Release the floodgates! - Macleans.ca
 

Release the floodgates!


 

Ottawa to deliver $3.5B auto aid package: CTV

The biggest bailout in Canadian history, I’m guessing, and rest assured this is only the beginning. The money the Bush administration is putting up is strictly designed to tide them over until January, ie to drop the whole thing in the Democrats’ lap. So when Big Auto comes back for more — $75-billion, $125-billion, nobody has any idea — the whole exercise will be repeated, only with a lot fewer Republicans to hold them back.

So: if Big Auto cannot be allowed to fail now, when the taxpayer’s only in for a paltry $25-billion, how likely is it that it will be allowed to fail in future? Which politician is going to be brave enough to walk away from a $100-billion “investment”? And at every step of the way, whichever government is in power in Canada will face the same irresistible pressure to pony up a similar (or, as in this case, disproportionately large) contribution, with the same bogus arguments. And it will. Who wants to be the one left holding the bag when the industry goes down?


 
Filed under:

Release the floodgates!

  1. Let them fail I say. Nothing personal but you guys don’t exactly make the best cars, they’re cheap yes but inefficient and poorly built. Surely the world will be a better place once everyone sees sense and drives German or Japanese.

    I think Bush has realised how much CO2 he’s saved by plunging the whole world into recession and is trying to find ways to turn the tide. He’ll have taken another 1m UK residents off the road by next year (another 1m unemployed). Who exactly does he think is gonna buy these rubbish cars anbyway? At least oil is cheap again I suppose…….

  2. I wouldn’t be so averse if this went straight towards modernizing facilities for the production of highly efficient vehicles and highly efficient manufacturing processes, but methinks this is all going to be pocketed, much in the same way that our financial industry is pocketing its bail-outs and interest rate drops…

    Austin

  3. Investment, indeed.

  4. Cue the commenters accusing Andrew of being “ideological”.

  5. I agree with Austin So.

  6. Here’s a solution after your own heart, Mr. Coyne: 1000% tariff on Japanese cars!

  7. Take heart, Mr. Coyne. You’re in good company. John Stossel is on your side. A comfort to you, I’m sure.

    Me…I don’t care. I’ve hated cars since two days after I bought my first one. Like dragging a four tonne ball-and-chain around.

  8. In our lifetimes, planes will sit on the ground. Grass will sprout on unused superhighways. Ask your MP if he supports passing laws that allow city dwellers to keep chickens & goats.

  9. Imagine everyone’s shock when the US manufacturers shut down Canadian plants and funnel the $3.5b directly into US operations.

  10. Like dragging a four tonne ball-and-chain around.

    Your wife felt that way two days after your wedding.

  11. Like most consumers, I prefer not to buy American-made automobiles because they’re terrible. Imagine my horror when I discover that not only will I be giving yet more money to the car companies, but I’m not even getting a horrible car that will break down in two weeks for my trouble!

    (And let’s not forget about the bailout package for non-eastern industries! Oh, wait, there aren’t any and never will be. Thanks, Ottawa!)

  12. RR – Cue the commenters accusing Andrew of being “ideological”.
    ———-

    There is absolutely no doubt that Coyne is being ideological, but that doesn’t disqualify him from having a point. I actually think there’s an emerging consensus about what the real problem is, just no consensus yet as to what can or should be done about it.

    Personally I think the role of the state here is to massively support already existing (start-up) private ventures that present a better alternative to the out-dated business model of the Big 3 and of the traditional car culture in general. Time for new technologies, transportation which is sustainable and which improves the quality of life of individuals and society.

  13. Lord Bob: “And let’s not forget about the bailout package for non-eastern industries! Oh, wait, there aren’t any and never will be.”

    I thought they were mooting a forestry bailout.

  14. Damn !. Government should be run like a business.

    What should a business be run like ?

  15. The CTV article doesn’t say anything about the terms of the deal other than it’s “contingent” on some sort of reassuring plan, and it doesn’t break down how the donation will be split amongst the carmakers. For example, there’s a lot of speculation as to how the privately-owned Chrysler will be treated relative to the other two carmakers.

    On report indicated that US Government is taking a 20% equity stake in GM and wanted Wagoner to step down so they could replace him with a “Car Czar” (I guess the Bolsheviks are getting nostalgic).

    Will the Government of Canada also expect warrants as part of the terms of this deal?

    Surely there are other highly paid executives at GM who don’t need private jets anymore. How politicized will the terms of this deal become? Will or should the US or Canadian governments be able to avoid making management changes in the firms?

    And how long will this money last? 2 months? 3 months?

    For all the people who thought this would save jobs, you’re wrong.

    All plants are being shut down regardless of this bailout for these overpaid incompetents and the workers are being laid off “temporarily”

  16. I think I’m going to call my MP and scream at him

  17. I have trouble visualising large numbers — don’t we all?

    The Chevy Cobalt, which is probably not a great car but certainly will get you from place to place, is priced at $15 325.

    The government just announced a $3.3-billion bailout.

    For $3.3-billion, we could give 215 334 new Chevy Cobalts to Canadians without cars.

  18. “The biggest bailout in Canadian history, I’m guessing”
    “And let’s not forget about the bailout package for non-eastern industries! Oh, wait, there aren’t any and never will be.”

    How much did those mad cow farmers get? In total? It was billions if I remember right…

  19. Here is a (ironic) quote from today’s LA Times:

    Automakers fail to cash in on big GOP donations

    Over the last decade, General Motors has given $1.50 to Republican candidates for every $1 it has given to Democrats. That same pattern has been followed by Chrysler and Ford, which year after year have favored the right side of the aisle, sometimes by more than a 3-to-1 ratio in dollar terms.

    Since 1990, the auto industry as a whole — including suppliers, dealers and manufacturers — has cut $100 million in checks to Republicans, compared with just $34 million to Democrats.

