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Bail Outs For Auto Industry?

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Wingman

The other shoe that I worry about dropping is the unemployment rate.

Consumers drive the economy, and people who are out of work are not going to spend as much as they would if they had a job. Furthermore, if a worker senses that his house is worth 30% less than it used to be worth, and he looks at his 401K/IRA and sees the same thing, and three people in his department at work are laid off, I don't know that he's apt to conclude that now is a great time to go out and borrow money to buy a new car/tv/fill-in-the-blank.

In fact, as an individual, he's motivated to pay off debt, delay major purchases as long as possible, cut expenses, and have a higher percentage of his savings in cash.

The problem is that if everyone stops buying stuff at once, then there's no need to make as much stuff, which means there's no need to employ so many people, which means even higher unemployment, which means even stronger motivation for individuals not to buy more stuff.

Even if the middle class does nothing more than decide not to spend more than it earns in wages and doesn't spend its wages until it earns those wages, you're looking at a pretty severe recession because inflation-adjusted real wages haven't gone up a whole lot for the middle class in the last decade or more (even though consumer spending has risen dramatically during that period).

I honestly have no idea how the government can keep the big three automakers from going broke (surely loaning them money to keep doing what they're doing won't work), but those companies must be directly or indirectly responsible for millions of American jobs. I don't think it would be a good thing for the economy if those jobs suddenly went away.

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datongdave
Whats scary is so much of the core of US manufacturing is GONE overseas. We couldnt bring it back in years if we wanted to. WTF can people do for work if the factories arent here? We all cant work at Mc Donalds flipping burgers.

Do you think going to college is the answer? Not if the companies are offshore and managers are foreign...

Throughout the entire campaign season, we've heard about the outsourcing of American jobs overseas like this was a new phenomenon.  Let's be honest, this isn't new, it's been happening since the mid 60's and will to continue to happen.  Whether American's choose to believe this or not, the future of this country isn't manufacturing and if you think that it is, you're kidding yourself. Rather than accept and deal with this fact, most Americans, the govt included, has put its head in the sand.

In a short span of about 30 years, the world truly has become a global economy.  As Americans, we've been able to enjoy the fruits of this economy by demanding low prices on consumables, televisions, etc from abroad.  Why do you think those low prices you see at Wal-Mart are so low?  First, they buy in bulk.  Second, their suppliers are forced to use overseas manufacturing to hit the pricepoints that Wal-Mart demands.  It's a viscious circle but one that is here to stay.

As somebody that has worked the international markets my entire career, I understand that there are both challenges and opportunities in this "new" environment.  The American economy, whether you believe it or not, is based on innovation, technology and services...not manufacturing.  It is not a sustainable business model to think that products, en masse, can be inexpensively produced when the unions have overpriced the pool of available manufacturing labor here in the states.  95% of the time, it is less expensive to produce something overseas and have it shipped back to the states than it is to have the product built at home.  Think about that.

The purpose of a business is to generate profit.  How do you accomplish this...the management of cost and demand for the product/service you market.  Let me ask you this?  Is the average American consumer going to spend an extra 40% to buy a television made in the US?  Nope.  Therein lay the problem.

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Too Dogs

AIG caught again, last week end, in Phoenix at a resort:just on GMA.

Seems to me, arrogant American business has yet to get the message.-Too Dogs

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nickwilliams

Thought you might enjoy this one from Automotive News.

Sperlich and Runkle: U.S. must spur sales to save automakers

The Detroit 3 may not survive their cash crises unless the federal government supplements any emergency loans with consumer cash incentives to spur auto sales, say two longtime industry leaders. Retired Chrysler President Hal Sperlich has written a position paper with Don Runkle, former vice chairman of Delphi Corp., calling for a $3,000 government cash incentive on the purchase of a Detroit 3 vehicle

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datongdave
Retired Chrysler President Hal Sperlich has written a position paper with Don Runkle, former vice chairman of Delphi Corp., calling for a $3,000 government cash incentive on the purchase of a Detroit 3 vehicle

My god...there will be people that fall for this scheme without realizing they're paying for this incentive with their own taxes.

This is like putting a band aid on severed leg...just won't do a lot of good.

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frak

While I don't wish hard times on anyone anywhere, bankruptcy is the market's way of moving the control of assets away from less-able managers and toward more-able managers.

If GM or Ford files Chapter 11, they reorganize but keep producing cars.  Workers keep working, although many will lose their jobs as the company moves to a more sustainable cost structure.  The purpose of bankruptcy reorg. is to move asset control away from existing management to the people to whom the company owes money, and ultimately to a new owner.  The company reorganizes in a way that might have been impossible otherwise.  Most notably, contracts (UAW, pensions, etc.) are revisited and put on a cost basis that is consistent with what the market will support.  Under current law, pensions move to a government agency and are basically re-written, with lower payouts than would have been the case but-for bankruptcy.  Job banks, etc. go away, I would think.

