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The Colbert Report on the bailout of U.S. automakers: Season of Giving.
“Instead of Jesus, Mary, and Joseph, we’re giving to Ford, Chrysler, and GM.”
We’ve written plenty about GM’s strategic mistakes and the pending bailout of Detroit’s Big 3 automakers, which started back in early September. We recognized that GM was heeding the wake-up call back in July. Alas, it was too little too late. The sad truth is that America’s Big 3 have to go. No amount of taxpayer dollars can save them. Throwing good money after bad doesn’t begin to describe what this will amount to.
This is no ordinary recession. It’s a fundamental restructuring of our economy, where untold trillions of wealth are being erased, never again to be recovered, along with just as much credit…the precious credit that afforded us a fictitious standard of living and false sense of security. We literally mortgaged our entire economy and quality of life over the past six years, and now it’s time to pay. It’s the bubble of all bubbles. And in the face of this, there is no way that Detroit can survive.
These are bloated, inefficient companies with sub-par products that had a tough time making real profits in the best of times. Not only are they not competitive with foreign automakers, they aren’t competitive with domestic companies that just happen to carry a foreign name. These companies can re-build Detroit if re-building Detroit is meant to be. Otherwise, GM is little more than a healthcare company that makes cars. If anything, that $34 billion should go to into a healthcare system that will enable U.S. companies to compete with foreign rivals that have no such costs. This goes for all types of companies.
On a more practical level, these funds should be used to help the workers who will lose their jobs, because they are going to be lost. Thirty-four billion dollars will only buy time, and then there will be nothing left to extend unemployment benefits or provide job training when the companies inevitably go under.
Detroit is like a homeowner who can’t afford to pay their mortgage. They’re looking for a restructuring and a bit of help. But one has to look at why they got themselves into this position in the first place and consider whether extending more credit or different terms is really going to produce a different result.
According to a recent report, “More than half of delinquent homeowners whose mortgages were modified earlier this year ended up redefaulting within six months. The high redefault rate raises concerns about the long-term effectiveness of loan modifications, which many are pushing as a key solution to the nation’s financial crisis.”
This is exactly what will happen with Detroit. Six months from now, they’ll be back in front of Congress asking for more. In other words, they’ll redefault.
The governemnt is powerless when it comes to supporting over-valued asset prices. Market forces are just too strong. Whether it’s General Motors or a condo in Miami, injecting government funds will only prolong the inevitable and make it more painful for everyone. We need to let the market do its thing. Just as forest fires are natural and necessary from time to time to clear the brush and make way for new growth, we need to find a bottom as quickly as possible so we can start to rebuild. In order for this to happen, there can be no Big 3 automakers. Certainly not the way we know them today.
2 responses so far ↓
1 Going Green Consulting // Dec 9, 2008 at 8:15 am
The fundamentals of capitalism are either produce and compete, or you are in the wrong business and will inevitably be smothered to death by your competitiors. During the past century, hundreds of car manufactures have come and gone. From Studebaker to Nash to Daewoo, they all evidentially succumbed to the principals of capitalism. And when one company fails, another opportunity opens up for another. Even with the infusion of billions, jobs are going to be lost. That is a reality check. Detroit is quickly becoming the epicenter of the 21st Century dust bowl, which the dust has been blowing for several years.
I agree with your analogy of the condo/big three crisis. Great comparison. And they will be back for more. Robert Lutz (GM V.P.) has already stated that.
One thing that most economist and congress fail to understand is that the job landscape in America has changed from an industrial-driven society to that of a consumer-driven one. Most Americans now have to sell or provide a service to another. This is where the cheap credit has come into play. Everything from 100% financing to easily obtained credit. But when you comprise your lending standards, you are setting yourself up for doom. And you are correct, we will have to pay for many years of living in this false economy, especially with inflation around the corner from dumping and printing billions of extra money that is being thrown after the bad money.
Creating a new sector, such as health care or alternative energy, would have been a much viable solution over throwing good money after bad. This would create a new market for workers to transition to when they inevitably lose their current job. Throwing this money to try to slow the job losses does not help when they actually do lose their jobs – be it 3 months or 6 months from now.
2 Car mechanic mark // Dec 14, 2008 at 12:34 pm
The Immaculate concession Very funny Steven! I also owned a powder blue pinto. No bailout approved but venture capital welcomed. We will have to save America ourselves. The power of people. Steven Colbert, Rock stars and celebrities for buying American cars. Angelina and Brad love to help so lets get them to lead with a trade of some venture capital going to their favorite causes. We the people can bailout the big three with a focused effort. If the state and local governments want to help the effort they can reduce the sales tax for each sale in 2009. And how about 0 percent financing backed by the government. If the banks will not help the automotive credit market with the money they where given take some back and start a federal financing program to approved buyers. Stimulate and escalate sales saves the industry without additional tax payer money. But yes we will still need that bridge loan to nowhere to get there!
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