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Bail Outs For Auto Industry?

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Guest

I see this as a really tough qustion, there are very good arguments on both sides.  

For example, a failure of one of the big three has been estimated to cause as much as 5 jobs lost in other companies for each job lost in the BKed auto maker.  I am not sure of the validity of this estimate but I would certainly agree the job loss would ripple through our economy.

I am troubled by the whole concept of bail outs to begin with and I wonder where it ends, I mean really if we bail out auto makers why not pet shops?  And where is the money going to come from?  US Gov borrowing is shooting up so fast that Gov paper is really getting close to being junk bonds.  In some circles this is considered a very serious national security issue, what happens if China stops buying our junk bonds?

Besides the above I believe the US automakers' business model is broken.  They have had 30 years notice about building cars that get better mileage and they haven't done so.  Furthermore, Gov has piled on safety standard upon safety standard which has made cars more expensive and more complicated.

With the general public strapped after loosing 1/2 of their life savings in the market and housing melt down I don't think they are going to be rushing out buying new cars every few years.  I'm not saying our streets are going to look like Havana but I do believe the average age of cars on the raod is going to go up and maybe double.

There is no easy answer here.

Last week I called a Toyota dealer because I was thinking about doing my part and maybe replacing my Jeep Wrangler and F 250 with a 4x4 Tacoma.  The sphincter I spoke to quoted me a price higher than MSRP which chased this buyer out of the market, they just don't get it.  The experience made me wonder if we bail them out will anyone be buying?

I also wonder if we have explored other options such as tax credits for buyers?  But then again would a tax credit that encourages people to go into further debt be the right thing to do in these changing times.

Like I said, no easy answers on this one.  What do you guys think?

Dave

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nickwilliams

Last week I called a Toyota dealer because I was thinking about doing my part and maybe replacing my Jeep Wrangler and F 250 with a 4x4 Tacoma.  The sphincter I spoke to quoted me a price higher than MSRP which chased this buyer out of the market, they just don't get it.  The experience made me wonder if we bail them out will anyone be buying?

That sure would have helped the domestics.

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Breakfast Boy
First of all, I'm generally against bailouts that the average tax payer has to pay for.  That said, being an employee of the automotive industry (working for one of the "big 3"), I have mixed emotions.  I think, unfortunately, we're to the point where something has to be done or millions of jobs will be affected.  However, I would like to see someone get a grasp on higher management for these companies and force them to quit mis-managing.  Whether we're talking about the banks, auto industry, oil industry or whatever.

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Breakfast Boy
And while this will catch a lot of flack from others, I think Americans need to be more responsible when it comes to buying American made products (including cars and trucks).  There I said it.  Let the bashing begin...

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WPG Gizmo

I feel the bail outs were a bad idea to start with but now that it has happened everyone wants to get on the boat.  Why not just wipe the slate clean for everyone and start over from scratch.  The people that are getting the shaft on this deal is us Joe Public and the people turning the shaft are the officals we just re elected once again.  The party that ran on Change is the one really pushing this program.

They are already talking about car dealers going under around here due to the economy and fuel prices. There was a big article in the paper about it yesterday and how the auto makers want to be included in the bail out package.  

My feeling is let them fail and go under same as they should have done with the banks.  Will it hurt you bet it will but in the long run some times you just need to have a yard sale to clean all the crap out of the garage :angry:

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vabirddog
And while this will catch a lot of flack from others, I think Americans need to be more responsible when it comes to buying American made products (including cars and trucks).  There I said it.  Let the bashing begin...

I am with you. "Buy American,The job you save may be your own" Remember that?

On Bailout, maybe we can get freddie mac and fannie mae to do car loans for unqualified buyers, everybody deserves an automobile in this country too don't they.

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Guest

FYI the Toyota Tacoma is US assembled out of 70% US made parts (Parts made in Canada are considered US made, go figure).  The US Gov standard for an auto to be considered US made requires 75% of parts to be US made.  The Tacoma actually beats out many "US brands".  Name alone doesn't tell you the whole story.  Furthermore, just because a company is based off shore doesn't tell you who owns it.  Many US companies have large foreign ownership and many foreign companies have large US ownership.  It really isn't as simple as just buying a US name.

By the way, I only considered the Tacoma after I couldn't find a US name product that was equal in regards to fitting my needs.

Dave

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M.Harris

Philosophically I am opposed to all the bailouts, but pragmatically they are probably necessary to keep the entire economy from collapsing.  I am not an economist, and don't feel really qualified to have an opinion.  One thing I noticed is that of the 10 most conservative US Senators according to the American Conservative Union, five voted for the bailout package and five voted against it.  I'd say, even among politicians with similar ideologies, that there is a legitimate difference of opinion on bailouts.

