing stripes, and silly interior trinkets. If they could have a monopoly over domestic sales once again or if all American car buyers were guided by the impulses of a teenage boy, perhaps the recovery plans would work. Since reality precludes either, the prospect of seeing the American industry picked over and auctioned off to foreign manufacturers appears unavoidable. Of everyone and everything that will be blamed in the post-mortem (unions, unions, the UAW, and unions) the fact that the Big Three are still operating like it's 1957 will conveniently escape mention.

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ASSCOVERING

Posted in Quick Hits on March 30th, 2009 by Ed

When I worked in collections we had a series of increasingly threatening letters we'd send to insurance companies in an effort to get them to pay up, starting from "We believe there has been an error and you have underpaid. Kindly correct this honest mistake" and ranging up to a letter we liked to call the "Fuck you, pay me" (borrowed from Goodfellas). By the time an insurer or, more rarely, an individual recieved the FYPM letter, it could safely be assumed that we were no longer dicking around and were about to break it off in their ass. Methaphorically.

I get the distinct sense that the Obama administration has just sent GM and Chrysler the FYPM, what with its 30/60 day ultimatums. I get the even more distinct sense that they'd love to force them into bankruptcy right now but can't muster the political will – or perhaps the government needs a couple weeks to figure out how Debtor-in-Posession financing will work for such behemoth bankruptcies given the ailing banking system. Ostensibly they are being given 30/60 days to find a buyer or "restructure", which we all know is ridiculous. If the companies could do either they'd have done so already. So this amounts to political theater, giving a very public One Last Chance while behind the scenes the automakers, administration, and bankruptcy courts have started a countdown and have been given fair warning: "The hammer falls in 30 days. Whatever you need to do to get ready, do it."

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SOPHIE'S CHOICE

Posted in Rants on March 15th, 2009 by Ed

Perhaps the best recap of what happened in the 2008 presidential election is the satirical headline, "Black Man Given Nation's Worst Job." Does anyone envy that guy at the moment? Would you do the job at any price even given all the neat perks of being President?

The public, with its drosophilia-like memory capacity, is going to forget that Obama inherited all of these problems and angrily demand to know why he hasn't solved all of them in three or four months. The problem of the problems, of course, is that many of them are no-win propositions. Take, for example, the collapse of the auto industry, which is about to take a poor economic situation and make it much, much worse than anyone is willing to admit.

GM is at the end times; two weeks ago employees leaked a memo revealing that the company has taken away personal wastebaskets and laid off janitorial staff to save money. They are openly conceding that they have "substantial doubts" about their ability to survive without continued (and presumably increased) intervention. The new car market is in free fall and, more importantly from GM's perspective, the market for shitty new cars is even worse.

Obama is faced with a simple fact in light of GM's new request for $30 billion in "loans" less than 90 days after getting $13.7 billion: their survival plan is going to be to ask for $15-20 billion every three months for the forseeable future. His options are two: pay the ransom or let them go bankrupt…at which point they'll have to be provided with tens of billions in Debtor-in-Possession financing by Uncle Sam. What, you think any of the banks are in the position to lend it? Or that they would even if they could? Nope. Either way, this costs us an arm and a leg.

The company and its employees are behaving irrationally only in abstract; in the context of a company that is obviously going to fail, their behavior makes more sense. Fox and its allies have heavily hyped the refusal of unions to make even greater concessions (disregarding those that have been made) but the union likely realizes that the workers only have a few paychecks left no matter what they choose, so why cut them even further? Deep concessions will help the company sputter along for, what, two or three more weeks? And the company has recently announced a 45% increase in production irrespective of the fact that nothing is selling, a decision more reminiscent of a crack addict going on one last spectacular binge than any kind of reasoned corporate strategy.

