The Road to a Bailout They Don't Deserve

The Road to a Bailout They Don't Deserve
http://tinyurl.com/6hhkx2

Wednesday, September 3, 2008; D01

It's desperation time for the Big Three automakers. They are awash in
gas-guzzling vehicles nobody wants to buy, bleeding red ink and running
out of cash.

So it should be no surprise that when Congress returns next week, the
companies and their unions will put on a full-court press to win
approval for $50 billion in federal loans to be used to re-engineer and
retool their plants for a new generation of energy-efficient vehicles.

With the auto-dependent states of Michigan, Ohio and Indiana up for
grabs in November, the Big Three hope to use the political calendar to
their full advantage. They've already won the backing of both of the
presidential candidates, along with House Speaker Nancy Pelosi, who
promises quick action this fall. And while the White House has indicated
its reluctance to involve the government in the rescue of yet another
industry, it may have a hard time explaining why the automakers are any
less deserving of a "bailout" than Wall Street investment banks or
Fannie Mae and Freddie Mac.

The foundation for this effort was quietly laid last year in a
little-noted provision tucked into the energy bill passed by Congress
and signed by the president, providing for $25 billion in loans.
Although any company producing autos in the United States could qualify
for the loans, priority was given to those retooling plants that were
more than 20 years old, which pretty much guarantees that most of the
money will go the Ford, Chrysler, General Motors and their suppliers.

Since passage of the energy bill, things have only gone from bad to
worse for the Big Three, due to the credit crunch, an economic downturn
and $4-a-gallon gasoline. So the industry and its supporters will try to
expand the program to $50 billion and provide the necessary funding in
the omnibus spending bill that will be needed before the election to
prevent a government shutdown.

Even before top industry executives arrive in Washington later this
month to lobby for their program, General Motors' vice chairman, Robert
Lutz, who never misses an opportunity to put his foot in his mouth, was
telling reporters in Chicago last week that the industry "deserves"
government loans because of all the challenges that have been inflicted
upon it. In fact, it's hard to imagine an industry less deserving of
government help.

Here are three companies that for decades failed to produce cars that
were well designed, well produced and exciting to look at, that fought
tooth and nail against efforts to require greater fuel efficiency and,
until recently, did too little to bring wages, benefits and retiree
costs in line with competitive realities. And while they whined for
years that it was unfair trade that put them at a disadvantage, Toyota,
Honda, BMW and other foreign transplants came along to prove that it is
possible to produce quality cars at affordable prices in U.S. factories
while offering decent wages and benefits.

Not only are the Big Three not deserving, but to help them out of their
current predicament would also set a lousy precedent in a market-driven
economy where the possibility of earning great wealth is supposed to be
balanced against the possibility of failure. For the government to step
in and put up $50 billion in loans to try to save the Big Three auto
companies, after having done little or nothing to save the jobs of
steelworkers and shoemakers and furniture craftsmen, would be patently
unfair.

And yet it is probably the wise thing to do.

This is a uniquely inopportune time for these three giant companies,
with their hundreds of thousands of employees and vast national network
of suppliers and distributors, to be forced to go through the painful
process of bankruptcy reorganization. The national economy is already
looking at years of recession and stagnation due to the worst housing
and financial crisis since the 1930s, while the economy in much of the
industrialized Midwest is already in its own depression.

If one of these companies is forced into bankruptcy, the other two are
almost certain to follow, resulting in massive layoffs and plant
closures, a hit to the incomes of millions of retirees and another body
blow to wounded banks and credit markets that have lent the Big Three
hundreds of billions of dollars. It would also dump tens of billions of
dollars in pension liabilities on the federal government's pension
guarantee agency.

Is bankruptcy inevitable? It's hard to say. What is certain, however, is
that if these companies are to have any chance of long-term survival,
they will need to invest large sums over many years to develop new
technology, redesign their cars, retool their plants and buy out even
more workers and dealerships. And right now, it's not clear where the
money would come from. Because of operating losses, they are burning
through cash like a Hummer running on unleaded premium. And given the
pickle that the hedge fund geniuses at Cerberus now find themselves in
with their purchase of Chrysler, the chances of raising any additional
equity capital are pretty close to zero. Borrowing money might still be
a possibility, but the cost would be prohibitive: On credit markets
yesterday, some Ford bonds were yielding close to 20 percent, some GM
bonds more than 28.

