If you look at the big picture and ignore the details, it's clear: let 'em go under. Newer, more innovative car companies will spring up, probably in "right to work" states where the UAW won't send costs through the ceiling.

The problem is with the "little" picture. Sure, let the big automakers go bust, but you need to have some sort of plan in place. Otherwise, you are going to have regions of the country with third-world unemployment rates. That will get very, very ugly...

Even as a libertarian, I see this as a legitimate place for government intervention: bridge over the time between the automakers going bust and these people finding a new life. Help people move to areas where they can get work, and giving other companies incentives to move into the affected areas. Think of it as a kind of internal Marshall Plan.

Let GM go tits up, and then Toyota can buy up the assets in the fire sale, and tell the UAW to go piss up a rope. Ditto Ford and Chrysler.

The only people I feel sorry for is the retirees who are going to get shafted, but they should never have been given the deal they got in the first place. It's also why GM and Ford are drooling at the possibility of a nationalized health care system, because they will finally be able to cut all those people loose.

Which would be an even bigger financial disaster for us.

Amy, I know this might not be appreciated by an atheist, but here goes.

Ahmen!

The thing is, it's NOT "the auto industry." Toyota is doing quite well, I think. It's the Big 3. I've lived my whole life (OK, since age 4) in metro Detroit and the car industry was always King--you did not question it, it was the land of milk and honey for both professionals and blue collar workers. I never would have guessed in the 1970s that one day the Big Three could go broke--hell, my parents emigrated from Germany to Detroit in 1969 because *Chrysler was placing ads in European newspapers to hire factory-floor engineers.* The problem is, people had it too good for too long and didn't want to see the warning signs. La la la la, everyone wants SUVs, we'll build SUVs. Some of the Big 3 even said they didn't have the "technology" to build small cars--even though they have successfully been producing small cars for the overseas markets for decades! Now that mismanagement has caught up with them, they scream UNFAIR! UNFAIR! It's almost sacrilegious for where I live to say this, but I don't think they deserve the bailout, even though so much of the economy here depends on the auto industry. Even my own job is tied to it (University transportation research) as are the jobs of my friends and family.

Creative destruction. Once the big guys are gone, we'll have a chance at getting some small guys to enter the fray and grow.

Who will it be? (I'd though Elon Musk's Tesla, but now I'm not so sure.) Anyway, it's time to put GM on a sled, or put it in a nursing home or hospice.

Another way to look at it:

Companies that are too big to fail, MUST be broken up in the name of the national good.

(How come if AIG is too big to fail, we don't know what the plans are to break it up?)

Let them fail. Their assets will be bought up. Everything has a price.

Wait a minute, these companies were supposedly rolling in cash a few years ago selling their stupid, ugly vehicles; so what happened to all that money??? Pretty soon, big oil will also be crawling to Washington, since the price of oil is dropping, no??

Made the mistake of watching Paulson bloviate on CNBC (press conference, actually).

He just came out and said, essentially "Yeah, we lied about that whole freeing up liquidity thing", but not in so many words.

He never intended the TARP money to be used to loosen up the credit squeeze. He intended it to be used to BUY MORE FUCKING BANKS. "Purchasing the bad assets would not be a productive use of those [TARP] funds".

And here I was worried that Obambi was the socialist.

Ladies and gentlemen, I submit to you that we are well and truly fuckeded.

My husband left Ford 5 years ago (engineer) because anyone with a brain could see where things were going. They convinced themselves they could just copy new technology rather than innovate. Managers live in an echo chamber with other MBA's and refuse to learn what it takes to actually make something.

I have a lot of family in Michigan (Jiffy Mix anyone?) and hate to see how peoples lives are affected. But this bailout is a bad idea.

>>>And here I was worried that Obambi was the socialist.

"Worried" brian?

You call all those hysterical, last-gasp, Day of Judgment, death-rattle denunciations of everything evil Obama secretly stood for and was surely about to unleash on your ilk before the election - all that torrent of horror-drenched predictions you let rip here at Amy's - they were only communicating that you were "worried"?

You do live life at quite a pitch!

