Auto Woes: Legislation Won't Get People to Buy Cars 14 comments
Money Morning
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By Mike Caggeso
Congressional Democrats and the White House Wednesday finalized a short-term package that will supply General Motors Corp GM and Chrysler LLC with $14 billion in emergency loans.
The bill clearly falls short of the $34 billion the Big Three were asking for, but should be enough to keep the automakers running through January, when the new Congress and Obama administration take the wheel.
As previously reported in Money Morning, there will be limits on executive pay, prohibitions for golden parachutes and requirements that the automakers get rid of their corporate aircraft and not pay dividends while loans are outstanding. The bill also provides a "car czar," or presidential appointee, to keep tabs on the companies’ restructuring efforts.
Of course, the bill is still awaiting congressional approval and there is cause to believe it may stall in the Senate.
Sen. Richard Shelby, R-AL, was a member of the panel that twice grilled Big Three CEOs and one of the bailout’s most vocal critics. Wednesday, Shelby threatened to filibuster the deal if it reaches the Senate.
It’s interesting to note that Shelby’s home state of Alabama has built three foreign car assembly plants – Honda Motor Corp. (HMC), Mercedes-Benz and Hyundai (HYMLF.PK) – as well as a Toyota Motor Corp. (TM) engine plant, in the past 20 years.
Shelby’s efforts induced the formation of Boycott Alabama Now, a group that says it wants America to give Shelby a taste of what he’s doing to America. Such a boycott “will include any travel into the state as well as boycotting the purchase of anything produced in any way within the state,” according to the group’s Web site.
Senate Minority Leader Mitch McConnell expressed reservations about the bill’s legislation and doubts it’ll garner enough Senate votes to pass. The state he represents, Kentucky, has a 7,000 employee Toyota plant, The Boston Globe reported.
Then there’s Tennessee, the only state with U.S., Asian, and European auto assembly plants. And in an interview with BusinessWeek, Tennessee’s Sen. Bob Corker seems to understand his colleague Shelby’s positions on the bailout more so than his own.
It has not been an issue of local politics. For me there is no issue of local politics. I try and dig into these issues and present thoughtful responses to the situation. In defense of Senator Shelby, I knew where he was going to be on this issue before this ever arose,” Corker said. “He was against the Chrysler loans back in 1979. He was always going to be against this, as he was against the Wall Street bailout legislation. In his case, it’s not the politics of the auto industry. That’s just who he is.
But Corker nailed the source of problem.
“Regardless of what happens this week, the legislation, if passed, is not going to move people to buy cars,” Corker said.
Auto Woes Extend Beyond the Big Three
Falling demand is something all carmakers can agree on, especially in Germany, Europe’s largest economy and the home of Europe’s largest carmaker, Volkswagen (VLKAY.PK).
While all focus has been on Detroit’s Big Three, few have noticed that Volkswagen – like Detroit’s Big Three – is trying to bite off its own piece of a broad government bailout. In October, Germany’s parliament passed a $642 billion (500 billion euro) bank-rescue plan to stabilize the country’s banks. And Volkswagen has quietly sought government help for its financial services and banking units.
Premium carmaker BMW said it wasn’t sure if it would ask for similar help, Reuters reported.
That’s why it’s not accurate to assume bailout opponents share the same opinions on the bailout as foreign automakers. As Money Morning previously reported, it’s more than just Big Three employees on the line.
While the Big Three employ more than 200,000 people directly, they support millions more indirectly through suppliers and dealerships. The collapse of the Big Three could ultimately cost the economy more than 2 million jobs total. And that doesn’t count the estimated 1 million Americans – including many retired autoworkers – who rely on the U.S. auto companies for pension and healthcare benefits.
According to Germany’s VDA industry group, parts purchased by manufacturers account for 75% of the value of an average car, Bloomberg reported.
Here in the United States, as many as 60% of Honda’s U.S. parts suppliers are also major parts sources for the Big Three.
If a manufacturer’s major customer goes under, it too may scale back operations and therefore be unable to meet the manufacturing and shipping demands of another customer.
“You can’t underestimate what would happen when a large player collapses,” BMW Chief Executive Officer Norbert Reithofer e-mailed to Bloomberg. “That would impact the supplier structure and therefore the entire industry.”
The United States is also the largest market for most foreign automakers. Allowing one or all of the Big Three to go under would add millions to the running unemployment numbers and deepen the recession, making the U.S. market less likely to buy their cars.
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This article has 14 comments:
On Dec 11 01:01 PM Lazaris wrote:
> The whole world is looking at us to see what we are going to do with
> our industrial manufacturing base, and a handful of Republicans are
> holding everyone hostage!
The govt and the feds are partly to blame for the housing bubble and its current collapse. And its this collapse that is causing a sudden 40% drop in autosales and the disappearance of any normal sources of financing for the automakers. The problem is not exectutive pay or the lack of fuel efficient vehicles.
Imagine if this was the treatment you got when you were desperate for a loan and the financial system has collapsed. "you'll have to work for a $1, and live in a tent, and we want you to sell one or two of your kids as soon as is practical".
We are all in this mess together.
At first the rhetoric was all about wall street greed...now its the blue collar workers! I guess the only people who aren't greedy are politicians (except Illinois governors).
* Require that any compensation — outside of customary service pay — that occurs for workers who have been fired, laid off, furloughed, or idled, be immediately terminated.
