Is GM finished?

[egslim]

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?

The point is that Rattner has proven skill and experience in doing this kind of thing.

You, on the other hand, are poisoning the well. Unless you have any evidence Rattner is doing this work for personal financial profit? Otherwise your question is meaningless - Rattner has no personal need for GM at all.

Detroit-blindness is not the only kind of blindess out there.

Of course. But it does seem to be the one most responsible for GM's current state, and therefore the most important to eliminate from the decision-making process.

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

In this particular case, only in fairy-land.

Legally speaking, you're right. But there's no reason to believe Wagoner would have either prepared or filed for a Chapter 11 while it was still a viable option. I think GM's last chance to pull through Chapter 11 as a private business was before Lehman collapsed. Maybe a little later. But since Wagoner wanted to avoid Chapter 11 at all costs, he would have driven GM straight into a Chapter 7.

And I think that perhaps the Buddha... [...]

The bloke in a towel can sit on it, I don't do arguments from religion.

 

[egslim]

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

Interesting. People who are proven succesful for themselves in the private sector, who made millions, are suddenly denigrated as 'government hacks' when they take a job serving the taxpayer.

Do you actually want incompetents to work for you?

downsizing is a natural consequence of inadequate sales.

It's BS to think that downsizing happens automatically.

Downsizing is the consequence of a rational management's conscious response to inadequate sales.

GM's management's response was too late and too slow. Ergo, they needed to be replaced by people with quicker and better response to market forces.

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

My mistake.

 

[Just thinking]

I just heard that Hummer is slated to be sold to an outfit from China.

Why doesn't this surprise me. (Note lack of question mark.)

 

[The_Fire]

I don't give a flying fart about the hummer (cool car as it is). I'm more interested in the survival of the Camaro.......

 

[davefoc]

egslim wrote referring to chance of successful exit of GM from chapter 11 without government involvement:

In this particular case, only in fairy-land.

Is this really true? Imagine a standard chapter 11 type scenario applied to GM.
1. The job bank is gone immediately
2. They are relieved of pension commitments they can no longer afford.
3. The union contract is rescinded. ridiculous work rules are removed. Workers are paid at market.
4. Bondholder interest payments are put on hold.
5. Payments to suppliers that are providing current supplies are fast tracked. Payment to suppliers who aren't supplying stuff right now are put on hold.
6. The costs of reducing the number of dealerships is mitigated by suspension of some laws and contracts with regard to this.
7. They sell off non core assets.

OK, now how much money does the federal government need to put into this deal to keep GM afloat? Enormously less than it did, I suspect. And what would be left would be an independent company that needed to make a profit or die.

What is left now, as David Brooks, points out is a basket case that will be subject to endless meddling and that will have a mindset that when it runs into trouble it will just beg for some more funds from its only remaining source of funds, the US treasury.

 

[balrog666]

egslim wrote referring to chance of successful exit of GM from chapter 11 without government involvement:


Is this really true? Imagine a standard chapter 11 type scenario applied to GM.
1. The job bank is gone immediately
2. They are relieved of pension commitments they can no longer afford.
3. The union contract is rescinded. ridiculous work rules are removed. Workers are paid at market.
4. Bondholder interest payments are put on hold.
5. Payments to suppliers that are providing current supplies are fast tracked. Payment to suppliers who aren't supplying stuff right now are put on hold.
6. The costs of reducing the number of dealerships is mitigated by suspension of some laws and contracts with regard to this.
7. They sell off non core assets.

OK, now how much money does the federal government need to put into this deal to keep GM afloat? Enormously less than it did, I suspect. And what would be left would be an independent company that needed to make a profit or die.

What is left now, as David Brooks, points out is a basket case that will be subject to endless meddling and that will have a mindset that when it runs into trouble it will just beg for some more funds from its only remaining source of funds, the US treasury.

 

[Furcifer]

Gosh, I'm sure that all sounds true ... if you are under 30.

Or have lived and breathed the Big Three for 35 years, installed the right rear taillight on the 1 000 000th minivan and troubleshot the first Pacifica from BIW to roll off in a magement capacity?

I'm not saying you don't know what you are talking about, I'm just letting you know there is so much more to what has happened than you will ever know. Not that anyone expects you to, it really is boring. I'm glad to be out of the automotive business.

 

[Furcifer]

3. The union contract is rescinded. ridiculous work rules are removed. Workers are paid at market.

What "work rules"?

What is the "market"?

 

[davefoc]

What "work rules"?

You've asked me this before and I have admitted to non-expert status.

There was allegedly a 2000 page book covering in minute detail what workers could and could not do. Typically, this kind of thing is done to insure the maximum inefficiency in the use of workers. See the description some place much earlier in this thread about the experience of a contractor in dealing with the GM labor bureaucracy.

