Ford, GM and Chrysler want $50b worth of low-interest federal loans. At the moment, the loans are specifically restricted to adapting 20-year-old manufacturing plants to build fuel-efficient cars. The money is, in the parlance, “earmarked.” Detroit would like you to believe that the limited use makes the moola a “green” initiative rather than a bailout. But it’s obvious enough (if you think about it) that any money spent re-tooling factories saves The Big 2.8 money that they would have spent re-tooling factories. Which can then be spend on whatever they damn well please. And that brings us to the inconvenient truth that a lot of Detroit’s products, and billions of dollars worth of parts that make their products, don’t come from the U.S.A. In the pre-election shuffle, Barack and friends are making noises that the federal loans will protect American jobs. But aren’t The Big 2.8 complicit in eliminating American manufacturing jobs? And if it’s all about jobs, well, there are roughly 400k Detroit auto workers. Why not just give the workers an option of a $125k buyout apiece, courtesy of Uncle Sam? Or spend the $50b on lowering barriers for other automakers to build in the U.S. Seriously. What’s your idea for a better way to spend this money to create/protect American automaking jobs?
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It’s all about the batteries, st**pid. Make the earmark to retool the 20-year-olds into Battery factories, or other hardware the specifically and solely eliminates dependency on Arab oil. If the automakers won’t step-up to eliminate the core problem, they forfeit.
Once upon a time in Britain there were Humbers, Hillmans, Armstrong Siddeleys, Morrises, Austins, MGs, Austin-Healeys, Singers, Jensens, Bond Bugs, Triumphs. Now all the big British car makers are foreign-owned and the rest are too small to matter notwithstanding government interventions and hand-outs.
Propping up dead companies simply delays the inevitable. $50-billion is flogging a dead horse. Consumers with good reason don’t trust the Detroit-3 and won’t buy their cars. If the politicos must spend the money use it to support, retrain and relocate workers.
The $50B won’t change the outcome of the fate of the 2.8 nor their workers, and the politicians know this. What the $50B will do is get the onus off the backs of the politicians. A better use of some of the money is research into energy storage methods, of which batteries are one, and energy conversion like wind and solar.
But I defer to Sarah.
Gardiner is right. It’s just delaying the inevitable. Total foolishness to throw more money at a bunch of companies which were mismanaged to the point of extinction.
Plus, let’s not forget the taxpayer money already wasted by the Clinton Administration – handed over to the then big 3 to develop so-called Super Cars with 80 mpg (hybrids).
Of course, the money was simply handed over then totally wasted by the big 3 – the imbeciles in Washington didn’t mandate that the “developed” hybrids must be produced in exchange for the money!
Any car guys & gals out there wanting a bunch of laughs (and even more “du-oooh’s) should read “Common Sense Not Required; Idiots Designing Cars & Hybrid Vehicles” by Evan Boberg.
He left Chrysler and then wrote the book having worked at AMC, Jeep, then Chrysler once Jeep was morphed, then for Chrysler’s “Liberty” program (the above mentioned tax-payer money debacle). Anyone think a massive rubber band hybrid Chrysler LHS would have been a good idea? The guy killed in the test cell when the (obviously massive) rubber band let go would probably disagree with a positive assessment, were he able to pass an opinion.
Even more interesting is his later admission after publication of the book, that his math clearly was wrong and that at least the current (2004-2008) Prius actually saves money and does make sense for folks who want one.
http://www.angelfire.com./mech/evbo/prius.html
Interestingly, both a British car magazine piece I read recently, and Consumer Reports concluded the exact same thing about the Prius (but not the Civic Hybrid) recently.
Let the companies go thru bankruptcy and a Chapter 11 reorg without the gov’t dole. At most, I would fund alternative energy research on things like batteries and let them profit from the research.
But it is positively obscene for someone like Waggoner to come to Washington, hat in hand. If GM was serious about a turn around, they would get rid of him and send the new CEO to Washington along with a real recovery plan
In the pre-election shuffle, Barack and friends are making noises that the federal loans will protect American jobs.
