Sunday, November 23, 2008

The Bailout of the US Auto Industry

This was an interesting week. Not quite as interesting as domino effect in the Financial Industry that we experienced in September and October but it was a related event. The US auto industry took their corporate jets (I am thinking that it was at least 2 jets for each manufacturer but they could have tried to cram everyone on to one jet a piece) and flew to Washington to ask congress for a had out. By recent standards it is a relatively small handout. Only $25 Billion. At this point anything less that a billion is just not worth the effort.

I have to admit that I have mixed feelings about this. Given normal circumstances I would say let an industry stand or fall on its own. However, these are not normal circumstances. The US Government has shown that they are willing to bailout industries and now the door is open. Why is AIG any more deserving of being bailed out then GM. GM has probably done more to create middle class wealth than AIG ever did.

However, with the global market place being what it is I am not sure that the current demand justifies the number of brands currently available. Maybe it is time for further consolidation in the market place. Maybe the US auto industry could turn into the big two with GM calling it quits and selling off the brands that are still viable. Would anyone really miss the Hummers?

Maybe GM becomes Chevrolet and sells off everything else. The corvette for car enthusiasts, the Silverado for those who need or want a light truck and a line of mid size and compact cars that provide superior gas mileage. Everything else shutdown or sold. Most of the global competition maintain a couple of brands but only have one brand in each market segment. This makes the most sense. It will be painful though. I suspect that Detroit's current R&D is focused mostly on creating SUV's and has not been able to react to the current change.

The rapid drop in gasoline prices has me concerned as well. This seems to indicate that the demand for SUVs and trucks will continue. The current credit crunch might help to keep the demand down for now. As nice as it is to be able to get change back from a twenty when I fill up my car I was thinking that higher gas prices was good for the country in the long run. The demand for mass transit would increase and trend toward urban light rail would be justified by increase ridership rather than the usual of empty trains passing crowded highways.

I was against the bailout of the Financial Industry even though that was where I made my living. Now that the precedent has been set I say lets bail everyone out. Open up the check book. If you through enough against the wall eventually something will stick.

2 comments:

Mike said...

At the risk of sounding mean, cold or heartless, sometimes companies have to die. If GM can't sell their cheap cars to people, then oh well. Its natural selection! I wish I knew more about economics to make an educated point, but money still has to come from somewhere, and if a company makes bad business moves and goes belly up, we let them. Since when does capitalism mean we pour money into big companies so they can get a "do over". Seems really silly and counter productive

Mr Gardner said...

If the auto manufacturing in this country is lost we can buy our hummmvees from china. Then our biggest would be melamine poisoning. We need to keep this industry alive and well! I supported a bailout loan until I heard a comment on my favorite right wing radio station. If we can get buyers in the show room to buy cars and trucks then the big 3 would not need loans. For that to happen we need to fix the credit problems and get the economy moving.

The big 3 could hock their jets and cut their own salaries in a jester to show their sincerity, or maybe they are so out of touch they just don't get it.

EdR