Auto Industry Bailout

[STP]

One of the main tenets of globalism is that production goes where labor costs are low and typically that's the emerging economies in places like Latin America, Asia, and Eastern Europe. These economies in turn will evolve with labor costs and associated inflation also increasing. The perfection of robots (look for that to most likely come from Japan or here in conjunction with DARPA) will solve this problem but it is not foreseeable when this will occur. That is one solution to the population question and the labor dilemma.

 

 

Hasta la vista

Packs of robots will hunt down uncooperative humans

[G-spotter]

It's hard to sell NEW vehicles when your customers can't get loans.

 

but it sure is a great time to sell beaters at a used car lot!

[Fairweather]

I say nationalize it then let the workers run it.

 

I say bail 'em out on the condition that UAW makes major concessions --or is outright busted. Then fire the entire design team, management douche bags, assist with the retool, and start fresh. Maybe hire some Japanese or WWU automotive engineers. That new "Volt" they've been working on is gonna be the greatest thing to happen to the coal industry in a long time.

[prole]

[video:youtube]

[Bug]

Coming soon to a factory near you.

[JayB]

Too big to fail? That's a shit load of workers, man! The "let 'em burn" crowd gives me the willies, as usual, but these companies have fought tooth and nail against the kind of innovation that sinking them now. They've also been doing their best to gut the workers whose name they're now invoking to save their asses. I say nationalize it then let the workers run it.

 

The transfers of assets from the payors to the beneficiaries would be more transparent, less expensive, and would more clearly illustrate the political expedients motivating this largesse if the government simply paid the existing UAW members their existing salaries until death, and transferred the remainder to the UAW's political slush fund. Funneling the money through the carcasses of the big three is just expensive and inefficient political theater.

 

There's a thriving auto-industry in the US, which is directly or indirectly responsible for the employment of hundreds of thousands of workers. It also manages to produce vehicles that people actually want to buy, and generate profits in the process. Instead of burning through $50 billion to forestall the inevitable, we'd all be better off if demand for automobiles was satisfied by the people who know how to build high quality, fuel-efficient vehicles, even if their upper management have last names that some of us have difficulty pronouncing. Better yet - that demand and the capital that follows is allocated to new companies that aren't constrained by the woeful management and bloated labor contracts, instead of being transfused into a Franken-Detroit that staggers on for a few more years before making a final trip to the grave.

 

Given that a bailout is seemingly inevitable at this point...at the very least, any capital infusion should be in the form of an equity stake, and if they still go under - all common stock and bondholders should be wiped out, senior management should be fired, all contracts rendered null-and-void, and the company put into receivership under which a reorganization with a single mandate - a return to profitability, should be in force. If that fails - complete liquidation.

[JayB]

Too big to fail? That's a shit load of workers, man! The "let 'em burn" crowd gives me the willies, as usual, but these companies have fought tooth and nail against the kind of innovation that sinking them now. They've also been doing their best to gut the workers whose name they're now invoking to save their asses. I say nationalize it then let the workers run it.

 

BTW - Rosa Luxembourg's corpse must be undergoing many revolutions per minute upon hearing such accomodationist incantations.

 

How will you inspire the proletariat to revolt if they're getting paid-off by the government instead of being starved into a revolutionary frenzy?

[Hugh Conway]

It's amusing that a paltry few billion for Detroit raises so much ire but $150 billion for AIG is aok with the free-marketers, and Goldman Sachs paying out $7 billion in bonuses after getting a $6 billion bailout is cool.

[JayB]

It's amusing that a paltry few billion for Detroit raises so much ire but $150 billion for AIG is aok with the free-marketers, and Goldman Sachs paying out $7 billion in bonuses after getting a $6 billion bailout is cool.

 

Yes indeed.

 

If the mayor calls in the fire brigades to keep the granary from burning down, it's reasonable to get angry when they balk at watering your lawn.

 

It's one thing to like a given policy, another to concede its necessity. Much less to "approve" of all of its unsavory unintended consequences.

 

If you can demonstrate that letting three auto manufacturers that tend to lose money while building cars that people don't wish to buy represents an equal threat to the material standard of living of billions, I'd be happy to listen.

 

As things stand, at a minimum, it seems reasonable to ask the government to structure any bailout in such a manner that there's a chance that the big three will eventually be able to repay the funds that we loan them, and to seek reasonable safeguards in the event that they don't.

