Coyote Blog

I am trying to figure out what kind of thinking this post from Kevin Drum represents:

According to people "familiar with the talks," several of Chrysler's bondholders have rejected the government's deal, which amounted to paying them off a little more than 30 cents on the dollar.  So that means it's probably Chapter 11 time.  Blecch.  I hope the holdouts all end up getting less from the judge than they would have gotten from Obama.

There is only one possible reason** for Obama's attempt to avert a Chrysler bankruptcy -- he is trying to divert value from one group who would get it under a bankruptcy to another group.  There can be no other explanation for what he is trying to do, and in fact evidence is pretty strong that he has been trying to get creditors to take less so unions, who supported his election, can get more.

What has happened is that creditors have refused to get bullied by this near-unprecedented intervention by a US President in a bankruptcy case and are holding out for what they feel is the best way to recover as much as possible of what they are owed (no one is coming out whole).  In this context, Drum's pique really seems petty.  Rather than press for the money they are legitimately owed, the creditors should have bowed down, I guess, to the King's wishes and given up their money to those courtiers who were smart enough to back the King's coronation.

What Drum is probably most upset about is that it is now clear that both Bush and his guy Obama have spent tens of billions of dollars of taxpayer money to absolutely no end, just delaying a bankruptcy that would have been better for economic recovery if it had happened six months ago.

** There is one other explanation -- Obama may feel like he is better able to mediate a bankruptcy than a bankruptcy court and judge with decades of experience in the field.  I hope this kind of hubris is not the case, but for this administration it is very possible.  Obama is every bit as unaware of his inability to achieve his goals through shear force of will in domestic policy as GWB was in foreign policy.

I have predicted it a number of times vis a vis Chrysler, including back in February:

It is criminal that this [restructuring plan] is going to Congress, not a bankruptcy judge.  This is a conspiracy of management (looking to hold onto their jobs and equity), equity holders, and employees to usurp value from the senior debt holders, who would normally be first in line in a bankruptcy.

or in March:

there is a clear set of winners and losers in a bankruptcy "” and there is enough case law on it that all the players at GM know it and they know into which category they fall.  Those who are lower down the food chain are hoping that putting the restructuring in Obama's hands rather than those of the bankruptcy process will improve their outcomes.

Oh, gee, you say, the Anointed One would not be so crass as to used this way, would he?  From Megan McArdle

The government is trying to play hardball with the Chrysler creditors, asking them to accept 15 cents on the dollar when they're likely to get more in a liquidation.  That's not a haircut; it's more like what they do to you the first day of boot camp.

I very seldom include really long excerpts from articles, but this is perhaps the most telling article I have read to really give you a feel for what the new government ownership of the automakers really means.

It sounds crazy: Just a week after the White House scolded Chrysler LLC for relying too much on gas guzzlers, the company is heading to a marquee auto show Wednesday to unveil a new SUV.

Chrysler insists the Jeep Grand Cherokee, which clocks in at 20 mpg in its two-wheel-drive version and 19 in four-wheel-drive, is a crowd favorite and a crucial part of its lineup.

"This is a very important vehicle for us. It's one of the primary legs of the Chrysler stool," Chrysler spokesman Rick Deneau said. "Customers have told us they want this vehicle and that it's the right size."...

The White House slammed Chrysler for having a product lineup so heavily weighted with trucks and SUVs. It added that the automaker does not have enough products in the pipeline to meet an expected increase in demand for small cars.

But Chrysler is standing by the Grand Cherokee. It's profitable, recognizable and the No. 2-selling vehicle in the Jeep lineup. Grand Cherokee sales fell by almost half during the first three months of the year, but its market share has remained steady, according to Autodata Corp....

Karl Brauer, editor in chief of the automotive Web site Edmunds.com, said it may be hard for Chrysler to please both the government, which is demanding greater fuel efficiency from the Big Three, and its customers, many of whom still demand big cars.

"It would be far more foolish for Chrysler to abandon its core competencies in the Jeep brand lineup than it is to come out with a new" Grand Cherokee, Brauer said.

