Bail out U.S. automakers?

[CompoundInterestFan]

Bloomberg.com: Worldwide

I really don't want this thread to get political; I'm just trying to look at this from an economics standpoint. On the one hand, if the government bails out GM, Ford, etc., it seems like it's just propping up a broken business model, and we're going to have no choice but to keep bailing them out. On the other hand, if you don't bail them out and they go belly-up, thousands (millions?) of people lose their jobs.

It's easy for me to sit here and say, "Let them fail! I don't want taxpayer money being used to bail them out!" But then I think about the fact that I'm still gainfully employed and able to provide for my wife and kid. However, lots of businesses go under all the time. The government can't bail them all out. My instinct tells me that if consequences are removed, then capitalism doesn't work.

What do y'all think?

 

[Notmuchlonger]

Bail everything out. Pass it on to future generations.

 

[Zathras]

I think you are exactly right in that the government would just be propping up a broken business model.
The auto companies need to show the government a well laid out plan for how to fix things. And I think a necessary part of that plan is to restructure their pension, health care and UAW contracts.
Then they have to figure out a way to restructure the companies such that they can change direction more nimbly as changing market conditions require them to.

 

[Bikerdude]

I would like to see the terms before I say yes or no. However, I would be against a bailout unless the business model is changed to match their successful competitors. Limits on management compensation and union givebacks. We are on the hook for their pensions if they fail though.

 

[Culture]

There is no possible way that we can bail out all the companies that are in trouble. If we are going to spend money, it needs to be fundamental investments in the country, not companies. Infrastructure, education, technology (think solar and fusion energy), etc. Quit rewarding bad behavior.

So the answer is NO, no matter what the details.

 

[kcowan]

I say yes. Keep the people working. If we can bail out banks without forcing them to change their reckless business practices, why would we treat automakers any differently?

Corporate socialism seems to have been embraced as a government policy. It is very difficult to pick and choose.

 

[kyounge1956]

Bloomberg.com: Worldwide

I really don't want this thread to get political; I'm just trying to look at this from an economics standpoint. On the one hand, if the government bails out GM, Ford, etc., it seems like it's just propping up a broken business model, and we're going to have no choice but to keep bailing them out. On the other hand, if you don't bail them out and they go belly-up, thousands (millions?) of people lose their jobs.

It's easy for me to sit here and say, "Let them fail! I don't want taxpayer money being used to bail them out!" But then I think about the fact that I'm still gainfully employed and able to provide for my wife and kid. However, lots of businesses go under all the time. The government can't bail them all out. My instinct tells me that if consequences are removed, then capitalism doesn't work.

What do y'all think?

I agree that a government bailout seems likely to be just the first of a series. I've got a third idea other than a bailout or letting the big car companies go down the tubes. How about if the UAW and/or the employees buy them out? Maybe this is totally crazy, but I can't think of anyone who would have a bigger incentive to make a going concern out of those companies than the people who will be out of work if they finally fail. Likewise, maybe the union is the only entity that can come to a balance between the current employees' needs and the promises made to retirees, which will be acceptable to both groups.

 

[FIREd]

After reading this:

Bloomberg.com: U.S.

something probably will have to de done or it will be a devastating blow to the economy, particularly in states that have been hit pretty hard already. Plus I have heard that there is so much GM debt floating around that a failure would have serious consequences on the whole financial system.

I hate the idea of a bailout, especially for companies as badly run, as heavily unionized and that make such bad products (just like the airlines and they'll probably be next). Maybe they'll save Ford and GM and let Chrysler go under (strike 2 against Bob Nardelli after he screwed up HD).

 

[chinaco]

Ford and GM represent an entire domestic industry. They could go through bankruptcy and survive. They could be sold off unless the govt stepped in and said no to foreign buyers.

I think they should help GM Ford and Chrysler if they need it... but make them pay back the money lent. Those companies need to have a solid plan for the future that corrects their big problems. The solution is likely to be painful. Part of it is dealing with the unions and their pension and health care plans.

Although... I do not like it. Letting them fail right now would pose too much at risk to our overall economy.

The Domestic manufacturers need to restructure and develop a new strategy.

 

[gandalf42]

These are companies that have been run into the ground by poor management and agressive, short-sighted unions. A bailout should require clear plans for the future and, I believe, de-unionization with big changes in wages and benefits, dropping them to more in line with the rest of the country and more competitive to the world.

I doubt that a Democratic congress will take on the unions though.

 

[chinaco]

The auto unions may be soon faced with a choice.

No job or benefits

or

Job with self-funded insurance and retirement benefits (possibly some company match).

 

[RE2Boys]

kcowan wrote: Corporate socialism seems to have been embraced as a government policy. It is very difficult to pick and choose.

And done under a Republican President .

But do to the potential impact on the economy, I think some limited bailout should be done for the automakers with conditions that the taxpayers stand a good chance of getting their money back. What concerns me is how do we return to a free market economy after this crisis?

BTW, any options should be completely declared value-less and the same with stock. Government can sell their equity stake once company more stable.

RE2Boys

 

[laurence]

Couldn't the govt. help guide GM and Ford through bankruptcy and make sure it's not a total meltdown? They re-org, get out of toxic financial arrangements with dealers and unions and get back on their feet. It seems some sort of backing/guarantee by the govt. while curing the bad behavior would work out best in the long run. I mean, if GM is burning through 2 billion a month, a $50 billion bailout just puts off the inevitable. How many Chevy Volts do they really think they are going to sell?

 

[FinanceDude]

Couldn't the govt. help guide GM and Ford through bankruptcy and make sure it's not a total meltdown? They re-org, get out of toxic financial arrangements with dealers and unions and get back on their feet. It seems some sort of backing/guarantee by the govt. while curing the bad behavior would work out best in the long run. I mean, if GM is burning through 2 billion a month, a $50 billion bailout just puts off the inevitable. How many Chevy Volts do they really think they are going to sell?

