Auto Bailout: Auto Industry Financing and Restructuring Act HR7321
"Auto Bailout Bill"
The House of Representatives approved this $14 Billion dollar auto industry bailout bill in December of 2008. The $14 Billion was worded as a loan to be paid back with 5% interest.
Therefore, as long as the companies are able to remain in business and become viable, the "bailout" would actually be break-even for taxpayers. The gain for Congress would be goodwill and generosity toward politicians from the unions and from hundreds of thousands of workers and retirees in the industry who were led to believe that industry collapse was imminent.
The question you must decide upon is "Should the government be spending taxpayer money to bail out private companies?"
If your answer is "no" then you are finished with this page because you hold grandpa’s hardware store and large conglomerates to the same standard in success and failure regardless of "fallout".
If your answer is more like "it depends upon the circumstances" then you must decide based upon the merits of this instance whether or not your Congressmen acted in your country’s best interest.
Although professional lending institutions deemed these companies to be too great a risk for loan qualification, the federal government is not restricted by such risk formulas.
Often the risk is worth the reward. - The risk here: Loss of bailout money.
- The reward, no tough decisions, no ill feelings from unions or auto industry, and better chance of maintaining US owned auto companies
There are three primary questions in this issue.
- Can auto-maker costs be reduced?
Much attention has been paid to blaming union contracts for bringing these companies down. There have been wide discrepancies in salary quotes ($28-$73/hr) for employees. Both quotes are probably true... From a certain point of view.
Union employees could very well be paid $28/hr. However, union related additives probably make the $73/hr cost to the company accurate as well. The $73/hr quote likely includes benefits, a share of the required pay to thousands of union members in the "job bank" (made up of laid-of union workers who no longer work but must still by contract be paid), and a share of the pension and benefits for retirees.
What these numbers really mean is that you cannot improve company bottom line by laying off workers because the effective "wage" for those remaining would escalate since fixed costs are divided among fewer workers. It also means that you cannot simply cut union worker’s pay by $20/hr to bring "wage" closer to industry standard because take home salary would drop to $8/hr and workers would all quit in favor of unemployment benefits.
Does this sound like a no-win situation? To most Americans it does; which explains why this became an argumentative issue.
Pay cuts for active workers clearly are not the answer. Logically the answer lies in slashing retirement benefits and eliminating pay for the non-working pool of employees. However, this is not an industry that is free to act. The union controls those benefits. Many lawmakers in power were elected with millions of dollars from the unions, so motivation to pressure unions for cooperation would be low.
- Can GM and Chrysler increase market share to boost earnings by making cars that more Americans want to purchase?
Americans buy cars based upon appeal and price. Regarding appeal, no car manufacturer can ever be everything to everyone so increasing market share in a competitive market is a challenge. Certainly advertising to sway public opinion is a good start but if Tiger Woods and Dale Earnhardt Jr. couldn’t make a difference for GM, can anyone? As far as price is concerned, flexibility is likely to be limited because the "Big Three" have a handicap in the chains identified in item I.
- Would bankruptcy reorganization really be catastrophic?
Actually, President Bush, fully in "doom and gloom" mode for the last quarter of 2008, predicted dire consequences and millions of lost jobs throughout the country if federal funds were not provided immediately.
However, here in the real world, many experts stated that bankruptcy might have been the best path for a solvent future. - Union contracts could have been re-negotiated.
- Operations could have been streamlined much more quickly.
- Citizens could have gotten a shot of confidence in the economic future seeing free-market corrections at work
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Would we really have seen the tsunami predicted by President Bush? We will never know for sure but in the interest of America's future you must decide where you stand.
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