Big-Three Bailout

[3fingeredsalute]

Okay -- this is an obvious political post, but I am almost ashamed to say that it may be me switching teams. I am FOR this political bailout due to what it will do to the American economy (which has many causes for ruination, especially the GOP government and tax supported loopholes for free SUVs for any family who decided to declare themselves a

Comments

[capitalidea]

I agree with you in this sense - without the bailout, our economy will probably continue to spiral downwards. However, after saying that, and even accepting what it will do to my portfolio (eep!) I have to say it's a bad idea. I might be considered old fashioned in my support of laissez faire capitalism, but I'll preach it anyway. These companies failed as corporations. They made an error they never should have made. They tried to force products the consumer didn't want on the consumer. That goes against every marketing ploy there is. They're bad companies. When there's a bad company, people stop using its services. And for those of you who still aren't swayed, remember that if they don't get the money, at least GM, if not Chrysler and Ford will have to declare bankruptcy, meaning they get to renegotiate with unions and dealerships, which have been a drain on their balance sheets for years.

[3fingeredsalute]

Lee Iacocca proved that a comeback CAN happen and that recouping massive losses has occurred. I'm not willing to say that the companies are bad, but I completely agree that they have lost their direction and need a slap and a tickle to get back no their feet.

I must admit, I am curious as to who you are. You created your LJ account today, used obviously intentionally vague information, and perhaps created the free account simply to reply to this post. Obviously you read this entry of mine. Did you find me through a LJ word-search or are you one of my readers?

[acroyear70]

Lee Iacocca proved that a comeback CAN happen and that recouping massive losses has occurred.

Well, the side effects of Iacocca's approach are still being felt throughout Michigan. He didn't do it by producing a better product that sold significantly better than previous years (sales only improved marginally when it was realized the company was going to be around longer). He did it by slashing costs so drastically the impact on the communities that depended on it might as well have seen the company go under in the first place.

In this, he saved the company, he saved his own money, he saved the shareholders value (albeit only briefly), but "America" got very little money from him after that. The money went to Wall Street. The workers in the factory cities saw their money go to Mexico

[acroyear70]

I'm not saying Iacocca's approach was wrong or unavoidable, and certainly slashing of some models was required just as it was at Apple when Jobs came back.

I'm just saying it is hardly an ideal approach. With better capital management and a little more design saavy (in other words, inventing an alternative line of business), one could find something do with workers rather than just blanket-fire the whole lot.

Slashing the lower 10% every year (as some business people have suggested every company do) eventually stops trimming the fat and starts hurting muscle, and hurt muscles are hurt permanently...

[acroyear70]

Your solution ignores 3 basic facts of the situation

[3fingeredsalute]

"ignores" would be an incorrect synopsis. Disagrees in certain places, although you do make excellent points (as always

[3fingeredsalute]

My earlier point about the SUVs was abandoned before my thought was finished. Let me try to fix that here.

The artificially hyped SUV craze due to the government intervention was thwarted when the auto-oil companies colluded to inflate the cost of a gallon of gas to unsustainable levels. Say what you will about my choice of words, but the SUV production and fuel price increases are undeniably commingled in that loss of short-sighted and blindly reactive automaker revenues. They were not ready when the public turned opinion on big gas-guzzling SUVs (or the perception of them).

[acroyear70]

"ignores" was definitely the wrong word and I'm sorry 'bout that. :)

the problem i see with your history here is that the only reason the SUVs were the top seller of Chrysler/GM/Ford/Chevy was not (initially) collusion over SUV as the American thing to get: your top seller is only your top seller because your other models are already failing to sell. Taurus, Nova, certainly the classic Buick and Cadillac models of the bygone era, the Pontiacs, etc etc etc - they're the ones that stopped selling and were losing to European models at the high end, Japanese models at the low end, and their own smaller brands (like Saturn) in the middle.

By not producing better competition on the models that were prime candidates for improving gas mileage and exploring the hybred/electric technologies that the federal government had been subsidizing for over a decade and a half, they signed their own death warrants. THAT is the great failure of the American car industry: the SUV craze was artificially hyped because it was the last place to make money

[sestree]

I keep waffling back and forth on this issue.

It's difficult because on one hand our economy is at stake. On the other hand, the big 3 obviously didn't learn from the last time did they? They're still making cars that are not competitive and using non competitive business practises.

The one thing I do remember reading (in regards to the credit situation but it applies here) is we're in territory we've never been in before. That means only history will be able to decide if the decisions made were the correct ones.

[3fingeredsalute]

The economy should not be at stake over three companies. My point was that NO company should be too big to fail. The first miserable realization was that the banks declared they were in over their heads, and now the auto industry. We did NOT intervene with blank checks when the airline industry nearly "crashed" (thank you, thank you) or when the telecom/datacom industries "couldn't imagine Y2K would impact their sales" (oh, don't get me started on that rectal-cranial insertion....)

But yet, here we are. What I want to see is smaller companies who, if they fail to this degree, their presence will be missed, but not take the entire country into a death-spiral of economic doom.

Now that all that is said -- I truly believe the biggest contribution to our current downturned economy is the auto fuel industry. But... going into that would be the beginnings of an entirely different journal entry.

[sestree]

No the economy should not be at stake over 3 large companies - however - consumer confidence is and that drives our economy.

when the bunnies are frightened they squirrel away their money in mattresses and it's out of circulation. When the bunnies feel more confident, they spend and help drive our economy.

Strange analogy but my rather lovely econ instructor used it to explain a lot and she'd lived through the great depression.

We can't compare this to AT&T or the airlines because this has the added impact of the credit crisis and bank bailouts. Is it just one too many dominoes in a string? possibly. I hate the idea of giving them money though - truly I do. It could set an ugly precedent and we have to wonder 'who is next?'.

That's why I waffle back and forth. Often a crisis is not one single thing but a cascade of events.

Great topic and discussion btw :)

[3fingeredsalute]

I do not in any way tie consumer confidence to this auto-industry bailout. Consumer confidence is down more due to the credit companies and Freddie Mac/Fannie Mae (who names these damn companies?) than any commodity producing company. I daresay that few people would be impacted if Saks Fifth Avenue went bye-bye. No one flinched much when Bennigans got the axe, but yet they did. Consumer confidence is down because gas prices became unaffordable, which cut meager household budget margins to the point where credit card and mortgage payments got too difficult to pay