Satellite Radio: Too Big to Fail

Congress is stupid. Really.

Amid all of the debate in Washington over what to do and whom to help to solve this financial crisis, our legislators are ignoring one critical and imperiled industry. It's piling up losses, overburdened by debt, and unable to attract consumers who have cut back on spending. And even a Hail Mary merger between its principal players will not save it.

Stock in its flagship company has dropped more than 90% this year, and something needs to be done.

So listen up Obama, Reid, Pelosi, and all the rest: Forget about the auto industry. Now is the time to save Sirius XM Radio (Nasdaq: SIRI  ) .

Yes, I'm kidding
In reality, there's no good reason for the government to step in and save satellite radio. It's a terrible business that's done nothing but pile up losses and disappoint shareholders. It can't compete with the Internet, podcasts, or MP3s. The business destroys value. If the government were to loan it money, it would never see that money again.

Bailing out satellite radio is a ridiculous notion. No one -- not even the politicians in Washington (let's hope) -- is considering it. Yet Washington is considering a hefty bailout for U.S. automakers -- an industry with much more in common with satellite radio than anyone would like to believe.

Here's why
Ford (NYSE: F  ) , General Motors (NYSE: GM  ) , and Chrysler do not deserve taxpayer dollars. They are poorly run companies that have shown they cannot compete in the global economy. Like satellite radio, they've done nothing but pile up losses and disappoint shareholders for a decade. They're also overburdened by debt and hamstrung by labor relations.

Yet at the same time the financial bailout was being passed in September, Congress approved $25 billion in low-interest rate loans for the "Big 3" to retool their assembly lines to make more fuel-efficient cars. More recently, we're getting word out of Washington that the automakers are back lobbying Congress to get more money, more quickly. They even want access to the $700 billion previously approved for the financial sector. We're also hearing that Chrysler would like the government to subsidize a merger between it and one of its American peers.

Let's be clear: This would not create a healthy company. Instead, it would bail out a terrible investment decision by Cerberus Capital Management (apparently, John Snow wasn't just in over his head at the Treasury Department) and create an even bigger liability for the government down the line.

This is where we draw the line
When we bailed out the financial companies, we didn't like it, but we did it. And at The Motley Fool, we supported the move. In that case, the consequences of inaction would have been severe and far-reaching.

Had there been no rescue package for financial institutions, the credit markets would have frozen up. In turn, the housing market would have collapsed, and healthy businesses small and large would have been unable to meet payroll, finance inventory, or expand. Quickly, America's depression would have spread around the world, as demand for everything from gasoline to toys dried up, paralyzing manufacturing and service sectors. It would have been a global financial apocalypse.

But if Sirius XM or Ford or GM goes out of business, none of that will happen. Yes, a segment of Americans will lose their jobs. But that would not mean the end for auto manufacturing in America. After all, the leading U.S. auto manufacturer isn't Ford, GM or Chrysler. It's Toyota -- a Tokyo-based company that has opened plants in Kentucky, Indiana, California, and Texas.

But autoworker unions and the candidates they support are not keen on Toyota, because Toyota factories are not unionized. In other words, bailout funds would not help a vital part of our economy, but would instead preserve entrenched political interests.

Don't do it
While surviving financial firms such as AIG (NYSE: AIG  ) , Bank of America (NYSE: BAC  ) , Wells Fargo (NYSE: WFC  ) and JPMorgan (NYSE: JPM  ) may have overreached, they can recover alongside our domestic economy. Unfortunately, the same cannot be said for auto manufacturers, satellite radio, airlines, or any other industry with fundamentally poor economics. Bailing out the automakers would throw good money after bad, in the name of an outdated belief that companies like Ford, GM, and Chrysler are the backbone of the American economy.

This is not the first time our country has been confronted with this choice. At the time of the early-1980s government bailout of Chrysler, David Henderson of the Cato Institute wondered: "Should the U.S. government let Chrysler fail? Let's reword the question: Should the government force taxpayers to subsidize a company whose products do not meet the market test?"

Rather than spend billions to support companies that can't compete in the global economy, Congress should divert some of those funds to help retrain workers who need to find work with companies better suited for success. Call your representatives in Congress and tell them to oppose additional money for the automakers. Our economy needs to be healthy again -- not propped up in its sickbed by another dose of dumb money.

