Auto Industry Bailout

I found this excerpt from a NY Times article on how some Republican senators are opposing a bailout of the auto industry:
Senators Richard Shelby of Alabama and Jon Kyl of Arizona said it would be a mistake to use any of the Wall Street rescue money to prop up the automakers. They said an auto bailout would only postpone the industry’s demise.

“Companies fail every day and others take their place. I think this is a road we should not go down,” said Mr. Shelby, the senior Republican on the Senate Banking, Housing and Urban Affairs Committee.

“They’re not building the right products,” he said. “They’ve got good workers, but I don’t believe they’ve got good management. They don’t innovate. They’re a dinosaur in a sense.”

Mr. Kyl, the Senate’s second-ranking Republican, added, “Just giving them $25 billion doesn’t change anything. It just puts off for six months or so the day of reckoning.”
I tend to agree with the senators. How about you?

5 comments:

  1. I agree. Ditto. Where does it stop?

    ReplyDelete
  2. 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 this time let's target unemployment, create AMERICAN jobs and pump up the economy all at one time.


    Consider the following:

    Manufacturing costs of motor vehicles are 65% labor (i.e.: W-2 income), that's not all direct but due to suppliers. GM alone has over 1300 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.

    Our own over-zealous government with a virtual alphabet soup of regulatory agencies has been no help either.
    Foreign competitors have worked off-shore collectively to meet various US gov't. imposed emission and safety standards, thus dramatically reducing those R&D costs. American car companies are prohibited from that by our FTC.

    Make no mistake; it’s no surprise that once again government has been a major part of the problem.

    Here's the solution.

    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 nation’s cars which would in turn;
    increase overall fuel economy
    & decrease pollution.

    Strengthen the dollar!

    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 ...like gas!


    Jobs

    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!

    Pays for itself!

    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)


    Another Stimulus Package?

    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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  3. I agree. We need to make some sort of exemption to allow them to end all Union contracts. But that aside, 25 billion is like giving methadone to a heroin addict. When the Methadone runs out, they still need heroin. This is the spot we got ourselves into with the bailout in the first place. Henry Paulson now playing god in deciding who lives and who dies. I put my odds on his buddies in the banking industry.

    ReplyDelete
  4. I agree. We need to make some sort of exemption to allow them to end all Union contracts. But that aside, 25 billion is like giving methadone to a heroin addict. When the Methadone runs out, they still need heroin. This is the spot we got ourselves into with the bailout in the first place. Henry Paulson now playing god in deciding who lives and who dies. I put my odds on his buddies in the banking industry.

    ReplyDelete

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