Obama Floats $50 Billion Automaker Bailout
By Andrew Jeffery Nov 13, 2008 11:30 am
President-Elect wants to throw (more) good money after bad.
Bloomberg reports President-Elect Obama is urging lawmakers to rush through a $50 billion bailout for the struggling U.S. automakers.
With no formal executive power until January, Obama is asking Democratic friends in the House and Senate to get their Republican counterparts behind a rescue plan. Any plan would also require the support of President Bush, according to Bloomberg.
Also at issue is whether the money would come from TARP -- essentially depleting the first $350 billion installment of bailout funds -- or from fresh legislation.
General Motors' (GM) situation is particularly dire, as many analysts believe that the once-largest carmaker in the world won't survive through January without federal funds.
Obama also wants to see emergency loans extended to GM, Ford (F) and Chrysler to buoy their weakening financial position. The President-Elect would appoint a czar or independent board to oversee the companies if the rescue plan becomes law.
A GM failure, which many argue would likely push Ford and Chrysler towards a similar fate, would have dire consequences for the American economy. Parts suppliers, dealers and Rust Belt communities already reeling from the housing slump; years of already lackluster economic growth would be decimated.
It appears the alternative to a bailout is too terrifying to even consider. There is, however, a precedent for bankrupt industries operating their way through restructuring efforts.
After September 11th, United (UAUA) and other defunct airlines flew throughout their bankruptcy. Service was shoddy at best, layoffs were severe, but the industry did not die.
Economic conditions are admittedly more dire now than in 2001, but at some point, the bailout parade must stop. Each company that fails, only to be saved from collapse by Washington, simply pushes genuine economic recovery further into the future.
As Minyanville's Kevin Depew wrote Monday,
"With continued bailouts we will emerge from a lost decade with an economy and society crippled by the cost of bailng out businesses that operated with irresponsibility and a near total disregard for not just taxpayers but for their very own shareholders."
Taxpayers watched the pricetag of AIG's (AIG) $80 billion bailout double in a matter of months. With Ford and GM collectively bleeding over $4 billion in cash every month, it's not unreasonble to think any automaker handout would similarly expand.
At some point, our elected officials may actually have to take a stand. Unfortunately, holding one's breath for that to happen should be considered a serious hazard to one's health.
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Reply
2008-11-13 12:11:41
Andrew, you will have to learn to not believe everything you read, especially from financial media sources in these times. What was the supposed source from the Obama transition team? That team is especially careful about what is said, noting that there can only be one president at a time.
However the 24/7 cable news cycle must be fed its daily/hourly dose of OJ or some substitute. And so they will pursue a "source" but not name them and thus it is anything but coming from the Obama transition team which clearly intends not to draw lines in the sand and fight the old elephant and donkey battles.
Methinks you have an ax to grind perhaps? Minyanville deserves better.
However the 24/7 cable news cycle must be fed its daily/hourly dose of OJ or some substitute. And so they will pursue a "source" but not name them and thus it is anything but coming from the Obama transition team which clearly intends not to draw lines in the sand and fight the old elephant and donkey battles.
Methinks you have an ax to grind perhaps? Minyanville deserves better.
2008-11-13 12:40:45
Sources
Obama spokeman Robert Gibbs told the media that Senator Obama pressed President Bush about the need to make funds available to the auto industry immediately. Is an Obama spokesman credible enough for you?
2008-11-13 14:16:51
republicrats
At least Bush and Obama can agree on bailing out bankrupt companies. I find Washington bickering and nothing getting done more appealing with every inept move our government makes.
2008-11-13 17:45:42
Let dinosaurs die
Look what the airline bailouts left us with: a highly dysfunctional industry that was in need of major restructuring, but instead the bad practices were propped up and allowed to live on. It is barely functional in the best of times, and one little snag (recession, oil spike) triggers more bankruptcies and calls for additional bailouts.
Let's not go down this route with automakers. Subsidizing failure simply leads to more failure.
Let's not go down this route with automakers. Subsidizing failure simply leads to more failure.
2008-11-15 09:36:49
Another Stimulu Package?????
It looks like the folks in DC are hell-bent to give the stimulus package another try seeing as the first one didn't have any real effect.
This time it's the car industry.
While the sanity of blowing cash around and running the national debt up even further is questionable; it seems inevitable - so<b> this time let's target unemployment, create AMERICAN jobs and pump up the economy all at one time.</b>
<b>Consider the following:</b>
Manufacturing costs of motor vehicles are 65% labor (ie: W-2 income), that's not all direct but due to suppliers. GM alone has over <b>1300</b> suppliers. (That's a lot of jobs!)
