Baby, You Can Drive My Car

Fine print disclosure: Driving my car may require $50 billion in cash to guarantee it reaches production.

Dear Diary,

There was a time, not so many months ago, when I would express my ideas regarding which equities or mutual funds were poised to rise, fall, or dance somewhere in between.

Unfortunately, the public misguidings, mishandlings, misinformation, and plenty of other “mis” words have been pervading our society to the point that I feel handcuffed in my ability to ponder much else.

That being said, the public (and more importantly, Oakshire’s readers) want explanations, answers, insight and/or a few reasonable ideas of not necessarily what to expect but at least a multiple choice scenario given our situation.

Well, Diary, here we go once again. So many disasters, so little time. And so, after spinning my Wheel of Misfortune, it seems the needle has landed on the beaten, bruised, and positively frightened auto industry.

The bailout Uncle Sam should have saved his money for

Sorry, GM. Sorry, Ford. Sorry, Chrysler. Looks like the squeaky wheel gets the oil. Which happens to be, according to today’s news, only about $58 per barrel.

Should have asked for that bailout sooner. You would have gotten just what you needed.

True, these automobile giants will still probably receive an early Christmas gift, but not before they’ve burned through billions and billions of dollars in cash. And what type of gift will they receive? Originally they asked for $25 billion. Now they’re pleading for fifty.

GM and Ford together flushed $14.6 billion in the third quarter alone… who knows how much might be “enough” to keep them running. Some congressmen are trying to make a case for a portion of that $700 billion to be made available.

Sidenote: “$700 billion”, given the grabby hands and the way it’s being spread around and diluted, will eventually become the name of the bill instead of the final dollar amount with which it is associated.
Even Toyota, which boasted a much stronger cash position prior to this ordeal, broke the news last Thursday that their third quarter earnings dropped by 70%… even scarier, they slashed their fiscal year outlook by half. Half.

I might offer a cash prize to anyone who is able to spot a Lexus “December to Remember Sales Event” commercial this year. More than likely, that LS430 bearing a bow will be on cinder blocks before Santa can get back on his sleigh.

Why should they get a bailout?

People need to realize the catastrophic consequences of allowing these automakers to fail. The direct loss of jobs for those people that work at the companies would be the miniature tip of the iceberg.

We must look past the factories alone to grasp the depth of this one. This type of failure would have a ripple effect spreading through the car dealerships, the parts manufacturers, the steel mills and companies that supply the fabric lining the interior of these cars.

Job loss would be swift and massive. One in ten jobs in the US are, at least in part, supported by the auto industry. The first year alone would push between 2.8 and 3.1 million people to the unemployment lines. The result is not only fewer people working, but more importantly fewer people spending. Fewer people pouring money back into our economy.

What about consumer sentiment? The resale values of American-made cars lie below those of imports anyway. What happens after bankruptcy? Who will spend $25k on a car that cannot be sold in five to seven years?

And lest we forget – it’s not the auto industry that sent us to the garbage heap in which we reside. It was the financial sector. They, of course, got the first bailout.

Lending issues abound

Banks, Credit Unions, and other institutions that offer loans to consumers to purchase these cars are also going to suffer the adverse effects. I don’t have to explain that there’s already enough trouble with lending. CNN posted an article today explaining how Chris Dodd, among others, “demanded” that banks need to start lending to consumers. In his words, “We want to see more progress from our friends in the financial sector… and if that progress is not forthcoming, we are prepared to legislate.”

Oh yeah? Legislate what, moron? Are you going to force banks to lend? To whom might they offer their funds?

People who actually need to borrow money – those that are in financial turmoil – are too high of a risk for many banks to lend to in mediocre times, much less the volatile, financially ambiguous, who-knows-what-the-headlines-will-read-tomorrow times we are currently faced with.

How quickly congressmen such as Chris Dodd quickly forget simple credit facts after their involvement in that Countrywide mortgage scandal earlier this year. Oh that’s right, Chris. I went there. Shut it.

Finally, the perilous consequence of a strong dollar

I’ll make this brief: The dollar has appreciated massively, roughly 17% against the euro this year, and even more against the British pound.

GM and Ford have a global footprint. They’re trying to sell their product overseas, just as more and more companies are doing – or were doing – every day.

In the worst of times, it appears that our thriving (relatively) dollar is sabotaging this process. Think about it. If foreign consumers wish to purchase an automobile produced in the United States, that foreign currency is going to have to be exchanged for dollars at some point. This makes those products more expensive.

More expensive = less purchases. Sigh.

Do they deserve a bailout?

The million…ahem, billion dollar question. Unfortunately, it looks as though what is deserved is of little consequence anymore. Does anyone in this country work hard enough to earn over a million dollars per year? I, personally, don’t think so. But alas…

Deserving or not, we must do what’s best for most of America. Bailing out the automakers is a necessity, because we’re not going to destroy our economy in order to teach someone a lesson. We can only learn from what has happened so that we may make better decisions in the future.

My one true fear is that America, collectively – and though I love this country – is not the type of place to learn from its mistakes.

John K. Whitehall
Analyst, Bourbon & Bayonets