There were two so-called "stimulus" programs. One under President BUSH. The Economic Stimulus Act of 2008, The law provides for tax rebates to low- and middle-income U.S. taxpayers, tax incentives to stimulate business investment, and an increase in the limits imposed on mortgages eligible for purchase by government-sponsored enterprises (e.g., Fannie Mae and Freddie Mac). The total cost of this bill was projected at $152 billion for 2008. The 2nd under President OBAMA — the American Recovery and Reinvestment Act of 2009 or ARRA. The approximate cost of the economic stimulus package was estimated to be $787 billion at the time of passage. The primary objective for ARRA was to save and create jobs almost immediately. Secondary objectives were to provide temporary relief programs for those most impacted by the recession and invest in infrastructure, education, health, and ‘green’ energy. The Act also included many items not directly related to economic recovery. Was it successful? Depends on whom you ask, of course. Conservatives will say unemployment is near double-digits and growth is slow, so clearly it didn’t work. Liberals will say yes, unemployment is too high but that’s just a sign the stimulus wasn’t big enough. It worked when you think about how much higher unemployment would have been without it. And, come to think of it, we need more stimulus. Each side can find facts and models to fit its worldview. See the debate below.
GM, Ford, and Chrysler: The Detroit Three Are Back, Right?
from Bloomberg BusinessWeek,

It’s been a very good run for three companies that only a few years ago were famed for hubris and mismanagement. As well as they’ve played their cards, they’ve been lucky, too, benefiting from government aid, a (slowly) growing economy, and trouble, self-inflicted and otherwise, at Japan’s automakers. The durability of the American car resurgence is an open question. And for a variety of reasons, this year is when it will start to be answered in earnest.

In 2006, however, Toyota Motor (TM) displaced Chrysler as third in U.S. auto sales, and two years later Toyota took the title of the world’s largest automaker from GM. These days people in the auto industry don’t talk about the Big Three; they talk about the Detroit Three.

Because the broader economic meltdown of 2008 struck suddenly, it can be easy to forget that American automakers were troubled well before the housing bubble.

The mediocrity of those models reflected complacency, as well as the warped economics of Detroit’s automakers. GM, Ford, and Chrysler were saddled with union contracts that had been made to preserve labor peace when revenues were far healthier, and were on the hook not only for generous salaries and benefits but retiree health care and pensions. The Center for Automotive Research has calculated that once all those costs were factored in, GM was spending $78 per hour on each worker. Japanese automakers were spending about $50 per hour at their U.S. factories. When that difference was coming out of the $40,000 price of a Chevy Suburban, there was plenty of profit left. But a $15,000 compact simply couldn’t make money with labor that expensive. In other words, the Detroit Three built bad small and midsize cars in part because they didn’t see it as worth their while to make them good.

Rather than continue to make unloved and low-margin small cars, one sensible option would have been to stop making them. Two obstacles prevented that. One was the Corporate Average Fuel Economy (CAFE) standard, which requires the average fuel efficiency of a carmaker’s fleet to be above a certain level. If the Detroit Three had stopped making compacts and midsize cars, they would have had to pay hefty fines on their profitable pickups and SUVs.

Then there was the Jobs Bank, a concession wrung out of the three companies by the United Auto Workers union in the mid-1980s ensuring that, if laid off, workers were entitled to be paid 95 percent of their salary until a new job could be found for them. Detroit Three’s chronic problems grew acute. With the financial crisis, they appeared fatal.

Each of the Detroit Three has followed a different path through the crisis. Ford, didn’t require a bailout. In 2006 incoming CEO Alan Mulally had forced the company through a restructuring without bankruptcy, buying out tens of thousands of hourly workers, closing plants, and selling Land Rover and Jaguar to India’s Tata Motors (TTM). The company went to the capital markets and borrowed $23.4 billion. Although Ford was widely seen as in worse shape than GM at the time—it lost $12.6 billion in 2006—Mulally’s actions spared the company from bankruptcy. By the time GM and Chrysler turned to the banks to borrow, no one was lending.

Whatever form it took, near-death forced all three to do something that management had previously shied away from: renegotiate their labor contracts. They also agreed to let the automakers offload their massive health-care obligations with a $54 billion payment into a trust fund that would be managed by the unions. They forced the union to make another concession: phase out the Jobs Bank.

Not all the Detroit Three’s recent success has been the result of small cars. The two best-selling vehicles in the country are pickup trucks: the Ford F-Series (67,500 sold in March) and the Chevy Silverado (39,600).

To make up for lost revenue on trucks and the still-slim margins on smaller cars, GM and Ford are trying to get consumers to take a second look at the companies’ luxury brands.

They’ve benefited from the misfortunes of competitors: The Japanese carmakers were kneecapped by the 2011 tsunami, and Toyota, legendary for its reliability, has had to issue a number of recalls in recent years.

Just as it took time for Americans to give up on American cars, it will take time for them to covet a Lincoln or believe that Chrysler or GM can make a small car as well as Toyota.

Read More:

365 Days Page
Comment ( 0 )