Let the Government Hand Out Lines Begin
It started with the investment banks, moved on to the regular banks, and then to the insurance companies, to the home buyers, and now to the auto industry.
With the knowledge of terrible earnings, the major US auto makers have lobbied for $50 billion on top of the $25 billion already approved for them to help re-tool their factories for fuel efficient vehicles. The funny thing about the new $50 billion in play, is that the auto makers want approximately $25 billion to support retired health care and the remaining to help improve the balance sheet so that they can qualify for the initial $25 billion in aid.
Only in Washington can you make a argument like that. Sorry, we can’t make the initial requirements for the aid so please lend us twice as much and then we will be viable to qualify for the first round of aid. They actually made this argument to our lawmakers.
To make matters worse, in a letter to Treasury Secretary Henry Paulson, Nancy Pelosi (D-CA) and others are requesting this package to quickly be considered due to the unique circumstance of the US auto industry. I fail to see why the auto industry as any different then any other major industry. The fact of the matter is that most industries and companies are doing worse in this economic downturn. Starbucks announced a 97% decrease in profit in their latest earnings. Home Depot, Target, Wall Mart, and others all reported lower earnings. Do we bail them all out?
GM says it may run out of cash by next year putting fear into Washington that US auto makers will cease to exist. Why not take this approach, it worked for AIG with insurance. What Washington must understand is that we have systems for companies that fail. It is called Bankruptcy, and contrary to what is normally thought, companies can and do succeed after the process. What the process does is force the companies to streamline operations, it allows them to eliminate contracts that they are forced to pay whether they have customers or not, and it helps eliminate debt.
Take the Airline industry form 2001-2004 which lost over $32 billion in the period. During that period four major Airlines were either in BK or filed for BK. US Air, United, Delta, and Northwest. This represented more than 50% of US routes. If you take the arguments being put forth to Washington today for AIG and GM and applied the them to the Airline industry, we should have no airlines left in the US and all be using trains and cars for travel.
Point is, there is a process for companies that fail. It should not be the tax payers responsibility to bail out companies. A major portion of GM’s loss is attributable to the financial portion of GM which had their hands in the mortgage industry. Perhaps if GM set a strategy in the height of their SUV sales to make cleaner fuel efficient cars, they would not be in the mess they are in today losing market share to companies like Toyota and Nissan. Instead, they expanded production of SUV’s with out any regard to make them more fuel efficient and opened up new products they had no business operating. Those decisions should not be rewarded.