The Bailout Will be Televised

In effect, the auto makers and the unions are attempting to use their political connections to force consumers who would not buy vehicles from them to pay them anyway. This is so deeply wrong that I have trouble understanding how it is even being considered.

So I'm the last person in California who has never owned a foreign branded automobile, save for a vintage Datsun 260Z conversion that sat in my garage for a few years. I'm a Mustang enthusiast and have been a Mopar enthusiast. My main whip is a Chevy. There has been and still is a certain fondness for American cars that transcends politics, ideology, and even reason.

But if the auto industry gets a bailout, I'll never buy another American car. Instead of calling them American, Japanese, German, Korean, etc., I propose calling the foreign cars "cars" and the post bailout American cars "welfare cars". It's sad to see companies whose products I have had a lifetime fondness for doing poorly. It's more sad to see them acting like losers.

BoscoH,

Good ideas. I wish someone would organize a boycott against those companies that are asking for and receiving our stolen wealth. Someone could put together a website listing those companies and all of their products. Since these bailouts are widely unpopular, such a boycott might have some teeth, perhaps enough to persuade some companies from turning to the dark side.

As for the American Auto companies, Chapter 11 could be the best thing to happen to them in 30 years, allowing a judge to rewrite their union contracts to their benefit. They'll eventually get their bailout, b/c the Democrat federal government is in the pocket of the UAW.

The links to Feldstein and Will's articles do not work. If anyone has working links, please share.

Markets obviously gave up on the big three in Detroit. If people who work for them and represent them think that this is such a good idea, why can't they bail out their firms with concessions or take equity stake in the firms?

Essentially the government has surpassed being merely a protective and productive state ( which would allow for maximum economic prosperity) and is expanding via rent-seeking through what is a redistributive system. In this system(as has happen with GM,Ford, and Chrysler) the ambitions of some are realized at the expense of others(tax payers). I find this ironic as government should be trying to foster competitive behavior and curb opportunistic behavior rather than allowing itself to be used a means of realizing opportunistic behavior.

Actually, at least GM could make a good case that the Federal govt has been so hostile to them over the last half century that they deserve some assistance to balance out all the damage done to them by ill-advised antitrust law and labor laws.

After using GM's industrial capacity to defeat the Nazis and Japanese in WWII, GM was promptly sued in 1947 for their sales of buses to a company that was buying up mass transit systems and making them less costly to operate with GM's buses.

In addition, fearing the Justice Dept would break them up, GM held to a policy of keeping their domestic market share under 50%, even as carmakers like Studebaker, Nash, Hudson, Kaiser, and Packard disappeared in the 40s through the 60s. Which provided the opening for Japanese and German auto makers to gain a foothold here.

The govt is hardly blameless in this mess.

Patrick Sullivan makes a great point, but that just means GM and the rest should be arguing to get rid of CAFE standards, and all the other interferance. They are not arguing that, they are asking for money. I was watching the hearing yesterday and I kinda like the CEO of Ford, he seemed like a decent dude. I am thinking of trying a reverse boycott, I would buy a Ford right now if they would swear off any bailout money.

Well, I'm not for organized boycotts, nor am I for reverse boycotts. I do know that there is a measurable chunk of the Big 3's market that considers itself Ford, Chevy, or Mopar enthusiasts, and that these people are the ones who clear early inventory and set trends. Ford, for example, is relying on Mustang enthusiasts to turn that line around after a dismal year. The LA Auto Show this week is where their unwrapping the nicely refined 2010 model. The law of averages tells you that 40% or so of the enthusiast crowd won't like this handout one bit based on political affiliation.

I don't have a problem with boycotts, organized or not. If the politicians insist on thwarting the will of the people, then a boycott is all we have, since buying choices are being prevented from dictating the winners. I'll support both proposed boycotts, but someone else can organize it...

I find this ironic as government should be trying to foster competitive behavior and curb opportunistic behavior rather than allowing itself to be used a means of realizing opportunistic behavior.

So much for that theory.

