Friday, November 07, 2008

Car Companies 3 : Government Zero

Let’s see, the car companies have between 50 and 100 billion in retirement benefits to pay out and no one is really in a car buying mood (this is a guesstimate, most current figures are very vague).

The California governor wants to raise the sales tax rate to 10%. That would be $3,000 on a $30,000 car purchase. The sales tax in this state is starting to get toxic. There has to be a tax dodge on this. Maybe the Indians will lease cars off of the reservations (you get to gamble away the tax savings at their slot machines).

The government is in a catch 22. If GM, Ford and Chrysler are not bailed out and are allowed to go bankrupt, the government (we the people) gets to take over their retirement pension plans paying reduced benefits. If we bail them out, we still fund the pension plan and the salary structured business at full benefits (upper management would just love this plan, it keeps Christmas real if you believe in Santa (Uncle Sam))

To put it in very simple terms, it’s a basic case of Blackmail by the car companies. If the government does nothing, the big three get to shed their pension plans to the government and the companies can be reborn anew after bankruptcy. That’s not a bad way to go in theory. It pretty much trashes the support manufactures for the auto industry and unemployment gets worse from there.

Therefore, Congress in their infinite wisdom, will probably want to save the car companies with a bailout hoping to only have to pay out 30 to 40 billion. It kind of makes sense (if the end product sells for about 100K). The trouble is, you can’t force people to buy cars or force banks to loan to people without jobs.

Then we have President Bush and Future President Obama both agreeing that the economy is in bad shape and the government has to act now. It sounds great, but there isn’t much you can do if you’re broke. We have decreasing consumption, increasing unemployment, decreasing tax revenue, and gigantic government expenditures that are buying nothing but bad debts. I wonder if Fannie Mae will be accepting car loans any time soon?

Copyright 2008 All rights reserved

24 comments:

Shankar said...

Fannie Mae? What do you think Fed under the leadership of Chairman Bernanke will be doing? (Please refer to his 2002 speech.)

Anonymous said...

Here's how it looks to me. We're going to use taxpayer money to keep failed companies going who are paying salaries/lifetime benefit packages the rest of us can't fine. And this as a result of their inability to make a better product even though they've had decades to develop one. I bought my first US truck in 30 yrs three yrs ago as I wanted a full size to carry my pickup camper. What a mistake!! Shoulda spent the extra money for a Toyota. Had more trouble in the first three months than 30 yrs of foreign products. And the service I got from the Chevrolet dealer was incredibly poor. So my vote is let them go. World is better off. Oh I know, lot of people out of work. Join the rest of us!!

Jim in San Marcos said...

Hi Shankar

Can you be more specific? More than a paragraph of Ben would put me to sleep. Searching the year 2002 I would consider a form of mental abuse.

Jim in San Marcos said...

Hi Anon 6:28

I agree.

It's a little like rescuing an elephant at sea with a life boat. Once you get the critter in the life boat, you both get to tread water.

Common sense is not an option. Go figure.

Thank you for your comments.

Anonymous said...

Jim,

What is the major economy in California that keeps everyone employed? Is it industrial, aerospace, entertainment or technology? With the tax rates so high, what is it about California that attracts or keeps business there?

Neither candidates could tackle the current/future economic conditions or our nation. This is not politics, but simply a forecast of facts based on history. Our new president's regime promised many things including change. I'm not sure that all of the 52% of Americans who voted for him expect nor want the change that is coming.

I see the next 4 years as higher taxes for all, borrow and spend at levels this country has never seen before. And in the end we will become and extension of Europe and loose many of the freedoms we enjoy. First Amendment rights come to mind. Who dares to question or criticize our new national hero? I'm sure California and others will consider it a hate crime.

Tom

Jim in San Marcos said...

Hi Tom

You are right, the new president isn't going to solve this problem. It isn't political. This bailout charade can't continue for 4 more weeks let alone 4 more years. The game is pretty much over. What the government is doing right now is kind of like eliminating crime by legalizing it.

As for taxes, politicians know nothing about economics. To them, you double taxes you double incoming revenue. They tried this during the Great Depression. They ended up with less than they had before they increased the taxes.

A lot of business's have left California for cheaper surroundings. So high taxes are an issue where you can vote with your feet.

You made me chuckle when you referred to Obama as a "national hero." I think you need to win more than an election to get that title.

Obama's harshest critics could come from the black community. Black unemployment is double the government rate and that problem will be very hard for him to address as conditions get worse.

The only real thing that we can predict about state governments in the next 4 years is that they will be very short of money if not bankrupt. The States never saved for the proverbial rainy day.

Thank you for your comments

Anonymous said...

