Nathan Scandella (personal)

Cars Crash

As it's been a few days since I've complained about bailouts, I think it's time I start again. With respect to the Frankenstein-like re-animation of the Auto Bailout, it's clear to me that people have lost what little interest they had in paying attention to what their elected representatives are doing with their money, and that the result is a plan that's totally ill-conceived.

First of all, after Congress failed to pass any sort of short-term automotive rescue package, Secretary Paulson and President Bush decided to tap funds from the financial sector bailout to give to GM and Chrysler. The first thing that came to my mind was, "how can they do that?". How can it possibly be that without congressional approval, a loose cannon President, and his own private banker, can simply redirect billions of dollars? Not only are the TARP funds not being used for what Paulson told Congress they would be (buying mortgage-backed securities to bring liquidity to the credit markets), but he's not even giving the money to who he said he would. And it's not as if he's simply picked a different bank to resuscitate - he's pumping money into a completely unrelated industry. And let's not even start with the fact that he firmly stated that auto bailout money would not be coming from TARP. Can we believe anything this guy says?

Secondly, I'm unclear as to what this auto bailout money is supposed to do. It would be one thing if GM simply got stuck assuming they would have short term credit available, and just ran themselves out of cash. That would be understandable, and something a government loan could reasonably be expected to remedy. But, GM has been unhealthy for a long time, and they're in a field of competitors that are almost all in trouble. How is giving them enough money to pay their employees for a couple more months going to fix anything? The underlying problem is that their potential customers, who are used to buying new cars every 5 years, have stopped buying cars ... everybody's cars!

I simply don't see how you can fix this problem by tossing money at the supply side. The autoworkers get to keep their jobs for a couple more months. Great. What will they be doing? Producing more cars, that will sit on dealers lots, and not be bought? The financial picture of the Big Auto employees themselves will get better (or not get worse as fast), but GM and Chrysler can't survive by selling cars to their own employees (at employee prices, no less). This was supposed to be the rationale for the financial sector bailout. That it was a general solution to give/lend everybody more money so they could keep buying what they used to. If car makers are going to have customers, then TARP is going to have to succeed. Is the government admitting that TARP is a failure? Or are they just whacking moles as fast as they can?

I suppose I should be happy that they didn't steal the auto bailout funds from the $25B pool previously approved to support retooling for efficiency. It's just hard to see any other upside in this latest course of action.

Posted at 10:00PM Dec 26, 2008 by Nathan in Economics  |  Comments[0]