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Bush Big 3 Bailout: Nope, It's Bad

December 19, 2008 RSS Feed Print

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This IHS Global Insight analysis tell me all I need to know about President Bush's automaker bailout. You know those tough changes and goals that the UAW will have to meet? Turns out, not so much :

These targets are nonbinding however, and may be adjusted if the automakers can demonstrate a business case as to why they should be changed. ... This is a band-aid for the auto industry; the amount of money being loaned to the automakers is insufficient to see the automakers through what is shaping up to be a worst-case sales scenario in 2009, and is less than half of what the automakers requested in congressional hearings earlier this month. In essence, it is a $17.4-billion football that the Bush administration is punting to the incoming Obama administration, allowing Barack Obama and his team more time to formulate deeper plans that will loan much more money to the automakers.

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1) Chapter 11 Bankruptcy. I have to agree with the above poster on several of his point. Not only are most people not buying big 3 cars, most people aren't buying cars period. Demand basically jumped off a cliff in the auto industry due to the general recession. And all your points are valid about the crushing debt, and immense labor costs. And even your point about the Chapter 11 being for there to fix all these things. But sadly, at this time, and with this specific industry, chapter 11 would not work. First, there would be a mass exit of people buying from a car company in ch. 11, somewhere on the order of 40-80%. Think of it this way, take any business, remove 40% of their customers, and show me how they survive. Second, normally, a business in Ch. 11 can get funding/loans on the general market. If the gov't is reluctant to loan you money (recall that congress rejected this deal), how likely are you to get a loan in today's market? So basically chapter 11 won't work right now.
2) The number of potential job losses has been all over the map. first it was 3 million, now its 1 million. A lot of people want to take the reduction and say "ha, its not so bad". Also, your point about the reduced membership of the UAW is misleading. What does the membership total have to do with anything. Most of the auto industry jobs under discussion are suppliers and dealers, not necessarily workers. Further, I don't know about you, but 11% in the '70s was bad, but so is 7-9% now.
3) Its not quite the end of the world at Chrysler, but its most definitely an extremely bad sign. Note that Chrysler's revenues are counted when a car leaves the factory. So, by shutting down factories for 1 month, they will have 0 revenue for that month. Not a very good way to stay in business, especially when you still have bills. Trust me, their debtors aren't shutting down their debt calls too.
4) Yeah, I agree with you on this one. For shame for using fear to drive your argument. One of my manager's at work has a quote from some old timer " In God we trust, all others bring data."

Michael of CA 2:27AM December 21, 2008

These facts you speak of are not so much fact as talking points and a lack of understanding on your part of the automobile industry:
1 The fact is People won't buy cars from a company who is in bankruptcy...they're having a hard time having people buy cars as is, why would chapter 11 help that?
The fact is that most people aren't buying cars made by the Big Three period . Bankruptcy or no bankruptcy.They sell less than half of the auto sold in the US.At one time Gm alone sold half of all cars bought in the US. Eliminating the crushing debt they have accumulated, getting rid of labor cost that are higher than their competition, eliminating the retirement health care payments, and rationalizing their dealer network will greatly improve their ability to be viable moving forward.That's why chapter 11 would help.
2.There are nearly 1 million jobs touched by the big three and unemployment is already very high.
The UAW in the 1970's used to have more than 1.6 million members at a time when the economy was considerably smaller than it is today. So they are not nearly as big a factor in the economy today as your talking points would lead people to believe.Unemployment back in the 70's reached 11%, so the while unemployment might be high relative to last year it is no where near as high as it was in the 70's.
3.The day after the US Senate failed to pass the Rescue Plan Chrysler announced they're closing ALL NORTH AMERICAN FACTORIES for one month. Put yourself in the shoes of "Joe the Factory worker" who now is laid off for Christmas.
Chrysler who is on the verge of going out of business announced that it will close it's factories which it routinely closes at this time of the year not for the normal two week period but added an additional two weeks.This is not exactly end of the world type stuff considering how big a backlog of unsold inventory they have . Should they continue to build cars that people aren't buying.
4.Stop being so selfish people, if your neighbors suffer, it won't be long before YOU suffer.
People who are promoting agenda's without having a strong rational basis are left in a position where like you they try to shame those of us who understand what is going on as a last desperate attempt to win the argument.

DJC of FL 8:18AM December 20, 2008

Without the bail out millions of people will lose jobs and as a direct result of auto industry jobs being cut, other businesses will fail as well. It will create a domino effect of unemployment.
America was built on industry and it is idiots like you that should just move out of this country because you love supporting the Japanese and Chinese economy and not your own. Don't cry when this effects your families, it is apparently what you want!

P Norv of DE 10:50PM December 19, 2008

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