Toyota and Obama

Remember when Toyota was the best car company on the planet? They made great cars, stylish automobiles that worked well, didn't have many problems, and got great gas mileage. It was just a better company than any American car company. When was that? Oh, yeah, a couple of months ago. How long had that idea been firmly planted in America's cultural consciousness? 25, 30 years? Something like that.

Amazing how a narrative can change overnight, isn't it? In a month or so, Toyota has gone from being a great company, one of those uniquely special companies that do almost everything right, to just another company, with its share of dysfunctionality, arrogance, and just plain stupidity.

Remember when Obama's presidency was in trouble? A Republican won a special election in Massachusetts, after a couple of Republicans won gubernatorial races in 2009, and suddenly Republicans had the momentum, and Democrats, particularly Obama, were in trouble.

I am so not worried about Obama. Really, really, really not worried about Obama. Tomorrow is the start of the health care summit. I don't know what's going to happen, but I am starting to get the sense that Obama and the Democrats are going to take advantage of the fact that, you know, they have massive majorities in Congress to pass legislation that they want. Great idea.

Obama is also taking advantage of the fact that, you know, he's president and all, and he has a lot of power to get what he wants through a Congress with both houses held by his party by those massive majorities.

But a couple of the reasons for my optimism about Obama stem from Toyota's current trials and tribulations. First, Toyota's fall from the pedestal reminds us of how fickle media/cultural narratives can be. Toyota isn't a very different company from what it was 3, 4, 5, or even 10 years ago. Most of the problems that have been cropping up have been happening for years. But something clicked, and suddenly the narrative changed. There were some stories about problems with Toyotas and sudden acceleration (the LA Times, to its great credit, was working on this story for months before it hit the rest of the national media). The suddenly there were stories about other problems with Toyotas. Then suddenly there were stories about how Toyota has serious structural problems, or how the management team has its share of incompetence and arrogance. All of those things were true for years. But something changed, and now people are willing to listen to those stories. Comedians crack jokes about Toyota, and politicians call them on the carpet. Someday the narrative will change again, and Toyota will have recovered from these episodes, and come out swinging, or they will be back on top again, or something.

The same thing has happened, and will happen, to Obama. His campaign, election, and inauguration were historical, and very hyped. The letdown was inevitable. The narrative has changed, but it will change again, just like it has for Toyota. The Democrats lost two governor's races, in Virginia and New Jersey. But neither of these were surprising, and neither really points to a national trend for or away from Dems. Virginia is a fairly conservative place, and, in New Jersey, the Democrat incumbent, Jon Corzine, was a former chairman of Goldman Sachs, rather substantial baggage right now. Scott Brown won a special election, but my impression is that Martha Coakley didn't run a great campaign, and Democrats took victory for granted.

There's also a specific reason why Toyota's stretch of bad news has implications for Obama. What's bad for Toyota is good for GM, Ford, and Chrysler. GM and Ford will pick up sales from disillusioned Toyota customers.

More importantly, but less substantive, GM, Ford, and Chrysler's reputations will start to recover. For years many people made a clear national distinction among car companies: American car companies were arrogant and incompetent; they couldn't make cars the way the Japanese companies could. There was, of course, an element of truth to that myth - the Big Three made most of their money on their big trucks, while the Japanese made solid, if not very exciting, small cars and sedans.

One detail that got lost in that mythologizing is that each of the Big Three has at least one iconic car in its stable. GM has the Corvette, Ford has the Mustang and the Lincoln Town Car, and Chrysler has Jeep. Each of those has been around for decades, and each has many, many hardcore, devoted followers.

I don't think the Japanese have some genetic predisposition for making better cars; I think the Big Three had each reached the point of being so bureaucratic that they were not very capable of being particularly innovative, while the Japanese companies were still smaller, more nimble, and more entrepreneurial.

Note my use of the word "were" referring to the Japanese. Toyota clearly has some problems with arrogance and failing to acknowledge voices of dissent.