    On Thursday night, the carmakers discovered just how little loyalty that investment strategy had bought them.

  20. DR: “How much did those mad cow farmers get? In total? It was billions if I remember right…”

    Aha, yes, it was $1-billion.

  21. Farmers are in permanent bailout mode. They get well over $1 billion every year. If we decide to bail out other chronically underperforming industries, we’ll be in the same situation with them. They always need one more bailout to help them through one more difficult stretch.

    The cycle in the auto industry just seems to take a little longer. 30 years ago Chrysler went to Congress cap in hand. Now all three domestics want money. Another 20-30 years, the Big Three PLUS a few Japanese companies will want money or they’ll threaten to shut down plants. It will never end. Farmers, automakers, doesn’t matter.

  22. Though it might surprise those who follow my comments (all two of them – one being my mom) I am okay with the “bailout”.

    I do think that these three companies are doomed – that they will go under perhaps within tweleve months and that they will be broken up and, like a properly pruned tree, the remaining entity(s) will be healthier, more vibrant and produce better quality product.

    So why do I support the bailout?

    1. These companies are economic, cultural and social icons.

    Everyone of us has visceral memories of the products they produce. Some of us were procreated in one of their products, others born in one, many of our loved ones have had their remains carried in one to their final resting place and many others have had other pivotal moments in their lives occur in one.

    They have been huge keystones to our economy for almost a century. Every town of any significance has or has had one or more of their dealerships as one of its economic anchors.

    Our greatest hockey players endorse their products. (none of them Leafs, naturally)

    2. These companies have been taxpaying entities for nearly a century. How much in today’s dollars has GM, Ford and Chrysler paid in taxes? How much have their employees paid? How much have the parts suppliers paid? Add all of it up and what percentage is 3.8 billion in comparison? Compare that to the serial fisheries and forest products bailouts over the years.

    3. In view of point 1 above I do not want the Conservative Party to be tarred unfairly for not helping the way it was grievously unfairly tarred with the demise of the literally useless Avro Arrow – a device that was utterly obsolete in the missle age. Canada is by and large very much made up of bogus myths – great healthcare, etc. I don’t want to see us create another one.

    In sum, we sort of owe it to these companies to give them at least one helping hand.

    But ONLY one.

  23. Archangel, sounds like those Republican Senators just couldn’t be bought. At least not by the Big Three. If anything it shows them to be upstanding representatives, in that they are willing to refuse requests for money from some of their big contributors.

  24. Jack, no volume discount for the Cobalt?

    You, sir, are no Oprah Winfrey!!

  25. Okay. I like Jack Mitchell’s idea.

    The CPC can follow its true calling and act as a used car salesman by buying up 200,000 of these Chevy Cobalts, acquiring this “liquid asset”.

    Then they’s can sells them to us to offset this debt.

    Oh but wait, that means we are actually buying them twice…hmmm…

    Austin

  26. Gord Tulk: you seem like a reasonable guy. I bet your mom is proud of you.

    Unfortunately I’m one of those old-fashioned people who thinks that $3.5 billion dollars is an awful a lot of money.

    I think there’s a conspiracy amongst government officials to deaden our sense of outrage. I respect your opinion and I want to dig my heels in but I think you might have a point.

    If this money can be treated as “debtor in possession” financing – meaning that it’s used to wind down the firms as part of a bankruptcy proceeding and that the DIP money is first in the queue from the process, then it could be done responsibly.

    But I reckon the government will foul this up like everything else they do, and it will just feed the existing backlash. I guess it’s a win-win for the opposition.

  27. @Austin, re: the Cobalt idea — there is only one man who is capable of selling 200 000 cars in the space of a few months — Wajid Khan!! Who is available, luckily.

    @Dot — Yes, right, bulk discount city. ‘Cept we probably couldn’t get financing. I like the idea of getting Ophrah to model them, though. She could have Iggy on the show and he could give her the very first one.

    Gotta go submit this idea on the Finance webpage . . .

  28. Not my joke, but it seemed apropos

    —-
    A Japanese company (Toyota) and an American company (Ford Motor Co.) decided to have a canoe race on the Missouri River. Both teams
    practiced long and hard to reach their peak performance before the
    race.

    On the big day, the Japanese won by a mile.

    The Americans, very discouraged and depressed, decided to investigate
    the reason for the crushing defeat. A management team made up of
    senior management was formed to investigate and recommend appropriate
    action.

    Their conclusion was the Japanese had 8 people rowing and 1 person
    steering, while the American team had 7 people steering and 2 people
    rowing.

    Feeling a deeper study was in order; American management hired a
    consulting company and paid them a large amount of money for a second
    opinion.

    They advised, of course, that too many people were steering the boat,
    while not enough people were rowing.

    Not sure of how to utilize that information, but wanting to prevent
    another loss to the Japanese, the rowing team’s management structure
    was totally reorganized to 4 steering supervisors, 2 area steering
    superintendents and 1 assistant superintendent steering manager.

    They also implemented a new performance system that would give the 2
    people rowing the boat greater incentive to work harder. It was
    called the ‘Rowing Team Quality First Program,’ with meetings, dinners
    and free pens for the rowers. There was discussion of getting new
    paddles, canoes and other equipment, extra vacation days for practices
    and bonuses. The pension program was trimmed to ‘equal the
    competition’ and some of the resultant savings were channeled into
    morale boosting programs and teamwork posters.

    The next year the Japanese won by two miles.

    Humiliated, the American management laid-off one rower, halted
    development of a new canoe, sold all the paddles, and canceled all
    capital investments for new equipment. The money saved was
    distributed to the Senior Executives as bonuses.

    The next year, try as he might, the lone designated rower was unable
    to even finish the race (having no paddles,) so he was laid off for
    unacceptable performance, all canoe equipment was sold and the next
    year’s racing team was out-sourced to India.

