Paul writes,Yup,"Ten hours after the Senate rejected a separate lifeline for the automakers, White House Press Secretary Dana Perino said in a statement it would be "irresponsible" to let the companies crash. So she said Bush will "consider other options," including the $700 billion Troubled Assets Relief Program that Congress created for the Treasury Department in October."
My main thought about the bailout has been that there is sort of an unstated assumption that if, for instance, GM were to go out of business that former GM customers would stop buying vehicles. My assumption would have been they would change to Toyota or Honda, or some other brand whose cars are also built in the U.S. Yes, there would probably be a small net loss of jobs since those companies build cars a bit more efficiently, but there is no reason for there to be huge job losses. The UAW retirees, on the other hand, would be screwed.
I am currently in a wonderful part of central Louisiana, where the fun consists of Walmart and drinking at the bar across from the plant where they creosote lumber. This is a dang Sportsmen's Paradise, I tell you.
The biggest unknown is what would happen with the suppliers. There are so many suppliers that supply to all of the Detroit 3 as well as the Japan 3. There is a NY Times article that came out a few days ago about this. Many suppliers are very low on cash and the only hope they would have of surviving a GM bankruptcy would be to get approval on first-day orders to send money to "critical vendors". If you're not considered a critical vendor and you're low on cash, you would be screwed. If you're a small supplier, you would probably file for liquidation because many small companies don't have the resources to deal with a Chapter 11.However, this notion that GM would have to liquidate upon filing for bankruptcy is bullshit. Yes, there would be more plant closings and thousands of more jobs lost, but that's going to happen anyway. The UAW says it because they know the jobs bank and their sweet benefits would be toast in a bankruptcy. The independent health care VEBA that will be set up in 2010 would be renegotiated as well.
Would not many suppliers, it they made it through the initial crunch, just send their parts to Toyota and Honda (and VW, BMW, etc.) instead?
The suppliers have been hosed by th ebig 3 for eyar. At a convention forthe accounting system we use, one of the folks who worked for a GM supplier was complaining about GM's 180 day pay terms - essentially financing the parts interest free for 6 months on the backs of the suppliers.Let them fail. There will still be cars made in the US, just not crap like the Dodge Caliber and the other POS small cars the big 3 buid. They made their bed, now they can lie in it.
All the commetators forget that there are two types of banrkuptcy: reorganization and liquidation. If these companies reorganize and screw their debtors, they can emerge as healthier businesses. Let us not forget that nearly every one of the sirlines has gone into bankruptcy, and people still fly on them. If GM and Chrysler go into bankruptcy, most likely people will still buy their cars.
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