Another Idea for a Bailout for the Auto Industry

[grumpy]

With the current talk of a bailout for the ailing US auto industry, I got to thinking...

Wouldn't it be a better idea to provide a subsidy, lets say the gov't pays the first $10,000 of the MSRP, for auto buyers instead of a direct bailout of GM and Ford? At least with that approach consumers would get a benefit from the use of their tax money to help the auto industry. The car makers have to clear out their inventory of gas guzzlers anyway so why not help consumers buy cars. The auto industry would still get the revenue from the car sales. This way the $ would trickle up to the auto makers rather than trickle down to consumers. This would increase business for the auto dealers, the parts suppliers, etc. while reducing the risk that the car makers would use the gov't bailout to pay bonuses to executives or piss away the bailout on some other poor choice.

Where are the holes in this idea? Have at it!

Grumpy

 

[Midpack]

The American workers at the US Toyota, Honda, Nissan, BMW, etc. plants, dealers, etc. probably wouldn't agree. And aren't GM, Ford and others producing and selling cars outside the US, even more profitably than domestically in many cases? Would you advocate the foreign manufacturers provide the same incentive to buy from their domestic automakers?

Which makes me think, bailing out GM and Ford, will have the same effect on foreign automakers - so maybe it's not such a good idea. The line between domestic and foreign was blurred long ago...

 

[haha]

I don't care what they do, as long as they don't come in with some sort of super-senior debt position.

Which is probably just what they will do.

Sometimes I wish it were 1875.

Ha

 

[REWahoo]

Sometimes I wish it were 1875.

Ha

Yes, the good old days when you were young...

 

[haha]

Yes, the good old days when you were young...

I knew I could count on you Darling.

Ha

 

[deepc]

Perhaps this idea goes along with restructuring mortgages for those that got over their heads in houses too, while many of us have done the LBYM thing, lived with one car and walked to work, etc..

So, the folks who bought 450k worth of house that's worth 250k today gets to pay 237.5K for it. They can then go out and buy 'Merican cars subsidized by the rest of us too.

At the same time we'll drop interest rates to increase consumption and make saving a worthless endeavor, and stave off deflation at the same time. Nothing like inflation and decreasing interest rates to get folks back into the market, not to mention the many who cannot pull out now that they've lost 30-40 pct of their life's savings.

Talk about redistribution of wealth.

 

[chinaco]

I don't like it either.

If they fail, it will impact millions of people.

The govt probably needs to do something. The direct industry job losses are several million... I read that the total impact (to other businesses in our economy... the domino effect) could result in over 10 million jobs lost in the US. I have been looking for that information but cannot find it. This link indicates that over 5 million are directly and indirectly employed (supplying parts and services in the manufacture of autos) by the auto industry. http://www.umich.edu/news/index.html?Releases/2001/Mar01/r031501d

Unemployment is at 6.1 % (people who have not given up looking for work) which is 10 million. http://ap.google.com/article/ALeqM5ioHc80xKMiATnqCpK0cDKJzk_nPQD94AM5UO0

Throw in another 10 million from the auto industry collapse and we would be around 12% unemployment. That would be difficult to overcome and likely take years to recover because of the permanent loss of jobs... as opposed to temp downsizing.

GM, Ford and Chrysler cause themselves some problems by relying too much on gas guzzlers. They are also burdened with older workers for which they have pension obligations. Unfortunately the people who underfunded the pensions are gone and others are left holding the bag. GM got caught with a perfect storm of high fuels prices (driven my speculators), and credit crunch (driven by bankers)... in other words the financial services industry and the market manipulators (including the govt) have created a big part of the problem... The car industry is swept up in it.

I would not do it for American car manufactures... I would do it for the nation's well being. The failure of that industry right now might be too much.

 

[Midpack]

I don't like it either.

If they fail, it will impact millions of people.

The govt probably needs to do something. The direct industry job losses are several million... I read that the total impact (to other businesses in our economy... the domino effect) could result in over 10 million jobs lost in the US. I have been looking for that information but cannot find it. This link indicates that over 5 million are directly and indirectly employed (supplying parts and services in the manufacture of autos) by the auto industry. University of Michigan

Unemployment is at 6.1 % (people who have not given up looking for work) which is 10 million. The Associated Press: Jobless ranks hit 10 million, most in 25 years

Throw in another 10 million from the auto industry collapse and we would be around 12% unemployment. That would be difficult to overcome and likely take years to recover because of the permanent loss of jobs... as opposed to temp downsizing.

