Don’t Bailout Auto Industry
December 3rd, 2008So let me see if I get this straight. I run a business that continues to lose market share because customers believe the competition makes a superior product. While losing market share, I decide to reap the benefits of customers willing to pay big bucks for certain products of mine that have much bigger profit margins, yet I do nothing to make myself leaner, meaner and a superior product. Things turn bad all over and demand for my big ticket items falls off a cliff. I gave the store away to the people who work for me so I go to my neighbors and say you need to bail me out.
This is exactly what the Big Three automakers did. For years now, Americans have chosen foreign makes over them in increasing fashion. Despite tens of billions of dollars spent, their product still can’t capture market share back. In America’s desire to drive big cars and trucks as a status symbol, the Big Three turned out as many SUVs to satisfy this desire knowing they make so much more than a car. Meanwhile, they make token efforts to build cars for the 21st century. They allowed the autoworkers union to run all over them and now they tell us unless we bail them out, they will go under and it will send the already recessionary economy into a tailspin.
What’s next? I think the airline industry is far more important to commerce. Do we bail them out too for not being more efficient? What about state and local governments? Do we bail them out to for not balancing their budgets? The whole problem with what’s wrong today is the fact that for years, government, corporate America and Americans themselves have lived far beyond their means and its all come home to roost. The pain is severe and no one wants to deal with it. Quick fixes just like fad diets that melt the fat away overnight is want we all want. If we cave in to avoid the pain, it’s only going to be ten or hundred times worse down the road and we’re running out of road to kick the can down. Read this
December 3rd, 2008 at 8:11 pm
Thank you Peter for telling the truth!!!! Keep it up .. don’t be afraid … you are right and your heart is where it should be!
Orgy
December 3rd, 2008 at 10:22 pm
Peter could not agree with you more.
America needs to innovate and build products / technology that the
world needs and is willing to buy.
America is at a crossroads, go the same route that has run its course
or forge ahead in a new direction.
I say focus on the issues facing the world today , solve energy
crisis and build technologies to lead America once again.
Go towards energy independence ( NUCLEAR/ wind/ solar ) and lead the
world in more efficent cars and industries.
The era of fossil fuels will come to an end soon, so why not focus on
the Next generation technologies.
America cannot continue to be just a consumer nation living off cheap
credit and using their homes as ATM’s. This crisis has brought
forward an opportunity to finally break free of past mistakes and
start fresh.
I think the US can be the world leader again , IF they can pull
together and make the tough decisions and let the CAPATALIST system
work.
All this government intervention is just prolonging the pain and will
cause more problems going forward.
Let the inefficient industries fall, and start and build world
leading ones once again.
With Crisis’ there is great danger + great opportunity. The US politicians have a great opportunity to right this ship.
Will they ? or will they just make the problem bigger? We will see.
Enjoy your posts Peter.
Best Regards,
FG888
December 3rd, 2008 at 10:56 pm
I too agree that there should be no bailout for the autos. They are burning cash at an alarming rate with no end in sight… a bailout will not save them, it will prolong the suffering. The Big 3 will continue to build cars, restructure and hire new management under bankruptcy protection. North America needs to cut the emotional, protectionist ties to these companies… bad management, unions, and a lack of inovation have destroyed 3 icons.
I would not invest in these companies, nor should public tax dollars be invested in them either.
LB
December 4th, 2008 at 3:34 am
Peter, for the longest time I have felt the way you do but I wonder if the big 3 don’t get a bailout who ends up paying the pensions of the million plus employees? Does the govenment get saddled with this expense and if so wouldn’t it be better to keep the car manufacturers going as long as their employees and pensioners make the concessions etc. necessaary to make them competitive and productive?
December 4th, 2008 at 4:32 am
This world has gone mad! Here in Canada, we have a coalition of three political parties trying to take over from the present government; a coalition in which one of the parties consists of avowed separatists, another party has never in any election ever convinced the public that their socialist ideals could earn them any better than 3rd-party status and were even beaten by the separatists who only ran in one province, plus the Liberal party who in our recent election fared the worst that they ever had done in 141 years — and they want to join hands together to run the country.
But then I look across the border and see all the CEOs and top executives of enormous auto manufacturing corporations who have been living in luxury for years on their humongous bonuses and stock options, now with their hands out, begging for gifts to keep them going — following right on the heels of the big bankers with their pockets turned inside-out, who already got their wallets filled so they can top their bonuses off and go play golf at luxurious resorts while the taxpayer pays the bill. This world HAS gone MAD!
December 4th, 2008 at 8:12 am
Dave, entering Chapter 11 will do the same thing for them … force compromise without feeding from the trough. The argument of people won’t buy a car because they won’t risk loss of warranty is a red herring. I feel this way because 1) people buy flights from airlines in chapter 11 and the entire fare is at risk … not just the insurance policy against buying a lemon. 2) the costs of warranty is well known, the car companies could set up a trust with known warranty cost and a premium of say 10% to be used to pay out warranty claims. If that becomes overfunded by more than 1.2x the costs they can pull money out, if it becomes short funded by 1% or more, they add money to it. 3) Build a better product and you don’t have as many warranty claims so the value of a warranty becomes very low.
Those who control the media have a vested interest in all of their investments car companies included … they have absolutely no qualms of supporting a bail out from everyones pocket but their own.