In the interest of accuracy, Barack, John, and friends…. McCain supports this too, though perhaps less enthusiastically.
Maybe we are delaying the inevitable – but I’d like to delay a 1930s style depression with an eye towards minimizing the pain and giving ourselves a chance to create some other types of jobs. Right now there is simply no way to absorb 400K more unemployed. Even if we stop outsourcing call centers we couldn’t find 400K jobs.
OTOH, maybe we aren’t delaying the inevitable. Maybe it’s not inevitable that Detroit execs should always make poor decissions and inferior products. Maybe insisting on some srtrings being attached is more useful than headstrong opposition. The editorial on Fannie/Fredie was to the point – put the D3 in recievership and toss the top management replacing them with people from outside the corporate culture.
As others have pointed out, it’s only about $200 per person. We’ve spent far more on far less useful endevors.
It’s not the idea of a bailout per se that irks me, it’s the idea that we’ll just give money to the same bozos who’ve run these once proud companies into the dirt – w/o much in the way of oversight or controls.
Don’t give them the money and cut $50 billion in taxes.
gotta agree with Dynamic88 Unemployment of that magnitude will have a ripple down effect. rust me Boeing just went on strike here in Seattle. As for Adub We’ve already pissed that away through Blackwater & Halleberton.
I actually have a better idea. Remember those rebates some of us got? If the goal was to stimulate the economy why not take the money and rebuild highways bridges and the like. That way displaced works have jobs and we get rebuilt roads. $50 billion — lots of roads & jobs.
Gardiner Westbound and Claude Dickson , really nice job.
We have a problem in this country.
We want disciplined kids, but we refuse to punish.
We call ourselves a capitalistic economy, but keep interfering with its fundamentals and characteristics.
We are always allowing “feel good” social manipulation of a free society…and we then wonder what is wrong with our system, why we’re not really free?
We wonder why we have such a large welfare dole when all it does is promote and grow itself with its own DNA.
Yet TTAC’s B&B actually promote this bailout philosophy.
Fear of “collapse of the entire economy” if we don’t bail out Fanny and Freddie is one of the remarks.
And reading remarks above…the bailout is a good thing.
We get what we ask for, and we are always asking for something.
Chrysler should have been allowed to fail in the Iaccoca era. Then, GM and Ford would perhaps have been awakened to think differently about their place in the world: that they only exist if people buy their product.
Governmental employees generally don’t have an urgency about their work, because they know that know one is going to eliminate the department of such-and-such that they work at. As we have seen, since the Chrysler bailout so long ago, GM and Ford have painfully little urgency about their work as well.
If they fail, they fail. Hey, maybe Toyota will buy up their better engineers anyway.
Warren Mayor Jim Fouts has also offered to personally covers the costs of work the Big 2.8 refuse to cover under warranty as well as chip in for the depreciation when it comes time to sell. He also said ‘Huh?’ when informed that the Chevy Aveo is almost entirely Korean.
The big 2.5, like any business, is not in the business of creating jobs. They are in the business of creating value for their shareholders(with them it’s hard to tell, I know). Often that means by doing more with less, i.e. eliminating jobs by realizing efficiencies. In this case, it means creating value by ganking 50B from the American taxpayer, but make no mistake, their obligation is to their shareholders, not the employees. The only way the continued survival of the 2.5 would mean more jobs for Americans is if somehow they increased their market shares or the market expanded dramatically. China and India notwithstanding, neither of those scenarios is going to happen, at least not in a way that means more American jobs.
Capitalism is messy. The market creates jobs and it destroys jobs. If Government was more effective at allocating resources and creating economic growth, the Soviet Union would not have died.
Is saving autoworkers jobs more important than saving the jobs that have been outsourced in other industries to India / other countries or saving the jobs in other industries that no longer make economic sense to be conducted in the US?
Government should make sure we have an educated, trained workforce, that the US is an attractive place to invest and then get out of the way and let the markets work.
Speaking of bailouts
http://money.cnn.com/2008/09/07/news/companies/fannie_freddie/index.htm?postversion=2008090711
Detroit can bite my ass. Since they can’t manage to sell a car to me, they’re just going to take my money. I will never buy another vehicle from any of them.
