theNoosphere.com

Usually when you loan somebody some money, you want to have some assurance that it will be paid back. That assurance can come in the form of collateral, or confidence that the borrower will be financially solvent and able to come up with a repayment.

The automakers are all out of collateral. Everything that they've got is already acting as collateral on other loans. And do you think that the automakers have a sound business plan that will enable them to repay a further loan from the taxpayer?

This is not so much a business loan as: "Do you want to give GM $25 billion to keep the employees off the streets and making mortgage payments, or do you want to pay $25 billion in unemployment benefits to keep the jobless off the streets and making mortgage payments?" Either way, you're going to pay.

Those are great points.

There's only one thing no one is considering here however, and that's the impact on the American psyche (and Wall Street psyche in particular) should the top 3 US automakers go belly-up. Belief is a powerful powerful thing. If people really start believing the US economy could actually fail, that the stock market could actually fail, that banks can no longer be depended on - well, lets just say I believe that the saying 'you ain't seen nuthin' yet' might come into play. Right now, stability is very important in my mind. Even fake stability Even throw-money-at-the-problem-knowing-it-won't-solve-a-thing-longterm stability.

I think that's worth considering. Its not everything. But its not 'nothing' either.

Meteor--thanks for that long reply--very interesting to get your take.
i.e., when fear dramatically overcompensates for too many years of greed. I think we're seeing that right now. That's what companies like GE are trading at close to inflation-adjusted lows.

Commentary: Can the Big Three survive a bailout?

Interesting article from someone inside the industry but not tied directly to the automakers. There is some history in there that I frankly did not know and found very enlightening. I might have to rethink things...

One thing I notice is Nerad essentially absolves the US auto industry of any real responsibility for its own difficulties. I see no mention for instance, beyond a quick nod to "not keeping up with the consumers wants and desires," of the simple fact that for a very long time, the products being Detroit turned out were of such poor quality that consumers had an easy choice in going to better made, more reliable imports.

But that aside ... the bottom line of the piece seems to be that the bailout should not impose rules and contingencies so draconian as to cause a whole new set of unintended bad consequences. It's a pretty vague statement, and appears on its face as kind of well ... duh?

Agreed. It does appear "kind of well...duh" to me as well.

However, I am guessing no one considered any of the consequences that came out of the 70s regulations either. Frankly, that is the point my dad switched from GM products to Honda. All his cars before that had been GM (excepting the Mercedes convertible roadster he drove as a single pilot...reputations to keep up and all ). After that point he has purchased nothing but Honda Accords and as a consequence both my brother and I drive a Honda as well.

I am not saying I agree with him that the automakers are blameless but I certainly see the point that the government did some things that have certainly contributed to where we are now. Much like with the financial crisis, I might add.

Absolutely true. And probably the single biggest issue I have with the bailout.

There are going to be unintended consequences to this thing--not all of them good. In 10 or 20 years I suspect we'll read another article, by some latter-day Nerad, pointing out all the problems that the Great Bailout of '08 caused. Unfortunately, other than to say "be vewy, vewy careful" and hope that the people writing the fine print on this thing are hella smart, the only other alternative is to say "don't do it."

And the consensus among the smart people seems to be that not doing it would be worse than doing it. So ... I'm with Nerad I guess. Do it. Just do it right.

And I'd personally add that if anyone has a time machine in their garage, for god's sake use it now. Scoot ahead a generation or so, then come back and tell us just what the heck we're creating here.

Where does the cost of American labor fit into all this? Are most 'American' cars in the year 2008 built overseas anyway? If significant #'s of US cars are built on American soil, are our elevated labor costs still an almost insurmountable obstacle for auto companies trying to be not just financially solvent, but profitable? Seems like that would be the case, but I honestly don't know how much of our actual manufacturing has been outsourced to cheap overseas labor pools?

You're gingerly tiptoeing around the real question for the American public; Should US labor compete directly with Third World labor? Chinese, Mexican, Indian, Nicaraguan, or Portugese laborers can assemble cars, TVs, toys, toasters, computers, refrigerators, and NFL memorabilia junk just as well as American laborers can. They can also do it at far less cost, because in most cases they don't have the pensions, medical care, work rules (40 hour work week, overtime, holidays off), OSHA safety protections, etc. The jobs performed by overseas labor are moving up the value added list, encompassing much software design, aircraft manufacture, and medical procedures. If US labor has to compete on the open market for these jobs, it will have to lower it's compensation and work rules to Third World standards. You're seeing that this week in the UAW giving up much that they had fought for over so many years.

