Rescue Packages & the Automobile Industry (II)

Share on facebook
Share on twitter
Share on linkedin
Share on reddit
Share on delicious
Share on digg
Share on stumbleupon
Share on whatsapp
Share on email
Share on print

Last week, I questioned the wisdom of Congress making investments investors are unwilling to make in the automobile industry. Responding to similar arguments by smarter people, Jonathan Cohn suggested (citing a report showing productivity improvements in Big 3 factories) that the Big 3 are in the process of turning around, and that the bailout would help these companies complete the transition to profitability. Jim Manzi has posted a fairly devastating rebuttal to Cohn’s arguments. Here is an excerpt from Manzi’s response:

It would be complicated to combine all of these metrics to a better summary metric of profitability; luckily, I really don’t have to, since this exact report does it for me by reporting pre-tax profit per vehicle for North American sales for each major company. Here’s how well the Big 3 are actually doing:

They’re getting their clocks cleaned (even before adjusting profits to reflect the amount of capital each business ties up to produce a dollar of cash, which would almost certainly make the Big 3 look even worse). U.S. automakers are nowhere near competitive with their Japanese rivals, even here in their home market…

A dollar invested in a diversified basket of S&P 500 stocks twenty years ago would today have a face value of about $3, while a dollar invested at the same time in GM shares would today have a face value of about 7 cents (though to get true comparability you would have to calculate Total Shareholder Return, including dividends). There is no five year period that I could find in the last thirty years for which GM’s stock price outperformed the S&P 500. The market capitalization of GM is now under $2 billion, which is substantially less than that of such icons of our economy as Cognizant Technology Solutions, DaVita, Inc., Freeport-McMoRan Copper & Gold, and the Potash Corporation of Saskatchewan. GM is in danger of becoming a small-cap. Investors apparently don’t buy (literally) Cohn’s thesis.

In the face of all this evidence, Cohn wants us to believe that this time it’s different – that in spite of the forecast of the stock market, in spite of the judgment of consumers voting with their own money, and of in spite of the actual financial results, we can put tens of billions of dollars of taxpayer money at risk based on the opinion of some academics and interested parties that really, things are about to turn around.

Read the whole thing here. It seems to me that question going forward is: when are the political disadvantages of these types of subsidies going to outweigh the advantages?

More to explorer

Fr. Matthew Mary, EWTN, tells it like it is.

When I don’t go to daily Mass, I try to watch the daily EWTN Mass.  I did so today :  amazing, wonderful

The PC Police Come For Indiana Jones

Dave Griffey at Daffey Thoughts gives us the details:   So one Angelo Delos Trinos wrote over at Screen Rants why Raiders

The Day the World Wept

The things you find on Youtube! First broadcast on February 9, 1960, the above is an episode of One Step Beyond entitled