All of this is significant for Obama, because Obama made the decision to save GM and Chrysler, and spent billions of dollars on doing so. People in Detroit had known for years about the problems afflicting GM: too many brands, too many models, too many dealerships. The problem was that no one at GM had the power to solve the problems. Even the chairmen couldn't close the brands they needed to get rid of, or close the excess dealerships. It took the power of the President of the United States to make that happen.

But Obama did it. He saved GM, and he saved - for now, at least - Chrysler. As Toyota's sales fall with its reputation, the reputation of the Big Three will start to improve. GM still has a lot of issues to deal with, and a lot of detritus to purge from its system. It will take some time for it to close down Pontiac and Saturn, and to sell Hummer and Saab. Those old dealerships will eventually be transformed into new buildings, but that will take time, as well.

Once all of those things happen, however, GM will be a leaner machine. Same with Chrysler. They will start once again making good cars that customers want to buy, and they will start making money. And many, many people will be working at them. Most of those people will be Americans.

And Barack Obama will be able to claim that he saved General Motors and Chrysler, and, with them, hundreds of thousands of American jobs. To say nothing of pride in American manufacturing.

And he will have done it with virtually no Republican help, and in the face of strong opposition from Republicans.

Really, really, really not worried about Obama.

Rush Limbaugh wants to boycott GM

This has to be the stupidest idea Rush Limbaugh - a very stupid man - has come up with in a long time. He wants his listeners to boycott GM, because he wants Obama's policies to fail.

The mind boggles. This is capitalism in its purest form. Limbaugh only wants Obama's policies to fail because that would make him, Rush Limbaugh, look good. This argument has absolutely nothing to do with any kind of ideological purity or even any kind of vague, tenuous connection to reality. It is strictly about what is in Rush Limbaugh's best interests.

This argument isn't even about what is in his listeners' best interests. As American taxpayers, they have an interest in GM succeeding, so they can get back the money that they have invested in GM. Many of them drive GM cars, and would presumably want to have a relatively easy time say, having their cars fixed. That would be much more difficult if GM fails. There are probably a number of Rush Limbaugh listeners who work for GM, are related to someone who does, or who live in a town dominated by a GM plant.

But Rush Limbaugh does not care about any of those people. He only cares about himself. Self-interest in its rawest form.

What is truly stupid is a headline from a Website driving this: "BOYCOTT OF GM PRODUCTS UNTIL PRIVATE OWNERSHIP IS RESTORED."

Seriously? Um, guys, I don't know if you've noticed, but if you successfully boycott GM products, then it will go bankrupt, and there will not be any private ownership of GM, because there will be no GM. This sounds like the logic of that commander in Vietnam: we had to destroy the village in order to save it.

The only way to restore GM to private ownership is to make it profitable, because then the government will sell it. Because the Obama administration wants to sell its GM stock at a profit. Like the good capitalists that they are.

This may be what is driving Rush Limbaugh and his friends completely off the deep end: Obama is trying to save a major capitalist institution. And he is trying to do it through capitalist means: imposing market discipline, for one thing, and making hard but necessary choices about resource allocation, for another. So far, Obama is a better capitalist than anyone who has been chairman of GM for decades. The Obama administration is cutting dealerships and brands. That is called "making tough decisions." It's what great CEOs and other leaders are supposed to be good at. But which, alas, Rick Wagoner and his predecessors were not all that good at. People in Detroit have known for years that GM had too many brands and too many dealerships. Among other problems. But no one CEO was powerful enough to kill off the unwanted brands or dealers. It took a POTUS to do that. But he did it.

Keep it up, Rush. Keep tying yourself in knots. Keep alienating large sections of your core constituency. Refusing to admit that you're wrong has this tendency to wreak havoc on a person's ability to understand reality. And reality, Rush, is stronger than you.

GM, bankruptcy, the self-referential problem, the Red Wings, and brains vs. brawn

General Motors has declared bankruptcy. I'm not going to link to any of the zillion of articles on it, because it's too depressing to have to read about it yet again.