It is easy to say that the automakers have had 30 years to adjust to the demand for higher mileage vehicles, but the only time that demand really exists is when gas prices spike.  When they go back down, most of us, me included, want our gas guzzlers.  I heard and read this morning that the GM plant in Arlington, TX is working overtime shifts building SUVs because of closures of other plants.  They anticipate SUV sales will recover somewhat because of falling gasoline prices.

http://www.krld.com/pages....3028981

I teach AP and Honors American Government, and in 23 years of teaching, I have never felt more challenged, and sometimes just downright inadequate, as I have in the last two or three months.  I have students  who really want to know  what is going on, what is going to happen, and what the best policies are, and I can't give them any good answers.  

I don't fault anyone for what kind of vehicle they buy, but I have never had all the problems with US made cars and trucks that a lot of people seem to have.  I have always gotten good service from Ford, GM, and even a few Chrysler products.

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bobman

Good post Mark I agree. I've always had good luck with Chevy and ford although not so much with dodge.

I do think the comment about not understanding their market that breakfast boy implied is true and obvious if you look at where they are now from a market share standpoint.

I went to toyota after always buying american because GM does not make a quality small truck ( i'm sure I will get bashed but thats just the way I see it.)

S -10s are crap and they don't have to be.

One other thing is whens the last time you watched a car commercial where the commercial actaully made some sense?

Instead of selling the features of the product they have some babe racing down the road asking you when the last time your car turned you on....morons.

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datongdave
Besides the above I believe the US automakers' business model is broken.  They have had 30 years notice about building cars that get better mileage and they haven't done so.  Furthermore, Gov has piled on safety standard upon safety standard which has made cars more expensive and more complicated.

I couldn't agree with you more.  I've spent the better part of my career helping US corporations launch new business ventures in Southeast Asia and China and have seen the benefits and pitfalls of globalization first hand.  

The US auto industry has mired itself in a cloak of hubris for so long that it can't see what is truly happening in the world but more importantly their industry.  Because the Big Three held a position of dominance for the last 60-70 years they've always assumed that they'd always be the standard by which all others are judged.  In a word, they got sloppy, greedy and gave far too much away to the unions, as if they were functioning in a 1950s paradigm.  A funny thing happens in the capital markets...there is competition from smaller, more nimble companies that are trying to redefine the rules of engagement rather than play by established norms.  The big three fell victim to their own success...they became targets.

Toyoto, Honda & Subaru were ridiculed when the first entered the US for the smaller more economical cars but had the uncanny ability to predict future trends with great accuracy.  The vehicles they produced weren't overly sexy but they were more efficient, consistently built and seemingly more reliable that was being produced out of Detroit.  People seemed to catch on that there was more bang for your buck by buying a "foreign" car than the crap shoot you'd often find yourself buying at a GM, Ford or Chrysler dealership.  Hell, even Ioacca apologized for the cars his shop produced.

While I certainly agree that cars have become more expensive to produce because of tech advancements and safety regs, lets not forget that GM and Ford are running a $2900 deficit on each car produced because of unfunded pension/health liabilities.  This cost is priced into the invoice of each car they sell.  A bit of a disadvantage...

As for the bailout, my initial reaction is no because they got themselves into this situation and there are alternative producers (toyota, honda, subaru, etc) that employ thousands upon thousands of americans in this country.  However, if the big three do fail, the ripple effect will be unprecedented in terms of jobs losses...white collar, blue collar, dealerships, distributors, parts, etc... down right scary

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Breakfast Boy
because GM does not make a quality small truck ( i'm sure I will get bashed but thats just the way I see it.)

S -10s are crap and they don't have to be.

I drove two S-10's over the years and I agree, they were mediocre at best.  More like driving an El Camino than a truck.  GM's newer small trucks, Canyons and Colorados, get mixed reviews as well.  I drove a few different 4 wheel drive smaller trucks (two S-10's and one Ford Ranger) that didn't get much better gas mileage than my current Chevy Z-71.  I'll never go back to a mid-size/small truck.

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Guest

Bobman, I agree.  Many years ago when I was a contractor I used to buy Datsun trucks because I could get them for 7k out the door.  We would run them into the ground and throw them away after 140k miles.  At that time the only "US" small truck was the Ford Courier which was just a Mazda with the Ford name on it.  Then the S 10s came out and they were junk.  When the Ford Rangers came out we started buying them and were greatly dissapointed.  For example the sheet metal used for the body was so thin that it would dent if you looked at it.  The first Ranger we had went through three engines in 150k miles.  They simply didn't cut it as a work truck.  These days the Toyota product looks better than the Nissan to me and so I looked in that direction.  Unfortunately the small trucks are not the value they once were.