Related Foolishness:

Tim Hanson does not own shares of any company mentioned. JPMorgan Chase and Bank of America are Motley Fool Income Investor selections. Try any of our Foolish newsletters today, free for 30 days.


Read/Post Comments (24) | Recommend This Article (30)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 10, 2008, at 4:46 PM, Konstanu wrote:

    GM and Ford are "poorly run" largely because of unions. When a company is forced to "take care" of individuals in a manner that hurts the business, we have the situation we have here. They also make some cars that are not as good as Japanese and European cars, Japanese, in particular are a close substitute.

    As our society leans more to left, consider that it's that kind of distorting meddling in the market by lobbyists, special interests, unions that exacerbates if not outright causes theses messes.

    A company is not there to provide jobs, that's a nice side effect. The corporation's obligation is to make money for its shareholders. Let's not forget that with all these bailouts, and believe, they do benefit people, just not the society at large.

  • Report this Comment On November 10, 2008, at 4:49 PM, karaokejb wrote:

    Sure... support the financials..it is your bread and butter.. without financial instutitutions there would be no investing..

    Now, if you were writing about fuel efficiency, or other transportaion issues, you play it differently.

    The automotive industry in the US have come a long way from you assumptions. There are a few reasons for their current peril. The most pronounced reason is the sub-prime loan debacle. The automotive companies would have trimmed naturally due to lack of sales, back in '05. The sub-prime loans allowed individuals to purchase vehicles that otherwise were not eligible. Prior to the sub-prime loans were the .com buyers. The automotive companies were attempting to keep up with the economy.

    You know....supply and demand..

    There currently is a automotive inventory glut due to the .com (financially backed businesses) and the sub-prime (financially backed consumers). So, you see, the automotive companies were victims as much as consumers in sub-prime.

    The United States, and all developed countries), are controlled by the financial market. The amount of interest on a loan mandates the amount of money an individual has for other purchases.

    Bottom line....IT IS THE ECONOMY STUPID!

  • Report this Comment On November 10, 2008, at 4:57 PM, J56D wrote:

    Your fool community has 3762 outperforms and 918 underperforms for SIRI. It has a $.30 share price and yet you keep inventing different ways to bash this stock. The market has taken a serious beating lately and there must be great buying opportunities. Your own website claims that Sirius is no longer ratable because "SIRI doesn't currently meet the $100M market cap / $1.50 stock price minimum. It seems to me that the mangey fool seems to spend a lot of time bash a $.30 share price stock and you do this almost daily. How sad and pathetic!!!!!

    Why is this?

    Do you have a hidden agenda? It sure seems that way.

    Do you lack new investment ideas? It sure seems that way.

    Are you afraid of new investment ideas being wrong like your call on XMSR to your paid subscribers at over $30 a share and then brag about getting them out at $15)? It sure seems that way.

    Do you have to mention SIRI in every article in order to get hits? It sure seems that way?

    Is the mangey fool a joke? It sure seems that way.

  • Report this Comment On November 10, 2008, at 4:58 PM, Bootluver wrote:

    More foolish talk! Why shouldn't the car companies should be bailed out??? Why? Cause that would only help middle class America! Bailing out the banks was the worst thing ever to happen in he US, worse than 911 and Pearl Harbor. We now know we can not trust the US Government. That will never be fixed. The banks all knew this crisis would appear and made alot of money creating the build up to it and then even more making the market crash and then standing there with their hands out for the "repair". Do you FOOLS think we are that stupid, we know that the US is being run by the "Big Money". Congress is a party, as well as the IMF and the World Bank, hedge funds and other huge players. The middle class is being played like chumps. The ONLY thing worse is having you FOOLS post messages like we are supposed to believe like all the ecomonic chaos is just something that happened. How INSULTING!!! I think the media including financial reporters and bloggers should be censored under the new Administration. Its clear they too can no longer conduct themselves in a unprejustice manner. SHAME ON YOU FOOLS!!!

    Jeff, Delaware

  • Report this Comment On November 10, 2008, at 4:59 PM, DemianBohemian wrote:

    Yet another worthless Motley Fool article mentioning SIRI...