That's why the best of a set of bad options might be for the government
to step in and provide the Big Three with low-interest long-term loans,
just as it did years ago with Lockheed and Chrysler. The government
should insist that its loans get first priority and be used only for
investment in new technology that can be shared with competitors, or in
new plants and equipment that could be sold to other car companies in
the event of a bankruptcy. The government might also insist on further
cuts in shareholder dividends, executive salaries, blue-collar wages and
retiree benefits, at least until the current crisis has passed.

Can we be assured that, after the Big Three, no other industry will step
forward and demand that the government rescue it from its own
misjudgments? Unfortunately not. This is what happens when asset bubbles
develop, countries live beyond their means -- and then, inevitably, the
bubble bursts and economic reality finally reasserts itself. Now the
bill is coming due. The only thing left to be resolved is how it will be
paid.

 

WHY?

These are LOANS not giveaways. The companies will have to pay
them back.

Ted

 

Actually as in the past they're most likely loan guarantees. Other
lenders put up the cash, not the Government.

 

I feel that it's time that people stopped bashing the car companies for
their alleged indiscretions. Sure, they built what the buyers wanted
and paid for. Sure, they have been accused of building allegedly
profit-heavy light truck chassis vehicles when they could have been
putting more emphasis on small cars (with small profit margins)--if YOU
were a sales person, would you rather sell something you could "deal" on
and still make a decent personal profit or try to sell a small car with
little profit and little wiggle room on the price, with the customer
probably "walking" rather than signing on the bottom line? Put yourself
in the shoes of the salespeople and see if your orientation might
change!

When Chrysler got their loan guarantees, many made a big deal of it and
claimed that they didn't deserve it. Later it came out that the
Japanese automotive industry was (at that time) HIGHLY subsidized by
their government. The federally-insured loan guarantees back then
sounded so massive, but they would be a drop in the bucket now.

The buying public is somewhat fickle. When fuel prices climbed, they
bought smaller cars. Now that prices have eased, smaller cars are
sitting on the lots waiting for buyers, much less the "This is the Truck
that is changing everything--Toyota Tundra".

Chrysler LLC, currently, is still saddled with what "The Germans"
wrought on Chrysler's product portfolio. Neons that were replaced with
Calibres, Stratus/Cirrus that were replaced with boxy cars and more
weight, and the popular "square body" Chrysler 300. Not to knock these
products, but their shapes are not as aerodynamic as the products they
replaced nor are they quite as light weight. Much less how the "world
engine" might fare in fuel economy compared to the prior 4 cylinders. I
figured those boxier shapes are worth about 2mpg on the highway in real
world conditions--by itself. 28mpg sells better than 26mpg in some
products, just as 30mpg trumps 26mpg. Be that as it may . . .

Employee wages and health care and retirement costs didn't get to be hot
topics until sales fell like they did. I wish that everybody that
things or feels that retiree benefits need to be cut were some of the
retirees whose benefits were being cut! How would that recommendation
to cut or delete benefits . . . benefits that were committed to be there
upon and after retirement, by the employer . . . but if it was YOU
rather than THEM???? It's easy to talk about how others should be
treated until "others" becomes "YOU".

In some respects, I wish that some retiree group would bring a
"non-performance" lawsuit against the companies that are popularizing
the "cut retiree benefits" activity. If the company's allegedly going
broke paying the benefits, then why not let them go broke while
fulfilling what was perceived to be a contractual obligation or promise
to kick in upon retirement?

Of course, these "cuts" are only short-term stop-gap methods to
allegedly protect the company's reserves. Not to be reinstated IF and
when the company becomes profitable again. Look at what the airline
employees gave up to help their employers stay in business. Now that
they have made money, ONLY the CEOS and similar are getting their
bonuses and such as the people who made it happen for them get nothing!

In the USA vehicle product mix, how many vehicles can really seat 6
normal adults comfortably and NOT be based on a light truck chassis
platform? Most have become 4 passenger vehicles as they lack the
necessary width and generally have a floor shift/console in the front.
Narrower to downside to a more "international" size width or to save
weight?

For MANY USA families, they need the extra room of a Durango or Aspen
rather than that of Nitro to haul the kids around and maybe head out on
a two week vacation. In some cases, a small sedan as the primary
vehicle just won't do. Not to forget trips to Home Depot!

