Bailout the Automobile Industry ?

[Cicero]

They need to go into Chapter 11 and restructure.

A number of informed economists are suggesting that Chapter 11 for GM would quickly become a chapter 7 liquidation. The company is in terrible condition.

The government's role should be to lay on pressure to get them to actually make cars Americans want (i.e. GREEN/FUEL EFFICIENT).

I agree. The primary reason I oppose a bailout is that there is no reason to expect more intelligent operation from the Big Three than we've so far seen. The problem the companies face is much less economic than it is ideological. They are in the place they're in because of poor decision-making that has been obvious - and much discussed outside of Detroit - for years. Unless the companies are heavily cleaned out at the management level, I would hope to see them receive little to none of our money.

I will say, though, that Ford's request for loans seems much more reasonable than what GM is asking. This isn't surprising, considering that Ford has been much better run.

 

[Cicero]

Amen to this.



I hated the bailout of the financial sector, but at least there was an underlying reason (financial cascade failure would have certainly caused a major global depression and very serious geopolitical instability). Automakers going out of business, no matter how big or how many people are affected, is something that can be contained and eventually solved within existing market models.

I hated the bailout of the financial sector, as well. I know some pretty smart people, quite versed in economics, and all agreed that it was a necessary evil. I wasn't sure about that. I was afraid it was going to lead to the bailout culture we're currently beginning to get a glimpse of --- this protection of failure, which has never once worked at any time in the history of the industrialized world.

There was a point in our shared industrial histories when people were much more knowledgeable about the importance of competitiveness in the market, of businesses competing with one another. It drives down prices, improves quality/price, creates jobs, and drives up wages. It's a very simple set of calculations, and there are many examples in history to show that it works fairly well.

However, protecting failing businesses drives away competition. You reward those who are pricing themselves out of the market, who have bad business models, and the companies with good business models have to operate without a huge chunk of cash from the government. It puts them at a disadvantage, distorts market forces. It's not a good thing. There are many examples of industry/business failures based on this kind of pseudo-monopolizing by government.

I know, I know. It all stinks. But going back on the financial bailout for a moment, and the "necessary evil" bit. I think it really was. For a while, with no hyperbole, it was really close to "end of the world as we know it" stuff. If the whole financial sector stopped lending, then the depth of the depression that would result would have been worse than the Great Depression because our modern world is far more dependent of liquid capital flow.

One thing I don't understand: why does the capital need to be private? Couldn't public lending work just as well (if not better, considering a lack of profit-motive and a tendency to be risk-averse)? We essentially have a modicum of that in the bailout itself - public lending is propping up private lending at a cost to the public and eventual profit to the supported private.

 

[Dayton3]

Let every company that can't make money go bankrupt as far as I'm concerned.

 

[John Picard]

The government's role should be to lay on pressure to get them to actually make cars Americans want (i.e. GREEN/FUEL EFFICIENT).

This statement is the biggest crock of BS in the world. At least the Green/FE comment. Ford and GM both make economy cars and did so WHEN EVERYBODY AND HIS FUCKING BROTHER WERE OUT GETTING 84 MONTH LOANS ON EXCURSIONS, H2'S, SUBURBANS, EXPLORERS, ETC

Now, they're all stuck with large, cumbersome vehicles that went DOWN, DOWN, DOWN in value and they're upside down on those turds. It's the fault of the buyers.

 

[Cicero]

The government's role should be to lay on pressure to get them to actually make cars Americans want (i.e. GREEN/FUEL EFFICIENT).

This statement is the biggest crock of BS in the world. At least the Green/FE comment. Ford and GM both make economy cars and did so WHEN EVERYBODY AND HIS FUCKING BROTHER WERE OUT GETTING 84 MONTH LOANS ON EXCURSIONS, H2'S, SUBURBANS, EXPLORERS, ETC

Now, they're all stuck with large, cumbersome vehicles that went DOWN, DOWN, DOWN in value and they're upside down on those turds. It's the fault of the buyers.

