Car industry bailout?

[ar81]

Wealth distribution in US is done via employment, not via government bailout to citizens.
Employment is in the hands of executives who make poor decisions.
Executives want government to bailout their poor decisions, using employment as excuse.

So it seems that US distribution of wealth is being hijacked by people who make bad decisions and want taxpayers money to subsidize their decisions, while keeping employees as hostages.

Do you think that a car industry bailout should take place?

[jawillie]

I vote no.

An industry that fails is perhaps not valued anymore. A new one will then be able to take its place. The shift may be uncomfortable, but it is needed. Being "uncomfortable" inspires action, and perhaps a more positive outcome would come of it. Throwing more money at a problem doesn't make it better.

[ThoughtAddict]

Originally Posted by ar81

Wealth distribution in US is done via employment, not via government bailout to citizens.

I'm in favor of the US government taking an active role in bringing the country out of this recession. That role, in my opinion, should take a form where the government gets some benefit from the money used.

Bailouts just don't provide any mutuality.

If we want to be fair about it, let's buy the equity of a car company with preferential dividends, voting rights, and future stock options. As part of the agreement, they must show an ability to operate their business at a gain given the influx of money. Perhaps we insist on getting rid of the current group of officers, as well... If the company goes bankrupt, well, we gave them the bailout we're considering. If the company functions at a profit, then we've managed to get a decent return on the investment of taxpayer money.

[wachusettgirl]

Originally Posted by jawillie

I vote no.

An industry that fails is perhaps not valued anymore. A new one will then be able to take its place. The shift may be uncomfortable, but it is needed. Being "uncomfortable" inspires action, and perhaps a more positive outcome would come of it. Throwing more money at a problem doesn't make it better.

I'm afraid "uncomfortable" is a bit of an understatement... bankruptcy in one or all of the big three would cause a cascading of events that will further damage the overall economy, and hit American consumers hard. It would cost millions of jobs, and threaten retirement benefits to millions.
Should there be strings attached to the loans? Absolutely, but 25 billion is a relatively small amount to prevent much greater destruction of the economy. I'm sure you've noticed, the boat is taking on water, some bailing might be necessary.

[Barcs]

We can't just go around bailing out every single industry giant because we're in a recession! I'm tired of this crap. If we, the citizens, have to pay this cost, then we should own them. The citizens should vote and make decisions for their company and the executives should be fired. Is this not a free market economy?? This is the exact reason why America was founded on small business and why small business should run America, not large corporations. If the auto industry was composed of tons of small companies, instead of 3 big ones, milllions of jobs wouldn't be lost if some of them go under. We don't live in a democracy or a "free" market. We live in a coporatacracy, and bailing them out, proves it. I firmly believe that this action will only cause the economy to get worse, faster. We need to embrace this recession instead of fighting it, because one it is over things will be better. If we interfere with everything, then it could set off a chain reaction. I saw today that the federal reserve fears deflation. How is this possible in a system where inflation is constant?

[coollikeme]

there cars, it does not matter how much money they get. Has are government loss their mind!!!!

[ThoughtAddict]

Originally Posted by Barcs

We can't just go around bailing out every single industry giant because we're in a recession! I'm tired of this crap. If we, the citizens, have to pay this cost, then we should own them. The citizens should vote and make decisions for their company and the executives should be fired. Is this not a free market economy?? This is the exact reason why America was founded on small business and why small business should run America, not large corporations. If the auto industry was composed of tons of small companies, instead of 3 big ones, milllions of jobs wouldn't be lost if some of them go under. We don't live in a democracy or a "free" market. We live in a coporatacracy, and bailing them out, proves it. I firmly believe that this action will only cause the economy to get worse, faster. We need to embrace this recession instead of fighting it, because one it is over things will be better. If we interfere with everything, then it could set off a chain reaction. I saw today that the federal reserve fears deflation. How is this possible in a system where inflation is constant?

Couple of things... 1- Do we really want public votes to determine action? Cuz, like, I don't trust the business acumen of the American people as a whole. Heck, I wouldn't trust my own judgment with that job. Let's appoint someone who knows what they're doing to take over. Maybe Warren Buffet has some time to kill?

2- Agreed on the need to diversify ownership of industry. We've got that problem with automakers, airlines, and oil. All three have natural large capital hurdles, so getting new people in isn't easy. Oddly, the past twenty years or so saw some disincentives put into place for all three industries. Most notably, several "tax loopholes" have been closed to that eliminate an incentive to enter oil/natural gas as an individual...

