Auto Industry Bailout

I live in the DFW Metroplex. The economic woes have not hit us nearly has hard as they have other parts of the country. I know that Michigan is taking quite a beating right now not in small part due to the problems the big three automakers are facing. Here's how I see those problems in a nut shell. The big three automakers, for the most part (that last little clause give me the ability to say anything without any facts, for the most part), put out an inferior product, for an inflated price. It certainly is their right to do that, but they should have to deal with the reality they've created and not just get a government bail out because they employ a ton of people. This shouldn't be a "What costs the most" question for the government. They shouldn't consider the fact that they may have to pay out more money in welfare benefits, loss in tax revenue, etc. than a bail out would cost. The question should be "Does it make sense to bail out an industry that has not put itself in a position to compete effectively?" How is $25 Billion going to save an industry that is losing so much money? It's like pumping water in a leaky bucket.

Aside:
I listen to NPR quite a bit. "This American Life" was one of the shows that really cemented my appreciation for public radio. A few weeks ago, before the $700 Billion bailout "This American Life" did a special on the economic turmoil. They tried (and succeeded I believe) to explain the major contributing factors to the market down turn as well as explain how the bailout would or could work. It was fascinating. I've listened to it twice. You should listen to it too. http://thisamericanlife.org/Radio_Episode.aspx?sched=1263.

This morning I was listening to "Morning Addition" with Steve InskeeP (I love how he over annuciates the P). He conducted a phone interview with Barney Frank who is a congressman from MA and the chairman of the House Financial Services Committee. In the interview Congressman Frank was promoting the use of $25 Billion of the TARP (Troubled Asset Relief Program) to bail out the big three domestic auto makers. It was his belief that the big three have spent a lot of money re-tooling the factories to make a more fuel-efficent breed of cars and that if given enough of a boost they could rebound and all would be well but without a boost they would run out of money and shut down. At least one of the big three (GM I think) wouldn't last til the end of the year. The money the government would contribute would be in the form of loans. In March of next year the government would see if the auto makers have made the necessary changes to stay solvent. If they haven't then the government turns off the money faucet and demands repayment of the loans, but if they have shown signs of improvement the government would write another big check. Any guesses how this would go? I'm sure that the auto makers would put on a good enough show that they could convince the govenment they have done well enough and don't need to be spanked. It doesn't seem reasonable/likely to me that the auto industry could turn it around that quickly. Would the government say that the domestic auto industry is too important to let fail in November 2008 and then in March 2009 actually let them go under? Doesn't make sense to me. I guess the whole "too big to fail" concept doesn't make sense to me. The government can't prop up every industry forever. The house of cards will fall eventually. And the longer you artificially prop up companies and indusries the bigger the crash will be when we can't prop them up any longer. Things fail, it happens.

Another point Congressman Frank made was that the next President would be spending less money on the war. I would assume that some of that savings would go to this cause. It's as if once that amount of money has been budgeted for something we must continue to spend it. Why don't we not spend it on anything and instead reduce the budget deficit? A reduction of spending on one front doesn't necessarily justify an increase of spending on another. If spending this money is worth it, its worth it independent of other budget items. .

Congressman Frank is also reluctant to renegotiate labor deals because the unions worked hard to get what they have today. Sounds like to me if something isn't done soon they won't have much to give up. I've heard plenty of talk about how it's the unions that have driven the price of a car up. I've heard that something like $2100 of each car sold goes to pay pensions for people who are no longer working for the company. That's good for the retiree collecting, not so good for the consumer or current employee. I wish I could see the union side of the issue.

That's enough for now.