THANK-YOU RONALD REGAN! THIS IS THE REASON THE FOREIGN TRANSPLANTS WERE BROUGHT TO THIS COUNTRY TO BUST THE UNION.NISSAN, TOYOTA, AND HONDA HAVE NO PENSION BENEFITS THEY ALSO HAVE LIMITED HEALTH CARE…SO INSTEAD OF THEM COMPETING WITH US…IN OUR LAND…OUR STANDARD OF LIVING…WE HAVE TO LOWER OUR SELFS TO THEIR’S.AND WHEN IN 2010 OUR HEROES IN WASHINGTON ALLOW THE CHINESE TO SHIP THEIR CARS TO USA THEN OUR HEROES (BOB CORKER AND RICHARD SHELBY) WOULD WANT US TO COMPETE WITH THEM TOO!
WARS ARE FOUGHT ON EMPTY STOMACHS…WAKE UP AMERICA!
On Dec 11 09:55 PM User 303820 wrote:
> THANK-YOU RONALD REGAN!
Regan is spelled Reagan.
THIS IS THE REASON THE FOREIGN TRANSPLANTS
> WERE BROUGHT TO THIS COUNTRY TO BUST THE UNION.
The foreign automobile companies didn't come with a primary intent of doing anything but making money. Their own countries are even more union backward than our own. (Detroit being the exception)
NISSAN, TOYOTA, AND
> HONDA HAVE NO PENSION BENEFITS THEY ALSO HAVE LIMITED HEALTH CARE…
Toyota, Honda, and Nissan, as well as Mercedes, and Bmw all offer pension benefits. They all offer healthcare as well but it doesn't come gold-plated as the UAW desires. Congress has designed their own healthcare plan after the UAW if that means anything to you.
SO INSTEAD OF THEM COMPETING WITH US…IN OUR LAND…OUR STANDARD OF LIVING…WE HAVE TO LOWER OUR SELFS TO THEIR’S.
Too many grammatical errors to respond. I'm going to stretch and say that you probably did it to yourself when you dropped out of school.
AND WHEN IN 2010 OUR HEROES IN WASHINGTON ALLOW THE CHINESE TO SHIP THEIR CARS TO USA THEN OUR HEROES BOB CORKER AND RICHARD SHELBY) WOULD WANT US TO COMPETE WITH THEM TOO!
So, I take it that you like a system where choice is disallowed and competition is stifled so that you can enjoy outsized benefits and salary and the American public gets crappy, expensive vehicles in exchange? Gosh! You are convincing.
> WARS ARE FOUGHT ON EMPTY STOMACHS…WAKE UP AMERICA!
Is there a better example of what is wrong with America? This sense of entitlement is incredibly lame. Why can't we find teachers who teach these poor boys and girls to write, read and spell at the very least? I won't push the thinking part. This is a sad day in America.
On Dec 12 12:47 AM k9s-4-k8 wrote:
> First, all of your information is incorrect.
>
> On Dec 11 09:55 PM User 303820 wrote:
On Dec 11 01:01 PM Lazaris wrote:
> The whole world is looking at us to see what we are going to do with
> our industrial manufacturing base, and a handful of Republicans are
> holding everyone hostage!
On Dec 11 09:55 PM User 303820 wrote:
> BOB CORKER:* Require that the “all-in” labor costs and work rules
> of the Detroit Three be immediately brought on par with foreign car
> makers such as Nissan, Toyota and Honda.
>
> * Require that any compensation — outside of customary service pay
> — that occurs for workers who have been fired, laid off, furloughed,
> or idled, be immediately terminated.
> THANK-YOU RONALD REGAN! THIS IS THE REASON THE FOREIGN TRANSPLANTS
> WERE BROUGHT TO THIS COUNTRY TO BUST THE UNION.NISSAN, TOYOTA, AND
> HONDA HAVE NO PENSION BENEFITS THEY ALSO HAVE LIMITED HEALTH CARE…SO
> INSTEAD OF THEM COMPETING WITH US…IN OUR LAND…OUR STANDARD OF LIVING…WE
> HAVE TO LOWER OUR SELFS TO THEIR’S.AND WHEN IN 2010 OUR HEROES IN
> WASHINGTON ALLOW THE CHINESE TO SHIP THEIR CARS TO USA THEN OUR HEROES
> (BOB CORKER AND RICHARD SHELBY) WOULD WANT US TO COMPETE WITH THEM
> TOO!
>
> WARS ARE FOUGHT ON EMPTY STOMACHS…WAKE UP AMERICA!
> It was dumb of the Big 3 to think the very profitable SUV's, the bread
>and butter of their fleets, wasn't what America wanted for years, what we all
> really yearned to drive was a Toyota Yaris.
Come now. If the 'very profitable SUV's' weren't what the American consurmer wanted, they wouldn't be 'the very profitable SUVs. What are you not understanding? The U.S., while not perfect, has what can only be described as the largest choice of vehicles available to American consumers today. We have probably the least amount of trade barriers for all foreign manufactureres as a whole than any other country on Earth. I challenge anyone with actual proof that says otherwise. We aren't perfect, just more open market than everyone else. If American consumers desired the Toyota Yaris, they would have bought the Toyota Yaris. But, no. They bought larger SUVs because they needed the space, they perceived safety and had no idea, as didn't any automobile company, that gasoline prices would skyrocket. Nevertheless, the companies inability to set aside funds enough to pursue a radical change in demand is a sorry manufacturing error that should be bore by the industry and not the American taxpayer.