My blog of November 12 indicated that bankruptcy was not a smart strategy. Whether Chapter 7 or 11, automobiles sell a product that needs to be nurtured by that company for years to come. People felt reasonably comfortable flying a bankrupt United, for Mileage Plus was still in effect and the period of risk was short. Few would buy a car from a bankrupt manufacturer, especially when other companies are offering bargains and assured maintenance. If GM goes under, Ford and Chrysler will then, actually, gain in sales. Also, the United Auto Workers has already sacrificed rights and benefits in the recently signed contract, which will lead to labor cost/car on par in a couple of years with Toyota cars built in the U.S. Re-negotiation because of bankruptcy would not yield much more.
What do the polls say? Early on, three-fourths of Americans were opposed to government aid. Recent surveys indicate that concern is growing and there are new polls indicating that, perhaps, more support the bailout. However, the most prominent pro-help result came from a GM-subsidized Peter Hart Research Associates effort.
A complicating factor is that Congress has already passed a $25 billion loan to GM/F/C to develop next generation vehicles. Company representatives insist, however, that they fully need this sum, plus another $25 billion, more specifically to cover their daily losses. There are supporters in Congress who favor just carving out $25 billion from the already in effect $700 billion Wall Street rescue package for this latter application. But the Republican Administration and their congressional supporters argue that was not the legal intent, and, more importantly, all of the $700 billion will be required for financial institutions. Linked with all this are the Big Three lending arms that probably do qualify.
We were supposed to learn tomorrow, when the Senate was scheduled to vote on this matter, but Majority Leader Harry Reid postponed decision-making, so now, the sense is that this mess will be taken up next year when Democrats are more fully in control. Why are Democrats in favor of assistance? First, yes, they lean in the socialistic direction, but, more so, unions helped place them into office, and the matter of jobs comes into play. Financial Week has reported that unions spent $385 million to get Obama and other Democrats elected.
The Dow Jones Industrials today crashed 427 to 7998 (-5%), with much of the drop occurring in the final hour. Well, as promised, I guess I must now re-invest in the same stocks I bought earlier this month. GM fell 10% and Ford 25%. The world markets also all lost value, save for Hong Kong and Norway, which barely stayed positive. Germany declined 7.56 %. Crude oil slightly fell to $53.18/barrel, with the Dated Brent Spot at $48.67. Gold was -$3/toz at $735.
There are two tropical cyclones in the Indian Ocean, but not currently of much threat to population sites.