GM, Ford and Chrysler cause themselves some problems by relying too much on gas guzzlers. They are also burdened with older workers for which they have pension obligations. Unfortunately the people who underfunded the pensions are gone and others are left holding the bag. GM got caught with a perfect storm of high fuels prices (driven my speculators), and credit crunch (driven by bankers)... in other words the financial services industry and the market manipulators (including the govt) have created a big part of the problem... The car industry is swept up in it.

I would not do it for American car manufactures... I would do it for the nation's well being. The failure of that industry right now might be too much.

Why would the entire industry fail?

In every downturn, the weaker competitor(s) in almost every industry go bankrupt. Consolidation takes place and the remaining companies get stronger because they take over the assets of the failed competitor (at fire sale prices) and/or they simply get more sales due to the failed competitor who is no longer servicing their market. And when the expansion comes, the industry is better off because capacity has been reconciled downward and the consumer is better off because the remaining competitors are - more competitive. Yes, there are other influences/factors, but they don't negate the benefits of the business equivalent of 'survival of the fittest.'

Chrysler was bailed out in the early 80's, yet here they are in trouble like all the others.

So if GM fails, why does it not inevitably improve chances for Ford, Chrysler and all the others? GM's customers don't disappear, they go elsewhere. And we're all better off, or certainly no worse off, when an expansion comes?

 

[haha]

Why would the entire industry fail?

In every downturn, the weaker competitor(s) in almost every industry go bankrupt. Consolidation takes place and the remaining companies get stronger because they take over the assets of the failed competitor (at fire sale prices) and/or they simply get more sales due to the failed competitor who is no longer servicing their market. And when the expansion comes, the industry is better off because capacity has been reconciled downward and the consumer is better off because the remaining competitors are - more competitive.

So if GM fails, why does it not inevitably improve chances for Ford, Chrysler and all the others? And we're all better off, or certainly no worse off, when an expansion comes?

The unions know that if GM goes down, Ford will declare bk too. They will have too, since GM will be cutting its cost structure damatically, Ford has to match it.

The 'bamites can't let the unions down, but they owe nothing to the taxpayers, so get ready folks for another predictible facet of Obamification.

Yehaw!

 

[cashbalancetrouble]

As my newest hero Dennis Kucinich would say ' POWER TO THE PEOPLE!,

Give a tax deduction for the loan interest on every 2008 car built in NAFTA factories during 2008. This will give the money back to the people and in round about way back to the banks. It gets rid of every thing on the lots they can't unload now. And if you want to help the economy, for every car sold in 2009, 1 older car must be sent to the crusher for recycling.

Another way would be to take every car with less than 15 MPG right to the crusher now. We would get something for our 25Billion.

As for the pensions, the problems are more with the theft from the pension funds already set aside. Corporations have been raiding them for everything than can like CEO parachutes, employee RIFs, etc. This is where Washington has looked the other way because so much of that money finds it way back to them.

 

[Midpack]

As for the pensions, the problems are more with the theft from the pension funds already set aside. Corporations have been raiding them for everything than can like CEO parachutes, employee RIFs, etc. This is where Washington has looked the other way because so much of that money finds it way back to them.

How does pension theft work under ERISA?

 

[travelover]

............
The 'bamites can't let the unions down, but they owe nothing to the taxpayers, so get ready folks for another predictible facet of Obamification.

Yehaw!

I think you are letting your political exuberance leak out of the soapbox.

 

[haha]

I think you are letting your political exuberance leak out of the soapbox.

That is why it is called "political economy". There never has been an economy that wasn't at base political. And there never will be.

Ha

 

[travelover]

That is why it is called "political economy". There never has been an economy that wasn't at base political. And there never will be.

Ha

Sorry, I think my point wasn't clear. Words like "Obamification" are meant to be incendiary and divisive and IMHO best suited for the political (soapbox) forum. I know it is easy to get spun up over there and let it out on the other side, but I believe it detracts from the discourse.

