"An Auto Bailout Would Be Terrible for Free Trade"

How will foreign investors react to an auto bailout?:

An Auto Bailout Would Be Terrible for Free Trade, by Matthew Slaughter, Commentary, WSJ: Congress is now considering a federal bailout for America's Big Three automobile companies. Many want to grant them at least $25 billion ... on top of $25 billion in low-interest loans approved earlier this year. ... There are at least three important ways an industry bailout could damage America's engagement in the global economy and hurt U.S. companies, workers and taxpayers.

The first global cost of a bailout could be less foreign direct investment (FDI) coming into the United States. ...

Will fewer companies look to insource into America if the federal government is willing to bail out their domestic competitors?

The answer is an obvious yes. Ironically, proponents of a bailout say saving Detroit is necessary to protect the U.S. manufacturing base. But too many such bailouts could erode the number of manufacturers willing to invest here.

The bailout's second global cost could hit U.S.-headquartered companies that run multinational businesses. ...

Will a U.S.-government bailout go ignored by policy makers abroad? No. A bailout will likely entrench and expand protectionist practices across the globe, and thus erode the foreign sales and competitiveness of U.S. multinationals. ... That would be bad for America.

Rising trade barriers would also hurt the Big Three, all of which are multinational corporations that depend on foreign markets. ...

The bailout's third global cost could fall on the U.S. dollar. ... Will a federal bailout that politicizes American markets bolster foreign-investor demand for U.S. assets?

Not likely. Instead, America runs the risk of creating the kind of "political-risk premium" that investors have long placed on other countries -- and that would reduce demand for U.S. assets and thereby the value of the U.S. dollar. ...

This week Congress is weighing the cost of the bailout. Let us hope that lawmakers realize that the true cost of such a bailout is far larger than any check the U.S. Treasury will have to write in the coming months.

Many foreign companies are highly dependent upon the general state of the U.S. economy, especially, of course, those operating within our borders. There is also an argument that bailing out the automakers is in the interest of these companies because it lowers the chances of a prolonged, deep recession that would substantially reduce their sales and profits.

Comments

[hari]

MT - You're absolutely right on this issue.

EU Commision has convened a meeting just to address the issue of US Auto bailout by Treasury - and its impact on EU Auto industry.

[a]

"An Auto Bailout Would Be Terrible for Free Trade"

Is he trying to get me to agree to the bailout?

[Nimmer]

What do we call all those "incentives" several states gave the foreign car makers to locate there? Is it only a "bailout" if it's a loan to an American auto company? Outright gifts to foreign firms are OK?

[bakho]

All policies have positive and negative consequences. Negative comments are useful to any debate but need to be balanced with positive outcomes to determine the policy with the best overall outcome.

Bailout is the Bush/Republican term and it is the straw man Bush is opposing. What the Dems want to institute is a government backed restructuring. Obviously, restructuring is necessary. BigAuto cannot continue along the current path. Obviously, the current market is not big enough by itself to handle the restructuring. How can restructuring occur if a very large entity (like the government) is not involved? (Bill Gates and Warren Buffet are not interest, and not experts in autos).

Republicans oppose government intervention on strictly ideological grounds. The alternative to government intervention in the restructuring is liquidation. So let's write the Headline in plain English:

BUSH ADMINISTRATION WILLING TO LET US AUTOMAKERS LIQUIDATE AND ACCEPT CONSEQUENCES TO US ECONOMY

This debate is NOT about bailout or no bailout. This debate is about LIQUIDATION of the auto industry versus RESTRUCTURING.

Which do you support? LIQUIDATION? or RESTRUCTURING?

[save_the_rustbelt]

Journalists and economists have the luxury of guessing and dressing it up as expertise.

Even with the "bailout" it is likely Big 3 (or 2) market share will continue to slowly decline.

The worst possible result for foreign economies is a deep, prolonged recession in the U.S.

[Lafayette]

Woolly haired mammoths

Some interesting information has come about, regarding the global automotive industry, within which, I suggest, we must place the present context of Detroit's "Big 3". These charts come from the Economist edition of 15 November (and are therefore public domain information).

The first is car ownership by national market (here), which shows that market saturation is likely reached in the US -- where more than 900 individuals (of driving age) out of a thousand owns a car. The second chart (here) shows that, in terms of total sales, the car market is shifting strongly to the BRIC countries (Brazil, Russia, India, China).

Finally, the third chart (here) indicates that the major automotive manufacturers are obtaining already very large revenues from external markets. I suggest those markets for American cars, unlike those for European cars, are the smaller variety, which Detroit has long since given up making. In other words, they are markets for cars produced outside the US.

The third chart shows convincingly that profits are beginning to come from outside national markets for national automotive manufacturers. Curious enough, GM figures for operating profits from these national markets is "not available". Bullsh*t, they know damn well how much of a profit comes from these external markets. They are just not telling.

I am wondering, therefore, just what sort of a "bailout" is actually necessary. And, I am wondering if the Big3 are just not pulling the Federal government's chain. Meaning, they simply decided that the time was opportune to ask for gummint funds.

Given that Obama promised to "do something", which he will find hard to back away from -- especially since Paulson seems to have thrown him the baby for the alloted funding bailout. Nice parting gift, is it not?

This makes the cogency for such funding a bit less so. In fact, I am beginning to wonder if Chapter 11 is not the better way for them to go. It would restructure their balance sheets, perhaps invite new management (and therefore new ideas), and all three could start from a clean slate.

All that might be a damn site better than just retreading these woolly haired mammoths.

[Ninja Zombie]

Bakho, no.

Bankruptcy would allow the automakers to restructure. This will allow the big 3 to lower their labor costs in line with the rest of the domestic auto manufacturing industry, and liquidate unprofitable units.

The purpose of the bailout is to avoid this, to allow the big 3 to keep overpaying auto workers.

So the question is, USEFUL RESTRUCTURING or LESS RESTRUCTURING WITH BILLIONS OF TAXPAYER DOLLARS GOING TO DEMOCRATIC CRONIES.

The fundamental question to ask: why should we tax someone making $20/hour with regular health care and give the proceeds to someone making $73/hour with gold plated health care?

says...

"The first global cost of a bailout could be less foreign direct investment (FDI) coming into the United States."

So the US manufacturing base is dependent on foreign investment?

Bailout = protectionism? Really?

The dollar is strong because of economic fundamentals and a financial system bailout? Not global deleveraging?

Intellectually retarded musings.

[Denis Drew]

"This debate is NOT about bailout or no bailout. This debate is about LIQUIDATION of the auto industry versus RESTRUCTURING."

Very true.