I hardly know where to start with this.  Some thoughts:

• As expected, the administration does not really care about the near-term recovery of GM and Chrysler, or, if they care, they are totally ignorant as to the realities of the US car market and the sources of Chrysler's profitability.   They care about enforcing a particular political agenda that has little to do with, and may actually conflict with, the health of the company.
• We have hit a new low when the President of the United States has a strong opinion on and reaction to what car a private company chooses to feature at an auto show.
• We REALLY have hit a new low when my newspaper thinks its "crazy" that a private company would follow its own marketing intuition rather than the dictates of the US President as to what car they should feature at an auto show.  The AZ Republic just assumes the company should do whatever Obama tells them to.
• "Expected increase in demand for small cars"  -- Expected, by whom?  Hybrids are currently losing market share.
• It takes years to develop a new car, so this particular variation of the Cherokee has been in the pipeline for a while, and millions of dollars have likely been invested in it.  And the product line makes money, unlike many other Chrysler cars.  But the Administration wants them NOT to sell it?  It takes years to change a company's auto portfolio, but Obama is going to throw a hissy fit because they have not done it in two months?  Don't they know who he is?
• The article even gives the data one needs to understand why buyers don't share Obama's need to downsize their car.  Based on numbers in the article, this SUV uses $235 more gas a year than the Camry (which I guess is a more politically correct car choice).  That is $19.60 a month.  Assuming a car payment of $450 per month, that is about 4% of the car payment.  In other words, the difference in gas use is a TRIVIAL expense for the person who can afford to buy the car in the first place.  Over 5 years, the cumulative extra gas to fuel the SUV costs about the same as the 16" alloy wheel option on the Camry.

Every day, I have an increasing sense that we are creating a dictatorship run by a grad school public policy seminar.

I am sure that Obama really believes, in his heart, that Americans really want smaller cars rather than SUVs.  So what?  By acting on his own preferences, he is breaking what I call marketing rule #1:  Never assume ones own personal preferences are shared by the marketplace.

I wrote the following in the comments to this post where a good Bay Area greenie had expressed similar views (that automakers are hurting because they are producing the wrong cars that Americans don't want):

I have been a marketer all my life. As such, one of the first rules of survival I learned was to never overlay my own personal preferences on the marketplace. GM has had this problem for years, with insular design teams locked in some weird 1970s design world.

But you and others are simply repeating the mistake, with a different set of perspectives -- you assume your personal preferences in cars represent that of the majority of buyers, and you wish to use the fiat power of government to enforce those preferences. It is a recipe for fiscal disaster. I promise you what people buy, for example, in rural Arizona is not the same thing that people buy in SF, no matter how much those on the coasts want to forget that flyover country exists.

I actually think there is decent evidence that a lot of people do want what GM is offering, given their market share. Why do people always say they make cars that no one wants to buy, when they sell 10 million of them each year? I will confess the GM product line does nothing for me, but so what? Others seem to like it, and, unlike many, I don't look down my nose at them for doing so.

The problem is not necessarily their product line, but their cost position. The average price of new cars has not risen for 15 years. Much like in computers, consumers now expect ever better cars for the same or lower price each year. GM is still producing cars with a mindset built in an era of a three-company domestic monopoly, where 4% annual price increases were routine. Their competition is producing like they are Dell or Toshiba, recognizing that they are never going to get price increases and ruthlessly driving down costs.

Update: This is relevent, even if not directed specifically at autos:

Er, industry also knew how to make low-flow toilets, which is why every toilet in my recently renovated rental house clogs at least once a week.  They knew how to make more energy efficient dryers, which is why even on high, I have to run every load through the dryer in said house twice.  And they knew how to make inexpensive compact flourescent bulbs, which is why my head hurts from the glare emitting from my bedroom lamp.    They also knew how to make asthma inhalers without CFCs, which is why I am hoarding old albuterol inhalers that, unlike the new ones, a) significantly improve my breathing and b) do not make me gag.  Etc.

