01
Dec
08

Arguments Made Too Simple

Last week, I took an unfair potshot at the Big Three car CEOs, one that was commonly made by the press and that I latched on to in order to make a point:

One of the best examples of words taking the place of much-needed action was the Big Three CEOs in Washington begging the government for money. Never mind that they flew there on their private planes (undermines the “need” argument a bit).

Joni Hubred-Golden called me on it, rightly enough, with her comment:

I am not generally a defender of the Big 3, but it has to be said the problem is more complex than them begging the government for money, private jets notwithstanding. And in that regard, I don’t recall a hue and cry of the current magnitude when we bailed out the mortgage industry, where prosecuted fraud was involved. It’s easy to take pot-shots at the execs, but if the Big 3 fail, hundreds of thousands of people who aren’t making seven-figure salaries will pay the price. I live in Detroit, and I know many already have.

Too Simple

She’s right. I did something that I abhor in others and try to avoid doing myself: I simplified a piece of information to make my argument, ignoring the nuance that can influence one’s perspective. My argument should have focused more on the lack of planning by these CEOs than whether they took private jets to D.C. I still see it as a bit of contradiction, but focusing on their transportation instead of the true issue of the American auto industry distracts from reality that we’ve shoveled money to some companies with little thought or transparency. Why are we hitting the brakes on these three?

Note: I’m not a fan of sending billions to companies who made bad decisions, but I’m equally frustrated by the seeming randomness of the largesse and lack of transparency about the exchanges. If the government is going to become the lender of last resort, shouldn’t the people who own its resources have some idea where their money goes and why?

With the recent bailout of Citibank, Joni’s point is again reinforced: where’s the hue and cry over bailing out financial institutions?  Now the Big Three will again descend on D.C. with the hope of convincing politicians that they deserve some of the money that’s been so freely shared with others. However, going back to the question of the real issue, I saw this story about how one CEO will make his way to D.C.:

When the Big Three automakers come back to Washington for hearings later this week on the proposed auto bailout, Ford CEO Alan Mulally will be making the more than eight-hour trip from Detroit to the Capitol by car, the company said today. The company won’t say yet, however, what kind of car Mulally will take (a Ford F-150 pickup truck or a Ford Focus compact car?), whether he will be behind the wheel, or when he will arrive: “It depends on traffic,” says a spokesperson. (link)

Is It Too Late to Change?

Perhaps Mulally is looking to make a statement, but the extremes between the two positions again, to my thinking, overshadows the main issue: can the American car industry pull itself out of a hole dug with expensive union liabilities, SUV mania, and poor management decisions?

This thinking leads me to an even bigger question: does American industry as a whole have what it takes to turn the magnifying glass on itself and diagnose the challenges it faces in the coming decades? Can it survive a Global Revolution on an even larger scale than the Industrial Revolution? For instance, if the Big Three get their money, do they honestly believe that pouring money down the same holes will fill them any faster? Do they see the need for rethinking their business from the road up? Do you believe that America needs to rethink industry?

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8 Responses to “Arguments Made Too Simple”


  1. 1 elliotross
    December 2, 2008 at 9:40 am

    To add even more complexity – The American Consumer.

    The price of gas had fallen for a grand total of one Month (October) and the sale of SUV’s a trucks bumped up by 20 something per cent.

    Sure part of the problem is that the Detroit 3 have trouble making desirable smaller vehicles –

    But purchasing habits need to change too ……

  2. 2 Britt
    December 2, 2008 at 12:16 pm

    @elliotross: You make a great point about the consumer’s role. However, if Detroit doesn’t take the lesson of the last months to heart that such vehicles will sit on the lot when gas prices go back up, then they are the greater fools. As for consumers, they only cheat themselves if they fail to realize that such choices only hurt them in the long run.

  3. December 2, 2008 at 3:58 pm

    America is now in a global economy, and we need to start acting like it. We’re still doing too many things the old national economy way. Outsourcing a bunch of jobs to India or allowing China to manufacture all of our children’s toys is not behaving like we’re in a global economy no matter how much we’d like to pretend that it is.

    We have an unprecedented opportunity to benefit from the global economy. My guess is our biggest strengths are in farming, industrial manufacturing, and business management. (Some one a lot smarter than me will have to determine that for sure.) but until the whole country steps up and starts leading the world like we should, we are going to be in serious danger of an economic disaster worse than the one we have right now.