 

 

[Hugh Conway]

If you can demonstrate that letting three auto manufacturers that tend to lose money while building cars that people don't wish to buy represents an equal threat to the material standard of living of billions, I'd be happy to listen.

 

1) The Big 3 were making per car profits >$10k selling SUVs just a couple of years ago - there's a reason the Japanese wanted in on that market. People most definitely wanted them. With gas ~$2/gallon again they may want them yet again. As someone in the market for a mountain car the economics are stunningly in favor of SUVs atm, even looking at $4 gas again.

 

2) Detroit won WW2, not Wall Street.

 

3) AIG is currently diverting all cash given to them by the government to their subsidiaries which will then be spun off leaving the taxpayers, as usual, fucked.

 

4) I don't agree with any bailout. If one industry is bailed out all should be; tipping the competitive balance in favor of one is the most egregious market distortion. Unless of course we are talking tulip futures.

[JayB]

If you can demonstrate that letting three auto manufacturers that tend to lose money while building cars that people don't wish to buy represents an equal threat to the material standard of living of billions, I'd be happy to listen.

 

1) The Big 3 were making per car profits >$10k selling SUVs just a couple of years ago - there's a reason the Japanese wanted in on that market. People most definitely wanted them. With gas ~$2/gallon again they may want them yet again. As someone in the market for a mountain car the economics are stunningly in favor of SUVs atm, even looking at $4 gas again.

 

2) Detroit won WW2, not Wall Street.

 

3) AIG is currently diverting all cash given to them by the government to their subsidiaries which will then be spun off leaving the taxpayers, as usual, fucked.

 

4) I don't agree with any bailout. If one industry is bailed out all should be; tipping the competitive balance in favor of one is the most egregious market distortion. Unless of course we are talking tulip futures.

 

 

Not a terribly compelling roster of arguments for a bailout, IMO, but the folks in the GM jobs bank will be happy to hear that you'll be giving them a hand by buying one of their SUV's.

 

Here's an article that outlines the basic arrangement with AIG:

 

http://www.nytimes.com/2008/11/10/business/economy/10aig.html?_r=1&oref=slogin

 

How about an article outlining their plans to fuck the taxpayers in the manner that you mentioned, or a synopsis of where these plans are alluded to in the above article? Not that I don't believe you, I just haven't spent enough time looking into the details of this deal to know what constitutes a plan to cornhole the taxpayers and what's simply the government trying to put a multibillion dollar finger in the dike.

 

[Hugh Conway]

2) Detroit won WW2, not Wall Street.

 

That isn't a compelling reason? Our industrial prowess is, and always will be, the core of our military strength.

 

If you are speaking of managerial incompetence, well, AIG is prime example of that on a bigger scale. Cigarette smoking union smucks vs. cigar smoking CEOs

[prole]

How about an article outlining their plans to fuck the taxpayers in the manner that you mentioned, or a synopsis of where these plans are alluded to in the above article? Not that I don't believe you, I just haven't spent enough time looking into the details of this deal to know what constitutes a plan to cornhole the taxpayers and what's simply the government trying to put a multibillion dollar finger in the dike.

 

Good questions. The answer is: nobody fucking knows!

[JayB]

2) Detroit won WW2, not Wall Street.

 

That isn't a compelling reason? Our industrial prowess is, and always will be, the core of our military strength.

 

If you are speaking of managerial incompetence, well, AIG is prime example of that on a bigger scale. Cigarette smoking union smucks vs. cigar smoking CEOs

 

Using state appropriations to shift resources to inefficient companies that can't figure out how to sell what they make for more than it costs them to build, and ultimately away from those that can - is a surefire way to stifle innovation and degrade the nation's manufacturing capacity. I'm sure the troops in WWII were glad that they didn't find themselves fighting Panzer's with horse-drawn carriages because of Congress's efforts to preserve jobs in the buggy industry...

 

[prole]

Using state appropriations to shift resources to inefficient companies that can't figure out how to sell what they make for more than it costs them to build, and ultimately away from those that can - is a surefire way to stifle innovation and degrade the nation's manufacturing capacity...