My latest angle is that American auto management may not have done the best job over past years (not compared to the Japanese and German) but could that be because America's best engineers, management etc., were tied up building SR-71s (Kelly's Skunk Works) or useless space stations or stealth fighters when we have no serious conventional war opponents left to fight?

In any case we are on the verge of an era in which cars are virtually as easy to design and build as your kid's toy racing: easy to build -- but as reliable as jet engines to run -- electric motor and battery, no tricky transmission (goodbye 6 speed electric), plus a little one speed (rpm) generator engine...
...that should yield 100 mpg.

Lithium ion batteries should in a few years be capable of holding, first, 4 times today's (40 mile) charge and, eventually, 10 times -- unbeknownst to a certain Republican presidential candidate who wanted to post a reward of $300 million for a more powerful battery.

http://news-service.stanford.edu/news/2008/january9/nanowire-010908.html

So, let's not snatch defeat from the jaws of American auto manufacturing victory even if the victory is predicated on the lucky arrival of battery technology that can make Volt type vehicles super practical.

I don't know if I am crazy of if the opposition is crazy but I cannot imagine an America that does not manufacture it's own automobiles. Will the last person to leave America please turn of the lights.

[Denis Drew]

Seems like I haven't completely figured out the technology of posting a working link in typepad yet.

[ken melvin]

If you've questions in re the 'how' of the race to the bottom - NZ can explain it as well as any I've read. BJF often provides additional background.

[ken melvin]

The cost of not bailing probably greatly exceeds that of bailing. Why not do something akin that suggested for banking, i.e., buy the damned things, install new management, and give them an agenda of moving into the 21st century with alternate energy, carbon free, fueled cars and the production of mass transit buses and trains based on European and Canadian models? Big Car and Big Oil baer much of the responsibility for the mess America's in; not in their failure to produce, but rather their advocating the wrong policy (a role they should never have had under any viable economic/governing model). This is but one of the corrections we should be able to make coming out of this mess.

[Switcharoo]

The US is making the same mistake Japan made. They had a shortage of elder care, but decided to keep on making subsidized automobiles instead. Then they used public money to build out the road system in areas that few used. Now we are doing the same thing. Subsidizing products that we have too many of, while a growing elder care shortage develops.

The market is trying to tell us something. We have too much auto capacity, and don't really need anymore. We also have far too many McMansions rotting in the burbs. Meanwhile, the nation's elderly are having a hard time getting adequate care, and the bottom half can't find a home they can afford. Spend the public money to help the public, not to promote the building useless stuff that no one wants or needs. Elder care and smaller homes are what is needed now.

You can't just build what you want, with no regard to what the customers want and need.

[save_the_rustbelt]

The Big 3 and the UAW have two distinct sets of problems:

long-term problems which are largely self-inflicted, much work (maybe not enough) has been done to solve these problems

Short-term problem - the auto market is being decimated by the credit crunch, the recession and a general lack of confidence leading to a collapse of consumer spending

The UAW contracts were totally overhauled in 2007 and in a phase-in through 2011. This is widely non-reported, and of course will not happen in a collapse or a bankruptcy.

The transplants have done a good job of selecting southern locations and sucking up to the redneck cracker politicians, like Shelby.

[zak822]

str, thanks for the dose of reality. Twice.

Ninja, I think your $73 hourly rate is incorrect; that it lumps in legacy health care that the currently employees do not receive. Sorry, I don't have the supporting documentation handy.

[kharris]

The first of the WSJ points seems to be based on an error in thinking. It elevates capital inflow over capital itself. If the Big 3 have capital that would go unused absent a bailout that would be used under a bailout, then we shouldn't care so much about foreign investment in the auto sector as total investment.

I notice that ninja has used the bogus $73/hour figure. In fact, he has even used it in a way that its crafty originators would never try to use it, claiming that UAW workers are "making" $73/hour and implying that that is in addition to health care. Both are wrong. The claim is that all labor costs, for current workers and retirees and their dependents, amount to $73 per hour of work to build cars. That claim aims at heaping the cost of retirees into "labor costs" when those costs were incurred to keep current costs down, improving cash flow and profitability, in a prior period. If we look at who benefited from the shift of compensation from current wages to future benefits, the answer is that management and share holders did in an earlier period, but that retired workers will benefit only to the extent that promised benefits are paid. It is awfully sketchy to just claim that $73/hour figure is a labor cost. It is just wrong to assert that UAW workers are "making" that kind of hourly wage.

[jalrin]

This is a crucial question that Mr. Melvin has correctly identified: How much will a bankruptcy cost the United States? Let's see: a bankruptcy will require a bailout of the PBGC, the midwestern states UI trust funds, the upper South UI trust funds, the medicaid programs in the above states, a massive additional outlay for other social services, the lost tax revenue, the payments to find replacements for everything the government currently buys from the Big 3 (everything from parts for police Ford Crown Victorias, to armored vehicles for the Army).

All of these things are going to be really expensive. Everything else aside, it will be worth spending a lot of money to avoid these bills.

STR:
Shelby and company are out of their minds. North Alabama will be pounded by a Big 3 Bankruptcy (the Big 3 parts makers up their will be ruined). We (I am an minor cog in the Alabama Young Democrats) are trying to get our lawmakers to stop listening to the Bourbon elites who would rather be the overseers of a Southern Plantation owned by out of state interests then be part of America. Hopefully we wil suceed soon. In the meantime, we apologize for the antics of the South Alabama nutcases.

[rufus]

Slaughter's commentary proves that over at the WSJ, 'subprime' editing standards are in vogue...all you need is a pulse. Supporting one of the stalwart major manufacturing industries in the US and preventing the loss of millions of jobs is not protectionism, it is an attempt to keep the damn from breaking. The problem is simply that demand is collapsing. Protectionism implies that the Fed would be artificially supporting inefficient domestic producers, which is not entirely the case (see China Auto Industry seeks bailout). I am one of those often despised free traders or one who supports more liberalized trade, but this has little or nothing to do with protectionism. This has to do with preventing a massive spike in unemployment.

Allowing bankruptcy proceedings to trim the fat in the auto industry will guarantee that the economy will be forced to absorb more job losses while the industry painstakingly reorganizes and restructures itself to be more efficient in the future. This is not a time for blindly accepting further sustained increases in unemployment. Besides, running the gauntlet of bankruptcy proceedings and re-emerging may not sound like a gamble, but chapter 7 may be just as likely an outcome as chapter 11 at the bankruptcy craps table.

