What Happened to Free Markets?

Another bailout? Again? Could it be possible?

Yes. Unfortunate but true, it is becoming more common talk that we could see another bailout with the automakers stepping into the batter’s box.

As my prior write-up noted, sales remain to struggle even taking into account August’s seasonality. Not very positive looking charts, down below. Year-over-year the “Big three,” have taken on serious debts and have managed to align themselves in an unfavorable position regarding their model offerings.

Now, the United States government has aided in two bailouts - namely Bear Stearns and the Fannie/Freddie debacle – and this has the auto industry feeling as though they deserve their fair share. Thus, this has raised the chatter on a possible automotive industry bailout due to the sizeable losses which have been reported from the domestic builders.

This is a tough situation.

On one hand, the government has to look to protect the workers of the automotive industry and guard the US economy. Remarkably, the US economy has managed to prevail relative to the damage already done. It is a wonder if this could be the final straw.

The other hand paints a different picture, depicting the government star-gazing as the manufacturers fail or consolidate to stay afloat.

American auto manufacturers got away with producing over-sized vehicles for far too long and the industry is paying the piper. To analogize, the American OEMs faltered precisely where the big banks ran astray - they got greedy. General Motors, Ford and Chrysler all had high margin truck portfolios which yielded big rewards; unfortunately, risk reared its ugly head.

The past year has provided some stellar collapses. Real estate, mortgage-backs and now sport utility vehicles. Unfortunately, there are going to be repercussions for these firm’s actions. The only way I can see the playing out is through mergers or consolidations.

Welcome to the SUV bubble.

rp