Except for Dan Neil's article. He has a great take on it, recounting GM's glorious couple of decades, the '50's and 60's. He has an intriguing idea as to what was the turning point for GM:

I have my own theory. In 1999-2000, GM had a golden opportunity to right its ship by backing Democratic presidential candidate Al Gore. This might seem counter-intuitive. . .

Yes and no. It is counterintuitive in the immediate sense, because Al Gore wasn't really a Detroit kind of guy. He is quite the egghead, very cerebral and sensitive. The quintessential liberal intellectual type. But he was in favor of universal healthcare, which, as Neil points out, could have saved GM a bundle.

I think Neil is capturing something here, although he doesn't quite put his finger on it.

Something else happened in Detroit over the weekend, much more trivial, but a reason for celebration: the Detroit Red Wings won the first game of the Stanley Cup playoffs. Neil's colleague on the sports pages, Helene Elliott, put it this way:

the Red Wings on Saturday withstood the young Pittsburgh Penguins' energetic middle period by using their brains as much as their brawn.

Brains vs. brawn. The classic human dilemma. Whether to conquer with brute force or win through better planning and strategy. Hands vs. head. Football players vs. computer geeks. White collar vs. blue collar.

Pickup truck vs. sedan. Gas-guzzling but macho vs. small but efficient.

The Big Three have spent the last few years making oodles of money off of pickup trucks and big cars. I think the reason for this may be found in the ranks of their employees. GM, Ford and Chrysler have something like a million retirees. They have several hundred thousand current employees. Their dealers and parts suppliers employ another several hundred thousand. Throw in their retirees, and you easily have at least another million. Most of those employees and retirees have families, spouses, wives, kids, parents, brothers, sisters, etc.

Almost all of those people get a discount when they buy a new American car.

Then there are people who have other reasons to buy American cars, like politicians. If you are an elected official in Michigan, and you want to keep your job, you drive an American car.

I'm guesstimating here, but let's say that there are somewhere between 6 and 7 million people in this country with a direct economic interest in buying an American car. At least two million employees and retirees of the Big Three, their dealers and suppliers. Each of those has an average of two family members who buy a car. That's another four million, for six million. Then another million miscellaneous. 6 to 7 million. Most of them with some kind of discount. Let's say each one buys a new car every three years (Big Three executives used to be famous for getting a new car every year). That's two million cars a year going to this customer base. Until recently, cars were sellling at an annual rate of about 16 million a year in the US. If the Big Three were selling half of that, they were selling 8 million cars a year. 2 million of those would be a quarter. So a quarter of the Big Three's cars were being sold to people with a direct economic interest in buying American cars. People, in other words, who were already sold on them, and needed very little convincing.

Talk about insular. Most of those cars were being sold to blue collar workers, or retired blue collar workers. In other words, old white guys with little education beyond high school. How many black lesbians with advanced degrees do you think there are among the Big Three retirees? Not a whole lot.

Sound familiar? Big Three employees, retirees, and, effectively, customers, were and are the same constituency as the Republican party. It is no coincidence that the GOP and the Big Three are collapsing at the same time. It is, on the other hand, intensely ironic that Obama is the instrument of destruction of the one, and yet the savior of the other. Irony is 9/10th of the law.

Brawn vs. brains. The GOP and the Big Three represent brawn. Muscles. It is also no coincidence that Dick Cheney has emerged as the face of the Republican party these days, after being so invisible during the Bush administration. It is also no accident that Bush, his father, and Cheney were all in the oil business. They represent the "brute force" school of capitalism (although maybe "school" in the wrong word). Men (and it's almost always men) make money by the application of brute force - drilling for oil, mining, making steel, or, as (I think) Alfred Sloan put it, "bending metal and thereby adding value to it."

It is no coincidence that Cheney is the most forceful advocate of torture, the ultimate application of brute force to try to get something done, and that he is spending so much time attacking Obama. Obama represents brains. Obama represents the triumph of the intellectual, the egghead, the geek. But at this moment in history, he also represents a repudiation of the "brute force school," essentially because he has already begun to expose the flaws of that approach to life.