No to mention (although I think I will) that this is the first opportunity for bailout efforts to be directly aimed at supporting blue collar employment, versus the billions already spent to save white collar jobs. Demand is being driven to nil. It appears obvious that massive government spending in the future will be required to support employment and earnings in order to kick start demand. Why would we choose to wait however long it takes to re-invest in a more efficient auto industry? Sure it would be more efficient, but in the meantime how well can the economy continue to absorb massive job cuts and loss of wages? We have over consumed (purchased both unnecessarily and impractically) for so long, while borrowing against tomorrow's income there will be no easy way out. However, continuing to accept some levels of inefficiency in the domestic automobile industry in order to prevent an implosion in the employment market and further deflationary influences seems like a no brainer to me.

[save_the_rustbelt]

Waxman just beat Dingell for key Chair position.

Waxman is well known for

1) hating business in general
2) hating health care providers
3) pushing an extreme (California based) environmental agenda

American manufacturing is done** - finished - kaput.

** The extreme environmental agenda will not allow the construction of most new power plants, which will destroy the rustbelt once and for all.

[jm]

As always, the WSJ editorial page promotes the fiction that the current trading environment is one of "free trade", ignoring the subsidies and tariff barriers through exchange rate manipulation by which Asian governments support and protect Detroit's competitors.

I am continually disgusted by the naivete of those Americans who hold Toyota up as an example of how great the Japanese car makers are and how bad ours are, blissfully ignorant of how Toyota enjoyed a 20+% subsidy from the Japanese government's suppression of the yen-dollar rate first through outright buying of dollars ($320 billion in 2003 and 2004) and then (to be less blatant) by zero-interest-rate policies crafted to support the yen carry trade.

[Patrick]

save_the_rustbelt:

Don't get too worked up over Waxman. He's just one guy. And Obama et. al. are firmly centrist so nothing too crazy will get through anyway. I think saying he hates business is an overstatement, hating health care providers is not totally irrational, and extreme environmentalism might actually leave your grandkids some air to breath, soil to grow food in, and Florida may not totally disappear beneath the waves.

[calmo]

Rusty was a Dingell man thru and thru.

Itiz not Done*

You'll see. You will.

*The End ...All finished... Kaputsky.

[Lafayette]

s-t-r: The worst possible result for foreign economies is a deep, prolonged recession in the U.S.

Yep, right up there with a prolonged recession in global GDP.

Eight to ten percent of US GDP goes out to the world in exports. We'll need that 8% over the next year, every cent of it.

says...

"We" should get it over with and sell the big 3 assets to automakers with a future. Toyota, Honda, et al can use the assembly plants and strengthen existing suppliers.

The competent automakers would keep existing employees working, retirees would get a big pension fund, medicare, and social security.

Otherwise, the big 3 are going to ruin it completely and screw everybody. They are incompetent and suicidal. Toyota, Honda, et al will eat them for lunch sooner or later.

[Lafayette]

s-t-r: The extreme environmental agenda will not allow the construction of most new power plants, which will destroy the rustbelt once and for all.

I guess you've never heard of nuclear energy.

You know, the kind of Alternative (to petroleum) Energy Source that, had Vice Lead-head not nixed (in payment of a campaign chit to his BigOil friends), would be providing today all the energy that the Rustbelt needs.

What is the Rustbelt, an earthquake area? News to me ...

[kharris]

jalrin has apparently mistaken the consequences of liquidation for those of bankruptcy protection. That is one of the big issues being debated, though perhaps not all that realistically addressed. The auto makers have a hard time making use of Chapter 11 absent some jiggery-pokery from the government, but Chapter 11 would avoid many of the worst consequences of liquidation.

[bakho]

The $73/ wage is fiction. This myth is being propagated by anti-union ideologues.

Dean Baker explains that the true cost is closer to $25/h including benefits.

"Bailout" without restructuring would be a 'bridge loan to nowhere'. No one but the auto execs are arguing for a carte blanche bailout.

Bankruptcy without government intervention and backing would leave BigAuto creditors high and drive and commence a wave of bankruptcies rippling through the auto parts sector.

What is needed is a restructuring of the auto sector that will include parts suppliers as well as the Big3. The restructuring of the entire sector will require intervention backed by money. Letting the entire sector crash and burn is no guarantee that something will rise from the ashes. The costs from the resulting dislocation would dwarf any bailout costs.

"This debate is NOT about bailout or no bailout. Bailout is a Bush political slogan. This debate is about LIQUIDATION of the auto industry versus RESTRUCTURING."

[don]

As much as the private jets of the CEO's of the U.S. automakers sticks in my craw, I would not mind a bailout if it were accompanied by strictly enforced mileage standards. Better yet would be a nice, big increase in gas taxes.

[save_the_rustbelt]

Laf:

The Obama-maniacs hate nukes. The Gore-ites hate coal.

The Gore-ites think we can totally redo the power grid in about 10 years, which is crazy.

Clean coal and nukes are our future, but both will be nixed by the Newest New New Deal.

[kharris]

I see Rusty has taken to cutsie denigration of Obama and Gore and their supporters. Gore, when he ran for president, took more than half the popular votes. Somehow I doubt that half of voters "hate" coal. Obama has not yet sat where Kennedy sat (unless Bush let him try it while the cameras were outside), so it's a little early to be drawing conclusions about Obama's policies. If this is the level of seriousness at which we discuss energy policy, then Rusty's conclusion may well be justified.

[me]

"What do we call all those "incentives" several states gave the foreign car makers to locate there?"

So now you are arguing that the individual states should compete with the deficits of the US government?

Cars, like housing are too expensive. With MEW, people bought houses they couldn't afford and vehicles they couldn't afford. The price of housing is falling and so must the price of a vehicle.

Bailout? How many "workers do you expect to survive in Detroit? Chrysler merges with GM or disappears. Do you think they will be hiring or firing? But don't worry, Cerberus, Dam Quayle, John Snow and Bob Nardelli will get theirs.

[jalrin]

Kharris,

Why is everyone so certain that a bankruptcy will be doable without liquidation? Even assuming that the government provides DIP financing (which is basically a bailout), you know have to deal with the added risk that people are going to be less interested in buying their products.

The point still stands: an out of bankruptcy bailout is still cheaper than one of the Big 3 going under, or a bailout in Chapter 11.

[roger]

I must disagree with mr. save the rustbelt. Far from dooming the industrial belt, Waxman is a sign that it might be saved in spite of itself. The sign against that was the disgusting and over the top appearance of the Auto-cracy yesterday, flying in on private jets and seemingly as clueless as the Soviet Barons were in 1991. The auto industry has an excellent market in this country if they wake up to the fact that the environment is not a cost, now, but an opportunity. In fact, their best and perhaps only opportunity to survive. If, however, they simply use bailout money to blindly make more big gas guzzlers that they think they can sell at 30 thou a pop, they really are doomed.

