General Feed
NTU sent a letter opposing a $25 billion auto bailout as Congress apparently gears up to work on one this week.
Two interesting thoughts...
First, as an aside, I heard that organized labor raised $80 million for this year's presidential election. Am I the only one who thinks maybe they should have instead raised $80 million for their retirement and health care costs? Maybe then we'd only be talking about a $24.92 billion bailout.
Second, on a more substantive note, you'll hear a lot over the next few days and weeks about how the Big 3 have missed the boat on hybrids and green technology, and what they really need is for the federal government to force them to build more such vehicles. Well, don't (necessarily) believe the hype.
The Big 3 are certainly late to the hybrid party, but they have plenty of models now that are hybrids and/or get very good gas mileage. Yes, it's true that they focused too much of their efforts on big trucks and SUVs, but that's because that's what Americans were buying at the time.
You'll hear that companies like Toyota and Honda are models for how the Big 3 should operate (smaller vehicles, hybrids, etc). While that's partially true, it should be noted that Toyota and Honda make very little profit on hybrids, and both had high-profile forays into the world of trucks and SUVs (e.g., the Toyota Tundra and Honda Ridgeline). Those forays were expensive and, ultimately, bore little fruit.
You'll also hear that the Big 3 doesn't make any vehicles people want to buy. That is also not really true. 10 years ago, the Big 3's products were vastly inferior, but that isn't necessarily the case today. Cars like the Cadillac CTS, Chevy Malibu, and Chevy Cobalt are actually very good vehicles that are more than competitive with their foreign counterparts. The product isn't terrific top to bottom, but it's getting better.
The product mix is a part of it, but the biggest reason that companies like Honda and Toyota are in such a superior position right now is the cost structure. The Big 3 pays their American workers 52% more than Toyota pays its American workers. The Big 3 have ENORMOUS costs for retirement and health benefits that their competitors simply don't have. That is the biggest difference. So don't let the rhetoric fool you into thinking that if the Big 3 just start making small, efficient cars that all will be well.
Thoughts on an Auto Bailout
Posted by Andrew Moylan - November 17, 2008Thoughts? Add Comment -
Joe the Dad said on Nov 17 2008 at 12:19pm
These are my ideas for fixing the current financial problems. I am a stay at home dad. My solution to this problem reflects a common philosophy about raising children. Punish bad behavior and reward good behavior. Please read. If you believe this plan will work, please contact your congressperson http://www.usa.gov/Contact/Elected.shtml .
Summary
· Lower the interest paid on mortgages from 6% to 4% for people with good credit.
· Lower it to 2% for anyone currently serving in the military.
· For people that default on loans automatically deduce 20% of their income from their paycheck until their debt is paid
· The government should buy large shares of bad banks and not their debt
· Outlaw rising rate loans and raise the standards for getting loans
· The government should give the automakers the money they need with conditions. They need to use 50% of the money they receive to retool abandoned plants to produce wind powered generators and solar panels
· The government would need to assure all automakers that large SUV’s will be phased out in the US market regardless of oil prices. This can be done with higher fuel mileage standards and will allow everyone to concentrate on fuel efficient and electric vehicles
· The announcement of the new mortgage rates and the massive amount of home sells would cause the sock market to take off like a rocket. Sock prices would rise extremely fast. Home values would rise, 401K’s would recover, and the bank stocks own by the government would rise
· The government could take profits like any other investor and recover their loses in a matter of days.
Details
Most people would agree that the source of the current financial problem is the failure of the housing market. I believe this problem can be fixed fairly easily. We should reward people with good credit and people who serve in the arm forces. Lower the interest paid on mortgages from the current 6% to 4% for people with good credit. Lower it to 2% for anyone currently serving in the military. This was done after WWII and was very effective.
The people that defaulted on their loans did not disappear. Most are still working and collecting a paycheck. These people can be punished by automatically deducting 20% of their income from their paycheck until their debt is paid. This method is already in place to collect back child support. This would also discourage additional people with negative equity from walking away from loans.
Repairing the housing market will fix the banking crisis. The government should punish the bad banks by keeping large shares of these companies and not their debt. The government can reward healthy banks by allowing them to purchase bad banks at discount rates. They should also outlaw rising rate loans and raise the standards for getting loans.
