Why the U.S. Automakers Should Get a Bailout 24 comments
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Fine print disclosure: Driving my car may require $50 billion in cash to guarantee it reaches production.
Dear Diary,
There was a time, not so many months ago, when I would express my ideas regarding which equities or mutual funds were poised to rise, fall, or dance somewhere in between.
Unfortunately, the public misguidings, mishandlings, misinformation, and plenty of other “mis” words have been pervading our society to the point that I feel handcuffed in my ability to ponder much else.
That being said, the public (and more importantly, Oxbury’s readers) want explanations, answers, insight and/or a few reasonable ideas of not necessarily what to expect but at least a multiple choice scenario given our situation.
Well, Diary, here we go once again. So many disasters, so little time. And so, after spinning my Wheel of Misfortune, it seems the needle has landed on the beaten, bruised, and positively frightened auto industry.
The bailout Uncle Sam should have saved his money for
Sorry, GM. Sorry, Ford (F). Sorry, Chrysler. Looks like the squeaky wheel gets the oil. Which happens to be, according to today’s news, only about $58 per barrel.
You should have asked for that bailout sooner. You would have gotten just what you needed.
True, these automobile giants will still probably receive an early Christmas gift, but not before they’ve burned through billions and billions of dollars in cash. And what type of gift will they receive? Originally they asked for $25 billion. Now they’re pleading for fifty.
GM and Ford together flushed $14.6 billion in the third quarter alone... who knows how much might be “enough” to keep them running. Some congressmen are trying to make a case for a portion of that $700 billion to be made available.
Sidenote: “$700 billion”, given the grabby hands and the way it’s being spread around and diluted, will eventually become the name of the bill instead of the final dollar amount with which it is associated.
Even Toyota (TM), which boasted a much stronger cash position prior to this ordeal, broke the news last Thursday that its third quarter earnings dropped by 70%... even scarier, it slashed its fiscal year outlook by half. Half.
I might offer a cash prize to anyone who is able to spot a Lexus “December to Remember Sales Event” commercial this year. More than likely, that LS430 bearing a bow will be on cinder blocks before Santa can get back on his sleigh.
Why should they get a bailout?
People need to realize the catastrophic consequences of allowing these automakers to fail. The direct loss of jobs for those people that work at the companies would be the miniature tip of the iceberg.
We must look past the factories alone to grasp the depth of this one. This type of failure would have a ripple effect spreading through the car dealerships, the parts manufacturers, the steel mills and companies that supply the fabric lining the interior of these cars.
Job loss would be swift and massive. One in ten jobs in the US are, at least in part, supported by the auto industry. The first year alone would push between 2.8 and 3.1 million people to the unemployment lines. The result is not only fewer people working, but more importantly fewer people spending. Fewer people pouring money back into our economy.
What about consumer sentiment? The resale values of American-made cars lie below those of imports anyway. What happens after bankruptcy? Who will spend $25k on a car that cannot be sold in five to seven years?
And lest we forget – it’s not the auto industry that sent us to the garbage heap in which we reside. It was the financial sector. The financials, of course, got the first bailout.
Lending issues abound
Banks, credit unions, and other institutions that offer loans to consumers to purchase these cars are also going to suffer the adverse effects. I don’t have to explain that there’s already enough trouble with lending. CNN posted an article explaining how Chris Dodd, among others, “demanded” that banks need to start lending to consumers. In his words, “We want to see more progress from our friends in the financial sector… and if that progress is not forthcoming, we are prepared to legislate.”
Oh yeah? Legislate what? Are you going to force banks to lend? To whom might they offer their funds?
People who actually need to borrow money – those that are in financial turmoil – are too high of a risk for many banks to lend to in mediocre times, much less the volatile, financially ambiguous, who-knows-what-the-headlines-will-read-tomorrow times we are currently faced with.
How quickly congressmen such as Chris Dodd forget simple credit facts after their involvement in that Countrywide mortgage scandal earlier this year.
Finally, the perilous consequence of a strong dollar
I’ll make this brief: The dollar has appreciated massively, roughly 17% against the euro this year, and even more against the British pound.
GM and Ford have a global footprint. They’re trying to sell their product overseas, just as more and more companies are doing – or were doing – every day.
In the worst of times, it appears that our thriving (relatively) dollar is sabotaging this process. Think about it. If foreign consumers wish to purchase an automobile produced in the United States, that foreign currency is going to have to be exchanged for dollars at some point. This makes those products more expensive.
More expensive = less purchases.
Do they deserve a bailout?
The million…ahem, billion dollar question. Unfortunately, it looks as though what is deserved is of little consequence anymore. Does anyone in this country work hard enough to earn over a million dollars per year? I, personally, don’t think so. But alas…
Deserving or not, we must do what’s best for most of America. Bailing out the automakers is a necessity, because we’re not going to destroy our economy in order to teach someone a lesson. We can only learn from what has happened so that we may make better decisions in the future.
My one true fear is that America, collectively – and though I love this country – is not the type of place to learn from its mistakes.
Disclosure: No positions.
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This article has 24 comments:
It will Suck the whole country into the path with no return.
