Wednesday, November 12, 2008

Pulling the plug

Here's my two cents on the GM/Chrysler bailout idea. The auto industry was in trouble long before the late unpleasantness. This is really part of a long term market cycle, not a one time blip. To return companies to profitability in a saturated market, a producer has to exit. Pass the bailout, and force the exit of a car company. Short term help and available market share for the remaining producers.

11 Comments:

Blogger Yoel Natan said...

Actually, if the car companies go into bankruptcy like the airlines did, the companies, their creditors, the unions, and the judge or arbitrator can figure out what's best for all involved, including the taxpayers. Bankruptcy would allow the companies to modify the terms of their terrible agreements with the autoworkers unions which keeps the Big 3 from being profitable in most markets and all but one niche--light trucks (SUVs are considered light trucks under a legislative loophole).

7:50 PM  
Blogger Noumenon said...

Actually, if the car companies go into bankruptcy like the airlines did, the companies, their creditors, the unions, and the judge or arbitrator can figure out what's best for all involved, including the taxpayers.

What this means is, bailout or no bailout, Economics 101 is not going to determine what happens to GM, Ford, and Chrysler. Wish we lived in that simple world where it could be like, "Well, too many producers in this market, I guess one will have to exit."

12:01 PM  
Blogger Yoel Natan said...

I saw a pundit say that that it's not really the Big-3 bailout, it's the UAW bailout.

2:20 AM  
Blogger Octavo Dia said...

Actually, if the car companies go into bankruptcy like the airlines did

They'd spend decades going in an out of bankruptcy, just like the airlines did, because no one wants to be the guy who let them fail. Bankruptcy law needs to be updated to encourage the dissolution of uncompetitive firms in a clogged market.

2:00 PM  
Blogger Yoel Natan said...

This comment has been removed by the author.

4:43 PM  
Blogger Yoel Natan said...

No wonder Big 3 almost broke. Ten worst-selling Big 3 cars all sold fewer than 10k units each in 2008:
http://www.foxnews.com/photoessay/0,4644,5700,00.html#9_0

4:44 PM  
Blogger Noumenon said...

It's a shame, the one you linked to is a very pretty car.

9:40 PM  
Blogger Yoel Natan said...

After thinking about it, the Big-3 bail out, cum UAW bail out, is actually the Democratic Party bail out. The UAW is one of the Democrat's biggest campaign contributors and voting blocs. Ergo, any money they funnel to the Big Three props up the Democratic Party until the next recession when another bail out becomes necessary. They just have to hope that the Democrats are in power when the next Recession occurs. This time they were luck--saved by the bell.

7:21 PM  
Blogger Noumenon said...

Pass the bailout, and force the exit of a car company. Short term help and available market share for the remaining producers.

Advocates argue that GM going bankrupt could kill Ford as it would cause a lot of GM's suppliers to go bankrupt and disrupt the supply chain. I don't really buy it, sounds like they paid good money for that argument.

10:50 AM  
Blogger Octavo Dia said...

Advocates argue that GM going bankrupt could kill Ford

I have read a contrary article that argued that Ford is hoping one of the other two goes bankrupt, so they can pick up facilities in their neighborhood on the cheap.

9:19 PM  
Blogger Yoel Natan said...

Noumenon, No, it's true. Because the foreign-owned car plants in the US are in the south and West, and the Big Three are in the rust belt, they use different suppliers. Thus, if one of the Big 3 go under, the part supplier could not just sell to the domestic/foreign car plants since the transportation charges would kill them. The parts plants have to be somewhat close to the plants they serve.

2:50 AM  

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