Capitol Hill Blue Forums Political Issues Finance, the economy & Economics Bailing out the auto industry - yes or no?

Just a thread to discuss this. I can't say I've formed an opinion either way; I know American jobs were at stake, but I also know that the American auto industry has had its head up its arse for years, and I don't think that I should have to pay for their errors.

Case in point: I saw a big billboard on the way home last night, advertising the new Dodge Ram. It said, and this is almost word for word: "It ate a luxury car!"

While I'm sure this will appeal to a few testosterone-challenged people with money to burn who really like the idea of taking one inefficient vehicle and adding it to another, with little regard for gas prices -- this advertising campaign does seem to be about 180 degrees away from the concerns of most rational Americans these days. "Out of touch" is something of an understatement.

So, yes, I understand some of the issues, but this is getting old. First I'm supposed to bail out people who bought more house than they could afford; then I'm supposed to bail out the people who lent them the money they couldn't repay, and now I'm supposed to help out the damn fools who haven't been able to catch a clue since the first Hondas and Toyotas came to the States in the 1970s?

(Just for clarification - my intent here is not union-bashing. My ire is reserved for the top level, who chose to build bigger and better Suburbans while Toyota was building a Prius.)

What do you think needs to happen here?

They have to be allowed to fail. The auto companies in the US have been a failure for a long time and they have to be put out of their misery.

Other car companies like Honda, Toyota and VW will pick up the slack and take over some of the factories in the US and increase their car production here. That is just natural since people will continue to buy cars. It is a necessity for most people.

Interesting article on NPR this morning about US automakers looking to the developing nations -- primarily Brazil, Russia, India, and China as potential saviors.

If those countries buy the same fuel-inefficient vehicles we've been buying here...holy cow.

It is certainly true that the US auto industry has been poorly managed. And if that were the only problem, I would agree that they should meet their fate. However, it seems to me that the current trouble is caused by more than incompetence and poor decisions. And given the extended costs of total collapse, I think we would be cutting off our nose to spite our face if we simply ignored the situation. A precipitous collapse of the entire auto industry would just further amplify our existing problems. And I think it should be possible to set terms that will avoid a worst case scenario of giving them help and they collapse anyway.

I tend to go along with kap17 on this one. for all the reasons listed by him and Mellow.

Why save the companies? They don't have ONE car model coming out in the next 3 years that comes close to what Toyota and Honda are offering in terms of fuel efficiency.

And how exactly do you want to force the consumers to purchase an inferior product? Offer then government rebates when they buy US cars?

I worked for VONS when they had the strike back in 2001. I didn't join the union (thus I was let go) because the union was badly managed. Did you know that back then a cachier with experience was getting close to $30 an hour plus benefits? And there was no way to get rid of said employees and hire new ones that would be paid a whole lot less?

Same thing with the auto companies in the US. They are saddled with production costs and retierement benefits that are not sustainable. This should also be a lesson to the unions to be careful what they ask for.

Ardy, I'd be interested in hearing what you think the other problems are - in addition to poor management.

If the industry was innovative in any way, or still had a reputation for a consistently high-quality product, I'd be inclined to agree with you.

If Westinghouse was still manufacturing iceboxes, and nothing else -- and a number of the iceboxes leaked - would there be any reason for the government to support them?

Also not an expert on this topic, but I think some of the alleged 'facts" are not true. The average fuel efficiency of Big 3 label cars is not significantly lower than that of foreign models, but for the obvious Hummer and big SUV models.

Yes management was slow to adapt and in fact has fought higher mileage standards. But especially Ford and now GM are rapidly changing that picture. And with upcoming changes to labor contracts, much of the cost of production differential will have evaporated by 2010.

Now, I admit I am basing much of this on a conversation seen on CNN while at the gym but it seemed to make sense.

I am not, however, in favor of a bailout of the big 3, especially Chrysler except under very specific terms.

1. They have to agree not to produce any automobile or SUV-type vehicle with less than 20/35 mpg by 2010. The average mpg for the fleet by that year must be 28/38 and the bailout funds and prior approved funds must be used for this purpose.

2. No management bonuses of any sort, including stock options, are to be paid for the next 5 years or until the bailout is entirely repaid, whichever comes first.

3. No part of the bailout funds can be used to pay for parts or labor outside the US

I am sure it will be said these are impossible conditions. And it is true that if the big 2 fail, it will be catastrophic for labor and the economy. Chrysler should be let to fail, however.

And as I said in my CHB piece, possibly the best bailout would be a people oriented one. Anyone could get up to 25% of the cost of any vehicle that has an mpg rating over 40 from the government.

What about the unions? Will they still be given exemption from the RICO laws? Will they still be able to pick the best competator contract to negotiate from?

I am not anti-union, I come from a family of union members, but the UAW is just out of control. I would refuse to bail them out until they restructure their business to mimic what Toyota and Nissan do for their US plants. No labor cost improvements, no bailout. Without labor reform, it is like putting a bandaid on a bullet hole.

Got any numbers to post to show this?

I found an article quite easily that shows otherwise. Looks like both GM and Ford are below the industry average and way below Honda and Toyota.


http://www.caranddriver.com/reviews...n_toyota_camry_and_honda_accord_car_news