The Auto Industry in Trouble – Again

About a month ago, while we are all focused on the $700 billion Wall Street Bailout, Congress gave the Big Three automakers a $25 billon bailout.  Now, they are back for more, saying that they won’t have enough money to last the rest of the year.

I’ve read multiple articles and saw some interviews on TV this morning where experts and analysts are saying that without more money from the Federal Government, the automakers will fail.  The governor of Michigan even said that 3 to 4 million people will lose their jobs if the Big Three go bankrupt.

I agree that the US auto industry is vital to our economic health.  The problem though is not going to be fixed by giving them more money to burn.  This brings me to the question:  What really is the problem anyway?

There are two main reasons for the US automakers to constantly be in trouble:  the United Auto Workers union and unfair laws that give foreign car makers an advantage.

First, the UAW needs to recognize the changes in the way the world operates today.  When the union was first formed, it was to protect the auto workers from unfair manipulation by the automakers.  Today, they do not have the sympathy from the public because most of us do not get health packages and pensions equal to what the auto workers get.  Auto workers should have to help fund their insurance and retirement, just like most workers.  They need to realize that their demands will not be met at all if their employers are out of business.

Second, there are laws in that exist that give the US automakers an unfair handicap.  Government regulations require that a certain percentage of cars are made in the US if they are a domestic company.  Since Toyota and others are foreign companies, they can assemble a smaller percentage of profitable cars in the US.  They can use US factories to boost efficiency and make their business stronger.  

The US automakers have to assemble almost all of their cars in the US, whether they make business sense or not.  While the US companies make money on their trucks and large vehicles, they lose money on nearly every compact car produced domestically.  If they could shift some production to non-union plants or to Mexico, it would help the Big Three make their businesses more efficient.  These regulations were meant to help protect US jobs, but are crippling the automakers.  There won’t be any jobs to protect if they drive the companies out of business.

Another reason for the auto bailout is supposed to help the industry shift to producing more fuel efficient cars.  Do you know that our cars were more efficient in 1998 than they are today?  What happened over the last ten years?  The auto industry can make more efficient cars if they want.  Nothing will assure us that the bailout money will lead to more efficient vehicles.

Rather than throwing more money at the Big Three automakers, we should be looking at outdated government rules and regulations that are handcuffing the companies.  In order to really fix the problem, we need to tackle more than “slumping auto sales.”  If Congress and the Treasury look at more than just balance sheets, we can solve the crisis the automakers are facing once and for all.

A Must Read for Any American Citizen

Last night, after the election, we heard about how “anyone, if they dream big enough, can be the President.”  Obama had overcome all the odds and was now the President.

Well, sorry to burst your bubble, but it’s not that easy.

You have to read this, and watch the Youtube videos it links to.  Pretty amazing if you ask me.  This is definitely a must read for anyone who gives a darn about the political process in this country.

http://www.reason.com/news/show/129852.html

What Greenspan’s Comments Really Mean

Today, Alan Greenspan, the former chairman of the Federal Reserve, testified before Congress.  He said he made errors in judgement and was “shocked” by the outcome of the Fed’s policies.

Honestly, I do not see how a person in charge of the the money supply of the United States can be shocked about any action he makes.  With that kind of responsibility, you must consider all possible outcomes with every decision.  I guess I’m just disappointed that a person in that position isn’t as smart as we think he should be.

What gets me more riled up than anything else though, is how the members of Congress and Greenspan keep talking about the failure of the “free markets” and how “deregulation” led us to this crisis.

The American economy is anything but a free market!  The Federal Reserve wouldn’t exist in a free market in the first place!

The failure was based in the monetary policies of the Federal Reserve and the American government’s aversion to economic slowdowns or recessions.  In our economy, you have to let the down cycles bottom out.  If you do not, you only prop up a system that is bound to fail.  By not letting the economy recover after the dot-com bust and 9/11,  and lowering interest rates to 1%, the Fed pumped the economy to historic heights.  This just made the bottom (now) that much lower.

If the Federal Reserve did not keep rates at 1%, the credit bubble would not have gotten so big.  If the market had set interest rates, they would have been higher because they would need more in return for their risk of losing money.  It was the intervention of the Fed that led to the crisis.

Now, everyone is convinced how capitalism and the free market has failed and how we need more regulation.

Some of this is true.  We do need regulation of the derivatives market.

However, we do not need the excess intervention from the government we are experiencing now.  We do not need “Helicopter Ben” and the Fed pumping hundreds of billions of dollars into our economy and we do not need $700 billion bailouts.  We also do not need the nationalization of Freddie Mac, Fannie Mae, and AIG.  This is only making things worse.

The moral hazard that is being set is disasterous.  After the bailouts of the auto industry, the precedent was already set for government saving dying companies.  Now, banks know if they take too much risk and fail, they will have Uncle Sam and the taxpayers there to pick up the pieces.

Maybe once the bottom has been found and we are on the upswing again, we can implement well thought out regulation that will help us avoid the mess we got in here.  The point is that the bottom has to be found, and we can’t have the government helping prop everyone up.

Greenspan should have said that he was a part of the problem, but that the actions his successor and the government is taking now is going to bring the whole ship down.  Instead, we got the idea that more government intervention is good, and capitalism is bad.