Is GM finished?

[mhaze]

Unconsitutional??????
(1)There are sound reasons for thinking that Obama's actions in this are a mistake, but I don't see where it violates the Constitution.

You said:

(2)whatever value that the bondholders might have recovered from GM in bankruptcy court had been essentially transferred to the government that now held notes that had priority over the bondholders...

Is that actually so? Evidence? The bondholders specific liens are contractual, so if you are right on this (2) you have your answer to (1). I suspect though that (2) is a popular misconception (granted I have only looked the matter up for Chrysler, not GM).

 

[egslim]

It is also possible that if the Obama administration had acted more quickly to shutdown the GM fiasco set in place by the Bush administration that billions of dollars in taxpayer and possibly bondholder assets would have been saved.

I doubt much time could have been saved. After Obama took office, he set up a group of people to thoroughly examine the business prospects of GM and Chrysler. The decision what to do next was made about two months after that, I doubt it could have been brought forward by much. The next two months were spent preparing bankruptcy plans.

The Wall Street restructuring experts were in charge. The 56-year-old Rattner, a bespectacled former newsman, had built a fortune of more than $188 million buying, reorganizing and selling companies.

Let's see how well he can do with GM. I do think someone like that is best for the job, so I'm cautiously optimistic.

 

[ZirconBlue]

@ Zircon-I'm not sure if you're aware of this, but it takes time to take a car from concept to production. Longer than it takes to change the sign at the gas station, and a lot longer than it takes for people to change their buying habits.

I am aware, yes. I worked at Toyota for a couple years, managing projects required to update the production lines for the '97 Camry and introduction of the Sienna.

By the mid 80's the price of gas had dropped and people weren't buying small fuel efficient cars. Don't forget, the reason Chrysler survived the first bankruptcy in 1978 was because of the Dodge Omni, car of the year. The Omni and the K-Car basically carried Chrysler until the minivan. To say Chrysler couldn't do it is wrong. They did until the price of gas dropped and people stopped buying them. The few that did bought Japanese. Honda and Toyota were doing it well by that point. To continue to compete in a market that isn't going to make you money and isn't you strong point would be foolish. Chrysler and the rest were doing what they had to to meet fuel standards (remember the Colt?) but trying to make money were they could, the minivan. Ford had the Escort and sold plenty of those. GM had the Cavalier, they sold tons of those as well. But you and I both know those were cars you had to buy, not the ones you wanted to buy. That is until gas prices shot through the roof.

My question is: Several Japanese and European car companies were able to make small cars at a (modest) profit for decades, despite low gas prices. But I keep hearing that GM and Chrysler were unable to make a profit on small cars. Why not?

Saturn did very well for a while there, but GM let them languish with little funding and basically the same model for years. They really dropped the ball there. I suspect that wasn't the only ball they dropped.

 

[The Central Scrutinizer]

My question is: Several Japanese and European car companies were able to make small cars at a (modest) profit for decades, despite low gas prices. But I keep hearing that GM and Chrysler were unable to make a profit on small cars. Why not?

Likely because GM (& Chrysler & Ford) had (something like) $2000 of legacy costs associated with every car they built, and the Japanese companies didn't.

This whole thing has been building for 30+ years. It was quite predictable.

 

[Just thinking]

You're an optimist?

... of the eternal variety.

 

[Just thinking]

Likely because GM (& Chrysler & Ford) had (something like) $2000 of legacy costs associated with every car they built, and the Japanese companies didn't.

This whole thing has been building for 30+ years. It was quite predictable.

I believe there is another factor ... one somewhat overlooked. For the major part of those 30 years, smaller cars made in Japan and to some degree (but not as much) in Europe were better than American small cars. Note, I'm specifically singling out small cars. I think that when the US started going strong in the smaller car segment, it viewed them as cars for those with less $$$$, and didn't give them the design strengths and comforts of larger cars. But there were those who wanted small good cars ... cars just as good as the larger US cars were. But small in the US (to automakers) meant cheap ... cheap to buy and cheap to make. So, the buyer simply looked elsewhere, and a good number of them saw the Japanese automakes as being well beyond anything the US offered in small cars.

 

[applecorped]

Is GM finished?

No, it's just resting.

 

[Raptor Witness]

 

[Prometheus]

I believe there is another factor ... one somewhat overlooked. For the major part of those 30 years, smaller cars made in Japan and to some degree (but not as much) in Europe were better than American small cars. Note, I'm specifically singling out small cars. I think that when the US started going strong in the smaller car segment, it viewed them as cars for those with less $$$$, and didn't give them the design strengths and comforts of larger cars. But there were those who wanted small good cars ... cars just as good as the larger US cars were. But small in the US (to automakers) meant cheap ... cheap to buy and cheap to make. So, the buyer simply looked elsewhere, and a good number of them saw the Japanese automakes as being well beyond anything the US offered in small cars.