    The Motley Fool recommended XM as a stand alone company to their paid subscribers at over $30 a share and have been bashing the combined company down in the pennies day after day. What kind of pump and dump operation are they running? It's quite amazing that they release so many articles day after day with the SIRI ticker symbol in them. They have lost all credibility and are now fishing for hits.........

  • Report this Comment On November 10, 2008, at 6:04 PM, alongshot wrote:

    At the end of the conference call Mel brought up the reverse split.

    He wants it and here's why

    50,000 shares become 1,000 shares

    50,000 @ .25 = $12,500

    1,000 will be $12.50 = $12,500

    If PS rises .75 with 50,000, it will be $1.00 which = $50,000

    To get to $50,000 with 1000 shares it would have to go from

    $12.50 to $50.

    If someone with 50,000 shares bought at $4 or less the PS

    has to go to only $4 to get $200,000.

    At 1000 shares the PS has to go to 200 to get to $200,000.

    Sirius will never go to 200. Means everyone who gets the reverse

    will never get their money back.

    So why do they want it. The reason is clear.

    The outstanding shares of 3 bil becomes 60 mil.

    Now they can issue 50 to 100 mil new shares and the people

    who buy those shares will give them the money to pay off the debt. With the debt paid off with share holders money the

    increase in shares further reduces the value of the reverse split

    shares. Now the short sellers go to work and drive the $12.50

    down to $6 or $3 and it's ready for private equity to come in and

    buy everyone out for pennies on the dollar because the debt

    burden has been reduced. The conference call was a traditional

    bait and switch. They hyped the great revenue security and increase and then at the end they said let's do a reverse split.

    For whose benefit. It's for the takeover. They tried to put fear

    out there that Sirius will delist. The current Nasdaq rules are clear. They were posted on 10/17, SR-Nasdaq-2008-082.

    The rule changed the delist regulation by suspending until

    Jan. 16. After which if a Corp. was in the period of delisting they

    would get another 60 days and then a second 180 days. It would be another 10 months before delisting will occur. They are setting up a scheme to get people to vote on the proxy for a reverse split which will wipe out the stock value. Then Sirius will

    be taken over by private equity. What ever you do as a share holder fight like crazy to stop the reverse split. Tell everyone.

    We will all lose everything. They were right about one thing. There

    is good revenue and that's exactly why the crooks want it. It's

    a money bonanza. Get the share holders to get rid of the debt and

    then get rid of the share holders. ALARM! ALARM! ALARM!

    Go to Nasaq.com and look up delisting. Go SEC and lookup

    naked selling investigation. These people who run Sirius are bad

    people.

  • Report this Comment On November 10, 2008, at 6:59 PM, rodby wrote:

    There are two pieces to an auto bailout, in my mind.

    The the first piece is where the auto companies cannot compete in a healthy car market, say 14 - 15 million cars. Here, I say that they should be allowed to fail.

    The second piece is when annual car sales fall to 10 - 11 million. This is where we need to decide if bailing out the car companies is cheaper than the alternative of losing 1.5 million jobs, reduce GDP by $250 billion, and cost the US the three major car companies in the US.

    I conclude that we need to support the big three until overall car demand improves. The alternative is catastrophic.

    While it might make us feel good that we are punishing the big three for their years of mismanagement, it may very well end up worse than the results of the punishing of Lehman.

  • Report this Comment On November 10, 2008, at 8:18 PM, ShaunConnell wrote:

    Well said. The government shouldn't be bailing anyone out, much less the auto industry in its current state. When a union holds an industry in a death grip and won't let go -- let it fail. Nothing else you can do.

  • Report this Comment On November 10, 2008, at 8:35 PM, EScroogeJr wrote:

    And why would be bad if the credit market froze and the housing market collapsed?

  • Report this Comment On November 10, 2008, at 9:46 PM, rainmonkey wrote:

    Weighing the possibilities of correcting the auto manufacturing sector against 1 million+ jobs on the street, here's a simple test:

    Propose a bailout package, full up, all $25 billion. We, the taxpayer, will re-tool the industry, even though Ford and GM make superbly fuel-efficient cars already - they just don't sell them here. But we digress.

    The only condition on this $25 billion: every senior member of staff of the companies accepting the money are immediately terminated, and without any possibility of re-hire or cross-hire. This includes all members of the Boards of each company. Two months pay plus benefits. That's it.

    You got us here; we'll fix it, but you are done. Period.