3- Embracing the recession looks ugly. Unemployment around 15-20% isn't too far-fetched. That would cause large tax deficits as folks just wouldn't have jobs to pay in. It would also cause some trouble in terms of massive reduction of local economies. In turn, that usually increases drug use, crime, and strain on social resources.
That said, trying to bail out the economy using free money to any struggling company doesn't seem all that wise. I think the government taking an equity stake by contract in some industries is appropriate. If a company wants taxpayer money, they should provide benefits to the public in return.
At the very least, we absolutely need to set up some kind of safety net industry which can provide beneficial work to the unemployed. Generally, this is public works...

[SomeRandomGuy]

I don't see how bailing out the Auto Industry (or any industry for that matter) is going to solve anything. This is telling those companies that they are too important to the country to be allowed to fail. What do you think that is going to do to their business model? Make them more innovative, increase productivity, lower costs, etc.? I seriously doubt it. Why would they put forth the effort, they've been told they are too important to be allowed to fail and see that the government will step in to prevent them from failing when needed. Do we really expect companies with decades of bad management to suddenly change course after receiving this message from the government, media and American citizens?

I believe that just the opposite should happen. Companies that grow so large that they are considered this important to the US economy should have more responsibility placed on them (not less). I strongly believe that smaller more specialized companies are better for the economy, for various reasons. If a company decides to keep growing and diversifying then it should be willing to take on added responsibility, face tougher scrutiny, etc as it plays a greater role in the economy.

I would also like to add that fear is not a valid reason to support bad management and irresponsible corporate citizens. If we keep giving into the fear of what might happen to the economy now if these business fails, and insist on bailing them out then I believe the long-term impact to the economy will be greatly increased. The more the government tries to correct the economy, the worse shape it is going to be in overall. If a company can't succeed, they need to be allowed to fail so a better managed, more innovative company can fill that role. What I am seeing unfold is a situation where American Industry could be on the path to falling well below that of other nations. What I mean is that if this process of bailing out big corporations who are in trouble is allowed to continue the poorly managed companies will not only continue to exist, but will be receiving messages from the government and the US citizens re-enforcing their importance and ability to take huge risks. That is going to mean those companies stay at the top of their respective industries in the US, preventing other companies from rising to fill those positions. Gradually, other countries are going to pass us until one day American made goods are going to be viewed the way we view those made in Taiwan. This may seem far-fetched, but if you were to tell people 50 years ago that a Japanese auto maker would be the top selling auto in the US they would have thought you were crazy.

[Brutha]

I would also like to add that fear is not a valid reason to support bad management and irresponsible corporate citizens.

That really depends on how bad the worst case scenario is actually.
Preventing a crash of the whole system might be worth rewarding a few people for bad behavior.

The question is whether we should fear a hyperinflation more than a hard recession or the other way around.
I don't think that I know the right answer.

I also don't know whether bad management is the course for GM to go down in this case.
Cars in general got a big hit in demand because of the financial crisis.
If a firm can't sell the products it expects to sell it normally has to take a credit.
At the moment there no credit available.

[Dan.Linehan]

I voted other, because I think the government should only fund very progressive projects.

Basically, I think they should bail out GM's electric car division, but not all of GM.

[ar81]

BBC NEWS | Business | Lack of investment clue to Detroit's demise

[ProjectX]

Originally Posted by Dan.Linehan

I voted other, because I think the government should only fund very progressive projects.

Basically, I think they should bail out GM's electric car division, but not all of GM.

Yup I agree. If the government is going to bailout the Big Three then they must meet certain standards;

1. Reduce pollution output.
2. Invest extra income for R&D of Hybrid and electric cars.
3. 80% of production must be domestic and not outsourced.

[Barcs]

4. Fire executives or at least reduce their salaries.

[Poster]

Originally Posted by Dan.Linehan

I voted other, because I think the government should only fund very progressive projects.

Basically, I think they should bail out GM's electric car division, but not all of GM.

Thats an interesting vote.

I'm conflicted about this mainly because I'm old enough to recall the debates, protests, violence and other tactics used on both sides during the reign of powerful unions. Today the UAW is really just a shell of what it used to be.

I've always been a blue collar thinker and believed in unions. Unions represented the tough hard working guy simply attempting to do what had to be done to support a family. I'm also keenly aware that managers and executives were only doing the same, I've been both a worker and a manager. Too bad we have this adversarial mindset here in the U.S.. I'm as guilty as any.

It is after all mostly the expenses of having to honor those union contracts from the 60's, 70's and 80's that is so heavy on these companies, isn't it? Are they violating the spirit of their contract by not remaining solvent? No matter what, doesn't the government pick up the tab for some of the still due benefits to their retirees?

Theres no question that the American auto industry has been guilty of not being forward looking enough, but conservatism has been the behavior of America when it comes to change. We do everything at a snails pace.