Jim,

The politicians are eager to make this their problem, just ask any of them. I begged my congressmen (through emailing them) not to support any financial of help for banks or Wall Street as it would further bankrupt our country. But all I got in return was a horrible canned lecture on “failed responsibilities” and then closed by saying they had no option but to vote yes to “rescue” the economy!

The “national hero” comment was all tongue-in-cheek. But watching the MSM, you get the sense they are gloating over the Pres-Elect and his New World.

I agree that the black community will have high expectations of their new leader… but as I pointed out in the previous post, blacks will be the only ones ‘authorized’ to criticize him. All others will get the hate-label applied.

It rains in California?

Tom

frakrak said...

Obama is a very solid, charismatic polititian, but why would anyone want the top job now? His timing appears to be a little on the unfortunate side!

There was an enormous interest in Australia over the American election. Sadly we did not get any substance, (detail) with the two candidates and their plan to stimulate the American economy!

We had one week of wall to wall campaigning on our TV, to the point where I woke up on the day of your election and thought I had to vote!!

Missed the plan completely Jim,
So what's the Obama plan??

Jim in San Marcos said...

Hi Tom

In my reference to the black community, it will be low income that will be hurt the most by this mess not necessarily blacks. But they will expect more of their home boy than he can deliver and will be disappointed.

We may have a President that is a Democrat, but race ceases to be an issue any more. He's got the job for 4 years.

The front page of the Sunday paper has Obama on it. The mood is that this is some sweeping new change that will save us. It's kind of like a prayer to save us from destruction.

The thing that goes unnoticed is the demonstrations against the gay rights bill that failed to pass. The people out there demonstrating are obviously unemployed. Democracy didn't work for them in the voting booth and now they want to change that. A million man march on Washington could result in martial law.

Unemployment will be the big issue for Obama to contend with. Without jobs we will have riots.

Jim in San Marcos said...

Hi Frakrak

We got the charisma, but from there, it's anybody's guess as to what will happen. There seems to be extreme optimism over his Presidency which seems to be nothing more than blue sky. It's hard to figure.

I think by the time January 20 rolls around, charisma won't even get you a cup of coffee.

Basically the U. S. Government is bankrupt as is every other country in the world. For those who have nothing right now, nothing really changes; those who have something have the most to lose.

A political solution is not a financial one, and the financial solution is what everyone is praying for.

Lottery tickets are becoming a sound investment (you have a chance of getting something back).

Ben G said...

Jim, I agree with a lot of what you are saying, but why do you think the gay rights demonstrators are obviously unemployed? A few of my very well employed friends joined in those demonstrations, and so far as I know the vast majority of those demonstrating have jobs.

Jim in San Marcos said...

Hi Ben

You raise a valid point. Sometimes I ramble on and then cut out parts that seem like I'm repeating myself. What I really meant was that the unemployed can fuel protests because they feel mistreated and have lots of spare time.

In this case I deleted about 3 sentences that were more of a personal opinion from looking at some of the selected individuals in the film footage.

I agree you are right. I do make mistakes. Thank you for pointing it out.

Anonymous said...

As I've said in other places, the depression has already began. Whether it is a weak to mild depression or the beginning of a single globalized political entity is dependent on the ability of Americans to hold their leaders responsible for their actions.

Frankly, Proposition 8's passage is the beginning of a backlash against the government's invasive practices. There is real fear that the continued legalization of gay marriage will lead to the destruction of the line between church and state by putting clergy in the position where they would have to violate their religious beliefs by performing gay marriages. Although the frustration of gay and lesbian populations is understandable, the crossing of that line is similar in principle to the Fed taking the debt of private business onto its own balance sheet. There is no way that these entities are autonomous any more, even though they claim to be. They are now wards of the state. The question is whether the benefits of the immediate actions leads to the collapse of the structure you are trying to save.

Hard decisions have to be made. Frankly, all three automakers are TOO BIG. GM should be Chevrolet, Cadillac, and GMC Truck. Ford should be a Ford, Ford Truck, and Lincoln. Chrysler needs to cut their model offerings in HALF. They REFUSE to do this. Why should we bail out corporations that struggled during the times of cheap credit? Are we prepared as a society to run these automakers to make sure that our money is well spent? Are we INTERESTED in doing that? All of a sudden, America is no longer American and without the fear of failure, innovation goes bye bye.

In conclusion, the first set of bailouts (Bear Stearns shotgun marriage) set in motion the nationalization of industry. This is very bad. What nationalized industries provide world class products? You can count them on fingers and toes. By providing bailouts, the government becomes a shareholder and it is clear that government can't handle their own business, much less someone else's.

Shankar said...

Jim:

Here's the excerpt from Bernanke's Speech in 2002: (Link at the end.)