No, the car companies created the culture in which safe, efficient, and family-friendly cars are looked down upon. Their advertising created the public attitudes which are crippling their better products.

 

[Hoser]

We are headed that way if people don't realize that some of the "union benefits" they take for granted are driving up costs to the point where we can't compete.

So, we pay people well here with benefits, and our quality of life is high.
China pays people squat, and their quality of life is very low.

So people need to realize that they have to work for less than a dollar an hour for 60-72 hours a week with unpaid overtime, or the American companies won't be able to compete.

 

[John Picard]

The government's role should be to lay on pressure to get them to actually make cars Americans want (i.e. GREEN/FUEL EFFICIENT).

This statement is the biggest crock of BS in the world. At least the Green/FE comment. Ford and GM both make economy cars and did so WHEN EVERYBODY AND HIS FUCKING BROTHER WERE OUT GETTING 84 MONTH LOANS ON EXCURSIONS, H2'S, SUBURBANS, EXPLORERS, ETC

Now, they're all stuck with large, cumbersome vehicles that went DOWN, DOWN, DOWN in value and they're upside down on those turds. It's the fault of the buyers.

No, the car companies created the culture in which safe, efficient, and family-friendly cars are looked down upon. Their advertising created the public attitudes which are crippling their better products.

Good point. Like I've said here many times, back in 1990, people made fun of me for driving a 1964 VW Karmann Ghia, telling me to "get a real car".

While Detroit is begging for money, the Japanese, once again, beat them at innovation.

http://www.usatoday.com/money/autos/2008-12-04-nissan-concept-vans_N.htm

http://images.usatoday.com/money/_photos/2008/12/04/truck2x-large.jpg

http://i.usatoday.net/money/_photos/2008/11/17/nissan_nissanx-large.jpg

 

[DanCPA]

Do we really want the quality of life that China has?

No... but we do need to find ways to be competitive with the people in China before all our jobs get sent out there

One of the reasons the US is having such a hard time getting out of the malaise that we've had since 2000 is that we make less and less stuff here... We have become a service economy, and while that is all good, we can't take full advantage of a weak dollar on the international market...
Unions served a purpose, and perhaps they will be needed again, but for the most part, they are simply a hinderance on businesses in the modern American era.

 

[K'riq Sa]

It's Not You It's Your Car.......

people made fun of me for driving a 1964 VW Karmann Ghia, telling me to "get a real car".

we still laugh and make fun of you and tell you to get a real car...



just saying....

it's a karmann ghia fer christ sake.








k'riq the unimplorable

 

[DanCPA]

Their advertising created the public attitudes which are crippling their better products.

They did this because they made so much money off of Expeditions, TrailBlazers and Rams...
You have to promote what makes you money

Profits are substantially less on Focus and Cobalt

 

[Holdfast]

I hated the bailout of the financial sector, as well. I know some pretty smart people, quite versed in economics, and all agreed that it was a necessary evil. I wasn't sure about that. I was afraid it was going to lead to the bailout culture we're currently beginning to get a glimpse of --- this protection of failure, which has never once worked at any time in the history of the industrialized world.

There was a point in our shared industrial histories when people were much more knowledgeable about the importance of competitiveness in the market, of businesses competing with one another. It drives down prices, improves quality/price, creates jobs, and drives up wages. It's a very simple set of calculations, and there are many examples in history to show that it works fairly well.

However, protecting failing businesses drives away competition. You reward those who are pricing themselves out of the market, who have bad business models, and the companies with good business models have to operate without a huge chunk of cash from the government. It puts them at a disadvantage, distorts market forces. It's not a good thing. There are many examples of industry/business failures based on this kind of pseudo-monopolizing by government.

