Sunday, December 7, 2008


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By some reason I have high degree of confidence that automakers will receive their $25B. The only thing I think they are doing now is looking for a "wrapping paper" to sell it to taxpayers under an umbrella that it is done for their own good - the same as with finacial sector bailout.

If you have a company and you have to pay your loans and debts and you have a product that you cannot sell then you have to find out how to survive. First thing you have to do is to sell the product you, at least part of it and get cash. If you cannot sell it, then you drop the price and sell it any way. You receive cash and it will buy you some time to restructure your production to make it profitable again. If automakers cannot do it then there is something very bad in their structure of business and $25B will not help them, it will only delay the death sentence… unless they need it for something else… as banks used bailout money to buy other banks…

People do not have money to buy cars and nobody wants to lend to people because they already in too big debt, house foreclosure or without job. You want to sell cars, drop the price.

What government can do beside $25B to help automakers on my opinion is

1. Increase taxes on the cars that are made oversea – you have to protect your own market.
2. Increase taxes on American cars made outside of USA – it is wrong when USA owned companies build plants in Mexico to sell product in USA.
3. Decrease taxes on the cars that are made in USA by American workers even if this is not American cars – it should attract overseas investments
4. Decrease taxes on the cars that are made overseas if 80% of the car is made from the details produced on the plants in USA – invite overseas companies to buy supplies made in USA.
5. "Layoff" union. Here government can make a compromise and give authority to the company over the union with power to close it if company guarantee that 100% of its employee have medical coverage. Union is "business killing" machine that constantly working on production cost increase and development slowdown.

There could be other points, yet, I doubt the government can do even any of above. And it is not only about car. I always frustrated when I see something in a store that is made in China but made from American material. Why is it more profitable for Chinese businessman to buy supply in USA, ship it to China, make product, ship it back to USA, sell it in USA, pay taxes in USA and China. Why does Chinese businessman not buying supply in USA, make product in USA, sell it in USA and pay taxes only in USA? Isn’t there something wrong in this chain?…

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