17 November 2008

The Auto Bailout and Moves Toward Centralization

There may be action today in Washington D.C. to bail out the Big Three automakers. Numbers vary - and when numbers get this big, what's a 40 or 50 per cent variance - but the low end would give $35 billion to automakers to "retool". The retooling would theoretically give the automakers the capability to build more fuel efficient cars, therefore make more money, therefore stay afloat financially.

It won't work. And I don't say that because I know anything about auto-making. I don't even know that much about finance, especially when it gets to the silly heights of what seems to pass for sound economic decision making today.

But it seems fairly straight-forward that if a company has commitments to previous and current employees, in the form of retirement packages and medical coverage, that it simply cannot cover, then no amount of retooling in other areas can fix that gap. Barring the unlikely event that the car makers can create cars without labor, if the labor agreements don't change, then the companies will just bleed money. It doesn't matter where the money comes from.

That the money will come from the federal government (and by extension, you and I) is worrisome. The federal government will essentially buy an interest in the auto companies, just as was supposed to happen with financial institutions (though who really knows what has happened or will happen to that $700 billion). In my opinion, the federal government's holding of auto maker's stock does not portend future success for GM, Ford, or Chrysler. The federal government isn't - or shouldn't be - in the business of creating wealth. It cannot even protect wealth; see Social Security. The interest bought will be about power, about having control.

And there is sure to be a "car czar" put in charge of all of this. Detroit will be his or her fiefdom. Dispensing government largesse will be his or her "duty".

We may well have an "urban czar" do to the same for our large metropolitan areas. A "super-mayor" of sorts. Billions are waiting to be printed and pushed toward cities.

We may well have many, many more "czars" dividing up the interests - might they be called special interests - of our nation in order to better minister to them from the bucket of the federal government.

These moves are but symptoms of government expansion to come. What's more, it is not just a Democrat-led charge. Domestically, G.W. Bush pushed big government under the guise of "compassionate conservatism". Both parties eventually bought into the $700 billion to stabilize the financial sectors (which may have been a necessary measure, though its ever-changing target makes one wonder). Both sides, Democrat and "compassionate" Republican, seek to fix problems they have no business fixing. Whether recognized or not, these are power grabs disguised as help, and at some point, we will ask who can help us get away from the "czars" and the federal government.

1 comment:

Authentic Connecticut Republican said...

It looks like the folks in DC are hell-bent to give the stimulus package another try seeing as the first one didn't have any real effect.

This time it's the car industry.

While the sanity of blowing cash around and running the national debt up even further is questionable; it seems inevitable - so this time let's target unemployment, create AMERICAN jobs and pump up the economy all at one time.


Consider the following:

Manufacturing costs of motor vehicles are 65% labor (i.e.: W-2 income), that's not all direct but due to suppliers. GM alone has over 1300 suppliers. (That's a lot of jobs!)

1 in 10 Americans makes all or part of their income due to the automobile industry.

Money turns over 5 times in a year.
Thus a vehicle with a manufacturing cost of 20K produces 13,500 in W-2 income which in turn becomes a total of 65K in 12 months due to the 5 turnovers.
(This isn't magic, it's simply how the economy works.)

Our domestic car makers are saddled with legacy costs, most of which will reduce dramatically in 2010 due to contract changes. They need to survive to get there.

Our own over-zealous government with a virtual alphabet soup of regulatory agencies has been no help either.
Foreign competitors have worked off-shore collectively to meet various US gov't. imposed emission and safety standards, thus dramatically reducing those R&D costs. American car companies are prohibited from that by our FTC.

Make no mistake; it’s no surprise that once again government has been a major part of the problem.

Here's the solution.

Instead of either shipping cases of cash off to car makers; or sending us all another check:

Send out a voucher for say $1,000 good on a motor vehicle for the percentage of the vehicle that's domestic. (Civic = 70% Ford Explorer=80%)

Let those not interested in a new car sell or give away their vouchers (Ebay would be loaded with them in no time flat) and those that are so inclined can use as many as they can get their hands on up to the full MSRP of the vehicle.

This would bail out the car industry without giving them a dime directly
Further it would reduce the overall age of the nation’s cars which would in turn;
increase overall fuel economy
& decrease pollution.

Strengthen the dollar!

Since vehicles with a higher domestic content would be moving better this would reduce our imports, strengthening our dollar which would in turn further reduce what we pay for anything imported ...like gas!


Jobs

Instead of simply bailing out a few big companies, this would cause such a run that it would create employment throughout the industry affecting over 1300 suppliers and their workers.
That would give the economy good swift kick right where it needs one!

Pays for itself!

Since money turns over 5 times, and the vouchers are only good for the domestic content of the vehicle, every dime would be spent in the United States creating taxable income.
What is the income tax on 65,000 anyway?
(Remember? 20K manufacturing cost = $13,500 W-2 income x 5 = $65,000)


Another Stimulus Package?

I'm sure you'll agree that this makes more sense than simply sending out checks; many of which will be used to buy new flat screen TV's usually made in Malaysia or some such place.