NewMexiKen ebbs and flows about Tom Friedman’s books and columns but this morning he hits one out of the park on the auto industry. He begins:
Last September, I was in a hotel room watching CNBC early one morning. They were interviewing Bob Nardelli, the C.E.O. of Chrysler, and he was explaining why the auto industry, at that time, needed $25 billion in loan guarantees. It wasn’t a bailout, he said. It was a way to enable the car companies to retool for innovation. I could not help but shout back at the TV screen: “We have to subsidize Detroit so that it will innovate? What business were you people in other than innovation?” If we give you another $25 billion, will you also do accounting?
But go read the whole thing — and be sure to read it to the end.
Being in the industry, I can’t be free of bias on this subject, but I have to blame short-sightedness of upper management.
Suppose the engineers bring to you two car designs. One, based on familiar platforms, will make a profit of $15,000 per vehicle. The other, using unproven and risky technology will make you a profit of $2,000 per vehicle.
Also, you tried something similar to the risky alternative a decade ago, and even that $2k was optimistic.
Stated this way, it is hard to fault so much the management’s decision, except in hindsight. They were paid the big bucks to gaze 10 years down the road and plan accordingly. Instead, they couldn’t even see what was already happening. They should have spent that $15k profit on investing in making the $2k version work for the future, but they didn’t.
The bailout is necessary to save the economies of at least 3 states, and about 2.5 to 3 million jobs, but it should come with the real strings attached.