The Detroit 3

Don't refer to them as "the big 3." They are not.

I'm watching the testimony live and nearly each and every person, to the man, is speaking in tones absent reality. It is unbelievable to witness. First, the bailout dollar amount is increasing exponentially - it started at $25 billion. Then it went to $34 billion, now it stands at a total request for viability at between 75 and 134 billion dollars.

Now lets consider exactly "what" we are bailing out. Ford's "market cap", or total value stands at $3.4 billion today. GM's is a little better at 4.1 billion. Chrysler is less then a billion. Compare that with Toyota - 138 billion in total company value. Even the niche company of BMW is at 14 billion.

The point is this - bailing them out will do little more then allow them to limp along for a little while longer, but eventually they will succumb to their wounds and bleed out. Look, I am no fan of watching an entire industry, as American as apple pie and baseball, evaporate, but everyone is missing the 800 lb gorilla in the room - these companies are getting crushed by their competition EVEN IN BOOM TIMES! The post WWII Detroit is gone. At that time they could sell virtually anything they built, but we have since ventured into a world of free trade. This is the result yielded in a world where 1st world nations give preferential treatment to 2nd and 3rd world nation based companies that have dramatically lower operating costs. THIS is the scenario people like Pat Buchanan screamed about. And look, personally I am a free trader, don't misunderstand. What bothers me is the 2 political Party's don't seem to see the bigger picture here. They BOTH endorsed the wide ranging free trade agreements we have with NAFTA, Japan, China and South Korea, and people like Perot and Buchanan were laughed off the stage as "protectionists" for opposing them. And we, as a nation, have reaped the benefits of cheap goods. But the inevitable outcome is that at least some industries will die as a result of that trade. In all the world someone is going to find a way to produce a cheaper alternative to a given American product, and Americans will buy it over its more expensive domestic equivalent. And the trade laws (not to mention the savvy American shopper) are set up in order to favor and encourage the consumption of that cheaper product in the American market. One example - Hyundai is a South Korean auto maker. By law they are allowed to introduce 669,000 units (cars) into the US market annually. In contrast American auto makers are allowed to introduce 5,000 into South Korea. With Japan it is worse - the numbers run into the millions for the empire of the rising sun. And US autos, by Japanese law, are allowed to introduce only in the tens of thousands to their market.

So my question is, what the hell are we doing? The conversation occurring on Capitol Hill regarding the bail out (even as I write this) is occurring in a vacuum as if none of this exists. Like the Detroit 3 just came along some hard times and need a bridge loan over to some inevitable profitability in the future. This is not the case. And the ONLY person on that panel that even mentioned this was the president of the UAW, go figure. As a nation, through these elected representatives, we must decide - do you want free trade or protectionism? You can't reap all the benefits of your choice without suffering some of the consequences. Japan is laden with protectionist policies and their economy has been stagnate for a decade and a half. Our trade laws are vastly more foreign friendly and our economy has boomed in that same time period. But they get to keep a robust domestic auto industry, we do not ... wait ... we do, if government injects it with billions in tax payer cash every generation (the last "auto bailout" was in 1978). It doesn't add up in favor of Detroit, no matter how you run the numbers yet these politicians and CEO's are talking all around the obvious - the industry is set up, by law, to fail.

It's insanity - lawmakers whom crafted the very laws causing Detroit to face a robust competition are sitting there asking these CEO's why they are not competitive. And the crescendo - they all seem to agree that using hundreds of billions of dollars to prop them up will some how change the inevitable - barring a change in current trade law and/or current technology, Detroit is going to die.

In the mean time they will get our money. They will get a presidential appointed "Auto Czar" whom will dole out this money like Polson (SoT) is doing for lending banks. This "Czar" will consolidate all US automakers into a single company, then years from now the same thing will happen - it will fail. It's the only end game under current circumstances, there is no way out. And what's worse, a dangerous precedent is becoming set - the US is now on a path to Euro Socialism in which the government controls in upwards of 40% of the GDP, THAT is the end game, as a nation, of all these bailouts ... I'll blog more on that big picture later.