Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold & the USDX: Correlations - 2nd Dec 20
How An Ancient Medicine Is Taking On The $16 Trillion Pharmaceutical Industry - 2nd Dec 20
Amazon Black Friday vs Prime Day vs Cyber Monday, Which are Real or Fake Sales - 1st Dec 20
The No.1 Biotech Stock for 2021 - 1st Dec 20
Stocks Bears Last Chance Before Market Rally To SPX 4200 In 2021 - 1st Dec 20
Globalists Poised for a “Great Reset” – Any Role for Gold? - 1st Dec 20
How to Get FREE REAL Christmas Tree 2020! Easy DIY Money Saving - 1st Dec 20
The Truth About “6G” - 30th Nov 20
Ancient Aztec Secret Could Lead To A $6.9 Billion Biotech Breakthrough - 30th Nov 20
AMD Ryzen Zen 3 NO UK MSRP Stock - 5600x, 5800x, 5900x 5950x Selling at DOUBLE FAKE MSRP Prices - 29th Nov 20
Stock Market Short-term Decision Time - 29th Nov 20
Look at These 2 Big Warning Signs for the U.S. Economy - 29th Nov 20
Dow Stock Market Short-term and Long-term Trend Analysis - 28th Nov 20
How To Spot The End Of An Excess Market Trend Phase – Part II - 28th Nov 20
BLOCKCHAIN INVESTMENT PRIMER - 28th Nov 20
The Gold Stocks Correction is Maturing - 28th Nov 20
Biden and Yellen Pushed Gold Price Down to $1,800 - 28th Nov 20
Sheffield Christmas Lights 2020 - Peace Gardens vs 2019 and 2018 - 28th Nov 20
MUST WATCH Before You Waste Money on Buying A New PC Computer System - 27th Nov 20
Gold: Insurance for Prudent Investors, Precious Metals Reduce Risk & Preserve Wealth - 27th Nov 20
How To Spot The End Of An Excess Market Trend Phase - 27th Nov 20
Snow Falling Effect Christmas Lights Outdoor Projector Amazon Review - 27th Nov 20
4 Reasons Why You Shouldn't Put off Your Roof Repairs - 27th Nov 20
Further Clues Reveal Gold’s Weakness - 26th Nov 20
Fun Things to Do this Christmas - 26th Nov 20
Industries that Require Secure Messaging Apps - 26th Nov 20
Dow Stock Market Trend Analysis - 25th Nov 20
Amazon Black Friday Dell 32 Inch S3220DGF VA Curved Screen Gaming Monitor Bargain Deal! - 25th Nov 20
Biden the Silver Bull - 25th Nov 20
Inflation Warning to the Fed: Be Careful What You Wish For - 25th Nov 20
Financial Stocks Sector ETF Shows Unique Island Setup – What Next? - 25th Nov 20
Herd Immunity or Herd Insolvency: Which Will Affect Gold More? - 25th Nov 20
Stock Market SEASONAL TREND and ELECTION CYCLE - 24th Nov 20
Amazon Black Friday - Karcher K7 FC Pressure Washer Assembly and 1st Use - Is it Any Good? - 24th Nov 20
I Dislike Shallow People And Shallow Market Pullbacks - 24th Nov 20
Small Traders vs. Large Traders vs. Commercials: Who Is Right Most Often? - 24th Nov 20
10 Reasons You Should Trade With a Regulated Broker In UK - 24th Nov 20
Stock Market Elliott Wave Analysis - 23rd Nov 20
Evolution of the Fed - 23rd Nov 20
Gold and Silver Now and Then - A Comparison - 23rd Nov 20
Nasdaq NQ Has Stalled Above a 1.382 Fibonacci Expansion Range Three Times - 23rd Nov 20
Learn How To Trade Forex Successfully - 23rd Nov 20
Market 2020 vs 2016 and 2012 - 22nd Nov 20
Gold & Silver - Adapting Dynamic Learning Shows Possible Upside Price Rally - 22nd Nov 20
Stock Market Short-term Correction - 22nd Nov 20
Stock Market SPY/SPX Island Setups Warn Of A Potential Reversal In This Uptrend - 21st Nov 20
Why Budgies Make Great Pets for Kids - 21st Nov 20
How To Find The Best Dry Dog Food For Your Furry Best Friend?  - 21st Nov 20
The Key to a Successful LGBT Relationship is Matching by Preferences - 21st Nov 20
Stock Market Dow Long-term Trend Analysis - 20th Nov 20
Margin: How Stock Market Investors Are "Reaching for the Stars" - 20th Nov 20
World’s Largest Free-Trade Pact Inspiration for Global Economic Recovery - 20th Nov 20
Dating Sites Break all the Stereotypes About Distance - 20th Nov 20