So yeah, I say nay.
We have had very poor leadership in Washington as well as Detroit. The Federal Government has pursued a policy that denies Peak Oil and its implications. It has pursued Wars for oil security in the Middle East without raising taxes to pay for them.
Instead cheap credit was used to keep the economy going which resulted in the housing bubble and other distortions such as the creation of exotic financial instruments that have now infected the banks.
Meanwhile wealth and income are consumed to pay for imported oil and interest on debt both government and private with the obligatory reduction in other spending on goods and services. The administration and mostly big business have been busy outsourcing jobs to low wage countries for over eight years and the chickens are coming home to roost.
The illusion of prosperity and denial of the reality of the situation have finally hit home. We now have to pay for two foreign wars, bailouts of investment banks, and an increase of 50% in the national debt with today’s announcement of the take over of Fannie Mae and Freddie Mac.
All the while the work force which is mostly low wage and non union will be forced to either pay higher taxes brought on by this mess or suffer the consequences of higher inflation as money is created to cover the mess up.
Either way the American standard of living will be reduced and the implication for the U.S. auto market is very negative.
The new bailout for Detroit will work no better than the 1979 bailout of Chrysler. The pain will be relieved for a few years, but death will still be on the horizon and coming ever closer.
Chrysler is still a mess 28 years later and a similar outcome awaits Detroit after the bailout.
No bailouts! Perhaps the money should be spent in re-training/re-educating workers from the failed companies.
Very well said, 97escort.
Now, may I add something?
What part of voting for one of the two major parties which have gotten us into this mess, is going to get us out?
Clearly, if one stops to think about it, it’s entirely obvious that neither major party will get us OUT of these problems because, THEY caused them.
Hence, my suggestion for folks to vote Libertarian or even Constitution Party in the next election. Read about the various planks out there and think things through before pulling that lever in November.
menno,
Good point. Only problem is that most of the electorate don’t care to do that type of research. Perhaps some TTAC readers do, but the average Joe/Jane is too lazy, watches too much tv, spends too little time with their kids, etc.
And for those that do pay attention, nearly 1/2 are in rapture of Obama and the other nearly 1/2 think McCain is the man.
But aren’t The Big 2.8 complicit in eliminating American manufacturing jobs?
You would be too if people weren’t buying your products (rightly or wrongly) and as a result you were rendered unable to maintain your workforce.
That’s one of the big root causes of American automakers profit losses, they are all structured like they still own the market they founded and have dominated for most of their existences. They have the number of brands, plants and workforces that come with that legacy.
Now that people are abandoning American cars each finds themselves stuck with a unionized workforce that they cannot shrink to reflect their market reality, and alas it results in massive massive losses.
Menno,
I have to think back a bit and look at the Clinton years – he inherited the nation’s largest budget deficit, then by the end of his term turned it into the nation’s largest surplus we had ever had. He did this with a Republican controlled house and senate. GW Bush came in and flipped it right back around into the nation’s largest deficit within 3 months with the same house and senate.
Seems to me that the Republicans are no longer fiscally conservative nor should they be trusted with running our country until they get back to their roots. For what it is worth I never voted for Clinton – or any other Democrat until I started looking a little deeper and got sick of the FUD the Republicans were spreading – seems they can’t win on merit so they resort to whatever they can now to win.
$50 billion, if they can get garauntees it will protect jobs in this country seems pretty reasonable when we are spending $10b a month on Iraq now.
Some of the money should be spent for natural gas infrastructure so that vehicles that burn natural gas can refill away from home.
Battery and charging systems, solar recharge panels for electric vehicles, regenerative braking systems, electric air conditioners and power steering systems, and computer control systems for electric vehicles could be made in the U.S.
I would rather have my tax money go to retooling, and thus helping American workers keep their jobs and continue to pay taxes, than having them go towards financing a worker buyout.
