Wednesday, November 19, 2008

Proposed Bailout for the Big Three Auto Makers

As I take the time to put these thoughts on paper I know full well that even if this handout is not approved by the Congress in session now, that it will be early next year when the new Congress and Administration take control. They will take the feel good position that once again some part of our economy is too big to fail. This is outrageous. Where will it end? The States and cities are lining up for easy money and there are store closings and bankruptcies occurring on an ever increasing frequency.
I will tell you how it will end. It will end when we are no longer able to sell bonds to other countries and become insolvent. I think we are closer than anyone realizes. They keep talking about income tax reductions and no new taxes when we are drowning in debt with interest on the national debt this year approaching $500 billion which is close to what is spent on our military, not including our two wars and space war costs. This is insane. Doesn’t anybody in authority realize the dire predicament we are in? I don’t disagree that it was the financial industry running wild that drove us over the cliff but that is another story for another time. This letter is about the auto industry.
There was an advertisement in the newspaper this week that Ford will be releasing their new “muscle” car in March. It is a supped up Mustang with a 350 hp. engine, with plenty of get up and go. Just what the public wants. One of the auto executives testifying before the Senate committee yesterday said just that. They built and sold cars wanted by the American consumers. The question is why do they want them? Could it be that advertising has been effective? After all, that is the purpose of advertising. If truth be known I would bet that consumers in Europe would also like them but with gas at up to $8 dollars per gallon they are wise enough to buy smaller more fuel efficient vehicles.
With the current cost of oil at $54/ barrel instead of $147 as it was a few months ago, what is to restrain American consumers from buying the large behemoths these companies like to sell? With a” happy days are here again” publicity campaign the big three may yet prove to be correct and those who have invested heavily in fuel efficient cars may find themselves outside, looking in, as happened in the 80’s when oil costs were lowered.
To keep this from happening, the Federal gas tax should be one that lowers and increases depending on the cost of fuel so that costs level out at a high enough level to encourage us to make efficiency serious criteria when buying cars and trucks. That just makes too much sense. Instead billions will be appropriated for infrastructure projects that could and should come from the users. They talk about global warming but when push comes to shove they are out of the office that day. How sad. It is our fault. We demand everything as long as we don’t have to pay for it.
The $25 billion already given to the big three to be used to speed up conversion will not be used for its intended purpose. It and the other $25 billion will just be used to keep them afloat until next year when either they will need more or they do indeed begin once again to sell the cars and trucks they are producing now.
Several years ago, Congress, in its ultimate wisdom gave huge financial incentives to buy large SUV’s and Humvees. Then finally they gave a small incentive a year ago for 60,000 hybrids. This was gone before you knew it. If they were serious then it would have been open ended but since Detroit wasn’t making them, this was used to buy Honda’s, Toyota’s and Nissans. These were all Japanese models. Even if produced in America by American workers, I am sure Congress was lobbied hard to not overdo it. What will Congress be doing for these companies to reward them for their engineering and development. It appears nothing. The same old story, bail out those who have not tried and punish those that have tried.
For decades the big three and the oil companies have done everything they could to keep from raising mileage. When California and other States tried they were successfully taken to court. G.M. in particular knows how. They had great all electric cars leased in California to enthusiastic users. They called them back and crushed them to wipe out any thought that they ever existed. They make models in Europe that sell. They just don’t want to sell them here as their profit margin is so much greater with the larger cars and trucks.
Trust me, this is the old story repeating itself over again and I fear with the same result.
The greatest boon Congress could give, that would help all American producers compete in the world economy, would be enactment of universal health care like our competitor countries enjoy. Don’t hold your breath.
In conclusion, the only answer is to let them sink or swim. Use Chapter 11 as the Airlines did. Most of them survived, some didn’t. That is the way free enterprise works. Some make it, some don’t. Free enterprise includes the right to fail. Under Chapter 11 they would be granted time to delay payments to creditors, re-negotiate contracts, drastically reduce executive compensation, eliminate corpulence such as personal jet aircraft that cost thousands per hour to use, and really get serious about redesign.
There is never any useful purpose for these letters I write except to relieve the pressure I create for myself and to leave a paper trail of what could have been accomplished but never was.

Jack B. Walters
3961 N. Hillwood Circle
Tucson, AZ 85750
(520) 722-2958
November 19, 2008

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