Bail Yourself Out
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Bail Yourself Out
Make sure Detroit pays us back—buy their cars.
Posted Tuesday, January 6, 2009 - 5:24pm
Imagine you're an elderly parent with a couple of deadbeat, middle-aged children. Your kids—who we'll call Germane and Chrys—have their own auto-repair shop, which has recently fallen on hard times of its own making. Their methods were outdated, their service and products were lackluster, and they got pushed out by the competition. But they're too integral personally and financially to your family to let them become poor louts. So you float them a loan and hope they can get back on their feet. Of course, you had to take out a loan yourself for that money, so you'd prefer to get the money back.
Next time you need your car fixed, where are you going to take it? To the better mechanic who you know will get the job done? Or to the shoddy but improving mechanic who will be able to pay back the loan only once business improves? It's in your financial self-interest to swallow your pride and drive business to your deadbeat kids.
I offer that transparent metaphor to show the trickiness that we've gotten ourselves into with GM and Chrysler. Dismal auto-sales numbers released Monday confirmed that the situation isn't getting better on its own. Overall, sales of cars and light trucks dropped 36 percent in December. GM was down 32 percent. Chrysler down 53 percent. Unfortunately, the two companies are all of our responsibilities now. And if we ever want them to pay us back, we better start buying their cars. Consider it your patriotic duty.
When we finally bailed out the auto industry, we actually just offered loans to two of Detroit's Big Three. (Ford declined assistance.) GM received $9.4 billion, and Chrysler took $4 billion, with more money likely to come. I'm using the term we intentionally, since the money is coming from public dollars that are funded by Americans' taxes. Assuming you aren't Wesley Snipes, you have as much of a stake in the car companies' futures as anybody else. We're all in this together.
(You can see the loan term sheets here and here, but I warn you that they're written in a strange dialect that combines corporate-speak with legalese. Like Latin, it is only written, never spoken, and people go to school to study how best to write it.)
In exchange for the loans, we were guaranteed up to a 20 percent stake in the companies, should we choose to take that option. If we lend more money down the line, we could potentially have rights to a larger stake. Whether or not the government takes ownership in that 20 percent, we have an incentive to see the companies do well. If we own part of the companies, then we'd like to see the stock go up so we can sell our stake for more than we bought it. If we have only extended the loan, then we'd like to see it get repaid so that we don't have to deal with a $13.4 billion-plus hole in the budget a few years from now.
Comments
Buy USA??
The economy is now a Global economy that started after WWII. If we only buy from American Companies:
1. They can charge what ever they want. There would be no competition.
2. The Quality of the product will go down as they will reduce it to sell more at higher prices.
3. We will stagnate with no new capital input. Something like a town that had their own stores. Remember the Company Stores? Soon only a couple of people had all the money and you worked for them. Same thing with a closed economy.
4. We restricted overseas trade during the "Great Depression" by law. It made the Depression last 7 years longer than it should have and created a major international War to get us out of it. So much for Roosevelt's New Deal.
I will buy the best I can afford from whomever has it, thank you.
detroit
Democrat pretzel logic
an astonishing conclusion
I think most americans are too smart to fall for the "buy american to save money" argument.
The slip of the argument in the article is that I should get my car repaired at my brother's shop if they owed me money, but then you said I should "drive business there".
That's actually correct - what's mostly likely to benefit me personally is to not *do* business there, but instead to *drive* business there.
The calculus of whether to buy a GM or Chrysler car (and boycott Ford, Subaru, Toyota, or any other American-made car) revolves around how much of my car purchase flows back to me - and whether I paid too much for my car. And Americans can figure that out.
Most people are upset with the GM and Chrysler bailout because they see another advance of corporate welfare while the little guys suffer. Funny, though, that the purpose of the bailout was to keep americans at work - Americans believe it was all about bailing out the executives and keeping a few hundred thousand americans at work. GM and Chrysler don't make all their cars in america, they've been exporting jobs overseas, and they're closing factories without regard to American workers today.
Yes, tell other people to buy Chrysler and GM (not american!) - that's the way to profit.
There's almost no chance that buying a chrysler or GM (not a ford, subaru, toyota, or other american car) gives individual profit. The amount of profit per car is low, so only a small percentage goes into repaying the loan, and that goes to reducing everyone's tax burden.
I need more convincing
3 Cars with similar mileage & horsepower.
Chevy Malibu (Built Fairfax, KS)
New $21,600 Carsdirect.com
2006 $10,800 Kelly Blue Book
Chyrsler Sebring (Built Sterling Heights, MI)
New $21,500 Carsdirect
2006 $7,900 KBB
Honda Accord (Built Marysville, OH)
New $21,400 Carsdirect
2006 $14,300 KBB
Is buying American owned worth $3,700 - $6,500 to me? What if I just take that extra $$$ and put it back into my local economy?