Don's argument in his linked article is based on a theory of concentrated benefits and diffuse costs (or what is seen versus unseen). My quibble is that the costs, in this case, are unlikely to be diffused so much as deferred. Our kids and grandkids will be paying for the cars we drive.

I once listened to a lecture in which I was told that "all organizations go through four distinct phases if left to the natural process."

Those phases were:

1. Creation and organization.

2. Expansion

3. Defending territory.

4. Dividing the spoils.

The point the speaker was making that if one was aware of this and could keep the the organization in the expansion stage then the organization would never die or fail; but, that if the organization is left to enter the third stage then the fourth stage is inevitable.

My question based on that tidbit of knowledge is this, what stage is it obvious that the USA is in?

Dear Sir or Madam:

I can't find fault with Randy's sentiments. I have owned foreign manufactured cars. When stationed in West Germany, I drove a Mercedes, for example and an Opel Record. Nice cars. Nothing special. The persistent charge that that the American Auto industry has somehow been able to survive this long providing poor quality, oversized gas guzzlers that "NOBODY WANTS" is so specious that it; shouldn't require comment or refuting but apparently it does. Detroit screwed up in negotiating some labor contracts. These are cast in concrete and there's nothing they can do about them except... bankruptcy would put these back on the table. You can compete with a Japanese competitor who has some outstanding engineers. You can compete when he has a model in the pipeline for Japanese sale that happens to fit in with the current American Gas Crisis. You can't compete forever with a company with a good product, plant right across the street from you (Read percent US content) and pays somewhat more than half what you pay for labor.

Bankruptcy would allow a leveling of the playing field. UAW can either get on board or see their members on the street looking for a new line of work.

Sincerely,

Robert H. Galloway

From the headlines:

"Democratic leaders in Congress sidetracked legislation to bail out the auto industry Thursday and demanded the Big Three develop a plan assuring the money would make them economically viable."

So, the Congress was thinking of granting a $25 billion signature loan, but decided against it. I guess I should be reassured, but mostly I'm just amazed by the gross incompetence this implies.

I don't think $25B all going to GM even makes a dent in their problem. At 9/30/2008 GM has assets of $110 billion and liabilities of $169 billion for a shareholders' deficit of $60 billion. GM needs a lot more than their share of a $25 billion bailout. They lost $21 billion in the first 9 months of 2008 and things are getting worse. A bailout is a joke, they are terribly bankrupt right now by virtue of a $60 B negative equity position with no end in sight to the losses that continue to add to this. $45 B of their liabilities are for post retirement benefits and pensions. Even shedding these leaves them with a $15B negative net worth. It would be a crime to give this company taxpayer money to squander after all the shareholder and bondholder money they have squandered.




Note: these numbers are from their 9/30/08 10-Q but they may not be accurate because the filing also includes this: "Our management ... evaluated the effectiveness of our disclosure controls and procedures... Based on that evaluation, our CEO and CFO concluded that ... our disclosure controls and procedures ... were not effective at a reasonable assurance level because of the identification of material weaknesses in our internal control over financial reporting which we view as an integral part of our disclosure controls and procedures."





I think that means things could be worse.

AT 9/30 Ford has $242B in assets (they still own their finance sub) with $243B in liabilities, after minority interests they have a S/H defict of only $2B. Their loss for the 9 mos was $8.7B. Unlike GM their management signed off positively on the SOX statement. Chrysler was purchased in 2007 by a private equity group that paid $7.4 B but most of that went to operations not to Daimler the seller. In fact Daimler reportedly ending up paying $0.65B to dispose of it. So no public data on Chrysler's financials. Suffice it to say that Daimler considered it technically bankrupt over a year ago.

I don't understand why Ford (and possibly Chrysler) would throw themselves into the same lot as GM in seeking a bailout. The GM situation is significantly more disasterous than Ford's.

Maybe the big3 have decided collective bargaining is the way to go. Maybe they can ask the UAW to negotiate on their behalf. This is really p****ing me off. Where have all the capitalists gone?

We are all speeding down the "road to serfdom".