I, personally, do NOT like the fact that many USA industries have moved
elsewhere to do business. Especially things like steel that we need for
many sectors of our economy. These things did not happen overnight, but
slowly over the course of years instead. Then, one day you look up and
that industry has moved to Asia several years ago. Only thing is that
it's not just one industry, it's many.

The fact that Nissan, Toyota, Honda, and BMW can prove that good cars
can be built in the USA is due to the fact of how they are designed
rather than relying upon assembly line "talent" to make up the
difference.

In reality, the flow of industries to overseas locations should have
been stopped long ago. In the present time, it will be hard to repair
but we need to head in that direction, if possible. Unfortunately, much
of the money that the USA Big 3 automakers make in annual profits comes
from overseas operations (several years ago). This might be a world of
"global economy" but I feel the automakers need to remember where they
got that dance card and put emphasis on making things work as great as
they can.

C-BODY

 

Actually they're not. If they were, the WTO would have received
complaints and held hearings.

Of course, Toyota doesn't depend on big trucks for most of its sales
and profits, and its cars are much more desirable than the Big 3's.

Yeah, those Neons would sure be competitive today. With 10-year old
used cars.

No car is. More safety requirements, and people demand more power.
Heck, compare an 08 Corolla with a 98, or a Civic.

Boxiness doesn't always equate to bad aerodymanics. I remember
reading the boxy Eagle Premier actually had a lower coefficient of
drag than the "aero" Ford Taurus.

Well, remember, in Japan and Europe, the gov't supplies health care,
not the employer. Perhaps if big business hadn't been so knee-jerk
reactionary at any such prospect here, the Big 3 would have lower
costs.

GM Acadia, Enclave, Traverse, Outlook; Ford Flex; Chrysler Town &
Country; Dodge Grand Caravan.

The middle front seat was no place for an adult except in the largest
cars of the 60s either. And the interiors are narrow due to (1)
thicker doors for side impact resistance; (2) people wanting consoles
for things like cup holders and cell phone holders; (3) narrower cars
for less wind resistance.

Well, you can also get more cars in a parking lot!

Not really. A Durango seats 5 people comfortably (and maybe 2 kids in
the third seat). A Highlander, Pilot, or Acadia will do the job just
as well, and be lighter.

Which lets you rent a truck. Buying a huge vehicle for a few
occasions is like buying a 20-room house just for those few times when
the grandparents come to visit.

 

So - the funds for the health care system would then come from where?
(hint: so-called "free" health care is not free - anyone who says it is
is playing a shell game)

Bill Putney
(To reply by e-mail, replace the last letter of the alphabet in my
address with the letter 'x')

 

Of course "free" health care is not free: the cost is borne either by
taxpayers in general or by the purchasers of the insurance policies 9and
perhaps in the latter case partly by taxpayers in general as well). But
there are ways of managing health care that provide coverage for
everybody (including the unemployed on the same basis as everybody else)
with a far lower overhead than in the USA. It's a while since I've lived
in Australia, but the last I heard (a couple of years back), nobody pays
more than 2.5% of taxable income for health insurance --and that covers
the unemployed as well.

It's the total cost that matters: lower taxation costs us a small
fortune for health insurance premiums paid to for-profit corporations
which then pay for-profit hospitals. If our (I mean my family) tax rate
were doubled but we got free health care, we'd still be ahead.

The US system has large overheads. Look at the number of billing people
in a doctor's office or hospital trying to juggle what is covered by
which insurance co. A recent piece in Reader's Digest with a title
something like "x Things I Wish My Patients Knew" with contributions
from several physicians included something to the effect of: "I wish my
patients knew that I do not necessarily know personally the specialist
to whom I refer them: all I know is that (s)he accepts their insurance."

With a "free" (not really, but you know what I mean) health care system,
there is no good reason for people to have to choose between paying the
rent and going to the ER or between buying food and buying the
prescribed medication.

Perce

 

I wouldn't drive with someone in the middle of the front seat.
as far as I was concerned those big 50s/60s cars were for 5
and todays Corolla can seat 5.

 

Yes, the costs are spread out over the entire population, plus every
other western nation spends less per capita on health care than the
US.

Part of the cost is insurance companies spend money for people to find
ways to deny claims. Doctors spend money handling all the paperwork
and hassle of dealing with insurance companies.

Medicare has significantly less overhead than private insurance
companies.