I know, I know. It all stinks. But going back on the financial bailout for a moment, and the "necessary evil" bit. I think it really was. For a while, with no hyperbole, it was really close to "end of the world as we know it" stuff. If the whole financial sector stopped lending, then the depth of the depression that would result would have been worse than the Great Depression because our modern world is far more dependent of liquid capital flow.

One thing I don't understand: why does the capital need to be private? Couldn't public lending work just as well (if not better, considering a lack of profit-motive and a tendency to be risk-averse)? We essentially have a modicum of that in the bailout itself - public lending is propping up private lending at a cost to the public and eventual profit to the supported private.

I'm not quite sure who/what you're asking but if you mean "why shouldn't public capital be used to actively buy up failing companies deemed too-big-to-fail", then, I'd say you answered your own question with the bit I've bolded. Lack of a profit motive and a willingness to take risks (combined with the certainty of effectively infinite public capital) leads to inefficiency & stagnation & haemorrhaging money. Why do you need to compete if your capital is backed by the state?

Now, to be fair GM has got to the same stagnant end-point privately, but it's far more common in nationalised business (which is effectively what you're suggesting). Let them go bust. That's the best part about recessions anyway; weed out big but failing companies and let new shoots emerge from the undergrowth.

The only reason the financial sector (just about, barely, through my gritted teeth) justified their bailout is that if the financial sector imploded totally, so would entire banking system on which Western capitalism is based. Even there, I do still wonder whether other ways of doing it were possible (we're going to be ending up printing funny money anyway to boost money supply to solve the problem, once fed rates reach zero, so this could have been done back then instead of the bailout).

 

[DanCPA]

Holdfast... There are no "start up" US Auto makers.
So, if you remove the Detroit 3, we are left without US auto companies

 

[Gertch]

Holdfast... There are no "start up" US Auto makers.
So, if you remove the Detroit 3, we are left without US auto companies

Yes. But there will still be automakers employing US workers. Plus we'd have some state of the art factories where someone with some capital can start up - hopefully following the foreign model and not allowing unions.

 

[Hoser]

Why do you need to compete if your capital is backed by the state?

At this point, that's not the issue. If it was the 90s, and other companies were doing well, then yeah, let them fail. But right now the US economy is in such a recession that even Bush recognizes it. Suddenly throwing millions more workers, workers that have been making a living wage, into that......not going to be a good picture.

 

[K'riq Sa]

I think there are a few. Tesla Motors is one of the more well know. besides they are set to release a econmy model of their Roadster based on their electrical system...




k'riq

 

[Holdfast]

Holdfast... There are no "start up" US Auto makers.
So, if you remove the Detroit 3, we are left without US auto companies

So what? Comparative advantage is the issue here. If the US can't make cars profitably, maybe they shouldn't be making them and focus on doing something else they can do more profitably (or at less loss). The UK learnt that lesson a while ago with British Leyland and later, again with Rover. No point subsidising failing business models because they just end up needing more subsidy later on.

There isn't a particular strategic interest requiring special subsidy. Obviously there IS a national defence side of things to car making can be saved separately from the retail commercial business to the general public, at far less cost.

Besides, Ford is in a much stronger position than either GM or Chrysler. I suspect it can survive regardless of government aid.

Why do you need to compete if your capital is backed by the state?

At this point, that's not the issue. If it was the 90s, and other companies were doing well, then yeah, let them fail. But right now the US economy is in such a recession that even Bush recognizes it. Suddenly throwing millions more workers, workers that have been making a living wage, into that......not going to be a good picture.

The truth is that many millions of workers are going to be fired anyway over the next year. It's a cold-hearted ruthless thing to say but decreasing the total by a million or so isn't really going to make a big difference. What's the magic figure for bailing a company out anyway? One million employees? One hundred thousand? Ten thousand? It will never end and even more public money will be poured down the drain of failing business models.

Long term, these workers will have a much better chance of finding a stable job they won't get fired from if FAILING business models are allowed to fail and new business models develop from the ashes as companies and people reposition to the new economy that will emerge from the recession.

