Thursday, November 13, 2008

Big Three Bailout--Will It Work?

This guy puts his finger on the problem:

"You still have to find a way to get consumers to buy vehicles," Johnson Controls chairman and CEO Steve Roell said at an investors conference sponsored by Robert W. Baird & Co.

The theory that lending the "Big 2.125" a buncha taxpayer money will "solve" the problem is pure balderdash. The problem, friends, is that cars are not selling.

There's a secondary problem: used vehicles' values are deflating rapidly. So even if you want to buy a new Chevy, getting out of your old Chevy ain't as easy as it used to be.

About 70% of the US economy is consumer spending. When consumers refuse to buy products, automakers (and appliance makers) are in trouble, period. So is the economy as a whole.

But when consumer spending depends on credit from second mortgages, and housing values are declining, consumers will not spend. Consumers don't 'feel good' about buying when their stocks dump 30% or more of value in 6 months. Consumers don't want to 'spend money' while Gummints are going to take more money (at the point of a gun) for schools, locals, Counties, and States--and most likely, the Feds, too.

Paulson doesn't have an answer--you can figure that out by noting that Paulson's plan has changed from "buying rotten mortgages" to "buying Bank stock," and now he's added "buying student loans, consumer credit, and whatever else comes to mind...."


From the NYTimes today:

Suddenly, our consumer society is doing a lot less consuming. The numbers are pretty incredible. Sales of new vehicles have dropped 32 percent in the third quarter. Consumer spending appears likely to fall next year for the first time since 1980 and perhaps by the largest amount since 1942.

Until consumers regain footing and start buying, a Big Three Bailout is useless. And expensive. But mostly useless.

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