Automaker Bailout (Or Lack Thereof) Hits Close To Home Here
I live in the midwest. Not in Detroit, but close enough that the auto industry is a large proportion of jobs in my area. Neither my spouse or I have direct employment through the auto industry, but our local economy is definitely affected by it.
My dad is an inventory manager for several auto dealerships (part of a chain) on the east coast. The biggest dealership he manages is a Chevrolet one.
So my life, or the lives of my family and friends, is going to be directly affected by if the auto industry gets a bailout from the government or not. Therefore, I am not at all an unbiased bystander. I do believe in the idea of a free market, and that if a company cannot compete, then it deserves to face the consequences of not competing. However, that doesn’t mean I’m not scared all the same. Last night, the Senate failed to reach an agreement on the automaker’s bailout. I have very mixed and conflicting feelings. As I said, intellectually I believe that the auto makers should face the consequences of not being able to compete. (I felt that way about the financial industry too, but they got a bailout just the same). But at the same time, I’m feeling very scared. What is going to happen to our local economy? What is going to happen to my dad? What’s going to happen to my spouse’s employment (again, his is not auto-related but it is local, here, in the midwest)?
Only time will tell. It seems the news changes every day. All we can do, I think, right now, is try to prepare ourselves as best we can for an uncertain future by spending less, saving more, and trying to earn more.
Or you can be my spouse, who took his fun money for the year and deposited it into our Sharebuilder account. He is buying GM stock. He has faith they won’t completely disappear. And, if they do, he doesn’t have much fun money anyway.
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December 12th, 2008 at 9:43 am
I hear ya. I think this is a time when people are going to have to get creative. Unfortunately, the American auto industry decided to ignore consumers.We city folk need reliable fuel-efficient cars, not big gas guzzling trucks and SUVs. They forgot to change with the times. I’m optimistic though. We’ve got some great minds on this continent. It’ll be tough for a while, but I can’t wait to see the innovation that will come out of it.
December 12th, 2008 at 10:27 am
Oh, please tell your husband not to buy GM stock! If they go into bankruptcy (and they have already retained counsel to do so) that stock will be absolutely worthless. Not $1 a share. $0 a share. You might as well throw your money away.
I think it’s great that you’ve cut down so much debt, but given what is in the forecast for 2009 (and the possibility that your — and anyone’s — income stream might be greatly reduced), I wonder if it wouldn’t be best to take a break from your aggressive pay down to save at least 6 months’ of emergency expenses (home mortgage, food, gas, utilities, minimum loan payments? Your loan charges you interest, which is annoying, but at least the payments are predictable, and it is much preferable to having to resort to a credit card in an emergency, particularly since experts are predicting that credit card companies are going to start spiking their interest rates for even the most credit-worthy customers (and cutting back credit lines) to rein in their losses.
I have $130k in student loan debt, the last of which I have to take out this money, actually, and while I plan to pay it down aggressively, first I plan to save about $20k. I want to know that I will be able to continue making my loan payments, and pay rent, even if my husband and/or I lose our jobs.
December 12th, 2008 at 10:39 am
My understanding is that the current problem facing the automakers is that they can’t borrow working capital due to the general financial crisis in which everyone has problems borrowing.
It’s true that they should have been building more energy efficient cars, but as I understand it they have, in fact, been competing and successfully holding a share of the market, even with the legacy costs of a large group of retirees and slightly higher labor costs.
They have been making cars that people have wanted to buy. Buyer’s remorse is natural now that gas prices have been over $4 per gallon and the financial markets have melted down and everyone is scared of a depression, but it is hardly reasonable to look back and blame the auto companies as if they had been operating in isolation. If their customers were not interested in gas-guzzling SUV’s and Hummers, do you think they would have made them?
As far as I’m concerned, we are ALL responsible together.
December 12th, 2008 at 11:09 am
WeaverRose - I don’t know about that. Ten years ago, when I was in the market for a car, everyone told me to buy Japanese because they’re more reliable and more fuel-efficient than American cars. Toyota, from what I understand, is holding its own. I don’t feel at all responsible for the mess that automakers are in right now. I feel terrible for their employees, but I think the blame lies solely on the carmakers themselves.
December 12th, 2008 at 12:32 pm
As others have said, the Detroit “Big 3″ have been ridiculously behind the times, but it irks me to no end to hear the workers being blamed. Any comparison to Toyota’s and other foreign companies’ employee packages omits the obvious: cost of living differences, number of pensioners being supported, and ironically, historic bailouts of Toyota, et al by their governments in the past. Finally, the leaders of the opposition in Congress both have BIG presences of Toyota and Nissan in their state. Cynical to say the least.
That said, I love my Prius
Fingers crossed, Paid Twice!
Oh, and you’re so right about this twist on “Trickle Down Economics”: it’s affecting everyone.
December 12th, 2008 at 12:36 pm
Awww, I completely understand your mixed feelings. I’m not tied to the auto industry - except in the way that all Americans are - but I, too, feel conflicted. I don’t think that the government should be in the business of propping up companies, or even industries, that are on the brink of failure. Even so, I felt sad last night when I learned that the bill had failed in the Senate because I understand the implications for millions of families.
December 12th, 2008 at 2:29 pm
Another Midwesterner affected eh? Sounds like my story - out here in the heart of RV country halfway between Detroit and Chicago.
December 12th, 2008 at 3:57 pm
I don’t know if we’re in the same city, but we have two factories here (one GM which will likely shut down, at least temporarily; one Ford, which I’ve heard nothing about).
The ripple will reach far beyond the UAW. So many other businesses, both union and non-union, are tied into the manufacturing of vehicles. The shutdowns and possible bankruptcies will sure affect the local economy, probably in ways most of us can’t even foresee.