    Here’s something else to think about: Ford has spent the last thirty
    years moving all its factories out of the US , claiming they can’t
    make money paying American wages.

    TOYOTA has spent the last thirty years building more than a dozen
    plants inside the US. The last quarter’s results:

    TOYOTA makes 4 billion in profits while Ford racked up 9 billion in
    losses.
    —–

  29. Raging Ranter,

    On the other hand, it might serve to demonstrate faulty thinking by heads of the big three. The kind of thinking that leads to bankruptcy, no?

    I’m talking about common sense, like knowing what side your bread is buttered on, and so forth.

  30. As a quebecois, I immediately request that some part of that 3.5 billion be allocated to Bombardier..

    Otherwise it is unfair.

  31. Andrew “R.B. Bennett” Coyne.

    Capitalism is failing when investors are willing to give the US government their money for 30-years @ 3%., like they are today. That is “money for nothing”. That is extreme deflationary depression fear.

    When fear has seized up the credit markets, as they are frozen today, governments have to be the lenders and spenders of last resort, because people and companies are hoarding their cash. To prevent a global deflationary depression, governments have to lend and spend sufficiently to SCARE people and companies out of their cash into taking risks and investing and lending again. It is all about the velocity of money.

    Will auto the bailout work? Probably not. But the project now is to prevent a global deflationary depression, and governments have to spend to attempt to prevent a severe recession from turning into one. The bailout is a shock absorber. It slows down the pace of economic collapse so economic activity does not dry up completely. It is “buying” time.

  32. And Steve Wart’s joke kinda says it all…

  33. Yup. Bombardier needs help building its’ assembly plant in Mexico.

  34. Archangel, it sounds like you and I agree. They supported the Republicans because they were in power. Back in the early 90s they supported Clinton because he was in power, and they also strongly favoured his attempts to create a universal public healthcare system. It would have saved them a bundle in benefits costs. They did donate heavily to whichever side their bread was buttered on. It didn’t work. They should have been focused more on building cars and less on lobbying and feathering their own nests.

  35. whyshouldIsellyourwheat, how can government possibly “scare” companies into investing? Especially when those companies don’t have any investment capital or cash reserves left? WHAT would they use to invest? More to the point, what does an insolvent company have to be scared of if it knows the government will bail it out? Your reasoning makes NO sense whatsoever. WhyshouldIbuyyourbullshit?

  36. RR: The US government seems to have scared the entire financial markets into investing in T-bills

  37. QS:

    F you and the horse you rode in on.

  38. There is an interesting five page Q&A at the Globe and Mail featuring Jeremy Cato. Here is a snippet:

    “The U.S., senators, Republicans from the U.S. south, who are chiefly responsible for the failure of the loan package in Congress, are playing a game of high-stakes chicken with the White House and the White House signalled today that it will blink. These southern senators are hypocrites. They say they are idealogically opposed to helping the Detroit car companies, yet states like Kentucky, Georgia, Alabama and Tennessee have all used taxpayer money to subsidize transplant factories that build Nissans, Toyotas, Kias, Hyundais and Mercedes-Benzes. The reality is, if you want an auto industry — with its high pay, high tech jobs — governments must pay something for it. That’s the way it is in this global business.”

    The very last sentence strikes me as one of those “ain’t it the truth” claims. No matter how much people dislike subsidies, that seems to be the price of getting in the game.

  39. Raging Ranter,

    We might disagree on many things, but it seems we agree on this:

    “They should have been focused more on building cars and less on lobbying and feathering their own nests.”

  40. this is bad news, at least as tendered.

    i thought SH and the CPC were waiting to see the what the US and Obama were doing?

  41. @RR

    People and companies are fleeing to cash because they are terrified of deflation. They are lending their money to governments for nothing (3% 30-year US bonds, which is giving free money to the government). I’m not talking about the big 3 three auto companies. They are basically bankrupt, and they have to be restructured,

    But although in normal times, bankruptcy would be the best way to restructure, the auto industry is too big to be restructured in bankruptcy in the midst of this financial panic, because of the boomerang effects which would bankrupt many parts companies, and auto dealerships.

    Further, there are trillions of credit defaults swaps written on the big three, and would cause more instability in the financial system and more bank bailouts if the big 3 went bankrupt.

    So the least horrific optiion is to restructure them outside of bankruptcy with the heavy hand of the government….which is sort of what is being planned with an Obama car czar. Costly, yes. But the alternative is more costly and worse.

    And as for scaring people…

    There are huge amounts of cash on the sidelines held by people and corporations that is just sitting in government T-Bills and bonds because people and companies are terrified of taking risk and investing…a deflationary panic attack.

    The government has to get them out investing and lending again by making them scared to be in cash by making them terrified of inflation. The velocity of money has screeched to a halt. The only way to prevent a great depression is to scare people and companies out of hoarding cash.

    It is not about reason, rationality, or even greed right now. Fear rules, and will rule for the near term future.

    The only way to fight the deflationary panic is through the collectivity acting through their government. When investors and companies refuse to invest and lend, it is incumbent on the government to be the lender, investor, and spender of last resort to maintain the velocity of money in the economy and to stave off a deflationary depression.

  42. Andrew Coyne is tight. Thank you, coalition.

  43. oops, type. Andrew Coyne is right, not tight.

  44. sf – “Andrew Coyne is tight”
    ————

    HA!

  45. The only way to prevent a great depression is to scare people and companies out of hoarding cash.

    That might be the most asinine thing I’ve ever heard in my life

  46. But Mr.Coyne, that shows how much this coalition bs has played us all for fools.

    Had reason been taken up right when the coalition bs started coming out the gates, this nonsense never would have been pushed up as far as it’s being pushed up now.

    Look, aside from the BQ being as part of the coaltion, there are many, many problems with the forming of this particular coalition.

    For instance: Was the 50 billion business tax cuts not as part of equal distribution of stimulus?

