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Congress, A Step Back In The Right Direction

Written by | December 12th, 2008
Of course this issue is subjective to what your belief is, however, I see the fact that the 15 billion dollar bailout (bridge loan) being denied to The Big 3, as a good step back, in the right direction. Hopefully this will send a message, going forward, that if a company can not make it, then the government/tax payers, bailing them out, is not the way to go.
 
With that being said, the president can elect to give them the money, out of the original bailout (700 billion) to no where.
 
You can read more at… http://www.foxnews.com/politics/2008/12/12/bankruptcy-bad-automakers-weigh-options-bailout-collapse/
 
Mark
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5 thoughts on “Congress, A Step Back In The Right Direction

  1. LdyBelle

    To me this is a double-edged sword…

    The Big 3 did this to themselves.. This has been, what, say 15 maybe 20 years in the making? Toyota and Honda have been running a well oiled business machine for years now. They are making better vehicles, high-demand vehicles and making shareholders happy! Why? Through innovative thinking and customer satisfaction…

    TB3 know this, see this, but yet have done nothing about it.. They continue with their "old school" mind set for poorer quality and higher costs (which I'm sure is UAW driven)..

    I work in an industry that continually analyzes the competion. What are they doing better? How can we do it better? All so that we can be better… For years I could/can not comphrehend how TB3 have chosen to ignore doing just that.. It's like they have this sort of arrogance and frankly denial that they could ever fail.

    Well folks, here they are. So they expect a bail out… A part of me, well, most of me, thinks they shouldn't get it. They need to learn to cut costs and streamline.. If Toyota can do it (in the US) for $30 or so dollars less an hour than GM, it's certainly possible…

    However, the realistic side of me sees that we can not have the automobile industry crumble and cause unemployment to thousands if not millions… So, my friends, it is a double-edged sword.. Catch 22, 6 in one half a dozen in the other…

    Help is needed, but what lesson, what changes will they make if it's given? If nothing is learned then this will happen-again… AIG anyone???

    :roll:

    Reply
  2. markross Post author

    L,

    Well said!

    Of course I sympathize with the people and families that are going to loose their jobs, however, this does have to do with all of the above factors that you laid out; I'm sure that the gasoline prices did not help either.

    You are totally correct in your assessment; if these unions don't want to make concessions, then sorry to hear it; they can join the rest of us who are out of work.

    I do believe that you nailed it; if that money is given to them, it will be another AIG; a mere band-aid.

    In the case of major airlines, the past has proved that bankruptcy can work, and will work again; in fact, a lot of people (pilots etc.) who lost their jobs then, were eventually called back.

    Also, to add to what you were saying; Toyota and some others have a much better business model; perhaps TB3 will learn from them, once they get their act together. Also, with these other auto-makers, I don't see how the auto industry will collapse without TB3.

    Mark

    Reply
  3. KEB

    Ok, lets think about this for a minute … I keep hearing how the auto industry did it to themselves, but I don't think that is looking at the bigger picture.

    The Auto Industry has done the same thing that every other business did in times of economic prosperity … they expanded wildly in an effort to keep up with the demand for their products. This did a several good things …

    increased wages in a labor driven market

    reduced overall cost supply vs. demand

    reduced unemployment

    spawned additional support business

    Of course it also did some bad things

    created a labor driven market

    expanded capital expenditures

    reduced productivity

    Wrap you mind around these things now. The Auto Industry created tens of thousands of jobs and paid a premium for labor because they were making money hand over fist. This became a labor driven market where the employee could make demands .. the company simply had to bend over and take it. That isn't necessarily bad, but we can discuss that later. They then increasingly took on additional debt to finance the ever expanding demand for product and the increased need for labor, meant they necessarily lowered their hiring standards to get bodies to fill positions. These bodies were not as productive as the experts, but they could make money by using them, so they did. The bodies won, the employer won.

    Now the market declines for whatever reason. We could speculate on a whole host of reasons, but the fact is, people stopped buying vehicles. Suddenly, the supply/demand equasion is all out of whack. There are too many employees producing too many autos … the simple solution is to reduce the workforce to a level where the best employees are kept on, the chaff is released and reduce production to the current needs. But this is very difficult in todays environment where people have a sense of entitlement and government makes it difficult to reduce labor, even if you don't need it. The other part of this story is that during the expansion, to keep up with demand, it was necessary to borrow capital. This is ALWAYS a bad move in an economy where economic growth changes wildly. It would have been better to expand more slowly, but what is done is done.

    The solution now is to terminate all employees that are not absolutely necessary to produce for the current demand, making sure to keep the best employees without regard to seniority, cut all benefits (labor and management) to a level commensurate with the current demand, reduce management staff, reduce pay scales of all employee, including management and executives and have a fire sale on unneeded assets to reduce short term debt.

    The solution is there, it just isn't popular … what the pundits want to do is to prop up the auto manufacturers so they can continue to pay people who they don't need. Jobs will be cut one way or another .. either the company goes bankrupt and everyone loses their job or the company reduces its position to handle current demands and only some people lose their job. Currently there is no solution where everyone keeps their job, even with billions in government subsidies.

    This is why reporters are not economic analysts, if they were, they would be telling a completely different story.

    Reply
  4. markross Post author

    K,
    That is a very good analysis, thank you.

    Let’s also not forget that these CEOs had a fleet of corporate jets, while in debt for billions, and while the potential for collapse was on the horizon.

    In the beginning, neither the CEOs, or the union were willing to make concessions; no, it was let the taxpayers (not the government!) subsidize us.

    “This is why reporters are not economic analysts, if they were, they would be telling a completely different story.”

    The job of reporters is to be resourceful, and to get the most discerning information, from the most reliable sources; then to report it “accurately” to the people. So, while the reporters are not economists, they are able to get access and speak truths (we hope) that most politicians will not do.

    I am not bashing the economists, however, if they were doing so well, and if the politicians were listening to them, then why are we in this mess?

    Remember, lawyers are not economists either; perhaps we should elect some economists to Congress and The Senate.

    Mark

    Reply
  5. markross Post author

    Unfortunately, President Bush OK'd 17.4 billion dollars for The Big 3 bailout. <span>:roll:</span>

    "At (the very) least" it was from the original (700 billion dollars) TALF funds and not new funds that (thankfully) was knocked down, in Congress.

    President Bush has "really" disappointed me with this decision.

    Mark

    Reply

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