Automakers

[dbasnett]

Should we bail them out? We bailed out some of the banks, Fannie, Freddie, et al. Is the automakers sin that they were stupider longer?

One day we will realize that the real problem is the tax code. We should have a national sales tax, voted on every four years if change wanted, and make congress do what we have to do, live within a budget. What would politicians do if they didn't have raise / lower taxes to talk about?

Congress and the tax code is like giving a six year old your credit card and sending them into Toys R' Us, hoping they will be fiscally responsible.

[DeanMc]

Automakers as in car makers?

[homer13j]

No. By bailing them out it says "go ahead and run your company into the ground. The government will save you." Where does it stop? How much is too much?

All it does is treat the symptoms and not the underlying disease.

[Max Peck]

Should we bail them out? We bailed out some of the banks, Fannie, Freddie, et al. Is the automakers sin that they were stupider longer?

One day we will realize that the real problem is the tax code. We should have a national sales tax, voted on every four years if change wanted, and make congress do what we have to do, live within a budget. What would politicians do if they didn't have raise / lower taxes to talk about?

Congress and the tax code is like giving a six year old your credit card and sending them into Toys R' Us, hoping they will be fiscally responsible.

Yup, yer right. No, we should not bail them out.

HR25 - The Fair Tax. That would fix the situation nicely. Unfortunately the power-players in DC don't want a fair-tax system in place because their political power would evaporate.

-Max :D

[capsulecorpjx]

Should we bail them out? We bailed out some of the banks, Fannie, Freddie, et al. Is the automakers sin that they were stupider longer?

One day we will realize that the real problem is the tax code. We should have a national sales tax, voted on every four years if change wanted, and make congress do what we have to do, live within a budget. What would politicians do if they didn't have raise / lower taxes to talk about?

Congress and the tax code is like giving a six year old your credit card and sending them into Toys R' Us, hoping they will be fiscally responsible.

If the only govt revenue is coming from a flat sales tax, it will horribly screw over the working to middle class.

A much larger portion of their wealth goes to buying day-to-day goods.

Also I'm sure the NeoCons will want all of that sales-tax revenue to go into the military and funding their pre-emptive wars.

[Shaggy Hiker]

and make congress do what we have to do, live within a budget.

If we could do that piece alone, it would solve lots of our problems. However, the last time Congress voted in such a thing, they quickly voted it back out again. For one thing, fighting a war within a budget means losing a war. Therefore, to open the purse strings all the way: Declare war on somebody, and Congress will patriotically throw out any spending restraints. Once the restraints are off, ALL spending is permissable.

As for the national sales tax, the solidly conservative National Review ran articles blasting it as being pure duplicity, and they were persuasive. The basis of their argument was that the rate would have to be around 25% to replace the income tax revenue. Makes sense, as the pool of money being taxed would be lower (domestic consumption only). With a sales tax that high, they were arguing that the incentive to cheat the tax would be ENORMOUS, and the means to cheat would be legion.

If the left AND the right hate the idea, then I can't say that I support it all that much. The people who seem to be pushing it appear to do so through deceit, and appear to be those who would benefit the most.

[nemaroller]

I'm a fiscal conservative, but on this issue I believe we should bail out the automakers.

We bailed out Chrysler twice before - and it came back with a resounding success (only to later be run into the ground again).

But as a Time article pointed out, if the domestic auto industry fails, then you will see unemployment in the US go up to 12% - in Michigan, it will of course be far worse.

We continuously subsidize our weapons and agricultural industry in the interest of national defense, we can certainly subsidize our auto industry in the short term by means of a few no-interest loans in the interest of domestic manufacturing.

[homer13j]

We bailed out Chrysler twice before - and it came back with a resounding success (only to later be run into the ground again).

So if they didn't learn their lesson twice before, what makes you think this time will be any different?

[nemaroller]

So if they didn't learn their lesson twice before, what makes you think this time will be any different?

Who is they?

Chrysler - just like GM - doesn't have the same management team, nor employees, nor even the same stock owners as it had in the 60's, 70's, 80's, even the 1990's.

The benefit to society at large of course is more consumer choice, more jobs, more technological progress due to competitive forces - and having a strong and viable domestic heavy industry.

The previous break downs at Chrysler in particular had to due with the oil crisis of the 70's more than anything, and then due to outmoded designs in the late 80's. Both times the company turned around, and I believe both times the government stepped in with guaranteed loans.