 

[blessed]

The people have voted for big govt. That means the young workers will pay more in their working lives in taxes for less in their retirement. Mostly the young voted for this and I think they assumed I would pay. But I am retired and living on a middle class income and the system works against them and for me. I am sorry and will help the struggling families in my community as I am able.

 

[cashbalancetrouble]

How does pension theft work under ERISA?

Easiest way to steal from an overfunded pension despite ERISA has been to convert pension form, like from Final average pay benefit to a cash balance formula. This allows excess funds to be removed and go back to company at 25% tax rate instead of 50% under the laws that were made to stop this in the 70's. Many companies now take severance pay packages for leaving execs. and plant closings out of the pension plan, ERISA let's this happen.

I have been fighting the theft of 40% of my pension through this scheme since 1998. I have been through all the gov entities but had little help, I still have not given up yet.

 

[saluki9]

Why would the entire industry fail?

So if GM fails, why does it not inevitably improve chances for Ford, Chrysler and all the others? GM's customers don't disappear, they go elsewhere. And we're all better off, or certainly no worse off, when an expansion comes?

Negative on that one. These three are so tied together it isn't funny. They all rely on the same network of suppliers that are also on the edge of their own filings (past that for Delphi)

Most likely the failure of one would bring down the others.

One failing would be huge for Honda and Toyota though.

Also, FoMoCo (and their finance arm) is the largest single issuer of corporate debt in the US. Let's just say that a bankruptcy filing wouldn't be kind to the already stressed bond market.

 

[samclem]

Creative Destruction is one of the main beneficial aspects of a market economy. The companies (and by extension, the workers employed by those companies) who are doing things right and well will prosper. Companies who are doing dumb things will fail. But, the workers left unemployed by these failures are available to work in the more efficient, well-run remaining businesses.

Only bankruptcy can save Ford and GM. They can't survive unless they change their corporate cultures and dump their existing contracts. Pumping taxpayer money (no matter how it is done--top-down or bottom-up) into the existing wasteful and poorly-run companies would be a disgrace, and would only prolong the inevitable.

 

[chinaco]

Why would the entire industry fail?

Don't know if it will and I hope it doesn't. I suppose they might survive after bankruptcy.

But with credit problems being what they are no funding, no business. It is about GM, Ford and Chryslers ability to raise capital.

Those companies might be sold to the Japanese and Koreans for pennies. They would probably want to own the distribution channel, brand, physical assets, and patents. But they might shutdown domestic production (if for no other reason... the pension obligations).

When I consider the trigger for all of these problems it seems to me that it was the crisis generated by the financial services industry and the credit crunch plus the oil bubble that drove up gas prices.

 

[blessed]

RW ONLINE: The Collapse of Argentina's Economy: Free Market Madness Could Argentina be our future?

 

[Yankees Rule]

RW ONLINE: The Collapse of Argentina's Economy: Free Market Madness Could Argentina be our future?

I have been wondering about that situation. Should be an interesting few years ahead here in the States.

 

[Zathras]

Well, whatever is going to happen to help GM, it better be quick.
Deutsche Bank has rated GM a 'sell' and given them a stock price target of Zero.
First time I ever heard of that happening.

 

[FinanceDude]

Don't know if it will and I hope it doesn't. I suppose they might survive after bankruptcy.

But with credit problems being what they are no funding, no business. It is about GM, Ford and Chryslers ability to raise capital.

Those companies might be sold to the Japanese and Koreans for pennies. They would probably want to own the distribution channel, brand, physical assets, and patents. But they might shutdown domestic production (if for no other reason... the pension obligations).

When I consider the trigger for all of these problems it seems to me that it was the crisis generated by the financial services industry and the credit crunch plus the oil bubble that drove up gas prices.

You forgot greed and poor management...........

 

[Redbugdave]

If GM goes under...without a bailout...what will happen to the worker's pensions? Doesn't the Govt have a fund to support failed pensions, too?

 

[FinanceDude]

If GM goes under...without a bailout...what will happen to the worker's pensions? Doesn't the Govt have a fund to support failed pensions, too?

Yeah, it's called PBGC (Penion Benefit Guarantee Corporation). However, there is NOT enough money to absorb huge pension losses like GM and others. Also, the PBGC limits the amount you get, I think you are limited to a specific dollar amount or percentage of what you used to get, so its less........