Bailout Watch 459: Pay Them to Build What for Whom?

by Robert Farago

Published: March 27th, 2009

bailout watch 459 pay them to build what for whom

Now that the Presidential Task Force on Automobiles (PTFOA) has pre-capitulated on re-upping Chrysler and GM’s bailout bucks, an obvious concern arises: now what? Chrysler offers a tri-branded line of non-competitive products whose sales have been propped-up by federally-funded discounts plus plus plus. GM is still in over-branded, over-dealered, over capacity hell. So, if both companies score big bailout bucks ($22B), what will they spend it on? Building cars? Inventories are already swelled and, here’s the kicker, sales are still declining. As we approach the end of the month, Automotive News [sub] is using the “T” word: “The sales numbers for March, due next week, are likely to reveal another tumultuous month. New-car sales could be down as much as 40 percent, according to J.D. Power and Associates. And the monthly sales rate will continue to flirt with lows not seen in 27 years.” Interesting choice of words; who’s about to get NSFWed here?

The taxpayer. And Ford, Honda, Toyota, Nissan, Hyundai and the rest—as Chrysler and GM do whatever it takes to move the metal on our dime. How bad will it get?

Toyota, or in mediaspeak “even Toyota,” is predicting March will come in like a slug and leave like an ant with three broken legs. “Annualized sales in January and February were a little above 9 million,” pronounceth ToMoCo Prez, Katsuaki Watanabe, “and we’re hearing that March will be about the same if not worse than February.”

This is well below Chrysler and GM’s “worst case scenario.” In other words, their viability plan ain’t worth jack. As if you didn’t know. Even the PTFOA’s head honcho Steve Rattner has admitted what the automakers won’t: they low-balled their request for aid. But that’s OK. ’Cause in Bailout Nation time is not of the essence. Not yet, anyway.

Robert Farago

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BDB on Mar 29, 2009
Certainly, the debt does not HAVE to be paid off. That doesn’t mean it shouldn’t. You never have to pay off your credit cards either. Comparing the public federal debt to personal consumer credit card debt isn't just an apples to oranges comparison, it's apples to high fructose corn syrup. If government borrowed money at the same outrageous interest rates that credit card debt is charged, you'd have point. But it isn't, so you don't. Nobody in the world can borrow money as cheaply as the federal government. It's bad to have this debt rise to high levels of GDP for a sustained period of time, but a little bit of debt (50% of GDP or less) isn't bad, and can actually be a good thing.

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Pch101 on Mar 29, 2009
Comparing the public federal debt to personal consumer credit card debt isn’t just an apples to oranges comparison, it’s apples to high fructose corn syrup. Correct. A better comparable that people can relate to is running a large business. A well managed business probably uses a combination of short- and long-term debt to stay afloat. Some major corporations manage well with no appreciable debt load, but most -- particularly large, mature operations with low growth rates -- need debt to make things work. There is certainly a point at which debt can be excessive, but that amount isn't just everything above zero. The point is to be reasonable, not to avoid it entirely.

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