As to how much of our labor has gone overseas; I read yesterday that US manufacturing (people that actually make something) now accounts for less than 10% of all jobs. 70% of US jobs were in the service sector (waitresses, cashiers, lawyers, hedge fund managers, truck drivers, and NFL athletes). The remaining 20% were in government jobs (school teachers, military, police, senators, and the occasional trustee at the DoJ). It is pretty difficult to send those government jobs overseas, for obvious reasons. Some of the service jobs have gone overseas, such as medical, data processing, and IT online help. Some of the service jobs here in the US are actually "overseas jobs", because we have imported Third World labor to do those jobs here in the US at Third World rates, (think of the guys mowing your yard and gals making the beds at the Holiday Inn). Other service jobs are harder to move, such as the cashier at Walmart or the teller at your bank. Most if not all manufacturing jobs either have been, can be, or will be moved overseas.

In terms of where US autos are actually assembled; My wife's 1999 Chevy Suburban says "Hecho en Mexico" on the door pillar. You can buy Hondas made in Ohio, BMWs made in South Carolina, Toyotas made in Kentucky, and Fords made in Michigan. The US automakers also manufacture and sell their products overseas. So the answer to your question is; Quien sabe?

On ABC World News last night Charlie Gibson reported that due to labor costs alone a car produced by one of the Big 3 costs somewhere north of $1500 more than one from Toyota or Honda when it rolls off the line. That is without considering any other factors like cost of material.

And that is a Toyota or Honda made in the US where some of those factors Meteor mentions are still in play.

Absolutely Meteor - and it's a pretty critical aspect of this whole equation. Because if, by current operating methods, it is literally impossible (regardless of quality of the product, marketing, image, etc...) to compete with non-US based automobile manufacturers, does it make sense to bail out the US auto industry? Without totally changing the operating paradigm, it may be nothing more than delaying the inevitable and an exercise in futility on a grand scale.

Small picture: I'm not going to defend the "Big 3" automakers. They made numerous boneheaded decisions over the last thirty years that placed them where they are today. Is donating $34 billion plus to the Big 3 going to solve their issues? No way.

Big picture: What do we do about US labor competing with cheaper overseas labor? I don't yet know. I thought that open and free markets would result in a win-win deal for all Americans. Instead, all of the benefit went to capital and management. The 80% of the population (this is a generalization!) that works in the manufacturing and service industries have lost their pensions, their medical benefits, their job security, and their wages are being depressed to compete with Third World workers who are putting in 70 hour weeks in a cold factory in China. Was the opening of world markets good for the entire planet? Probably. Was it good for US capital and management? Yes, (at least up until six months ago). Was it good for the vast majority of American workers? It sure doesn't look that way.

Will "bailing out" the Big 3 save those companies and their labor? Probably not, at least in the form we know them. The workers are going to continue getting screwed, one way or another. But Boone, you need to be looking over your shoulder. Your job might be next. Then what?

I think you might be misconstruing my comments Those are just rhetorical questions. As I said in my original post, I think we almost HAVE to bail them out - for exactly the reasons you're highlighting. Right or wrong, the impact on jobs alone would be huge if the auto industry fails.

And as for being able to envision this kind of trauma on a personal level - I can't speak specifics as some of my work peers occasionally stop by, but I can promise you I'm going through pain and having to make difficult decisions right now because of the economic downturn.

I think we may find we're simply treating symptoms with a bailout without devising a cure. Maybe that'll turn out to be the best we can do - buy a little time.

Agree 100%.

(Added later: I didn't mean to infer that you are not sensitive to the plight of others. I honestly don't know if you're employed or not, or what you do. By "look over your shoulder", I meant all of us need to be aware that our job can often be done by others overseas for cheaper wages.)

I'm amazed that this thread has died with this topic so hot in the news right now. I don't know if the money would help, but the UAW has really hurt the cause. I wonder what their stance will be when people start to lose their jobs instead of taking a pay cut.