[FunkyDexter]

I'm never quite sure what the answer is to questions like this. The capitalist ideal says, let 'em go hang. They made their bed and they should be prepared to lie in it. The trouble is that by letting them tumble you're hurting the general public. So you have to bail them out for the good of the public. But once you've gone down that route you remove any impetus from large companies to trade responsibly and take a long term view. I don't know enough to comment on the US Auto industry or the banking industry but I'm damn sure that attitude in the UK banking industry has been a large part of the reason we're in this mess in the first place (and I get the impression from the media that the same is true of the US banking industry).

So how do you hold companies to account that have become so large that their collapse will hurt the public? The only suggestion I can make is nationalisation on the basis that if we're paying for it we might as well own it. While that might be suitable for some industries, though, banking is definitely not amongst them.

[nemaroller]

I would definitely NOT want the government to nationalize the domestic car industry - that would most likely lead to its demise. I think the results of nationalizing Rolls Royce and Leyland in Britian are probably why both brands further declined.

I'm simply arguing for low-interst loans to the domestic automakers. Right now, because of the economic outlook and the previous run up on gas prices, the Big 3 can't get loans with interest rates below 15%. They are only asking for 5% interest loans - rather reasonable in contrast to the bank bailout which involves much higher amounts of money.

[Xanith]

I'm a fiscal conservative, but on this issue I believe we should bail out the automakers.

We bailed out Chrysler twice before - and it came back with a resounding success (only to later be run into the ground again).

But as a Time article pointed out, if the domestic auto industry fails, then you will see unemployment in the US go up to 12% - in Michigan, it will of course be far worse.

We continuously subsidize our weapons and agricultural industry in the interest of national defense, we can certainly subsidize our auto industry in the short term by means of a few no-interest loans in the interest of domestic manufacturing.

The problem with government today is they will not allow anyone to feel the pain that is necessary in order to erase the bad mistakes of the past. If you continue to “bail out” these companies they will carry on with their bad business model and will continually need bailing out in the future.

When you have unskilled labor making over 70 dollars an hour, and you are providing sweet heart retirement packages to everyone you cannot begin to compete with other car manufactures that build cars for a lot less overhead.

My solution would be let them go into bankruptcy, allow them to restructure with new management and break the unions who have so crippled the auto industry. There will be pain in the short term yes, but in the long term these companies will emerge from bankruptcy to be more competitive and successful.

X

[homer13j]

Chrysler - just like GM - doesn't have the same management team, nor employees, nor even the same stock owners as it had in the 60's, 70's, 80's, even the 1990's.

No, but throughout all those eras there has been one common denominator among the "Big Three": the UAW. Today Chrysler's obligations to UAW retirees costs more than $1800 per car sold while Honda's obligations are under $250 per car. The difference? Honda is allowed to build cars without UAW labor & contracts. They are free to implement more efficient manufacturing methods (robotics, etc.) that increase quality while the Big Three are stuck with the UAW holding them by the balls. Why do you think the Germans were willing to lose almost $30 billion to dump Chrysler when they found out what they were in for?

The previous break downs at Chrysler in particular had to due with the oil crisis of the 70's more than anything, and then due to outmoded designs in the late 80's.

The "outmoded designs" actually started in the late '60s. Remember the Plymouth Duster? It was designed in late '68 almost completely in secret and based on an existing platform (the Valiant). The Duster ended up being Plymouth's #1 selling car in the early '70s and helped Chrysler go another four years before bankruptcy caught up with them. Had Chrysler's clueless dinosaur management found out about it the Duster would have never been built.

What saved Chrysler in the '70s was a purge of upper management, an unprecedented marketing blitz, and most of all a commitment from the U.S. government to purchase only Chrysler products for the next ten years. Suddenly every government vehicle was a Chrysler. Are you old enough to remember all those thousands of crappy K-cars the U.S. Postal Service bought?

Our government still buys only vehicles from the Big Three. Continuing to do so will not save them. Purging upper management will not save them. Another taxpayer-funded marketing blitz will not save them. And this bailout will not save them. The only thing that will save the U.S. auto industry is to break the UAW stranglehold.

Like I said before: Throwing money at the problem only treats the symptoms and not the underlying disease.

[Blakk_Majik]

The problem with the Big 3 is that it isn't the old days anymore.

When they were making all the money, there was a small amount of foreign competition. Yea, foreign automakers were making a dent in the US, but import taxes were still high and not a single one was made locally. So, only those that could afford to pay that premium for the imports had a choice outside of Ford, GM, & Chrysler.

However, times have changed drastically. The foreign cars are now made here, which make the more available and affordable. I don't have to worry about $3k being tacked on to my Nissan Altima (I actually own an Impala btw) anymore. No more "import tax protection" for you Big 3.

So, the question, to bail or not to bail? I have two answers.

