If automakers fail, here's a flavor of what might happen

[babylonsister]

If automakers fail, here's a flavor of what might happen

By Lisa Zagaroli | McClatchy Newspapers

snip//

Experts say it's not just the obvious — car companies, suppliers and dealers — who'll be affected. Failure of these companies could affect national security, television studios and even sports teams.

"If you knock out these suppliers who are also providing powertrains and axles to the military, what are you supposed to do then?" former Energy Secretary Spencer Abraham said Friday in a phone interview.

Abraham, a former Republican senator from Michigan, said billions of dollars in pensions and health care would have to be picked up by taxpayers if the auto companies can't live up to their commitments.

"If you see the auto credit system come unglued, then you see another jolt to the (financial sector)," he added.

Abraham said he was reminded of the far-flung tentacles of the auto industry when he read that talk show host Jay Leno was given a 10 p.m. program in part because his show would be cheaper to produce — television networks are suffering from fewer car commercials.

Nascar is another enterprise that relies closely on the auto industry for financial stability. Not only do the Big Three provide most of its cars — they also sponsor teams and race tracks.

more...

http://www.mcclatchydc.com/251/story/57750.html

[Swamp Rat]

1. k&r

[skepticscott]

2. You mean if the Big Three go down

NASCAR goes down too? Makes me think it would almost be worth it. Or maybe Dubya could have NASA absorb NASCAR as one of his last acts as president...their names are pretty close, so they probably do about the same thing.

[dixiegrrrrl]

4. Comparison between Bush Co and NASCAR has been made.

They both involve running around in circles.
To the right.
Quite often there is a wreck.
More often one of the cars involved breaks down and just stops working.
Much gas and oil is wasted.
People sit around and passively observe the event.
Only corporations are the big winners.

[PJPhreak]

7. I would debate this...

The "Nascar" You speak of is the Nascar you see on TV every Sunday.

The "Nascar" that I know is raced on short (Less that 5/8's of a mile) tracks in places like Islip NY,Galesburg Mich,Roseville,Calif,Erie,Colo.Tooele,Utah,Watkins Glen,N.Y. and Mansfield,Ohio.
This is not only a "Big Buck Driven,Nationally Broadcasted,Spectator Sport" But it is also where a 16 year old can go race his heart out,learn how a Automobile is assembled,engineered,designed and this same 16 year old also learns what makes a car tick...and how to improve on what Detroit sold them.

Its the 16 Year old who is drooling over the '57 Chevy Bel-Air,and runnin around the Pits at his local dirt track who will be one of the people who will be designing,engineering,building the fleet of automobiles that will run on something other than Oil...And Yes,They will be Racin the Crap outta those cars as well!

[fasttense]

3. Corker-Porker sure talks and acts like Hoover.

Maybe if he gets rid of all the jobs in the US then by comparison, TN miserable paying jobs would look good.

[MercutioATC]

5. Why does everybody assume that they wouldn't continue to operate

under bankruptcy protection?

Why does everybody act as if another company won't step in and fill the demand that these companies will no longer fill (and hire displaced workers to do so)?

Why does nobody see that the big three created at least half of this situation through their own horrendous business practices and that saving them might thwart the possibility of them becoming better-run companies?

It's a zero-sum game, folks. Demand is what it is. If one company (or three) fails, somebody will step in and fill the resulting shortfall, hiring new workers in the process.

[The Magistrate]

8. It Is Not Quite That Simple, My Friend

Take first the hiring of displaced workers. This will cast off senior workers, who will mostly be unable to find employment, and those workers who are hired by 'replacement' firms will be, in present circumstances, hired at lower wagers than they are presently paid. Both these things will reduce the amount of money available to be spent, and so reduce demand for products, including automobiles. This will feed a recessionary spiral, contracting the economy further, and edging towards genuine depression.

It is true that the management of the Detroit automakers have made many errors, but the basic difficulty faced at present is the general slackening of demand for products made by anyone, as the bubble of easy credit that greased everything collapses. The next most important difficulty facing these companies is the outright subsidy of their competitors, compounded of various tax-breaks to lure plants from over-seas companies to our country, and government opposition at both local and federal levels to the unionization of those plants once they are erected and in operation. Before these two systemic obstacles, the errors of Detroit managements, egregious as they have been, take on the aspects of ornament, rather than structural flaw.

[MercutioATC]

9. I realize the complexity, however I don't believe saving them would solve anything.

Demand is down, so they're still going to lay off a lot of workers.

Bankruptcy or bailout, the workers' contracts are going to be thrown out and rewritten, as will retirees' benefits.


I think it's important to realize that we're NOT going to go back to "business as usual", even when the economy recovers. The economy of the last 8-12 years was based on people spending 103%-106% of their income. Companies tooled up and hired to meet this demand...but not only has the state of the economy reduced that demand, the original level of demand itself was based on an unsustainable model.

If this was part of a comprehensive plan that provided:

1) incentives for corporations both foreign and domestic) to hire American workers, and

2) meaningful tariffs on imports, and

3) some definitive change in the business models of the big three

then I would be at least in partial agreement with the idea. It isn't, though. In my opinion, it's a short-sighted attempt to delay the inevitable by throwing money at a problem.

[The Magistrate]

10. Those Are Three Sound Points, Sir, That You Enumerate

However, it is impossible for me to support the tearing up of the workers and retirees contracts. It bothers me, deeply, how contract seems sacrosanct in every field save that of a company to its employees.

