Automakers grab loans, look to Obama White House

"The long-term fate of the U.S. auto industry rests with Barack Obama"

This is foreboding indeed.

Sadly, Obama is not the best person to be in charge on this issue. He's showed too much willingness to give into the mob's demands. They should be told one thing: use what you've got and shut the hell up because you're not getting a penny more!

The mob supported bailing out the industry? I thought it was the other way around.

Are the executives flying commercial yet?

Sadly, this bail-out is doomed to failure. Two major requirements deal with fuel economy and debt.

The focus on the next generation of vehicles the auto companies puts a priority on fuel economy for all vehicle classes as a requirement. This will result in sacrifices in safety, comfort, performance, cost, etc. - just about every attribute other than fuel economy. This could force the companies to build cars with great fuel economy that no one wants to buy. How does that get the Big 3 out of their hole? The Federal Government should be requiring they build the most profitable vehicles - but, hey, the Democrats are calling the shots, expect failure.

The 2nd requirement is to reduce debt by 2/3rds. This is a great idea, but the government wants the automobile companies to swap equity for debt. First, this is a terrible deal for the current shareholders, especially the employees who have invested heavily in their company through their 401k retirement plans. Second, who the hell would want to trade debt for stock in an automobile company that is teetering on bankruptcy, especially when the government is now first in line to recover its money should GM go belly-up.

Please stay tuned. This saga isn't over by a long shot.

The UAW should've been dissolved and all three boards of the Big 3 should've been required to resign before any cash went to them.

We'll be re-approaching another bail-out request in approximately 3 months.

SuperLib: "The mob supported bailing out the industry?"

I was making fun of the mentality of the big-3 and their mob-like tactics. They are of course not LITERALLY a mob.

Bebert: "The focus on the next generation of vehicles the auto companies puts a priority on fuel economy for all vehicle classes as a requirement. This will result in sacrifices in safety, comfort, performance, cost, etc"

Why would putting a priority on fuel economy sacrifice safety or comfort? It may affect power, but making an engine more fuel efficient doesn't change the body work or the car interior. The Japanese seem to make great little cars, so why would it be too hard for GM and friends?

What happened to all the true believes in the free market? A truly free market would let these companies collapse as they tried to create demand for their products, rather than accurately read the situation and make products that would sell. Too close a link to the oil industry, cartel behaviour or whatever the problem was. Either way, they stuffed up, they should go. At the very least, management should go.

A free market assumes a level playing field.

A free market assumes a level playing field.

There is no longer, nor has there been, a free market in the US. Now the government just decided to bailout the auto companies, what about everyone else that lost jobs-they will be lining up to feast on the government teat.

Now the government just decided to bailout the auto companies, what about everyone else that lost jobs-they will be lining up to feast on the government teat.

Indeed. Why should the banks that made the bad loans be bailed out and not the homeowners facing foreclosure? I recently read that lifting the capital gains tax on home sales back in 1997 contributed to the housing bubble since it encouraged investors to plow money into real estate. In short, buying and selling homes through "flipping" became a "get rich quick" activity.

As Tom Friedman points out:

We’re going to have to get out of this crisis the old-fashioned way: by digging inside ourselves and getting back to basics — improving U.S. productivity, saving more, studying harder and inventing more stuff to export. The days of phony prosperity — I borrow cheap money from China to build a house and then borrow on that house to buy cheap paintings from China to decorate my walls and everybody is a winner — are over.

Even if the auto industry is able to crank out fuel efficient vehicles, it's not clear how many people will be in a position to buy them. We may be entering a period of deflation, the cause of Japan's "lost decade."

While a steady drop in prices may appear beneficial to consumers, it's a disaster for those, both businesses like the auto industry and individuals, carrying large amounts of debt. Under these circumstances, it becomes very difficult to pay off those debts because it's so difficult to increase your earnings. Salaries are stagnant and people don't spend.

Now the government just decided to bailout the auto companies,

Ah, but the government didn't decide that as George Will points out:

Congress's marginalization was brutally underscored when, after lawmakers did not authorize $14 billion for General Motors and Chrysler, the executive branch said, in effect: Congress's opinions are mildly interesting, so we will listen very nicely -- then go out and do precisely what we want.

On Friday the president gave the two automakers access to money Congress explicitly did not authorize. More money -- up to $17.4 billion -- than had been debated, thereby calling to mind Winston Churchill on naval appropriations: "The Admiralty had demanded six ships: the economists offered four: and we finally compromised on eight."

