Email and Economics

I spent Friday sick in bed, but through the haze of Nyquil, I got to watch a large portion of the automakers’ second day of testimony on the hill. I was annoyed by what I heard, and by the fact that they pre-empted the most interesting testimony for a thirty minute sentencing hearing for O.J. Simpson. After ten minutes of that banality, I turned it over to Cspan and resumed the hearings. After I finished, I started work on an email that I sent to several Legislators. I have attached part of the email.

Dear Sirs:

I have a few comments on the present debate regarding the proposed automotive bailout. I’ve just finished watching the second day of testimony by the Chief Executive Officers from Ford Motor Company, General Motors and Chrysler. I am left with but one conclusion. There is a reason that Congressmen are in Congress rather than running a business somewhere. None of you have the first clue about running a business or macroeconomics for that matter. I am convinced that Congress’ involvement in this affair is going to kill the auto industry and here is why.

The Misunderstanding

1.) Your body fundamentally misunderstands the root cause of the problem. It isn’t that no one wants to buy new cars anymore. It isn’t that people can’t afford new cars anymore. Most folks pay off a car, and trade it in and start paying for another one. The monthly payments are very close to what they’ve been paying all along, but perhaps for a longer term. The problem is that banks stopped lending to car buyers as they had in the past. If people can’t get the financing to buy a new car, they can’t buy a new car and all of those shiny cars and trucks sit in the showrooms. Commissions aren’t paid, inventory swells and the demand for more inventory drops, which in turn, causes the automakers to cease production, which puts thousands of auto-workers on layoff. Right now is a great time to buy a vehicle, great deals are out there, if you have cash to buy. Most folks don’t.

2.) Because of this misunderstanding, Congress has attempted to tie financial bailout money to a promise that automakers will make more “fuel efficient” and more “eco-friendly” models. Cars are made to sell. As much as the population likes to talk about “going green”, individuals don’t want “green” cars. They are expensive, underpowered, undersized and difficult to refuel. Americans want big cars in which they can transport a family of five and feel safe. They do not want to be stuffed into an aluminum soda can with a top speed of 60 miles per hour. And while we’re on the subject, General Motors already has a Hybrid SUV from Cadillac and its sales numbers are abysmal because no one can afford them.

The Consequence

In essence, your body said to the automakers, we’ll give you the money, but only if you promise to build more fuel efficient and expensive vehicles that no one will buy and that no one can afford. I’ve always said that Congress should allow them to go bankrupt and then reorganize under that protection. Congress should give them a line of credit during that reorganization period. It worked for Delta and it worked for Chrysler over twenty years ago. In the meantime, we’ve already bailed out the banks, who haven’t released one red cent in the form of new loans to consumers. Your body should have put some conditions on that money, as in a certain percentage must be leant to consumers instead of being used at the bank's discretion. (A critical error on your part).


The Real Solution- Don’t put the Green Engine Before the Fuel

I think that what I’ve pointed out here is simple. I’ve always believed that in order for the economy to truly function, more folks from the middle class must have more discretionary income, and more access to credit. We need to keep inflation under control, and the chief thing we can do is curb this Country’s reliance on oil. We should be investing in wind farms to power entire cities. We should be converting fleet vehicles for cities and towns to burn ethanol and natural gas. This would cut our dependence on oil dramatically. Finally, set up fueling stations that can actually dispense the fuel that new “green cars” will run on. As our demand for oil goes down, so will the price of oil. Congress does have the right idea, but you are going about it backwards. Once more, you are going for the easy and politically popular option rather than the one that has a real, long lasting solution.

Respectfully,

Jason D. XXXXXXXXXXX.

We shall see if my missive helps. If it does, you will all owe me big time.

Trialdawg