I fully understand that this position sounds heartless and unsympathetic. If it makes it any more palatable to swallow, I don't object to a short-term use of public money to increase public spending on various large-scale employment projects to tide things over while the recession lasts. Standard Keynesian economics.

 

[Hoser]

Actually, in many states it will make a big difference. Many of the manufacturing states are already at the limit of their unemployment benefits. Michigan alone is nearing 10% unemployment.
IOW, they're either going to be bailing out the Det. 3 or bailing out entire states.

 

[John Picard]

Holdfast... There are no "start up" US Auto makers.
So, if you remove the Detroit 3, we are left without US auto companies

Actually, there are several "start up" car companies in the US. If GM were to go under, those people would buy the scraps that would help bring them to the market faster.

People keep reading gloom and doom into this.
Fact: Recessions suck.
Fact: Recessions kill off the weaker companies that shouldn't be in the market
Fact: Economies rebound post Recession
Fact: Many people, who were rendered jobless at a Recession are those who bring new companies to the market that make the next economic cycle prosperous.

Let the market fit itself.

 

[Cicero]

I know, I know. It all stinks. But going back on the financial bailout for a moment, and the "necessary evil" bit. I think it really was. For a while, with no hyperbole, it was really close to "end of the world as we know it" stuff. If the whole financial sector stopped lending, then the depth of the depression that would result would have been worse than the Great Depression because our modern world is far more dependent of liquid capital flow.

One thing I don't understand: why does the capital need to be private? Couldn't public lending work just as well (if not better, considering a lack of profit-motive and a tendency to be risk-averse)? We essentially have a modicum of that in the bailout itself - public lending is propping up private lending at a cost to the public and eventual profit to the supported private.

I'm not quite sure who/what you're asking but if you mean "why shouldn't public capital be used to actively buy up failing companies deemed too-big-to-fail", then, I'd say you answered your own question with the bit I've bolded.

No, I mean why does the capital available for lending need to be private? Why couldn't the financial companies had been allowed to fail, and their role have been filled by a public entity? Our public lending is maintaining the liquidity of private lending at the moment anyway. Why not cut out the profit-driven private financial companies and lend directly as a government entity? Lending is perhaps the one area in a economies in which risk aversion and lack of profit motive are completely positive.

 

[Cicero]

Holdfast... There are no "start up" US Auto makers.
So, if you remove the Detroit 3, we are left without US auto companies

Actually, there are several "start up" car companies in the US. If GM were to go under, those people would buy the scraps that would help bring them to the market faster.

People keep reading gloom and doom into this.
Fact: Recessions suck.
Fact: Recessions kill off the weaker companies that shouldn't be in the market
Fact: Economies rebound post Recession
Fact: Many people, who were rendered jobless at a Recession are those who bring new companies to the market that make the next economic cycle prosperous.

Let the market fit itself.

Economists are right that markets self-correct wonderfully. But the end is not the market, but the person. And a lot of blameless people are hurt badly when markets correct themselves.

We are headed that way if people don't realize that some of the "union benefits" they take for granted are driving up costs to the point where we can't compete.

So, we pay people well here with benefits, and our quality of life is high.
China pays people squat, and their quality of life is very low.

So people need to realize that they have to work for less than a dollar an hour for 60-72 hours a week with unpaid overtime, or the American companies won't be able to compete.

I'm not sure what we have to lose by placing wage restrictions on Chinese imports. The United States currently exports very little of what we import from China (indeed, very little that's manufactured), so increased Chinese competition abroad shouldn't be a problem. And conditions for workers here should improve as low-paying Chinese labor is removed from the competitive pool. Large companies might stand to lose (Wal-Mart certainly would, as Apple and other manufacturers probably would, too), but the country would be stronger for it, particularly if a zone of economic standards (wages, benefits, environmental requirements, product quality, etc.) among the major first-world economies.