The president is dispensing money from the $700 billion Congress provided for the Troubled Asset Relief Program. The unfounded assertion of a right to do this is notably brazen, given the indisputable fact that if Congress had known that TARP -- supposedly a measure for scouring "toxic" assets from financial institutions -- was to become an instrument for unconstrained industrial policy, it would not have been passed.

If TARP funds can be put to any use the executive branch fancies because TARP actually is a blank check for that branch, then the only reason no rules are being broken is that there are no rules. This lawlessness tarted up as law explains the charade of Vice President Cheney warning Republican senators that if they did not authorize the $14 billion, the GOP would again be regarded as the party of Herbert Hoover. Surely Cheney, a disparager of Congress and advocate of extravagant executive prerogatives, knew that the president considered the Senate's consent irrelevant.

The increasing concentration of authority in the executive branch was lauded by some as necessary in the war on terror. But having acquired it, the president can use it for many purposes. Hence George Will, a fiscal conservative, doesn't like it.

Indeed. Why should the banks that made the bad loans be bailed out and not the homeowners facing foreclosure? I recently read that lifting the capital gains tax on home sales back in 1997 contributed to the housing bubble since it encouraged investors to plow money into real estate. In short, buying and selling homes through "flipping" became a "get rich quick" activity.

While a steady drop in prices may appear beneficial to consumers, it's a disaster for those, both businesses like the auto industry and individuals, carrying large amounts of debt. Under these circumstances, it becomes very difficult to pay off those debts because it's so difficult to increase your earnings. Salaries are stagnant and people don't spend.

Obviously you cannot make the connection that all problems lead back to government(all roads lead to Rome?), and government created "solutions." Bailing out these auto companies comes from government, just like bailing out banks. A drop in prices is nothing but government fed BS, or "modern economic lies." Like prices dropping in computers, cell phones, TVs, or anything else for the matter stopped people from purchasing those products. People did not stop buying cars either, the only thing that changed was all the CREDIT that everything used from the expansion, or boom, can no longer inflate the prices! The MONEY SUPPLY is expanding, rapidly. These effects are all from government planning, central planning IE Central Banks and government monopoly of currency/banks. The effects are far reaching, far beyond cars and car companies. I am sure the mod can delete my post just to fit your views just like last time when I outlined many, many government programs that lead to the rapid increase in credit,loans, many many things.

Now, George Bush is an idiot, and a socialist. The fact that you mention authority that increased for the executive branch is extremely important though. President(Government) Bails out Auto companies. Who knows what will happen with Obama at the reigns, it will be disastrous though.

I also cannot believe that you stated that because the president bailed the comps out that it isnt government, cause its not Congress. Laughable at best. The president did not stop being government overnight.

I also cannot believe that you stated that because the president bailed the comps out that it isnt government, cause its not Congress. Laughable at best. The president did not stop being government overnight.

Your use of the term "government" obscures the role of different branches of the government and doesn't illuminate much because it leaves "politics" out.

Tom Friedman got it right when he observed:

[China's willingness to buy our debt which kept interest rates low] enabled successive U.S. administrations, particularly the current one, to tell Americans: “You can have guns and butter — subprime mortgages with nothing down and nothing to pay for two years, ever-higher consumption and two wars, without tax increases!”

Central planning, by contrast, has quite a different meaning. Specifically, it refers to factory production plans which are drawn up by distant bureaucrats who control both inputs and outputs. But this is not what occurred here under this bail-out; the automobile companies have been told to "get profitable" but not given marching orders to produce specific numbers of particular vehicles.

Your use of the term "government" obscures the role of different branches of the government and doesn't illuminate much because it leaves "politics" out.

Government is government, "illumination" is not needed. It is that simple. I just made the connection that president=government. Congress gave a blank check to other parts of government, no surprise there.

Central Planning=Central Bank. IT IS THE SAME. Government controls the money, and credit. IT IS CENTRAL PLANNING. It does not matter which part of the economy is controlled by the government, it all ends up the same with the same result. Government controls the market, market fails. PERIOD. Look at the situation right now, how can you not make the connection?

Now, you go on to state how China bought US debt which enabled the US to continue to spend without regard. This is true. But many other countries purchased debt, mostly in Asia and the Middle East I think. But the problems go back further than 2 administrations. Inflating the money through the central bank(of america, or any other country for that matter) for 30+ years will lead to dire consequences. We are experiencing some of these consequences right now. Either way when everyone stops buying government debt, its default or hyperinflation, probably both.

Many countries being China, Japan, anything in asia. How did this affect the situation at hand? Americans bought things they could never afford to pay back, like car loans.