18 November 2008

Wake me when they're dead

GM isn't dead yet?

While I wasn't all that keen on the economic bailout package for Wall St/banking sectors, there are pointy-head economic reasons to do some of what was done. I can think of no reasons to bailout the automobile industry. The supposition is that those companies will fail and millions will lose their jobs (or at least hundreds of thousands). The reality is that they will file for bankruptcy protections, cancel their egregious union contracts and have to reorganize by closing unproductive factories. Some thousands of jobs would be lost, others would receive paycuts or lose benefits. Those are bad things. Giving money to the companies that caused that necessity to happen by running themselves into the ground, much worse.

The statement made by GM's CEO: "we were well on the road to turning our North American business around." is not factually accurate. Outside of SUVs or trucks, there are no GM cars in the top 10 of sales for last year, and naturally SUVs/trucks tanked last year during a gasoline price crunch. In other words, the credit crunch isn't what is killing GM as they claim, but rather the lack of marketable products. Toyota has been gaining at a prodigious rate by selling marketable products (and making them in America). The assumption seems to be still a hangover of 'what's good for Detroit is good for America'. The reality is that Detroit no longer matters all that much as "the Big Three" only account for 50% of US domestic automobile manufacturing, and less than that in sales. Let them declare bankruptcy if they have to (GM and Chrysler seem to be in this boat, Ford is a bit more stable somehow), and they won't cease to exist. If anything they'll have a better shot at becoming viable companies again. They are not going to 'fail' or cease to exist out of this. That's not how bankruptcy works in this country.

What I did see is that the amount of money they're supposedly in need of is already available through a capital goods loan for fuel-efficient vehicle manufacture. Why this money is no good to Democratic leaders is unclear. I'm not sure that money should exist either, but I can't imagine why it has to be a separate issue. Obama has already proposed billions of dollars for fuel-efficiency improvements or alternative energy. I'm pretty sure that 25B is coming back if it has to be used in the short term.

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