As tough as this is, and it gives me no pleasure to talk about this, the alternative (a subsidy) basically takes money away from profitable businesses and able managers and gives it to the unprofitable businesses and less-able managers, along with all of the crazy strings that are attached to a government subsidy.

My opinion, and no disrespect meant to anyone here.

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nickwilliams
Retired Chrysler President Hal Sperlich has written a position paper with Don Runkle, former vice chairman of Delphi Corp., calling for a $3,000 government cash incentive on the purchase of a Detroit 3 vehicle

My god...there will be people that fall for this scheme without realizing they're paying for this incentive with their own taxes.

This is like putting a band aid on severed leg...just won't do a lot of good.

The way I figure it, $30 billion in vouchers would be 10 million domestic vehicles in a 13 million or so market. Sounds OK to me, I'd rather get a $3000 discount than bail out an insurance company.

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quailguy

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

........................................

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

Dave

No to Detroit big 3 bailouts. Those idots dug their own graves, let them lie in them. Why should the already over taxed taxpayers bailout the auto companies' management and the union bosses and their years of breathtaking arrogance and wrong decisions?    :angry:

As for the employees, as the assests are sold off in/after chapter 11 most of them will still have jobs. Demand will pick up again and maybe this is our one good chance to get rid of the idiots at the top.

The only way creative capatalism can work is that there is a penalty for stupidity and rewards for creative excellence.

JMHO,

Quailguy

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datongdave
If GM or Ford files Chapter 11, they reorganize but keep producing cars.  

But what consumer in their right minds would purchase a vehicle and its stated (and implied) warranty that was in Chapter 11?  Not many...

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aje4
As long as the American Auto industry is Union heavy they will never be able to compete in a global economy.....

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frak

If GM or Ford files Chapter 11, they reorganize but keep producing cars.  

But what consumer in their right minds would purchase a vehicle and its stated (and implied) warranty that was in Chapter 11?  Not many...

Yeah, very possible.

However, I'd think the new managers/court would go out of its way to say that it would continue honoring existing warranties because to do otherwise would harm the remaining value & viability of the business, just as you are saying.  

I've always heard that "extended" warranties are pretty much free money to the companies, so they might continue to offer those as well.

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datongdave
Yeah, very possible.

However, I'd think the new managers/court would go out of its way to say that it would continue honoring existing warranties because to do otherwise would harm the remaining value & viability of the business, just as you are saying.  

I've always heard that "extended" warranties are pretty much free money to the companies, so they might continue to offer those as well.

The company may stand behind the warranty but the brand will forever be tainted because of the inference (and reality) of financial instability.  That seed of doubt will grow in the mind of the American car buyer and shun the brand.

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FlyChamps

Yeah, very possible.

However, I'd think the new managers/court would go out of its way to say that it would continue honoring existing warranties because to do otherwise would harm the remaining value & viability of the business, just as you are saying.  

I've always heard that "extended" warranties are pretty much free money to the companies, so they might continue to offer those as well.

The company may stand behind the warranty but the brand will forever be tainted because of the inference (and reality) of financial instability.  That seed of doubt will grow in the mind of the American car buyer and shun the brand.

If that's the case why did people continue buying Chrysler products after their debacle and bailout in 1979?

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M1Tanker

I can't believe it took 3 pages before the UAW was mentioned.

Starting wage of $28 + per hour to sweep the floor with excellent benefits.

When I drive my Silverado and think about what I paid for it...I can't help but think I am driving someone's health insurance rather than a truck.

The unions need to get on board with the program and meet the companies 1/2 way on this one as they are also at fault.

I know one of the union bosses in my area and he is constantly going on financed boondoggles to Las vegas, etc...hmmmmm???

There are plenty of labor laws on the books now to keep us from working in a bad environment...time to step up to the plate and stop being so greedy.

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PaFlyfisher

I don't think we should bailout the auto industry in an additional bailout, though $25b as part of the existing bailout may be acceptable.

There are already problems with the existing bailout, and I'm not talking about AIG retreats and meetings.

One major purpose of the bailout was to buy the diseased mortgages at auction. This hasn't happened and apparently doesn't look likely. Instead the government is giving banks money in hopes of stimulating lending, which also isn't happening. The bailout was hasty and ill advised in my opinion. There doesn't seem to be guidelines as to how to proceed, obviously there is not precedent. Thus, we may as well give a share to the auto companies, as this may help main street, and the government is going to give out all the money allowed in the bailout anyway.

I am definitely against bailouts, but we have one and may as well try to use it to help save an industry, even if one that dug its own grave. However, I have little faith that Detroit would actually use the money to retool for more efficient cars as promised.

Lastly, there would certainly be huge job losses if one of the Detroit 3 went under. However, there would also be a lot less auto production in the short term. America still needs cars, so as the credit crisis eases the other auto companies, the Japanese cars included, would have to pick up the slack, replacing some jobs in the process.

Bede

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