    And if is to be considered as such, and if it had been a Conservative initiative (the 50 billion cuts) than how could it possibly make sense for Layton to shout about that he does not trust Harper?

    The 50 billion tax cuts are a Conservative initiative, supported by the Liberals. During the past election campaign Layton ran AGAINST those tax cuts. In fact, his number plank on his party policy list was to NOT MAKE THE CUTS GO INTO EFFECT. The Mr.Layton agrees to a coalition with the Liberals and the BQ, and he agrees to go ahead with the tax cuts. But by doing so, Mr.Layton SUPPORTS the Conservative government, not the Liberals. Layton only INDIRECTLY supports the Liberals on these tax cuts, BECAUSE the tax cuts are a CONSERVATIVE initiative.

    Where is logic when exploring this cobbled-together -coalition fully? Explain some of the logic to what has NOT been said about the coalition. Then we might get somewhere about discussing the Canadian economy.

  47. Andrew Coyne is tight

    Ladling gin down his gullet all day, I imagine.

  48. Again, I’m not going to read everything that’s gone on before. I believe our economy is going through a necessary correction, a rebalancing if you will, between the era of Me! Me! Me! to a kinder, gentler era. Car culture is dying and good riddance! Our world simply cannot support it.

    I try to keep up with all of this blah, blah, blah going on but the one thing I don’t understand is the split between economy and ecology or environment. It seems to me the earth is getting sick and tired of waiting for us to get it and the current economic crisis could be viewed quite nicely as her way of making sure we ‘get it’. We need to lower our expectations now! When will we understand that the earth’s resources are finite and therefore our economy cannot continually grow?

  49. The UAW — and Big 3’s management going along with the UAW — is the main problem.

    Break them! Yes — break the union.

    Here’s why.

    (A point I made on a previous thread less graphically.)

  50. A message from Canadian government to all investors, entrepreneurs, managers and workers, who through ingenuity, sweat, sacrifice, and prudence have built up profitable and stable businesses:

    SUCKERRSSSS!

    Now give us your money, we have votes to buy in car country.

    (This is only the beginning. By the time they’ve finished slipping money into the pockets of every sad-sack loser who spends millions on lobbyists and zero on actually improving their businesses, you won’t find an intelligent investor, entrepreneur, manager or worker within 5000 miles of this country. You will however find loads of noisy whiners screaming for more government “help”, and whole raftloads of Keynesian dorks who keep insisting that every idiotic commie welfare policy is really a good policy, it just has to be done *harder*.)

    (And BTW – you know what commie and fascist politicians do after they waste 10 years trying to “stimulate” the economy back to life and then find out they’re in worse shape than when they were elected? They start a genocidal world war so they can draft into the army the people who couldn’t find jobs in all the loser industries they “saved” during the depression. Just thought you should know what’s coming down the pipe.)

  51. Lies. Independent blind tests have never placed Grey Goose higher than sixth place.

  52. Ti-Guy,

    You’re not funny, not witty, not profound, and highly predictable, so why bother posting if you have nothing constructive to say?

    Everyone can be a critic. It doesn’t take much effort, nor intellect.

    You’re not changing anyone’s opinion with your predictable griping, so why bother?

    I don’t get it.

  53. I don’t get it.

    And with that attitude, you never will.

    Lighten up, Louise.

  54. And here at the bottom we have an ad for a lovely GM product worth subsidizing the ’09 Caddilac CTS…gotta love it

    Money if given should be tied to making lower emission cars. Period.

  55. Probably not. I only took Psych 101 as an elective. Introductory Freud, Maslow, Carl Jung, Skinner, Pavlov…

    Maybe I should have upgraded under continuing education to analysis by Gates, Jobs, Grove…

  56. I say give them the money with no strings except one: No more coming round for another bailout. After this one if it doesn’t work out – into bankruptcy/receivership you go. Adding more strings than that only gives them an excuse for failing.

  57. I say give them the money, but force them to spend it on hookers and blow. That should be fairly comfortable to the President-elect, at least in part, and it would… mmmm… stimulate the economy on a local level.

    Plus it would ultimately fail, so this plan would accomplish la même chose.

  58. “I say give them the money, but force them to spend it on hookers and blow. That should be fairly comfortable to the President-elect, at least in part, and it would… mmmm… stimulate the economy on a local level.”

    The problem with blow is that it is entirely imported from other countries, and ultimately an industry that can operate with limited amounts of labour. The government should get stoned instead, supporting homegrown industries.

  59. “The government should get stoned instead, supporting homegrown industries.”

    Hear, hear! Well argued.

  60. And $75 billion to our banks isn’t considered a form of bailout, with more to come most likely? It makes the $3.5 billion auto package look like peanuts.

  61. Rows and floes of angel hair
    And ice cream castles in the air
    And feather canyons everywhere
    Ive looked at clouds that way

    But now they only block the sun
    They rain and snow on everyone
    So many things I would have done
    But clouds got in my way
    Ive looked at clouds from both sides now
    From up and down, and still somehow
    Its cloud illusions I recall
    I really don’t know clouds at all

    — Joni Mitchell

  62. For everyone just dragging themselves out of the fartsack …Good morning …. I said it yesterday and will repeat it today. Will there be less vehicles sold in the North American market if the ‘Big Three’ disappear? ABSOLUTELY NOT. The remaining industry will pick up the slack and the world will keep turning. The majority of ‘import’ vehicles sold in North America are built in North America. The ‘Big Three’ made their own beds, let them sort it out themselves.

    But if a bail out goes through, as Gord Tulk said – do it with NO strings attached. Just give them the $ and let the MBA’s at the Big Three continue their great work. With no strings, there can be no excuses for failure and no reason to throw anymore money at the whole debacle ….

  63. I don’t even know what the point of these bailouts are if there are no strings attached and the automakers continue on as they were. Ford/GM have lost more than $80 billion since 2005 and that was during an era of record sales in U.S. and worldwide.