 

As your earlier post alluding to "political expediency" suggests, you already know that this statement doesn't mean jack-shit, never did, never will. 1.3 MILLION PEOPLE out of work on the streets of Northeastern cities does. While you're perfectly willing to throw millions out on their asses for something you can draw on a cocktail napkin, no politician, much less any human being with a conscience, ever will.

[tvashtarkatena]

Jayb's apparently unaware of the basic business principle of sunk costs. His is, as usual, a moralistic argument the floats far, far above the world in a clean, bright atmosphere, devoid of oxygen.

 

It doesn't really matter that the auto companies fucked up. That's in the past; there's nothing to be done about it. What matters is what to do next to mitigate the damage.

 

Jayb has neither the life experience nor an acceptance of how the American public actually behaves to have even a remote understanding of what would happen to the entire American economy if this country lost its last large manufacturing industry. Without this understanding, he's left with his usual, tired cliche's about the free market and encouraging innovation; par for the course for someone who knows little to nothing about the commercial world.

 

The government isn't in the business of funding private industry, so Jayb's argument that an auto company bailout ultimately diverts funds from more deserving companies is still born. This is an emergency measure to prevent a national economic disaster, nothing less.

 

Those more deserving companies will be still born if the failure of our largest manufacturing industry takes everyone else with it. Jayb's niceties about how deserving they are will be just that. In any case, those companies do not need government assistance. The auto industry does.

 

The American economy, even in the best of times, could never afford to lose it's auto industry. The job loss ripple effect would be far, far too devastating. It's not the best of times, not that a purist like Jayb would notice such trivialities.

 

The government not only should, but must bail out the auto companies. Not to do so would be like watching your next door neighbors house burn down because you know they never change the batteries in their smoke alarms...and ultimately watching your own house burn down as well. It's a ideological fool's argument in the face of a much dirtier, grimmer, and more complex reality.

 

In return, the government should obtain a huge equity stake, and legislate the required production of exactly what this country needs in terms of fuel efficient vehicles to achieve energy independence. Some say heads should roll. Fine. Kill the auto executives for all I care, but that industry must survive for the economic health of the country as whole.

 

 

Edited November 11, 2008 by tvashtarkatena

[Stefan]

Here is one interesting quotes from the latest GM 10Q filing with the sec:

 

"We are also eliminating discretionary cash bonuses for the executive group in 2008."

 

 

[Hugh Conway]

Using state appropriations to shift resources to inefficient companies that can't figure out how to sell what they make for more than it costs them to build, and ultimately away from those that can - is a surefire way to stifle innovation and degrade the nation's manufacturing capacity. I'm sure the troops in WWII were glad that they didn't find themselves fighting Panzer's with horse-drawn carriages because of Congress's efforts to preserve jobs in the buggy industry...

 

It's much better to shift state resources to support failing companies so they can then use state resources to acquire successful companies as we are currently doing in the banking sector?

[JayB]

Jayb's apparently unaware of the basic business principle of sunk costs. His is, as usual, a moralistic argument the floats far, far above the world in a clean, bright atmosphere, devoid of oxygen.

 

It doesn't really matter that the auto companies fucked up. That's in the past; there's nothing to be done about it. What matters is what to do next to mitigate the damage.

 

Jayb has neither the life experience nor an acceptance of how the American public actually behaves to have even a remote understanding of what would happen to the entire American economy if this country lost its last large manufacturing industry. Without this understanding, he's left with his usual, tired cliche's about the free market and encouraging innovation; par for the course for someone who knows little to nothing about the commercial world.

 

The government isn't in the business of funding private industry, so Jayb's argument that an auto company bailout ultimately diverts funds from more deserving companies is still born. This is an emergency measure to prevent a national economic disaster, nothing less.

 

Those more deserving companies will be still born if the failure of our largest manufacturing industry takes everyone else with it. Jayb's niceties about how deserving they are will be just that. In any case, those companies do not need government assistance. The auto industry does.

 

The American economy, even in the best of times, could never afford to lose it's auto industry. The job loss ripple effect would be far, far too devastating. It's not the best of times, not that a purist like Jayb would notice such trivialities.

 

The government not only should, but must bail out the auto companies. Not to do so would be like watching your next door neighbors house burn down because you know they never change the batteries in their smoke alarms...and ultimately watching your own house burn down as well. It's a ideological fool's argument in the face of a much dirtier, grimmer, and more complex reality.

