Every day there is something new about the economic crisis. Right now, all the buzz is about the proposed stimulus plan. Nonetheless, the three-headed monster that is the major three US automakers will undoubtadly come back in the next few months asking Congress for more money.

The Bush administration gave Chrysler and GM a small loan to get them through the next few months and to let this Congress and the Obama administration deal with the problem in full detail. The same basic arguments will be brought up: the economy is too fragile to let the US automakers collapse, the government shouldn’t prop up a dying business, the automakers will fail eventually so any loan is throwing good money after bad, if the government will give the automakers money then the government should be able to pursue goals like fuel efficiency, etc. Here are a few of my thoughts:

1.  Given Congress is prepared to spend almost a trillion dollars on random government projects, it would make sense to continue an actual business, that is the US automakers, rather than use whatever money they would loan the US automakers on some pork project like building a bridge to nowhere. While the unions and the legacy health care costs have made the US automakers inefficient compared to say, Toyota and Honda, spending money on them is still more efficient than spending government money on something random like a bridge or giving every kindergartener a laptop. The cost of propping up the automakers is far less, in terms of efficiency and raw dollars, than the cost of replacing GDP and job lost by letting them go under.

2. Long-term, the unions need to make concessions. If the underlying business is constantly on the brink of failure because of some misguided concessions union members won 20 years ago, they need to give up those benefits in order to let the business thrive. The government can’t continue bailing out the Big Three forever. For now, that is fine. But the UAW’s control must be squashed if union members want to have any jobs at all.

3. Excessive demands on the part of Congress for hybrids and super green cars is ridiculous. If no one is going to buy them, then the government is just making the Big Three more inefficient, which means the Big Three will have to come back to the government again in the future for more money since they built a bunch of hybrids that no one wanted to buy.

The pessimist in me can’t help but think the US automakers will soon become a governmentally quasi-controlled companies. At first, this is because of their own stupidity in dealing with the unions. Then it will be because of the hybrid bubble they were forced into. Whatever the case is, it’s still better than letting them outright fail.

When gas was approaching $5 a gallon this summer, the whole world seemed to revolve around finding ways to save money on gas. Seemingly every TV commercial marketed towards society’s angst for high gas prices. Since then, the cost of oil has been cut by more than two-thirds. Prices at the pump are cheaper than they’ve been in years. It didn’t take long for the oil bubble to burst. When it did, many victims were left in its wake:

Airlines that Hedged

Some airlines, most notably Southwest, were betting big that the price of oil would continue to climb. Historically, this strategy worked out well for Southwest. A vast majority of the companies profits in the past decade have been earned by appropriately hedging against increasing fuel costs. No airline has been as aggressive about hedging against the high price of oil than Southwest, so no airline took as much of a beating when prices plummeted this fall. Their hedging strategy backfired this fall when oil prices dipped well below the prices that Southwest had “locked in” to pay. This misstep cost the company it’s streak of 17 years of being in the black for every quarter.

Car-Buyers that Locked In to Higher Prices

Auto-dealers were doing anything they could to sell cars this past summer, including offering “fixed price” deals that allowed buyers to pay $2.99 for each gallon of gas they buy no matter the actual cost of fuel. When everyone thought that oil was headed to $10 a gallon, this strategy helped auto dealers to move cars off the lot. Now the people who took this fuel “savings” in place of some generic $2,000 discount look awfully foolish.

Bubble Chasing Investors

A common investing fallacy is when people wait to spot a trend and then hop on board. In the case of energy stocks, many people waited until they reached their peak in the summer before pouring their life savings into what they perceived to be a “sure thing”. This investment strategy bankrupts uninformed investors in almost every instance where there is a bubble. Before putting their money in the stock market, these people would have been wise to learn that past performance is not a sole indicator of future direction.

Ultra Fuel Efficient Vehicles

People were doing anything they could to save money at the pump this summer, including switching out their SUVs for ultra fuel efficient vehicles like the Smart car. The Smart car, essentially not more than a moped with a frame (it has a puny 70 horsepower!) offers drivers the chance to travel about 40 miles on one gallon of gas. These were selling like hot cakes in the summer. Owners who previously thought they were making a cunning purchase now look like fools driving around in what looks like something you’d give to an eight year-old for Christmas.