    If American car companies can’t make a profit during an era when demand for their product was at its highest point ever, when can they make a profit? But I know pols aren’t going to hand over tens of billions of $$$ in order for carmakers to layoff half their workforce, eliminate brands and close 1/3 of their plants, which is what’s needed. This cycle will continue until some pols/party grow a pair and say ‘enough of this nonsense’.

    And the bailout terms in the U.S. seem to be somewhat contradictory. Build affordable cars people want while demanding more fuel efficient/green vehicles is contradictory at best. GM is betting on the Volt, the electric car, to turn around their company but Congress has already passes a $7,500 incentive to buy them because the know there won’t be much demand for them otherwise.

  64. Once you go down that long road of rewarding incompetence, where do you turn off? We bail out “bankers” apparent college graduates who either should sue their universities for a refund or enrich them further for helping them score well paying positions and accruing small fortunes despite gross intellectual shortcomings. Had we fired a few people, replaced them with competent individuals (anyone with a high school diploma) and, rather than the golden parachute, hold them on suspicion of graft or criminal negligence, I think we would have had the Big Three CEOs, rather than flying to Washington on their private jets, considering other options.

  65. Actually, multi, if the detroit 3 disappear there will be less cars being sold, because the average price for vehicles will launch skyward. You see, part of the problem of the detroit 3 disappearing is that a lot of parts supplier companies rely upon them to generate the volume of sales that keeps them profitable. Lose that, and those parts suppliers go out of business.

    Less competition means higher prices among those remaining.. higher input costs mean higher output costs meaning less demand. The business, to a large extent, currently relies upon economies of scale. Intentionally, I might add, as this is exactly what Ford was attempting to do when he first started the idea that he wanted all of his workers to be able to afford one.

    You start pulling those economies of scale out, and the business in general collapses quite quickly.

  66. T. Thwim … point taken. Economics is not my forte but wouldn’t the economies of scale eventually balance out? No doubt there will be some short term pain, but does it justify throwing money at the problem. I don’t think anyone is convinced that the money will or even can be used wisely…..

    There will still be competition too. Do you think that people that shop the ‘imports’ even look at the ‘domestic’ offerings… Unfortunately, the competition will be among Japanese, Korean and German manufacturers, but there will still be competition…

  67. “You start pulling those economies of scale out, and the business in general collapses quite quickly.”

    If some competitors go out of business that doesn’t eliminate economies of scale, it creates opportunities for more economies of scale. Few manufacturers, more sales per manufacturer, more efficiencies are possible.

    There is no chance that, after the demise of some manufacturers, the remaining ones will raise their prices and soak it to the public. Toyota must still compete with Nissan and Nissan with Honda, Honda with Hyundai, and so on. If they did manage to form a cartel and raise prices exorbitantly, this would only create an opportunity for new companies to jump in and grab market share by offering better value. For example by buying and using all those shutdown factories and hiring the laid off workers from previous bankruptcies.

    That is how the free market works. There is no excuse for interfering with it. Politicians who claim that to do so will help the overall wealth of their jurisdiction are liars. You must keep in mind that politicians and their pals benefit financially the more chaos and poverty they create. If politicians (against their own self interest) allowed the free market to flourish then they would have the melancholy task of shutting down government departments, and eliminating pork and welfare spending. This would cut into their own income and would make them no friends among the classes of people who are the most attached to politics and to political solutions – political hacks from all parties, bureaucrats, media and the many and various recipients of welfare.

    So instead of leaving the free market to flourish, you will see politicians constantly throwing monkey wrenches into it, either by boldly claiming that freedom is suicidal and socialism is the true path (like Jack Layton or Justin Trudeau), or by cringingly and deceitfully claiming that they really believe in free markets, but sometimes free markets need a little pick-me-up injection of stolen money (like Paul Martin or Stephen Harper).

    Anyone who is panting for government “stimulus” should look up some of the papers on how politically motivated and downright crooked was all the so-called infrastructure investment made by FDR. (mises.org/misesreview_detail.aspx?control=347 for example). I am unaware of similar studies for Canada in the 1930s but I have personally been shown a “highway to nowhere” by my older family members with the explanation that this particular highway was built in that particular (worthless) place in the 1930s for no other reason than the influence of the local MP.

  68. Penlan, a $75 billion bailout to the banks? They swapped $75 billion in mortgages (which the government was already on the hook for through the CMHC mortgage insurance) for $75 billion in government debt, in order to inject cash into the financial system to keep it robust.

    What asset are the auto companies willing to swap for government debt taken on their behalf? NOTHING. They have no assets to give up. The only possibility is a direct equity position, which would leave the government as a shareholder in a near-insolvent company. It would also tie the government to future bailouts, lest it see its own shares become worthless.

    The fact that you would even make the comparison means you have no understanding of the issue and should probably busy yourself with some reading before commenting further.

  69. Hey RR, banks giving up their glass beads doesn’t make it any better…

    Austin

  70. I find it quite amusing that many of the regular liberal commenters are against the bailout, just days after their late lamented coalition wanted to bring down the government because they hadn’t already announced one. I seem to remember Jack M calling for infrastructure spending, not a bailout, however if you think a coalition involving Jack (pornstar ‘stache) Layton wouldn’t involve a CAW bailout, have I got a real estate deal for you. For that matter, if the liberals get in, one of those 18 senate vacancies would have had Buzz Hargroves name on it.

  71. Austin, the mortgages are worthless? Then the government was on the hook for the $75 billion anyway through the CMHC insurance coverage. The $75 billion injection was to ensure the banks could continue to renew loans and mortgages as they came up. The banks turned over $75 billion in mortgages as collateral. Given that the govenrment was already responsible for covering those mortgages in the event of a default, it didn’t cost them anything. Certainly not taxpayers.