 

Some info on how other countries handle health care:

Sick Around the World
http://www.pbs.org/wgbh/pages/frontline/sickaroundtheworld/

====================================================================

The World Health Organization's ranking of the world's health systems
http://www.photius.com/rankings/healthranks.html

"The world health report 2007 - A safer future: global public health
security in the 21st century"

Full report download as a .pdf file:
http://www.who.int/entity/whr/2007/whr07_en.pdf (4.15MB)

====================================================================

Healthcare For All: In Western Europe Its a Reality
http://www.npr.org/templates/story/story.php?storyId=91972152

France: Health Care for All
http://www.npr.org/templates/story/story.php?storyId=91970968

Germany: Health Care for All
http://www.npr.org/templates/story/story.php?storyId=91971170

Great Britain: Health Care for All
http://www.npr.org/templates/story/story.php?storyId=91971293

Netherlands: Health Care for All
http://www.npr.org/templates/story/story.php?storyId=91973552

Switzerland: Health Care for All
http://www.npr.org/templates/story/story.php?storyId=91974014

=====================================================================

Health Care: An International Comparison
http://www.npr.org/news/specials/healthcare/healthcare_profiles.html

Netherlands' Health Care Reflects National Values
http://www.npr.org/templates/story/story.php?storyId=92641635

Keeping German Doctors On A Budget Lowers Costs
http://www.npr.org/templates/story/story.php?storyId=91931036

France At Forefront Of Free, Innovative Cancer Care
http://www.npr.org/templates/story/story.php?storyId=92362918

While the U.S. Spends Heavily on Health Care, a Study Faults the Quality
http://www.nytimes.com/2008/07/17/business/17health.html

After-Hours Doctor Calls Save Holland Money
http://www.npr.org/templates/story/story.php?storyId=92606938

 

Hah. You could achieve practically any order you wanted simply by how
you define the criteria and the weighting factor you decided to place on
the given criteria or by using other criteria. I looked at the linked
spread sheet. "Performance - On level of health" - Canada 35, U.S. 72?
Please!

"Overall goal attainment". What the heck does that mean - how is that
defined? Is it that country's goals or come U.N defined goals?

"Responsiveness Level" - U.S. 1, Canada 7-8 - how much was that factor
weighted in the overall score?

"Overall health system performance" - U.S. 37, Canada 30. LOL! Again,
how was each factor weighted in that calculation (if it even was a
calculation - they do not show the overall formula - which formula
obviously was arbitrary anyway).

What a (typical U.N.) joke. Probably done by the IPCC "scientists".

Bill Putney
(To reply by e-mail, replace the last letter of the alphabet in my
address with the letter 'x')

 

You have a conclusion you have already arrived at. Pity you choose to
alter facts to fit your conclusion. Your loss.

 

So where specifically did I go wrong in what I said? What facts did I
alter? Let's see - oh that's right - none. Or would you like to list
them? Didn't think so. Sounds like you just rattled off your pat
answer for anyone who disagrees with you. For example: "Your loss". My
loss how?

Everything I said is true. The criteria by which they arrived at their
conclusions are arbitrary. Re-define the criteria (assuming you can
even tell what their criteria mean), and/or apply different weighting
factors, and the results would be totally different. But you won't
argue that, because - guess what - you are the one who believes what you
are told without really analyzing it - as you've just proven.

Bill Putney
(To reply by e-mail, replace the last letter of the alphabet in my
address with the letter 'x')

 

Sad.

 

Can't stand to have any discussion of substance can you. Can't blame
you. You're coming from a position of weakness, so best for you just to
duck the question. You have a nice evening.

Bill Putney
(To reply by e-mail, replace the last letter of the alphabet in my
address with the letter 'x')

 

Interesting that Frontline did not look at Canada as part of that
comparison...

 

They didn't look at Australia either. So...?

Perce

 

PBS is an American public television network that produces content for
it's American audience.

Australia is further away from the USA (geographically, socially,
economically) than Canada is.

The inclusion of Canada in that comparison would have been more relavent
to the US viewing audience than the inclusion of Australia, and arguably
would have been the most relevant comparison vs all the other included
countries.

Interesting that I have to point out such basic facts to you.

 

The lack of interior width in newer vehicles is NOT related to thicker
doors, speficically, but narrower outside sheetmetal. If you look at a
bare door shell on almost any new vehicle, you might see that it's about
the same thickness as a 1950 Ford or Dodge or Chevy or GMC pickup truck,
but lighter.

