Face The Nation this morning, Nov 16

On CBS's "Face The Nation" this morning, the $25B bailout of the Auto industry was discussed by Democratic Rep Barney Frank (left) of Mass, chairman of the Financial Services Committee, and Republican Senator Richard Shelby, (right) of Alabama. Link is at the bottom of the page, and see selections below:

"Frank said the House is ready to pass a bailout package, saying failure to do so would inflict pain on an already very weakened economy.
Shelby, however, said that a bailout of the auto industry would be "the wrong road to go down right now," and said he would prefer troubled automakers file for bankruptcy rather than get taxpayers' money.

'Some people believe that Chapter 11 bankruptcy would be a lot better management than what they have today,' said Shelby, 'where they would reorganize, they would get rid of the management that has brought them to where they are today, bloated contracts, everything that goes with it. No profits, no products to sell, to speak of. '[It's] headed down this road to oblivion. Should we intervene to slow it down, knowing it's going to happen? I say no, not for the American taxpayer.'

Frank disagreed: 'It might be one thing to tolerate a bankruptcy if we had a lot of jobs out there, if there was prosperity.

'When you talk about the negative shock that would result from bankruptcies of these companies right now - and by the way, I wouldn't be blithe about Chapter 11. There are suppliers out there who are owed money, smaller businesses. They get hurt in a bankruptcy. There are a whole range of people who didn't make bad decisions at GM here.'

My comments: In my opinion, people want to "buy American" when it comes to cars. GM and the other "Big 3 " can complain all they want about the $2k per car they must pay in health care and legacy costs versus the $800 per car for the Japanese auto makers, but the core of the issue is that the "Big 3" don't build cars that people want to buy. Its simple. If it were a question of paying 5-10% more for an American car of equal quality than a Japanese car, I think many Americans would do it. The reason the "Big 3" are in trouble is that no one wants their products, their cars have very poor resale value, and from the perspective of the average car buyer, they would rather buy a higher quality product of a lower cost that depreciates more slowly and has greater utility value. That is capitalism. While the "Big 3" employ 740K jobs in dealerships alone, around 3 million jobs total in America, (as per Shelby on "Meet The Press") Toyota has plants in the south and also employs Americans. Does Toyota qualify for Federal $ since they too employ Americans? Is the solution to any economic downturn suddenly to throw taxpayer money at any industry that is in trouble, regardless of their own role in why their are unable to compete? NSA? Finally, GM competes in Russia, China, and other overseas markets, so why not pull out of North America entirely and focus on the markets that they do well in?
Shelby is right that the "Big 3" have management problems and don't put out the right products. Those problems can't be directly fixed with $25B of taxpayer money. (1 in 10 jobs in America are "auto related" according to Sen. Carl Levin (D-MI) on "Meet The Press" but how many jobs would disappear if GM declared bankruptcy and restructured, the way the airlines have had to do?) Supposedly $175B would be the cost to the economy if one of the "Big 3" declaring bankruptcy. At what point is nationalizing the auto industry not what it needs to compete here at home and globally? Also, what I think is the most important move the auto industry needs to focus on is building electric cars and encouraging the gov't to put initiatives in place to modernize the grid to support the increase in the use of electricity. What T Boone Pickens talk about with using nat gas as a transportation fuel, that requires infrastructure, which costs $. So, since we need to modernize the grid anyways, let's start now so the grid can support electric cars in 5 years or so? Worst case scenario is that we don't use the modern grid for electric cars, and instead use it to generate electricity via wind and solar from the heartland and transport it to the coasts. That works too. $25B should go towards a new grid, not the failed management and bureaucratic messes over that the Big 3, in which it may or may not be used effectively. The taxpayer jobs the $25B would save over at the "Big 3" would instead be created by modernizing the grid and putting the infrastructure in place to generate electricity renewablly and transport it to the high demand areas, with or without electric cars.
http://www.cbsnews.com/stories/2008/11/16/ftn/main4607907.shtml
http://www.msnbc.msn.com/id/27752329/