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Bailing Out the U.S. Auto Industry

Politics / US Auto's Dec 07, 2008 - 04:53 PM GMT

By: Walter_Brasch

Politics

Best Financial Markets Analysis ArticleCongress should bend over, dig into the public coffers once again, and give the auto industry everything it wants—even though 61 percent of Americans oppose a bailout, according to a CNN/Opinion Research poll.

A couple of weeks ago, CEOs from GM, Ford, and Chrysler, known collectively as the Big 3, revved up their corporate jets' engines, dropped in on the Senate, and testified that without a $25 billion bailout western civilization would collapse.


With the nation in a Recession, auto sales have declined to the lowest point since January 1982. Sales are off 47 percent for Ford, 41 percent for GM, and 31 percent for Chrysler from last year. Even sales of major overseas auto manufacturers selling to the American market are down, but not as much as for the Big 3. But, Big 3 market share has plummeted from 70 percent in 1998 to only 53 percent this year, according to Autodata Corp. Equally as important, Consumer Reports has consistently given cars produced by foreign-owned manufacturers higher ratings than American-made cars, although the problem is more attributable to management decisions than problems on the manufacturing line. But, even if Big 3 Management was flawless in their business plans, sales would still be significantly down because of the Recession, partially caused by the sub-prime loan fiasco and the reality that credit is now tight for most Americans.

Congress, which freely handed out more than $700 billion in taxpayer money to financial institutions with fewer morals than the average street walker, now demanded the Big 3 to return with an actual plan. As an afterthought, Congress suggested that the next time executives from GM, Ford, and Chrysler come to the nation's capital, conspicuous consumption would be frowned up.

As compliant as any corporate "yes man," the three executives returned, each of them driving a gas-efficient American-built car. Executives from GM and Ford said they planned to sell their jets; Chrysler, owned by Cerberus, a private equity firm, was moot on the issue. Of course, the Big 3 executives should have driven to D.C. the first time, but that's an issue that six-figure PR executives should have foreseen.

This time, having been properly chastised, the auto execs brought a new proposal to Congress. Instead of a $25 billion bailout, the cost would be $34 billion for loans and credit lines. Apparently, driving a hybrid and eating at roadside diners costs more. And, each of the executives would work for $1 a year. That's right. The executives who stripped eight-figure income each year from the Big 3 would take a $1 a year token payment if the bailout was dropped into their piggybanks. Naturally, it would be unfair to force myriad 6- and 7-figure income executives below them to sacrifice the family mansion, vacation homes, spa and country club memberships, luxury cars, and private school tuition for their darling upcoming junior executives.

And then the CEOs actually talked. Would they take less money? Perhaps a $14–15 billion "bridge loan" proposed by Democratic leaders and President Bush would get them through the first quarter of 2009, they said, trying to salvage anything. Would they be willing to increase their contracts with American-owned suppliers while decreasing dependence upon foreign-owned suppliers? Their response was as clear as any Bush statement; translated, they said they might possibly consider that request, as long as the stars aligned correctly during the vernal equinox—or some such logic.