Perhaps the big 2.8 need to go into some kind of receivership similar to Fannie and Freddie. The current leadership and boards would be fired, the shareholders would lose money, the Unions would lose benefits and contracts would have to be renegotiated. The Treasury would review all spending plans. That could be the pound of flesh the taxpayer could exact in exchange for the bailout.
Is this a bad idea? According to so-called Free Market theory, yes. But can someone tell me one place in the entire world that has imposed a purist Free Market economy without rounding people up and shooting them? Can someone give me one example where pure Free Market ideas have worked? They didn’t work in Chile.
The fact is, Keynes has been proven right in just about everything. When the economy is in a recession; Keynes said the government should spend more to stimulate the economy. What do you think the government should do? Let the dollar crash? Create another Great Depression?
The US government has setup an uneven playing field for the American worker.
American car
Cost building car + social programs = carcost
Import car
Cost building car + no social programs = car cost
American car
cost $15,000 + $5000 = $20,000 car & Social Fix
Import Car
Cost $15,000 + profits = $20,000
Now you figure out who wins in this matter. And, can you imagine the car we would get if you get the old, sick, edcuation systems off the car companies backs.
8 years ago the estimate was 1 million car manufacturing overcapacity per year North America. $50B is pointless to rescue Detroit. Feds bail out incompetent banks, Congress is on the hook for $5 trillion to rescue the Fannies. Failure is rewarded and the eventual outcome may be far more damaging than the stop gap cure.
Once again the naive public believes the anti-american mainstream media that make it sound like all the American car companies are looking for a nanny to loan them money or they will go under! According to our wonderful media of fascist. That is not true! It’s another fabricated deceptive report of doom and gloom! This is a loan (and GM says they don’t need it) for expanding the technology for greener cars to get them to market faster but, GM says they can do it on their own!
Personally, I wouldn’t give a cent until they either drop their union or their union concedes to drop their top out pay for production workers to something reasonable like $17/hr. I know it would be a catastrophe for 400k jobs to be loss, but it’s ridiculous to be paying $35/hr. and up for regular production work that a chimp could do. I know, because I used to do that work for a japanese company. The big three can’t possibly make a car with enough quality to compete and still make a profit when they are paying that much for general labor. If you wanna help secure american jobs with these companies, help them get rid of their unions. If these union workers can’t survive on a pay rate that’s half of what they are making now, then they could look for something else that would pay them the ridiculous rate they are getting now (good luck). These unions are sucking these companies dry and it really p**** me off that I pay taxes so that somebody can make $35/hr. doing unskilled labor. I mean really, these unions/employees don’t give a crap about their company or anyone but themselves. Ridiculous!
As far as $50b to re-educate workers from these companies. I say nay, they should have the funds to educate themselves considering what they make. If they haven’t saved then they’ll learn a life lesson. If you want to give $50b of taxpayer money away, then give it away as college grants to educate people that need the opportunities. I feel no pity for these workers who have bled their companies dry. Cut their pay in half and let them keep their jobs.
I’d be glad to see a federal bailout. One small condition though: Every salaried employee in Detroit has to quit. They can be re-hired. Anyone is management, however, will NOT be rehired by the new 2.8 entities.
Auto industry To push congress for $50b in loans. It appears the us auto industry. If american tax payers are going to be backing loans for the domestic car.
” wouldn’t give a cent until they either drop their union or their union concedes to drop their top out pay for production workers to something reasonable like $17/hr.”
The new hires are getting just that. The problem is the Social Security System, Federal Income taxes, Property taxes and education programs are no longer being funded. The Mortgage failure in many instances is due to the now low wage structure the American worker is now getting. The result is a mess in every sector of the economy. Except the imported cars that simply do not support the programs over here the way the American worker does. The Import buyer is just so proud that he thinks he is getting more for his money. A shiney new penny and his kids will not be educated or his parents will have to move in with him.
But it’s obvious enough (if you think about it)…
Doesn’t that by definition make it not obvious?
Oh, come on, it’s not real money; every dime we spend right now is at least three cents debt and two cents created out of thin air. People act like the trough of government welfare is actually finite, a part of the rest of the economy.