-----

However, the Fed does have broad powers to lend to the private sector indirectly via banks, through the discount window.13 Therefore a second policy option, complementary to operating in the markets for Treasury and agency debt, would be for the Fed to offer fixed-term loans to banks at low or zero interest, with a wide range of private assets (including, among others, corporate bonds, commercial paper, bank loans, and mortgages) deemed eligible as collateral.

-----

I believe auto loans are the next in line.

This is the speech in which Bernanke said that US Government has an amazing technology called printing press which could be used to prevent deflation.

Try that Benny!

Here's the URL:

http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm

Jim in San Marcos said...

Hi Anon 11:23

I whole heartily agree.

I'm beginning to think that the best part of this blog are the comments.

Thank you for your input

Jim in San Marcos said...

Hi Shankar

Thanks for the added link. I went there and went no further. Too much reading material!

It is pretty easy to understand what Bernanke is doing. Its difficult to figure out to who he is doing it to. I think that it ends up being you and me.

I take it that you put these words in his mouth "US Government has an amazing technology called printing press which could be used to prevent deflation." I like it!

This guy needs to be stopped and it's a little like stopping the Salem Witchcraft Trials. Common sense was all it would have taken, but that isn't how the real world works.

I was kidding about Fannie Mae and car loans. If it gets that bad, there isn't much hope left. I'll assume that you were pulling my leg.

Take care

Shankar said...

Well Jim.

'US Government has an amazing technology called Printing Press' were actually his words! Not mine!

And no, I am not pulling your leg. Fed will purchase auto loans soon.

I tell you, this guy is out of control.

Jim in San Marcos said...

Hi Shankar

I agree he is out of control.

My question:

Who is going to stop him?

Anonymous said...

Hey Toby how is that Altria trade working for you?

Altria to cut jobs due to economic uncertainty
Tobacco maker Altria Group to cut jobs to brace for economic turmoil ahead

"But when Altria reported results last month, it said the volume of Philip Morris USA's cigarette shipments fell 4.8 percent during the quarter from a year ago."

http://tinyurl.com/55hyf8

I'm Not POTUS said...

Jim,

I get the feeling like I am watching that Monte Python skit where the comically obese patron has eaten the entire menu and the waiter is begging him to eat one more teeny tiny chocolate mint.

Except now we have a game of chicken watching GW and Obama argue over who is going to offer the mint.

zgirl said...

(Psst, Jim, Your white is showing. Homeboy is one word.)

When I was 18, I moved to Hawaii and rented a car. I insisted on an American-made car. It created quite a problem and I had to downgrade to an econo car. I felt very good about doing some small thing to promote American jobs - then I saw the sticker on the door. The car was made in Mexico and Canada.

We have a real problem when companies want to sell to "wealthy" American consumers, but build their products using cheap foreign labor. Each job sent overseas is one less wealthy American consumer. Globalization may be good in the rigid science of economics, but it is not good for average Americans who want (something approaching) the standard of living their parents enjoyed.

Jim in San Marcos said...

Hi Potus

I think that the word "insert" has more meaning than "offer"

A political solution is not going to happen.

No one is going to save us from ourselves.

I hope I am wrong, thank you for your comments

Jim in San Marcos said...

Hi Zgirl

I think you have touched on something that most people have overlooked. Protectionism-- it is something that was an issue in the 1930's and liable to be an issue in the future.

Thank you for your comments.

Anonymous said...

http://ftalphaville.ft.com/blog/2008/11/06/17903/fed-capitulates-the-central-bank-is-broken/

here is very good explanation of what Fed did. When you compare this with the speech of Ben in 2002, you can see that we are on exactly this path.

What happened (and this article describe) is in short the following, up to now Fed had the power to control in small way mutli trillion market with changing the Fed rate (~%).
But as the rate is close to zero for the banks it is better to have cash rather than treasuries (they don't make money anyway this way.). This takes all the power that the Fed has to control the banks and also the ability issue more debt/money (in the normal way).
What they are starting to do now as mentioned in the speech is bypassing the banks and lending directly to the companies and/or gov.
It is even more diabolical ;), what they are doing or will do soon is let the Treasury give them treasuries, but instead of putting them in the market (to extract/get the money from economy for these spending's) they just arrange a bank-deposit for the Gov (i.e. Treasury) so they can spend, spend, spend... So the Fed now can't do anything else but print money !!!
And for this you don't need Fed! , cause if you don't know the Gov(Treasury) have to pay interest on this money which had to be paid later by the tax payer, they would be better of just printing the money themselves.

The very reason the Fed was created is no more ?!

One other tidbit if you didn't knew one reason why giving money to the banks didn't work out. Is that in the last couple of months there was bigger difference between the Fed-rate and the the real interest in interbank lending, so for the banks it was safer to just deposit the money they got from the Fed back to the Fed instead of lending them in this risky envoirment (this is free money :) )