 

In return, the government should obtain a huge equity stake, and legislate the required production of exactly what this country needs in terms of fuel efficient vehicles to achieve energy independence. Some say heads should roll. Fine. Kill the auto executives for all I care, but that industry must survive for the economic health of the country as whole.

 

 

My goodness. Quite a litany there! Apart from the personal stuff (not that I mind, I enjoy the bombast, particularly when it's directed at me), there seem to be a few specific points about the auto industry that are worth considering, as well as some about economics in general.

 

Most here seem to think that if the big-three go bankrupt, all of their manufacturing capacity will be permanently lost, and everyone that worked for them will be permanently out of a job. This is possible if you assume that: every asset that they own is used to make cars that cost more to make than they can sell for and that no one would buy the profitable parts of the business, that no one employed there could make a living elsewhere or would be employed by the folks that bought the profitable bits, and that no auto manufacturer with operations in the US would take advantage of the opportunity created by the demise of the big three to expand operations here, and that a bankruptcy and subsequent reorganization of whatever productive capacity exists in each of the three companies would lead to the demise of all manufacturing. None of these scenarios is plausible, but this final argument reaches a conclusion so unjustified by the premise that the term "non-sequiter" seems inadequate to describe it.

 

The second assumption is that auto-workers deserve some kind of special exemption from the realities that everyone else in society has to contend with. Each year millions and millions of people lose their jobs for reasons beyond their control, in business that are less visible and less adept at lobbing, but are no less essential for society. Their distress and anxiety when they lose their jobs is no less real than that of the auto workers. However, society doesn't expend it's limited resources keeping them indefinitely employed in enterprises that consume more of society's finite resources than they generate.

 

This isn't for a lack of charity or goodwill. It's due to the stark reality that any society that allocated its limited resources in this fashion would rapidly impoverish itself and ultimately perish, in the same manner that a subsistence farmer who ate more grain than he grew every year would ultimately run out of food and starve to death. Whether you are talking about money or grain, an individual, tribe, or state - the underlying reality is the same. Consume more than you produce, and you can only post-pone the inevitable for so long.

 

What surprises me, given the premises on display here, is that no one has stepped forward to propose a similar plan, and employ a similar set of arguments on behalf of the people who work in the construction sector. In that sector, the McMansion is the rough equivalent of the SUV - yet no one is proposing that we requisition resources from society to keep framers, dry-wall hangers, plumbers, painters, etc at work building McManisions that cost more to construct than people are willing to spend to buy them. Nor are we hearing the same apocalyptic warnings that if we stop paying people to build McMansions, soon we'll be unable to build any structure at all. Neither are we hearing that they'll never be able to find work constructing any other kind of building with another company, much less that they'll be rendered permanently unemployable. And finally, no contention that continuously cranking out McMansions that no one wants or needs is a smart thing to do. Why not?

 

 

 

 

[Hugh Conway]

The second assumption is that auto-workers deserve some kind of special exemption from the realities that everyone else in society has to contend with. Each year millions and millions of people lose their jobs for reasons beyond their control, in business that are less visible and less adept at lobbing, but are no less essential for society. Their distress and anxiety when they lose their jobs is no less real than that of the auto workers. However, society doesn't expend it's limited resources keeping them indefinitely employed in enterprises that consume more of society's finite resources than they generate

 

We've spent $350 billion to bailout Wall Street and have yet to buy a mortgage backed security. I'll quote JPMorgan Chase:

“Twenty-five billion dollars is obviously going to help the folks who are struggling more than Chase,” he began. “What we do think it will help us do is perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling. And I would not assume that we are done on the acquisition side just because of the Washington Mutual and Bear Stearns mergers. I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop.”

 

Please, please explain to me why those poor bankers taking home >$1 million are more valuable than the Union smuck making $50k

[JayB]

Using state appropriations to shift resources to inefficient companies that can't figure out how to sell what they make for more than it costs them to build, and ultimately away from those that can - is a surefire way to stifle innovation and degrade the nation's manufacturing capacity. I'm sure the troops in WWII were glad that they didn't find themselves fighting Panzer's with horse-drawn carriages because of Congress's efforts to preserve jobs in the buggy industry...

 

It's much better to shift state resources to support failing companies so they can then use state resources to acquire successful companies as we are currently doing in the banking sector?

 

Seems like most successful banks are more likely to be the ones doing the acquiring, from the news that I've been following.

