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

Come gather round people wherever you roam
And admit that the American car maker have blown
Any chance they had had of staying alive
Without taxpayer money in order to survive……

I'm waiting for the harmonica solo, Ken...

I live in southeastern Michigan. The economic tragedy that is the economic downturn is very much alive and well here. If anyone fails to understand how bad it will get in this country, come up and have a look at real estate and help wanted adds. And boarded up stores. And streets and roads. And not just in the Detoit inner city. The house I (foolishly) bought just over a year ago is now worth less than what I owe Wells Fargo for it. And this after Wells Fargo forced me to double my down payment (I was scheduled to close two business days AFTER their stock took the first huge downturn as their role in sub-prime markets became known!). So even though not employed in the auto industry, I understand very well what the state of the auto industry does to the rest of the economy.

Having said that, any use of taxpayer money to assist the auto industry should, IMHO, be focues ONLY on retooling plants and labor skills to produce vehicles that are consistent with the objective of eliminating dependence on foreign oil and should carry three strings; no executive can be paid (total compensation package) more than the President of the local state university (Wayne State); taxpayers get repaid first; and any remaining profits will be re-invested into design and production of vehicles that do not require carbon based fuels nor any other fuel source that contributes to global warming.

Shareholders deserve no special protection; they are the ones who by act of commission or omission allowed these companies to be mismanaged for at least the past three decades.

And labor must accept that current UAW collective bargaining agreements are inconsistent with global competition for labor and must be restructured to more closely align with those in place at non-Big Three auto plants in the U.S.

In the likely event that neither management nor labor will accept these (to them) onerous terms, what do we do then? Let the Big Three file for bankruptcy and hope that Honda or Toyota is feeling generous and buys them up? Even if the Japanese companies do come bargain-hunting, the short term impact on the US economy is still staggering. I wish I knew the answer...but I don't think anyone does at this point.

Why bailout the Big 3 and 'retool' their factories when if they are allowed to fail, Toyota and Honda and Mazda and VW and Volvo and Hyundai and... you get the point will just buy those factories and retool them themselves?

If this bailout passes then I'm gonna go to Washington myself and ask for my car loan and student loan to be bailed out. Why should I pay 20K in student loans and 7K in car loans when the financial companies and auto companies can't run a good company?

Logan:
That’s why I didn’t want to be too flippant about saying cut them off, end of story. There will be some real pain and misery surrounding this for the upper Midwest regardless of the path chosen and who knows the consequences for the rest of the nation.

But your suggestions seem reasonable. Who really knows the correct answer (is there one?) with the ideal outcome. As a songwriter of some note once penned…. If I knew the way, I would take you home.

I think the assumptions being made about what would happen in bankruptcy are wrong. First, foreign automakers are having their own cash problems and are unlikely to go after taking over the big 3 unless in the process the "legacy" problems are resolved.

In addition, bankruptcy on this scale would be a very lengthy and probably messy and contentious process. The court would appoint a group of "experts" to advise it on how to deal with the possible renegotiation of labor and supplier contracts.

All this would create yet more uncertainty in the market and probably drive sales down even further. Who would by a vehicle without any assurance the manufacturer or anyone else would be there to back up warranties, service, etc? That dealer who sells the car is likely not to exist after the BK and instead of service nearby, you may have to drive many miles for it.

If we let the big 3 go into BK it seems to me we are simply moving the problem form Congress and the marketplace to a court. I know of no judge, even with advisors, that is better suited to making the big decisions required than those available through a bailout.

The questions I have yet to figure out, however, are:

1. Is there really the cash crisis being sold by the manufacturers? and
2. Why aren't loans available to them from other than the government if the first part of the bailout is supposedly working?

Excellent questions. You're correct regarding foreign auto makers having their own troubles.

I made no assumption Phil. I didn't say that a foreign company would buy any of the "big 3". What I states is that once those "big 3" fail, 45% of cars sold in American will no longer be produced. When that happens, there will be a higher demand for cars and foreign companies like Toyota would buy the now offline factories previosly owned by Ford, GM and Chrysler and retool them to build their own cars.

I strongly believe that Ford can survive this downturn with a few minor tweaks. Out of the 3 they reacted the fastest to the change in car demand.

Chrysler is already on life support and if it doesn't get the deal done with GM it will be out of business soon anyway... GM has to be allowed to fail.

And let's not forget that the US car market is over saturated. Per Wikipedia, in 2006 there were 250,851,833 registered passenger vehicles in the United States and that figure is likely higher today.

The US consumer can no longer keep buying cars at the same rate it has in the past. Production in the US has to be cut between 30-40% anyway to find a good balance between supply and demand.

More on the possible bankruptcy issue:


MSNBC