    Think they might just find a way to fix the problems themselves?

  • Report this Comment On November 11, 2008, at 12:13 AM, antonio311 wrote:

    What a fool indeed this article writer is!

    GM, Ford & Chrysler are responsible for 90 of the innovations that current automobiles have. Do you like automatic transmissions? Then thank GM, you like a high compression engine with a changeable oil filter....thank Chrysler. Unfortunately the imports have little to no innovation, think of that every time you drive your imported vehicle. Also the American auto industry employees over 2 MILLION US workers. Not giving them access to low interest loans would kill the US economy. Don't listen to a Fool.

  • Report this Comment On November 11, 2008, at 3:25 AM, kamdad wrote:

    antonio, the innovations you mention are as resent as the mid 20th century.. car commercials still came to us in black and white back then!! what have they done for me lately.. my 1972 gmc pickup was older than me when i bought it as a kid.. was still running almost twenty years later..the big 3 dont make them like that anymore. but toyota and honda give us the cars and trucks that keep on giving..

  • Report this Comment On November 11, 2008, at 10:38 AM, teyink wrote:

    Let them all fail. Banks and manufacturers alike. We are already headed for the mother of all recessions in our lifetime. Why not get it over with quickly so the healing can begin. We are heading for massive unemployment and a reduction in the standard of living in the U.S. whether or not we bail out these companies. Getting rid of the unions will be good in the long run for the economy. Letting the corrupt banks die would be justice served. Unfortunately, the banks won't fail because they run the country.

  • Report this Comment On November 11, 2008, at 11:11 AM, TMFMmbop wrote:

    Henry Ford also invented the assembly line. It doesn't mean his company is worth propping up today. I think the culture of innovation at these firms has stagnated.

    Tim

  • Report this Comment On November 11, 2008, at 4:39 PM, quitman100 wrote:

    Tim

    Here's a blunt, but fair, question: Has the Fool's ad and subscriber revenue been affected by the volatility and downturn in the markets? The reason I ask is that the Fool officially enlisted its members to lobby the federal government for the $750 billion bailout of the financial industry.

    Now, the auto industry is looking for $25 billion. The Fool can try to get its bona fides back on supporting free markets and protecting the taxpayer by using it as a convenient whipping boy. But, honestly, articles like yours and others recently on the Fool leave me cynical.

  • Report this Comment On November 11, 2008, at 5:28 PM, astewboy2 wrote:

    I had forgotten about Fool as a site for awhile until well into the financial crisis. Then I went there and they have been an ocean of reason amid this sea of craziness. This article sums up the financial bailout vs. Detroit bailout well. As a small business owner, I get how the credit thing can really hurt (not our particular industry as much, but I see how it could affect many easily). But automakers????? They just think they are well-connected enough to fleece us for an unsustainable business model. And they might be right. Jobs would be lost, but jobs are going to be lost with the Big 3 anyway, and Michigan's economy is already in a depression. Those who don't get that don't want to face reality. I do think they can compete, but it will take a MASSIVE restructuring, which the bailout $$$ will only prevent. The approach taken with the Volt is a step in the right direction, but it will take 2-3 years of those kinds of innovations to convince me I would get a return as a taxpayer.

  • Report this Comment On November 11, 2008, at 9:45 PM, PacificGatePost wrote:

    THE U.S. AUTO INDUSTRY HOLDS TREMENDOUS CREATIVITY AND POTENTIAL

    It has been stifled by management and the UAW.

    HOWEVER, ONLY VERY DRASTIC ACTION WILL SAVE DETROIT

    Congress: Here is a radical, but common sense and workable plan -

    http://pacificgatepost.blogspot.com/2008/11/solution-for-det...

    It’s this, or bankruptcy. The American Auto industry should be saved but under new conditions.

    Do not leave it to the likes of Paulson or Congress to come up with a creative plan resembling interest in taxpayers' wellbeing.

  • Report this Comment On November 12, 2008, at 7:45 PM, TMFMmbop wrote:

    quitman,

    I think there are important differences between the two bailout packages. Moreover, I think we made abundantly clear when we supported the $750 billion plan that we did so while holding our noses about it. It was a case where the potential failure was so catastrophic, something needed to be done to get some confidence back in the market. As for how the website is doing, we're a privately-held company so we don't disclose details, but I can say with certainty that we did not support the bailout plan (as you implied) in order to bolster the stock market and in turn keep us in business.