In fact, when I look back at almost every "environmentally friendly" alternative product I've seen being widely touted as a cost-free way to lower our footprint, held back only by the indecent vermin at "industry" who don't care about the environment, I notice a common theme: the replacement good has really really sucked compared to the old, inefficient version.  In some cases, the problem could be overcome by buying a top-of-the-line model that costs, at the very least, several times what the basic models do.  In other cases, as with my asthma inhalers, we were just stuck.

Often "industry reluctance" to offer green products is actually industry understanding of customer reluctance to buy them.

After giving tens of billions of dollars of our money to the auto makers, Obama has now figured out what I and many others knew years ago:

Obama, responding to a question during an online town hall meeting, said the current business model for U.S. carmakers was unsustainable and the Big Three would need to change their ways.

From the article, however, it is still clear that Obama has no intention of allowing GM to go into chapter 11, as they should have 6 months ago.   There is a good political reason for this -- remember what I explained before.   Obama is working to equate chapter 11 with the disappearance of the American auto industry, clearly an untrue and facile proposition.  Many large companies, from airlines to energy companies to equipment manufacturers, have gone bankrupt over the last several decades and continued operations or at least had their productive assets taken over by other companies.  GM's assets are not just going to go poof.

However, there is a clear set of winners and losers in a bankruptcy -- and there is enough case law on it that all the players at GM know it and they know into which category they fall.  Those who are lower down the food chain are hoping that putting the restructuring in Obama's hands rather than those of the bankruptcy process will improve their outcomes.  And, to get those higher on the food chain (ie senior debt holders) to accept this they need the government to bring taxpayer money to the table.  The whole point of an Obama-led restructuring, then, is not to somehow preserve the US auto industry but to improve the financial position of certain GM stakeholders at the expense of US taxpayers  (and probably consumers, and some sort of protectionism is likely to be part of this deal).

But here is the most interesting point that was really hammered into me in reading this article.  If you were to rank Obama as to where he stood vis a vis all American adults in terms of his knowledge of business and what it takes for a company to be successful, where would you rank him?  I don't think very many would put him in the top half.  In fact, given that he has never, to my knowledge, had any real job in business of any sort (not even a high school job at McDonald's or something similar), I am not sure I would put him above the 10th percentile.  Anyway, put your own number to this question, and then read these quotes from the linked article

The president said he planned to announce decisions on the future of the industry in the coming days.

"But my job is to measure the costs of allowing these auto companies just to collapse versus us figuring out - can they come up with a viable plan?" he said.

White House spokesman Robert Gibbs said Obama will announce his strategy for the auto industry before he leaves for Europe on Tuesday.

Seriously, would you hand over your business or your stock portfolio for Obama to manage?  I didn't think so.  It takes years of experience to be able to read a business plan skeptically.  And even people who are experienced at it fail a lot.

By the way, for those who suspect that decisions will not be based on actual market realities but satisfaction of pet political goals, you are probably correct:

The president said even as the economy bounces back, Detroit can't focus on "trying to build more and more SUVs and counting on gas prices being low."...

Gibbs said Obama still thinks U.S. automakers build cars that Americans want to buy. Both he and the president own Ford Escape hybrids. "It's a nice car," Gibbs said. "It really is."

So, for example, one can assume its likely the Obama strategy for GM success will include lots of hybrids.  Of course, the market reality is this:

the slowdown has been particularly brutal for hybrids, which use electricity and gasoline as power sources. They were the industry's darling just last summer,  but sales have collapsed as consumers refuse to pay a premium for a fuel-efficient vehicle now that the average price of a gallon of gasoline nationally has slipped below $2.

"When gas prices came down, the priority of buying a hybrid fell off quite quickly," said Wes Brown, a partner at Los Angeles-based market research firm Iceology.

I personally believe that a meer restructuring of GM is unlikely to create a turnaround, as I discussed here.