I believe some of the $820 billion bailout bill was for the automakers, maybe $25 billion or so? However, they want ANOTHER $50 billion or so. Reminds me of the airlines after 9/11. The wanted $25 billion, and got $5 billion.

The US govt has set a dangerous precedent with bailing out EVERYONE. How can they tell the domestic automakers NO??

 

[cardude]

I think some of the bailout money should go to the auto dealers as well........

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. Plus, who would build all the tanks and aircraft if there is another World War?

I agree that propping up all three manufacturers and keeping the current business model doesn't make much sense. The industry has way too much capacity right now, so maybe the gummit could force the once big 3 to merge into one super (or at least semi) efficient government sponsored company that could start phasing out current technology and start to focus on alternative energy vehicles? I'm pretty sure Japan subsidizes their heavy manufacturers in some way.

 

[Texas Proud]

I am against a bailout (but also was against one for the banks and AIG etc. etc.)....

We have a system in place to handle a company that is mismanaged and is 'burning' through cash at $3 to $10 billion a quarter... it is called

BANKRUPTCY....

It would be good for the industry to go through this system... and to show people that there IS risk in investing... and allowing companies to mortgage the future for their next quarter's profit...

 

[Texas Proud]

I think some of the bailout money should go to the auto dealers as well........

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. Plus, who would build all the tanks and aircraft if there is another World War?

I agree that propping up all three manufacturers and keeping the current business model doesn't make much sense. The industry has way too much capacity right now, so maybe the gummit could force the once big 3 to merge into one super (or at least semi) efficient government sponsored company that could start phasing out current technology and start to focus on alternative energy vehicles? I'm pretty sure Japan subsidizes their heavy manufacturers in some way.

Again... a false description of what will happen... the companies will continue to exist... but with new owners... yes, there will be a number of people who lose their jobs, but the 'industry' will not go away... it will be much smaller, which it should be since they do not sell that many cars..

Remember... these companies were doing GREAT a few years back... (well, not Ford IIRC)...

 

[al_bundy]

I say yes. Keep the people working. If we can bail out banks without forcing them to change their reckless business practices, why would we treat automakers any differently?

Corporate socialism seems to have been embraced as a government policy. It is very difficult to pick and choose.

at least the banks are changing business models and lending standards. Can't speak for GM management, but the UAW has always refused to give in to help save their employers

 

[OAG]

These are companies that have been run into the ground by poor management and agressive, short-sighted unions. A bailout should require clear plans for the future and, I believe, de-unionization with big changes in wages and benefits, dropping them to more in line with the rest of the country and more competitive to the world.

I doubt that a Democratic congress will take on the unions though.

Not sure but I think Bankruptcy (chapter 11) is about the only way to shed the Union. But they are a great source of campaign funds for some politicians so we have to support the UNION.

 

[ERD50]

I don't know what to think. I just can't get my head around the idea that one entity with $10 Trillion in debt is going to "bail out" another entity.

-ERD50

United States public debt - Wikipedia, the free encyclopedia

On 30 September 2008, the total U.S. federal debt passed the $10 trillion mark for the first time[2], with about $32,895 per capita (that is, per U.S. resident). Of this amount, debt held by the public was roughly $5.3 trillion.[3] Adding unfunded Medicaid, Social Security, Medicare, veterans' pensions, and similar obligations, this figure rises to a total of $59.1 trillion, or $516,348 per household.[4]

 

[kcowan]

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.

 

[Finance Dave]

I think you are exactly right in that the government would just be propping up a broken business model.
The auto companies need to show the government a well laid out plan for how to fix things. And I think a necessary part of that plan is to restructure their pension, health care and UAW contracts.
Then they have to figure out a way to restructure the companies such that they can change direction more nimbly as changing market conditions require them to.

I agree with this...they must show some sort of major change in the way they do business...and commit to it first. I think the fallout to all of us would be huge, although indirect. Even if you don't have any affiliation with Detroit/Michigan, I think everyone will feel this if the Big3 file Chap 11. Who do you think pays unemployment taxes? that's right...the taxpayers do...indirectly through price of goods charged by the companies that pay into it. What do you think will happen to home values if we suddenly have 50,000 more homes on the market in this country? Sure, it may not affect a far-away locale, but I still think the housing industry would be adversely affected. If the Big3 go down, who will pay the taxes to the US gov't that those hundreds of thousands of employees were paying? that's right, the rest of us working stiffs will have to do it.

I'd love to see the auto industry flourish, but they need to have a wake up call, make MAJOR changes, and finally admit they have lots of room for quality improvement.

I know many will disagree with me, but I believe the Japanese auto makers have superior quality, and have had for quite some time. I think the Big3 are getting closer, so that's good. But they need to admit they have in issue IMO (to this day they deny they have inferior quality...rather they refer to a "perceived" lack of quality on the part of the American consumer).

As a footnote, I used to be an auto mechanic and can point to very specific details of the quality issues I'm discussing. In my current job, I have tangential knowledge of the auto industry. I'm also a car enthusiast, and have owned a variety of musclecars, so I keep up on the inner workings of the industry pretty well.

 

[Finance Dave]

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.

What? Do you know how much of the tax burden the rich already carries?

 

[FinanceDude]

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.

It is a fallacy that the rich don't pay taxes. Anyone that thinks Obama will ONLY make the folks making over $250,000 pay more taxes under some empty-promises tax cut to the middle class is smoking something..........

 

[ERD50]

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.

What? Do you know how much of the tax burden the rich already carries?

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