There is no good option here. The President has little choice but to sit back and supervise the most expensive trainwreck in economic history. Given that bankruptcy and bailout both cost more than anyone can imagine, I guess that Obama's best bet is to figure out which one preserves more jobs and reduces the number of people who will be dumped onto the dole. The company can't raise additional capital – efforts to sell Hummer and Saab have gone absolutely nowhere, the former because the military is holding trials to replace the Humvee and, if another Hummer vehicle isn't selected to replace it, that unit isn't worth a warm bag of spit. The Swedish government will probably take over Saab but they sure as hell aren't going to pay for the privilege. This is it. The company is such a structural mess that they could fire everyone tomorrow, close every division other than Chevy, and still lose billions of dollars per month.

Pour a 40 for GM, and in the meantime try envisioning our current economic situation after another million or two million people with well-paid jobs become unemployed and stop making payments on their debts. Good luck, BO.

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DEATHWATCH UPDATE

Posted in Quick Hits on February 26th, 2009 by Ed

Holy shit. It's a matter of weeks now. I imagine that all the administration is doing at this point is calculating which will cost less: forking over $20 billion every couple of months or forcing them into Chapter 11 and giving them Debtor-in-Possession (DIP) financing. After all, who in the hell else is going to do it? It's not like there's a private bank willing or able to shovel $40 billion into a furnace.

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KILLING THE DRAFT ANIMALS

Posted in Rants on February 12th, 2009 by Ed

When people depend on subsistence agriculture for survival, as was common historically and sadly remains so in some parts of the world, the prospect of starving to death is never far away. Forces beyond anyone's control can ruin the year's crop and, well, there is no safety net. When the crops fail, no one eats. This puts people in a desperate situation. Do they roll the dice on being able to survive (somehow) until the next spring or do they devastate their prospects for long-term survival in order to make it through the day? Starving people inevitably mortgage the future. They kill the draft animals, giving themselves something to eat tomorrow but no way to plow the fields in the spring. It doesn't make sense, but people get to a point at which the future ceases to be a meaningful concept. There is no future. There is one objective: make it through today. Nothing else even enters the picture. Not coincidentally, the human body reacts to starvation the exact same way, digesting its own muscles to stay alive for a few more days.

While the nation and Congress were suitably distracted by the financial stimulus legislation, General Motors rapidly accelerated the process of digesting itself. Americans are numb to the loss of manufacturing jobs at this point – every day, another 10 or 15 thousand jobs. For GM the loss of blue collar workers is seen as survivable, even prudent, because labor can be replaced by machinery or Brazilians. Now they are slicing 10,000 salaried "white collar" jobs and demanding a 10% paycut for those who remain. These are the engineers who design their cars and the money people who are supposed to be devising some miraculous plan to save them. Sure, it may be only 10,000 people (pretend that's not a lot) but the ~60,000 who remain are now looking over their shoulders, waiting to be cherry-picked by the foreign automakers, and assuming that insolvency and door-shuttering are coming any minute.

Here's what baffles me: does the auto industry (never forget that Chrysler and Ford are little better off than the General) actually think this is a good strategy? That they can "cost cut" their way to viability and financial strength? Or, conversely, are these simply the actions of a desperate and starving group of people whose time horizons no longer extend beyond the current day? Given how clueless they've been for fifty years I fear that the company really believes that if they chop enough salary they'll start making money again. Why should we expect that they'd stop being dumb now?

Whether we're talking about GM, your employer, or the entire nation, the absolute worst thing to do in a situation like this is mortgage the future. To stop spending on education, training, product development, advertising (which GM has already gutted), and infrastructure is counterproductive at best. It offers next to no benefits in the short term (how much will trimming a bit of payroll really help a company so far underwater?) while crippling the odds of things getting any better in the future. More importantly, how will the industry be able to continue asking for bailout funds? In other words, what exactly is Congress bailing out at this point? The blue collar jobs are largely gone. If the white collar jobs are going to follow them down the drain, well…to quote the great Supreme Court Justice Louis Brandeis, "What the fuck, man?"

This is looking more and more like a death watch. Now that the stimulus has been passed it won't be long before the Little Three visit Washington again. Unless Congress writes a blank check, GM might not last the month.

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