The financial quagmire

Earlier today I was over at Cannonfire reading his blog and he posted an interesting take on the auto bailout http://cannonfire.blogspot.com/. One snippet that he delivered was: “Lazarus (and the interview subjects he quotes) are too quick to condemn GM and Ford for making gas guzzlers. Until quite recently, American consumers wanted behemoths; the gas hogs carried a higher profit margin.

Should all blame goal to the pusher? Shouldn’t some blame go to the fellow sticking the needle into his arm?”

 

In the comments section using the pseudonym gregoryp I wrote:

 

“I see it as an all out war on the working class and especially those who belong to unions. Just the other day in the breakroom at the place where I work a woman was blaming the union for this mess. As long as they keep us, the workers, divided then we have no chance.

 

The monied elite want to kill off social security, they want to stop property taxes, and they want to depress wages while keeping the prices of goods high. Why? Greed. There is never enough for these folks.

 

The real unfortunate guise of their way of thinking is that after hogging up all the resources and impoverishing the rest of us they turn around and give a few bucks to charity and they feel real good about themselves for helping those of us who are less fortunate. I call BS.

 

I may not like it but the government should bail out the big 3, at least for now. But at the same time we should be investing heavily into new industry. Forget ethanol and fuel cell technologies for transportation.

 

Both are unworkable or dangerous. Ethanol from corn has a double whammy, it uses food as a source and it requires to much energy to produce. Fuel cell technology will burn hydrogen which is clean and simple. The problem is where do we get the hydrogen. If we cleave a water atom apart then we are essentially burning water for fuel. Here in the south/southwest that is a very big problem.

 

What we need is solar technologies. We should invest billions if not trillions into this. It will open up many new jobs especially for people like me, underemployed scientists. Manufacturing jobs, installation jobs, small businesses, etc. We could reconstruct our economy around that instead of around oil. There are many other avenues we could explore to jump start or economy. The problem is that our politicians don’t really want to change the status quo. It really is all about maintaining the hierarchy.”

 

I definitely would like to elaborate more on the discussion since it didn’t seem to go anywhere at Joseph’s fine blog. The first thing I want to point out is that while most of the reasoning in my answer is correct at least from my point of view nothing is substantiated with facts and will be an unacceptable post from me on this blog.

 

I think that this whole discussion about whether or not to blame the consumer, the automaker or both is kind of moot. The people of this country are a hard lot to figure out. Maybe it is because we really live in a melting pot of ideas, cultures and traditions. What I do find interesting is that the people of this country tends to buy what is put in front of them without really thinking about it. I cite the SUV craze that overtook us in the 90’s. People I know who still drive those gas guzzling behemouths actually think they are safe when quite the opposite is true. See wikipedia http://en.wikipedia.org/wiki/Sport_utility_vehicle on this. Why do so many people buy these insane vehicles? Status? Security? Marketing? Because they can?

 

One of the interesting things about the auto manufacturers is that the most popular car producer, Toyota, got its start by producing small, efficient cars and trucks. They were of high quality, got very good gas mileage and seemed to run forever. The big three on the other hand were producing luxury cars and muscle cars by the millions until OPEC squeezed the supply short and drove up prices. Inflation soon followed and our government gave incentives to produce more efficient cars. In the late 70’s and early 80’s we had a plethora of economy cars that easily got 35+ mpg. I drove one that got 44 mpg. These cars certainly weren’t the best cars on the road but they definitely were utilitarian and passable.

 

But the big auto companies have always marketed bells and whistles, style and prestige, as well as comfort, ride and handling because it was sexy and sexy sells. There was nothing sexy about a Ford Escort or a Chevy Chevette. They were small, ugly and drove like crap. The crappy SUV’s on the other hand drove smoothly, had limited road noise and just felt good to consumers. They could market those death traps to unsuspecting consumers, er families, as posh and luxurious symbols of status and virulity. Basically a sports car in the guise of a family car. In the meantime they really scrapped the basic economy models and built nicer, larger versions that handled well and looked sharp.

 

Unfortunately, the cars from the big 3 may look great they come up short when compared to Japanese or European cars in the same class. And their price was pretty steep. A few years ago the spouse and I were considering buying a Buick Century. We really liked the car a lot but the Toyota that was about 2 grand cheaper was a far superior car. I don’t think it was particularly close either. Like most sane consumers when I shop for a car I am not planning on trading it in two years later. I buy the thing, I am driving it until it can’t be driven anymore.

 

What is the point of all this bablling besides getting this blog off the ground. The point is that the big 3 weren’t tactically positioned to change up their product line in response to changing consumer conditions. Gas prices and inflation exploded out of sight the last 2 years while real wages continued to decline but the big three continued like nothing ever happened. I guess upper management decided to pretend they were and ostrich and opted out of leading their companies. The real unfortunate thing about this is that at least one of the big three produced a quality economy car for the European market that would be a smash here but refuse to bring it here. Why?

 

Can we afford to bail out the big 3? Yes and no. We really have some sorry options on this. If we don’t then thousands will lose their jobs. Not just the autoworkers themselves but all the subsidiaries and independent suppliers who sell to GM, Ford and Dodge. This could be a couple of million workers. Good middle class jobs that drive local and state economies. But we don’t have the money and how do we know the big 3 won’t squander the money away. Just a few years ago GM was the largest and most profitable company on Earth. They were the undisputed technological leaders. What are they now?

 

 

 

 

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