First, yes, bail them out. However, only under the following circumstances: UAW MUST renegotiate a lower contract, employees (both present and retired) should be required to contribute to their healthcare coverage, and some kind of incentive MUST be given to US taxpayers in the form of a rebate on a car (certified used count too!).

If they don't agree with those restrictions, let them sink and restructure. I'd hate for this to happen, but I am tired of companies expecting the taxpayers to help them out. When is the last time Ford helped YOU get by because money was tight?

[Shaggy Hiker]

Wow, nice opinions.

This is a tough question. My first response is to let them sink or swim, but I also feel that those companies are so large and have so many other companies dependent on them that letting them drown would make a bad situation worse.

Is there any way to throw them a lifeline that doesn't allow them to continue as they were?

[FunkyDexter]

I was thinking more about this last night. In the UK the government have bailed out the banks by buying preference shares in them. In theory that should provide a solution. It puts the government in a position of being able to co-erce the company into observing good practices (the government becomes a share holder so can apply direct pressure to the board) while stopping short of nationalisation and the poor management that usually engenders - the expert managers (not sure you can call someone who contributed to this right-royal cock up an expert, mind) stay in charge of the day to day running.

That said, when the Bank of England dropped the interest rates by 1.5% recently the banks were very slow to follow. Some of them still haven't. The only ones who did respond promptly (LLoyds) were the ones who were contractually obliged to. That makes me think that the leverage the government bought is either worthless or isn't being applied vigorously.

[nemaroller]

The Southern Senators believe letting the big 3 fail is the way to go, because they claim 'taxpayers shouldn't have to subsidize [companies]...':

http://news.yahoo.com/s/bloomberg/20081117/pl_bloomberg/alx04tw8dum

Yet these are the same States that offered tax breaks to lure those foreign makers there. I'm beginning to think the Mason Dixon line mentality is shining through.

[homer13j]

They are not going to fail. They may file for bankruptcy, but they will not go out of business.

[kleinma]

They claim 1 in 10 US jobs are tied to the auto industry. Of course that is a very blanket statement, as you could argue a mechanic is tied to the auto industry, and without people buying new cars, he likely will see a jump in repairs at his shop due to people keeping their cars longer. These mfgrs and companies seem to make more money on parts than whole cars anyway. I think the real problem is the faith in these companies, and people are just more inclined to buy a toyota or honda because of quality.

I think the american auto makers spent too much time building up giant off road vehicles for tiny soccer moms to drive while sipping a starbucks, instead of focusing on actually making good cars.

I personally have owned 2 toyotas, a ford, and currently an audi.

The 2 toyotas were the best, the audi and the ford both suck.

[GaryMazzone]

I own one American on (Chevy Corvette) and one Nissan (Sentra). Love the Vet hate the Sentra. I will never buy Nissan again after this one. My wife has a Honda CRV great vehicle.

[dbasnett]

what am i missing? the big three need to submit business plan, change management, etc. citi gets $20,000,000,000 on top of the $25,000,000,000 they already received with no conditions.

how stupid are we? i have a good idea how stupid the government thinks we are.

[dbasnett]

oh, and citi it is ok to pay the ny mets $400,000,000 for naming rights to the new stadium. the should name it FYA.

[SurfDemon]

First off let me state that I am 100% against bailing out businesses because they are not competitive. If you start doing that then why shouldn't the government bail out every other business. Okay, so the other business might be 1000th of the size of GM, but I bet they'll also only need 1000th of the money to be bailed out....

But the major complicating factor with bailing out US car makers is that it is very difficult to distinguish between US and foreign car these days. Why shouldn't Toyota get a nice big hand out from the government, they make plenty of American cars on American soil with American workers.

But, if you can see past that and decide that you are going to bail out the "Big 3", think about this. The Windstar, Crown Victoria, Camaros, Firebirds, Grand Cherokee's, Intrepids and Voyagers are all made in Canada. Therefore, a significant chunk of this US tax payers money will be going towards securing jobs in Canada.....????

[dbasnett]

i am not in favor of any of the bailouts, especially to companies that make money by having money. they got so greedy they became stupid, and instead of letting them suffer the consequence, we gave them money, because if we didn't "the world would end".

i am 100% certain that i don't know what the future holds and i am 100% certain that gov't / financial institutions don't have a clue either. as maxpeck said "HR25 - The Fair Tax. That would fix the situation nicely. Unfortunately the power-players in DC don't want a fair-tax system in place because their political power would evaporate."

can you imagine political debates if the gov't had a fixed tax rate, that couldn't be changed without the approval of the american public? what would they talk about?

[Shaggy Hiker]

Not the deficit they would run. We already aren't being taxed at the level of our leaders ability to spend the money. Do whatever you want to the tax rate, as long as there is no accountability on the other end, the only difference is in how quickly the hole is dug.

