Wednesday, December 17, 2008

To Bail Out or Not to Bail Out

It's far too easy and too common to digress into the emtional aspects of this. But let me pose a somewhat pragmatic view, if I may? I suppose the real question to ask is: why?

Let's fast forward things to *after* the "big three" are "bailed out" with a short term cash infusion. Which will likely happen. One way or another. So, they keep plants open and workers employed. SOME plants and workers, that is. They're almost certinly going to cut back more, even with a bail out.

So, they make more cars.

Who is going to buy them?

In case you haven't noticed, dealerships are not suffering from lack of inventory. There are plenty of cars, trucks and gas-loving SUV's waiting to be purchased. Even Hybrids. Dealerships don't need more cars and trucks.

The problem is that nobody is buying them.

Why aren't people buying cars like they used to? They're afraid to commit to more debt.

Real or perceived, Americans are skiddish about the security and stability of their jobs, especially after the coming holidays. The employment outlook is foggy, at best, for many people. And why is that? Because the media has done a fantastic job of reporting layoffs in a daily barrage of bad news. It's not the "news" folks fault either. They just report it, after all. But regardless, the public perception exists.

Until people feel confident about their job security (those that still have jobs), they're going to "make do", without buying a new car or SUV, for a while longer. The most they might consider is shopping Criag's List for a used vehicle. Right now, new vehicles are viewed as a luxury item.

Some argue that "going bankrupt" will kill future sales because buyers will shy away from orphaned goods. News flash: sales were in steep decline well before this recesioon began. They were still falling before the "big three" started begging for handouts. Plants were being closed prior to 2007 folks. You can look that up yourself. Our local Ford plant, like many others, was set to be closed years ago and actually closed before the recession was officially announced.

Bankruptcy rumors didn't cause those sales to drop. A variety of other factors caused that to occur.

And in case you're one of those that believes the hype about chapter 11 filing spells the end for comapnies as large as these guys: you're dead wrong. K-mart, Delta airlines and Home Depot are just a few examples to prove that wrong. And none of them had the assets or reserves to propell them through the restructuring period.

GM, Ford and Chrysler will make it just fine. Chrysler might not, but nobody wants Chrysler anyway. They'll probably be acquired by someone else, again. The brand name will continue.

So, again, how exactly is this "bail out" going to save the "big three"? How is it going to prevent the inevitable second-crash they will encounter as sales continue to remain flat, or fall lower? How is this going to instill buyer confidence to take on more debt?

Ask yourself thisquestion: When you hear news of the "bail out" getting passed, are you more apt to go buy a shiney new car?

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