Financial Market Update-Big 3 Continue to Angle for Aid
- Nov 19, 2008
The bosses of the Big Three automakers, who are facing the prospect of being bosses of the Not-So-Big-Three anymore, came before Congress today to beg, “Please, sir, can I have some more?” As in more loans to stay afloat, besides the $25 billion already committed to retool to build fuel-efficient cars. Congress wasn’t particularly sympathetic. It wants to keep the auto jobs and the industries that depend on the automakers afloat, but isn’t too keen on helping the actual car companies themselves. Whether these conflicting impulses can be reconciled isn’t clear yet.”Their discomfort in coming to the Congress with hat in hand is only exceeded by the fact that they are seeking treatment for wounds that are to a large extent self-inflicted,” said Sen. Christopher Dodd (D.-Conn.), chairman of the Senate Banking Committee. “No one can say they didn’t see this coming.” Some outside the industry argue for letting bankruptcy happen to Detroit, on the grounds that it would allow a fundamental restructuring of the business to be more competitive in the world market. A bankruptcy reorganization, it is argued, would clear away most of the legacy obligations–undertaken decades ago, when GM, Chrysler and Ford dominated the U.S. auto market–currently weighing the industry down Peter Morici, a professor at the Robert H. Smith School of Business at the University of Maryland, put it this way to the Senate Banking Committee today: “Without a new labor agreement that brings wages, benefits and work rules in line with those at the most competitive transplant factories, and without reduced debt and other liabilities, the Detroit Three will continue to lag in product innovation and field too few attractive new vehicles, because their higher costs, debt and other liabilities require them to spend less on new productive development than they should.” The U.S. Department of Commerce has reported that housing starts and permits, which measure home construction nationwide, are at the lowest level since the department started keeping track in 1959. Housing starts were at an annual rate of 791,000 in October, down 4.5 percent from September, and building permits for single-family houses fell 12 percent to an annual rate of 708,000, also the lowest ever. Meanwhile, the cost of living in the U.S. spiked upward in early 2008, but that unfortunate trend seems to be over, perhaps replaced by another troubling trend: deflation. In any event, according to the U.S. Department of Labor, consumer prices dropped a full percentage point in October, the steepest drop since the department started keeping records in 1947. Energy prices are the main driver of the downward trend, but so are price-cutting measures by retailers such as Wal-Mart Stores Inc. and Target Corp. The Dow started with small moves up and down this morning, but by mid-day had decided on down: about 197 points, or 2.3 percent. The S&P 500 and the Nasdaq likewise slid a few percent points, 3.28 percent and 3.48 percent respectively, by mid-day.