Unfortunately, hearings that are simply about bailing out are not enough. The hearings should have been about where does the car industry go from here, and it should have included those demonic environmentalists, engineers, experts in the auto industry in Europe, critics of the system that went from GM to Dingell to lowering the CAFE standards, critics of allowing tax deductions to be used to subvent, of all things, SUVs, etc. The creation of this archaic, Limbaugh like division of Gore vs. Industry has had the grand effect of screwing over the midwest - notice how much fun it was when Bush, king of coal and oil, was Prez? That was so great for Ohio and Michigan and Indiana. Keep going down that route and they will resemble Hiroshima soon.

I was recently in a wedding in Chicago and went out to the Dunes park in Indiana, and on the way back took the "scenic" route through Gary - it was frightening. The economic decay was so bad there weren't even any crack houses standing - mile after mile of boarded up houses, shopping centers, factories. All the result of thinking that you can manufacture like in 1952, except with even more waste. You can't.

There is no reason that Honda and Toyota should be able to manufacture better cars for the American market than American auto companies - except for that dumb, anti-environmental, wasteful, military-vehicles-for-civilian use mindset. And it is still the most powerful thing in Detroit. It kills me how very very deluded they are.

[save_the_rustbelt]

kharris:

I kinda like Obama, and wish him well.

Gore (and not 50% of the voters) has gone off to an extreme place on the environment, and some of that appears to be leeching over to the Obama team.

Biden, for example, went way out of his way to slam coal, clean or otherwise, during the campaign.

I think we can make huge energy changes with say a 25 year program. To try to do all that in 10 years is just looney, barring some miracle scientific breakthrough in fusion or hydrogen power.

During that 25 year transition I think we care going to need more nukes, clean coal and enhanced use of natural gas.

If Obama tries for a quick score and fails it will set energy and environmental programs way, way back.

[ken melvin]

Many things need fixing. We've tried to go back, hold back too long. This is a golden opportunity. We should think bold, be bold, and embrace and welcome changes.

[bakho]

Bailout Dead. Dems will discuss restructuring plan with BigAuto.

""This is an important industry in our country and we intend to save it," Pelosi said. "Until they show us a plan we cannot show them the money."

Reid said Congress would return the week of December 8 to consider the proposal, but only if lawmakers are convinced that the public would be well-served.

Reid said the automakers would submit the plan to Rep. Barney Frank, D-Massachusetts, and Sen. Christopher Dodd, D-Connecticut. Frank chairs the House Committee on Financial Services and Dodd heads the Senate Banking Committee."

[save_the_rustbelt]

As of yesterday the Dems could have made huge political hay out of the bailout by illustrating the southern GOP versus northern Dems split.

The Dems may have blown it.

Why don't the Dems elect some better Congressional leadership?

[esb]

Parts and materials suppliers have started shipping to F and GM on a cash basis only, and the Senatorial press conference before leaving town was a meaningless attempt to head off the disaster by leaving a slender thread of hope hanging.

In any event, the cutoffs will go ahead and the game has all but ended.

How GM avoids filing within, say, ten days is beyond my ability to divine.

[Joe]

Isn't it more likely that the big 3 will get some form of this bailout, burn through it in no time flat, and then declare bankruptcy?

[Sandman]

Rustbelt, your lost. "Goreites" love coal, they call it "green coal". Your "plants" you want to build are a waste. The ineffiency of them make them unbuildable.

The "green" revolution is coming whether you get it or not. Clean coal plants will be built. Nuclear Tech MUST improve before it is a long term remedy. Literally. Even the industry knows it isn't there yet.

Get it pal? Bringing industry back that actually you know, makes production is the key. The environmental concerns are already logged in and we have enough developed "green" energy to make it a reality.

Get our of 1970 and come to 2010. It ain't hard sir.

[Sandman]

"Isn't it more likely that the big 3 will get some form of this bailout, burn through it in no time flat, and then declare bankruptcy"

Uh, Joe bud, you have not read a thing in this thread have you?

[Denis Drew]

Try to move American auto factories in on other First World countries -- w/o legacy costs, paying less than their factories pay assembly line workers. In Germany, France, Italy, etc. you will not be able to pay less than others pay doing the same job BY LAW -- and no legacy costs because health and retirement are all government. Ditto for Korea.

Wal-Mart just closed 88 big boxes in Germany after its business plan did not work paying their employees the same as competitors.

For all practical purposes, you cannot build significant competitive anything inside Japan no matter how much you pay -- least of all undercutting domestic wages and benefits. But Japan jumps into our domestic market to destroy our industries.

Do foreign managements and engineers sometimes do a better job. Maybe that's because our best were manufacturing SR-71s (Kelly's Skunk Works) or now useless space stations while the nations we protected during the Cold War were able to concentrate on domestic appliances.

[papa zita]

My comment on another blog concerning the Big 3 - I love the American public's slavering for blood from Detroit for "not building the cars we want". Every time I see a Hummer drive by me, I think to myself, "He really didn't want that, he wanted a Prius". Then I start laughing so hard I almost crash my little Corolla. Hypocrisy and self-righteousness: the two qualities one needs to be a true American.

[dd]

I don't understand the big deal. The Big Three want a fraction compared to the financial sector.
Via Calculated Risk:
CAPITAL PURCHASE PROGRAM: $158,561,409,000 Total

$15,000,000,000 Bank of America Corporation
$3,000,000,000 Bank of New York Mellon Corporation
$25,000,000,000 Citigroup Inc.
$10,000,000,000 The Goldman Sachs Group, Inc.
$25,000,000,000 JPMorgan Chase & Co.
$10,000,000,000 Morgan Stanley
$2,000,000,000 State Street Corporation
$25,000,000,000 Wells Fargo & Company
$10,000,000,000 Merrill Lynch & Co., Inc.
$17,000,000 Bank of Commerce Holdings
$16,369,000 1st FS Corporation
$298,737,000 UCBH Holdings, Inc.
$1,576,000,000 Northern Trust Corporation
$3,500,000,000 SunTrust Banks, Inc.
$9,000,000 Broadway Financial Corporation
$200,000,000 Washington Federal Inc.
$3,133,640,000 BB&T Corp.
$151,500,000 Provident Bancshares Corp.
$214,181,000 Umpqua Holdings Corp.
$2,250,000,000 Comerica Inc.
$3,500,000,000 Regions Financial Corp.
$3,555,199,000 Capital One Financial Corporation
$866,540,000 First Horizon National Corporation
$1,398,071,000 Huntington Bancshares
$2,500,000,000 KeyCorp
$300,000,000 Valley National Bancorp
$1,400,000,000 Zions Bancorporation
$1,715,000,000 Marshall & Ilsley Corporation
$6,599,000,000 U.S. Bancorp
$361,172,000 TCF Financial Corporation

Auto industry and related industries produce a product; not one anyone will buy at the moment; but nonetheless a reality operative "asset" as opposed to virtual assets that only exist in computer memories. Rather bailout out Michigan, Ohio, Indiana, Illinois, Iowa, and Wisconsin than waste all that cash on NY and Greenwich Conn.