GM has failed in part because its employees believed their own hype, that there was something special about American cars. There are special American cars, sure - the Corvette, the Mustang, the Jeep. Those are arguably the three most iconic American cars ever - each has been made for decades. And each is a very macho car.

My family history is deeply intertwined with that of Detroit and the automotive industry. One of my great-grandfathers was the construction foreman on Henry Ford's mansion. My paternal grandfather started out life as a coal miner, moved up to the assembly line at Ford, went to trade school at Ford, and became an engineer. He only finished eighth grade, but all four of his kids went to college, and three of them have Master's degrees. I was going to be the first one in the family to earn a Ph.d.

My grandfather worked hard on the assembly line. But he also worked hard to make sure that that was exactly the kind of job that I would never have to have. I disagreed with my grandfather on just about every topic in politics, but I am forever grateful to him.

The old white guys whose world is disappearing are scared and angry because they don't understand this new world, and they don't feel like they have a place in it. What many of them don't appreciate, and what the rest of us should be grateful for, is their role in creating it.

Brains has triumphed over brawn because that is what brawn has been working towards. Not just in America, but all over the world, and not just in the last few years, but forever.

History always marches on, but sometimes it tramples. Conservatives celebrate capitalism because it holds people accountable. But they don't like the process of being held accountable any more than the rest of us.

GM, Chrysler closing dealerships

GM and Chrysler are closing lots and lots of dealerships, roughly 2,000, all told.

No one is surprised by this. Many people have known for years that GM and Chrysler have too many dealerships. GM has several thousand more dealers than Toyota, but sells roughly the same number of cars.

From a political perspective, what's bizarre about this is that this failure is actually an argument for the conservative principle that excessive government regulation is bad for the economy. In this case, dealers across the country were protected by state and local laws that made it difficult for them to be closed. Dealers obviously wanted to be protected from the vagaries of the market. The free market. So they relied on government regulation to protect them. And yet I somehow don't think that many of them were Democrats.

My guess is that many of these dealerships were profitable for themselves, but not profitable for GM and Chrysler. Let's say you have a dealership that has been around in rural Kentucky for 50 years. The dealership probably owns the land and the building, so there is no mortgage or rent. That saves a large chunk of overhead right there. They probably have a great credit history, so their cost of capital is low. They pay taxes, sponsor Little League teams, and are generally good citizens in the local community. The police department buys their cars from this dealer. The wife of the dealer is on the board of the local hospital. So that dealership has no incentive to close, even if they are not profitable from the perspective of the manufacturers. But they and the local politicians have every incentive to make it difficult for any car manufacturer to close them.

When a parent does too much to protect their child from the unpleasantness of the real world by, for example, buying them expensive toys or paying their rent after they have graduated from college, we say that the child is spoiled.

It's a very harsh thing to say, but these dealers were basically spoiled children. Their parents, GM and Chrysler, were protecting them from the unpleasantness of the real by absorbing their costs, by, for example, taking their unsold cars back.

The great irony is that if everyone involved had let the free market work properly, many of these dealers probably would have gone out of business a long time ago, and others would have either taken up their business or bought them out. The process of winnowing out the unprofitable dealers would have been much slower, but also much less painful. Instead of taking place over years, however, the process is now taking place over months. If dealers had gone out of business when GM and Chrysler were financially healthy, they could have individually negotiated good buyouts from them. GM and Chrysler could have easily handled 50 to 100 or 200 dealers closing over the last 10 or 15 years. At $1million a pop, 200 dealers would be $200 million a year. That's probably what GM spends on laptops in a given year. Or, rather, spent.

But now that Chrysler is in bankruptcy, with GM likely to follow, the dealers may get nothing or very little. Bankruptcy changes the game. Imagine a spoiled child whose parent is suddenly unemployed. The kid's support is cut off, but she is totally unprepared for it, having never had to worry about it before. So she whines and complains and slams her fists. Guess what the Chrysler and GM dealers are doing.

