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BlaQice | Should we, or Do we even have the ability to "Bail Out" the US Auto Industry? |
My in-law and I have are having a huge debate and we just wanted to get your opinion.
He thinks, not only should we bail out the auto industry, but we don't have a choice. And, he just bought 10,000 shares of GM.
Me, on the other hand, have been short the auto industry - and other sectors of the market for over a year profiting handsomely. And, I believe that not only should we let them go bankrupt so they can get from under union contracts, pensions and health care issues so new management can come in and compete, but we have no choice. US automakers were failing miserably in 2005 at the auto market's peak, so why should we believe they will outperform with our tax dollars in this market with tight credit (if any), 40% less dealers and suppliers on the verge of bankruptcy when they couldn't do it then?
I think in two months max I will be up another 40% while my in-law's 30grand will be worth less than 10 grand, if not worthless.
Your opinion?
http://news.yahoo.com/s/ap/20081116/ap_on_bi_ge/meltdown_auto_suppliers
Additional Details
I've covered 60% of my shorts and moved money into high yielding foreign utilities because the government keeps liquidating our currency. But, until the housing market stabilizes, banks start lending again or employment picks up I'll have a short position. |
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what?
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i believe there's a more pressing issue: is it cheaper for us to spend $25 billion and bail them out, like they want; or is it cheaper for us to let them go bankrupt?
if we bail them out, we know that it will cost us $25 billion now, and we may or may not have to give them more money in the future. if we do this, we can always hope that they just shrink and get acquired by a foreign concern, and even inventiveize foreign companies to do this.
if we let them fail, then the government-sponsored Pension Benefit Guarantee Corporation will have to foot the bill for maybe a trillion dollars worth of their underfunded pensions.
so which is cheaper? a trillion dollars in government-insured pensions, or 25 billion dollars worth of bailout? plus, if we do the bailout, then we can implement controls over the way the companies operate. we can void union contracts, and bring wages and retiree benefits down to reasonably levels (i think we can all agree that a guy with a ratchet on an assembly line making unprofitable cars shouldn't be making a six figure salary). |
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JohnGalt
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I think any plan that preempts auto bankruptcy is doomed to failure. But I also do not underestimate the stupidity and pandering ability of congress and Democrats to do the wrong thing if it is politically expedient. So while we need to let them go into bankruptcy (and MAybe at that point provide some loans) I would not bet either way. As the banks have shown, once things become political anything can happen. Take your shorts off and let someone else have the last two bucks. |
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frak1a12345
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I think the automakers should be allowed to go bankrupt. Lending them money will not fix the underlying problems with the companies which is simply that labor costs too much. They have to reduce the costs of their benefits and the union will fight them all the way to the bitter end if they receive a loan. |
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beancounter
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I mostly agree with the resident of Galt's Gulch.
Certainly the sensible thing to do is let them declare Chapter 11. Some jobs will be lost. UAW members who keep their jobs will see their pay slashed drastically. Current creditors will recover a dime or two on the dollar and shareholders will lose pretty much everything. There will be ripple effects in related industries. But all that's needed to have any chance of re-creating a viable business model.
However from what I've read in the news there is strong political pressure to bail them out. Congress won't necessarily act sensibly in this environment.
I'm staying away from automakers because there's too much uncertainty for me. I'd much rather be short than long, though. Even if the automakers do get a bailout it would probably be structured like the AIG, FNM, FRE bailouts where shareholder equity was essentially wiped out. Current political winds would tend to help the "worker" not the "investor". |
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muncie birder
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I second JohnGalt. Well said. |
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nodamnway
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let them go under. how many people can afford 45,000 dollar suv's anyway. i think our country is in big trouble. the big 3 are going under and we don't even own budweiser anymore. this country is doomed!!!!! |
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Mark S IV
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I have to second JohnGalt's opinion on this one. Let them go bankrupt. All the talk about a bailout has failed to move the stock up yet, and with the political bickering that we're likely to get over the next month or two, the outlook isn't going to improve markedly any time soon. Personally, I would suggest that you cover at least part of your short, and let the rest of it ride. Depending upon your outlook on the economy, and your time-frame, it might be a good idea to go long in a few well chosen sectors, just in case the market stages a bear market rally. If Gm does get bailed out it should produce a short rally. If you go long on the correct companies, you should be covered whichever way it goes. |
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Ian M
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If the shares go up than we should. Please any way to save the market tell me a good stock! How do i get my money back |
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Mnstr4jc
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Well, if you want to go ahead and destroy one of the largest industrial employers in the economy, go ahead. I believe that the Republicans know that by doing this, they will through the country into a depression under an Obama administration. And, of course they will blame, the Democrats. Of course, I would tie any bailout (loan) would be tied to renegotiating supplier, union, etc. contracts. The reason that the Republican party doesn't really care about the auto industry is because the unions are not their major supporters. |
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