Lou Dobbs is such a little weasel. Exactly what point is he making when he points out that Turner once needed investors? Does he really think that's a journalist "gotcha"? I wouldn't have put up with that shit from a child at a dinner table, let alone a presumably sophisticated financial reporter. That's just dumb.

I'll never understand the admiration people feel for Dobbs... Or any of the other pompous, crusading cable TV talk show hosts.

Almost fifty years old, I've never purchased an American car. My nephews, two brilliant guys, have point out that the market cap for ford and GM combined is $5.9 billion. We're about to sink ten times that much into businesses that are indisputably doomed anyway. Toyota stock would be a much better investment of taxpayer dollars.

These bailouts are really and truly infuriating. We have GOT to stop throwing good money after bad like this. Markets can figure out on their own which uses for capital are efficient and which ones are sinkholes. Leave them alone to work, and capital will flow to the places that make the best use of it.

This nonsense about a company being "too big to fail," that's just stupid. Left alone, most companies never stay in the Fortune 100 for very long. Most of them fail precisely because they DO get too big. They turn a corner during their life cycle where they become bureaucratic and unwieldly. The passion dies and entrenched management concerns itself with lining its own pockets. Well no problem! These companies eventually die, new ones move in, those new ones eventually get too big and bloated, more new ones come in, and so it goes.

The Big 3 were making great money at the height of the SUV craze, and they've gotten bailout after bailout for years. Money right down the crapper, with no end in sight. And why? Because no president wants "the demise of the Big 3" to appear on his resume? Hell, I'd be proud to take credit for letting those suckwads fold.

they were only communicating that you were "worried"?

Well, now I'm simply resigned to my fate. Barring a miracle, I'll either be bankrupt or expatriated within 4 years.

I too have just read the Paulson statement that the Treasury would not be buying mortgage assets. It's outrageous. I'm not a legal or political expert by any means. But can he do this?

Just wanted to add a personal frustration: I hate that all along Detroit's answer to foreign cars (which HAD to be built better be able to sell and thrive int he U.S. market) was not to address their own quality or efficiency but to put down foreign cars and start up the "Buy American" clap trap. What? Since when is making your own consumer decisions suddenly UN-American? Choice and free will is what the whole country was founded on. Add to that the Union hold on the industry and we're all fucked, right up orifices things should only come out of. (If you lay off a white collar worker, you save 100% of their salary and expenses right away; if you fire a union worker, you only save 30% based on what you owe the employee through Union regulations. A colleague's sister was let go from her GM job two years ago and is still collecting her full-time salary, and has no intention to look for another job. Another colleague's neighbor took a GM buyout 13 years ago that paid him enough so he hasn't had to work since.) Yes, workers should be taken care of, but this is ridiculous in an industry that's been hemorrhaging cash for the last 10 years at least.

Now Amex is crying poverty?

I read a story last week about credit card companies jacking interest rates up because they can.

Amex tries that and they're gonna lose some business.

>>Well, now I'm simply resigned to my fate. Barring a miracle, I'll either be bankrupt or expatriated within 4 years.

I understand, brian.

I suppose I just wish - foolishly, natch - that you'd even slightly admit that all your yelling about the fantasy hobgoblin of Obama under the voters' beds was ignoring the fact the real monster of unregulated greed was sitting on our pillows all along.

Wow, I usually like Dobbs and I dont like Turner at all (who seems to have returned to semi rational status) but man was that dumb "reporting".

Detroit has had flex fuel cars in the hopper for years, selling them to markets that wanted them (Brazil) but refused to bring them out to the US. They have a majorly efficient diesel engine they're putting in subcompacts in UK/Europe that gets 60 mpg (imperial IIRC) but its too expensive to retool factories over here in the US/Canada/Mexico to make it. They wouldn't sell enough cars and of course all the polution law issues.

The only upside to this is, its a great time to buy SUVs, they're going for firesale prices and gas is dropping in price. Probably not a good long term buy though. :)

Amy, thanks for the link to the book. I read the excerpt and it sounds very interesting. Except... OMG... WTF... TLA... I think *I'm* a nice guy! Even though I'm not actually a guy... Gonna check this out of the library and see what the author has to say to deal with this. I've been working very hard to grow a spine for some time... and am making progress. Yet most other books I've read are too touchy-feely, mamby-pamby for my liking and I suspect this one is going to be different!!