[save_the_rustbelt]

Sandman:

I'm certainly not against environmental progress.

I'm very leery of trying to do a 25 year transition in 10 years. The probability of failure is high.

I'm also leery of wildly optimistic expectation about the speed of technology and progress.

If Obama and Gore get it wrong, they go back to their mansions and live on a nice government pension. A lot of working people will not have such a comfortable fate.

[save_the_rustbelt]

Roger:

I was criticizing the Big 3 and the UAW 25 years ago.

They deserve much of their misery.

They do not deserve to collapse because the thieves and liars who run Wall Street have put the credit markets into the deep freeze and sent the economy into a recession.

See the difference?

[calmo]

Agree that we B trained to string up the auto executives and their jet-flying ways (visit the Youtube interview at CR with Krugman's support of meeting the Big3's request [the language there is "bailout", but we are more withit recognizing the distinction between restructuring/liquidation])...unlike the financial executives and their jet-flying ways.
We (ok, not us savants, but you righteous barbequers) are too embarrassed to admit that we don't even know what they make (Nothing, but we hesitate to say that out loud --in front of Hank specially)...isn't that it?
It's fine to be burning Wagoner at the stake, because everybody knows what a crummy product he makes and lousy operation he runs (sentiments further fueled by a blue chip gone penny stock) ...and that his successor once he smells the smoke will do such a mo betta job. [We is the Inquisition...specially after Obama's "We can."]
The psychology works because the product is familiar --bad too, but we can put our ass on it --unlike the stupefying credit default obligations and the traders...none of which we can put our ass on. They could be from another planet.
And they might as well be, given the attention that not even Krugman gives them, despite the acknowledgment that the frozen credit markets preclude the Ch. 11 option for the auto industry.

Now that the PR has done its work wrt future sales, the cry of "wolf" (attaching the label 'Bankrupt') has been sounded...and so that fear of lousy sales has been spent, yes?
Anso time (60 days?) has been made for a thoughtful restructuring.

[btg]

Does anyone still think that the US is committed to Free Trade?

Just look at the tanker contract that will never proceed until they find some way for Boeing to win it...

Then the auto industry and the barriers that were put up against the Japanese since the 80s, that forced them to invest in the US...

And then mention the words "softwood lumber" to any Canadian and we will drop to the floor lauhging at the idea that the US plays fairly whenever it does sign a supposed "free trade" agreement.

[adam hartung]

Congress would be imprudent to take action without commitment for serious change from the auto companies. Remember Lee Iacocca and his promises 29 years ago when asking for Chrysler's loan guarantees? He not only flew commercial aircraft, he promised to take no salary - and have a bonus approved by Congress. He also put the UAW's leader on the Board at Chrysler! He was ready to changed processes, and the kinds of cars sold in America. We need that kind of leadership change if we're to bail out Ford and GM. Read more at http://www.ThePhoenixPrinciple.com

[Lafayette]

s-t-r: Why don't the Dems elect some better Congressional leadership?

Right, Dingell for instance? The guy who wanted to keep gas-guzzling CO2 emission engines? Auto-cracy's favorite son?

You are in denial, s-t-r.

[Winslow R.]

I'd like to know what the government will end up paying(through AIG) out on CDS's if GM is allowed to default.

[Lafayette]

btg: Does anyone still think that the US is committed to Free Trade?

Just look at the tanker contract that will never proceed until they find some way for Boeing to win it...

The decision to give the contract to Airbus was strange, to say the least, given the fact that military procurement almost always goes to some national producer. In case of war, the military cannot depend upon a foreign country for procurement of any strategic need. And, yes, tankers are a strategic necessity in wartime.

Still, I will bet that, when this deal is done, a part of the contract will go to Airbus. It won't be the major part, mind you, but they will have not lost everything.

NB: The head of Airbus Sales & Marketing, who lives/works in France, is a Yank, btw.

[Lafayette]

The Perfect Storm

s-t-r: They do not deserve to collapse because the thieves and liars who run Wall Street have put the credit markets into the deep freeze and sent the economy into a recession.

Had they made the right product decisions years ago, they would be able to bear the brunt of this recession.

The lots of car dealers are full of unsold gas-guzzling clunkers -- at high-prices to boot. They've got the wrong product for the wrong times, and this economic downturn has simply made that idiocy blatantly well known.

This Perfect Storm crisis has been coming to Detroit for a long, long time. The Big3 have no one to blame but themselves.

So, like little boys, who deserve their comeuppance, we shall have to put them through the paces. Starting, most probably, with new management both in Washington AND Detroit.

Why the hell Obama promised to "do something" for the automotive industry without attaching strings, one will never know. (Mid-campaign panic madness, most likely. Overcomes often even the best candidate.)

En passant

We are going through the same anxiety in Europe. Merkel is thinking of dolloping out billions to save the German auto industry. Thought it was healthy? So did I ...

[BJ Feng]

There is no point in loaning the Big Three money unless they prove that they can continue on as going concerns. They currently lose billions per quarter, WHAT WILL CHANGE FROM A LOAN? If all giving a loan will do is allow them to lose money for a longer time, then there is no point in doing so.

I'm surprised that Congress asked some tough questions and got to the bottom line. What exactly will the Big Three do to change their circumstances? Don't tell me make more green cars, that's very poor thinking, they already make green cars like the Chevy Malibu and their hybrid SUVs. What matters is that those cars can't compete against the BETTER green cars of Toyota and Honda. Why buy a Malibu when you can buy a Civic? The Malibu is cheaper, but not cheap enough and they're as cheap as GM can go.

So basically the question becomes, how can the Big Three produce a BETTER small car than Toyota and Honda in the timeframe they have under a loan? The executives were vague because they know the answer is that they can't. They can't possibly make a better car and leapfrog Toyota and Honda in just two years or so. It takes that long just to come up with a new car, basically they'd have ONE shot to produce a car that would leapfrog Toyota's and Honda's new designs and that just isn't possible.

The Big Three can still survive, but not in their current form. They have to be allowed to downsize for real, that is close down whatever factories they need to and fire as many workers as they need to. THAT's the real solution, the long-term solution. From a SUSTAINABLE base, they can then start to improve on quality and expand. But they have no way of supporting their current structure, any money put in will just be lost.

[save_the_rustbelt]

Laf:

No on ever, me included, wanted Dingell for Speaker of the House.

The Dems have a huge opportunity here. I wouldn't bet the fate of the country on Reid and Pelosi.

