Dwight Watt - Watt Thoughts #170 12/12/2008

#170 - The Auto Bailout proposal (Watt Thoughts)

The auto bailouts (or in auto industry language, the auto industry loans), (wonder if they would rate as junk (see 1970-80s) or subprime) are a major issue. The Senate voted to not approve them (they did not pass although a majority approved as 60% is required on this vote), but yet today the Bush administration is determining way to do anyway. Obama says he wants them, but did you notice that Illinois had only one vote on the issue because Obama decided that he should resign and so he actually has no power in the US government until January 20 as he gave up his seat in the Senate (and who knows when a new senator will be chosen after the troubles this week in Illinois).

We are hearing and reading all these fears of economists, politicians, news articles and finance people that millions will be out of work if GM files bankruptcy. To hear them tell it, if GM files bankruptcy every GM employee, every employee of all suppliers, all employees of auto dealers, and all employees of auto parts stores will immediately lose their jobs. Hate to break it to them but I will still need parts for my 1986 Buick Skylark, 1986 Chevrolet Silverado and 2001 Saturn L Series sedan. The Saturn and Buick have about 280000 miles on each of them. It is odd that major airlines went bankrupt (Delta, etc) and they are still flying and attracting business. Did Chrysler disappear after Lee Iacocca begged for help about 1980? Have you visited dealers or read ads for them recently? They emphasize loans are available. I just read that in two ads in paper today. Bankruptcy may be good in letting/making the auto manufacturers restructure their contracts, etc to be more realistic. Just because they file bankruptcy does not mean the end of them, they would likely do chapter 11. Have you seen K-Mart around recently, they went bankrupt a few years ago. However bankruptcy does mean that those who own stock in the company almost always lose their full investment in it.

The American auto industry needs restructuring for their operations in North America to reflect a more global and competitive world. Not only must the top sacrifice, but the workers also from the huge pay they have been making. Getting in line with foreign auto companies rates paid in US will still pay auto workers good salaries. The large pay for employees was just GM and their employees concern until they wanted the US government (the citizen of the USA) to give them money to stay in business.

However just giving the auto companies money with no strings will not work. Those that say it is only fair to give the money to US auto makers because the foreign got special treatments to open plants here ought to check and they will see all recent auto plans (30 years or so and most other large/medium size industries also) have received substantial benefits (tax, construction, training, incentives, etc) to locate the plants where they built them. Other employees all over the country are losing jobs, taking pay cuts (furloughs) or expecting to. It is only fair that the auto industry who wants the rest of us to help them out to do the same.

Thursday night (December 11, 2008) after the Senate failed to pass the auto bailout bill, Senator Harry Reid (head of the Senate) stated (and this was in numerous news articles) that "I dread looking at Wall Street tomorrow, It's not going to be a pleasant sight.". Did anyone notice what the stock market (Wall Street) did today? The Dow was up 64 points and the S & P was up 6 points today (Friday December 12, 2008). If that action of the markets really scares Reid it makes you wonder what he would have not been scared by it doing?



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