What is the "market"?

Market wages means roughly the wages that a worker can be hired at to do a job without coercion being applied to the entity doing the hiring.

People who advocate for unions are usually unaware of the huge unintended consequences of the special purpose legislation that has been established to favor one group of workers over another. Even in the face of the massive empirical evidence that is the disaster of Detroit, this group is incapable of going back and addressing their basic assumptions.

That is of course, not surprising. Most (maybe all) of us are incapable of objectively dealing with evidence that long held beliefs are wrong.

We have had this discussion before, and to your credit, I think you have acknowledged some of the role that unions have played in the disaster that is Detroit. Of course, since we have fundamental disagreements in this area I tend to see your overall outlook about this as the views of one who is just in basic denial.

For instance, above you made the appeal to authority argument that the "experts" don't think the unions are at fault in this disaster. But earlier you argued that GM would be a viable company if it just was relieved of its legacy costs. Since almost all those legacy costs are the result of disastrous union contracts I tend to see the unions as a principal player in the collapse of GM. You instead tend to look at various current negative factors as the cause of GM's failure.

And I agree, the current negative market factors pushed GM over the edge. But GM had been in a downward spiral for years. More than five years ago people were making predictions about the eventual bankruptcy of GM. It apparently didn't take supernatural powers to deduce that GM couldn't spend more than it made indefinitely.

 

[davefoc]

http://forum.darwincentral.org/images/smilies/hesaid.gif

Thank you,

I should have also added that a normal chapter 11 bankruptcy would have also resulted in the immediate end to GM's absurd executive compensation practices which rewarded continuous failure with huge bonuses and salaries.

And it would likely have resulted in the immediate removal of the board that had conspired with the management for years to destroy GM while they funneled what remained of the wealth of GM into their individual pockets.

Instead, the executive's happy dance at GM's expense wasn't finally ended until the bankruptcy was officially entered, months after it might have been.

 

[theprestige]

The bloke in a towel can sit on it, I don't do arguments from religion.

You misunderstand: I had no intention of making an argument from religion. I was basically just re-hashing my previous argument that Detroit-blindess isn't the only kind of blindness, and that replacing a man with cataracts should generally involve making sure that his replacement doesn't suffer from macular degeneration.

 

[egslim]

Is this really true? Imagine a standard chapter 11 type scenario applied to GM.

Ok. Management under Wagoner proved itself incapable of providing a realistic plan for restructure, or accepting the necessity of a bankruptcy. So GM goes into chapter 11 unprepared.

With a company as large and complex as GM, bankruptcy proceedings will be complex and lenghty. But GM's survival is uncertain, chapter 7 is a possibility that grows with time. Car-buyers will be reluctant to buy cars from a company that quite possibly won't be around to honour its warrantees a year from now.

I'd expect without government support - private investors have been rather risk-adverse lately - GM to end up in liquidation.

OK, now how much money does the federal government need to put into this deal to keep GM afloat? Enormously less than it did, I suspect.

If restructure efforts had begun in november under Bush instead of in january under Obama, that would have saved - about two months and how many billions of dollars?

If I understand correctly, you suggest that instead of first making extensive preparations outside bankruptcy then going through chapter 11 quickly, that it would have been cheaper to enter bankruptcy unprepared and spend more time in chapter 11.
Perhaps. It seems to me GM's chance of survival is inversely proportional to the amount of time spent in bankruptcy. Better to spend a little more, if that makes GM's survival more likely.

What is left now, as David Brooks, points out is a basket case that will be subject to endless meddling and that will have a mindset that when it runs into trouble it will just beg for some more funds from its only remaining source of funds, the US treasury.

I doubt that's Wagoner's mindset, since he was forced to resign by the US treasury.

Companies are run by decisionmakers, who mainly look out for their personal interests. As long as they (management, shareholders, unions, etc) are effectively punished for their mistakes, saving the company introduces little moral hazzard.

 

[egslim]

You misunderstand: I had no intention of making an argument from religion. I was basically just re-hashing my previous argument that Detroit-blindess isn't the only kind of blindness, and that replacing a man with cataracts should generally involve making sure that his replacement doesn't suffer from macular degeneration.

It's a fair argument.

The way I see it, first priority should be to get GM back on the road quickly in a shape that's at least viable for the short term.

That means you need someone who at least looks healthy, and who is certain not to suffer from Detroit-blindness.

Once the immediate emergency is over, then you have time to proceed with the complete physical.

 

[balrog666]

Thank you,

I should have also added that a normal chapter 11 bankruptcy would have also resulted in the immediate end to GM's absurd executive compensation practices which rewarded continuous failure with huge bonuses and salaries.

