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Author: Subject: The Auto Industry Bailout
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[*] posted on 12-5-08 at 01:01 PM   «:|:»  Link to post Reply With Quote
The Auto Industry Bailout



Well, the 3 CEO's of Ford, GM and Chrysler have arrived in Washington D.C. for the second time to plead their case for a Government bailout.

GM and Chrysler claim that they have no chance of surviving without a massive low interest Government loan. Ford can probably survive, but they might collapse if one of both of the other go down. So, Ford is also asking for a loan, although much smaller.

The auto industry has been hit very hard by gas prices, the economy and perhaps most, the difficulty to get a car loan these days.

The question is simple; Should the US Government "bailout" the big 3 auto makers, or should they let free market do its thing???


Personally, I am really torn on the decision. If GM goes under, the job loses would be massive. Detroit's economy would probably all but shatter, and so many thousands of jobs around the country and the world would be lost. Think about all the GM cars/parts distribution, and the dealers. They employee a massive number of employees.

However, I fear that with a bailout, we are only delaying the inevitable. If the US government (you and I) bailout these failing companies, we would just be throwing money down the drain. Companies like Toyota and Honda are doing much better and employee a lot of workers in the US. They may be Japanese companies, but the vast majority of their workforce are Americans.

If Al Gore was a member of the Den, I'm sure his comment would go something like this: The big 3 automakers mocked Global Warming for years, and they forced 10mpg SUVs down our throats for 30 years. Its time we make a real change and allow the much more fuel efficient car companies (Honda and Toyota) to prevail.


What do you all think???

For a little reading on the topic, check out these links:

http://money.cnn.com/2008/12/05/news/companies/house_hearing/index.htm?postversion=2008120513

http://www.msnbc.msn.com/id/28067839/

A random GM stock fact: 10 years ago, GM stock was worth $93, today its worth $4. Ouch


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[*] posted on 12-5-08 at 01:54 PM   «:|:»  Link to post Reply With Quote


Quote:
Originally posted by Aero
However, I fear that with a bailout, we are only delaying the inevitable. If the US government (you and I) bailout these failing companies, we would just be throwing money down the drain. Companies like Toyota and Honda are doing much better and employee a lot of workers in the US. They may be Japanese companies, but the vast majority of their workforce are Americans.

I think this is the biggest question....you can't just push it back and back forever. So if it is inevitable then there is no reason to do it.

And since I agree....here is what I see as the options

don't bailout, save the money for the no doubt social impacts.

Bailout, but force massive restructuring of the companies, building them in a way that has a better chance long term.


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[*] posted on 12-5-08 at 03:49 PM   «:|:»  Link to post Reply With Quote


I am also torn on this issue but when all is considered I am in favor of the bailout. With the way the auto industry cycles GM and Chrysler will need to be able to stay afloat for atleast two more model years before a completely new model line up can hit the road. If we bail them out then we can mandate efficiencey/emmision standards so the cars are more desirable while at the same time getting our funds returned with some interest if the companies turn around. I don't see how the auto industry's inability to function properly is any worse than the financial sector's and they are only asking for about 10% of what has already been given (about 5% of total aloted for financial sector).

On another point I would just like to mention that the primary reason that the US Auto industry isn't competative is because they are the only global competators that don't have government subsidized health/retirement programs. Mercedes Benz is one of the only other non subsidized manufacturers out there. Giving our companies large loans isn't enough, we need to shift auto workers to a federal health/pension system. If we do this we kill two birds with one stone: car companies are more competative and Obama's goal of a national comprehensive health system will have a gauranteed subscription base.


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[*] posted on 12-5-08 at 04:18 PM   «:|:»  Link to post Reply With Quote


Spank, you bring up a good point about the health and retirement issues. That is another huge reason why people are in favor of the bailout that I did not mention before.

It would be devastating to take away the retirement of the hundreds of thousands of auto workers. That alone could have a hugely devastating effect on the country. Without their retirement money they have been planning on during their entire careers, they will never be able to afford their own health care. And lets be honest, after working on the production line of a car plant for 30 years, your body probably isn't in the best shape.

This is a very major issue for the country right now, and I hope our congress men make a wise choice, and stop bashing them about their corporate jets.


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[*] posted on 12-6-08 at 07:31 AM   «:|:»  Link to post Reply With Quote


IMO, the only reason there is really a debate (not that I think there shouldn't be one) is because the UAW/Detroit are blatent Decocratic constituents and nothing pisses off the Republican's (especially Bush) more than people who support Democrats. The financial sector failed because of a total lack of oversight, the auto industry is failing because they didn't do enough forward thinking and gas prices sky rocketed before they could make up the difference. The only real difference between them is that the financial sector doesn't produce anything tangible and they asked for almost a trillion dollars and the Auto industry makes one of the only bulk traded goods the U.S. produces and they are "only" asking for $35 billion or so. I understand if the majority of the population doesn't feel like handing out more money but if we are willing to save an industry that caused it's own downfall and doesn't manufacture anything (other than money that doesn't really exist) why cant they get behind the one industry that in essence defines america? Bush wont make any deal except for allocating $15 billion out of $30 billion that was set aside to help them make more efficient vehicles. He wont help them survive longer and make better cars but he will let them limp on for the near future... seems like a double standard that will end up hurting the U.S. even more than he already has!