Postscript- It is a bit apples and oranges for me to say that Obama is evaluating business plans here.  In fact, he is not.  Though he calls them that, if the Chrysler retructuring plan they put on the web is any guide, these are political plans, not business plans.  No real business plan, for example, seeking to attract private capital would prioritize the goals "Commitment to Energy Security and Environmental Sustainability", "Compliance with Fuel Economy Regulations," and "Compliance with Emissions Regulations" ahead of "Achieving a Competitive Product Mix and Cost Structure."  In fact, the section about costs and competitive products comes dead last in the Chrysler plan, almost as an afterthought.

Update: This sad story about athletes and their difficulty in managing their money seems relevent.  These guys, who have spent their whole life getting really good at one thing, don't even have the basic financial vocabulary to understand money management, and absolutely no ability to parse a business plan:

It began in the winter of 1991 when he sank $300,000 into the Rock N' Roll Café, a theme restaurant in New England designed to ride the wave of the Hard Rock Cafe and Planet Hollywood franchises. One of his advisers pitched the idea as "fail-proof, with no downsides," Ismail recalls. He never recouped his money and has no idea what became of the restaurant.

Lesson learned? If only. After that Ismail squandered a fortune funding not only that inspirational movie but also the music label COZ Records ("The guy was a real good talker," says Rocket); a cosmetics procedure whereby oxygen was absorbed into the skin ("We were not prepared for the sharks in the beauty industry"); a plan to create nationwide phone-card dispensers ("When I was in college, phone cards were a big deal"); and, recently, three shops dubbed It's in the Name, where tourists could buy framed calligraphy of names or proverbs of their choice ("The main store opened up in New Orleans, but doggone Hurricane Katrina came two months later"). The shops no longer exist.

You might say Ismail had a run of terrible luck, but the odds were never close to being in his favor. Industry experts estimate that only one in 30 of the highest-caliber private investment deals works out as advertised. "Chronic overallocation into real estate and bad private equity is the Number 1 problem [for athletes] in terms of a financial meltdown," Butowsky says. "And I've never seen more people come to me about raising money for those kinds of deals than athletes."

Doesn't this sound like the current administration in microcosm?  Does Obama have any better chance with his GM investment?

The Chrysler web page for their restructuring plan they presented to the Feds is here.  The summary pdf my comments are based on is here.  Thoughts:

1. It is criminal that this is going to Congress, not a bankruptcy judge.  This is a conspiracy of management (looking to hold onto their jobs and equity), equity holders, and employees to usurp value from the senior debt holders, who would normally be first in line in a bankruptcy.
2. There is no WAY I, as a private investor, would put one additional dime into Chrysler based on this plan.  All the Same-Old-Incremental-Sh*t, with no explanation of what they are going to do differently.   Somehow they are going to cut half their models and lay off tens of thousands of employees but hold fast on market share, somehow reversing years of steady decline.  No explanation of how.
3. In section one, they blame it all on the credit markets.  Specifically, the lack of ability of the Chrysler finance arm to lend to customers.  But I showed the other day that consumer lending is still strong by banks.  What they are really saying here, but they are smart enough not to utter the actual words, is that their sales depended on a finance arm that was willing to lend at below-market rates to people with bad credit scores, and the lack of this hidden subsidy is what is making it hard to sell their cars.  Credit exists -- what no longer exists is zero-percent-interest-to-anyone-who-walks-in-the-door-no-questions-asked financing.   Instead of figuring out how to make cars that don't require hidden subsidies to get off the lot, they are trying to get the government to fund their hidden subsidies.
4. The present value calculation is a joke.  I could spend 3-4 business school classes discussing problems with it, so I won't now.  But one element that stuck out at me was that they come up with a terminal value in the calculation as a multiple of EBITDA  (Earnings before Interest, Taxes, Depreciation, and Amortization).  Really?  EBITDA is a common metric, but it is beyond meaningless when looking at a company going bankrupt under the weight of interest costs and capital spending.  Besides, they have the gall to assume that net cash flow (excluding financing activities) will be positive for the combined years 2009-2010.  Im-freaking-possible.  Remember, if any private investor in the country believed these numbers, Chrysler wouldn't have to be begging at Congress's door.  Congress is their last chance to find a sucker who will give them more money.
5. OK, I can't totally leave aside the NPV calculations yet.  They have a table of NPV's at different rates of return  (which is meaningless because their cash flow assumptions can't be believed).  The rates of return are 5%, 10%, 15%, and 20%.  This is ridiculous, though many may not recognize it.   20% is a low rate for the discounting of about any large equity investment, but it is absurdly, ridiculously low for a high-risk investment in a company that has been burning cash for decades and is facing its second near bankrupcy in 30 years.  Any savvy investor in the world would smell a dead fish here, but Congress won't because Chrysler is waiving electric cars at them
6. And speaking of electric cars, any intelligent restructuring plan would recognize that electric cars, even if they are successful in the marketplace, are not going to be anything but a cash drain for years.  This kind of thing has to be put on hold while the company gets back on its feet.  But instead, since this is a political and not a business document, Chrysler is practically leading with it.  In fact, the sections "4:  Commitment to Energy Security and Environmental Sustainability", "5:  Compliance with Fuel Economy Regulations," and "6:  Compliance with Emissions Regulations" all come in priority order ahead of "7: Achieving a Competitive Product Mix and Cost Structure."  In fact, this section about costs and competitive products comes dead last in the plan.  LOL, a "business" plan, indeed.
7. I thought it was funny that on the cover of the report, they have all kinds of happy politician-grabbing stats about how many red-blooded Americans they employ and how much of their production is made in the good old USA.  But their entire restructuring plank #3, which is labeled "strategic alliances," seems to boil down to a bunch of outsourcing to foreign partners.  Which is fine with me, but probably would freak out the Dems they are selling it to should they figure it out.

