Good points. With the credit markets still mostly frozen, unemployment on the rise, credit ratings being downgraded for individuals as well as corporations, and the housing market basically f#@cked, not many working people will be purchasing new vehicles for some time no matter where they're produced and what their fuel efficiency is.

The mere existence of a significant auto industry seems to me to have strategic as well as economic benefits for the nation. The part of the argument in favor of the bailout/loans that I haven't seen an analysis of yet is what the projected downsizing of the auto industry workforce will be even with the money injected into the big 3. There are sure to be continued RIFs following any such measures due to the lack of demand for automobiles under the current circumstances. As such the prospect of losing jobs in the rust belt will be a matter of degrees. Either way, it's gonna be bad. The question of funding that loan will have a lot to do with the automakers' position on management compensation, replacing management, and other restrictions placed on their restructuring. The CEOs showing up in DC in the corporate jets didn't do anything to enhance the public's sympathy. After AIG's half million dollar corporate retreats and the press they garnered you would have thought somebody in public relations might have suggested they sneak into town in a little more low key manner.

Excellent post, as usual.

What to do? I have no idea but I think a lot of the jobs are gone no matter what. Other news bits about GM that have stuck in my head, some with links:

The UAW had a hand in getting Congressional support for assistance most likely to make sure the Big Three are able to fulfill the commitment they made to the UAW for assuming responsibility for retiree benefits. IIRC, $25bn is how much is due from the Big Three by 2010.

Wesley Clark highlighted a national security aspect to the bailout but I have no confidence that the current iteration of MBAs running the firms have a very refined notion of national security beyond how profitable rent-seeking is.

There is a nascent automobile industry growing in the South 40% of US sales in July. A new KIA plant opened recently in Georgia. Both Ford and GM had plants here but closed them a while back. Here's a smart piece on the situation locally.

An emerging Southern view of the Detroit bailout

As an aside, note that the new KIA plant is in Lynn 'Uppity' Westmoreland's district. That sort of puts the lie to the idea that his constituents vote against their economic self-interests, at least their short-term interests.

Sorry I don't have more links. I've been reading a lot about GM lately because one of my uncles is a GM retiree and my aunt is very worried. Unfortunately, I didn't bookmark many.

I am torn. A vote to give them the $25bn conditional on passing it through to the UAW to honor their commitment to retiree might help and it looks like taxpayers are going to end up with those costs one way or another. OTOH, why should the Big Three get credit where none is due. A lot of people have forgotten that these legacy benefits were once called deferred compensation, in other words, retirement savings. Without their promise, workers may have been more diligent in putting aside money on their own.

Thanks AA. Two (irritable) comments:

1st, The economy's already off the cliff, and been freefalling for months. The fact that the financial sector fireworks were so exciting meant some of us couldn't grasp that this convulsion was gonna roll through the "real economy." It is now, and it has a long long way to go.

2nd, The Big 3's problem on getting sympathy on this comes at least partially because they're arriving in Congress pretty much as the first one in line after the Banks. Tough act to follow. All the unsatisfied anger, the "tough love" remedy still needs somewhere to go. And yeah, they partially deserve it. The timing a bad break for the Big 3. Once we've thrown a few million more on the unemployed pyre, the mood'll shift. But as of yet, even with all the big economists projecting precisely this kind of rise in the unemployed, most of us are still walking, not yet knocked on our asses.

Another inconvenient fact is that Congress shares much blame for the auto industry's situation.

Before the CAFE standards in '75, there were efforts to limit air pollution by limiting the percentage of certain pollutants in exhaust gas. Rather than make more efficient, cleaner burning cars, the manufacturers engineered a cheaper solution by producing big-block V-8s that burned lean and inefficiently. The fleet fuel mileage went down, and this contributed to the shortages of gas duing the oil embargo.

Still lacking in foresight, and unable to predict unintended consequences, Congress adopted CAFE legislation to solve the efficiency problem. However, it wrote the legislation such that the manufacturers were able to avoid the stricter efficiency standards by building "light trucks" that were primarily passenger vehicles. The light passenger vans were the leading edge of the avoidance strategy, and they were followed by the SUV - new versions similar to the Jeep Wagoneer, which had been in production since 1963. The extended cab pickups and small pickups with car-like amenities also displaced cars as passenger vehicles.

Had Congress passed legislation that more intelligently applied fuel economy standards to all passenger vehicles, instead of providing the light truck loophole, the Big Three would have been forced to improve their cars instead of diverting their efforts to producing these other vehicles.

A rumor from The Canadian:

Chinese Automakers may buy GM and Chrysler

A take-over of a large overseas auto maker would fit perfectly into China’s plans. As reported before, China has realized that its export chances are slim without unfettered access to foreign technology. The brand cachet of Chinese cars abroad is, shall we say, challenged. The Chinese could easily export Made-in-China VWs, Toyotas, Buicks. If their joint venture partner would let them. The solution: Buy the joint venture partner. Especially, when he’s in deep trouble.

http://www.agoracosmopolitan.com/home/Frontpage/2008/11/19/02867.html

If I were Wagoner or Nardelli, I'd let Congress know I was entertaining offers from the Middle Kingdom.

The big factor? The same credit default swap and credit derivative meltdown that is behind the financial meltdown of the banks - The gambling on success and failure of these industries - sits there behind almost every large company in an exponentially large bet on their meager assets.

Let them fail and the banking industry gets another shadow bank whammy right between the eyes.

We should have let the banks that stretched themselves beyond reality fail and concentrated all of our money on saving homes and industries. The real assets. Not the gambling with money for nothing.

That would have allowed the less irresponsible banks that didn't overplay at the gambling tables the time to reorganize and make it through the other side stronger.

If you don't get it... We are screwed no matter what we do now. And it is going to hurt. All that is left is to decide who and what you want to try to save. I don't know about you BUT real assets have a lot more value to me than a scrap of toxic paper that will never - NEVER EVER - increase in value.

We need some perspective here. We've given AIG over $100 billion, and we have no idea where it went. In fact, it may have been used to pay off foreign creditors. Wouldn't that be nice? We've bailed out European banks, as well as our own, with absolutely no conditions. But, sorry US auto industry, we can't find any money to even LOAN to you, one of our bedrock industries. Our priorities and outrage are misplaced, to be sure. We should be going nuts right now, demanding accountability over one of the biggest frauds ever perpetrated on the American people by its Government. The cabal running our financial system right now is the real enemy, not GM, whose behavior is pathetic and reprehensible, but only a small part of the real problem.

IMO, this situation is being misrepresented as an either/or situation.

Either we bail them out or they will fail.

Either we bail them out or the U.S. will forever lose the auto industry.

Either we bail them out or this country will sink into a deep depression.

Beware of the great simplifiers.