[FunkyDexter]

...And it's being dug fast and deep at the moment. There was a program on BBC last night about the state of your national debt. It was truly staggering. I'd heard some people mention it but it hadn't really made it on to me radar so watching that program was a real wake up. The biggest drain seemed to be your national trade deficit, which is never an easy problem to fix. I'm afraid you guys look like you're in for alot of pain in the next few years.

[Shaggy Hiker]

The biggest drain is willful ignorance. For years the president has gotten away with suddenly waking up one day and realizing, "Gosh, we're in a war! Who knew? We didn't budget for that, so we'll have to make an emergency request for funding." And Congress went right along with that silliness because if they funded the wars in the regular budget cycle, it would be grossly obvious how far over the budget they are really spending. Therefore, the more that they were willing to be surprised by later, the official budget would look. It was a concerted effort in creative mismanagement.

[FunkyDexter]

I was listening to the radio as I drove to work this morning and apparently there's a plan afoot to offer a second bail out to your banks. She said it wasn't causing as much of a fuss this time around because it was coming from the Federal Reserve rather than the Treasury. When the interviewer pushed her on the difference she said that it meant that they were just going to print more money so it wasn't really real. I nearly swerved off the road in disbelief at that point.

[SurfDemon]

When the interviewer pushed her on the difference she said that it meant that they were just going to print more money
Well, it worked fine for Zimbabwe.....


.....er, hang on, it didn't. :(

[Hack]

I find the vocal leaders of the opposition to the bailout to be the most interesting aspect of this.

Heading the charge is Shelby from Alabama – he is on record as saying that the big Three should be left alone and allow the market to work itself out.

Hmmmmm – an interesting comment from a senator that handed out hundreds of millions in tax breaks to Mercedes Benz, Hyundai, Honda and others to open plants. Oh wait, those plants were all opened in Alabama. Now the opposition to Detroit makes sense.

Has everyone forgotten the 150 billion the government handed over to AIG? (and AIG was never asked for a “plan” before they got the money).

Then AIG blows through over 80 billion of it, comes back, and the government gives it more?

And we a baulking at a mere pittance of 25 billion for the autos?

Manufacturing is a part of our infrastructure as a nation, and we simply can’t remove a substantial chunk of our own cultural spine.

All of this aside, I just have one question about “fixing the problem”?

Who is going to fix the problem with Congress, who is most definitely the leader of the pack when it comes to blowing budgets, being grossly inefficient and wallowing in debt. It is an effrontery that this august body has the gall to call into question the business practices of anyone.

[Blakk_Majik]

One thing I want to know is, where are all these "free-market" talking heads now? Expecting the government to bail out businesses is not free market economics. It is corporate welfare, but we should all be used to that by now.

The problem with free market is that it doesn't benefit countries like America, because we don't have a competitive advantage on MAKING anything. Our standard of living is sky high, which means our wages have to be higher. Well, there goes cost-advantage. The only thing America has (had) is a piece of paper that dominated major currencies. So, since every important commodity is valued in dollars, we had the power. But what if oil starts getting traded in Euros? Yen? America is fukt.

Another note, America is that it's not owned by America anymore. In case you missed the memo, our great leaders sold us out a long time ago. They moved all the manufacturing to China, and sold all the IT to India. Oh, and they sold our souls to the Middle East for oil.

If you think about it, what would we do if China came out and said "Ok, we want our money now." The country would crumble and we'd be in for a nice ride of Communism. On the upside, at least all the crooks on Wall Street would get what they deserve.

I really don't feel like having to learn Chinese though, since we don't even speak English correctly.

But with all that said, these bailout packages are worthless. Continuing to inject money into a broken system will reap very, very short-term rewards at best, and only for a very, very small group of individuals (i.e. rich).

They could have done a much better job by using the bailout money to fund government projects like roads and bridges. You know, things that put people to WORK.

So, I'll take a side on this. Should we bail out the auto manufacturers? No. But since free market rules only apply to us, the average person, go ahead and give 'em some money. While you're at it, give 25b to EACH one of them. And as soon as the FED puts the printing press into overdrive, the dollar will fall faster than a 500lb man on a bungie cord. Maybe then all the business/manufacturing will move back to the US since it'll be way cheaper then.

[dbasnett]

watching the testimony today it came as no surprise that two Senators, who seemed most opposed to helping out the auto manufacturers, where from states that have a large foreign auto maker presence. go figure.

the senator from Montana was the best.

[Shaggy Hiker]

the dollar will fall faster than a 500lb man on a bungie cord.

Nice analogy Mr. Newton.