    Tim

  • Report this Comment On November 14, 2008, at 3:22 PM, tuner2008 wrote:

    Yeah, blame the unions... I should expect that from this site. God forbid employees collectively look out for their interests. You say the company should only care about the shareholders? WTF? What about the customers? The city/state where they have offices, plants, etc... Oh no... who cares about them. Pollute the water, the air, piss on everything else so fat ass conservatives can make money for a couple years then move on. On November 4th, the country told you all where you can shove your free market fundamentalism. Oh, and the only issue you care about is lowering your own taxes. Selfish. I'm sure that's what Jesus would have cared about. I haven't had a significant raise in 6 years, my health insurance costs went from $50 a month to $400. If Bush would have given me a $10,000 tax cut, I would have been about even with my earnings during the Clinton years.

  • Report this Comment On November 14, 2008, at 4:26 PM, rh33 wrote:

    I am afraid Mr. Hansen's article has serious factual errors in it. The financial markets froze before the bailout and they remain frozen today. The bailout did little or nothing for the clients of the financial industry, although it did fund big bonuses for beneficiary companies of the bailout.

    The bailout should have taken a different approach. Instead of handing great sums of money to the big financials for no reason and with no requirements, Treasury should have arranged to take away the big financials' opportunities to make money unless they performed their function. It would not have been difficult. These are regulated industries. Paulson could just tell them to get on the stick and trade those tranches of debt instruments or get ready to be replaced. If Treasury needs authority to do this, I can't imagine that the Congress and the president would not grant it, given what's at stake.

  • Report this Comment On November 14, 2008, at 5:31 PM, GoatEars wrote:

    Mr. Hanson:

    Generally, I agree that the auto industry's woes are of its own making. Ford was making piles of money in the 90's selling big SUVs. It should have socked away (more) of that money for a rainy day, or plowed more into R&D. If the Ford Escape hybrid were getting 40MPG, the factories would be working 3 shifts to meet demand.

    But I'm baffled by your citation of David Henderson/Cato, about how we haven't learned our lesson from the Chrysler bailout. Chrysler took US money, invented the minivan and the K-car, cab-forward, etc. Chrysler was a profitable company from the mid-80's to the mid-90's, and we taxpayers got our money back. Sounds like success to me. If we are to define a company's success by its survival in perpetuity, that's setting the bar too high.

  • Report this Comment On November 14, 2008, at 5:40 PM, Rverp wrote:

    I do believe that the auto industry needs to be saved but not in it's current form. We the taxpayers should agree to the bail out only on the condition that all 3 automakers file bankruptcy. In bankruptcy all collective bargaining agreements should be nullified, alleviating the massive load of the retirement plans and union wage scales. If the unions don't like it...Let them strike...I am sure that they would find new employees very quickly in the current market. After this we need to make sure that they present a business plan to receive funding....This would guarantee the future of the auto industry by making them produce better more reliable, and less expensive merchandise...

  • Report this Comment On November 15, 2008, at 10:07 AM, DWTuckerPE wrote:

    Just some rambles on the Fools paper here - The Government should not be propping up businesses. If the Government wants to hire the unemployed and have them build public works type projects - OK, the taxpayer gets something in return. Many of the businesses in the US fail every year, possibly more of them need to do so.

    Government - Where is China getting the money to purchase so much of the US debit? Will they be able to take ownership of the country after we default on the loans? Is it reasonable that we'll pay back those loans or that everyone in the US will be saddled with an average of over $8,000 additional debit (the promised $2 trillion in new US spending divided by the 306 million population).

  • Report this Comment On November 15, 2008, at 2:07 PM, cspanza wrote:

    The auto industry is taking jobs away from things that we need. We need those people to rebuild our infrastructure, we need new energy mega projects, de-centralize the power grid and we need to tap into the wealth in space. I think the auto industry can get by with 500,000 people and make up the difference with 21st century automation.

    The other 1.5 million people? I wonder if that will even be enough to do the jobs that the human race needs done in the coming years. The sooner we can stop so many people from working to save the problems of the past and start building the prosperity of the future.

    The path and promise that lies ahead can lead to a new level of prosperity. Lets roll up our sleeves folks and get to work.

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