  72. Can someone explain this bailout to me? I can understand providing loans to a keep a specific factory manufacturing a product that is in demand — but some of the plants make minivans, trucks, and other gas guzzlers that apparently the public is no longer interested in buying. Are tax dollars going to be used to keep the workers making even more of these products that will sit somewhere in parking lots — forever? Assuming that the economy recovers in a year or two, what is the point of continuing to make product for which there is no market?

  73. Embee, there aren’t enough cars on the road. This bailout will solve that problem.

  74. Think of an anology, Embee: Americans don’t eat enough insulin-promoting grains like corn or high fructose corn syrup like what sweetens Coca-Cola.

    Therefore the government has to subsidize corn farmers to grow far more than they otherwise would. So Americans can eat more of this cheap food, and so they can ship it abroad to countries that otherwise wouldn’t buy it.

    Make sense now? No? Good. You’re ready for a career in politics where votes matter more than economics.

  75. Al: That’s the theory, I’ll agree.

    Unfortunately, you forgot to take into account the situation of today, where credit is extremely difficult to come by. In that situation, your mythical competitors don’t have the money to buy the factories that need retooling so that they can compete with the already established parts makers by selling their stuff for less money. Go on into a bank and try putting that business plan forward right now.. that you’re going to buy a plant that needs retooling, hire a bunch of people that need retraining, and somehow be able to sell your product for less than your established competitors. You need credit availability that’s a hell of a lot more loose than it is today, that’s for sure.

    This is why even though a bail-out is generally a bad idea, in the current market, there’s little other option.

    Embee: The point of the bail-out really isn’t to ensure these companies are hale and hearty. They’ll have to figure out that bit for themselves, and that includes changing their product lines and cutting back on certain aspects of their operations. The point of the bail-out is to give them time to do that, and if not, then at least to delay their collapse until the credit markets loosen so that the normal market mechanisms can take effect and cushion the blow from the rest of the economy.

  76. T. Thwim: ‘The point of the bail-out really isn’t to ensure these companies are hale and hearty. … at least to delay their collapse until the credit markets loosen so that the normal market mechanisms can take effect and cushion the blow from the rest of the economy.’

    So the money will actually be used to produce more product that the public won’t/can’t buy. This makes no sense at all. You state ‘to delay their collapse’ — is it not a self-fullfilling prophecy to add to present woes the cost of materials, labour and storage of the unsellable product they will continue to make? Does the bailout at least specify that all plants with unsellable inventory be immediately closed/retooled — that not one more unsellable unit be produced?

    Delaying the collapse/cushion the blow — seems like a prescription to lengthen the recession! and ensure that I pay sufficient taxes to preclude the purchase of a new car!

  77. Bakody, did you read the article? I already have. And it doesn’t refute anything I’ve said on this board.

    I suspect you read the headline and the sub-heading and delved no further. If you had, you’d realize that the $75 billion in mortgages taken on by CMHC was not even mentioned.

  78. “This is why even though a bail-out is generally a bad idea, in the current market, there’s little other option.”

    It is a Marxist assumption that you know better what someone’s money should be used for than the people who actually earned the money. If they choose to spend money or save money, or lend it to ‘A’ and not to ‘B’ then you have no moral right to rip the money out of their hands and give it to someone else, and then claim there “little other option”. You also have no right to borrow money in their name (and their children’s names) and give it to someone else, nor do you have the right to counterfeit new money to give it away, thus stealing the value of money which people have already earned. If neither the banks nor private individuals wish to buy someone’s cars, or invest in the their factory, and they choose not to build a competing factory, then nothing could be more democratic. They are voting with their dollars, and saying “I would rather buy cars from person ‘A’ at price ‘X’, but I reserve the right to buy from ‘B’ or invest in a new car company myself if ‘A’ displeases me.”

    Once a society surrenders to Marxist ideas there is no possible way that money which is confiscated, borrowed or counterfeited will ever be spent or invested wisely. Money in the hands of politicians will be spent for political reasons, and for no other reasons. It’s what they do. And once the people realize that hard work, intelligence, thriftiness and prudence are only for chumps, they will abandon those traits and concentrate all of their effort on the B.S, whining, stubbornness and lying that are the stock in trade of politics. That’s The Great Depression (Number One and Number Two) in a nutshell.

    And I have bad news for anyone who thinks that these arguments only apply to certain goods and services like cars and banks. Marxist ideas, in every area in which they are applied, from education to health care to welfare and regional development, are just as immoral and destructive.

  79. Austin, the mortgages are worthless? Then the government was on the hook for the $75 billion anyway through the CMHC insurance coverage. The $75 billion injection was to ensure the banks could continue to renew loans and mortgages as they came up. The banks turned over $75 billion in mortgages as collateral. Given that the govenrment was already responsible for covering those mortgages in the event of a default, it didn’t cost them anything. Certainly not taxpayers.

    RR, you’ll have to explain why we as taxpayers are not in fact on the hook for this.

    Thinking out loud in a very simplistic way (and revealing my ignorance): We give banks $75 billion. In return we get these mortgages. If there is no default, then the government essentially recovers the entire amount. If there is a default, then the government acquires the property. If the government wants to convert to cash, the properties are sold. If the property value increases, great. If it is the same, then no problem. However, if it is lower, then the government has increased its debt, has it not?

    And who services this debt in the end?

    BTW…I don’t buy the argument that if the mortgages are bad, we are on the hook for it anyway, so we are just pushing forward the inevitable. These scenarios wouldn’t be “inevitable” had regulations not been relaxed by the Harper government.

    Austin

    P.S. Al Heck Brakes, free-market capitalism doesn’t work. It never will, unless your world and your life simply revolves around you. Or unless you lived 500 years ago.

  80. I don’t think anyone needs to defend free market capitalism. Wherever you have people you have capitalism. The most effective markets in the world are black markets.