The Big Three problem is the most difficult one to solve but not impossible. The government should give the automakers the money they need with conditions. They need to use 50% of the money they receive to retool abandoned plants to produce wind powered generators and solar panels. During WWII GM retooled to produce airplanes and tanks in a matter of mouths. The auto industry could be their own first customers buy installing solar panels on every auto plant. The reward for cooperating would be the loan itself and a potentially share of revenues generated by the alternative energy sources. Punishment would again come in the form of company shares. In addition, the government would need to assure all automakers that large gas powered SUV’s will be phased out in the US market regardless of oil prices. This can be done with higher fuel mileage standards and will allow everyone to concentrate on fuel efficient and electric vehicles.
Why will all this work? We have roughly a million people in the arm forces. All of them have guaranteed jobs and paychecks. This is a realtor dream come true. Service man and women will see 2% mortgages as a change of a lifetime. They would be right. The result would be thousands of new low risk loans. The 4% loans would cause millions of people to refinance. Real estate investors would also see this as a chance of a lifetime. Mortgage crisis over!
The removal of all this bad debt and billion in deposits and fees would sure up the banks. One byproduct of all the action would be thousands banking jobs to handle the volume of new loans. Banking crisis over!
The government will acquire the land it needs to make alternative energy work. The will of the citizens of the US to remove themselves from the grip of fossil fuels will require thousands of wind powered generators and solar cells. The government and utility companies would finance these projects in exchange for revenues generated by the energy they produce. This gives the Big Three customers to sell their new product line too and diversifies their portfolio of services they provide. Thousands of new jobs created. The large investment in alternative energy would drive down energy cost. This would give the US a huge advantage over the rest of the world. Big Three crisis over! Global warming crisis over?
The announcement of the new mortgage rates and the massive amount of home sells would cause the sock market to take off like a rocket. Home values would rise, 401K’s would recover, and the bank stocks owned by the government would rise. There are billions of dollars in investment accounts waiting for an economic turn around. This means sock prices would raise extremely fast. The government could take profits like any other investor and recover their loses in a matter of days. Wall street crisis over! Bailout over!
B.L. Wilkinson said on Nov 18 2008 at 6:23am
Unionized Americans also buy products and goods and pay taxes, when they have a job. It just takes a lot more of them combined to equal $30,000,000 in wages. Unlike the one single individual that has lead a certain insurance giant down the wrong path for self interest and then gets a bailout. Unionized Americans do not have the control of how an organization invest their $ other than to try to negotiate a fair wage for their family to live on.
William A. Kinder said on Nov 18 2008 at 7:36am
Auto bailout vs auto stimulus plan. All the focus today is on a $25 billion loan program to save the big 3 auto makers. Is that the only solution to the problem? I think not.
A major contributor currently to the problems of the Detroit auto makers is the recent and continuing economic slowdown which is greatly curtailing auto sales. In addition to considering the $25 billion auto bailout plan, the U.S. Congress is planning some sort of economic stimulus program. Why not consider a combination of economic stimulus and aid to the auto industry?
Rather than asking tax payers to put up $25 billion in risky loans to the failing big 3 auto makers, Congress should enact a plan to stimulate U.S. auto sales by offering a 20% rebate to citizens on the purchase of new American-made autos over a period of two or three years. This should produce a huge boost in auto sales, thus addressing one of the main causes of the current problems of the auto industry.
The cost of this plan should be much less than $25 billion (an averave rebate of $5,000 on a million new cars totals only $5 billion). While the auto industry would be greatly aided, much of the benefit of these tax payer dollars would go back to tax payers.
The plan could be further strengthened by offering 20% rebates to American car makers on the purchase of American-made auto parts, thus aiding parts makers as well as car makers and consumers.
While the plan would not solve all the problems of the big 3 car makers, it would provide a two or three period of strong auto sales giving auto makers increased revenues and some time to work on restructuring and developing better cars. before the rebate plan expires.
I am obviously not an expert on these issues but would welcome any thoughts or views on why this would not be a better solution to the problem.
Jeff said on Nov 18 2008 at 3:11pm
"Dodd calls executives 'devoid of vision' and business model 'failed' as Big Three seeks $25 billion in taxpayer money."
http://money.cnn.com/2008/11/18/news/economy/auto_hearings/index.htm?postversion=2008111815
Donte S said on Feb 20 2009 at 2:15am
One of the major concerns now of most government leaders is the problem regarding the auto industry. But unfortunately, President Obama has repeatedly stipulated that he will not be creating a car czar, no matter what amount of a cash advance he is offered. The task of determining when and how much of a cash advance to give to Chrysler and GM in the auto bailout will fall to Timothy Geithner, the Treasury Secretary. It has been said that allowing them to fall into bankruptcy is not off the table. Ford has insisted that it will survive, but only wants lines of credit available if needed, and unlike its Detroit based contemporaries, has not yet asked for a cash advance of any kind.