As the domestic US automobile industry enters its death throes one thing that is absent is any kind of strategy or policy tools linking various Treasury/Fed/Agency  actions together in concert with private business. The current approach is incoherent, it leads to the obvious question that is … what do the (fill in the blank)  get out of this? What do the taxpayers get out of this?

There are plans to shift some of the ownership stake of Chrysler and GM to aut worker unions. But, what do unions get out of ownership of businesses with cratering sales? The unions appear to be convenient bag- holders for (fill in the blank)?

What do equity holders get out of the deal(s)? Nothing … so why has the Treasury spent tens of billions of dollars to support the owners (shareholders) of these companies? Or …. instead of shareholders, is the Treasury supporting lenders to the companies? Not if the same Treasury Department is stigmatizing secured lenders into surrendering rights to unsecured lenders or to labor unions?  … It’s chaos! There is obviously no plan. The idea that some sort of rump Chrysler has any value to Fiat – another comic opera version of a car company – defies common sense. Here, 2 + 2 = 0!  Selling Chrysler to Fiat is similar to transferring passengers from the Titanic to the Lusitania. How long can Fiat last, particularly if it also adds the monstrous costs of GM”s Opel.

Where will Fiat get the cash to buy this production capacity? The obvious answer suggests the Business As Usual shady backroom dealings with various Government loans, but which governments? Will Germany finance Opel? Will Uncle Stupid finance Chrysler and which part of Chrysler has value?

There is little to Chrysler – or GM – that has any value. If the divisions of these companies had value, the companies would be selling cars and making money! Jeep? Jeep makes SUV’s which will not pass muster under proposed CAFE mileage standards. GM has Saturn which would have to find another ‘maker’ after 2011, under any circumstance. A Daewoo ‘Saturn’ perhaps!? What else does GM make? Hummers (which are AMGeneral sheet metal on a pickup truck chassis) and Cadillacs are guzzlers. Where do such vehicles fit into any fuel constrained future?

It doesn’t seem that anyone in charge has a plan.

Nobody even seems clear about the cause of the auto industry collapse, save perhaps CERA chairman Daniel Yergin:

In this regard, Yergin has an interesting observation to make on the current attempts to revive the US economy. “People seem to have forgotten,” he says, “that one of the factors leading in to this deep recession was the impact of very high oil prices over seven consecutive years. Detroit was not knocked on its back by the collapse of Lehman Brothers, but by what happened at the gasoline pump.”

This gears into observations here that the relentless rise in energy costs since 2002 have not been easily absorbed into the US and world economies and have instead pushed out automaker profits, even for well run companies such as Toyota:

By Keith Naughton and Alan Ohnsman

May 1 (Bloomberg) — U.S. auto sales tumbled 34 percent in April, the 18th straight monthly decline, as Chrysler LLC’s slide toward bankruptcy helped shrink the industry more than analysts estimated. 

Chrysler’s U.S. deliveries fell 48 percent in joining Toyota Motor Corp., Ford Motor Co. and Nissan Motor Co. with decreases that were worse than analysts expected. General Motors Corp. and Honda Motor Co. sales dropped less than projections. 

Under the circumstances it is hard to see how management changes at Chrysler or any other company addresses the fundamental of unaffordable input costs … the Fuel Fundamental. Having cheap labor countries such as China and India manufacture vehicles can buy some time but the inexorable increase in fuel costs will eventually overcome the labor  advantage as well.

Behind the lack of a coherent ‘recovery’ strategy for automakers (the Japanese do not have a plan, either) is the lack of any US energy policy! The big question here is WHY!? 

What is Obama waiting for? Here’s an example of how different forces are pulling in different directions:

Are Wall Street speculators driving up gasoline prices?
By KEVIN G. HALL – McClatchy Newspapers 
 
U.S. crude oil inventories are at their highest levels in almost two decades, and demand has fallen to a 10-year low, but crude oil prices have climbed more than 70 percent since mid-January to a six-month high of $62.04 on Wednesday.

Meanwhile, although refiners are operating at less than 85 percent of capacity, leaving them plenty of room to churn out more gasoline if demand rises during the summer driving season, the price of gasoline at the pump has climbed 28 cents a gallon from a month earlier to $2.33. 
 

This time, Wall Street speculators – some of them recipients of billions of dollars in taxpayers’ bailout money – may be to blame.

Big Wall Street banks such as Goldman Sachs & Co., Morgan Stanley and others are able to sidestep the regulations that limit investments in commodities such as oil, and they’re investing on behalf of pension funds, endowments, hedge funds and other big institutional investors, in part as a hedge against rising inflation.

These investors now far outnumber big fuel consumers such as airlines and trucking companies, which try to protect themselves against price swings, and they’re betting that the economy eventually will rebound, that the Obama administration’s spending policies and Federal Reserve actions will trigger inflation – or both – and that oil prices will rise.

“They’re buying because they think it will diversify their portfolio, and they think it will diversify their portfolio against inflation, and maybe they think the economy will turn around,” said Michael Masters, a hedge-fund manager who testified before Congress last year about the consequences of what are called exchange-traded funds. 

Of course they are and why not? The fundamentals have supported speculation for over ten years! With the Federal Reserve printing money and directing it toward the finance industry (think ‘speculators) and no policy to conserve at the retail level, there is no ceiling for energy prices in the futures markets and thence the cash markets. 

If equities retest March lows and the bond market falters on Dollar worries, funds will flee to the perceived safety of commodities especially oil. $100 oil is not out of the question. Asset -real estate – prices crashed in 2008 while oil prices surged, there is no change on the ground that will prevent this phenomenon from repeating itself.

The Obama Administration needs to craft an energy policy. It needs to do so immediately. It needs to reflect the fact that crude oil has been priced @ depletion for over ten years. The market is wrong a lot of times, but over ten years the market is right on this. The answer to depletion is not hand-wringing over the auto industry nor is it unrestrained speculation, it is ruthless honesty and an equally ruthless course of action. 

America needs to cut its energy use in half and to do so at once.