In the new corporate state, this is what business plans will look like.  Because were aren't selling returns and wise investment of capital, we are selling the care and feeding of political constituencies and pressure groups.

Postscript: OK, I realize I criticized the plan without suggesting what should be in it.  Here is what I would demand as an investor:  An achnowlegement and discussion of the reasons for past market share slide, and targeted actions to reverse these trends.  As Chrysler has said they have been working on this problem for 30+ years, the proposed solutions will need to sound radical, not incremental.  Further, they need to stop complaining that below-market rate consumer financing does not exist, and explain how they are going to sell cars at a price that covers their costs as well as a return for shareholders.

That I never get my business in a situation where I have to spend $45,000 just to lay off a worker.

General Motors is offering buyouts to virtually all of its remaining hourly workers, becoming the latest automaker to try to cut labor costs by giving nervous workers an incentive to leave the company.

The move follows a similar move by Chrysler LLC, which made an offer to its hourly workers on Monday.

The GM (GM, Fortune 500) offer, which takes effect Friday, is less lucrative than the deal proposed by Chrysler, or even offers that GM has made to its hourly staff in the past. The automaker will give most of its 62,000 U.S. hourly workers $20,000, as well as a voucher good towards the purchase of a GM car worth $25,000.

In the past, GM offered between $45,000 to $62,500 to workers to retire early, and $140,000 to employees who left the company and agreed to give up post-retirement health care coverage. Those offers were all cash.

Seriously, is this driven by GM contracts, or is this just GM's choice as an alternative to firing everyone?  There are cases when it makes sense for a company to go through the added expense of worker buyouts vs. layoffs.   The buyouts avoid the bad press of a layoff, they help maintain the company's reputation in the remaining workforce and community, and may not be a bad investment for a company temporarily on hard times that knows good times, and the need to hire more quality employees, are just around the corner.

But seriously, do automakers really have anything to lose at this point to lose?  And if the main reason for buyouts over layoffs is reputational, is this really what we want our tax money funding, the maintenance of the good name of GM management?

You know you are in trouble when a guy who made his fortune in the early Internet boom (which featured companies like Pets.com using the last of their cash to put put sock puppets on the Superbowl) has to lecture you on making a profit.  From the always quotable Mark Cuban via TJIC:

For those in Detroit who have never operated a lemonade stand, or any other business, the way profits are generated is by making products at a price people want to buy them for, and then producing them, with all costs allocated, for less than you are selling them for. It's not apparent that this is a principle that Detroit understands....