Half a million jobs gone in a single month, if the auto industry goes under we can expect almost triple that in an even shorter window of time! Not to mention the slow trickle of jobs lost as the suppliers, mechanics, dealerships vanish. By not supporting the auto industry fully (and demanding that Bush stop hindering action) we as a nation are cutting our nose to spite our face. We will see this "recession" quickly warp into an all out depression. The party that championed trickle down economics is trying to ignore one of the rare and undeniable times when trickle down will actually occur and have a direct impact on almost everyone in this country!


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[*] posted on 12-6-08 at 10:28 AM   «:|:»  Link to post Reply With Quote


I want to interject another thought into this discussion and see what you guys think of it.

I think that all the news and talk about the recession has had such a major psychological impact on people, that it has made things much worse then they actually are. What I mean is, when the news talks about the "economic downturn, recession, housing crisis, credit crisis, economic Katrina, ect, ect, ect" people get more tight fisted about their money then they need to be, which just makes matters worse.

When it comes to things like car sales, people realize that they really don't need a new car, they just want a new car. So new car sales (to some extent) is driven by peoples excess cash. Everyone loves a new car of course, so when they have the cash flow, cars move off the lots. What I see happening is that people are not buying new cars now simply because the news is saying that people can't afford them right now. Well, if you haven't lost your job, which over 95% of Americans haven't, the cash flow is still there.

People are getting really tight with their money because the news is telling them that other people are getting tight with their money. So they are worried that they will look like reckless spenders if they buy a new car. With that kind of mentality, things snowball. There is no real reason that car sales are off by 50%.

Obviously SUV sales are off big time party because of gas prices and more social awareness of gas guzzlers being frowned upon. However, small cars and even normal sized sedan sales are way off too.

My point is (in much less words then all the crap above,) Everyone instantly became very aware that economy is not as strong as it was, and all of a sudden people have stopped spending money, which snowballs into actually creating a recession. 95% of Americans can still afford to buy as much Christmas shit as they did last year, but they won't. They will cutback on X-mas spending, car sales and everything else. The economy will hurt much more then it needs to.


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[*] posted on 12-6-08 at 01:32 PM   «:|:»  Link to post Reply With Quote


Quote:
Originally posted by spank
Half a million jobs gone in a single month, if the auto industry goes under we can expect almost triple that in an even shorter window of time!

I have heard this too....but I question it. Just because you file for chapter 9 does not mean you close your doors.


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[*] posted on 12-6-08 at 04:10 PM   «:|:»  Link to post Reply With Quote


Except that like we discussed the other night once the company goes bankrupt the desire to purchase any of their products disappears. Why would someone shell out the cash for a brand new vehicle when: a)the car will loose 20-35% of its value the instant you sign the paperwork (Ferrari's excluded), b) the only upside to buying new is the warranty and what good is a warranty w/ a company that no longer exists or soon wont? SOOO, once the companies file bankruptcy the value of their new stock (and their warranties) plummits causing the company to do even worse and therefor become unable to turn itself around. Once the manufacturers go belly up (for good) there will be no need for brand new parts for warranty work, reducing the suppliers cash flow, causing the non-warranty price of parts to increase (making the suppliers less viable along w/ the mechanics) ultimately leading to the downfall of the suppliers too though the mechanics will still be around but they wont have the security or profitability that makes for a quality business. Obviously this is all my own speculation but the interplay of the auto industry is rather vast. Also, the suppliers are in general parts makers but there are also the steel manufacturers, tire makers, and countless other material suppliers.


Ethan, your point is more than valid. I think that this was topic in other post too. Economics has for the most part come to a point that baring the basic principle of supply and demand the value of most things is dictated by psychology. "Something is only worth as much as someone else will pay for it". Things are worth what people want them to be worth.


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[*] posted on 12-6-08 at 10:08 PM   «:|:»  Link to post Reply With Quote


Yeah, I really don't think that filing for chapter 11 or whatever is a possible solution. I would never pay the money for a new car if it wasn't for the warranty. If GM or Chrysler file, no one will buy one of their cars and they will be out of money to operate so fast it will be ridiculous.

Its bailout of bust for them. It would be amazing to see a company of that size go down. It would send a shock wave through the country.

My guess is that we will see the bailout money put up by the end of the upcoming week. We'll see...


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[*] posted on 12-7-08 at 07:17 AM   «:|:»  Link to post Reply With Quote


Yes, it is bailout or bust for them IMO too. In conventional economic situations filing chapter 11 might be beneficial but w/ the entire globe in a recession there is no source of excess capital large enough and held by one entity so that they could purchase the failing companies. If it was a situation of just the auto industry being in trouble it would be one thing but since all industries are suffering bankruptcy would ultimately lead to them going entirely out of business. January 20 wont come soon enough, with limp dick Bush cockblocking any action that doesn't benefit his party directly and him not doing much of anything in the first place our economy could make all sorts of critical mistakes turning this recession into something much much worse.

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