Was the Bank Bailout An Auto Bailout?

Last week President Bush announced a bailout plan for US auto manufacturers that would be stipend from the money already approved in the remaining $700 Bank Bailout plan. It could have been that I was burnt-out following the presidential elections or maybe I missed something, but I was under the impression that Congress had approved that national mortgage for banks and the financial sector to ensure more credit was available and the American credit system didn't collapse over night. Now, however, it looks as though Treasury Secretary Henry Paulson is holding a blank check to do with as he would like; including bailout the auto makers. What was once a very cautiously approached and risky loan that everyone understood to be "mortgaging our children's future" has now been morphed over it's life and now the remaining $250 Billion is being considered for auto makers. Where did the banks go? To the best of my knowledge getting a loan from the bank is still like pulling teeth and don't even think about consolidating student loans (a group not even in the real estate biz). Yet, over the last few months we have watched the $700 Bank Bailout transform like a metamorphic butterfly:
1. Buying Bad Mortgage Loans from Banks
2. Putting Money directly into banks to balance their books
3. Buying Stocks of banks to help their stability & market value
4. Loaning money to sound banks for expansion
5. ?????Bailing out the auto industry?????

As banks were still waiting for the ink to dry on their checks, the auto makers began in hot pursuit of their own bail out. The new rational we are hearing for this is that these auto manufacturers would not be facing bankruptcy, but liquidation. By offering them this bailout now, President Bush is hoping to save hundreds of thousands of jobs and another possible dip in US trading markets. I don't know how avoidable that scenario is given the current condition of things. Homes are still overvalued, people are still sitting on hundreds of thousands of bad martgages, foreign markets have yet to feel a relative impact and reciprocate, the GDP is steadily dropping in the face of economic fears and unemployment is still rising. I don't think we have hit bottom yet by a long shot. If the US government has taken it upon itself to save US Banks with new encompassing banking rules, I don't think it would be asking to much to expect auto makers to restructure as well? Why can't the US government simply say, look "we're going to help you go through bankruptcy to ensure this doesn't happen again." I think that would be responable, asking for a financial aid package is more like a bandaid and if the banking bailout proved anything it was that these types of bailouts are not as effective as we would like to beleive. The only positive benefit here would be American jobs were saved for the time being, but 20 or even 5 yrs down the road I think would tell a different story.
Honestly, I think if Congress voted an auto bailout down twice it indicates that Congress wants the auto manufacturers to restructure....something long over due! It's not the high cost of labor that is driving these record losses and auto flop (at least not by itself). It's more a long-term failure of leadership and good governance among auto manufacturers. To say that Toyota is the model to follow in these difficult financial times is also off mark. Toyota has historically done loads better than any US manufacturer but the reality is that we are in the mists of another large global meltdown that has yet to be realized both socially and economically. Times are going to get rough, but offering borrowed money can not and will not be the long term solution to this problem. There are other options out there like restructuring the supply and demand systems (Walmart would serve as a great example here) or wagering federal aid based upon percentage of domestic business and/or an industry specific comparative advantage for the US economy.
In conclusion I wanted to post a little parable a friend e-mailed me just the other day. I remember this parable circulating a few years back, but it seems more relavent for today...

A Modern Parable

A Japanese company (Toyota) and an American company (Ford) decided to have a canoe race on the Missouri River. Both teams practiced long and hard to reach their peak performance before the race.

On the big day, the Japanese won by a mile.

The Americans, very discouraged, decided to investigate the reason for the crushing defeat. A management team made up of senior management was formed to investigate and recommend appropriate action. Their conclusion was the Japanese had 8 people rowing and 1 person steering, while the American team had 8 people steering and 1 person rowing.

Feeling a deeper study was in order, American management hired a consulting company and paid them a large amount of money for a second opinion. They advised, of course, that too many people were steering the boat, while not enough people were rowing.

Not sure of how to utilize that information, the rowing team's management structure was totally reorganized to 4 steering supervisors, 3 area steering superintendents and 1 assistant superintendent steering manager.

They also implemented a new performance system that would give the 1 person rowing the boat greater incentive to work harder. It was called the 'Rowing Team Quality First Program,' with meetings, dinners and free pens for the rower. There was discussion of getting new paddles, canoes and other equipment, extra vacation days for practices and bonuses.

The next year the Japanese won by two miles.

Humiliated, the American management laid off the rower for poor performance, halted development of a new canoe, sold the paddles, and canceled all capital investments for new equipment. The money saved was distributed to the Senior Executives as bonuses and the next year's racing team was out-sourced to India .

Sadly, The End.

Here's something else to think about: Ford has spent the last thirty years moving many of its factories out of the US, claiming they can't make money paying American wages.

TOYOTA has spent the last thirty years building plants inside the US .

TOYOTA makes over 4 billion in profits while Ford racked up 12.6 billion in losses.

Ford folks are still scratching their heads.

Ford: currently 39 plants in the US, with 14 scheduled to close by 2012, leaving just 25. Ford has 90 plants outside the US.

Toyota: currently 10 plants in the US, 20 overseas.

Ford has yet to post its 2007 financial results, but analysts expect a loss of $3 billion. They lost $12.6 last year.

Toyota 2007 profits are estimated to come in at $13.2 billion. Even after reinvestment and other various company spends, the company will still show a profit of nearly $5 billion.

Sources: Detroit News, BBC, PBS, NY Times.