Auto bailout bill dies in Senate
cnn.com
cnn.com
While I generally like unions, in this case no matter how much bailout money the US auto-makers get, they're headed for bankruptcy unless they can bring their labor costs in line with those of foreign firms. UAW, if you're listening, you have two options: get off your rump and drive the wages up at Honda and Toyota (unionizing their plants) or resign yourselves to never having any say in anything ever again.
Until that difference is gone, they will never be competitive. They lose $2,000 of quality or features and are expected to be competitive? Yeah, right.
In any other industry this would force a company out of business, but for some reason we think the automakers deserve our help? If an iPod was $50 more per unit to produce than a Zune they would never be able to compete and the iPod would fail because they are losing $50 worth of quality per unit - whether that quality is gone from the software, hardware, or both, it would be impossible to compete.
http://www.detnews.com/apps/pbcs.dll/article?AID=/20070227/A...
Toyota also manages to pay American worker's healthcare expenses and still profit handsomely.
Find another scapegoat?
I think it's pretty well established that Toyota pays less for health care for their U.S. employees than the Big 3, and a large part of the reason for this is that the Big 3 are paying for health care for a lot of retirees who are no longer making cars. The NY Times had an analysis showing that most of the difference in "labor costs" between Big 3 and foreign makers was due to higher retiree benefits.
The financial industry got a blank check for 700 billion bailout almost overnight w/o any questions, they produce nothing tangible, and there is nothing preventing another bank from replacing any of the big ones. Its an industry that scales easily.
The auto industry on the other hand, is getting grilled left and right over a measly 15 billion. The money comes with a ton of strings attached. Even though unlike the financial industry they produce a tangible product. And there are no other competitors waiting to fill the big boy's shoes, because it takes billions to scale.
So it seems to me that the Congress is being penny smart and pound foolish, they give away vast sums w/o a second thought, and then turn around and penny pinch when it comes to a tiny amount.
The republicans are itching at a shot to break the backs of these unions, and this is their golden opportunity.
Neither bailout is a good or fair solution, but deciding that every broken industry ought to be able to extract limitless funds from innocent taxpayers in order to continue with business as usual, merely because one broken industry is getting a bailout, borders on evil. Two wrongs don't make a right.
But it has nothing to do with a different bailout that, without some serious provisions to ensure long term viability, has no chance of working.
FWIW, most economists seem to be for the financial bailout and against the auto one.
Also the financial one is not a give away, it's an investment. They're taking equity stakes in bailed out companies and enforcing rules to ensure long term viability. The Senate wants the same exact thing with the auto one.
Most economists think that they understand the financial system and its effect on the economy better than they understand domestic car makers and their effect. Even if they're correct (about their relative knowledge), their ignorance about the latter makes their conclusion suspect.
"Follow the money" is a dumb rule. "Follow self-interest and self-perception" is a great rule.
In other words, "he got some" is not actually a valid argument. (FWIW, that's true whether "some" is money or sex.)
The problem here is inherent in the car companies: it is simply a case of them making products no one wants. They either need to reinvent themselves or cease to exist so other, more capable people will take their place.
There are clever, motivated people who are going to notice these opportunities and capitalize on them. There always have been. I hate to sound pigheaded, but calls of "well... well... what if the world ends because we didn't bail these guys out?!?!?" are just FUD.
PS: This bailout if it worked is far less costly than taking over their pension plans would be.
http://news.yahoo.com/s/huffpost/20081129/cm_huffpost/147114...
cited over at reddit
http://www.reddit.com/r/reddit.com/comments/7j1kg/it_is_crit...
Anyway, with all that capital just floating around it should be a snap to recreate a heavy manufacturing based industry. Maybe those free market geniuses can make it as awesome as the financial industry or the health care industry.
And if they did fold, people won't just stop buying cars. They'll just buy different cars that were made mostly here in America, which employee the same number of people to build that a viable American car company would.
It's easy to say bailout = jobs, but that's sadly just not true. In the long run it won't save any, and it will cost a fortune. If it's done right, it will ensure viability, which means loss of jobs. If it's not done at all, it will mean restructuring and/or a shift to Japanese cars which means the same loss of jobs.
What is happening to auto is mostly caused by 1) the financial crisis making credit scarce and 2) a huge drop in demand (30-40%) that no industry could sustain
For a "elderly and weak" patient such as auto, this is too much. Fine. But what happens if auto goes down, which the OP is celibrating? What other weak or newly weakened sectors does it take down with it? Btw, chapter 11 is the best case, it could go chapter 7. We don't know.