As it stands right now I am not buying anything.  From what I was hearing in the media it sounded like it was a buyer's market for cars.  My experience was contrary.  By the way, 70% of something is better than 70% of nothing.  Go do the math.

Dave

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bobman

IMO toyota has too many american product managers as well they should of stuck with the products that they are famous for instead of the larger Tundra and Tacoma

I dont want either , the new chevys 1/2 tons will get similar mileage as the new Tacomas and are amuch more comfortable useful truck due to size.

My 2001 Tacoma is the best vehicle I've ever owned from the standpoint of reliablity it has over 250K miles on it and its still going strong with the only repair a new starter at 180K. And it still gets 24 MPG combined city hwy.

Bulletproof!

The bed sidewalls are flimsy though.

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Greg Hartman

On one hand, I am VERY angry.  In much oversimplified terms, I’m angry at those who basically stole from America (Wall Street; bankers and other financial services people; accountants and actuaries issuing statements saying it is all OK, etc, etc); and equally angry at those who facilitated and benefitted from that thievery (government).  I’m also very angry at incompetent management who took countless billions in bonuses, while not doing things a blind man could see needed done (in the case of the auto industry, building fuel efficient cars and dealing with their pension and retiree obligations, etc).  Again, in much oversimplified terms, this and a war entered into for all the wrong reasons and with no exit strategy, combined to drive what had been the most powerful nation in the history of man to its knees in a few short years.  I can’t imagine a bigger betrayal or treason!  I want to see those responsible punished and their ill-gotten gains returned – certainly do not want to see them helped by my tax dollars.  There aren’t words to describe how I feel about the Wall Street firms and banks using the bailout money to provide yet more executive bonuses and to acquire other companies, etc, as opposed to use the funds to lend to the American people and small businesses.  Plus, a bailout will have negative internal and external affects on our country for generations to come.

On the other hand, the people who are going to suffer from this crisis are not the SOB’s who caused it.  These aristocrats are sitting on their private islands in the Caribbean counting their money.  The people who are going to be hurt (even more) if this crisis continues unabated are you and me – and I am talking about a depression.  It seems to me that we cannot allow the automakers to go down without triggering a new Great Depression, because MILLIONS of jobs will be lost – not just the guys who work in the big auto plants, but everything from the guy who digs the iron ore out of the ground to the gal at the car dealership who fills out the new vehicle registration forms.

Even if we feel that, on balance, we need to help the auto industry, as in all of these major economic issues, I simply do not know if a bailout is the right way to proceed or if it will actually help the situation at all.  Even with my education (economics, law and tax) and thirty-four years of running a commercial law practice in up and down business environments ranging from 23% interest and gas lines in the Carter era to boom times, I must admit that this current crisis is beyond my experience - I don't know the answers to the questions.  

I guess all I can really do is what I have been doing since last summer:  Hunker down at a personal level, keep all of my investments in cash for now and build up as much additional cash as I can, while making sure not to incur debt and keep everything in good condition.  To attempt to spread work around at my firm so that we don’t need to lay anyone off (lawyers, paralegals or staff), while being very conservative in incurring any additional expense and building up an even more substantial good cash reserve than I normally have in the business.  

While hunkering down, I can only hope against hope that the people who are running things suddenly know what they are doing and will act in the best national interest instead of their own personal interest.  I can hope that we don’t get hit with more taxes, as that will certainly result in additional unemployment.  And I can hope that we don’t get hit with inflation as that will cause everyone's personal and business cash reserves to lose their value.

I hate to say it, but I think we are in for some tough times, and I honestly don’t know if additional bailouts will make those times less or more difficult.

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nickwilliams

FYI the Toyota Tacoma is US assembled out of 70% US made parts (Parts made in Canada are considered US made, go figure).  The US Gov standard for an auto to be considered US made requires 75% of parts to be US made.  The Tacoma actually beats out many "US brands".  Name alone doesn't tell you the whole story.  Furthermore, just because a company is based off shore doesn't tell you who owns it.  Many US companies have large foreign ownership and many foreign companies have large US ownership.  It really isn't as simple as just buying a US name.

By the way, I only considered the Tacoma after I couldn't find a US name product that was equal in regards to fitting my needs.

Dave

What does that have to do with auto company "bailout" loans? I don't think we are loaning money to Japanese companies unless I missed that story.

As long as we are off topic, what do you think of AIG loans.

The total value of the new plan for AIG, about $150 billion, represents the largest government support package extended to a private company in U.S. history.

The domestics are asking for $50 billion in loans to tide them over until people can borrow money again. The slump is not just Gm, Chrysler, and Ford, but industry wide. Toyota just restarted it's Tundra factory after a three month shutdown and the dealers really don't want more trucks than they have now.

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