Rewarding failure

Jan. 1, 2020
Cerberus, Chrysler's private equity owner, is appropriately named –– at least in the case of Chrysler. Cerberus is the mythological three-headed dog that guards the gates of hell, which is where Chrysler finds itself. Which side of the ga
aftermarket distribution automotive Chrysler bailout tax parts

Cerberus, Chrysler's private equity owner, is appropriately named –– at least in the case of Chrysler. Cerberus is the mythological three-headed dog that guards the gates of hell, which is where Chrysler finds itself. Which side of the gate it's on hasn't yet been determined. This is what happens when the long-term viability of the company is in question. The rumors of its problems have ranged from the company being flat-out bankrupt to it transitioning to a marketing company that will just design and market vehicles. Having said that, Chrysler has shown that it is remarkably resilient ever since the government, i.e., the taxpayers, bailed it out in 1979 to the tune of $1.2 billion.

This bailout was supposed to be a once-in-a-lifetime happening. Well, it looks like I've outlived my expected life. Taxpayers may once again be called on to bail out a car company. This time it's all the American automakers. Self-appointed industry spokesperson Bob Lutz, General Motors' product development chief and VP, is asking Washington to float the automakers $50 billion in government-backed loans. Careful not to use the term bailout, Lutz says the cash is needed by all the American automakers to build fuel-efficient vehicles the public has suddenly demanded. Oh, you know how fickle the public can be when faced with a crisis.

And what do you know, the money is only part of what he's asking for. Lutz also wants the government to suspend crash-test requirements for U.S. automakers so that they can import some econo-boxes to help them meet the new and more stringent CAFE requirements. Now there's some short-term thinking he can be proud of. Ranks right up there with fighting seat belts and airbags. Rather than be prepared to launch its own fuel-efficient vehicles, GM is willing to open the highways for deathmobiles so that it can meet government fuel requirements. With the CAFE requirements in place for the last 33 years, I guess fuel efficiency sort of snuck up on the American automakers. It was probably just a coincidence that they chose to build more profitable SUVs and trucks that were not subject to the higher fuel economy standards set for cars.

Perhaps you realize that GM has a remarkable history for getting its way. For example, GM, according to the book Fast Food Nation, was at the heart of killing the country's efficient and inexpensive trolley system in the 1920s. Moreover, lobbyists from GM and the oil and tire industries persuaded state and federal agencies to assume the basic expense of building roads. The lobbyists argued that the cost of driving was less than funding public transportation,which was true only when the cost of building roads was not factored into the equation. I wonder if that's how the adage of "What's good for GM is good for the country" originated?

Full disclosure here. I worked for Chrysler during its troubled times, and I was all for the bailout. It may surprise you that in spite of all of the troubles that GM and its co-conspirators have created for themselves, I'm for the loan part of Lutz's plan. (The other part of the plan –– asking American motorists to play the role of crash-test dummies –– is simply, well, whacko). Although I hate the thought of rewarding failure, I'm resigned to it. The way I figure it is that Washington has bailed out Freddie and Fannie ($100 billion each) so it has to extend the favor to those that help drive the other major part of the economy.

It is important to understand the difference between the Chrysler bailout and the GM-inspired free pass. Chrysler's was based on taxpayers helping an American icon that was employing American workers to build American cars in the United States. With that in mind, there should be a string attached to taxpayer bailouts. Congress should require the automakers to lay out a plan to start moving vehicle manufacturing work back to the U.S. so that we can once again give unskilled labor the opportunity to be part of the middle class. If we don't start to turn the ship in that direction, one has to wonder who's going to pay for the next bailout.

Larry Silvey, a 25-year veteran of the automotive aftermarket, is editor-in-chief of Aftermarket Business and Editorial Director for the Advanstar Automotive Group, which consists of Aftermarket Business, Motor Age, ABRN and Styling and Performance.