Here’s a thought, though: when people make things other people don’t want, even though they are paid, we all get poorer. As long as Detroit gets paid imaginary money to make stuff nobody wants, we all lose. It’s like the argument that war is good because it provides jobs. War is something not everyone wants, so paying someone to do it does not improve, ie, my life. However, the person paid to do it competes with me for things I want, driving up cost for both of us.
This is the main problem with the ‘save jobs’ argument, that the people so paid are competing with people who have to make things other people want for those things other people want, so the number of people producing things people want goes down while the number of people wanting those things stays the same. This results in a reduced standard of living. This is the true reason no directed economy ever survives.
As I’m fond of saying, Communism works until the food runs out. Well, Socialism is more like boiling a lobster; it just takes longer to destroy us all.
“…a better way to spend this money to create/protect American automaking jobs?”
Simple. Give it to the transplants. If the money had to be spent, at least we could be reaonably assured it would be spent wisely.
@blindfaith
Interesting theory, but how does it account for the thousands that are employed by the transplant factories in the US? Not to make it personal, but my brother gets benefits while working at Honda.
Is it possible that maybe, just maybe, the root of the problem is poor management? Blaming the workers or government regulations ignores the reality that lack of vision by management is what got them to this point. Until that mentality is surgically removed, the bailout will do no good. The workers can stay; some of the dealers can stay. But bankruptcy represents the BEST and most complete recovery option, once the bloated management has been removed.
If you need government bailout money for your job, you are on welfare. (Like ag subsidies).
And why should these companies be allowed loans with current management?
A $50 billion loan guarantee program probably won’t cost $50 billion, and if it does, it will be over several years, during which time the millions of workers on the payroll of the automakers and suppliers will be contributing to society.
To the free-marketers out there, the US has never been and will never be a purely capitalistic marketplace. Pure capitalism is based upon rational decision-making and zero information costs. People act irrationally and information costs money. Secondly, pure capitalism makes no pretenses about distribution of market gains. Most of us have a concept of decreasing marginal utility of each additional dollar that you receive; however pure capitalism does not adjust for decreasing marginal utility. Pure capitalism also poorly adjusts for the fact that as people become “have nots” thanks to the inequitable wealth distribution of capitalism, they have less personal stake at keeping the system alive. If the inequities get bad enough, they revolt and change system. A self-preserving capitalist system has to have some safety valve for easing top-heavy wealth distribution.
It is an overly simplistic economic argument to say that the automakers should fail because they are failing. An injection of new money gives the automakers a chance to reach a Pareto-superior position. It is theoretically possible that the pareto-gains resulting from the injection of money could be split between the automakers, the employees, and the taxpayers.
I’m hearing that it is unpatriotic to NOT buy American, because profits go overseas and there is no benefit to the US to buy a transplant. That is wrong on it’s face since Americans are buying food and paying bills with paychecks from those jobs, and they have job security, not from UAW deals, but security from the products.
Look at what the domestics did with the profits they reaped from Americans: Buying foreign companies and employing workers in other countries. Sheltering profits overseas to avoid US taxes, bloating UAW contracts and the ultimate sin of paying the brass too much money for poor performance.
They do not deserve a dime of tax money, even a loan. That sends the wrong message
Buying American to demonstrate your patriotism is as lame as displaying a magnetic ribbon to show “I support the troops”.
However, I do understand that for many, empty gestures are an easy easy substitute for getting up off one’s backside and actually doing something.
The ripple effect from unemployment is quick and painless compared to the ripple effect from bailouts. Isn’t what we are seeing now a ripple effect from the last bailout?
How is eight years of the Bush administration considered “the last bailout?”
A Japanese company ( Toyota ) and an American company (GM) decided to have a canoe race on the Missouri River. Both teams practiced long and hard to reach their peak performance before the race.
On the big day, the Japanese won by a mile.
The Americans, very discouraged and depressed, decided to investigate the reason for the crushing defeat. A management team made up of senior management was formed to investigate and recommend appropriate action.
Their conclusion was the Japanese had 8 people rowing and 1 person steering, while the American team had 8 people steering and 1 person rowing.