And it would likely have resulted in the immediate removal of the board that had conspired with the management for years to destroy GM while they funneled what remained of the wealth of GM into their individual pockets.

Instead, the executive's happy dance at GM's expense wasn't finally ended until the bankruptcy was officially entered, months after it might have been.

That too.

And I would be very interested in seeing the financial relationships between the GM Board and the Directors over at Cerberus Capital which took over GMAC before it could be included in the inevitable bankruptcy.

Ok. Management under Wagoner proved itself incapable of providing a realistic plan for restructure, or accepting the necessity of a bankruptcy. So GM goes into chapter 11 unprepared.

With a company as large and complex as GM, bankruptcy proceedings will be complex and lenghty. But GM's survival is uncertain, chapter 7 is a possibility that grows with time. Car-buyers will be reluctant to buy cars from a company that quite possibly won't be around to honour its warrantees a year from now.

I'd expect without government support - private investors have been rather risk-adverse lately - GM to end up in liquidation.


If restructure efforts had begun in november under Bush instead of in january under Obama, that would have saved - about two months and how many billions of dollars?

If I understand correctly, you suggest that instead of first making extensive preparations outside bankruptcy then going through chapter 11 quickly, that it would have been cheaper to enter bankruptcy unprepared and spend more time in chapter 11.
Perhaps. It seems to me GM's chance of survival is inversely proportional to the amount of time spent in bankruptcy. Better to spend a little more, if that makes GM's survival more likely.


I doubt that's Wagoner's mindset, since he was forced to resign by the US treasury.

Companies are run by decisionmakers, who mainly look out for their personal interests. As long as they (management, shareholders, unions, etc) are effectively punished for their mistakes, saving the company introduces little moral hazzard.

Wagoner? Once again, you start with a presumption that GM only got into trouble last year.

GM has been in trouble for decades and hasn't made a profit, as a manufacturer, for most of the last forty years. Why do you think they finally spun off control of GMAC in 2006?

 

[davefoc]

I don't know whether it is even knowable if you are right egslim.

What I had hoped for and what seems like it might have happened was for the federal government to immediately force GM into a kind of chapter 11 lite.

The Bush press secretary even announced that this was going to happen and then within a few hours other Bush spokespeople said that it wasn't going to happen and that it had never been considered. It might be interesting to know what was really going on inside the Bush administration at that moment.

My second choice in the absence of bankruptcy lite would have been real Chapter 11. Lots of companies have exited chapter 11 to live again and I don't understand why the process wouldn't have worked in GM's case. GM seems like it was a perfect candidate given that it's main impediment to profitability was liabilities that have nothing to do with its ability to make a profit.

There was a lot propaganda put forth by various interested parties at the time of GM's announcement of probable insolvency about the great calamity that a bankruptcy would be. Almost all of that talk can be easily discounted. It was put forth by labor union leaders and executives trying to scam some bucks out of the federal government to extend their con game for a little bit longer.

Almost certainly, the Bush administration ended up taking the worst possible path, the throw-taxpayer-money-at-the-problem path. This greatly extended the time before restructuring could begin, it resulted in a massive transfer of taxpayer dollars to entities that would not have needed to have been paid in a real bankruptcy, it has created a quasi private business that will be subject to enormous political pressure to do non profitable things, it probably destroyed a good portion of the bondholders assets and it turned the problem over to Democrats who would certainly be politically driven to give even more tax payer money to the UAW.

 

[Furcifer]

For instance, above you made the appeal to authority argument that the "experts" don't think the unions are at fault in this disaster. But earlier you argued that GM would be a viable company if it just was relieved of its legacy costs. Since almost all those legacy costs are the result of disastrous union contracts I tend to see the unions as a principal player in the collapse of GM.

If they lost the legacy costs and the economy didn't fall apart (as much as it has). For some reason people like yourself continue to think Toyota and Honda are "viable" right now. They aren't. If things continue like this for much longer Toyota will follow GM in a massive "restructuring".

I have no idea how you can say pensions are "disatrous" union contracts. The UAW pensions aren't different are no different than any other company pensions.

There is a combination of events that led to this bankruptcy. You simply don't have enough information and haven't followed the events for long enough to fully grasp the problem in its entirety. This is apparent as I have never heard anyone with any real knowledge of the Union or GM make statements like I have seen here. I'm not making an appeal to authority, I'm saying your argument isn't supported by the facts.

The problem with the "work rules", if I understand what you are referring to, is that they tend to get manipulated by a select few. The union then spends too much time protecting the select few that cause problems.

You really don't know what you are talking about in regards to efficiency and "the work rules". You probably don't understand how the "work rules" protect both the worker and the company from problems that happen all the time. You probably don't understand how important it is to make sure only the person who is properly trained on a job works on that job. You probably don't understand how 1 person can make 1 simple mistake on 1 job and cause a million dollars of down time. You probably don't understand how rules that protect this from happening get extended to other areas and cause unintended problems. You probably don't understand that a majority of people love the "work rules" because they allow them to leave the work at home and give them the consistency people desire.

