Whatever illusions Americans may have about prospects for Change under Obama, they are about to be shattered by a Congressional bailout for U.S. automakers. Politics-as-usual all but guarantees that Washington will wind up throwing quite a bit more good money after bad -- not so much rescuing the car makers as postponing their day of reckoning for yet another six months, or perhaps a year or two at most. Democrats will vote overwhelmingly for the bailout, and Republicans will mostly oppose it. But in the end, General Motors, the squeakiest wheel among Detroit’s Big Three, will prevail with the argument that if Big Government does not pony up $25 billion pronto, countless jobs will be lost, along with any hope that GM, Ford and Chrysler will ever return to health.

We’re all for fairy tale endings, but we doubt that many Americans are convinced that another $25 billion, or even a $100 billion, could turn the U.S. auto business around. Whatever the sums being tossed around, they pale in comparison to the expense not only of retooling factories and paring down the work force to perhaps a third of its current size, but of re-gearing the U.S. economy so that gas-guzzling, three-ton SUVs are no longer literally what makes America run.

The automakers are implicitly promising that $50 billion would buy a radical shift in the way cars are designed and built. In fact, there can be no Manhattan Project for the automobile, since it’s not even clear what the goal of such a project would be. Are hydrogen fuel cells the answer? Electric cars based on a battery technology yet to be invented?  Ultra light hybrids that would be great for commuting but lousy for a family ski weekend? No single answer is likely to suffice, and that is why a solution must be achieved organically and over time, even as market variables such as energy costs, the state of the economy, and attitudes toward consumption continue to evolve.

Squandering Precious Capital

But to assume that some huge quantity of money is going to get us to the next generation of automobile is a very risky gamble indeed. The money would be much better invested in industries that can compete globally, since an America whose manufacturing capabilities are in precipitous decline can no longer afford to squander even a drop of precious capital on yesterday’s losers. To put it in another perspective, suppose Microsoft were to take its $40 billion surplus and invest it in Ford, Chrysler, and GM?  We’d think the company had lost its mind, right? And Microsoft’s shares would fall by half the next day.  If such an investment makes no sense for Microsoft, then why should it make sense for taxpayers? In fact, leaving the dollars in taxpayers hands, to invest in any way they choose, is the best way to ensure that our $50 billion, or $100 billion, eventually grows into real wealth.  To do otherwise, letting politics dictate how tens, or more realistically, hundreds of billions of dollars are invested, is to risk impoverishing our children and grandchildren with interest and principal payments that could drag on for decades.

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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2008, Rick Ackerman. All Rights Reserved. www.rickackerman.com 

-- Posted Monday, 17 November 2008 | Digg This Article