Feeling a deeper study was in order, American management hired a consulting company and paid them a large amount of money for a second opinion.
They advised, of course, that too many people were steering the boat, while not enough people were rowing.
Not sure of how to utilize that information, but wanting to prevent another loss to the Japanese, the rowing team’s management structure was totally reorganized to 4 steering supervisors, 3 area steering superintendents, and 1 assistant superintendent steering manager.
They also implemented a new performance system that would give the 1 person rowing the boat greater incentive to work harder. It was called the ‘Rowing Team Quality First Program,’ with meetings, dinners, and free pens for the rower.. There was discussion of getting new paddles, canoes, and other equipment, extra vacation days for practices and bonuses.
The next year the Japanese won by two miles.
Humiliated, the America n management laid off the rower for poor performance, halted development of a new canoe, sold the paddles, and canceled all capital investments for new equipment. The money saved was distributed to the Senior Executives as bonuses and the next year’s racing team was out-sourced to India .
Sadly, The End.
Here’s something else to think about:
GM has spent the last thirty years moving all its factories out of the US , claiming they can’t make money paying American wages.
TOYOTA has spent the last thirty years building more than a dozen plants inside the US . The last quarter’s results:
TOYOTA makes 4 billion in profits while GM racked up 9 billion in losses.
GM folks are still scratching their heads.
IF THIS WEREN’T TRUE, IT MIGHT BE FUNNY.
I live in Detroit. I work for an automotive supplier.
I am not in favor of the bailouts. But they are coming.
My plan? Get the EFF out by 2013!
Here we go with “Bailout to Nowhere”
Orian: I have to think back a bit and look at the Clinton years – he inherited the nation’s largest budget deficit, then by the end of his term turned it into the nation’s largest surplus we had ever had.
No, he inherited an improving economy (the recession was over by November 1992, but most voters had not yet realized it) and the beginnings of a tech boom, which caused a gusher of revenues at the federal and state level thanks to taxes paid on capital gains (remember all of those internet millionaires and billionaires?). His main contribution was in not messing it up by listening to Robert Rubin instead of the liberal wing of his party.
I still remember the famous quote by the Ragin’ Cajun, James Carville – “You mean that we have to worry about what a %^?#$@ bond trader from Wall Street thinks?!”
Orian: He did this with a Republican controlled house and senate.
He did this because he had a Republican controlled Congress – and Republicans remembered why they were Republicans. And I seem to remember that prior to the fall 1994 elections that resulted in that Republican Congress, the main goal of his administration appeared to be nationalizing health care (remember what Hillary Clinton was doing BEFORE she was Senator Clinton?).
Anyone who thinks that deficit reduction is possible when the federal government basically takes over the health care sector is kidding themselves.
Orian: GW Bush came in and flipped it right back around into the nation’s largest deficit within 3 months with the same house and senate.
No, the economy was aleady trending toward a deficit-mode before Bush took office. Note that the economy was slowing down in early 2000, as the tech boom was over (NASDAQ, for example, peaked in early 2000) and all of the spending associated with Y2K needs was finished.
Orian: Seems to me that the Republicans are no longer fiscally conservative nor should they be trusted with running our country until they get back to their roots. For what it is worth I never voted for Clinton – or any other Democrat until I started looking a little deeper and got sick of the FUD the Republicans were spreading – seems they can’t win on merit so they resort to whatever they can now to win.
And when the Democrats advocate reforming the real drivers of spending – Medicare and Medicaid – and start talking about cutting more than defense, let me know.
Otherwise, I don’t consider anyone to be fiscally conservative when they talk about raising taxes to cover more and more spending.
Last time I checked, the Democrats have said that even cutting the rate of those programs’ growth is tantamout to throwing grandpa on the streets and letting him die of (pick the disease or condition that works for this particular soundbite). Hardly the party of reasoned discourse…
And I just read an article comparing the fiscal policies of both major candidates. Guess what – neither one will do anything to reduce deficits. Given that this Congress appears to be even worse in many ways than its Republican predecessor, I shudder to think of what may happen if a Senator Obama wins.