On Nov 16 09:53 AM XeroJ. wrote:
> The Big 3 is just like a Super Black Hole.
> It will Suck the whole country into the path with no return.
www.gm.com/experience/.../#
I must admit Toyota is very clever with their public relations
On Nov 16 11:24 AM Cruncher wrote:
> I don't have a problem with bailing out the auto companies. However,
> I do have a problem with (1) management (not just executive) compensation
> & bonuses and, (2) the overpaid and over benefitted UAW employees.
> The UAW is a parasite that is just sucking the companies dry. Did
> you know that a UAW janitor makes over $100K per year and enjoys
> benefits almost as good as the President...everything to nocopay
> health care to free use of attorneys for just about any reason, and
> way more.
On Nov 16 11:13 AM GMpensioner wrote:
> The Big 3 & UAW need to wake up and smell the sake! Congress needs
> to realize they can't force lenders to indiscrimantly lend money,
> part of our problems have come from forced lending quotas. GM etal
> need to get relief, and they need to accept the attached strings.
> They need to manage better (gasp!! oversight?) and modernize. And
> save my pension.... I gave 30 years!! LOL
Until these companies are turned around they will reduce white collar salaries by 25%, reduce labor salaries by 20% and require retirees to pay one half of the insurance premiums. There have been many companies over the past few years that have went to their retirees requiring them to pay portions of their premiums.
By voting to close GM, you vote against your investment in your own community and to allow foriegn interests to entrench deeper in your back yards. I agree that GM needs to redo their business plan because there are lots of mixed signals and this is why congress is taking their time to sort all this out. But to destroy any community in this country as a lesson to unions and poor management would be like cutting off your nose to spite your face. I don't look at this so much a bailout, but as a loan to help out a nieghbor who's fallen to an unfreindly economy. Hell, we're pumping 10 billion into Iraq every month. Just helping a nieghbor out right? Let's help our own with 2 just months of Iraq compensation.
But demand a business plan, that emphasizes that our communities come before retention bonuses, golden parachutes, foriegn investment and global aspirations. Demand union accountability - stem absenteeism, tighten work restrictions, better review family medical leave abuse, throw out appointed position slackers and eliminate job entitlement attitudes.
In turn we should expect work coming back to our communities, which should energize our economy, which hopefully will return the big three to profitability, and in a year or two create a robust return for the taxpayer.
If we don't start to come together soon, we will surely fall apart.
We just have to put politics aside and demand accountability. Please
save the U.S.A.. Don't ask for it, Don't argue about it. Demand it!
Reply |Report abuse
On Nov 17 12:54 AM DavidR wrote:
> Wow, the people I share oxygen with really dissapoint me. OK, lets
> allow the US auto industry to dissappear. LOL. Most of the 3.1 Million
> newly unemployed will have to let their houses go into forclosure.
> They won't have an income to buy new Honda's and Toyotas, so those
> two companys might as well go down the tubes as well. We're talking
> about a LOAN to the Automakers to bridge a recession. We're talking
> about repayment with interest. Trust me, the last thing you want
> is the government taking an ownership stake in the companies (can
> you remember British Leyland?) Just a loan. Shesh. Not like most
> of you people never took out a loan?
> jack
> jack
On Nov 16 02:13 PM The GM Kid wrote:
> Get your facts straight!!! If you review the Medial, you will see
> they are limited to 3 office visits a year and have very limited
> coverage. And for this, They gave up $2100 a year of their pay(not
> free). I know of no Janitor making $100,00 a year??? Unless he is
> required to work 3000 hrs a year. Most prople work 2000 hours. Free
> atty??? How about a free refereral and 1st vist is free(like any
> ATTY) and then you pay. I do not blame you for your ignorance because
> the Public relations of the UAW and GM sucks. They are both stupid.
>
>
> I must admit Toyota is very clever with their public relations <br/>
On Nov 16 02:15 PM The GM Kid wrote:
> Amen, for me too, Please keep my Pension....LOL
Unfortunately, Detroit's "squeaky wheel" has been begging for attention for many years (long before the current financial crisis)-- but no one was listening. Obviously, Detroit's business model must be radically changed before public funding is provided. To do otherwise would be utterly irresponsible.
By the way, that loaf would cost just about two shares of Ford.
"By voting to close GM, you vote against your investment in your own community and to allow foriegn interests to entrench deeper in your back yards."
OK, so what's your opinion on increasing our national debt to China. Remember that article in the People's Daily about how China could collapse the US currency and economy if it wanted to?
Any money loaned to GM, Ford, or Chrysler will never be recovered. That's what the private market is saying.
Why should anyone believe that these companies will be more successful with the government's money than they have been with their own investors' money? These companies have been destroying value for decades. Looks like a bottomless pit to me.
But hey, when our currency collapses, I can at least watch these companies race NASCAR on the taxpayer's dime.
I just have one question: who is going to give it to them?
The next thing after this G20 meeting this past weekend, is for the IMF
to review the accounts of the US Government, under GAAP rules.
And when they do, US Treasury debts will be reduced to junk status, as they
have deserved for some time.
And then what?