Auto confusion – ask and the Times delivers

I’ve said I’m pretty confused on the pros and cons of the various solutions to the auto-industry crisis and haven’t seen much solid reporting on the consequences of various alternative – well, the NYT seems to be all over this story today with several meaty articles:

Make no mistake about it – this is not just about the auto industry – it could well turn out to be about the Obama presidency. He’s on record as favoring a bailout, though on 60 Minutes he made it clear that he didn’t think this should be a “blank check.” But exactly what strings would be attached to federal money remains to be seen. So while the NYT focuses on the auto industry having an uphill battle, I get the uneasy feeling that this could get Obama off to the same sort of rocky start Bill Clinton ran into when he latched onto the issue of gays in the military in the early days of his presidency. Anyway, here’s a closer look at the NYT stories:

<a href=”http://www.nytimes.com/2008/11/18/business/economy/18rescue.html?hp=&adxnnl=1&adxnnlx=1227006235-tWk4qTyLKcINPH1SgbrcYQ”&gt; Clout Has Plunged for Automakers and Union, Too

Why don’t we love Detroit and/or it’s unions anymore?

When the leaders of the three Detroit auto companies and the United Automobile Workers union travel to Washington to make their case for a federal bailout, they will be flying into stiff headwinds of public opinion.

Thus far, much of the commentary in Washington, in the pages of major newspapers and on the Web, has been against providing financial support for the companies, which they will say they desperately need in hearings beginning on Tuesday.

Answers:

  • Because they have fought hard against attempt to enforce fuel economy on them.
  • Because they have bailed out of several states – closing plants and retreating to Detroit – while foreign automakers have established plants in other states.
  • Because the leadership has been inane, ineffective, and invisible.
  • Because the “Jobs Bank” program at GM has left an impression a Union that facors a place where “workers” get paid for doing nothing
  • Because “G.M. and Ford are among the heaviest spenders on lobbying. . .”

And the political opposition is getting attention while the political support isn’t.

Meanwhile, Senator Shelby of Alabama, whose home state has Toyota, Honda, Mercedes and Hyundai plants, has kept up his pressure. Appearing on “Meet the Press” on Sunday, he called Detroit “a dinosaur, in a sense.”

“There’s not a bank in this country that would lend a dollar to these companies,” he added.

I might add that this last reason – no bank loans – was part of the argument made by Obama on 60 Minutes. He pointed out that in these economic times just about no one can get a bank loan and that’s exactly why it is necessary for the government – you and I – to step in. But it’s a hard sell. Once more they’re asking for the good guys to bail out the bad guys because if they don’t, lots of innocent bystanders will get hurt.

What Should Congress Do With G.M.? ‘s all about GM – an GM’s leader.

Rick Wagoner cannot afford to leave Washington this week without at least $10 billion in federal aid to keep General Motors in business.

Rick Wagoner, G.M.’s chief for the last eight years, has to convince Congress that the automakers need federal loans.

But a major question for Mr. Wagoner, G.M.’s chief executive for the last eight years, is whether he will return to Detroit with his job as well.

Lesson on Auto Bailouts Britain provides an example of how bailouts don’t work.

“It’s all too evocative,” said Leon Brittan, a top official in the government of Margaret Thatcher, the free-market-minded prime minister who nevertheless backed the rescue. “I’m not telling the U.S. what to do, but the lessons of the British experience is don’t throw good money after bad. British Leyland carried on for a few more years, but they’re not there now, are they?”

Now, about the liars who are doing the figuring 😉

How Many Jobs Depend on the Big Three?

“The auto industry supports one of every 10 jobs in the United States,” Gov. Jennifer M. Granholm of Michigan wrote in a CNN.com plea for a bailout of Detroit’s Big Three.

Uh huh! Well, there are alot of footnotes to that stat and they make interesting rading, but it comes down to this:

That’s not to say that there would be no ripple effects whatsoever from a G.M., Chrysler and/or Ford bankruptcy. In fact, C.A.R. has done a more recent — and much more relevant — study on just this question.

The study, which came out on Election Day, estimates “the economic impact — in terms of jobs, compensation and tax revenues — of a major contraction involving one or more of the Detroit Three automakers,” under two separate scenarios. In both cases, there would be major short-term shocks to employment; depending on which scenario you use, a contraction of the Detroit Three would result in direct and indirect job losses of 2.5 million to 3 million in 2009. (This figure was also cited by Governor Granholm.)

That statistic is nowhere close to 1 in 10 American jobs, but it’s nothing to sneeze at.