I don't have a lot of sympathy. Yes, it sucks that many people who were responsible, hardworking people will lose their jobs. I have sympathy for them. They've done everything right, and now they are victims of forces beyond their control. But so are all of us.

But I don't have much sympathy for the dealers. They knew the rules of the game: if you open a business, you agree to play by the rules of capitalism. One of those rules is that the better competitor will win.

If this is an example of the conservative idea that excessive regulation is bad for markets, it is also an example of one of the core failings of conservatism. Conservatives argue that the free markets work because individuals are allowed to act according to their own best interests, and they understand what those best interests are better than the government.

What this argument ignores is that in every capitalist transactions, there is both competition and cooperation; the parties both have an interest in common, and an interest in conflict. If I buy a car, the car dealer and I both have an interest in me buying a car. But the dealer has an interest in charging me the highest price possible, while I have an interest in paying the lowest price possible. So each of us has an interest in distorting the rules governing the transaction to fit our needs. The dealer has an interest in blocking competition; this is why we have antitrust laws. I may have an interest in hiding the fact that I have, for example, a bad credit score, or the fact that I just lost my job (speaking hypothetically here).

That's what happened here: the dealers distorted the free market. They acted according to their own best self-interest. But what was in their best self-interest was contrary to the best self-interest of the car manufacturers. The manufacturers didn't object, because they had no reason to suspect that they would have to close down several hundred dealers all at once. They assumed this because they assumed that the free market would work as it is supposed to. Which, ironically, it did. Just not the way conservative theorists think it does.

The final irony is that this is one of the basic organizing principles of liberalism. Markets encourage efficiency, but, left to their own devices, capitalists will distort just about any market. One essential purpose of government is to regulate competition so that the distortions do not ultimately cause the markets to cease functioning properly. In this sense, the government is taking a capitalist role: the government represents the people in the country as a whole acting in the best interests of the country as a whole. There is no other mechanism for all of the people in a particular area, or affected by a particular industry, to act according to their own best interests, except through government.

So conservatives are right: if free markets had been allowed to work perfectly, this would not have happened. But conservatives are the starry-eyed idealists here, who live in their own fantasy land. Liberals are the grounded realists, and, essentially, the better capitalists.

I've said it once, I'll say it again: Irony is 9/10th of the law.

GM's new two-wheeler

is working on a new kind of wheeled transport thingy with Segway. It's sort of like a Segway with a seat and a roof. Reactions to the article in the NY Times are all over the place - some people like it, some people hate it.

I like it. I think it could be great. I think it could be wonderful for parents with kids in high school. If you don't want to buy your son or daughter a new car, but you want them to be able to get to and from school without taking the bus, this might be a great solution. It would have been perfect for me and my siblings.

Lots of people do their errands at stores close to them, like grocery stores, drugstores, etc. Could be perfect for that.

It could also do wonders for parking lots. If enough people travel by this, we could reduce the need for parking in this country. That would be great. I've seen some stores, like an Office Depot in downtown LA, with parking on the roof. The problem with that is that you need a fair amount of space for a ramp. But with these, you could put it an elevator, and people could park on the roof! Solves all kinds of problems.

Finally, some good news from GM!

Au revoir, Mr. Wagoner

Rick Wagoner has resigned as chairman and chief executive of General Motors, under pressure from the Obama administration. That's the polite way to say it.

The slightly less polite way to say is that that President Obama fired the head of General Motors.

I hate to say it, but good for Obama. I have nothing against Rick Wagoner. He seems like a good guy, and he has certainly had an impossible job of late.

But Obama needed to make a decisive move. He needed to make a clear statement about who is in charge. I still think GM is salvageable. I still think there's a huge amount of value there. But someone needs to clean house, and it's not clear that Wagoner was capable of doing it. GM needs to eliminate Saturn, Pontiac, and GMC. It needs to sell Saab and Hummer, and it's not clear that there is a buyer for either. It needs to close hundreds, possibly thousands of dealerships.