    What needs to be defended is the decision to interfere with people’s freedoms in order to achieve the goals of the state.

    There are clearly times when the state is necessary (otherwise there would be no borders), but putting limits on state powers is something that is rather unique to systems of government based on the Magna Carta. This is not something to take for granted in a pluralistic and multicultural environment.

    Again, I risk wading into a philosophical discussion. This is dangerous territory.

  81. Embee: Except that wasn’t all that I said, as you well know because you edited out the crucial bit about the bail-out giving these companies time to possibly sort things out so they are producing something the consumers want.

    Of course, now we see that really you weren’t interested in discussion or the answer to your question, you were just trolling so that you could make your assertion while keeping the illusion that your mind wasn’t closed to any other possibility. Nice touch.

    Al: Baloney. If you really beleive that, then stop being a hypocrite and move to where there are no public roads, services, police, courts, military, telecommunications infrastructure, legal system, etc. There are plenty of places in Africa and some in South America that remain like that. It’ll be win win, after all, you’ll supposedly be happier not being under the yoke of “the man”, and I’ll be happier not having to deal with yet another short sighted libertarian/anarchist.

  82. 20 December 2001

    I arrived home on the last working day of the year to find a row of riot police outside the door of my apartment. It was dark, about 8pm and I had just got back from viewing another apartment I thought might be big enough for my family.

    They of course let me pass without questioning my credentials. The next day all the shop windows nearby were broken but other than that everything was just as any other day. People were going to work, buying coffee and waiting for their buses and trams.

    It was my first Christmas in Europe. Later I found that a bunch of communists and anarchists had come in on the train to Staedelhofen to break things up a bit. The police anticipated this and kept them confined to a single car on the train where they mostly beat the hell out of each other and left the other passengers in peace.

    Meanwhile I heard that a 20 year old kid in Richmond had killed himself and three other people in a street race back at home.

    People are the same everywhere. Communists and anarchists are assholes who don’t respect their families or community. They might think they’re clever but every time they spin their antisocial rhetoric they turn another thrill seeker into an agent of destruction. They don’t have an intellectual basis for their ideology, it’s pure anger. They might as well be in the Taliban or the IRA.

    Young kids don’t think. They thrive on emotion. If you are over 30 you have a responsibility to the people around you. You are a role model whether you like it or not.

  83. T. Thwim — I was really hoping that someone could/would assure me that my worries about the amassing of yet more unsaleable cars were unfounded. and/or that the auto companies, having had several months/years to recognize the problem(s), would have presented a range of solutions reflecting the future needs of the industry. You are correct, I am firmly against tax dollars being used to ‘give them time’ if it means that they waste the tax dollars doing the same things they have done to get themselves into this mess — think that was clear in my initial post.

    So other than ‘time’ to provide numerous people with jobs making products that won’t sell while the executives get around to thinking about the future — can anyone explain the bailout?

  84. Austin, we were on the hook anyway because the CMHC had insured the mortgages. And the housing bubble in Canada was well on its way when the Conservatives decided to pour some gasoline on it in the form of zero-down, 40 year mortgages. My own opinion is that mortgages should be minimum 15% down, and maximum 25 years. Or, we could get just a little bit more strict and require 20% down, negating the need for mortgage insurance at all.

  85. Geez, RR, how will people of limited income ever afford houses? What a mean guy!

  86. Embee, they want the bailout because it gives them a few months and they hope that, in a few months, things will be back to “normal”: people leasing (or buying at 0% over 72 months) the best part of 20 million cars per year in the US and Canada.

    Good luck with that! In a few months, things will look worse than they are now and we’ll all be wondering why we didn’t just burn all those twenty dollar bills to stay warm.

  87. Embee: Because if the detroit three go down right now, they take down with them the parts suppliers, and all those people out of work at once means the economy stalls. That many people out of work, without extra income means businesses all over, from electronic stores to restaurants to furnace duct cleaners to furniture stores to whatever else all start having to shut down stores, thus adding to the problem. The big worry is that all of these people out of work means that stores in general start dropping prices regularly at a rate that those who still have jobs can see. Then they, being not only worried for their jobs but seeing that they can get whatever they want cheaper if they hold off for a while, stop buying as well. This further compounds the problem and we get a death spiral. Check out what happened in Argentina to see where that can wind up.

    The problem is that the detroit 3 employ too many people for our economy to resist the shock of them all failing at near the same time, especially when credit isn’t readily available to enable possible competitors to pick up the slack.

  88. T. Thwim – Don’t worry the free market will take care of everything. Shame about those job losses but Embee should be okay.

  89. Running a deficit at this stage is a very bad idea for Canada.

    Why?

    Because every other Western country is doing the same thing, especially the US.

    The US government has just issued more debt — some of it in 30 year bills at 3%! — in the past year as it has in its entire history. People are investing in it because the US dollar is the world’s reserve currency. The current level of fear and uncertainty in the financial markets makes US government bonds a “safe haven” for investors. This is why the stock market and just about every other financial market has crashed, CAD, GBP, EUR have all tanked — the world’s wealth is flowing into US T-bills.

    Investors only care about two things: risk and return. The appeal of US bonds is purely about risk avoidance.

    Every other government that issues debt has to compete for the capital to finance its debt. If the Canadian rate is 0.5% that isn’t going to be very appealing if investors can get a better rate from another G8 country. As the deficit (and debt) climbs, the government will be forced to raise interest rates.

    Higher interest rates will kill more jobs, close more business and stifle investment much more effectively than withholding fiscal “stimulus”.

    Canada is in a better position than the US or the UK because people here — and the government — have been much more responsible about their spending and debt accumulation. The jury’s still out on how long the US can get away with their massive spending. What is clear is that the UK has tried to play the same game and sterling has been pummeled as a result.

    A massive spending program here will be a disaster.