Don't forget how they tried to snooker buyers with the Cadillac Cavalier Cimarron....

 

[davefoc]

You said:

(2)whatever value that the bondholders might have recovered from GM in bankruptcy court had been essentially transferred to the government that now held notes that had priority over the bondholders...

Is that actually so? Evidence? The bondholders specific liens are contractual, so if you are right on this (2) you have your answer to (1). I suspect though that (2) is a popular misconception (granted I have only looked the matter up for Chrysler, not GM).

I'm the one that made that statement and I assume it is true. I have a very low opinion of the Bush administration but even I give them credit for not doing something as stupid as throwing money at GM without securing priority over the existing bondholders.

I assume that the Bush administration would have had to get the approval of the bondholders before it could replace them as first in line. I assume this happened but I'm not absolutely sure. If it didn't happen the bondholders would have been in the driver's seat in the bankruptcy and they didn't seem to be so it seems like they must have ended up as subordinate to the government.

With hindsight I wonder if they wish they had never given permission to subordinate their debt (assuming they did).

 

[Furcifer]

My question is: Several Japanese and European car companies were able to make small cars at a (modest) profit for decades, despite low gas prices. But I keep hearing that GM and Chrysler were unable to make a profit on small cars. Why not?

Saturn did very well for a while there, but GM let them languish with little funding and basically the same model for years. They really dropped the ball there. I suspect that wasn't the only ball they dropped.

Japan and Europe have been small car markets for decades. Not to mention the Japanese were heavily subsidzed by the government.

The same thing would have happened to the Big 3 had the US government mandated diesel. They would have been scrambling to revamp models and develope engines, while Mercedes and Volkwagen shipped proven technology to the US. By the time the Big 3 would have brought a product to market the imports would have garnered a market share. They still would have had to produce and develope the products that were already making them money just to stay in the game.

The car business is all about looking into the future and making an educated guess as to what people will be buying 5 years in the future. If you guess right you win large, you guess wrong you lose large. If you happen to be in the right place at the right time you win large as well. Unfortunately the price of gas, the economy and public buying habits can turn much, much faster than that.

 

[balrog666]

I doubt much time could have been saved. After Obama took office, he set up a group of people to thoroughly examine the business prospects of GM and Chrysler. The decision what to do next was made about two months after that, I doubt it could have been brought forward by much. The next two months were spent preparing bankruptcy plans.

[snip]

Interesting. So you don't fault GM or Chrysler management, neither of whom had made a profit on building automobiles in many years, for not having any contingency plans (other than spinning off GMAC)? For not having any bankruptcy preparations (other than spinning off GMAC)? Or for not being able to even determine themselves what they needed to do to become solvent or to restructure within a bankruptcy?

Gosh, what would we ever do if we couldn't keep most of those same people around to run the "new" companies, eh?

 

[egslim]

Interesting. So you don't fault GM or Chrysler management [...]

Yes, I fault GM and Chrysler management, for general incompetence and greed.
I don't fault the Obama administration for acting too slow. As you say, GM and Chrysler lacked contingency plans, bankruptcy preparations, or a viable restructuring strategy. Obama's 'auto task-force', consisting of Wallstreet-specialists, had to create all those with little support from Detroit.
They did it in three months for Chrysler, and four for GM. Seems like a pretty reasonable timeframe to me.

 

[theprestige]

Yes, I fault GM and Chrysler management, for general incompetence and greed.
I don't fault the Obama administration for acting too slow.

I, on the other hand, tend to fault them for acting too fast.

As you say, GM and Chrysler lacked contingency plans, bankruptcy preparations, or a viable restructuring strategy. Obama's 'auto task-force', consisting of Wallstreet-specialists, had to create all those with little support from Detroit.
They did it in three months for Chrysler, and four for GM. Seems like a pretty reasonable timeframe to me.

Not to me. I question whether three or four months--or even three or four years--would be enough to wisely and insightfully unravel the gordian knots by which the US auto industry had bound itself. And I question whether a law journal editor, community organizer, and serial political campaigner has the first clue what to do; no matter what kind of "experts" our political process cherry-picked to advise him with last-minute, ad hoc, "it's a crisis so we have to do something" ideas.

I mean, really? GM and Chrysler have been fumbling around incomptently for decades, but all it takes is a few months of really thinking hard about the problem, and Obama's dream team has it all figured out? It was really that easy all along? Color me skeptical.