[Ebinesos]

If we bail them, we own them. Its that simple. what we own we can provide. 200 car lottery for getting your taxes in on time? check. lottary to win a car for voting: check. automakers pursuing goals in line with national objectives: check. which means clean cars, new technologies check. automakers playing a role in maintaining national infrastructure: check.

On top of that, what profits they do make can go towards paying down this looming financial deficit.

You(Detriot the idea, not the place) Effed up. The government acts as the lender of last resort, yes? Now they get to be the repo man, take the assets, and make it work for us.

Owning ford would be just like owning any other asset. Maybe we could sell it to china to balance the trade deficit, no?

[Poster]

Originally Posted by Ebinesos

If we bail them, we own them. Its that simple. what we own we can provide. 200 car lottery for getting your taxes in on time? check. lottary to win a car for voting: check. automakers pursuing goals in line with national objectives: check. which means clean cars, new technologies check. automakers playing a role in maintaining national infrastructure: check.

On top of that, what profits they do make can go towards paying down this looming financial deficit.

You(Detriot the idea, not the place) Effed up. The government acts as the lender of last resort, yes? Now they get to be the repo man, take the assets, and make it work for us.

Owning ford would be just like owning any other asset. Maybe we could sell it to china to balance the trade deficit, no?

Good post!
I doubt China would take Ford.

Unfortunately, the fox has been running the hen house for so long its questionable whether the government wouldn't eff that up too.

We had the opportunity to fix the deficit and health care back in 96 with the Telecommunication Act that Bill Clinton sold us on. I just hope Obama is not another Bill Clinton.

[mercuryrising]

I voted no.

If Americans wanted to keep GM alive, we would have bought their cars. We didn't.

Last week, there was a guy at our shop from Flint, MI. He said you can't walk down the street without a gun. People are stealing sewer lids, scrapping them for money.

I couldn't help but think that these people could create their own wealth instead of waiting around for a corporation that sold them out decades ago to create it for them. And they could do so together, for the benefit of the whole community.

This is the real problem. We either expect the government to give us something or corporations to give us something. Maybe it's time we remove the middle man and give ourselves something. That would seem to be the point of a free enterprise system in the first place.

[ar81]

Civilization is about working together, and share the result of what you did together.

In our system you can only work together if you get a job. And money from that job allows you to enjoy part of the result. But the amount of money is not even, some get more, some get less for their work. Just compare bank executives and your family.

Unemployed people can't work together or enjoy the result. If you are unemployed with no money, you may see a restaurant with delicious food, but you will starve just as if you were alone in the middle of Sahara desert.

Profit creates an incentive to throw people out of their jobs, out of civilization.

[funchy]

I vote no.

The problem is that the corporation itself is broken, for lack of a better word. GM is a boat quickly taking on water. Bailing out the water only prolongs the sinking, but never addresses the root problem.

In a way, a bankruptcy and major re-organization would be a good thing. I just wish the American auto companies would do something. Instead they jet around the nation in the comfort of their private jets, talking to politicians to see if they can get some easy cash for their company. How is this good leadership?

[wachusettgirl]

Originally Posted by funchy

I vote no.

The problem is that the corporation itself is broken, for lack of a better word. GM is a boat quickly taking on water. Bailing out the water only prolongs the sinking, but never addresses the root problem.

In a way, a bankruptcy and major re-organization would be a good thing. I just wish the American auto companies would do something. Instead they jet around the nation in the comfort of their private jets, talking to politicians to see if they can get some easy cash for their company. How is this good leadership?

To me, bankruptcy would prolong the sinking.
I agree completely that the govt shouldn't throw good money after bad, and that the auto makers have to come up with a better business model, and an actual plan. It will be impossible for them to do the retooling necessary to be competetive with the Japanese and European car manufacturers without an infusion of capital. Buying a car isn't like buying an airline ticket, it's a larger and longer term investment. Most people will not buy a car from a bankrupt manufacturer, and in fact, probably won't be able to get a loan to buy from one.
If we allow these companies to fold completely, which could happen even with the bailout, it will not only be devistating to that part of the country, but will have a ripple effect for the entire country. The 25 billion, is 3.5% of the total bailout package. The average auto worker makes $57,000, considerably less than the millions that the executives of the financial institutions. It seems like a bit of a double standard...

Is this an ideal scenario? Of course not, but it's something we have to do for the health of the economy moving forward. Who knows, maybe it will actually work, and Ford and GM will actually make cars that people want to buy.

[Ebinesos]

Anyone following the developments?

I heard one of my friends bought stock in gm while the price was falling "because it will go back up, right?" right now he's down more than he expected or could really afford to lose.

So they take pay cuts to $1... how much could that really help? in an industry needing billions (!?) he'll save them a few thousand.

