Senate rejects auto bailout. On to "Plan B"ankruptcy?

Let them file for bankruptcy now. It's the only plan that makes sense.

+1 for the Senate.
I support thier decision with all my white-collar
non unionized heart.

So when are car prices going down? If big three are sitting on so much unsold inventory while having all the cash flow problems, would it not make sense to half prices to save themselves? What the hell are they waiting for?!!

Make that +2 for the Senate.

Totally agree with vvk. Why haven't there been more measures taken by the companies to save themselves? There are plenty of options to choose from. But they choose the option of lying down and playing dead in order to get taxpayer money.

Make 'em work for it.

So, lets say that pizza joint A down the street goes out of business. Thier pizza wasnt as well recieved by the public as pizza joints B & C. Well, where does the bail-out madness end? Does pizza joint A qualify for bail-out money? Relevant example?

You guys are missing the point. You're at this website because you're car fans. You research your purchases, you know more than the sales reps, and you negotiate your price. Joe and Jane Average don't think that way. All they will hear is "GM is bankrupt" and GM won't sell another vehicle again. Joe and Jane don't know the difference between the various bankruptcy chapters - hell, these people are camping out at Walmart before Black Friday just to get a video game for their kids. The domino effect begins, taking out the suppliers, then the other automakers since they rely on the same suppliers, then the dealerships, not to mention all the fringe businesses (e.g. the guy who owns the diner near an assembly plant).

Care to guess how much you'll pay for a car or truck if there's no domestically produced competition? What happens when your American car gets in an accident - who is making the repair parts for it if all the suppliers are gone? And if anyone is making parts for American vehicles, they can set their price as high as they want, because the market will be desperate enough. What we consider a fender-bender today becomes a "total" and trying to find another car, because the repair prices are beyond reason.

There are 150 million cars and light trucks in this country... the clear majority of them are American nameplates. The foreign companies do not have the capacity to replace that fleet, and guess what, some of them use the same suppliers too.

I'll pass on that scenario, thanks.

kcram,

You're logic is so flawed. The same happened to the steal industry. Is steal outrageously expensive now? Did it capsize all of the mining plants (ie. suppliers)? No, it did not. Steel was still cheap in this country and, if anything, steel prices fell.

The same would be true with the auto market. The market is NOT dependent on American companies. New ones will arise, filling the the void. Chinese and Indian manufacturers will become stronger and eventually break through to the American market.

There would NOT be a domino effect. There would be displacement, yes. Some suppliers may need to cut jobs and scale back their supply of parts. But they won't go out of business. Economics doesn't work that way.

Please, read about economics. I'd recommend von Mises, Hazlitt, Hayek, or Rothbard. Then you'll see how silly this "dooms day" scenario is.

Also, Bob:

Stop promoting unconstitutional "authorization" by the White House on this matter. Contrary to what's happening, the executive branch does NOT have the powers to override Congress on this issue and tap a totally unrelated bill to access money. It goes against to constitution to do so. Congress is in place to RESTRICT the executive branch, not be overridden by it.

To do so would be akin to taking the education department's funding bill and using some of it for defense.

No, that doesn't make sense either.

flicmod

Read the morning headlines. Bush is looking into helping where the senate failed. Will anything come of it? Who knows...

flicmod

We're heading into uncharted waters here. Nobody knows what will happen. To say that there won't be a domino effect is silly if not naive. The suppliers that supply the domestic auto industry also supply most if not all of the transplants. If they should be forced out of business it will effect Toyotas, Hondas, etc. that are built here.

Heck, it may even effect web sites like Edmunds—so yeah, I'm concerned. You should be too. Who knows, maybe Edmunds will have to scale back and there won't be a Straightline blog for you to complain on.

Bob,

There will ALWAYS be somewhere to complain.

For the record, I'm NOT worried about this. No one should be. What we SHOULD be worried about is the money in your wallet being devalued by excessive government spending. The more the Fed prints money, the less it's worth. Supply and demand. Basic economics.

I've read the headlines. And what you're doing is supporting those headlines by asking people to write to the White House and tell them to abandon the Constitution and forget about the restrictions that it places on the president. Fact is that the president doesn't have these powers. Congress spoke. This is not a dictatorship... or at least it wasn't. Paulson already abandoned the plan for TARP the other week by saying the executive branch will divy out the $700B the way it sees fit instead of abiding by the bill that Congress passed.

But, you're right. Let's forget about that piece of paper that the country was founded on. The government works better if only a few people are in charge.

Besides, a true American would abandon that document before letting failing companies die any day...

flicmod, if you read the provisions of TARP, you'll see the president has always has the authority and latitude to use those funds for the automakers... he chose not to until this point, hoping that Congress would make the deal themselves. Now that they have failed to do so, he is considering using his authority already given to him by Congress in overseeing the TARP funds to loan GM and Chrysler the funds. There is no constitutional issue here.

it's all good... As long as 'steal industry' isn't substituted for STEEL industry. Or was that intentional? =)

ctpax,

Wasn't intentional, but ohhh... the IRONy...

kcram,

I'm sure you have the TARP text on hand in order to show me this, right? If so, go ahead and provide it. But I'm under the impression that this is NOT what the bill says. Did you read it for yourself or are you just repeating what the media has told you?

Follow up:

I did my own research on TARP. Excerpted directly from the bill itself, which is found here:

http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_bills&docid=f:h1424enr.txt.pdf

"SEC. 101. PURCHASES OF TROUBLED ASSETS.
(a) OFFICES; AUTHORITY.—
(1) AUTHORITY.—The Secretary is authorized to establish
the Troubled Asset Relief Program (or ‘‘TARP’’) to purchase,
and to make and fund commitments to purchase, troubled
assets from any financial institution, on such terms and conditions
as are determined by the Secretary, and in accordance
with this Act and the policies and procedures developed and
published by the Secretary."