 

[egslim]

I question whether three or four months--or even three or four years--would be enough to wisely and insightfully unravel the gordian knots by which the US auto industry had bound itself. And I question whether a law journal editor, community organizer, and serial political campaigner has the first clue what to do; no matter what kind of "experts" our political process cherry-picked to advise him with last-minute, ad hoc, "it's a crisis so we have to do something" ideas.

Possibly. Still, Rattner made over $ 188 million in 18 years, buying, reorganizing and selling companies. So he must know how to do something right.

GM and Chrysler have been fumbling around incomptently for decades, but all it takes is a few months of really thinking hard about the problem, and Obama's dream team has it all figured out? It was really that easy all along? Color me skeptical.

Scepticism is a virtue. But Obama's team had a major advantage, in that its decisions weren't blindsided by a Detroit-only background and burdened by company-pride.

They were perfectly willing to send GM and Chrysler through a Chapter 11, if doing so would appear advantageous. And to downsize both companies to match a declining marketshare in a 10 million cars per month market.

I think GM and Chrysler's management were too proud, and too psychologically attached to their brands and the image of their companies as icons of American industrial might, to be able to make such decisions.

 

[theprestige]

Possibly. Still, Rattner made over $ 188 million in 18 years, buying, reorganizing and selling companies. So he must know how to do something right.

So let him profit from buying, reorganizing, and selling GM. He managed to do alright in the private sector for nearly two decades, why does he need tens of billions of government debt, and a government takeover for GM?

Scepticism is a virtue. But Obama's team had a major advantage, in that its decisions weren't blindsided by a Detroit-only background and burdened by company-pride.

The absence of one particular bad perspective does not equal the presence of any kind of good perspective. Detroit-blindness is not the only kind of blindess out there.

They were perfectly willing to send GM and Chrysler through a Chapter 11, if doing so would appear advantageous. And to downsize both companies to match a declining marketshare in a 10 million cars per month market.

And last time I checked, both of these things were eminently possible without government intervention or massive taxpayer investment.

I think GM and Chrysler's management were too proud, and too psychologically attached to their brands and the image of their companies as icons of American industrial might, to be able to make such decisions.

And I think that perhaps the Buddha, who is reportedly free from all pride and all attachment to images and icons, would be best suited to make such decisions. But Obama and his staff are not the Buddha, and I'm sceptical of the assumption that they are not bound by their own pride, and to their own preferred images and icons.

 

[theprestige]

Possibly. Still, Rattner made over $ 188 million in 18 years, buying, reorganizing and selling companies. So he must know how to do something right.

So let him profit from buying, reorganizing, and selling GM. He managed to do alright in the private sector for nearly two decades, why does he need tens of billions of government debt, and a government takeover for GM?

Scepticism is a virtue. But Obama's team had a major advantage, in that its decisions weren't blindsided by a Detroit-only background and burdened by company-pride.

The absence of one particular bad perspective does not equal the presence of any kind of good perspective. Detroit-blindness is not the only kind of blindess out there.

They were perfectly willing to send GM and Chrysler through a Chapter 11, if doing so would appear advantageous. And to downsize both companies to match a declining marketshare in a 10 million cars per month market.

And last time I checked, both of these things were eminently possible without government intervention or massive taxpayer investment.

I think GM and Chrysler's management were too proud, and too psychologically attached to their brands and the image of their companies as icons of American industrial might, to be able to make such decisions.

And I think that perhaps the Buddha, who is reportedly free from all pride and all attachment to images and icons, would be best suited to make such decisions. But Obama and his staff are not the Buddha, and I'm sceptical of the assumption that they are not bound by their own pride, and by their own preferred images and icons.

 

[mhaze]

...Obama's team had a major advantage, in that its decisions weren't blindsided by a Detroit-only background and burdened by company-pride.

They were perfectly willing to send GM and Chrysler through a Chapter 11, if doing so would appear advantageous. And to downsize both companies to match a declining marketshare in a 10 million cars per month market.

I think GM and Chrysler's management were too proud, and too psychologically attached to their brands and the image of their companies as icons of American industrial might, to be able to make such decisions.

Thanks, I got a good laugh out of this chunk of illogic.

Let's see....you're crediting some government hacks with market control?

Chapter 11 is a consequence of a revenue problem, and downsizing is a natural consequence of inadequate sales. Your attribution of cause to a bunch of government hacks, to show causality for natural market forces, is quite intriguing.

 

[IMST]

And to downsize both companies to match a declining marketshare in a 10 million cars per month market.

For clarity, the market is 10 million/anum right now.

 

[Puppycow]

David Brooks on GM's future.

This gloomy scenario makes sense, but I don't know. We don't have a crystal ball, and maybe the people in charge really will figure this thing out and prove the skeptics wrong. If the administration's policy isn't working, they have an incentive to fix it. If they don't, the press and voters can make them pay a price for failure.