And they've done a good job of working on lowering their cost basis over the last 5 years, along with the Unions, but they've still got a long way to go and are progressing slowly. Without serious oversight in the bailout it's just throwing money down a well.
Or so goes the theory. You can choose to believe it's wrong (and you may be correct, it's a complex issue) but it's disingenuous and mean-spirited to say that the people against it are happy about job losses. They're happy that a bill that they believe is throwing money down a well and only delaying job losses didn't pass.
And I think its disingenuous to claim that I said others are "happy" about job losses, when I said no such thing.
My two points were 1) this is bad for the economy short term, potentially leading to further trickle down effects, and 2) the response of "meh, its just optimization" to the human suffering is not indicative of a society I am proud to live in.
One other possible option is for the government to spend a fraction of this money to help people suffering by the collapse of the US auto industry as a buffer until (likely foreign) competition moves in and takes its place.
If you see this as simply the acceleration of the inevitable (as I do) the argument you are making for a bailout is akin to saying we should support any industry that is no longer economically viable just to keep the people from having to suffer job loss. This is not a sustainable long term strategy. At some point people must move on. If this means acquisition of new skills in order to most efficiently re-integrate into the economy than society should help people who unfortunately lost their jobs in attaining these skills, but it is the wrong decision to prop up failing companies in order to help their employees, because at some point this ceases to work. There are more efficient uses for capital that help more people in the long term.
I think this is the relevant question. Is government money more efficiently spent propping up the auto companies a little bit longer, or giving it directly to all of the people laid off after the auto companies go under? As others have described in this discussion there is a real possibility of damage quickly spreading to other parts of the economy in a downward spiral if the automakers go down. So there might be a lot of people in need of that "fraction" of the money needed to keep the auto companies going a little bit longer.
The decision rests on how we weigh the specific costs and risks involved for each option.
The sentiment was "thank god the industry is finally allowed to die", not "thank god we are not wasting money", which suggests more of an emotional dislike of the auto industry rather than a dislike of this piece of legislation.
He wasn't saying he was happy about the loss of jobs. The loss of jobs is coming one way or another (or so the economists I've read seem to think). Chapter 11 gives them a chance to at least end up viable in the end, creating more jobs in the long term.
He is happy that we aren't throwing money down a well. Or that's how I read it.
I think even they are worried about the possibility of their suppliers going under, and the damage that could be done to the economy in general by the Big 3 disappearing.
What is happening to auto is mostly caused by
1) the financial crisis making credit scarce and
2) a huge drop in demand (30-40%) that no industry could sustain
Even accepting the hard argument that this bailout would merely forestall restructuring and eventual job loss, if that restructuring can be pushed to a time when the economy isn't in such dire straits, then the bailout could easily be worth it. The timing is clearly the most important factor. Consider Lehman. Lehman (and all of Wall St for that matter) was in a very similar position to the one the hedge fund LTCM was in 1998 - i.e., highly levered and insolvent, thus constituting a systemic risk. In 1998 because the rest of Wall St was healthy, the Fed was able to organize a private bailout of LTCM that prevented a, in hindsight, minor credit crisis from escalating. In 2008, since all of Wall St is essentially insolvent, the Treasury was unable to broker a bailout/merger and unwilling to bail out Lehman with public funds, leading to a catastrophic bankruptcy. The cost of being wrong about Lehman far outweighed what bailing it out would have cost, just as the cost of being wrong about letting the Big 3 fail at this moment could far outweight the proposed $14 billion (admittedly just a first offering).
Those cars are built with parts from the same suppliers, or other suppliers still largely based in America. Profits may shift from one supplier to another, but they don't decrease.
Your mistake is assuming that demand, in this case for cars, remains constant even if the Big 3 go bankrupt. If the Big 3 disappear, it's an enormous downward force on demand. Japanese companies can't immediately start producing more cars to make up for the slack from a Big 3 failure, so the suppliers would likely disappear. So we're talking about potentially millions of lost jobs. And that's a lot of people no longer in the market for cars, or really any other goods or services.