[ar81]

[Starman]

Originally Posted by ar81

Wealth distribution in US is done via employment, not via government bailout to citizens.
Employment is in the hands of executives who make poor decisions.
Executives want government to bailout their poor decisions, using employment as excuse.

So it seems that US distribution of wealth is being hijacked by people who make bad decisions and want taxpayers money to subsidize their decisions, while keeping employees as hostages.

Do you think that a car industry bailout should take place?

No.

Free enterprise should stand on its own merits, otherwise its not free enterprise. If you or I had a small business that was about to go under, the government wouldn't rush to the rescue; they would say, tough luck, but that's the law of supply and demand at work and the magical self-regulating nature of our economy. Should the car industry be any different, simply because they're bigger?

Second point: Bailing them out without fixing the underlying problem is just bailing water out of a boat without fixing the hole. What's the government going to do to fix the reason they need bailing out in the first place? Why isn't anyone talking about that?

Starman

[Brutha]

What's the government going to do to fix the reason they need bailing out in the first place? Why isn't anyone talking about that?

They need bailing out because there no credit for any company that needs to get some credit.
In addition nobody (metaphorical) buys cars anymore because people fear that they will lose their jobs due to the financial crisis.

[funchy]

Originally Posted by wachusettgirl

To me, bankruptcy would prolong the sinking.

Bankruptcy lets a company out of existing contracts, provided certian conditions are met.

The automakers big problems are that they're stuck in union contracts, worker benefit contracts, subcontractor contracts, and supplier contracts. There's just no way they can reorganize when they're locked in to so many conditions.

Toyota and others are still able to sell cars and not go bankrupt. The American automakers were in trouble long before the housing market bubble/credit-crisis thing hit. American automakers can't or won't change how they do business, and until that is changed, they'll continue to slowly sink.

My last few cars have all been foreign brand ones, even though some of them might've been assembled in the US. American cars seem to be designed to last maybe 100,000 miles if you're lucky. But it's been my experience the Toyotas and Hondas are still reliable at 150,000+ miles. My current car is a Toyota Yaris which cost only $12k brand-new and hasn't needed a single repair, not even to adjust a factory flaw.

American automakers: build me a solid, reliable, innovative car and I'll buy it!

[Travis]

The Government has no business bailing anybody out.
Let them go bankrupt.

[vMike]

Why are so many against the bailout? It's not like they totally suck at making cars (or do they?), but rather the recession hit and Americans just don't buy cars.

If they go bankrupt factories will be closed and sold in pieces overseas, hundreds of thousands of Americans will lose jobs and I don't think many will see it as a good opportunity to try and go self employed.. Cars is an important industry a country should maintain and the government should support.

I'm afraid many people are just jealous of the rich CEOs who buy jets while others lose jobs and that hate is fueled by the liberal media.

[Eric Revelin]

The media has been helping to promote the bailouts. The hate is coming straight from the American people. Part of it is jealousy, no doubt. Part of it is resentment for having to pay for these guy's stupidity. Regardless of how good they are at making cars the fact is that they've failed to identify key trends and keep up with them.

I, for one, don't want to give money to anyone that will squander it. I'm for a bailout if, and only if, there are heavy regulations and oversight and the money can be taken back if the auto companies don't hold up their end of the deal.

[Travis]

Do you know that when the bailout deal goes through, the government will have the option of becoming owners in the Big 3?

That would nationalize the American car industry.

The Government cannot do anything right.

Think of the DMV in your area. That is how the car industry will be if Government gets their hands on it.

[Barcs]

I don't think it has anything to do with jealously. It's not like people stopped buying cars because of the recession. If you need a car, you need a car. People would rather buy reliable cars that last long and don't need to be serviced all the time. Basically getting the most for their money. American car makers have dropped the ball with that, and with the hybrid technology. Hondas, Toyotas, Nissans, etc last much longer than the average American car, and get better mpg. Many of their regular models get up to 300K, while most American cars don't pass 150. I have a 93 Camry now that just hit 200. American cars used to be more reliable but not anymore. The blame lies solely on the company and I just don't think it's fair for the taxpayers to pay for their failure. Capitalism is built on corporations failing and if we bail them out, we are turning our backs on the free market.

The only problem about this is that we already bailed out Wallstreet, which I was completely against. Now, how do we tell them no? These are companies that actually matter, unlike wall street and it's fake financial system.

I still say let em burn though. There's no reason at all we should have to bail out companies. For the free market to truley thrive, it needs to remain free of government intervention. We should embrace this recession because down the road it will get much better. If we spend billions and dig ourselves deeper in the hole it will take that MUCH longer for us to get out of it.