Bail out U.S. automakers?

[Finance Dave]

It does not seem to support the idea that the rich ever stopped paying taxes, or that the middle class is bearing the burden.

-ERD50

Agree, thanks ERD.

 

[laurence]

The Tax Foundation - Summary of Latest Federal Individual Income Tax Data

Summary of Federal Individual Income Tax Data, 2006

The top 10% pay 70% of fed income taxes.

The top 50% pay 97%, leaving only 3% paid by the lower 50%.

Sorry, not trying to turn this into a SoapBox issue, but if we are going to discuss the economics of this, we need the numbers. I'm not declaring those numbers 'fair' or not, but there they are. It does not seem to support the idea that the rich ever stopped paying taxes, or that the middle class is bearing the burden.

Specific to the bailout of auto cos - I don't know enough to know what is right, but I sense some orderly dismantling might be needed. An outright bailout would just be rewarding bad behavior. Do nothing may hurt too many. Either way, some people are going to get hurt in the short to mid term. GM can't be competitive and carry the mentioned $8000 per car in benefits. Something has got to give.

-ERD50

Those pesky facts!

I'm not disagreeing with the numbers per se, but there was a time I was well below the 50% mark in income and I was still paying a good proportion of my income in taxes. It must be that this statistic refers only to straight federal income tax, and not social security & medicare. In addition, we all pay the same sales tax ( if applicable to your locale). Are the tax credits distorting this number? I suspect the 25%-50% are paying a goodly sum (for them) and the bottom quartile is throwing this number off with their credit checks.

Back to the OP, I voted "No" but now have started to lean to wanting to see the plan. I feel so screwed by the last bailout, as the $700 billion isn't going to be used for what they said it was, and meanwhile all the dire things they told us would happen didn't, and the banks still aren't lending to each other, and people are still getting evicted from their homes. Blows me away.

 

[Culture]

The top 10% pay 70% of fed income taxes.

The top 50% pay 97%, leaving only 3% paid by the lower 50%.

Not to argue with your basic point, which I agree with, but these numbers are not correct because they do not include FICA. I know that this is not a "tax," but if it quacks like a duck ...

 

[ERD50]

Not to argue with your basic point, which I agree with, but these numbers are not correct because they do not include FICA. I know that this is not a "tax," but if it quacks like a duck ...

Getting closer to SoapBox issues - so just quickly - yes, there are no "pure" numbers, but FICA also pays out more to lower incomes, relative to what they put in. Which is OK, but it is not a one-to-one comparison. Ballpark-wise though, I think the numbers say a lot, relative to the original claim that was made.



Unless you were talking about these guys:

FICA - Fur Information Council of America

FICA - Fur Information Council of America

-ERD50

 

[Gone4Good]

I read one report that 3 million jobs (adding suppliers, auto dealers, related industries) could be at risk if the domestic auto manufacturers fail, so obviously that can't happen.

I'm highly skeptical of these figures. The big three only employ about 240,000 people . . . getting to 3MM unemployed is a huge, huge, stretch. The first faulty assumption that I think people are making to get here is to assume that bankruptcy means the companies shut down completely. And as a result of them shutting down, a bunch of the auto parts suppliers shut down, and so on, and so forth. More likely they'll file Chapter 11 and continue to operate in bankruptcy. Most of those 240,000 will stay employed and the auto parts companies will still need to supply Detroit. So I don't see how bankruptcy will cause 3MM people to lose their jobs (maybe there are that many in the "Jobs Bank" program . . . who knows?)

What WILL happen though, is the bankruptcy court will get to take a look at all the contracts, including the labor deals, and can use a very heavy hand in squishing down costs to within expected revenue. Something that has to happen if these companies are ever to become viable. Unfortunately, though, I imagine that is to be avoided at all (political) costs.

 

[laurence]

I'm highly skeptical of these figures. The big three only employ about 240,000 people . . . getting to 3MM unemployed is a huge, huge, stretch. The first faulty assumption that I think people are making to get here is to assume that bankruptcy means the companies shut down completely. More likely they'll file Chapter 11 and continue to operate in bankruptcy. What WILL happen though, is the bankruptcy court will get to take a look at all the contracts, including the labor deals, and can use a very heavy hand in squishing down costs to within expected revenue. I imagine that is to be avoided at all (political) costs.

I agree that this a shock and awe number meant to push public opinion to support a bailout, but it's possible it could risk 1 million jobs, with half the jobs at the big three cut and all downstream and upstream jobs lost because of it. That would push unemployment up at least a % or 2.

