Please Add Visteon Corp. to Your Auto Bailout Scorecard

Get ready for about one of these stories a day.  Visteon Corp. a major supplier to Ford Motor Corp has announced that they are reducing some salaried employees pay by twenty percent and reducing their work week.  Visteon, who was spun off from Ford, has not turned a profit since 2000 and is under serious pressure.  As part of their potential restructuring efforts (from Bloomberg News);

The company is looking into its eligibility for federal loans, Fisher said. The U.S. Treasury Department said on Dec. 31 that it may provide funds to any company deemed important to the auto industry.

When the auto-maker CEO's warned us that thousands of companies throughout the supply and production chain would face ruin if The Big Three went down they weren't kidding.  It looks like we are going to get to see each company up close and personal even AFTER we cough up $ billions to GM, Chrysler and Ford.  Oh, and for you "Free Market" folks out there, you'll love this (from Bloomberg);

The possibility of Treasury aid for suppliers should give banks more confidence to make loans to those companies and accept future payments promised by automakers as collateral, said Neil de Koker, president of the Original Equipment Suppliers Association, a Troy, Michigan-based trade group.

Comments

[RPB]

That's just what I had figured. I try to explain this to friends (mostly traders) and they just do not get it. "Its a buying opportunity, most of the risk is priced in, people are still working and production is still occuring, yaddah, yaddah, yaddah."

The underlying fundamentals driving the prices of consumption assets and investment assets were easy access to credit and financing. Unfortunately, these were also the fundamentals that allowed the existence of many of our production assets as well. This is especially true in China.

You're right, we have so far to go. These production assets will fall out of economic feasibility in the new economy that lacks the leverage of the nifty 90's and the roaring 00's. That will take away lots of jobs and add to the crisis.

So you are saying this is not a black swan, but a neon green swan with four legs that barks like a dog? I cannot agree more. Murphy's Law meets the Law of Unintended Consequences. As Fergie once said, "This shit is bananas, B-A-N-A-N-A-S." I hope its one of those crises were you go long out of the money JAN '10 puts on the S&P and not long machine guns and concertina wire.

[Eric Salzman]

RP, I am a firm believer that the things happening to the global economy are beyond anything that we have ever seen before. We are unwinding nearly 20 years of "growth" that relied on the permenant imbalance of payments between the United States and the rest of the world's savings. It relied on American consumer consumption that grew explosively over the last few years through credit growth as opposed to income growth. Additionally, it relied on a one time, historic deflation push from the emerging economies, whose cheap labor allowed us to grow abnormally (low inflation and low rates brought on by the re-circulation of dollars).

All of this is over and the unwind is going to be (or is)horrific. We will have our rally in Jan. based on the promise of a giant stim. package, a new government and because the calendar has changed from 2008 to 2009. But 2009 is going to be a bad bad year and I do not think that has been fully priced into stocks. I predict we end up down 25-30% on the S&P in '09.

[RPB]

This is outrageous. Once again the government is not letting an asset bubble decline. This is going to end in many, many tears down the road. We speak about incetives for banks to juice short term profits with leverage in order to fuel their bonuses. What about incentives our elected officials to juice short term gains in the economy and perpetuate asset bubbles in order to get re-elected?

Eric, Richie - what are your calls for the market? Dow at 5,000? How much more recession is already priced into stocks?

[Pass me that butt egg]

Detroit Prostitutes to get bail out-AP wire-Due to the decline in bonuses and raises for Auto execs in 2008, Detroit area crack whores and prostitutes are feeling the "pinch" (pun definitely intended) from the economic woes as of late. Congress expects to approve this add on to their proposed bailout of Congressional page boys' lack of business on the Hill.