It won't happen
Does Obama - or indeed any other President - want to become the first president to travel in a Lexus/Mercedes/BMW (not a Lincoln or Cadillac)?
No
Does Obama - or indeed any other President - want to become the first president to travel in a Mercedes escorted by a flotilla of Toyota SUVs, not Chevy Suburbans?
No
Does Obama - or indeed any other President - want his children to be taken to school in a Toyota SUV, not a Chevy Suburban?
No
It's never going to happen. It would all be totemically embarassing. No President is ever going to want to be the guy who presides over the death of the US-owned car industry.
It would send out all sorts of negative signals - and on that basis everyone has an interest in having GM (and probably Ford) prospering because I can't see any President allowing either to go bust anytime soon. Chrysler though...
Albert
We SHOULD invest...
In manufacturing in America, just not in bloated, antiquated companies that have repeatedly shown bad decision making, poor understanding in it's customers' needs and mediocre quality and continually lost market share over decades, DECADES!! Isn't that a trend?
Bad management drives bad technical choices, causes an environment where shortcuts are made for cost, and creates a poor technically designed, and unreliable product. It also creates a low quality workforce, as much as those people may be good, smart, willing people, they will only care for so long in a bad environment.
I agree, no one should be saying European luxury cars have higher quality than American budget cars since they really don't, from reliability standpoint. They just have better service so it seems like higher quality.
Honda and Toyota consistently have better ratings for reliability than the big 3. It is funny that they are able to do it with an American workforce too. It is also the little things, like dome lights, more ergonomic seats, etc, that these companies have been consistently improving in the same models over many years.
It is not my fault that congress screwed up and dumped money into these companies on the hopes that their plans will work out. Why should we believe them with the record they have? I am not about to buy these cars because congress misappropriated my money. IF they build a car I want I will buy it.
I once heard someone say in response to the bumper sticker in the 70's that said "Real Americans Buy American" It want something like "Real Americans don't try to sell crap to other Americans"
Not logical
If your kid's auto repair business is going under, having them fix your brakes won't save their business. The rational choice is to select the best service for the best price. Just make sure your kids don't find out!
The real cost of a car is the cost of keeping it on the road. The best choice for America is to use the car that uses the least gas, as money spent on oil is money that is leaving the U.S. economy during the entire life of the vehicle. In any event, many European and Japanese nameplates are made today in San Antonio, Tennessee and South Carolina.
Regardless of the origin of the car, the service and repair jobs are all American. Besides, if buying an import costs less, you have more money left to spend with other Americans.
See how it works out for you.
First: The American autoindusty's incompetience is Managerial, not technological.
The big 3 make very good quality cars. Only, low tech bonehads compair American consumer budget cars to vastly more expensive European cars. (When a car costs $50K it BETTER be better than a $20K car.)
Japanese cars have no better repair or quality performance than American - only the misinformed think they do because of memories of the late 70's.
Also, Japanese and Germin automakers make plenty of gas-guzzeling SUV's themselves - but, Congress hasn't seemed to notice.
Why buy American - Why should we have a manufacturing base?
Right now American and forign businesses are coming to the shocking realization that they need an economically strong and prosperous (gainfully employed ) AMERICAN CONSUMER.
Industry pays best.
Don't believe it - China invests in manufacturing - 11% annual growth with a national budget surplus.
U.S. gets rid of manufacturing and invests in 'service jobs" - 2% growth - $1 trillion national debt - then economic collapse...
...yeah, great idea.
You see, we make over 50% of the WORLD's consumer purchases - so, don't buy American and ship our good jobs out of the country and see how that works out for everybody.
Stop Being Stupid.
"Buy American" campaign? Are you kidding?
There's no reason consumers should buy American cars solely because we're lending money to the auto mfgs. The premise of capital markets is that lenders make loans at terms favorable to the lender, and loans should have at least >50% chance of being repaid.
There shouldn't be any loan premised on the lender being required to buy the product sold by the barrower as a condition of making the loan. And if the government thought the probability of getting repaid was <50%, it shouldn't have made the loan.
The "big three" have been screwing up and getting by on the good will of Americans and the government since the 70's, with low quality, expensive cars that are now outdated. What should be happening here is not a bailout and not a "buy American" campaign, but a settlement with existing lenders (who made historically bad bets) in bankruptcy court.
I like the post above
I'd also like to add that "buy American" shouldn't stop with cars. This Christmas if it was made in China, I didn't buy it.
The nice thing is that since so many things are made there, it dovetails nicely with decreasing my monthly spend.