The Corpus Callosum

Republicans to America: Drop Dead!

rejects auto bailout

By DAVID ROGERS | 12/11/08 11:15 PM EST

A White House-backed bailout for ailing automakers collapsed in the
Senate Thursday night, pushing General Motors Corp. closer to almost
certain bankruptcy absent a major intervention by the Treasury

The 52-35 roll call fell well short of the 60 needed to cut off debate,
and appeared to doom any chance of legislative action until a new
Congress convenes in January.

“We’re not going to get to the finish
line,” said Majority Leader Harry Reid “I dread
looking at Wall Street tomorrow (Friday). It’s not going to
be a pleasant sight.”

The financial bailouts (TARP) suffered from numerous problems: lack of
transparency, surplus of futility, inadequate oversight, token limits
on executive compensation, freedom to continue to pay dividends.

The proposed bridge loan for GM and Chrysler corrected those problems.
 In other words, congress was closer to actually getting it
right.  Plus, the amount proposed was extremely modest.

No, it would not have saved the auto industry.  What it would
have done, was slow down the rate of collapse.  It would have
made the market a little more predictable.  It would have
given people a few months to stock up on food, seeds, buckshot, and
fertilizer; start a compost pile, clear some land.  All things
they should have done last summer anyway.  

GM is toast.  Perhaps there is still time to put together an
orderly prepackaged bankruptcy.  Chrysler still could be
recapitalized by Cerberus, but that seem unlikely.  They’ll
probably throw it to the (other) dogs.

People will argue about this.  People will say that the UAW
should have given even more concessions that they already have, for
example.  But in reality, that would not have made any
difference.   The companies are not going to last that long
anyway, so any wage cuts would not add up to much.  

Now the suppliers will be thrown into a panic.  Some may
collapse.  This will hurt the remaining auto companies that
have factories in the US, because they need those suppliers too.
 Plus, the foreign automakers need the US dollar to be strong.

It is just more chaos, more shock.  Cripes, Honda and Nissan
stock dropped 11% on the news.  The Nikkei dropped about 5.5%.
 The USD dropped 2% compared to the Japanese yen.


  1. #1 csrster
    December 12, 2008

    I suppose you could try the British route – nationalise them, merge them, shut most of the production down and then sell the rest to the Germans.

  2. #2 Orac
    December 12, 2008

    The reasons for this falling apart seem to be:

    1. Payback to the unions. Note that the sticking points were these Republicans’ demands that unions make concessions to make their pay equal to those of autoworkers in foreign-owned companies in the U.S. Republicans did not forget that the UAW lobbied hard for Obama and that it threw all of its remaining weight behind a bid to unseat as many Democrats as possible, even more so than it usually does.

    2. Regional war. Most of the Senators who opposed this have large presences of foreign-owned auto factories in their states, such as Nissan, Mercedes-Benz, Toyota, etc. If the Big Three fall, they potentially profit. Of course, this forgets that even Toyota doesn’t want GM, Chrysler, or Ford to fail because of the cascade of failures their collapse would induce among U.S. parts suppliers. After all, these foreign auto companies use many of the same parts suppliers that the Big Three do.

    3. Bailout fatigue. After giving away the store to bankers whose greed, arrogance, and incompetence led to the current financial meltdown, Congress is once bitten, twice shy.

    It looks as though my home town is screwed. Chrysler is toast and probably would have been toast even if the bailout had passed. The only thing a bailout would have achieved is to allow its divisions to be sold off in an orderly fashion instead of as a fire sale. Ford has a reasonable chance of surviving if things don’t get too bad. GM is probably toast too but conceivably might file for Chapter 11 and still survive.

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