[Lafayette]

Non-level playing field

BJF: how can the Big Three produce a BETTER small car than Toyota and Honda in the timeframe they have under a loan? The executives were vague because they know the answer is that they can't. They can't possibly make a better car and leapfrog Toyota and Honda in just two years or so.

Yes, they can, if Obama finds a way to get ALL American companies to offload Health Care Insurance to a national agency missioned to produce "affordable HC" at standard rates for all companies as well as national accessibility.

The Japanese did not sign the same contracts with the Unions as the Big3 did, I'll bet. Which is how they can compete. The playing field is not level.

A great many conventional wisdoms are coming home to roost, not the least of which is that of Health Care insurance that is an exorbitant cost weighing on our ability to produce. Either we learn to control it or it will continue to control us.

Post scriptum

Regardless of the nomination of Dashle, anyone care to bet that the Obama administration will only tweak the current system to obtain universal health care but not focus on its weakest part -- that of exorbitant costs caused by hallucinatory HC-providor fees and pharmaceutical costs?

This oversight, or lack of courage, will affect American competitiveness for years to come.

[wjd123]

The bailout's third global cost could fall on the U.S. dollar. ... Will a federal bailout that politicizes American markets bolster foreign-investor demand for U.S. assets?

Not likely. Instead, America runs the risk of creating the kind of "political-risk premium" that investors have long placed on other countries -- and that would reduce demand for U.S. assets and thereby the value of the U.S. dollar. ...

This week Congress is weighing the cost of the bailout. Let us hope that lawmakers realize that the true cost of such a bailout is far larger than any check the U.S. Treasury will have to write in the coming months.

What nonsense.

The dollar is strong right now because of a flight to safety in a global recession and not because of fundamentals. The tide is coming in right now for the dollar, in time the tide will go out.

When the tide goes out won't it be nice if there are no American cars that the rest of the world will have to compete with.

The free trade deal is stacked.

I say ask for a new deck of cards. One that will be able to deal a hand that answer the needs of our society and the planet before the needs of global corporations.

It's Congress that should be writing the new green plan for the automakers. It's congress that should put new boards of directors in place to see that it's carried out, and it's congress that should see that the funds are available.

Automakers do have a future, a future where their products fit into a greener world. The greener world that policy makers will help to make. Those who have the ear of policy makers should control the boards of our automakers.

With policy makers controlling the boards of American automakers taxpayer dollars would be a vote to where society wants to go. Where automakers want to go would be the past.

Social interest should be placed before automakers interests. That today's imperative.

Automakers' future is in building cars the world needs and not ones that lobbyist advocate for. To build these cars quickly, we will need a bailout; to see that they are used, we will need protectionism.

We'll have these cars all the faster if American automakers are directed toward a single minded policy. No more "it can't be done," or "we can't do it until our customers want it." It will get done and it will get done all the sooner because there will be fewer tensions between what ought to be done and what can be done.

Think of a global NASA program for green technology. This time not to go to the moon by the end of the decade but to save the earth from climate change.

The world needs a green car. Especially China and India as more people in those societies buy automobiles. The world will need ways ways punish them if they undo the gains from green technology.

We all need to clime abord the green technology bandwagon. We are in a race against time. And when the world economy gets going again a green car can no longer be an option but the only option.

One way to ensure that our efforts to make the world greener isn't offset by countries which see a competitive advantage in using cheaper oil to maintain a competitive advantage rather than using green technology, is the judicious and ready imposition of tariffs.

In a world without tariffs a greener world can't work, particularly if green technology ends up decreasing the price of oil.

We could just let Congress mandate standards that fit with our social needs and give all automakers who want to sell into our market a time limit in which to meet those standards. That's the slow way, the way with the most resistance. And letting American automakers fail certainly wouldn't end up giving us the redundancy we would need for competition.

Rescue our American automakers, give them directors with a mandate and we will answer our social needs and the world's that much faster. That's worth a bailout

Driving the very people who have the expertize to keep our green project on tract out of business through the use of bankruptcy proceedings makes no sense if speed is needed for a greener world.

Even the economists' arguments that allowing the automakers to go into bankurptcy in the middle of a recession, in the middle of a credit crunch, would make things worse, while true, miss the point: this is an argument we don't have time for.

It's the old thinking of the 20th Century. It's the single mindedness of the NASA thinking of that century and not the orderly liquidation through bankruptcy thinking that we want to bring to the 21st Century. That's where our future is; that's where the worlds future is. Without the American automaker we have no leadership role.

[Denis Drew]

What's wrong with GM is what's wrong with the American labor market. We allow other nations to come here and build factories to pay our workers less than they pay their own workers (e.g., German) and less than our domestic brands pay theirs. On top of that our "primitive" private health and pension insurance piles legacy costs on top of whoever came first, making permanent advantage for Johnny come latelys.

The ULTIMATE answer (my ultimate answer for everything) is instituting sector-wide labor agreements here, wherein (just like Germany, Italy, France, etc.) people doing the same job in the same locale (which can be the whole USA for nationwide industries) BY LAW work under a single collectively bargained contract for multiple employers.

Don't do that and those who say the bridge loan could be a bridge to nowhere could ultimately be right -- not necessarily; but could be. (The coming easy to engineer, perfectly reliable, 100 mpg electric technology gives auto manufacturing a more promising future.)

Want to understand the "economics" of the whole labor market -- took me 7-8 years of digging to figure it all out. Understand what a last lot situation is like? That's when you are buying up lots for a project and one seller holds out on that indispensable last lot.

Tishman in NYC a couple of decades ago wanted to build a skyscraper but one guy with a little four story taxpayer held out for $250,000 against Tishman's offer of $100,000. Finally Tishman gave in but the seller then decided he wanted $500,000. At long last Tishman gave in to that only to have the seller jump his demand to $1,000,000, at which point Tishman told him to stuff it and built around him.

Take the last lot predicament and multiply it by billions -- of employees that is -- and you have the working model of the labor market since the beginning of industrialization. As long as the employer needs someone to work but not you in particular, the employer is the last lot seller. If you have proper unionization (sector-wide in today's race to the bottom climate) or a high minimum wage then the employer needs you in particular you are both last lot sellers and you can come to a fair and balanced agreement that will give labor as high a price as its utility can justify. That is the whole law and the prophets about the labor market.

[save_the_rustbelt]

Obama promised to save the Big 3 and jobs, but he did not promise in what form or situation.......

from Bloomberg this morning:

Nov. 21 (Bloomberg) -- President-Elect Barack Obama‘s transition team is exploring a swift, prepackaged bankruptcy for automakers as a possible solution to the industry’s financial crisis, according to a person familiar with the matter.

