Time to toughen up

It gets harder and harder to support the big three automakers! The CEO's are idiots. Fire them all, pull their pensions and give them no severance. The failing in the companies lies here with the head of the serpent.

Statistics don't lie but liars use statistics. We all know that, it is just that many don't realize when they are being exposed to it (because they don't look to see the variables).

Now we have an "independent" study that shows what tax payers will pay if the big three go under. Independent? The Center for Automotive Research gets funding from the big three first of all. From time to time the funding is considered "small" but you have to understand their funding from the big three is commensurate with what it publishes in terms of sales and specific research for the big three. Being that are not funded by foreign automakers; they have an invested interested - which gives their research in terms of the bailout as about as much value as the toilet paper you used today in your morning routine (and what got flushed with it). Worth mentioning is who gets hurt beyond the big three. The suppliers, the freight companies, salesmen, mechanics; the list goes on and on but the idea here is that we underestimate how profound of an impact they have on the economy - they literally are 'make it or break it' given the current state of financial affairs. One thing that is irrefutable is that taxes will go up as a consequence to their failing. We are looking at increasing unemployment benefits as more an more find themselves unemployed. Who pays that? (If you have read this far; I will assume that you know the answer to that and it was a rhetorical question). Many argue paying a tax increase (which we will) for the bailout and don't want to see their money going to the big three. So that brings us back to how much gets paid in benefits and for how many should they fail. CAR estimates numbers as high as 159 billion over three years should they shut down completely (which they will not) and 50 billion in the first year as they curtail production. Here's the problem. CAR is citing things at 100% (or damn close to it). Meaning any supplier, freight company or whatever that has any ties to the big three will fail in their entirety if the big three fail. Some will, some will not.

Here's a little trick I taught myself when trying to figure out trends with such huge variables. I use a three to one rule. And here is how I apply it. One in every three company will fail completely and those that do not will take a 33% hit. A first year fail is actually about 50 billion that tax payers would have to pick up according to CAR's numbers). Our Monday night think tank came up 50.23 billion. (Not bad numbers for a group of pseudo professionals talking economics and politics over Monday night beers). You take that and apply the 'reasonable man's' factor of the one to three rule and the first year will cost tax payers 16.57 billion. (Uncannily close to the new bailout amount - a few phone calls later and it was learned that they want the automakers to be responsible for 1.5 to 3.5 billion out of pocket - not sure why but I am thinking it is linked directly to the CEOs).

The Heritage Foundation also ran the same study. They came up with 13 - 15 Billion for the first year! (Depending on which reference you read). Independent? Not hardly either. Understanding their conservative approach is to at best minimize bailout support and hold both corporations and individuals accountable; their numbers came in at what the government was looking at as far as the support they were willing to give. The ironic thing about it is that the planned bailout is fairly accurate - not too much, not too little.

As it takes fold you will begin to see articles saying why it may not work. Things that factor in beyond the political battle ground is that the companies still have to "make it" through the world financial crisis. When comparing the bailout amount in terms of unemployment and other forms of social support that tax payers would foot the bill for, that 13 - 15 billion only buys the big 'months' of operation. The 50 plus billion over three years of tax payer support could be eaten up in terms of bailout dollars in the first year alone. It becomes an all or none crap shot.

Some say that Honda, Nissan and Toyota could just increase their in country production and absorb some of the blow the failing of the big three would have on the economy. Not quite that simple. Asia in only months ahead of the US in terms of bailouts and a struggling market. The equity is just not there for them to step up to increase production in a risky market. A little known fact about Japanese automakers is that they JUST started paying employee benefits. The consequence of this is simple. What was once an average cost of $45 an hour to manufacture a car will be $85 (some predict even higher). The average US cost is a steady $75 an hour. We will have more foreign cars manufactured in the US that will end up costing more. Hardly a remedy given the current economic situation.

But what seems like a lose, lose really is not. Tarriffs and excise tax. Dramatically increase them on imported products and foreign products made here during the time the big three are restructuring. Understand (a few blogs back) that the reliability, economy and warranties on the big three products are just fine as they are; it would motivate dollars on car purchases to go to them. If a person wants a Honda Accord; they are really going to have to really want it because they would be paying for the name; not just a car (that is bested by a Buick anyway ).

Does this go against our concept of free enterprise? You bet your sweet ass it does! This is simple. American's have demonstrated that they will support foreign interests over their own domestic interests. Such mindsets is what has greatly contributed to this. It is time we seriously consider protecting our interests over others and save ourselves before we go about aiding the Asian economy by propelling it with the infusion of further dollars in car sales. We simply need to motivate our dollars to stay here where we need them!

Combine that with the bailout, the proper and supervised big three restructuring and fire the idiots; and what you have is a viable plan to not only save the big three but infuse the suffering economy. Granted, it's not nice, but when have you ever known me to be?

-T