The Senate yesterday failed to reach an agreement on the bailout package for the auto industry, meaning that it will probably be January before the industry can get any help. This is something that is being “cussed and discussed,” as my grandfather would have said, in many circles. Everyone has an opinion, and everyone is worried. I have to say that I was a little relieved at the hesitance of the Senate to pass the package, since we have been in such a cycle of bailouts recently that it seemed the pressure to deliver government money was outweighing the need for broad consideration and healthy scrutiny of the industries and businesses that are going broke and more and more under the microscope of the government The auto industry is a little different than the other industries that are in crisis mode, but the underlying problem of the bailouts is the same. We shouldn’t be supporting a business model that isn’t sustainable. It is not unlike helping a neighbor pay his or her bills – if your neighbor wastes his or her money, then giving him or her your money is likely to support his or her poor spending habits. Credit is not a sustainable personal or business practice, and businesses that fail to meet market demands can’t survive in the marketplace. Allow me to expand on that a bit.
My wife and I were in debt at one time and our payments to our credit cards were often less than the interest and finance charges, so even though we made a payment, our balance went up. It was awful. We were strapped for money, paying too much for rent, and in a cycle of debt that seemed to have no end. And then we got fed up with that and made some hard decisions. We quit borrowing money for anything. We sold some stuff, worked two jobs, pinched some pennies, and slowly, the tide started to turn. It was painful. We were at it for about a year when we had a conversation with some friends of ours who wanted to help us with our new lifestyle. They were looking for roommates so that they could lower their housing expenditures, and we were trying to figure out how to pay less in rent as well. In the end, they paid off some of our debt for us and we all moved in together for a year so that we could save some money. They bailed us out, in a way, but they really invested in our lifestyle because they could see that we were struggling to change the way that we were living.
So how does that support the idea that you shouldn’t throw your money down the drain for a wasteful neighbor? It doesn’t. That is only half the story . While we were struggling to shange our situation, my wife befriended some folks who were struggling as well, but they were still borrowing and spending money that they didn’t have. My wife’s friend came to her one day and told her that her electricity was going to be shut off and that her kids were going to have to sleep in the dark. It was heart wrenching. We wanted to help. The problem was that this family had several cars, a boat, a nice big house, and were not shy about discussing the motorcycle that they were going to buy with their tax refund. I was conflicted. They were out of control, but I didn’t want their children to suffer because they made bad choices and managed their money poorly. In the end, I agreed to go to the electric company with them and work out a deal to keep their electricity on, and we agreed to pay some of their bills that month if they agreed to take a class on money management. They didn’t agree, and we didn’t pay their bills.
Now to tie this all together. GM and Ford have been making cars that are basically disposable – operating on a credit paradigm that creates a trade-in culture where people have chronic, terminal payments. Honda made cars that lasted twenty years at a time when GM was making cars that lasted three, and with less comfort and worse gas mileage. The big three got into the business of loaning money and selling financing rather than focusing on the product that they were producing. The market moved toward smaller, lighter, more fuel efficient cars, and Ford made more expeditions and explorers because that was their money maker. The CEO’s of the big three got rich at the cost of innovation, and now those CEO’s are asking for help in managing their business, Do we see an auto industry that has turned a corner – that is struggling to manage their money better, to make sacrifices, to listen to the consumer and work overtime to capture the market? Not really. The innovation and the quality in the auto industry no longer comes from Detroit. The CEO’s of the auto industry are not putting forth a new plan for a better business model, they are asking for support in stabilizing a business model that is unsustainable, and we can’t support that.
We don’t want the kids to go hungry. We don’t want people to lose their jobs,and to struggle, and to lose their homes because the industry that they work for has been irresponsible. We will not let that happen. But how do we engage the people who have allowed this to happen? Do we save them? Do we support their lifestyle, paying for their private jets and luxury condos while they watch their businesses go down the drain? I think not, and I hope that Congress and the new administration can see clearly the danger in giving money to a dying business that shows no sign of adapting their strategy to fit a new market.
There are businesses that are doinig well, practicing healthy borrowing and lending, creating quality products, and trying to make a difference in their communities and in the lives of their employees. Do these businesses get money? Maybe we should invest a couple of billion dollars into companies that are doing it right, rather than continuing the cycle of getting it wrong.