 

Perhaps Countrywide and WAMU constitute a "success" in some frame of reference.

[Hugh Conway]

Using state appropriations to shift resources to inefficient companies that can't figure out how to sell what they make for more than it costs them to build, and ultimately away from those that can - is a surefire way to stifle innovation and degrade the nation's manufacturing capacity. I'm sure the troops in WWII were glad that they didn't find themselves fighting Panzer's with horse-drawn carriages because of Congress's efforts to preserve jobs in the buggy industry...

 

It's much better to shift state resources to support failing companies so they can then use state resources to acquire successful companies as we are currently doing in the banking sector?

 

Seems like most successful banks are more likely to be the ones doing the acquiring, from the news that I've been following.

 

Perhaps Countrywide and WAMU constitute a "success" in some frame of reference.

 

Again, so why did we give JPMorgan Chase $25 billion to buy more banks?

[JayB]

The second assumption is that auto-workers deserve some kind of special exemption from the realities that everyone else in society has to contend with. Each year millions and millions of people lose their jobs for reasons beyond their control, in business that are less visible and less adept at lobbing, but are no less essential for society. Their distress and anxiety when they lose their jobs is no less real than that of the auto workers. However, society doesn't expend it's limited resources keeping them indefinitely employed in enterprises that consume more of society's finite resources than they generate

 

We've spent $350 billion to bailout Wall Street and have yet to buy a mortgage backed security.

 

Please, please explain to me why those poor bankers taking home >$1 million are more valuable than the Union smuck making $50k

 

 

No layoffs, bankruptcies, or acquisitions at banks or finance companies? That's certainly news. The folks at WAMU and hundreds of other enterprises will certainly be relieved to hear it. Much less the guys who made their living securitizing MBS portfolios.

 

Bernanke et al must have concluded that GM, Ford, and/or Chrysler going under would be far less catastrophic than a wholesale financial crisis that enveloped the entire world. This seems reasonable to me, but perhaps a letter to Bernanke and Paulson would be in order if you've got the time.

 

If "I don't care how dumb it is, as long as it's fair" is the argument of the day, I see no logically boundary that prevents me from assuming that you'd support the "No McMansion Left Behind" plan that I've outlined above...

 

 

[Hugh Conway]

Bernanke et al must have concluded that GM, Ford, and/or Chrysler going under would be far less catastrophic than a wholesale financial crisis that enveloped the entire world. This seems reasonable to me, but perhaps a letter to Bernanke and Paulson would be in order if you've got the time.

 

Given the people who owned the assets didn't know how to value them methinks Helicopter Ben Bernanke and Hank God from Goldman Paulson got conned or were conning us. Occam's razor suggests we gave JPMorganChase $25billion to remake the banking industry, no more, no less. Yes there's pain involved, as there will be for Detroit. Why not give the big 3 $25 billion to buyoff the union 'tards and be done with it?

 

"I don't care how dumb it is" is the order of the day. The inability of any commentator to offer up a non-apocalyptic rationale for a bailout that is looking less apocalyptic by the day is proof - as if we needed more proof that any legislation passed through in a couple weeks under Bush is a steaming pile of shit designed to screw all parties.

[JayB]

Using state appropriations to shift resources to inefficient companies that can't figure out how to sell what they make for more than it costs them to build, and ultimately away from those that can - is a surefire way to stifle innovation and degrade the nation's manufacturing capacity. I'm sure the troops in WWII were glad that they didn't find themselves fighting Panzer's with horse-drawn carriages because of Congress's efforts to preserve jobs in the buggy industry...

 

It's much better to shift state resources to support failing companies so they can then use state resources to acquire successful companies as we are currently doing in the banking sector?

 

Seems like most successful banks are more likely to be the ones doing the acquiring, from the news that I've been following.

 

Perhaps Countrywide and WAMU constitute a "success" in some frame of reference.

 

Again, so why did we give JPMorgan Chase $25 billion to buy more banks?

 

Clearly, the folks at the Fed and the Treasury had a "Wheel of Fortune" like device with all of the sectors of the economy on it sitting around in the basement, and after the spin the winner was "Banking and Finance."

 

Less costly than the alternative, would be my guess.

 

Is this still part of the effort to establish the "No matter how dumb, as long as it's "fair" model as a general template for managing the crisis and/or the economy?