I woke up this morning to the radio airing the news that the auto bailout has passed.  I'm glad a lot of people won't be losing their jobs but I think we're only delaying the inevitable.  The $17.4 billion bailout has provisions that require, among other things, the automakers to "prove they can restructure sufficiently" or those loans would be called back.  My question is, can the automakers really turn it around?  It's like a gambling addict who just needs some seed money to win back all the losses his accumulated over the years.  Chances are, it's just not going to happen.  And what if they don't sufficiently restructure?  Would they really care if the loans are called back?  They'd be in the same position they were before the bailout except now with three months of salaries paid.  And actually, I don't think Congress would have the guts to actually do it.  The old cry of "we can't let the US auto industry fail" will be heard again.

If the government really wanted to make a difference, they should have asked for the resignation of all top level executives from any company that asked for a loan.  The way it's setup now, these automakers will come back to Congress in March and either ask for more money or time to prove they are restructuring (probably both).  Why would anyone give money to a group of people who have a history of failure?  This is in stark contrast to a company like Toyota who hasn't had an annual corporate loss in 71 years (they expect to end the current fiscal year with a loss).  In fact their profits in 2007 alone were $14.9 billion - almost the same size as the current bailout.  With a cushion like that, who needs a handout?

So the Fed lowered the prime rate again to between 0% to 0.25%. While most folks may cheer about this, I believe it is a harbinger of some tough times ahead. Back in the early part of the decade, Japan cut its interest rates to 0% and that's where it remained for almost 6 years. Could that mean the US is in for a recession that could last that long. Not sure, but I think the optimists who think this is a half to one year long recession are deluding themselves. The circumstances of Japan's decade long recession are different so it's not an apples to apples comparison. However, Japan's recession was for the most part localized to Japan. The recession we are in now is a global recession that touches almost every country on the planet. If it took one country a decade to emerge from its recession (only to be caught up now in a global recession), how long will it take us to turn the corner?

News came just a few hours ago that the proposed government bailout of the three major US automakers had failed. The speculation is that at least one or maybe all three may file for bankruptcy in the near future. At stake is not only up to 350,000 jobs but the future of the US auto industry. Will we see any or all of the big three being sold off to foreign companies? Or will they just go away and the only cars available in the US will be from Asia or Europe?
 
For those who may think the worst during this time, I actually think a "correction" in the US auto industry might be good in the long run. Of course in the short term many people will lose their jobs - never a good thing. However, my hope is that this wake up call will jolt the US auto industry into action. That could mean cleaning out obviously ineffective executives, restructuring to become leaner/meaner, focusing on quality and designer, or hopefully all of the above. America has invented a lot of great products like the automobile, television, and microprocessor. The microprocessor is probably the only one of those three which the US still can be considered a leader in terms of innovation and quality. Let's hope this shake out is the first step towards regaining that stature in the global automobile industry.

Ike just put another post up on HuffPost. Check it out here. One thing I'd add to his recession list would be to get rid of one car in your household (assuming you have two or more). A while ago, my wife and I decided to go from a two car household to a one car household. It was painful at first but we adapted. We took more public transportation and planned trips better to make use of our one car. I would guess we probably saved thousands every year on gas, maintenance, and insurance by losing that extra car. The other unexpected benefit was that we had more time together on those car rides (maybe not a benefit for some?).
 
For those ditching their own cars all together, I'd suggest a car sharing service - City CarShare or Zipcar come to mind for those in the Bay Area.

The Business section of the NYTimes.com site has an article about Tesla Motors, the Silicon Valley electric car start-up backed primarily by Elon Musk and a list of other high profile investors (including the Google guys).  The article centers around Tesla's recent request for a low interest loan of $400 million from the US Government as part of a fund whose goal is to improve US automakers' fuel efficiency.  Randall Stross, the reporter who wrote the article, has a very clear message as it relates to Tesla.  His argument is that Tesla is not a truly viable company and that tax payers shouldn't pony up for what he amounts to a boutique automaker that caters to the rich.  Tesla is behind schedule on its delivery of the $100K+ Roadster and even farther behind schedule on its plans for the more affordable $60K Model S sedan.  However, the bigger question to me, as a tax payer, is whether I think the future of America's auto industry is in the Big Three US automakers or somewhere else... say Silicon Valley?

When our family immigrated to the US in the 70's, the first car we owned was an old Mustang.  After a short trist with a VW Beetle and VW Vanagan (they were cheap), we next owned a Buick Skylark Wagon and a Ford Taurus.  My first car was a Dodge Colt.  From the Taurus my parents went to a Nissan Sentra, then a Honda Accord, and finally a Toyota Camry and Corolla.  After my Dodge Colt (I totalled it, but that's another story), my wife and I inherited a Maxima and a Camry.  Our first new car purchase ever was a Toyota Prius.  I remember the pride my dad had in being able to buy the Taurus which was considered at the time to be one of the better quality cars available.  However, since those days of the 80's and early 90's, the quality of American made cars has slowly declined while that of foreign brands from Japan and Europe have continued to increase.  It wasn't necessarily for lack of features/power/design but more for lack of reliability that forced us to move away from American made cars to Japanese.  Today, American cars have the perception of unreliability, whether true or not.  Given the issues that the Big Three face, I don't have much confidence that they'll be able to turn that around nor keep up with innovative companies like Tesla to deliver us the next generation of automobiles.  For that reason, I choose to cast my vote with the new unknown than the old unreliable.

UPDATE:  Jason Calacanis writes a very good response to Randall Stross' article.  It's posted on the Huffington post.