1 in 10 Americans makes all or part of their income due to the automobile industry.
Money turns over 5 times in a year.
Thus a vehicle with a manufacturing cost of 20K produces 13,500 in W-2 income which in turn becomes a total of 65K in 12 months due to the 5 turnovers.
(This isn't magic, it's simply how the economy works.)
Our domestic car makers are saddled with legacy costs, most of which will reduce dramatically in 2010 due to contract changes. They need to survive to get there.
<b>Here's the solution</b>
Instead of either shipping cases of cash off to car makers; or sending us all another check:
Send out a voucher for say $1,000 good on a motor vehicle for the percentage of the vehicle that's domestic. (Civic = 70% Ford Explorer=80%)
Let those not interested in a new car sell or give away their vouchers (Ebay would be loaded with them in no time flat) and those that are so inclined can use as many as they can get their hands on up to the full MSRP of the vehicle.
This would bail out the car industry without giving them a dime directly
Further it would reduce the overall age of the nations cars which would in turn; <b>
increase overall fuel economy </b> & <b>decrease pollution.</b>
<b>Strengthen the dollar!</b>
Since vehicles with a higher domestic content would be moving better this would reduce our imports, strengthening our dollar which would in turn further reduce what we pay for anything imported ...<b>like gas!</b>
<b>Jobs</b>
Instead of simply bailing out a few big companies, this would cause such a run that it would create employment throughout the industry affecting over 1300 suppliers and their workers.
That would give the economy good swift kick right where it needs one!
<b>Pays for itself!</b>
Since money turns over 5 times, and the vouchers are only good for the domestic content of the vehicle, every dime would be spent in the United States creating taxable income.
What is the income tax on 65,000 anyway?
(Remember? 20K manufacturing cost = $13,500 W-2 income x 5 = $65,000)
I'm sure you'll agree that this makes more sense than simply sending out checks; many of which will be used to buy new flat screen TV's usually made in Malaysia or some such place.
This time it's the car industry.
While the sanity of blowing cash around and running the national debt up even further is questionable; it seems inevitable - so<b> this time let's target unemployment, create AMERICAN jobs and pump up the economy all at one time.</b>
<b>Consider the following:</b>
Manufacturing costs of motor vehicles are 65% labor (ie: W-2 income), that's not all direct but due to suppliers. GM alone has over <b>1300</b> suppliers. (That's a lot of jobs!)
1 in 10 Americans makes all or part of their income due to the automobile industry.
Money turns over 5 times in a year.
Thus a vehicle with a manufacturing cost of 20K produces 13,500 in W-2 income which in turn becomes a total of 65K in 12 months due to the 5 turnovers.
(This isn't magic, it's simply how the economy works.)
Our domestic car makers are saddled with legacy costs, most of which will reduce dramatically in 2010 due to contract changes. They need to survive to get there.
<b>Here's the solution</b>
Instead of either shipping cases of cash off to car makers; or sending us all another check:
Send out a voucher for say $1,000 good on a motor vehicle for the percentage of the vehicle that's domestic. (Civic = 70% Ford Explorer=80%)
Let those not interested in a new car sell or give away their vouchers (Ebay would be loaded with them in no time flat) and those that are so inclined can use as many as they can get their hands on up to the full MSRP of the vehicle.
This would bail out the car industry without giving them a dime directly
Further it would reduce the overall age of the nations cars which would in turn; <b>
increase overall fuel economy </b> & <b>decrease pollution.</b>
<b>Strengthen the dollar!</b>
Since vehicles with a higher domestic content would be moving better this would reduce our imports, strengthening our dollar which would in turn further reduce what we pay for anything imported ...<b>like gas!</b>
<b>Jobs</b>
Instead of simply bailing out a few big companies, this would cause such a run that it would create employment throughout the industry affecting over 1300 suppliers and their workers.
That would give the economy good swift kick right where it needs one!
<b>Pays for itself!</b>
Since money turns over 5 times, and the vouchers are only good for the domestic content of the vehicle, every dime would be spent in the United States creating taxable income.
What is the income tax on 65,000 anyway?
(Remember? 20K manufacturing cost = $13,500 W-2 income x 5 = $65,000)
I'm sure you'll agree that this makes more sense than simply sending out checks; many of which will be used to buy new flat screen TV's usually made in Malaysia or some such place.
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