Congress has allowed itself to be blackmailed so many times already by banks, investment firms, and an insurance agency that it is hypocritical to bully the auto industry CEOs, and to deny funds to an industry that actually produces a tangible product that is important to all Americans. More important, their product still accounts for a significant part of the workforce.

The national unemployment rate is 6.7 percent, highest in 15 years; the rate is expected to hit about 8 percent in 2009, according to the Wall Street Journal. More significant, if the number of Americans who have been so discouraged by the employment possibilities and are no longer actively looking for full-time work is figured, the percentage rises to about 12.5, according to the Bureau of Labor Statistics. Of about 1.9 million layoffs this year alone, the Big 3 laid off about 140,000, with significantly more anticipated.

Higher unemployment leads to higher housing foreclosures and bankruptcies. It leads not only to depression but also to more health problems, including malnourishment, as Americans cut back on food and medical care. About 46 million Americans don't have health insurance; millions more who do have insurance provided through their employment can't afford to get adequate medical care because they can't afford the deductibles and co-pays.

Corporate America, instead of looking at their own excesses and incompetence, blames workers for the problem. But, the line worker is the one who builds something to the specifications of others but has no input into the decisions that cost the Big 3 their share of the market. For its part, the unions, blamed by almost every executive in America, has gone beyond what should be expected of a union.

The United Auto Workers, which extended major concessions to Chrysler in 1979, agreed to significant concessions in the 2007 contract, including allowing the Big 3 to hire manufacturing line workers at $14–16 an hour, about half of the current employee wages. By any standard, the workers have made far more concessions to keep the auto industry putting along than have the companies themselves.

Nevertheless, a failure by any of the Big 3 would have a severe effect upon several thousand other businesses, including car haulers, suppliers, garages, and dealers. Even the media have been adversely affected. Auto manufacturers are among the leading advertisers in magazines; auto dealers are among the leading advertisers in local daily newspapers. Newspaper advertising is down about 19 percent from last year, according to the Newspaper Association of America; magazine advertising pages are down about 9.5 percent, according to the Publishers Information Bureau. Significant drops in advertising by the Big 3 have contributed to even more media layoffs, including reduced income for all major suppliers, including printers.

Last year, according to data collected by Advertising Age, General Motors, with an advertising budget of $3 billion, was the fourth largest advertiser; Ford, with $2.5 billion, was sixth; Chrysler, with $1.8 billion was thirteenth. However, all three have cut their budgets, with GM eliminating all TV advertising from the Emmys, Academy Awards, and the SuperBowl, and reducing ad spending for all NFL games. GM won't disclose how much it spent on the Emmys and Academy Awards, but TNS Media Intelligence estimates GM spent $13.5 million just for Oscar night telecast advertising; SuperBowl ads went for about $2.7 million per 30 second spot in 2008; GM had one ad, promoting an SUV hybrid. Although overall TV ad revenue is up from last year, part of that is because of significant spending during the presidential campaign. Lower ad revenue from the automakers and numerous other industries in 2009 will affect programming and the workforce.

With increased unemployment, housing foreclosures, bankruptcies, and lack of adequate health care rising to record levels, a bailout for the Big 3, as distasteful as it seems, is probably the best way to help keep this year-long Recession from going into a Depression. After throwing money at Wall Street, it is far too late for Congress to claim it is looking out for the fiscal interests of the taxpayers, and time to acknowledge that it needs to look after the interests of the workers.

by Walter Brasch

http://www.walterbrasch.com

Copyright 2008 Walter M Brasch
Walter Brasch is a university journalism professor, syndicated columnist, and author of 17 books. His current books are America's Unpatriotic Acts , The Federal Response to Hurricane Katrina , and Sex and the Single Beer Can: Probing the Media and American Culture . All are available through amazon.com, bn.com, or other bookstores. You may contact Dr. Brasch at brasch@bloomu.edu

Walter Brasch Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules