Bailouts and the Auto Industry

Decisions made for short-term profits, but which have great risk for the long-term future of the company. When that risk hits later on, its the taxpayers that are told that we have to bear the costs.

Sound familiar? It should, because its pretty much the shape of American 'free-market' capitalism these days.

And just like everything else we've seen, such bailouts can only work in the short term and are destined for long-term failure.

Lets take a brief look back at the American auto industry. In recent years, they've made their profits, such as they were, from selling big gas-guzzling SUV's. Lots of people tried to point out the flaws in this. They had awful fuel economy. This meant we imported more oil, which meant the balance of payments deficits for our country got worse. Also, by burning such huge amounts of fuel, they were awful for the environment and contributed to global warming.

But the big three American auto companies didn't care. They were looking at the short term profits quarter by quarter, and this is where they were making their money. So, they kept churning out more and more SUVs.

The people who were talking about Peak Oil were pointing out the problems with this. They'd always predicted that as we started to reach the peak zone, and its a long gentle curve, not like the peak of a triangle, that what you would see would be strong oscillations in the price of oil. It would go up sharply as people started to panic of oil running out and speculators moved into the market. It could just as easily drop quickly when people adjusted to the high prices and economies went into recession and demand drops.

So, the first time this happens, when the price of gas spikes up to $4 a gallon in the US and the economy starts to tank, the big three auto companies take a big hit. Even thought they should have seen this day coming, they weren't ready for it. At least not in the terms that you'd expect in a free market business. Toyota is selling their Hybrid Prius' as fast as they can make them, and none of the big three American companies have a product that can compete.

In a competitive free market, this is how these companies would be expected to compete. To be looking ahead and making sure that they have products that would be attractive to potential customers. Businesses that fail to do that would go out of business.

So, now we all about how a collapse in the auto industry would be a disaster. We are told that we can't let them fail. Sound familiar? We were told the same about the wall street giants a couple of months ago. But now, lets ask this question. Did the big three auto-companies count on this all along? Perhaps they did think that they were ready for the future. Its just that in early 21st century America, the smart way to be ready for the future is not to pay engineers to develop attractive products, but instead to make large political contributions. That way, when times get rough, the politicians bought with those contributions will act to bail out your company.

Here's the really ironic part of this. Just exactly who is going to bail out the big three is left vague in our corporate media. Its not even directly referred to as the government very often. And there's this bizarre discussion in parts of the news as to whether the money should come from TARP funds or from last year's energy bill.

But the key thing to know is that the person who will be bailing out the auto industry is you. Its your money as taxpayers that they want. Or, perhaps its more accurate to look at your children and grand children and know that they are the ones expected to bail out these companies. Because we don't have the money today to do this, so its more money we have to borrow. Its more debt we have to incur. Your children and grand children will be paying it off for a long time to come.

There's one group of people to whom this must sound quite strange. Funny how you don't see them on the corporate TV channels. I'm referring to the American workers who've been laid off by these same big-three auto companies. The big-three auto companies were perfectly willing to tell these tax payers to go get stuff when they thought that moving their jobs overseas would make a few more dollars of profit on the corporate bottom line. And now they have to come back to these same tax payers and ask them for the money to save the stock price of their companies.

Nope, you don't see too many interviews with laid-off auto workers asking how they feel about their tax dollars about to be given to the same auto companies that told them they were no longer neccessary.

The problem is that America is deep in debt. At all levels ... personal debt, corporate debt, government debt. At some levels, we've reached the point where we can't borrow any more. The values of our homes have fallen, so we can't borrow against that any more. Credit cards are maxed out. Our jobs are either disappearing or in danger. Corporations can't borrow anymore either. So, the one credit card that hasn't been maxed out yet is government debt. Right now everyone is trying to pay their monthly bills off that credit card.

In terms of personal finance, we'd all understand what that means. If our finances are in such a bad shape that we have to be paying our monthly bills off of the one last credit card that isn't maxed out, any sensible person would know that a crash is at hand. But, that little bit of wisdom never makes it onto the corporate TV news. There we just hear about how we just have to give another $25 billion away to one more group of business people who made bad decisions that let to short term profits but a long term crash.