December 12th, 2008 at 9:20 pm
I live in Mexico and my job is related to the automotive industry. It´s really difficult seeing all the news coming and not feeling kind of depress. Since a year ago I started to prepare myself for difficult times (saving, paying all my debts), but now the future seems darker that expected.
Even if you are not tied to this industry, you will feel the effects if the big 3 go bankrupt, just because of the huge amount of money they move every month.
I hope this will be resolved soon rather than later.
December 13th, 2008 at 12:28 pm
My only concern with the bailout would be that other industries would decide they need a government bailout as well. If the government could just help out this one industry in this one instance, then okay, but I don’t think that will be the case.
December 14th, 2008 at 2:15 pm
The automakers need a bailout because of the financial mess. All three had plans to get to a business that adjusted to the recent changes in the market due to the huge run up in energy costs.
With the credit crunch, the market for cars has dropped by 40%. No one, not even Toyota, is making money in this market. What industry would not have issues when 40% of their revenue disappeared, literally within a span of a few months? Is there anyone commenting here that thinks there business could survive a 40% drop in revenue without the possibility of bankruptcy? And do we want the resulting even more severe recession?
On top of that, every single nation in the world (except the US) with an auto industry subsidizes that industry through direct contributions, health care, and retirement savings, not to mention things such as currency manipulation making their exports more favorable in the US. All these countries see the auto industry as an asset needed by their country to be a major economic power. One commenter mentioned their Toyota Prius - any idea how much Toyota has receive from Japan to help to develop that car?
The Detroit automakers have difficulty competing because there is not a level playing field for competition. We NEED more of these industries in the US, not less, and we need competition to be on an equal basis with the Japans and Chinas of the world.
If the credit markets allow the economy to function again, the Detroit automakers will be competitive. They had a plan in place already. They need these loans (not gifts) to continue to operate. They are willing to give equity in the companies to the US government and tax payers. This is not the time to try to take advantage of the situation and try to extract a pound of flesh for past grievances. This is the time for the US to protect its jobs and help some of our largest employers through to the other side of the credit crisis which was no fault of their own.
December 14th, 2008 at 2:25 pm
While I understand the impact no financial bailout would have on the midwest, I strongly believe that any auto industry bailout needs to have serious strings attached.
The US auto industry has repeatedly ignored mass production of fuel smart cars, and they are now paying the price. Mileage on Asian cars is, what, double that of most US cars? There is no reason for a car to only get anything less than 20mpg, or even 40mpg, minimum. In fact, I heard an auto industry guy talking on NPR last week, and the car he wants to build is one they did a prototype of — a hybrid car that gets 140mpg. Is the auto maker putting that car in to production? NO.
Can you imagine? 140mpg.
Of course, the auto industry is tied to the gas/oil industry, and the oil industry wants their money now more than they want to do anything sane for the environment.
December 15th, 2008 at 7:30 am
You can’t place “blame” on the senate. They want the union to conceed to certain concessions. The union is saying “No, we have done enough give us what we want”
Here is the option union–don’t conceed, go bankrupt loose your job. Make a FEW concessions that can always be CHANGED LATER as the market corrects and we are in an upswing economy again and retain your livelihood.
Seems like a no brainer to me…
December 15th, 2008 at 10:06 am
Management is the most responsible party, since they are the ones who put forth uncompetitive cars. People pay MORE for Japanese cars because they’re better, so arguing that American cars are uncompetitive because of labor costs doesn’t make sense. People would love to buy American cars if they were more reliable and more fuel efficient, even if they cost more. This is 100% management’s fault.
However, because nobody in their right mind trusts US car makers right now in terms of reliability, they will have to compete on price — just like Japan did when trying to break into the US market. That means unions ARE responsible for the continued failure of the manufacturers. I really don’t think GM can recover, for instance, if they can’t start building a high quality car for 25% - 30% less than Toyota or Honda. That means they need to spend more on high quality components (looking at you GM… how many times was I burned by your cheap electrical components), more on high quality manufacturing systems (i.e. robots), and less on labor and executive pay.
The sad thing is that it will take at least 10 years for consumers to regain faith in US car makers. It simply takes that long to see that cars are high quality. Oh, and if you see any review that says American cars are “on par” with Japanese cars in reliability, stop reading it and throw it away. They are talking about “initial reliability” which is simply a study of the first 90 days of car ownership. What a joke. Wow, we can build a car that doesn’t fall apart in 3 months!! GO USA!
No, it simply takes time. A decade. And that assumes they start building high quality cars immediately, which is obviously impossible — so more like 15-20 years. The unions will have to take a pay cut for that time period.
December 17th, 2008 at 8:20 am
I agree with WeaverRose up top there: Detroit was making _and selling_ very successfully the cars American wanted to buy: trucks, vans, SUVs. Just look around you on the road, in the parking lots!
But, the Big Three were operating on thin margins and didn’t have a lot of cash reserves when they then got hit with a double-whammy: gas prices spiked so American consumers changed their mind about those SUVs AND the credit market froze up and suddenly car loans were not available to every warm body who has a driver’s license. Now, the recession is settling in and people are postponing major purchases. Thus, the companies are on the edge of going under.
We probably shouldn’t bail them out (and I live in Michigan so it’ll hurt me more than the rest of the country), but I am tired of hearing people blame the companies for not being responsive to the marketplace. They built what Americans wanted: big cars. Our desires turned on a dime when gas topped $4/gal, and they tried to turn, too, (new models are headed toward production). But it may be they were just too big to make the corner….and now they are up on two-wheels ready to roll-over, just like the SUVs they built.
The question is, are we prepared to clean up the mess? Estimates are that it’ll cost 4 times as much in lost jobs, lost taxes, and covering pensions than it would to keep GM upright.