    • 4 Britt
      December 5, 2008 at 10:47 am

      @James: I think you’ve hit on a blind spot that many have about what it means to participate in a global economy. Coming from a farming background, it was good to see that you included farming as a strength. We’ve gone from an agrarian society where we grew our own food to one where our food is supplied by a small number of people in comparison. I often wonder if people truly understand where the food comes from in grocery stores.

  4. December 4, 2008 at 12:25 am

    I think I understand the willingness to “look the other way” for the financial industry. I don’t really condone it, but I think I understand it. The financial industry provides the “system” for all of our transactions and certainly has more of a direct effect on people around the world than Ford, Chrysler, and GM do.

    Fifty years ago we might have been thinking the same way about railroad passenger transportation, because it provided the connection between us geographically. If not eager to bail out, say, the Pennsylvania Central Railroad, we might at least have considered subsidizing the railroad industry in general.

    Not to defend the indefensible, but, we did allow Lehman to go bankrupt, we did allow Merrill to be “purchased”, we did allow quite a bit of “shaking out”. Again, I’m not pleased with any of this but they didn’t exactly have a free pass.

    Also I don’t really buy into Joni’s argument that many who don’t make seven figure salaries will pay the price (also an oversimplification, no?). This isn’t, in my mind, a good argument for government invasion of private industry. If it were, my whole town and all of the businesses here should be wards of the government. There are millions of people who don’t make seven figure salaries, but we don’t send their employers grants when they screw up their business.

    Incidentally, a couple of years ago, we were all concerned about the coming “boomer retirement” and the effect that it would have on our 401k retirement packages. It would, according to popular logic, create “flooding of the market” with shares as millions begin taking their mandatory cash out at age 70 1/2. I am guessing that the direct and indirect effects of these recent events might eclipse that in terms of value destruction.

    The worst part? It is difficult to determine with whom to invest if you don’t know which companies will be held accountable for their actions and which will be subsidized in their failures.

    • 6 Britt
      December 5, 2008 at 10:58 am

      @Shannon: I agree that there’s a bit of a gut-check going on with the financial institutions. I think the idea of a bank run scares people more than the possibility of no more Fords or Chevys. Personally, I think there’s more to the Lehman deal than was disclosed. As to Joni’s argument, I think it applies if you consider how many secondary industries are impacted by issues affecting the Big Three. I agree that there are many employees who have to suffer the consequences of bad business decisions without intervention, but few industries are linked quite as closely as auto manufacturers and their suppliers. I’m not necessarily a supporter of giving them a blank check, but I don’t believe it deserves a “No” without careful consideration of the long-term impact.

      You’ve hit on something pertinent with the notion of which companies to trust. It begs the question of how markets will lure us back into the game.

  5. December 6, 2008 at 1:12 am

    As usual, you have a valuable and different perspective that I appreciate. After reading your response and thinking about it (for the third time now), I am reminded of something you wrote a few months ago. Specifically, this memory was triggered by the idea that there is more than meets the eye regarding the Lehman bankruptcy.

    In that earlier post, you had essentially leveled a warning, asking people to be vigilant with regard to news reports and which actions they seem to be prompting you to take, and who in particular stands to benefit if you “do as you’re told”. In this context, this warning now seems even more relevant.

    In your response to my comment above, you mentioned the market luring us back, but I haven’t shunned the market. I have continuously been invested with part of my net worth, since I was a teenager (either in commodities, equities, or cash equivalents and more recently also in real estate).

    Right now would seem an opportune time to buy equities, especially dividend paying stocks – at current prices many are yielding 10-15% (plus) annually, with additional potential for capital appreciation during the (hopefully) 2009-2010 recovery. I think the similar cases can be made for certain real estate, gold, even oil at less than $45/barrel.

    • 8 Britt
      December 8, 2008 at 5:40 pm

      I should have clarified the identity of who I believe is doing the luring and where the lack of trust exists. I don’t think the market itself is the issue but rather the people who’ve been manipulating our perception of it for personal gain. For example, I’d be very curious to see what Jim Cramer and his predictions (Bear Stearns, anyone?) have done to his average’s viewers portfolio. The same goes for any other Wall Street wizard who hangs out a shingle promising quick wealth.

      I agree that now may prove an opportune time to enter the market with equities essentially being “on sale.” Part of our fear about entering the market is our unwillingness to acknowledge how we treat it completely different from other purchases. In any other instance, we’d say it’s crazy not to buy the car or electronic device who’s price is lowered, but when it comes to the market, we panic at the notion of buying in when things are low, choosing to ignore the historical precedent that downs are temporary while ups are long term.


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