You Know Chrysler is Toast Because the CEO takes out a fullpage ad in the Wall Street Journal today to thank the American Public for "investing" in Chrysler.

Lets see, is there anything more idiotic than spending more than 100k dollars on a full page ad "thanks for letting me waste your money " ad ? Does it make it worse that its a business publication where the readers might just recognize the stupidity of wasting money on ad dollars that doesn't even try to sell the product ? How does it make the next unemployed Chrysler worker feel that their entire year's salary just went for a single, ridiculous ad ?

Just one more example of how poorly run the car companies are. Note to the Big 3, spend money to make money. These types of ads have as much value as a Bernie Madoff account statement.

Via TJIC, who had a much better title, "poor credit risks remain poor credit risks, even after you give them a free pony"

Recent data suggests that many borrowers who received help with mortgage modifications earlier this year tended to re-default on their payments, a top U.S. banking regulator said on Monday.

"The results, I confess, were somewhat surprising, and not in a good way," said John Dugan, head of the U.S. Office of the Comptroller of the Currency, in prepared remarks for a U.S. housing forum.

"Put simply, it shows that over half of mortgage modifications seemed not to be working after six months," he said.

You can absolutely, without a doubt, add the Big 3 to the list of folks who will be facing default once again just months after getting their first dollop of federal money.

I think the incentives issue has been beaten to death pretty well, but there is another problem with bailout:  They leave the productive assets of the failed company in essentially the same hands that failed to make good use of them previously.  Sure, the management has changed, but a few guys at the top of these large companies don't really mean squat.  To this point:

A corporation has physical plant (like factories) and workers of
various skill levels who have productive potential.  These physical and
human assets are overlaid with what we generally shortcut as
"management" but which includes not just the actual humans currently
managing the company but the organization approach, the culture, the
management processes, its systems, the traditions, its contracts, its
unions, the intellectual property, etc. etc.  In fact, by calling all
this summed together "management", we falsely create the impression
that it can easily be changed out, by firing the overpaid bums and
getting new smarter guys.  This is not the case - Just ask Ross Perot.
You could fire the top 20 guys at GM and replace them all with the
consensus all-brilliant team and I still am not sure they could fix
it. 

All these management factors, from the managers themselves to
process to history to culture could better be called the corporate
DNA*.  And DNA is very hard to change.  Walmart may be freaking
brilliant at what they do, but demand that they change tomorrow to an
upscale retailer marketing fashion products to teenage girls, and I
don't think they would ever get there.  Its just too much change in the
DNA.  Yeah, you could hire some ex Merry-go-round** executives, but you
still have a culture aimed at big box low prices, a logistics system
and infrastructure aimed at doing same, absolutely no history or
knowledge of fashion, etc. etc.  I would bet you any amount of money I
could get to the GAP faster starting from scratch than starting from
Walmart.  For example, many folks (like me) greatly prefer Target over
Walmart because Target is a slightly nicer, more relaxing place to
shop.  And even this small difference may ultimately confound Walmart.
Even this very incremental need to add some aesthetics to their
experience may overtax their DNA.

David Leonhart (via Carpe Diem) argues that this was exactly the long-term downside of the Chrysler bailout:

Barry Ritholtz "” who runs an equity research firm in New York and writes The Big Picture,
one of the best-read economics blogs "” is going to publish a book soon
making the case that the bailout actually helped cause the decline. The
book is called, "Bailout Nation." In it, Mr. Ritholtz sketches out an
intriguing alternative history of Chrysler and Detroit.

If
Chrysler had collapsed, he argues, vulture investors might have swooped
in and reconstituted the company as a smaller automaker less tied to
the failed strategies of Detroit's Big Three and their unions. "If
Chrysler goes belly up," he says, "it also might have forced some deep
introspection at Ford and G.M. and might have changed their attitude
toward fuel efficiency and manufacturing quality." Some of the
bailout's opponents "” from free-market conservatives to Senator Gary
Hart, then a rising Democrat "” were making similar arguments three
decades ago.