The new Toyota Tundra pickup's center front seat seating position,
considering how high the center floor hump is, looks to be comfortably
habitable for small children. This is "changing things"? Of course,
ANY manufacurer-designated seating position has come with seat belts
since the middle 1960s.

I believe that if you check the "curb weight, unladen" of the GM
Acadia-type vehicle, you'll find that it's not that much less than a
Chevy Tahoe. Only fuel economy differences is the engine and the
aerodynamics, but the Tahoe is more geared for towing things than the
Acadia-type vehicles (which are the latest evolution of the minivan-type
vehicles).

Renting a truck, just TRY that sometimes! Few rental companies have
very many light duty pickups in their rental fleets. Enterprise is the
main one, but getting one from their local neighborhood locations can be
"a trick". You can go to one of their larger airport locations and make
a reservation for one a week in advance, but that's no guarantee that
you can get one--been there, done that, several times with limited
success. Others that are more truck-oriented and do commercial fleets
might be a better choice, but you'll end up with a more "work truck"
than "fancy truck". Also expect to PAY for this, too. Sure, less
expensive than monthly payments on one, but still not inexpensive.

In the parts of the country which are experiencing housing growth, the
necessity of having a truck-chassis-based vehicle in the driveway can be
important to haul things from Home Depot or Lowes. Trying to coordinate
these activities around the availability of a rental truck for the
weekend (rather than a "by the hour" rental from some of the home
improvement stores) can mean the difference between getting a project
done or not. Not everybody is in that situation nor can a Honda
Ridgeline do all that a Silverado do, in many situations, with
equivalent fuel mileage.

I don't know that Toyota has many "exciting" vehicles in their product
portfolio, per se. Some have desireable attributes, but "exciting"
doesn't usually come into that spectrum, by observation. Similar with
Honda. Nissan, is a different story!

I know that many perceive they "need" a truck when they don't, just as
some who do could never use a crossover or smaller car-based vehicle as
an alternative choice. A "truck-chassis-based" vehicle might never get
30mpg on gasoline, but many Dodge Cummins diesels have been known to hit
middle 20s on the highway in prior models. It all depends upon how it's
geared and with 500+ lbs/ft of TORQUE, aerodynamics will not be a
serious consideration, typically, when its cruising down the highway and
not towing something.

Not everybody that has a truck might need one except occasionally, but
when they need it, they NEED it. In Texas, trucks ARE a viable family
car (as they have been for the past 60+ years), even before the extended
cab or factory-produced 4-door pickups were available.

If somebody has the financial means to afford a truck-based vehicle, let
them do it (whether the home owners association likes it or not).
Trying to deal with owning one in downtown Manhattan might be a pain,
but the whole nation is not "Manhattan".

If anybody was concerned about "gas guzzling pickup trucks", they should
have been worrying about it 30 years ago when many 1-ton trucks did good
to get 10mpg running empty on the highway. But they needed those trucks
to make their living and fuel was less expensive then.

As for people who "key" Hummers, it should be noted that to repaint one
puts more VOCs into the atmosphere than about 100K miles worth of
driving one. They might not be really fuel efficient, but vandalizing
one on that issue and not considering what might come later with the
repaint and additional VOCs is somewhat short-sighted IF the reason it
was done was "environmental consciousness".

Regards,

C-BODY

 

If you might STUFF 5 "normal USA citizens" into a Toyota Corolla, if
there is any significant deflection of the doors from some outside
force, somebody inside's going to get hurt . . . or squshed. Just
because there might be 5 sets of seat belts doesn't mean 5 adults can be
in there comfortable for any amount of time.

It was NO problem to comfortably put six "normal USA citizens" into any
full size Plymouth or Chevy or Ford up until they started downsizing the
platforms in the middle 1970s. What we are calling "full size" is
really the same as the "intermediates" of the 1970s in outside and
interior seating space--think '68 Plymouth Belvedere or Dodge Coronet.
If you look at the real cargo space in almost any modern SUV, it's not
that much different than the trunk space of those same Chrysler B-body
cars from back then (similar with Ford and GM cars, too)--except that
it's stacked vertically rather than horizontally.

Where's a '66 Dodge Dart product line-up, but with modern feedback fuel
injection and related emissions hardware, when you need it?

C-BODY