All of that is going to be horrendously painful. At a time when unemployment levels are already very high, many more people are going to lose their jobs. Closing dealerships means more vacant real estate when there's already too much of that.

If GM had made the necessary cuts when times were good, it wouldn't have to go through this. The irony, of course, is that when times were good, there was not enough pressure to make these cuts. All of those extra dealerships stayed in business, despite GM's desire to close them, because they were making money. GMC stayed alive, despite making trucks that are basically duplicates of Chevy's.

GM's great problem is that it is not so much a single corporation as it is a bunch of small ones, all competing. Chevy and GMC make very similar trucks. Why? Because Pontiac, Buick, and Cadillac dealers (and Oldsmobile dealers, back when Olds was still around) want to sell trucks, but they don't want to sell Chevy trucks, because then they would have to also sell Chevy sedans and sports cars, which would compete with their Pontiacs, Buicks, and Cadillacs.

GM is the ultimate dysfunctional corporate family. Each division, each dealership has its own interests, and those interests are in direct conflict with the interests of other parts of GM. None of them have enough incentive to sacrifice for the greater good that is known as GM. If GM kills GMC, that will hurt dealers that have GMC and Buick, Cadillac, and Pontiac. But it will help Chevy dealers, because it will eliminate their competition. So Chevy people would love too see GMC disappear. But GMC, Buick, and Pontiac people would love for GMC to stick around. Thus are corporate crises allowed to fester.

In the long run, eliminating GMC will be good for GM. GM wastes lots of good money supporting GMC, advertising it, etc. But in the short term, it's going to be very painful.

This is why Rick Wagoner had to go. He's a product of GM. He couldn't make the tough decisions. He knows he has to kill off several divisions. He just doesn't have the support within GM to do it. All of the GMC people are going to fight like the dickens to keep GMC.

Obama knows all of this. He knows what has to be done, and he knows how hard it is going to be, how painful it is going to be. He also knows that he has the power that Wagoner doesn't.

In the long run, GM will probably be a great company again. Rick Wagoner's problem is that he doesn't have the long term. He needed to show results now, and he can't. Obama does have the long term. He has until 2012.

Obama also needed to make it clear that he was getting something for all of the taxpayer money that he is loaning to GM and Chrysler. General Motors and Chrysler don't have a lot of support in the rest of the country. GM has 18% market share. That means that far more Americans aren't buying GM cars than are buying GM cars.

GM now has a chance to clean the garbage out of its lineup. GM has something like 80+ models of cars. That's absurd. Ford has three domestic brands: Ford, Mercury, and Lincoln, and it might get rid of Mercury. Most other companies have one or two brands. GM has seven.

Cleaning out the garbage would allow the best to shine. GM does make some good cars. The Corvette is an American icon. Cadillac has regained a great deal of its lost luster. Chevy makes good trucks. I'm sure there are some good Buick sedans, but I can't think of them. Herein lies the problem: I can't think of any good Buick cars because GM makes 80+ models of cars, and they blur together. The gold gets lost in the dross. When most Americans think of "GM" they don't think "Corvette." But they should.

The immediate future is still very dark for GM. But the long-term picture just got a little bit better.

This is what accountability looks like.

Kerkorian buys some Ford stock

From the NY Times we learn that Kirk Kerkorian, one of the more entertaining billionaire investors in this country, has decided to buy some Ford stock. I think this is a good idea. I think Ford will turn around faster than GM, because it has less baggage, particularly since it got rid of Jaguar. I think GM still has too many divisions and too many models. The Mercury division at Ford seems a little extraneous to me, but it's only one division. GM, meanwhile, still has GMC, for which there is only a corporate-politics rationale: having GMC means that Pontiac and other non-Chevy GM dealers can sell pickups and large SUVs, which are otherwise the provence of Chevy. GM eliminated Oldsmobile several years ago, but I think they need to trim a lot more before they can really be competitive. Ford doesn't have that burden. Good call on Kerkorian's part.