I shall refrain from making yet another snide remark about the irony of bailouts. But it seems the bailouts may not be over nor confined to the financial sector. I guess, when the feds start handing out cash to any business that gets itself into trouble and which operates in that ephemeral American industry called “Too Big to Fail”, you're likely to get a wolf-pack of mega-corporations making a grab for the government till. And now it's the car companies.
The Detroit 3, Chrysler, GM and Ford are largely themselves responsible for their predicament. Unlike the role played by federal regulations when it comes to the financial services industry. The car companies focused on building large SUVs in the 1990s because they were what the market demanded and were incredibly profitable. What they neglected to do was invest in new technologies and building efficient, reliable, but more importantly desirable, passenger cars. They left the Japanese and other Asian car makers to do that because margins are slimmer on smaller vehicles and so they simply ceded those segments of the market to their competitors. Now, the market has shifted back to passenger cars and they are stumped as to how to deliver products that consumers trust and want.
Some auto industry observers have said that tighter CAFE regulations (the ones that stipulate mileage standards) would have made Detroit more competitive and benefited their long-term prospects. There is some validity to that claim. But they always opposed tougher standards because it would have interferred with their SUV windfall. Ultimately, if you fail in the marketplace, meaning consumers don't want to buy what you are selling (in fact, the opposite of the sub-prime crisis), while your rivals thrive, it's a simple matter of competition and nothing else.
From the NY Times story:
Both presidential candidates, Senator John McCain of Arizona and Senator Barack Obama of Illinois, have voiced support for the loan guarantees — an unsurprising stance given the critical importance of the main auto-producing states, Michigan and Ohio, to the electoral map this fall.
When they emerged, they expressed optimism that the loan guarantees would be included as part of a budget resolution that is needed to finance government operations through the end of the year.
The Senate majority leader, Harry Reid of Nevada, expressed his own support for aid to the automakers at a news conference on Wednesday morning. Mr. Reid said the loan guarantees, which would cost taxpayers $7.5 billion, were needed.
The good news is that this bailout comes almost as a relief to the Treasury. ”You mean only 7.5 billion? Wow, we finally caught a break.”
And the best line from the story:
Still, some fiscal conservatives reacted angrily to the prospect of more taxpayer money being used to prop up private companies.
Oh, really? Which Republican guy locked screaming in a closet for 30 years are you talking about?