My last comment should have been posted for the advice article today, not this blog entry.

I suppose I just wish - foolishly, natch - that you'd even slightly admit that all your yelling about the fantasy hobgoblin of Obama under the voters' beds was ignoring the fact the real monster of unregulated greed was sitting on our pillows all along.

Except that I didn't ignore anything, and it wasn't a "monster of unregulated greed", it was a "monster of highly regulated political corruption" that you'll recall I demanded suicides in repayment for.

Obama is still the worst possible thing that could have happened to the world at this moment. The economic fallover makes the coming Obama presidency significantly more dangerous to the future of humanity.

He's already floating trial balloons of the imbeciles he's going to fill his cabinet with. He's certainly following the trajectory of the powerful idiot: surround yourself with stupider people so that you look bright by comparison.

Be afraid, Jody. Be very afraid.

"My experience owning my first new car -- a Honda Insight -- is totally different from my parents' experience with American cars."

I am driving a 1999 GM product, and I'm sorry to say, they didn't improve much from the time your parents were buying them. My damn vehicle only has 80K miles on it, and it has already cost me a lot of money in repairs. I swear I've fixed the same engine problem twice. There are also some really STUPID things that go wrong with it, too, like the little motor for the rear wiper. That sucker wasn't cheap. And now I can't get the 'intermittent' setting to work on either the front OR the rear wiper, and they tell me the part alone (something called an alarm control module unit) is going to cost $415. For the effing WIPERS.

And their service sucks, too. This latest little flurry of repairs has pissed me off righteously. The $415 part thing I mentioned above? Those fkers charged me $90 to diagnose the problem, which they didn't tell me was going to be on the bill. They also charged me over $200 for some stupid "system flush" that they ALSO didn't tell me was going to be on the bill. The $400 bill I was expecting (which included two new tires and a couple of small things) ended up being over $700. And the bastard was trying to get me to buy FOUR new tires! Dude, do I look like a giant goddam money tree?

I will no longer be returning to that place for service, I'll tell you that much.

In fact, I should have known I was going to have trouble with these people from the day I walked onto the lot and bought the vehicle in the first place. The sales dipshit actually asked me if I "needed to talk to my husband or boyfriend" first. I just turned around and walked away, and came back on a different day when I could deal with his boss directly. Wasn't going to mess around with these sales people anymore, and they always have to "go check with their manager" anyway, so why not simply go to the manager first thing.

Ugh, I have been very disappointed with the product quality, AND with the sales experience, AND with the service. No, I will not be buying a GM product ever again. If there are any decent people working for the organization, I'm sure they will find jobs elsewhere. The rest of 'em can go piss up a rope.

>>The economic fallover makes the coming Obama presidency significantly more dangerous to the future of humanity.

Right, I'm holding you to that one, brian!
(If any of us survive, of course.)

Jody -

Unless Obama does a 180 and goes against every promise he made (which is unlikely) we are in for a long depression.

He's already promised on day 1 to permanently enjoin the US from exploiting its own petroleum resources, by fiat no less.

We already know that the floor on his tax increases has dropped to 120,000. It's likely to drop further.

We also know that there is no way he could support all his proposed programs even if we had 5% annual GDP growth. He'll bankrupt the country trying when we're at -1% GDP growth.

The stock market has been down every day except one since the election. The market clearly believes that not only is Paulson a fuckup, but that everyone that is giving Obama advice is just as fucked. So not only is the short-short term outlook bad, the short-medium term is worse.

I'd like to believe that the best outcome for us is for him to resign immediately after the inauguration. But that would give us Biden or Pelosi. But Pelosi might not be worse. Steny Hoyer is a bit more of a pragmatist than San Fran Nan, so we might survive a Pelosi presidency with Hoyer in charge of the house.

me, I'd like to see all those employees retrained/help with jobsearch with that money, and let the companies go since they can't seem to read the writing on the wall... except I know that a lot of unioists make good wages that they will never be able to find in other lines of work, at least until they have worked those jobs for a while.

