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Pelosi And Democrats Want To Move Quickly To Rescue American Auto Industry

Speaker Of The House Nancy Pelosi and the Democratic majority in congress would like to move quickly to rescue the American automobile industry which has several million jobs related to it in some support function including dealerships, service, etc. However, President Bush claims to be less sure of what to do at this point. President-Elect Obama expressed his concerns with President Bush the other day at their White House meeting.

gm_general_motors_logo.jpgBut it is clear that fresh signs of more problems for the economy make it clear that it will extremely difficult to to rescue the American automobile industry as well as other troubled businesses and some banks as the bleeding of cash is so serious. By January, General Motors could be facing bankruptcy if the situation continues with very poor sales and little customer demand for new vehicles.

And with banks, it is unfortunately only a temporary raise in the insured savings limit to $250,000 from the normal $100,000 that will expire in a few months. And it is still likely that many will continue to remove funds from troubled banks, only helping to advance their slide into collapse. More bank failures are a fact.

For General Motors, which is bleeding massive amounts of cash, it is not clear whether any bailout will even be enough to help the ailing American auto giant. General Motors needs sales, and the public isn't buying because they are hurting financially and buying a new car isn't at the top of many Americans wish lists right now. Economic survival is. GM stock is now trading at a little over $3.46 cents today. This low level hasn't been witnessed since 1946, when GM just begun to build new cars and switch back to peacetime production of goods.

The United States needs it's automobile industry to survive. It is vital to millions of jobs somehow related to this industry in some way, including car dealers, parts, service and even loans. Congress will have to do something and very soon.

Another seriously bad sign was the shipping giant DHL discontinuing domestic services. This proves that business and others are not shipping goods or important documents at the level previously witnessed when the economy was stronger. It is a bad omen for the economy for sure. Many of the 9,500 jobs being cut are among both management as well as nonunion drivers not part of the Teamsters Union. It is another sign of the problems with having a nonunion job in this bad economy, where it is harder to lose your job if it is a union job. Another bad sign is that DHL is specifically cutting back on only it's American shipping service where it's international services remain more healthy. The American economy remains the sicker of the industrialized economies at this point and is only leading the world into decline.

In the very short term, congress and the White House need to act very quickly. And in the slightly longer term, President Obama will have his hands full of challenges to rescue jobs and the economy. A difficult path lies ahead, where immediate action is required to stop the daily drip-drip of bad news about the economy. However with both the White House and congress in Democratic control, it should be possible for the government to act more quickly than usual when you have political gridlock in Washington.


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Comments (5)

Allen:

Paul, I do understand that there are/will be millions of people affected by GM going down the tubes.

But at the same time, no one is talking about Ford's 5 passenger diesel auto, getting 65 + MPG, that they won't sell here in the US. WHY WON'T THEY?

Some people would buy that car, probably more than you think would. And how long would it take GM and Chrysler to follow suit with an auto similar to that with the same or better mileage?

OK, bail GM out, but not Ford.

Allen, actually my family is more of a Ford family. Only a few years ago, we all were driving Ford cars. The only GM line I ever really like are the Pontiac and Cadillac lines myself. But the defunct AMC and Studebaker brands are really my favorites of all.

But the AMC story is a frightening one for Detroit in general. This tiny car maker brand hoped to survive by first belt tightening by building cars for as little as $6 million in tooling costs like the Gremlin, but by the mid80's were so strapped for cash that they let Renault in as 49% junior partner. But even that didn't help. The Renault designed cars like the Alliance just didn't sell well at all, and had little appeal to either long time AMC fans or new buyers either. It also marked Renault's last failed attempt to enter the American market. Renault still remains as one of Europe's biggest auto brands, but just never had any American success here. Little AMC eventually really hit the skids well into the 1980's and Chrysler bought out the brand only to purchase the Jeep brand.

The frightening fact was that AMC could not be saved by Renault. And the fact was that even Chrysler nearly failed as well, where even German car maker Daimler sold the company to unload it.

This is all very scary business and means that maybe even boatloads of money cannot rescue American companies headed on the way down.

Another frightening tale was that of the Auburn-Cord-Duesenberg Company. Certainly these were fantastic quality automobiles, but the company hit such hard times during the Great Depression that they actually went into the kitchen cabinet business just to stick around, but eventually failed anyway.

Will buckets and buckets of money help Detroit not to fail? I don't know. This economy is probably the worst conditions since the Great Depression, and conditions are ripe to ruin some important big players such as the auto makers.

Mike:

Before we give firms "bleeding massive amounts of cash" more cash to bleed, how about figuring out the source of the bleeding?

I would suggest we start with the UAW. Read this. Obviously GM is responsible for much of its own woes, but really --

Each day, workers report for duty at the plant and pass their time reading, watching television, playing dominoes or chatting. Since G.M. shut down production there last month, these workers have entered the Jobs Bank, industry's best form of job insurance. It pays idled workers a full salary and benefits even when there is no work for them to do.

For a union to demand such from a company losing billions of dollars a year and on the brink of bankruptcy is not only unfathomable, it is a textbook example of pure, unconscionable greed.

When GM and the UAW began negotiating these unbelievable benefits 60 years ago, America was coming out of the postwar recession, people were flush with cash they had saved during the war (when there was little to buy) and "new" cars (as opposed to recycled 1941 models) were selling like hotcakes. At that time, GM could afford to offer generous salaries and benefits.

But those days have long passed. Some people say that bankruptcy would be good for the Big 3, because it would allow them to dissolve union contracts. Others say that bankruptcy would be a disaster because it would destroy confidence among consumers that the auto makers would be able to honor 3 - 5 year warranties.

Whatever the answer to the problem is, I really don't believe it should include a government bailout. Unfortunately, Big Labor spent between $350 and $400 million this year to elect Democrats, so we can be damned sure that they are going to demand their money's worth from Uncle Sam.

Mike:

Allen,

Regarding Ford's 5-passenger diesel - have you noticed that diesel fuel prices have been roughly 25% - 30% higher than gasoline since hurricanes Rita and Katrina? It would be very hard to convince people to buy a tiny, Honda Insight-sized car whose fuel costs, say, $3.29 a gallon, when the hybrid Insight (on the market here next year) gets roughly the same mileage on gasoline, which cost $2.19 a gallon.

Allen:

Mike, I can't argue with you because you are probably correct. However, the point I was trying to make is: Why won't Ford try and sell that car here? They just say they won't.

And what the heck if the big three go under, and adds millions to the unemployed lines. Why did they bail out Wall Street? Same question for them.

Lets face it, there are some tough times ahead for everyone, except the upper 5% who got all the tax breaks and drained our Treasury. SSDD!


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Publisher: Kevin Aylward

Editors: Lee Ward, Larkin, Paul S Hooson, and Steve Crickmore

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