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Check the front page of the NYT right now. Suppliers are near bankruptcy as well. Just like the Big 3, or anyone else for that matter, these suppliers can't get

Check the front page of the NYT right now. Suppliers are near bankruptcy as well. Just like the Big 3, or anyone else for that matter, these suppliers can't get credit now. They need business (and payment for past business) from the Big 3 to remain solvent. Your mistake is assuming that demand, in this case for cars, remains constant even if the Big 3 go bankrupt. If the Big 3 disappear, it's an enormous downward force on demand. Japanese companies can't immediately start producing more cars to make up for the slack from a Big 3 failure, so the suppliers would likely disappear. So we're talking about potentially millions of lost jobs. And that's a lot of people no longer in the market for cars, or really any other goods or services. We're potentially facing a deflationary spiral, where the credit markets freezing up leads to companies failing/laying people off, which lowers demand, which causes businesses and investors to cut back on development and lay even more people off, and so forth. And as drop in aggregate demand creates deflation, individual's debt burdens increase. So we can expect continued foreclosures and increasing defaults on credit card debt and student loans, etc., leading to even more writedowns for banks, and even less credit available for business or consumers. It's a vicious feedback loop. We need the government to stop this downward spiral.

nostrademons 18y ago
> If the Big 3 disappear, it's an enormous downward force on demand. Japanese companies can't immediately start producing more cars to make up for the slack from a Big 3 failure, so the suppliers would likely disappear. It seems like this is confusing cause and effect. The big 3 disappear because of a major downward force in demand, they don't cause it. If demand were healthy, they wouldn't disappear in the first place, as people would be buying their cars and giving them cash. I need a car within the next month. I was going to buy Japanese anyway, but say I wasn't. I can't imagine any scenario where I'd just say "Well, the American car makers are gone, so I'm just not going to buy a car." I'd go buy a Japanese or Korean car instead.
- mattmaroon 18y ago
  Also the suppliers are going bankrupt for the same reason. Has nothing to do with the Big 3 doing poorly, it has to do with the entire industry suffering. Also, there are stories of Toyota and Honda paying for lots in California to store all of the cars they can't sell. There will be no lag.
  - mattobrien 18y ago
    It's not just a matter of a lag. The Big 3 owe auto suppliers around $10 billion for parts already delivered. These suppliers need payment soon to avoid their own bankruptcies - payment they won't receive with a Big 3 collapse. If many suppliers go bankrupt, presumably parts will become more expensive for all domestic carmakers, including the Japanese companies, leading to more layoffs across the industry. All these layoffs - a number potentially around 3 million jobs - represents a significant drop in aggregate demand within the entire economy, and puts even more pressure on state and local governments already struggling to raise revenues, to say nothing of unemployment insurance. The bottom line is demand is not constant. A Big 3 failure would push demand down in the form of people who can't afford things because they don't have jobs. That can cascade in unexpected ways.
- mattobrien 18y ago
  The Big 3 are disappearing right now because they can't receive credit, and consequently can't roll over their debts. Exacerbating this, demand for cars - even for Japanese cars - has plummeted as consumers are scared and are pulling back on all purchases, to say nothing of having difficulty securing auto loans. This in turn makes it even harder for the Big 3 to secure already difficult to receive credit. The proximate cause of this potential bankruptcy is the credit crisis. If the Big 3 disappear because of the credit crisis, and suppliers go bankrupt as well, experts estimate that could mean the loss of 3 million jobs. Suppose you worked for a fairly well run auto supplier, and suddenly you don't have a job. Instead of considering buying a car - or any major good or service - you wouldn't be able to. If you worked in an industry either directly or tangentially related to autos - say auto dealers, gas stations, hotels, steel - you'd likely start to fear losing your job. Just the fear of losing your job would change your consumption habits. Fear becomes a self fulfilling prophesy, creating even lower demand, necessitating even more job cuts, lower prices, and even less demand. A Big 3 bankruptcy would lower aggregate demand, and have potentially massive consequences through the rest of the economy. An event can both be the result of supply/demand, and create new supply/demand - financial markets and the economy are a chaotic system. That's why it's so hard to predict exactly what the consequences of a Big 3 failure would be.
sethg 18y ago
I find it interesting (but not surprising) that nobody with clout is considering the possibility of a bailout for those suppliers, so that even if the Big Three deserve to go under the chain-reaction effect on the economy can be cut short.

nostrademons 18y ago

> If the Big 3 disappear, it's an enormous downward force on demand. Japanese companies can't immediately start producing more cars to make up for the slack from a Big 3 failure, so the suppliers would likely disappear. It seems like this is confusing cause and effect. The big 3 disappear because of a major downward force in demand, they don't cause it. If demand were healthy, they wouldn't disappear in the first place, as people would be buying their cars and giving them cash. I need a car within the next month. I was going to buy Japanese anyway, but say I wasn't. I can't imagine any scenario where I'd just say "Well, the American car makers are gone, so I'm just not going to buy a car." I'd go buy a Japanese or Korean car instead.

mattmaroon 18y ago
Also the suppliers are going bankrupt for the same reason. Has nothing to do with the Big 3 doing poorly, it has to do with the entire industry suffering. Also, there are stories of Toyota and Honda paying for lots in California to store all of the cars they can't sell. There will be no lag.
- mattobrien 18y ago
  It's not just a matter of a lag. The Big 3 owe auto suppliers around $10 billion for parts already delivered. These suppliers need payment soon to avoid their own bankruptcies - payment they won't receive with a Big 3 collapse. If many suppliers go bankrupt, presumably parts will become more expensive for all domestic carmakers, including the Japanese companies, leading to more layoffs across the industry. All these layoffs - a number potentially around 3 million jobs - represents a significant drop in aggregate demand within the entire economy, and puts even more pressure on state and local governments already struggling to raise revenues, to say nothing of unemployment insurance. The bottom line is demand is not constant. A Big 3 failure would push demand down in the form of people who can't afford things because they don't have jobs. That can cascade in unexpected ways.
mattobrien 18y ago
The Big 3 are disappearing right now because they can't receive credit, and consequently can't roll over their debts. Exacerbating this, demand for cars - even for Japanese cars - has plummeted as consumers are scared and are pulling back on all purchases, to say nothing of having difficulty securing auto loans. This in turn makes it even harder for the Big 3 to secure already difficult to receive credit. The proximate cause of this potential bankruptcy is the credit crisis. If the Big 3 disappear because of the credit crisis, and suppliers go bankrupt as well, experts estimate that could mean the loss of 3 million jobs. Suppose you worked for a fairly well run auto supplier, and suddenly you don't have a job. Instead of considering buying a car - or any major good or service - you wouldn't be able to. If you worked in an industry either directly or tangentially related to autos - say auto dealers, gas stations, hotels, steel - you'd likely start to fear losing your job. Just the fear of losing your job would change your consumption habits. Fear becomes a self fulfilling prophesy, creating even lower demand, necessitating even more job cuts, lower prices, and even less demand. A Big 3 bankruptcy would lower aggregate demand, and have potentially massive consequences through the rest of the economy. An event can both be the result of supply/demand, and create new supply/demand - financial markets and the economy are a chaotic system. That's why it's so hard to predict exactly what the consequences of a Big 3 failure would be.

sethg 18y ago

I find it interesting (but not surprising) that nobody with clout is considering the possibility of a bailout for those suppliers, so that even if the Big Three deserve to go under the chain-reaction effect on the economy can be cut short.