Obama’s team has already contacted at least one bankruptcy- law firm to say that Daniel Tarullo, a professor at Georgetown University’s law school who heads Obama’s economic policy working group, would call to discuss the workings of a so-called prepack, according to this person.

U.S. lawmakers yesterday postponed until December a vote on whether to give General Motors Corp., Ford Motor Co. and Chrysler LLC a $25 billion bailout as an alternative. Automakers such as GM could use court protection to reduce debt and reject unfavorable contracts.

“It creates the environment to deal with GM’s problems but limits government financial commitment,” said bankruptcy lawyer Mark Bane of Ropes & Gray in New York. ............

Presumably Obama has done the math, and calculated the political fallout of major modifications to the UAW contracts. He could have been elected without Michigan and Ohio... do the math.

[save_the_rustbelt]

"hallucinatory HC-providor fees"

Huh?

[gmtt]

Where all of you nay sayers were when AIG siphoned away 46b atop of 86b? Why this double standard? I am ok with congress asking for a plan from auto companies before any loan can be given, but why not ask the same from the financial companies when tons of money were given away to them? Why congress is bringing to their keens to one industry for a small amount (~3.5% of 700b), yet a loan, when they are practically giving away without any clear plan to financial companies? I heard Citi is thinking a gobbling another bank with this money! People are attributing this problem for their wrong business model. But cause of the present crisis is only partly to blame for that. Most of the blame is for the financial meltdown. Without this meltdown probably they wouldn't even need this loan. It's like you are caught with a bad cold virus and mama says "I told ya to wear warm clothes"

[ken melvin]

What's wrong with GM, Ohio, and the US is the same thing that's wrong with republicans, the refusal to change. Pretending doesn't count, nor does insisting that others adopt your position. The Tao says you gots to go with the flow baby. You don't gets to make up reality.

[Denis Drew]

More of what's wrong with the virtually unprotected by modern (sector-wide labor agreements) third, second and first world standards American labor market:

Last year Wall Street handed out $34 billion dollars* in bonuses to their (losing) gamblers: $180,000 apiece to 180,000 gamblers -- on top of their $120,000 average gambler salaries. This year it will go down to $26 billion**!

GM has what, 266,000*** hard working assembly line employees? Earning what? Big deal!

* http://money.cnn.com/2008/11/04/news/companies/wall_street_bonuses/index.htm

** http://www.bloggingstocks.com/tag/FinanancialCrisis/

*** http://www.hoovers.com/general-motors/--ID__10640--/free-co-factsheet.xhtml

[roger]

One can argue about the plan for the auto makers, or about whether Dingell, the reliable enabler of a dysfunctional industry, should have been given the heave ho - I'm happy Waxman got the post. But there's no argument that Congress was simply criminally negligent in creating a high school drama for the hearing - what, exactly, were the three moronic CEOs supposed to say? - and not seeing that refusing to support the Automakers into the next year was like putting a loaded gun to this economy and pulling the trigger. How insane - and what an appropriate way for the Bush kakocracy to go out. With Paulson deciding his job now is to round up some sycophants in the press to profile him in a properly hagiographic style, while he royally decides how to spread the wealth his way. We are ruled by nitwits.

[Lafayette]

For s-t-r (from CNN, Washington,here): EACH (CAR) COMING OFF THE ASSEMBLY LINE NEEDS TO BE APPROXIMATELY 15-HUNDRED-DOLLARS MORE EXPENSIVE -- IN ORDER TO TO PAY FOR WORKERS' HEALTHCARE COSTS .... AND, ECONOMISTS SAY, TWO-THIRDS OF THAT -- ONE THOUSAND DOLLARS -- GOES TOWARD HEALTHCARE FOR RETIREES.

[Lafayette]

roger: We are ruled by nitwits.

Yes! Right on! And damnation for all the jerks that elected them! ;^)

We have met the enemy ... and he is us. (Pogo by Walt Kelly)

[save_the_rustbelt]

Laf:

I fully understand the cost differential.

Retirees from Toyota and Honda will be fully dependent on the US government for their healthcare, and largely dependent on Social Security for their retirements. Nice cost shifting for the transplants, huh?

If the UAW evaporates, Toyota and Honda workers, mostly in rural areas with no other job options, will see some of their compensation package evaporate as well.

One of the little ironies of life is that Toyota and Honda have set compensation levels as defensive measures against the UAW, so the workers have benefited from the UAw without paying any dues.

[save_the_rustbelt]

For what it is worth, I was criticising the UAW work rules decades ago, and predicted much of what is happening now. There are, however, widely implications.

[roger]

I love Yves Smith at Naked Capitalism for her ability to see that the Emperor has no clothes. As she points out today, what the hell is the point of telling the CEOS to come up with a "plan" in 12 days. Oh, I got a good one - we'll make better cars and sell a lot of them.

It's almost babyish. And we are being flushed down the toilet by this kind of governing childishness. I think of this as the Dixie-fication of the U.S. - in the same way that Dixie, in the post civil rights era, created a dependent and parasitic economy that permitted it to leach off the public investment of other regions so that it did not have to make those investments on its own (it is especially amusing to see Southern senators rail against government giveaways to Detroit when, of course, they come from states, like Alabama and South Carolina, in which the state government practically finances the plant through tax giveaways and assuming the cost of all negative externalities - in Mississippi, the government even builds buildings for industries to use, passing bonds to that effect, so desperate are they for commerce. Dixie is pretty much the paradigm of living in the first world and governing like the third world) so, too, the Bushian and conservative philosophy has proposed that this is the way the U.S. is going to be in general. Well, guess what? It doesn't work majorly. The damage done by the right is deeper and wider than one ever thought.

[ken melvin]

Bon dit roger.

[Lafayette]

Sandman: Nuclear Tech MUST improve before it is a long term remedy. Literally. Even the industry knows it isn't there yet.

Interesting comment.

France opted for nuclear generation in the 1970s. Today, about three-quarters of all residential electricity comes from nuclear generators. French prices for residential electricity are amongst the lowest in Europe. With a safety record that is practically spotless.

Their expertise in nuclear generation makes them tops in the global marketplace for nuclear generators, for which the sales numbers have exploded. Italy is opting to replace almost all its petrol-based generators throughout the country over the next decade. China is building plants lickety-split, both French and Westinghouse.

In fact, the only place Westinghouse is building nuclear plants is outside the US.

Pray tell, just how much "improvement" does America need before it opts for nuclear energy? It is the sole bulk energy supply that can replace the generative capacity of either coal-fired or petroleum-based generators, with 0% CO2 emissions.

To what "industry" are you referring in your comment? (Windmill farms?) What is it that the rest of the world is missing (about nuclear generation) that only America knows?