In which case I am for loans, I guess. This would destabilize quite a few people, and potentially cause an implosion of society in those areas. If you make $30/hr and have a mortgage to match that, even if you are doing well, losing that job suddenly will cause you to lose everything. They got those jobs with a reasonable expectation that they would be safe. I'm with Amy in that bosses at the top should lose everything first. I'd bet you could soften the blow or even turn those companies around just by firing some of those 7figure a year guys.

This is a classic case of what probably needs to happen broadly, will really be miserable individually for people. I don't wish it on them any more than myself, but it may be the only way.

>>The stock market has been down every day except one since the election. The market clearly believes that not only is Paulson a fuckup, but that everyone that is giving Obama advice is just as fucked.

For fuck's sake, brian.
The only people predicting the disastrous stock market would let out a massive burp immediately after the election and then continue pinkly and perkily on its usual giddy way thanks to Obama, were Republicans setting up the obvious punch line.

You're usually way more nimble than this?

SwissArmyD, there is NO SUCH THING as a safe job, and the sooner people realize this unpleasant truth, the quicker their expectations can line up with reality and prevent the kind of nasty little shocks you are talking about. If you are overpaid at $30 an hour, you should be living on what you are truly worth and banking the rest for the rainy day that will inevitably come. It's called LIVING WITHIN YOUR MEANS. Welcome to adulthood!

I know that most of the people you are talking about are "nice, everyday folks," but they can be just as greedy and unrealistic as anyone else. A lot of these union people wanted the big bucks like someone with a college degree could make, but they didn't want to spend the time or money on college, or climb their way up the ranks through experience. They wanted instant gratification, and they sought it by trying to thwart the laws of supply and demand, which only ever works in the short-term, until you end up killing the goose that's laying the golden eggs.

People don't get paid based on how nice they are, or even how hard they work. People get paid based on the supply and demand for their skills. If you haven't managed to acquire any employable skills beyond the ability to pick your own nose, don't be surprised when your company gets rid of your expensive ass and hires a Mexican who can pick his nose twice as fast and for half the money. And why shouldn't they? There is no excuse for people who grow up in this country, get free education, learn English as their first language, still can't find their asses with both hands, and then have the nerve to demand a salary that will buy them a $45,000 truck.

Jody -

The market is reacting exactly as most people expect it would given Obama's trade protection, redistribution, and tax hike policies.

There's no evidence that he will govern from the center as so many "conservatives" who decided to support him expected. He will govern from the left, which is profoundly bad for business.

What you're seeing in the markets are the twin flights of capital from the uncertainty surrounding the "bailout", and from uncertainty related to potential destruction of earnings in an Obama tax-hike regime.

Which "Big Cars" are you referring to? The Malibu? (Smaller than Camry and Accord), Impala? (Smaller than Accord). Maybe Cadillac? (Best seller, CTS...same size as BMW 5 series). Cobalt?

Is it the SUV's that Toyota was selling just as furiously as GM or Ford? The only reason Toyota hasn't been caught out as bad is because they didn't have the capacity in place to make enough trucks and SUV's (the Tundra plant in Texas had to be repurposed, but since it was brand new, no problem...), and Honda didn't have a design (plus, it doesn't follow their corporate philosophy all that well.).

All of the automakers are down. Toyota is doing best at only a 27% drop. GM's is 45%... This is hardly a crisis of Management's own making. The consumer is partially responsible for the portfolio imbalance as well. For instance, American buyers could have um...NOT bought SUV's so much.

As for small cars, the previously mentioned sweet deals for union members make small cars unprofitable for GM to build. With VEBA and new designs from Daewoo (finally), GM will have a class leading small car too (along with Malibu for mid size). Example, the recently introduced (in Europe) Chevrolet Cruze.

Ford will be bringing over it's top of class European offerings (and the attendant jump in prices). For comparison, the Mazda 3 is based on (and poorer sibling of) the last generation European Ford Focus. The Focus is a perennial winner on the World Rally Circuit as well.

GM brought over the Opel(Vauxhall) Astra, which outsells every other car in it's class in Europe. Americans have bought about 40,000 of them so far this year.

CTS and Malibu both are highly praised and COTY award winners, the CTS is the world record holder for 4 door sedans on Nurburgring in Germany - which means it outhandles and out accelerates any other 4 door car in the world.