Orgy
December 4th, 2008 at 12:13 pm
Peter
With the current carnage in the junior resource market and the lack of credit a lot of the companies engaged in this industry may not survive, as you have said in recent posts. Do you have any intention to issue a review of the companies covered on your website in the near future? Gold seems to be trying to set itself up for a break at the moment and hopefully with that break some of the interest and investment should come back into this market, thereby making current valuations in the better resource companies very attractive. I am contacting management of the companies I currently own to get an indication of their cash and financing state. Would you have any recommendations about the type of questions we should be asking?
Thanks for all your guidance
JD
December 4th, 2008 at 12:27 pm
I agree that bailing out the auto makers is financial stupidity. They may need bankruptcy protection while they downsize their plant and their salary structure. Their excess plant likely has little sale value, but perhaps the government could look at purchasing some of it for the building of military vehicles in the future. That would help the companies while giving the government something of value in return.
Workers need to realize that over time, unions tend to price their members out of business. Eventually they bargain for so many benefits for themselves that their employers no longer make a profit and then most of those union jobs are lost. Same thing happened to the railroads in the 1960’s and ’70’s (almost every railroad in the northeastern states was bankrupt - and the biggest ones were in the worst shape) and it took major restructuring in that industry to make railroads financially viable again.
Dave raises the issue of pensions, which I think is a huge millstone sinking these corporations. I don’t understand why any corporation with foresight hasn’t switched from defined benefit pensions to defined contribution plans. Defined benefits require the corporation to bear responsibility for managing the assets for their workers’ future, but I think it would be much better to make the workers responsible for that. Besides, only God knows the future so why would the company want to make guarantees that stretch decades into the future when they have no idea what obstacles may complicate that responsibility in the years ahead?
If we are going to be free people, we must take responsibility for both our present and our future, and not expect Big Brother government or Big Brother Corp to look after us.
December 4th, 2008 at 1:50 pm
Wayne - It began going mad when Eve told Adam how could one bite hurt?
JD - When I can get management to come in off the ledge or from under their desk, I report what I learn. For now, 99% are in a hunker down mode and aren’t likely to release anything real good until the New Year. Questions to ask are what’s their burn rate?. Do they have an upcoming property payments? What liabilities are due to be paid next 3-6 months? I hope to get all of them to give me a complete update by early January and will report to you soon after.
To All - I have no sympathy for the carmakers when they make a deal with the unions that allow laid-off workers to collect 90% of their salaries by sitting in some hall during the day. Nobody pays me if I don’t work. Also, the whole industry needs to shrink due to the lost market share. Now’s a good time for it.
Also, what’s lost in bailout sin general is we’re usually bailing people out who made horrible mistakes. If that’s all one needs to qualify, I like to appear before Congress with my junior resource portfolio.
December 4th, 2008 at 2:42 pm
Peter, feel free to represent me at the same time.
Orgy
December 4th, 2008 at 4:28 pm
I agree. We have been living beyond our means and most seem to think that they’re lotto will payout eventually. It’s a sad state of things. The Auto Industry needs to fail. But so does the housing and banking industries. And so do the governments. Too many people are walking around with their fingers stuck in their ears and humming over the noise of their mistakes.
It really looks like things are going to get painful from here on out. I really hope it isn’t so, but it’s hard not to look at the lies, deceptions, and greed and not think so.
December 4th, 2008 at 10:00 pm
Peter
First if you make marches illegal you’ll have illegal marches.
If you let 700,000 auto workers and families dangle and twist in the wind they might just demand that the Banks who are the expropriators be themselves expropriated. What’s a body of politicians to do to save our capitalist system. A system wherein you and I Peter make our profit? Ho! Hum!
Maybe the system is telling us that Profit is evil and breeds evil. Think deeply about that. (i.e. Where it’s good and where it’s bad.)
We all have had a hand in the - everyman or woman for that matter for him or her self and have killed the spirit of collective warmth in social life and another ho! hum!
And remember also that every single one of us was born an atheist. Pray yourselves out of this one Boys she’s a gonna be a bad one.! Either do that or get your collective heads around a different way of doing things other than worry about burn rates, Price to cash flow, Debt to Equity and all those other fundamentals — they are almost meaningless in the new world.
All those crafty econoheads the world over are printing money, which they temporarily stuff into T-bills which will have to be redeemed sooner or later letting loose a flood of notes (money) that are likely to swamp the system.
And I don’t know why but this situation kinda reminds me of the French dude just before WWII who wanted to get out of Europe to the quietest place in the world. Where did he pic? Bikini Atoll — Save Yourself Poor Dumb B******* (SYPDB).
Or it reminds me of a few 1923 Germans who decided that a 20 acre farm close to town was the ticket out of the hyperinflation (raise a few chickens or a cow or two and keep the old truck farm clear of weeds that sort of thing). When everyone had a trillion or more marks and were starving they marched out of town — killed him and raided his farm — another SYPDB. And a gee whiz
Or it reminds me of the guy during the depression who stuffed all his gold into a sock when FDR thought the time was ripe he called in all the gold. This guy didn’t turn his in. Some Block Watch Captain turned HIM and his sock in and he is still in Levenworth — SYPDB Only kidding he died in there three years later. He wasn’t LOL on that one.
All in all life ain’t all that bad — Yet — and the final ho! hum!
Bob