But wait,there’s another solution! Bakruptcy – it’ great – everyone hsould od it 😉 No kidding – at least this writer thinks so. I agree it’s anther possibility – whether it’s THE possibility is another thing. here it is in brief, starting with a quote from the auto industry spokesperson:

DealBook: Guiding a Helpful Chapter 11

“The fact is we’re looking at a short-term liquidity crisis that needs a bridge loan,” Mr. Cervone said this weekend to The Detroit Free Press.

To him, G.M. is merely in a temporary bind. If the government — that is, taxpayers — were just willing to spot G.M. some cash to get it over this little rough patch, everything would be just fine.

Mr. Cervone’s comment reflects what’s wrong with the mind-set in Detroit.

G.M is using money so quickly that a $10 billion infusion made today would disappear by February. That is why taxpayers shouldn’t fork over a cent, at least until shareholders are wiped out, management is tossed out and the industry is completely reorganized.

But there is a fix. Call it a government-sponsored bankruptcy, a G.S.B., if you will. It might sound a bit like an oxymoron, but it is an idea that has been quietly making the rounds in Washington. It makes a lot of sense.

This is quite involved and worth a serious look. It’s also valuable to keep in mind that bankruptcy in an envirnonment where the banks won’t loan to healthy organizations, let alone sickly ones on life-support, may not work the way it does in normal times. And if bankruptcy is so good for you, why isn’t everyone giving it a try?

Congress to the rescue? The only ones less popular than Dick Cheney are Reid and Pelosi, so . . .

Congress Remains Divided on Bailout

“If ever there were a time for bipartisan solutions, this is it,” Senator Harry Reid, Democrat of Nevada and the majority leader, said. “Senators have a choice to make: We could wait until January — when we have a new Congress and a new president — or we could start solving this crisis now.”

Interesting little tidbits in here, though – like Republicans not trusting other Republicans with money . . . hey, I don’t trust them either!

Another Republican, Senator James M. Inhofe of Oklahoma, called for Congress to freeze the Treasury Department’s underlying $700 billion bailout altogether, saying the current approach was veering too far from what Congress originally approved.

“It is clear that it was a mistake to sign a blank check to one man for such a tremendous amount of money,” said Mr. Inhofe, referring to Treasury Secretary Henry M. Paulson Jr.

Meanwhile, back on the range Ford is selling pieces of itself. Do i care/ Should I care?

Ford to Shed 20% Stake in Mazda

TOKYO, Nov 18 (Reuters) – Ford Motor Co (NYSE:F PRS) (NYSE:F PRA) (NYSE:F) will end 12 years of control of Mazda Motor Corp (OOTC:MZDAY) through the sale of a 20 percent stake in the Japanese carmaker in the latest sign of desperation among the U.S. Big Three as they scramble to raise cash.

So what does Paulson think?He’s the guy we gave the blank check to.

  • Op-Ed: Paulson on the Bailout
  • We are going through a financial crisis more severe and unpredictable than any in our lifetimes.

    Yep!

    We have seen the failures, or the equivalent of failures, of Bear Stearns, IndyMac, Lehman Brothers, Washington Mutual, Wachovia, Fannie Mae, Freddie Mac and the American International Group.

    You betcha!

    Each of these failures would be tremendously consequential in its own right. But we faced them in succession, as our financial system seized up and severely damaged the economy.

    Oh – I get it. Paulson hasn’t caught up with the auto-industry crisis yet. He’s still on the last chapter. So a lot of this is rehash. When the Times called this “Paulson the bailout” – they meant the bailout underway, not the one to come. The one part I found interesting here was this:

    Recently I’ve been asked two questions. First, Congress gave you the authority you requested, and the economy has only become worse. What went wrong? Second, if housing and mortgages are at the root of our economic difficulties, why aren’t you addressing those problems?

    The answer to the first question is that the purpose of the financial rescue legislation was to stabilize our financial system and to strengthen it. It is not a panacea for all our economic difficulties. The crisis in our financial system had already spilled over into the overall economy. But recovery will happen much, much faster than it would have had we not used TARP to stabilize our system. If Congress had not given us the authority for TARP and the capital purchase program and our financial system had continued to shut down, our economic situation would be far worse today.

    The answer to the second question is that more access to lower-cost mortgage lending is the No. 1 thing we can do to slow the decline in the housing market and reduce the number of foreclosures. Together with our bank capital program, the moves we have made to stabilize and strengthen Fannie Mae and Freddie Mac, and through them to increase the flow of mortgage credit, will promote mortgage lending. We are also working with the Department of Housing and Urban Development, the F.D.I.C. and others to reduce preventable foreclosures.

    Whew! Do i now know whats hould be done about Detroit? Nope. But I sure don’t want to rush into anything. And if Obama does, I sure hope he attaches a lot of strings in the right places, or this sucker will just fall aart all over again.

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