How good do these guys have to get before they rate a second look one wonders...?

"How good do these guys have to get before they rate a second look one wonders...?"-Factory

Well, every one of the cars you just named is kind of ugly... and for the money, I'd take a base Accord over a loaded Malibu any day.

When they can build a car that isn't bland, for starters. Have you looked at the Malibu or Impala? There's nothing there to distinguish them from their more reliable cousins from Honda and Toyota at the same price point.

If I'm going to buy a Mazda, why the hell should I pay for a blue oval to be glued on to it?

I mean, I used to be bow-tie all the way. But when my last one croaked in 2001, the Americans weren't interested in selling me the car I wanted - a 4 door sedan with a decent engine and a manual transmission. I had to go VW to get that - my only choices with manual transmission from the US were either econoboxes with pussy engines, or a Corvette, which I cannot insure, and can't pull into my driveway without ripping off the undercarriage.

The last American car that caught my attention was the new Mustang. Not really a good all-around vehicle for what I need to do.

>>What you're seeing in the markets are the twin flights of capital from the uncertainty surrounding the "bailout", and from uncertainty related to potential destruction of earnings in an Obama tax-hike regime.

brian,
That's slightly better!!

But I'd really like to know how you're so precisely calibrating the discrete causes producing all this market-manifested "uncertainty".

Funny how you just intuit which bits are due to Obama and which bits to the twin flights etc!

In other words, I don't really want to know how you know you're right. But you knew that already.

The only obvious part of all this is what shit we're in.
And any fool can see that.

Well, I don't know how much is due to Obama and how much is due to the financial bullshit. I don't think anyone does.

But all you have to do is watch CNBC while Paulson is talking and watch the Dow flop around like an epileptic in the middle of a seizure to know that it's having SOME impact.

Either way, we're fucked. Obama's not likely to put people on his team that are believers in the free market. He's already talking about bailing out Detroit, which is going to make whatever happens longer and lower.

I think if Dodd and Frank resigned, we'd have a week of up days in the market. But that won't happen. They have no reason to resign, they'll never be held accountable for their actions. As long as the media keeps convincing the sheep that Bush did it, they can keep their jobs and their ill-gotten lucre.

The whole GM mess is a prime example of Ayn Rand's "Aristocracy of Pull". For decades, the American automotive industry lobbied for high custom fees towards imported European and Japanese cars. In exchange, they accepted to pay higher-than-deserved salaries to the UAW members and ofered a lavish medical plan.

Now that they are deep in the red, They are calling the "Pull" back by taking the employees hostage and by threatening to let their retired fall under public medicare.

Of course, Obama will save them. Michigan is a Deep-blue state and the Big-three are "Too Big To Fail" (I.E.; they got pull).

"Wow, I usually like Dobbs..."

Wow, there should be some kind of warning before I inadvertently read something like that.

TURNER: They've been so stupid. I mean, I knew 10 years ago that they were going to go broke, building those big cars. They needed to read the news. If they would have watched CNN about what was happening to oil supplies, they would have realized that they needed to start building small cars.

Turner, as well as some others here, should learn a little bit about how government policy has affected the automakers.

First, review the Wagner Act. Passed in the mid-30s, its consequence was to force upon the auto industry a labor cartel that was legally able to collude in ways that would have put the auto company executives in jail had they tried the same thing.

Additional federal and state laws make it very difficult for the automakers to shut off losing brands and consolidate dealer networks.

The result? US automakers are laboring under roughly $1500 per vehicle in additional costs, compared to their rivals, that they cannot control. That is enough to essentially wipe out any profit on small cars -- which is your answer as to why US automakers have focused on larger vehicles.

Then, as if that wasn't enough, the government then cooks up the CRA, which metastasizes into a seized credit market.

Other than houses, cars are the one purchase where most people require a loan.

So, the CRA originated debacle has hit the automakers particularly hard.

If I became Head Dude What's In Charge tomorrow, and wanted to destroy completely destroy an industry, I wouldn't be able to think of anything better than what our government has inflicted upon the automakers.

Hi! I could have sworn I've been to this blog before but after browsing through some of the post I realized it's new to me. Anyhow, I'm definitely glad I found it and I'll be bookmarking and checking back often!