UAW concessions have brought down the average wage to $53 per hour, vs. $49 for the transplants.

OK, let's see, you take a 5 week vacation once a year, work the other 47 weeks at just 40 hours per week.

40 * 47 * 53 = about 100k salary.

Six figures working a blue collar job with zero overtime and a very long vacation.

They have to be cost competitive. I think Bankruptcy may be the only option, because then they can figure out a wage that is sustainable.

Costs per hour is not the same thing as wages per hour. It includes social security, the employer's share of health care costs, unemployment insurance, and in some industries things like tools allowances.

Your white-collar cost (and mine) are also significantly higher than our actual salaries. And of course your company has to charge its clients for your time, in quantities greater than just your costs. Lawyers don't make $250 an hour, they make a third or a fourth of that but it takes that amount for the company to pay off its employees, rent, and all the other costs of business. My company charges $125/hr for me to design structures... I probably get one fifth or one fourth of that as my salary, another several percent in benefits, and even with all that's left the company's margins are just a few percent.

"Totally agree with vvk. Why haven't there been more measures taken by the companies to save themselves? There are plenty of options to choose from. But they choose the option of lying down and playing dead in order to get taxpayer money."

They aren't halving prices or doing 2-for-1's because the cars they are able to sell, they can still sell for a profit. Price-per-transaction numbers for numerous American autos are up, including the lowly Cobalt and Focus. The issue is not with the cars not selling, but with the lack of credit. You know, the credit that the $700 billion was supposed to free up?

"What we SHOULD be worried about is the money in your wallet being devalued by excessive government spending. The more the Fed prints money, the less it's worth. Supply and demand. Basic economics."

What, because $700 billion isn't going to devalue our money enough? The primary reason that the American auto companies are in trouble is because consumer can't get loans because greedy banks are just hoarding the cash the government has given them. Take a look at Ford, Q1 2008, they posted a profit, just before the housing bubble burst and things went crazy. Every auto maker is down on sales because of the lack of credit. France has given loans to their auto industry, Sweden has allocated funds for the same. Why should we bailout the auto makers? Because the banks we bailed-out aren't doing anything for anyone.

I don't care if you don't like domestics, fine, don't buy one. This is more than that, this isn't just the American companies going down, this is everything that relies on them going down. From the suppliers (there are 1,400 different suppliers alone for GM, if even half of those close up, we're talking serious job-loss), to the coffee shops and lunch trucks around the plants, to the import auto makers closing up operations here because the infrastructure and value of the dollar (we're at a 13 year low right now, imagine if these companies fold) are too weak.

Unfortunately, this has become more than a simple problem and solution- politics has a way of doing that. The Republicans want the UAW gone and the Dems want greener cars. Regardless of what the politicians want, the American public doesn't want a depression, and thats where we're headed. If you think that a catastrophic domino effect won't occur, I'm sorry, thats just plain naive.

Good for the senate.

RSHolland, can you please tone down the rhetoric just a bit. It's bad enough that we're subjected to your (at best) mediocre writing in the articles, but then you continually chime in the comments?!

Bob, give it a rest and let the readers have their voice.

Holland's obvious conflict of interest here is clearly clouding his sense of reason.

krisj144

Sorry you don't agree. However I will continue to speak my mind here, as I have in the past.

honorsystem,

Don't confuse me with one of those anti-Detroit people. I'm not.

A couple things:

1) I'd love to see the American carmakers make a comeback and stay alive.

2) I am not and was never for a bailout of the financial institutions. I'm against government bailout of any kind. So don't confuse me with one of those people either.

Also, the problem is not that there isn't any credit. The fact is that there is TOO much credit. Credit = Debt. Look around. Look at all the companies and individuals in debt. I guarantee that at least half of the people that commented on this one blog alone are in debt. The automakers are going into debt. Hell, our own freaking government has been running in the red since its inception.

No, there is plenty of credit. The problem is more fundamental than this. The Fed has been keeping interest rates artificially low for decades. Low interest rates mean more people can afford to go into debt. More debt affects the economy because spending leads to economic downturn.

We have a government who sets the example for spending excessively and we have a population of citizens that follow that example. What the government needs to do is encourage savings. Saving money will ultimately help the economy, not hurt it like so many "economists" say. If more people save, prices will drop, interest rates will finally level out, and the economy will be stronger than ever.

For the people that have the money to spend, credit is always available. My wife and I have been saving individually for years, and now that we're married we're looking at buying a house. We had no problem getting a loan because we have proven ourselves capable of making payments and saving money. The banks that are "hoarding" the money are not evil because they do so. It's their money (regardless if it WAS the taxpayer's money for most of those banks) and by with-holding it they are doing what they should be doing: only lending to people or companies that are capable of paying them back in full.

Do you think the automakers are capable of doing that? This little money that they're fighting over won't even last them Q1 of 2009, let alone bail them out of death. Do you think the government will ever get paid back for the "loan" they're making them? I don't, and I don't expect anyone to. You can't collect money from a dead man in debt.

Bob,

Does Edmunds pay you to be a journalist or do they pay you to write op-ed columns? If it's the latter, I'm going to suggest to them to find someone who is better suited at real journalism.

If it's the latter... well then I guess I'll be "shopping" for a new blog to frequent after this whole bailout mess goes away.

Edit: that first "latter" should be "former".

Replace the edit feature NOW. It's that important.