Instead, the bailout and import quotas fooled the
automakers into thinking they could keep doing business as usual. In
1980, Detroit sold about 80% of all new vehicles in this country.
Today, it sells just 45%.

As I wrote about GM:

Changing your DNA is tough.  It is sometimes possible, with the
right managers and a crisis mentality, to evolve DNA over a period of
20-30 years.  One could argue that GE did this, avoiding becoming an
old-industry dinosaur.  GM has had a 30 year window (dating from the
mid-seventies oil price rise and influx of imported cars) to make a
change, and it has not been enough.  GM's DNA was programmed to make
big, ugly (IMO) cars, and that is what it has continued to do.  If its
leaders were not able or willing to change its DNA over the last 30
years, no one, no matter how brilliant, is going to do it in the next
2-3.

So what if GM dies?  Letting the GM's of the world die is one of the
best possible things we can do for our economy and the wealth of our
nation.  Assuming GM's DNA has a less than one multiplier, then
releasing GM's assets from GM's control actually increases value.
Talented engineers, after some admittedly painful personal dislocation,
find jobs designing things people want and value.  Their output has
more value, which in the long run helps everyone, including themselves.

Don Boudreaux responds to UAW President Ron Gettelfinger's complaint that the US has a trade imbalance in autos with South Korea:

Well, duh - that's an
inevitable consequence of specialization...

General Motors, Ford, and Chrysler each have huge trade imbalances --
to be precise, huge and growing trade deficits -- with their workers:
these companies buy far more from their workers than their workers buy
from them.  Perhaps auto makers should hire workers only on the
condition that the trade in each case is "balanced": each and every
worker must agree to spend his or her entire salary on products made by
the auto maker.  For example, a G.M. worker whose total compensation in
2007 is $60,000 must spend $60,000 on G.M. products in 2007.  Any
worker who fails to do so will be fired because of the resulting
imbalance.

Update:  Sorry, forgot the link.  Added it.

Frequent readers of this blog will know that this quote from Milton Friedman on licensing is one of my favorites:

The justification offered is always the same: to protect the consumer. However, the reason
is demonstrated by observing who lobbies at the state legislature for
the imposition or strengthening of licensure. The lobbyists are
invariably representatives of the occupation in question rather than of
the customers. True enough, plumbers presumably know better than anyone
else what their customers need to be protected against. However, it is
hard to regard altruistic concern for their customers as the primary
motive behind their determined efforts to get legal power to decide who
may be a plumber.

Ilya Somin at Volokh has an interesting post (though right this moment their site seems to be down) about the American Bar Associations (ABA) role in accrediting colleges.

To my mind, the problem goes beyond the shortcomings of specific ABA standards.
The real mistake is allowing an organization with a blatant conflict of interest
to take over the accreditation role in the first place. As an interest group
representing lawyers, the ABA has an obvious stake in limiting entry into the
profession so as to decrease the competition faced by its members. One way of
doing so is by restricting the number of accredited law schools, at least in the
vast majority of states that require all or most aspiring lawyers to attend an
ABA-accredited school in order to take the bar exam.  We would not allow an
organization run by Chrysler, GM, and Ford to set regulatory standards
determining who has the right to sell cars in the United States. Requiring ABA
accreditation for law schools is the exact equivalent in our industry....

To be completely clear, I am NOT arguing that the ABA should be prevented from
certifying schools as meeting what it considers to be appropriate standards. I
am merely suggesting that ABA accreditation should not be required by law as a
prerequisite for allowing a school's graduates to take the bar. If ABA
accreditation really is a sign of school quality, then applicants can take that
into account in making their decisions on what school to attend, just as they
currently consider US News rankings and other data. If some form of legally
mandated accreditation is needed (and I highly doubt that it is), the system
should be run by an independent agency insulated as much as possible from
control by the ABA and other interest groups representing practicing lawyers.
There should be similar insulation, by the way, from influence by established
law schools, since we too have an obvious self-interest in limiting competition
by preventing new entry into the legal education market.