Technology with attitude

The Auto Alliance Explains Why Big 3 Rescue Is Necessary

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Today I had a chance to listen in on the blogger conference call with the policy group that represents the auto industry, The Auto Alliance. Thanks to Jon Henke for inviting me. I was 5 minutes late, so I missed the opening spiel, but I got a chance to listen to the Q&A session that followed.

Here are some things that came up…

  • A lot of the cars the Big 3 have in their pipelines or will be announcing soon are fuel efficient or hybrids. So while many say that these companies have dropped the ball on the green front, that’s not entirely true. They just weren’t the first to market, and Toyota is enjoying a huge advantage because their business plans were more future forward looking.
  • It sounded like The Auto Alliance is in favor of having gas prices set above a certain level instead of the market determining the price. Obviously this would be a big no no for free marketers, but it does make sense. After all, if you’re pushing fuel efficiency, the point is to use less gas, not more. So you don’t want to continue to have a policy that tries to get the cheapest gas possible and thus incents people to just drive, drive, drive. Still, I think many would be surprised that this is their position. Or maybe I just haven’t been paying attention.
  • Car companies don’t care if the $25B comes from the TARP program or from the $25B provided in the 2007 energy bill that provided for companies to retool their existing factories to go green. The Bush administration is pushing for the latter, while I think the companies would honestly prefer the former (even though they said they don’t) because having that additional $25B would help their long term competitiveness Still, this could be the compromise some are seeking, although many free marketers simply want the companies to go into Chapter 11.
  • They did not have an answer when asked how much of this money would go to cover legacy and current healthcare costs. Apparently there has been a proposal put out there that says the government could simply take over the healthcare costs, but that wasn’t discussed in any additional detail. The only answer we were given is that $1,000 of every GM car sold goes to cover healthcare costs. And given that the average car costs around $20,000, you can do the math on that one.
  • They reiterated that letting these companies go into Chapter 11 would set off a domino effect since car purchases are unique in the economic landscape. In short, it’s the second biggest purchase that people ever make (with homes being the first) and the spokesperson asked Sara Barz of Grist (paraphrasing here) “Would you buy a car from a manufacturer who wouldn’t be around to support it in 6 months?” Sara answered that she might if the guarantees were absorbed by another company, but that’s obviously a chicken and an egg type of problem. Because Chapter 11 isn’t a gateway for acquisition of assets, it’s a path for reorganization. And it seems to me the only way that somebody would absorb those guarantees is if a company liquidated their assets via Chapter 7, not via a Chapter 11 reorganization.
  • Last, did any of you know about a deal being kicked around to have auto loan interest be deductible? That would certainly incent more people to buy cars. This was discussed as well, but would obviously not have anything to do with the rescue money. Still, an interesting idea, although it would diminish our tax revenues at a time when we really need them.

One thing I will note is that bloggers you would traditionally consider to be liberal, like Jane Hamsher of FireDogLake and the aforementioned Sara Barz, challenged the guy from The Auto Alliance to basically “prove it.” How do we know we’re not just paying for health care costs? How do we know that this will only be a one time deal? How do we know that Chapter 11 isn’t a viable option?

But given that he was talking for all of the companies, he wasn’t able to provide specific enough numbers to do that. But Hamsher in particularly pushed him on it so much so that you could definitely tell he was becoming annoyed and defensive. Not that this annoyance was unwarranted (she was pointed), but there was definitely tension between the two.

However, she made an interesting point that the car companies’ current argument of “if the government doesn’t do something, bad things will happen” isn’t as believable anymore in a post-Iraq world. In other words, we were sold a war that we were told was necessary, but end up being anything but. And now Americans simply aren’t as likely to buy these doomsday scenarios.

Me, I didn’t ask any questions. Instead, I listened and now I’m reporting back. Hope this shed some additional light on the situation.