Sell Ford and GM to the Chinese (Part 3)

♠ Posted by Emmanuel in , at 11/12/2008 12:32:00 PM
I am absolutely gobsmacked that, even now, I am about the sole voice calling for the US automakers to be sold to the Chinese [1, 2]. Unlike, say, defense technology gear, sellers of cars can hardly say that they're vital to America's national security needs. Now, everyone and her dog knows American carmakers have been begging Uncle Sam for federal mercy to the tune of some $50 billion. When Obama takes his oath and the even more Democrat-laden Congress goes back into session, it will be hard not to expect automaker aid from Washington. As always, I remain unconvinced of this meddling: whereas the Koreans had reason to help out their automakers by my reckoning as they actually manage to sell cars in global auto markets, US automakers can barely even sell their wares at home.

Which of course brings me back to the post's title. The logic is hard to fault. Here are some points to consider on the US side:

1. Every American automaker is on the verge of bankruptcy;
2. Difficult economic conditions will prevail for some time as debt-loving Americans are well and truly overspent;
3. Even those who are in a position to buy a car are likely to have trouble arranging financing;
4. Highly unionized workforces ensure that overhead will remain high for Detroit in the foreseeable future;
5. Historically, 'Buy American' has been a dud and won't likely work well;
6. If Detroit's finances are bad, those of its putative donor, the US of A, are even worse;
7. With even Kerkorian pulling a Kevorkian on his Ford share holdings, it's nowhere but down for automakers' stocks.

Now consider things on the other side where the grass is indeed greener:

1. China, Inc. has so many dollars they don't know where to put them anymore;
2. With consumption constituting about 38% of GDP in China as opposed to 70% in the US, there is considerable room for consumer culture to grow in the PRC;
3. Actually, you may be surprised that Buicks and Hummers sell pretty well in China;
4. Membership is encouraged in China's state-sponsored union;
5. Say what you will of Detroit's marketing, but the Chinese have had trouble establishing global brands like the Japanese and Koreans have done. If you can't build brands, buy 'em;
6. While protectionist xenophobia will always be there, Chinese ownership of US automakers is preferable to imminent default;
7. The automakers are dirt cheap for Chinese investors.

Let's face it: Detroit is a financial black hole. If automakers are looking for salvation, they won't find it in poor, bedraggled Washington but from the good burghers of Beijing. If Pelosi et al. are really interested in "saving" Detroit and the jobs associated with car manufacturing, then the best course of action is to invite those who can throw billions and billions of dollars at these firms for some time--and have good reason to do so. The brands and the dealer networks of the Big Three are still worth something, though time is slipping away.

The current course of action--Sammy the Beggar pimping for Detroit--will likely lead to the Big Three becoming the Small Zombie Firm Three. If American politicians have any sense left, the proper course is to sell Ford, GM, and Chrysler to the Chinese.

PS: The Center for Automotive Research (CAR) has a report estimating the number of jobs affiliated with the moribund US auto industry.