We're potentially facing a deflationary spiral, where the credit markets freezing up leads to companies failing/laying people off, which lowers demand, which causes businesses and investors to cut back on development and lay even more people off, and so forth. And as drop in aggregate demand creates deflation, individual's debt burdens increase. So we can expect continued foreclosures and increasing defaults on credit card debt and student loans, etc., leading to even more writedowns for banks, and even less credit available for business or consumers. It's a vicious feedback loop. We need the government to stop this downward spiral.
It seems like this is confusing cause and effect. The big 3 disappear because of a major downward force in demand, they don't cause it. If demand were healthy, they wouldn't disappear in the first place, as people would be buying their cars and giving them cash.
I need a car within the next month. I was going to buy Japanese anyway, but say I wasn't. I can't imagine any scenario where I'd just say "Well, the American car makers are gone, so I'm just not going to buy a car." I'd go buy a Japanese or Korean car instead.
Also, there are stories of Toyota and Honda paying for lots in California to store all of the cars they can't sell. There will be no lag.
The proximate cause of this potential bankruptcy is the credit crisis. If the Big 3 disappear because of the credit crisis, and suppliers go bankrupt as well, experts estimate that could mean the loss of 3 million jobs. Suppose you worked for a fairly well run auto supplier, and suddenly you don't have a job. Instead of considering buying a car - or any major good or service - you wouldn't be able to. If you worked in an industry either directly or tangentially related to autos - say auto dealers, gas stations, hotels, steel - you'd likely start to fear losing your job. Just the fear of losing your job would change your consumption habits. Fear becomes a self fulfilling prophesy, creating even lower demand, necessitating even more job cuts, lower prices, and even less demand. A Big 3 bankruptcy would lower aggregate demand, and have potentially massive consequences through the rest of the economy. An event can both be the result of supply/demand, and create new supply/demand - financial markets and the economy are a chaotic system. That's why it's so hard to predict exactly what the consequences of a Big 3 failure would be.
I will dance on the grave of every company and industry that dies now because it means the restructuring is working. Nobody is putting them on life support. Nobody is saying, "It's okay you royally fucked up." They're dying, as they should be.
However, your logic doesn't make any sense. A bank can be totally solvent, but be wiped out by a bank run due to forces outside of their control. Similarly plenty of otherwise profitable businesses can be wiped out when the entire economy heads south. This is called throwing the baby out with the bathwater.
What I am expecting in governance that doesn't dig us into a deeper hole.
By the way, the worse the US economy gets, the worse the world economy gets. Do you really want a nuclear pakistan/india go off the deep end?
There will be collateral damage. That's just part of the deal. As I mentioned, this is a global event so yes, I realize the worse the US economy gets the worse the World economy gets, at least relatively speaking. I would prefer that one of the nuclear countries not go off the deep end and trigger a nuclear war, but I have no reasonable belief that they will either.
On the other hand, investment banks (which are legally different from banks) can be wiped out by runs very quickly if they take on too much leverage. Or at least that's what used to happen before the federal government decided the largest ones were too big to fail and bailed them out.
I think looking at it only in terms of economic efficiency is a little bit callous.
I'm fine with bad corporations "dying." However, what about the actual human beings that will not have jobs, and their children? Detroit is already starting to look like a third world country. What will it be like by the time all three auto makers get through the bankruptcy procedure?
I think the argument for a "bailout" for the people who still support it is that it is simply cheaper to keep the auto companies alive a little while longer than what the government would pay out in benefits for all of the resulting unemployed workers. And that it is a more efficient "stimulus" than the government just spending money on other projects directly. Maybe we will have to pay those benefits eventually in any case. But as bad as things are now it might actually make sense to keep the auto companies alive, even for just another year or so, while the rest of the economy maybe starts to improve.
You can argue that we should be more libertarian about these things, and the government should not be involved in "social safety nets" or whatever. But that is not the government we have, and it is not going to be the government we have any time soon. Given that, the question of whether a bail out is cost effective from the federal government's standpoint is not as clear cut.
The USA started out as a colony and had to fend for itself. That mindset has not left.
And you can't say Tesla, because they don't even make their own cars. They just slap their parts onto a Lotus Elise shell.
The body is not the hard part.
They won't have the same level of employment (or at least salary) because that level is what makes the big 3 unviable. But that contraction is due one way or the other, and the market will make sure it happens whether there's a bailout or not.
American car companies are simply paying employees more than they're worth. Guys are getting $70k a year to pull levers. You can't spend $15 billion to correct that.