Demand actually could be built up to necesssary levels simply by a better model for distribution of the proceeds of these and other businesses, so that employees received in wages a much greater proportion of it. The concentration of wealth towards the top is the real, dominant reason for the contraction of demand. The expansion of credit was simply an attempt to maintain the pattern of consumption that prevailed when wage levels were higher, and income and wealth less concentrated than it has become over the last couple of decades. There is more than enough money to go around, and achieve this.

[MercutioATC]

12. We agree on some points.

However, I don't believe any form of "bailout" would leave worker and retiree contracts in place. Yes, it's a travesty...but the current contracts are going away whether we save the big three or not.

...and I also agree that proceeds need to be better distributed, but the scope of that issue far exceeds any automaker bailout solution.

[Pathwalker]

11. Chapter 11 would require someone to loan them the money to continue

to operate, and without it, their only option is liquidation. No bank will lend them the amount of money it would take for them to continue, so no bankruptcy other than liquidation is a viable option. Besides, the cascade effect has already started, so it's all too late now, anyway.

[CreekDog]

13. If demand is over zero, then saving them is worth "something"

you say it is not worth "anything".

i think i should have stopped reading at that point. (although i did keep going) :eyes:

it is a ridiculous simplification.

further, you don't present any reasoning that is pertinent to what has caused this. namely that credit has dried up for regular businesses. businesses all operate on credit in the short term until they sell their products. that credit is drying up. now when you lose jobs because of that, it is NOT because you are not running a sound business, it's because the credit markets are screwed up. that's a stupid but very real reason for businesses to go under but it is a reality and with the stock market tanking, it is hurting capital funding of businesses large and small.

your formula would do nothing to slow the already rising ranks of unemployed.

and what will we pay in the meantime for unemployment benefits, Medicaid, health care for kids (whose parents have lost jobs) and so forth? nevermind that if we can deal with the narrow problem of credit many jobs will remain --if whole industries are allowed to fail, we will get many, many long term unemployed with no prospects. what is the cost of that?

[MercutioATC]

14. The big three had problems well before the credit crunch.

Tightening credit just accelerated their demise.

I believe you missed my point about demand. Demand 5 years ago was "X". Factories tooled and employed to meet demand "X". Demand is now (to pick a random number) 70% of "X". Factories must close and employment must be reduced to avoid a surplus...and a bailout won't change that.

If the big three automakers stop making cars (which is an extreme assumption), demand now will still be 70% of "X". Other automakers will raise production to fill this demand. To do this, they'll have to increase facilities and employment. Will it be a complete wash? No, but to suggest that millions of jobs will simply be "lost" is ridiculous. Big three workers who lose their jobs will be employed by the companies that increase production to meet the demand.

[CreekDog]

16. it takes credit to expand

and nevermind the regional impacts which would be especially severe in the upper midwest.

[MercutioATC]

17. That's true, but loosening credit won't solve the entire problem.

As I said, the big three have had real problems for years. Between the overall state of the economy and their failed business models, there exists a situation that easy credit alone cannot solve.

Look, the economy is bad and is going to get worse...possibly MUCH worse. There will be widespread impact that will be especially severe in some regions. That's a given.

Giving $14B to the auto industry, especially when they've provided absolutely no explanation as to how this money will solve their problems would be, in my estimation, a very poor choice.

[PJPhreak]

6. Nascar...

Gets it Sponsors and Tech Support From The Big Three and Toyota.The auto makers supply very little as far as Cars and Parts to teams such as Dale Earnhardt Inc.,Jack Roush,Joe Gibbs,Rick Hendricks,Richard Childress ect.The car you see every week "Goin Round in Circles" actually are "Hand Built"...The engines,Transmissions,Body Panels,Brakes,Lexan (Windsheilds)and Frames are eather constructed by hand or are purchased from High-Performance Aftermarket Suppliers.
If the Big Threes declare Bankruptcy would it trash the economy? You Betcha!In ways that no one want to imagine!

[Waiting For Everyman]

15. This idea that we can just "do without" sectors of our economy

is amazing nonsense. Says who? It's all very intricate and interrelated. The job losses now are the result of the foreclosures before... those people are no long consuming. "Writing off" more and more of our economy IS the deflation. Would we like to shrink to zero, to realize that?

If mortgages are backstopped en masse (as they're officially going to be tomorrow, which is good but way late), then that in itself will reduce the current rate of job loss. If we refuse to cut away the auto industry, that's 3.5 million jobs we don't have to replace along with those already gone.

Having to replace them once they're lost is NOT cost effective - neither to the government nor to individuals (who are consumers and tax payers). It's costing much more to be indifferent than to stop the foreclosure and jobs problem. We could've backstopped every distressed mortgage in 2007 for a few billion... now the bailouts so far have cost 2 trillion. See the difference there? And now, we're giving up not only foreclosures by the million, and jobs by the hundred-thousands, and pension funds, and stock losses, but an entire industry with its 3 million jobs - with mortgages dependent on THEM.

Losing an industry here or there is NOT HELPING. It takes more effort, time, and money to replace what we once had, than to save what we already have. Want higher bailouts in a few months? Keep thinking this same way then. Haven't we learned yet from what we failed to do a year ago? We could've stopped this then, before it reached this many people and sectors. Well where we are now, is what we'll have more of in a short time if we don't stop foot-dragging and telling ourselves we don't have to bother, and FIX IT.

ANY LOSS OF ANYBODY OR ANY SECTOR IN THE ECONOMY IS EXPENSIVE!!! Could we get that through our heads?