 

[Gone4Good]

The canary in the coal mine here is all the talk about tying any government funding to requirements that the auto makers produce more fuel efficient cars. What do fuel efficient cars have to do with the solvency of the auto makers? Absolutely nothing (unless Congress has some kind of crystal ball to tell them what kind of cars will be in vogue 5 years from now). But it does seem to have everything to do with using private companies to push public policy goals . . . kind of like Fannie & Freddie, maybe?

If that is the angle, I think we all should get used to taxpayers owning a bunch of auto manufactures who are never expected to turn a profit, never go out of business, and are busy making cars the government thinks you should drive even if no one wants to actually buy them.

 

[jazz4cash]

So what does it take to be rich nowadays? The tax foundation tables indicate it took $108k AGI to be in the top 10% for 2006........is that rich?
Is income even a measure of wealth?

 

[Gone4Good]

Is income even a measure of wealth?

Nope, income is a measure of . . .income.

There are plenty of "rich" people who don't own squat. Even some of those "rich" investment bankers who've lately become "underemployed" are going to be getting acquainted with the repo man.

 

[2soon2tell]

As several other have stated a government bailout does nothing to fix a flawed business model. Chapter 11 bankruptcy may be the only way the big 3 automakers can shed their UAW contracts as well as retiree pension and medical benefits. Without radical changes they are doomed to fail.

 

[Independent]

I've been in the "let them go into Ch 11" chorus. I don't believe there are 3 million jobs at stake. Even if the Detroit 3 stop making cars, the foreign companies have assembly plants in the US that would expand production, and they'd probably buy some of those idle plants.

However, there are complications .... Basically, GM is saying that their situation is so bad that they couldn't get the "debtor-in-possession" financing that companies use to cover cash needs in chapter 11. Their alternative is Chapter 7 which would mean liquidation. They would have to find buyers willing to take on entire brands to avoid shutting factories down. And their brands are very inter-dependent.

OTOH, some people say that it's possible to do a "pre-packaged" chapter 11 that would involve a negotiated deal before they ever go to court. It's possible they could cut the cash needs enough to get through without a lot of DIP money.

Any sort of bankruptcy could have a very big impact on revenue. GM claims to have a study that says 80% of potential car buyers would rule out any brand that is connected to the B-word.

GM's debt is so bad that long term bonds are trading below 30 cents on the dollar. If the gov't just bails GM out, the people who recently bought bonds will come out as huge winners. GM "burned" $5 billion in cash last quarter - $2 billion of that was interest payments. GM recently negotiated various "give-backs" from the UAW, but those don't all take effect immediately. If it stays in business long enough its labor costs should go down. They need one more downward ratchet to get their costs down to Toyota's US plants.

Oh, of course, GM is a global company that has subs in other countries, all with their own bankruptcy laws.

I can see where a re-structuring specialist could put together a package in which the gov't does the DIP financing, the stockholders are wiped out, the bondholders get equity instead of debt, the execs get replaced, the workers lose benefits but not jobs, and someone can make a credible case to the customers that the company has been "saved" for at least 10 years (long enough that you don't have to worry about owning an orphan).

I can also see where as soon as it looks like the gov't is going to put money into this, everyone gets greedy and assumes the gov't will provide a gravy train. The negotiations go downhill, the gov't is committed to "saving jobs", and the taxpayers fund a huge gift to a bunch of people who have been playing chicken with one another and with the taxpayers.

I remain pessimistic.

(I've also been a fan of the "just give the companies to the workers" option, but I don't know how to do that legally.)

 

[gqlefty]

Bailout

I never want to see anybody to loose their job. Remember all the Railroads that "were" in bus. back in the early 70's before gov. deregulation?? No bailout's for them ......it was get better, merger's, go bankrupt or go out of bus!! I remember it well, I worked for one of them that went out of bus. In my town of 200K people along a 2 mile strip there are 13 new car dealerships, with 4 or 5 used car dealers !! To many cars !!!

 

[Gone4Good]

I can see where a re-structuring specialist could put together a package in which the gov't does the DIP financing, the stockholders are wiped out, the bondholders get equity instead of debt, the execs get replaced, the workers lose benefits but not jobs, and someone can make a credible case to the customers that the company has been "saved" for at least 10 years (long enough that you don't have to worry about owning an orphan).

Yup, that would be my choice. And the chances of seeing that happen are something less than the chances of following a mermaid and a unicorn to the pot of gold at the end of a rainbow.

 

[Paws]

One thing I have not seen anyone mention is the fact that GM is off loading there healthcare benefits to the union in the next year or so. Isn't this the kind of new business model you guys are talking about. I am not sure why it is alright to bail out the banks but not the auto companies. Last time this was done the goverment got repaid and the company lasted for another 30 years.

Granted I am bias I live in Michigan. However do not work for the auto industry.

