auto bankruptcy

Federally Sanctioned Propaganda Machine

by Gary Howard on December 11, 2008 · 1 comment

in Bailout Watch, Economy, Intellectual Property, Nanny State, Odds & Ends, Privacy, Regulation, Tech & Telecom

 

Apple's 1984 "Big Brother" commercial.

Apple's 1984 "Big Brother" ad

An article over at Ad Age brings up an angle on the whole auto industry bailout probably not considered much before.  The fact that a yet-to-be-appointed “car czar” will have control over a multibillion dollar advertising budget for the big three.  Under the guise of “oversight,” this would effectively “Create World’s Most Powerful Marketing Exec[utive].”  

The draft rescue plan for Detroit sent to the White House by Congress yesterday calls for the appointment of a “car czar” who will oversee the Big Three automakers’ expenses over $25 million — which, by extension, would include media buys. Based on Advertising Age’s estimates of spending by General Motors Corp., Chrysler and Ford Motor Co., that would give the as-yet-unnamed car czar control over some $7.3 billion in marketing spending in the U.S. alone.

The most disturbing thoughts about this (particularly to those concerned with liberty) are provoked here: 

The car czar would wield a budget more than double those of AT&T, Verizon, Unilever and Johnson & Johnson, which round out the nation’s top five marketing spenders, and give the car czar more clout with media and agencies than such famed names in marketing as Walmart Chief Marketing Officer Stephen Quinn and Anheuser-Busch VP-Marketing Dave Peacock.

…If the bailout goes through, agencies that work for the Big Three will essentially be toiling on a government account, with all the associated red tape and strictures that involves.

So there you have it.  We should all be concerned about this for many reasons.  As mentioned, the large ad budget that comes with a czar-controlled U.S. auto industry will allow a government bureaucrat to wield unbalanced and unchecked influence over not only who gets ad contracts, but what media outlets get ad money. The czar can simply refuse to give business to an advertising agency who works for a foreign competitor of the big three (or a “non-compliant” corporation), or refuse to pay money to show ads on outlets that they deem “unfriendly” to the administration or its mission.   This will be an unequivocal disaster.  We have already seen the lengths to which administrations (and pre-administrations) have gone to influence and/or silence media they do not like.  What kind of power plays do you think are possible when the administration’s appointee controls a major source of media outlets’ ad revenue? Whatever it ends up being, it won’t be pretty.

Claim of consumers’ fear of auto bankruptcy a canard in bailout debate

by John Berlau on December 8, 2008 · 6 comments

in Bailout Watch, Economy, Intellectual Property, Legal, Mobility, Politics as Usual

Eli, in answer to the blog post you phrased as a question, the argument from the individual you heard, echoed by other Big 3 execs, is not a valid point in support of a bailout.

Their claim that consumers won’t buy from an automaker in bankruptcy is a specious argument. Yes, some won’t, but many consumers also are not going to buy cars from companies perceived to be so weak that they have to beg for a bailout from the government. A company’s clutching to a government lifeline to keep from going bankrupt wouldn’t be that much different for many car buyers than an actual bankruptcy.

This is particularly true if the government forces the companies, as a condition of the bailout, to make “environmentally correct” cars that no one really wants. A company emerging from a Chapter 11 bankruptcy, by contrast, has a chance to win consumers back by making products that they want.

I also addressed your argument that “If the manufacturer no longer exists, then the car parts might not” in a previous Open Market entry (that was cited in a brilliant Washington Times editorial on Thursday). That entry noted the thriving reproduction parts industries for DeLoreans and Studebakers, both made by automakers long defunct (DeLorean went bankrupt in the ’80s and Studebaker folded up shop in the ’60s). The fact of these industries’ existence cuts in favor of consumers in a Big 3 bankruptcy. Given that there would be millions more Big 3 cars on the road than DeLoreans and Studebakers, entrepreneurial firms would rush to acquire the intellectual property rights that a bankruptcy court could easily award so that new parts could be made for consumers. Warranty claims could also be given priority by the bankruptcy court, as the Times editorial noted, and those are usually backed up by the insurance company of the warranty issuer, anyway.

It looks like to tide the companies over, Congress is going to vote this week to let them use money already appropriated for “green cars” for general operating purposes. From a free-market perspective, this action is neutral and may even be a net positive, as it reduces the promotion of a state-directed “green agenda.”

But when Congress comes back next year, bankruptcy must be on the table for both big automakers and big banks, as it is for small businesses every day. Otherwise, the economy may never get out of “Reverse.”

DeLorean disproves domsayers in debate over auto bankruptcies

by John Berlau on November 28, 2008 · 8 comments

in Bailout Watch, Economy, Intellectual Property, Mobility, Politics as Usual

In the debate about bailing out the Big 3 automakers, it is said that we just can’t allow a bankruptcy. Despite the fact that Chapter 11 bankruptcies have taken place for retailers such as Circuit City and many airlines such as U.S. Airways, autos are said to be different because of the duration of time that people hold on to their cars for.

Horrific senarios are painted of consumers not being able to get parts for their automobiles if manufacturers are no longer in existence. But of all the many admittedly complicated aspects of a bankruptcy of General Motors (the company the Congressional hearings established was in the most trouble), these consumer issues provide the least reason for worry.

In a Chapter 11 bankruptcy, GM would most likely be reorganized into a new company, sans the current management and heavy costs. This is something that has proved impossible so far due to lax management, generous union contracts, and state dealer franchise laws that make car companies pay an arm and a leg to sever a relationship with a car dealer. A bankruptcy could finally force the tackling of these tough issues.

But even if no reorganized company emerges, the production of parts for consumers with existing GM models will almost certainly continue. All that would need to occur is the relatively simple process of the bankruptcy court transferring the GM’s intellectual property rights to a company that wants to manufacture its parts. To see how this would work, it is instructive to look at thriving reproduction parts industry for a car that hasn’t been made since the ’80s: the DeLorean.

The DeLorean Motor Company operated from the mid-’70s to the early ’80s. The company filed for bankruptcy protection in 1982 and the company went into liquidation instead of reorganization, and no new DeLoreans have been made since.

But there is still an active interest in the cars, and the sporty DeLorean DMC-12 was immortalized in the 1985 movie “Back to the Future” and its sequels. According to Wikipedia, “A very large number of the original cars are still on the road after over 25 years; most estimates put it at 6,500 cars surviving out of just over 9,000 built.”

So what happens when these cars need a new part, with the company that makes the cars no longer in business. Well, their drivers can get original and reproduction parts from the new DeLorean Motor Company. This is a new firm with entirely different owneship that acquired the trademark to the original company’s name as well as the rights to its designs.

According to the new DeLorean Motors’ web site, “when the supply of any part is exhausted or becomes no longer available, we endeavor to have the parts remanufactured using our set of the original engineering drawings.” They even sell “new build” DeLoreans using a combination of original and reproduction parts.

Going back even further, one can even buy new reproduction parts for a Studebaker, a car last made in the ’60s. An Indiana company called Studebaker International Inc. performs, according to its web site, “drilling, machining and assembly of parts” for nearly all models of Studebaker.

Of course a lot more people have GM cars than DeLoreans or Studebakers, but this fact cuts in favor of GM consumers. If there can be a thriving business in parts for cars that exist in this limited amount, entrepreneurs will rush to fill the needs of the owners of millions of GM cars on the road.

Resolving warranties is slightly more complicated, but a bankruptcy court would likely award warranty service contracts priority among the debts to be paid. And most warranties are backed by insurance companies, anyway, in the case of a firm’s bankruptcy. More on this in another post.