Out of Gas?

Once the camel’s nose is inside the tent, the rest of the camel soon follows.

After the bank rescue package, every troubled industry is lining up for Federal money. This time it’s the auto makers. The car companies have been in trouble for years. Over the summer, consumers stopped buying gas-eating trucks in favor of less-profitable cars. But since the credit crisis hit this fall, all sales have declined.

The credit crisis matters, because almost no one buys a car with cash. If consumers can’t finance their purchases, those purchases don’t happen. If consumers don’t buy, Detroit can’t build, and can’t be profitable.

The best way to effect aid would be for the Fed to help get the auto-credit market flowing again, probably through some sort of guarantee program, like the FDIC is doing for bank debt. That would keep the market working, without just throwing money at the Big Three.

Here’s hoping that with a little help Detroit can stay on the road. Because in this crisis, we’ll all need to stand together.

Douglas R. Tengdin, CFA
Chief Investment Officer
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