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Postre: Economics: Panic in Detroit... (Bienvenido Macario, Philippines) (John Eipper, USA, 11/13/08 6:58 am)
On the crisis in the US Auto Industry, Bienvenido Macario writes:
There are a lot of questions about the auto industry's quest for bailout funds. A $25 Billion loan program was passed to help carmakers develop fuel-efficient vehicles. This means that the 2009 models have been produced and have been shipped to dealers.
Before the $700 Billion bailout package, they seemed very stable. The Big Three did not need help. They did not seek help other than the $25 Billion. Now that Treasury Secretary Paulson announced the U.S. government is not going to buy toxic mortgages and bad assets from banks, the auto industry suddenly needs cash infusion.
My question: Would this cash infusion translate into sale of the Big Three's existing inventory? I really doubt this will happen because SUVs were the biggest-selling vehicles of Detroit when oil was at $30 per barrel. Japanese cars have both SUVs and "tiny gas sippers."
Let's say the bailout Detroit receives would tide them over during this crisis. Most likely the Big Three will continue to make cars and try in vain to compete with Japanese and German cars, not to mention South Korean imports. Four countries making cars every year is just too much for the market. This is the real problem of the auto industry and every other industry in the world. Over-production, over-priced (those made in the US), and over here.
Instead, I'd come clean and say I need the money to pay the retirees and severance package when we close shop. I simply do not see the sense of two of the Big Three continuing to manufacture cars that won't sell. Workers could apply at Toyota and Honda factories in Alabama, Kentucky and Tennessee and bring the wages down, in effect the per unit price of the cars made in those states.
It is no secret that states have used up their unemployment trust funds. This is why they Blue States worked hard to capture the majority of the seats in the US Congress and elect Obama. The problem is they need to bail out the auto industry before Obama is sworn in.
The best solution is for the government to take over the auto makers seeking federal funding.
JE comments: It's true that in California, one sees precious little Detroit Iron. But here in the "Heartland" things are different. I strongly disagree with the assumption that there is no future role for US automakers, nor that our products are inferior to the foreign competition (yes, they probably were twenty years ago). Apply for non-union auto jobs in the Red States? This is blasphemy for the UAW rank-and-file, and economic Armageddon for my home state.
My proposal for today: why not make ultra low-interest federal loans available to purchase a select list of US-manufactured vehicles with high MPGs?
One of my favorite rock songs is David Bowie's "Panic in Detroit." A prophetic little tune?
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John Eipper, Editor-in-Chief, Adrian College, MI 49221 USA