 

[Notmuchlonger]

It is a rape of the taxpayer for the benefit of corporate greed. At least Obama will make the rich start paying taxes again (I hope). Otherwise the middle class will carry the whole load for generations to come.

They pay taxes now. Do you think they should pay more than the rest?

 

[gqlefty]

bailout

They will be bailed out. BO will see to that. The auto unions supported him and he will return the favor. Thats the way it works.

 

[Texarkandy]

I had a thought that doesn't bode well for the auto industry no matter what the government does to help 'em out.

Who would be buying a "new" car anyway with all the doom-and-gloom going on. Nobody has to buy a "new" car. Esp right after they got half their 401k wiped out. There are used cars enough around to last quite a few years. If I had a paid for car of any kind right now, I wouldn't be selling it too cheap - there may be a hot market for used cars the next couple years.

So what if they discount a $70k Escalade to 57K & 0% financing for 6 years - I still don't want it. Frankly, it's not worth 57k - or even 30k. I wouldn't even give you 25k for one brand new off the lot. (but maybe that's just me)

 

[ERD50]

I had a thought that doesn't bode well for the auto industry no matter what the government does to help 'em out.

Who would be buying a "new" car anyway with all the doom-and-gloom going on. Nobody has to buy a "new" car. Esp right after they got half their 401k wiped out. There are used cars enough around to last quite a few years.

I've been thinking about that too. The US automakers have been in trouble for a while now. If they are going to die, maybe this is the time to just let them go?

I was hoping to see that Chevy 'VOLT' become a success - maybe a small part of GM could succeed as Saturn, with the VOLT in their portfolio of vehicles? Of course, if we have $2.xx gas for a few more years, there won't be much demand for expensive plug-ins.

-ERD50

 

[Texarkandy]

....
I was hoping to see that Chevy 'VOLT' become a success - maybe a small part of GM could succeed as Saturn, with the VOLT in their portfolio of vehicles? Of course, if we have $2.xx gas for a few more years, there won't be much demand for expensive plug-ins.

-ERD50

Weren't they talking about a $36k MSRP on that? Not for me, thank you. I've still got a 1994 Dodge Caravan that runs perfect, gets 21mpg on the highway, & I can work on.

 

[ERD50]

Yes, the numbers have changed, but I think $36K was a recent estimate. Even at that price, some will buy it for a variety of reasons, but I don't see it hitting significant numbers at that price unless gas is way up.

I love it from a design standpoint, but it's gotta make sense for a mass market. But that is almost wishing for $6 gas (or whatever the number might be, but I don't think it is $2.31).

-ERD50

 

[harley]

On an NPR report last night some dude who is against the bailout pointed out that the casino industry directly employs twice as many people as the auto industry, and is also suffering a major downturn due to the economic hiccup we are currently experiencing. But nobody is talking about bailing them out. His point was not that we should bail them both (all) out, instead we shouldn't bail out anyone. I tend to agree, despite having sympathy for the people who will suffer. I think most people saw the auto industry crisis coming decades ago. There has been plenty of time for the unions and management to work things out. "Lack of planning on your part does not constitute an emergency on mine".

 

[Finance Dave]

I am not sure why it is alright to bail out the banks but not the auto companies.

I agree....I told my Congressman to vote agains the bank bailout also..and he did. Rep. Mike Pence, Indiana.

 

[Finance Dave]

They will be bailed out. BO will see to that. The auto unions supported him and he will return the favor. Thats the way it works.

But if he bails them out, won't he be essentially giving a break to those "fat cat executives" at the Big3? Which is exactly what he criticized GW for doing.

Guess it's different when he does it.

 

[youbet]

Barack can bail out the UAW without bailing out the Big Three......

1. Let the Big Three die but provide extensive govt support for laid off union workers by providing ridiculously generous severance packages and extended unemployment benefits. Fund the retiree health plan and pensions with govt (our) money.

2. Change union organizing rules to make it much easier for unions to organize Toyota/Honda plants and their suppliers.

Then, the Big Three are gone and the UAW and it's fat cat managers are happy. Obama executes those he said he'd execute and rewards those he said he'd reward.

 

[OAG]

One thing I have not seen anyone mention is the fact that GM is off loading there healthcare benefits to the union in the next year or so. Isn't this the kind of new business model you guys are talking about. I am not sure why it is alright to bail out the banks but not the auto companies. Last time this was done the goverment got repaid and the company lasted for another 30 years.

Granted I am bias I live in Michigan. However do not work for the auto industry.

IMO NONE should have been bailed out in the FIRST place. So to "draw the line" here is not diminished AT ALL. IMHO two (actually many, to this point) WRONGS does not make ONE RIGHT! BTW who said bailing out the banks is alright? Especially, since, yesterday, from my understanding of the Secretary Paulson News Conference, he has changed his mind about that now.