Friday, December 12, 2008

Let Them Fail Part 2 - Fear and Opportunity

The abject fear that is being spread by the Auto sector and the UAW is palpable. "You don't realize what this is going to do to our economy!" they scream. "If one of the big three fails then it affects hundreds of thousands!!" they clamor. "You have to bail us out! We're VITAL!!!"

Well, the confluence of union greed, poor management and substandard products has brought us to this point. Right where we should be, and we didn't get here in a private jet or even in a hybrid.

Back to the fear though, lets take a logical look at the claims of the fear-mongers, industry, political and Union alike...

1. If one of the big three fails then the resulting job losses will cripple the economy.

Hmmm, Chrysler has 58,000 employees. Of those only 1,100 are Canadian. Sure that's a lot of lost jobs but cripple the economy? I don't think so. Regionally, sure it's going to hurt, but other regions such as Hamilton (steel), Sudbury (nickel), Sydney NS (steel), Ottawa (the tech sector), have seen similar failures, so what puts the auto sector at the head of the handout queue?

I'd say it's a combination of things, a highly political union being first and foremost in my mind, the tangible nature of their product being the next. It's a lot easier to identify with the loss of a brand name you see driving down the road than it is to attribute the same emotional connection to the loss of a natural resource producer like Inco.

By the way, those other sectors didn't get bailed out and their regions are rebuilding or have already rebuilt.

2. The failure of one of the Big 3 (isn't Toyota who is not asking for money one of the big three now?) will cause a corresponding crash in auto parts manufacturers.

Really? So these parts manufacturers only sell directly to the auto plants? No after market sales? No replacement parts? No revenue stream except for selling to the auto manufacturers? If that is the case then, like the Auto manufacturers themselves, they deserve to fail. Dumb should be painful, especially in business.

3. If one of the Big 3 fails then people who own that brand will be left out in the cold! The manufacturer won't even be able to sell it's current stock... Who is going to buy a car from a company under bankruptcy protection or worse!"

Garbage!!! Do you honestly believe that these people won't be able to get service for their vehicles if the company itself doesn't exist? If that is true I guess I missed the great Datsun breakdown of 1986...

Another thing, isn't it likely that some enterprising auto maker will recognize the opportunity a failure of that sort would represent for his company? I mean if I owned Ford, and Chrysler went belly up, I'd offer to provide servicing for their vehicles, using the new found glut of cheap aftermarket parts. Hell I'd even honour warranties for an additional though reasonable price. Crisis = opportunity, even this dumb-ass-never-taken-a-business-course-in-his-life knows that!

Hell if I was a {insert bankrupt car company name here} certified mechanic I'd offer a similar deal to continue to ensure my business and my profitability. Wouldn't you?

It is good to see that the US Senate has refused to bailout the Auto sector, though to contemplate it in the first place shows a criminal level of interference in the market, absolute ignorance in how the market works, and lastly, a blindness to what has brought us to this point in the first place (the mixed economy).

All the government needs to do is let the cards fall where they may. When one these companies is finally allowed to fail, there will be a flurry of rational reforms within the rest dictated by the need to produce quality products at reasonable prices. The deadwood of management will be figuratively hung, their dismembered heads stuck on pikes outside of the corporate headquarters as a warning to all of what happens when the market is ignored. The union gild masters and looters will be knocked off their soapbox, finding themselves, finally, in fear of not having an industry to work for, much less abuse, castrate and rape.

There are very few things that can immediately focus the mind. Some are negative lenses like fear and pain, and some are positive like opportunity, challenge and innovation. It's high time the North American auto sector felt a little of all of the above.

As my counterpart here has already said... LET THEM FAIL!

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