[btg]

"The decision to give the contract to Airbus was strange, to say the least, given the fact that military procurement almost always goes to some national producer. In case of war, the military cannot depend upon a foreign country for procurement of any strategic need."

1. Except that other (smnaller) countries have to rely on foreign producers for key systems - particularly systems that come from the US.

2. Except that the countries producding the airframe are NATO allies.

3. Except that we are talking about using a variation on an airframe that is in wide use and for which parts would be readily available. In wartime, it is unlikey that entire new airframes would be needed unless you are talking about wars that run for 5 years or more - all that is needed are common replacement and maintenance parts - and presumably the engines and many components would probably be American in any case.

American legislators are always on about how other countries don't trade fairly, but fail to recognise that us defense procurement practices are probably the worst example of protectionism.... but then, the US has always used "defense" as the rationale for so many things - good and bad - like how Eisenhower created the Interstate system as a defense project!

[Lafayette]

btg: 1. Except that other (smnaller) countries have to rely on foreign producers for key systems - particularly systems that come from the US.

So? What does that have to do with America's strategic interests in terms of its own military?

2. Except that the countries producding the airframe are NATO allies.

So? We've bought some military systems from them (the Harrier hover jet that the Marines use comes from the UK), but nothing of any significance.

Russia can walk into Europe whenever it wants to ... and blotto goes the supply line.

3. Except that we are talking about using a variation on an airframe that is in wide use and for which parts would be readily available. In wartime, it is unlikey that entire new airframes would be needed unless you are talking about wars that run for 5 years or more - all that is needed are common replacement and maintenance parts - and presumably the engines and many components would probably be American in any case.

No, the aircraft is, in fact, "hardened". It not just any airframe. Trundling kerosene around is not like carrying passengers.

If necessary, one could make the spare parts. But, spare parts is NOT the issue. The issue in not having to bother with the hassle of going to a foreign supplier who would not care a fly's fart if the DoD came banging on their door with demands of increased supply.

The PotUS can oblige any American supplier, in time of war, to drop all other matters and apply themselves to purely defense needs. You cannot do such with foreign suppliers in another sovereign nation. And, it becomes even more delicate should that nation elect a government hostile to Uncle Sam.

Post scriptum

I happen to think that Airbus makes damn fine aircraft, just as good as Boeing. In fact, the avionics on the A-380 are even superior to that of Boeing on the Dreamliner (word has it).

[Lafayette]

s-t-r: Retirees from Toyota and Honda will be fully dependent on the US government for their healthcare, and largely dependent on Social Security for their retirements. Nice cost shifting for the transplants, huh?

Of course not.

But, I've been arguing all along that Health Care should be taken away far away from the vicissitudes of Free Markets. It is a universal Public Service. Or should be.

Goodness, every major nation on earth understands that simple argument. Except the US, attached to the idea that Health Care and Free Markets go hand in hand. Which is why Americans pay so damn much for Health Care.

They don't. Public Services are intended to accomplish what cherry-picking Competitive Markets cannot do -- they are universal with ready access by all individuals.

I read in an interview BO stating, and I quote, "Markets cannot serve the public in all circumstances". Good, maybe he's been reading this blog? Which I seriously doubt.

But, we shall see if he truly believes in that sentiment related to a journalist as they were discussing Health Care.

[save_the_rustbelt]

The Obama (and Baucus) health plans continue to depend on private insurance for the bulk of non-retiree coverage.

The employees of Toyota and Honda are watching their 401(k) accounts evaporate; their risk, their problem. So who needs a defined benefit plan? Apparently only government workers.

GM may have accidentally hit on a strategy, production is being cut by extended holiday shutdowns, which could send tens of thousands of parts makers to the unemployment office in the very near future. This could serve as a less than subtle message to Congress, we will see.

[Joe Hare]

Auto Crisis -- "The 15% Solution"

I am not an economist. So, I expect my practical approach to reviving US auto makers will be viewed as too pragmatic or maybe too slow moving in getting dollars to the big 3.

'The 15% Solution" -- One possible approach to dealing with the auto crisis: The federal government should give any one who buys a fuel efficient car from the Big a 15% instant rebate back on the selling price and an extended warranty. This program could have say a 12-18 month time limit. The total of the rebate dollars and cost of the warranty would constitute a loan the auto makers would have to pay back.

If effective, this solution would immediately jump start US auto makers by giving them a huge advantage over the competition while they work on the remaining legacy issues. Auto makers would stay employed and no money (or much less) would go directly to the car makers. I realize there may be issues re my plan in that the auto makers don't get a big $$$ infusion instantly and that they may not be able to produce/convert to fuel efficient car fast enough (due to retooling and research) without some cash ASAP. That may have to be considered.

Joseph Hare,

Hingham, MA

JoeHareJr@Aol.com

More.....

A quick direct "15%" instant government rebate (say averaging around $3,000) from the Dept of Treasury paid to consumer with purchase of a US auto maker lower mileage car might make these cars especially attractive.

The problem with the fed using IRS tax return deductions is you only get indirect value (a lower tax payment) and but once a year (April 15)....and higher wage earners get more real dollar benefit.

If you could buy a Camry priced today at $20,000 for $20,000 versus a Malibu priced today for $20,000 for $17,000 (plus get a100K mileage warranty), which would you buy?

Giving a big bailout just keeps big 3 them from going bankrupt while they try to regain market share. They have not succeeded in doing that over the last 20 years. Assuming Americans were motivated to buy fuel efficient Gm-Ford-Chrysler cars, the biggest stumbling blocks might be that the auto makers could not retool fast enough to produce enough low mpg cars to get profitable; that they could not get rid of their gas guzzlers; and that they can not work out union differences..

I am about to buy another Toyota; but as a US citizen if I was presented with a good alternative to switch back to an American owned company, I would. GM and Ford are building some good cars now. If Bankrupty happens the courts should mandate a warranty to offset consumer concerns.

Joseph Hare www.Hammondre.com
JoeHareJr@Aol.com
617 755 0898

[Rachel]

So if a bailout discourages foreign investment then maybe the auto companies should look for other alternatives. I read a good suggestion by one blogger that I would like to share. What if Exxon were to invest in GM? A corporate mash-up between Exxon and GM would increase customer interest and would be more cost effective. http://jonsherrington.blogware.com/blog/_archives/2008/11/21/3988390.html). The new company would have the unique ability to balance the profit equation of car value to fuel efficiency, help regulate demand for (and price of) gasoline: a customer-centric utopia. Exxon has the financial resources to reinvest, with a more commanding management team. This blog entry has three parts; Two that deal with this specific suggestion and another that stresses the power of corporate mash-ups in a recession. Might be interesting.

[Denis]

Nice post, it was informative and good to read