  90. Steve W

    Not sure if you are following it or not, but PM/Finance Ministers in UK and Germany are currently having an argument about whether spending and debt accumulation are the way out of worldwide economic mess we are in. It’s been interesting.

    UK/Labour are all for spending like drunken sailors on shore leave, PM Brown said he was going to ‘save the world’ with his massive spending plans, while Germans tend to think that being debt-free is almost next to cleanliness in its godliness. I wonder if the Germans are still influenced by the hyper inflation they experienced during the Weimar Republic era.

  91. So many comments regarding how the Detroit 3 make product no one will buy, and they should have switched to small fuel efficient passenger cars, because the imports are eating their lunch.

    According to StatsCan on Friday:

    “Sales of passenger cars declined 3.4% to 72,623 units in October. While sales of North American-built passenger cars remained relatively unchanged from September, sales of overseas-built passenger cars dropped 9.0% to their lowest level since November 2007. After peaking in March 2008, overseas-built passenger car sales have been on a downward trend.

    Sales of new trucks (which include minivans, sport-utility vehicles, light and heavy trucks, vans and buses) increased 2.0% to 67,535 units. This was the fourth consecutive monthly increase of truck sales following a steady series of declines that began in January 2008.”

  92. Interesting about the UK and Brit governments having it out over how to save themselves from their own criminally incompetent economic management. Last time around the German solution was to pretend that swallowing half of Poland would help their economy, and the British proposal was to pretend that protecting Poland would somehow make everything right. In the Far East the Japanese government claimed that swallowing half of China would get themselves out of their own government-generated funk, while FDR pretended that provoking a war allegedly to save China would make the world safe for something-or-other.

    All of them were of course lying through their teeth and the whole point was to provoke a titanic war and distract their own people into wanting to kill as many of the other countries’ people as possible.

    Keep an eye out for the same “solution” to be proposed this time around. There are any number of hotspots which can be used as a handy excuse. It only needs a politician who is determined to hold on to power at all costs, despite worsening unemployment and increasing numbers of bankruptcies. You are going to have an abundance of this type of politician in the next 5-10 years or so.

  93. Al Heck, you have a very interesting world-view.

    Too bad it isn’t this world…

  94. harper would clean up as he is doin in polls if he goes tp electorate over this – ie cdns want to see no bailout for biz as usual

  95. T. Thwim: Good points. As John.K points out sales in Canada have remained steady, in fact according to a news report I just heard Saskatchewan 2008 auto sales have been the highest ever. The problem is that 90% of the units built in Canada are for the US market, and no where in the US are sales close to normal.

    The consensus seems to be that the recession in the US has already produced a glut of unsellable product, that with or without a bailout there will be significant layoffs in the auto industry, and that going forward the Big-3 are going to be smaller (Medium-3, Big-2?). Surely, the attrition could/should begin with closure of the plants that make unsellable units. GM in Canada has announced plans to remain closed for the month of January — a good start perhaps. Perhaps even the beginning of a plan towards a sensible solution that does not continue to produce unsellable items — one can only hope.

    You wrote: ‘The problem is that the detroit 3 employ too many people for our economy to resist the shock of them all failing at near the same time, especially when credit isn’t readily available to enable possible competitors to pick up the slack.’ So you see an advantage to a paced reduction that would phase in job losses, part manufacturing closures, etc. Is this in the hope that the economy will recover during that time and at least part of the disruption would not occur? I still can’t see the advantage in continuing production of units that cannot be sold.

    There will always be a market for larger vehicles, all wheel drive vehicles, trucks. Enough of a market to allow one of the Big-3 to specialize in such vehicles if the other 2 back away — I don’t know. It seems apparent that all 3 will not succeed in these areas. I do not think it is a good idea for Government to dictate such consolidation or to select the winners/losers. But I do think that the Government has a responsibility to not throw tax dollars at sure-to-fail aspects of an industry.

    Personally I would rather see the ‘bailout money’ go directly to individuals, for retraining, relocation, retirement if necessary. The Big-3 may not continue to exist in their present configuration, but the reorganization that should have taken place over the past 20 or so years, will happen and transportation will continue to be available for those who require it. Governments and corporations have a tendency to grotesque waste, individuals vary but most are quite responsible.

  96. Al Heck, Lower Slobodia has already stated they will step in if we invade Slimia. You could be right. Things could get ugly.

  97. Punch My Ticket, houses would be much cheaper with stricter credit. Housing bubbles simply wouldn’t happen. And lower income people can rent.

  98. RR, everything would be cheaper with stricter credit. Think YOU can stand the damage?

  99. Austin, we were on the hook anyway because the CMHC had insured the mortgages. And the housing bubble in Canada was well on its way when the Conservatives decided to pour some gasoline on it in the form of zero-down, 40 year mortgages.

    Your point is taken, RR. No penalty for our financial institutions for their accumulation of (bad) debt.

    And whatever penalty we wish to inflict on those who “poured the gasoline” through unsound policy, it is still us who are on the hook.

    Austin

  100. How about this as a possible solution…

    (1) Merge GM, Chrysler and Ford into ONE company. Keep the best parts of each business

    (2) Phase out any job cuts or changes to compensation of the merged company over 1-2 years so that there is less of a shock to the larger economy. Provide meaningful re-training opportunities for workers who will lose their jobs.

    (3) Concentrate R&D efforts on building new models that people actually want: reduced fuel consumption, reliability, greener cars, etc. Make this a requirement of any bailout.

    (4) Insist to Japan, Korea and China that they must open their markets to North American models. Make this a top priority of our trade and diplomatic negotiators. Protectionism can no longer be tolerated. Either we have a truly global economy and we are all in this together or we’re not.

  101. Oh I forgot: the executive compensation directly to the health of the company. For instance one rule might be that no executive can can be paid more than 15 times more compensation (ALL forms of compensation) than the lowest-paid worker in the company.

  102. I meant to write: LINK executive compensation directly to the health of the company