Anyways, thanks for your opinion piece. Any time you want to talk facts let me know.

 

[davefoc]

It looks like any real chance for GM to crawl out of its mess has been closed shut. The fix was in. The unions not only extracted billions of dollars from the US taxpayer to fund the disaster that they were largely responsible for, many of the practices that kept this disaster going have been maintained going forward.

The settlement agreement:
http://online.wsj.com/public/resources/documents/gmuaw.pdf

So in the face of massive unemployment the union has maintained wages for existing workers. It has maintained at least some of the disastrous mechanism that forced GM to keep paying for workers even as it needed to downsize.

This bury your head in the sand approach to the simplest economic ideas might be sad if only GM workers were paying for this disaster but now the taxpayer is on the hook to carry this scam along.

I own a small apartment building. Two years ago we were getting $950 a month for a small studio. Now in the current market conditions we haven't been able to rent one of them for $915 a month. Under the UAW theory of economics I should form a union with other apartment owners and when our market share drops we should apply to the government for massive subsidies to cover the losses that our mismanagement has caused. And that would be fine if the government was some sort of magical source of funds that could give everybody everything they wanted. Of course it isn't and all that has happened and will happen with regard to GM is that massive amounts of money will be transferred from one group of people to another.

 

[ZirconBlue]

If they lost the legacy costs and the economy didn't fall apart (as much as it has). For some reason people like yourself continue to think Toyota and Honda are "viable" right now. They aren't. If things continue like this for much longer Toyota will follow GM in a massive "restructuring".

I don't know about Honda, but Toyota is still doing fine. Yes, they posted a loss for 2008, and probably will continue to do so for a while, but that was the first time it, what?, 70 years. Last I heard they hadn't laid off any full-time workers or closed any plants.

From CNN last month:

Toyota has a tankful of cash

The Japanese automaker's first operating loss may be harsh, but it's still in a lot better shape than its American rivals.

<snip>

Like a Hollywood starlet caught drunk behind the wheel, Toyota's first operating loss looks somehow worse than if it came from a regular car-maker.

<snip>

Still, Toyota is in much better shape than General Motors. . . .The Japanese automaker has a full tank of cash. And despite the losses, it added $8 billion to its coffers over the year, ending with $30 billion of cash and quickly-sellable assets on its balance sheet.

<snip>

Toyota has lost its way, but its cash, technology and manufacturing expertise should see it through the crisis. Indeed, if the company can respond with its traditional fervor, it may find its global position is stronger than before. Japan's biggest car-maker is leaking red ink, but not the toxic kind that bathes the streets of Detroit

 

[egslim]

Wagoner? Once again, you start with a presumption that GM only got into trouble last year.

This whole debate about what the government should or shouldn't have done is of course academic, since we can't go back in time. However, debating what the government could have done differently should start at the point where it either became, or could have become involved. And that was last year at the earliest.

 

[Disbelief]

It looks like any real chance for GM to crawl out of its mess has been closed shut. The fix was in. The unions not only extracted billions of dollars from the US taxpayer to fund the disaster that they were largely responsible for, many of the practices that kept this disaster going have been maintained going forward.

The settlement agreement:
http://online.wsj.com/public/resources/documents/gmuaw.pdf

So in the face of massive unemployment the union has maintained wages for existing workers. It has maintained at least some of the disastrous mechanism that forced GM to keep paying for workers even as it needed to downsize.

This bury your head in the sand approach to the simplest economic ideas might be sad if only GM workers were paying for this disaster but now the taxpayer is on the hook to carry this scam along.

I own a small apartment building. Two years ago we were getting $950 a month for a small studio. Now in the current market conditions we haven't been able to rent one of them for $915 a month. Under the UAW theory of economics I should form a union with other apartment owners and when our market share drops we should apply to the government for massive subsidies to cover the losses that our mismanagement has caused. And that would be fine if the government was some sort of magical source of funds that could give everybody everything they wanted. Of course it isn't and all that has happened and will happen with regard to GM is that massive amounts of money will be transferred from one group of people to another.

But what is conveniently missing in the details, is the fact that GM now hires UAW employees at a much lower rate and the wages scale up to parity over 10 years (I believe). So, since they are buying out so many older workers, who's retirement is funded separately from GM, the company can replace them with lower paid workers. Therefore, the overall picture means that GM will have lower structural costs than Toyota since their workforce is now getting younger while the transplants' are aging. This was accomplished under Wagoner, and what GM was relying on to improve the bottom line in 2010 when it would have initially taken effect.