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Bailout for automakers?

I agree with Meadmaker's analysis. What is likely to happen is that at least ONE of the Detroit majors has to sell its major assets--at fire sale prices--to an overseas manufacturing conglomerate. The car line(s) are retooled to match the international market and the new US market, and within a year or so, the new models of the old marque are available. Because the assets are sold, not the company itself, the old UAW contracts and pensions liabilities are not the responsibility of the new owner, and that in and of itself will pretty much cover the issue of making a profit.

I am amazed by people who squak about the impact of the reduced spending of the laid-off car plant workers and supplier workers (they would undoubtedly cut back, but likely stay in business)--but blithely assume that the billions of dollars from the government would just be pumped out of the magic money well in DC. That money is, and can only be, from tax dollars; tax dollars collected from businesses and individuals who have done a better job of facing the facts than GM and friends.

There's also the interesting issue of the vastly overpopulated dealer market. Apparently, car dealerships have some special protections in state laws all over the US, such that they are not subject to the normal market pressures. A quick check via Google reveals TEN GM dealers in the Greater Seattle area alone. And that's just new car dealers on the official GM dealer site! Contrast this with 5 Subaru dealers, and 6 VW dealers. Does GM really sell that many more cars?

The other issue is that US carmakers have been 'priming the pump' by providing big rebates and incentives, which are reimburseable to the dealerships--and GM has postponed making those payments. So the local dealers are the ones absorbing that cost at the moment -- GM central is in worse shape than is perhaps realized.

As another post noted above, the US automakers have been ignoring market trends for decades. I freely acknowledge that the refusal of the US Government to include SUVs in the automobile mpg requirements is part of the issue, but a smart business would have not waited for the regulatory issue before moving their production towards the smart longer-term market. They would be creating more quality vehicles, and fewer DVD fold-down screens on clunkers.

I haven't bought a US brand car in my adult life. I've had too many object lessons in my parents' and friends' cars. I don't have a whole lot of sympathy for the people who are 'in the bucket' on their SUVs and big pickups that never seen anything more uncivilized than a school parking lot. I'm sorry for the people who are going to get hit by the cycle of consolidation and reorganization; but as a Boeing brat who grew up when "Will the last person leaving Seattle please turn out the lights?" was an actual billboard, I've seen that people adapt and survive.

Nobody has a right to make the taxpayers support them in an untenable business, whether they are the CEO or the guy pushing rivets. The world grows and changes, and what is a viable business changes, too. There are some winners and losers in the short-term, but in the long term, it's a win for everyone to let the more effective, efficient, smart and flexible manufacturers produce goods that will meet people's needs.

No bailout! I can see there being a role for 'bridge loans' while a bankruptcy or piecemeal sale is being worked through--specifically, to keep the suppliers who support multiple lines of car manufacturers solvent as they adjust to not having a big customer pay its bills--but I don't want to reward Detroit's auto industry for their short-sightedness. I don't want to have them saved from the mistake of believing that they were right to spend their money on lobbying Congress for special treatment, instead of investing in R&D. I don't think car dealers or line workers at the plants are any more entitled to their jobs than the people who worked for phonograph manufacturers or gas streetlight servicemen. Technology marches on; the market changes. Old firms go under, or change; new firms fill new needs.

Just my thoughts, MK
 
I am amazed by people who squak about the impact of the reduced spending of the laid-off car plant workers and supplier workers (they would undoubtedly cut back, but likely stay in business)--but blithely assume that the billions of dollars from the government would just be pumped out of the magic money well in DC. That money is, and can only be, from tax dollars; tax dollars collected from businesses and individuals who have done a better job of facing the facts than GM and friends.
Yes but, government bailouts can make a profit for the taxpayer, such that it is investor/lender--not spender--of last resort. (Chrysler, 1979)
 
Well if one of those beggars was wearing a $100 suit and was named Mr. Iacocca I'd be inclined to agree. However Iacocca was brought in to save Chrysler and then rolled up his sleeves and went to work. These are the rich idiots who ran these companies into the ground...and come begging from G-IV bizjets.

Let them live or die by the market like good capitalists should.

-z
 
I find it curious that Congress will allow 500-700 billion in aid to banks, a non industrial sector, but is fudging on about 25 billion, less than a five percent of the suggested bank bailout, to an industrial sector that has suppliers, supply chains, logistics chains, and third order impacts all over the economy. Liposuction in order? Sure. Death out of petty revenge? What for?

In whose pockets are the Senators and Congressmen, folks? Looks like the financial sector, whose interests cross our national boundaries. The Big Three, for all their faults and the UAW's recalcitrance, are a domestic asset, a potentially warm industrial base. We have seen twenty years of a worship of an abstract free market, with some significant downsides. At what point does one consider a course change?

Granted, US automakers have, since the early 1970's, consistently turned their backs on leading the tech. rik, your EV-1 story is germane. Likewise the Maverick and Gremlin.

But rik, regardless of how odious you or I find the suits in charge of the Big Three, I look to those who build cars, and their families, and their communities, and I ask: must we sacrifice them for the sake of sticking our fingers in the eye of those G-IV flying suits?

My gut says no.

DR
 
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I find it curious that Congress will allow 500-700 billion in aid to banks, a non industrial sector, but is fudging on about 25 billion, less than a five percent of the suggested bank bailout, to an industrial sector that has suppliers, supply chains, logistics chains, and third order impacts all over the economy.
It's not cut-and-dried, but some of the rationale is:

1--The rest of the economy depends much more on banks than on domestic auto-makers
2--Banks are significantly more vulnerable to confidence crises (A run on WaMu could also floor Citigroup and BofA and banks in Europe and Asia, whereas GM shutting down is more likely to boost business for other auto companies)
3--Banks do not tend to come out of chapter 11 bankruptcy. Sure it's difficult for any company to do, but non-financials do it all the time.
 
I am amazed by people who squak about the impact of the reduced spending of the laid-off car plant workers and supplier workers (they would undoubtedly cut back, but likely stay in business)-

If the "nightmare scenario", which involves near simultaneous failure of all three domestics, and the ceasing of operations, this is not likely to be the case.

Most suppliers would also cease operations. The "new domestics" (our term for Toyota, Honda, BMW, etc. operating in the US) are an important part of our business, but not enough to keep us in business. That means Toyota plants in the US would also be shut down temporarily as supply chains are reestablished.

We could survive some sort of "managed bankruptcy", which would still require government intervention to achieve, but actual failure of the Big Three within a period of months would certainly drive us, and a lot of companies, out of business.

It all gets very complicated because the elephant in the room that no one wants to talk about is the union contracts. Under bankruptcy, they're gone. No Democrat wants to have anything to do with any plan that touches them. In addition, the retiree health benefits are huge. They probably need to go as well, but that means a couple of million suddenly uninsured people, who don't have jobs. That's a big problem.
 
It all gets very complicated because the elephant in the room that no one wants to talk about is the union contracts. Under bankruptcy, they're gone. No Democrat wants to have anything to do with any plan that touches them.
Perpetuation of deeply uncompetitive union agreements is one of the big reasons why those who favour bankruptcy do so.

I suppose that if a democrat government "can't touch that" at this stage of the game, they never can.
 
Perpetuation of deeply uncompetitive union agreements is one of the big reasons why those who favour bankruptcy do so.

I suppose that if a democrat government "can't touch that" at this stage of the game, they never can.

But much of the non-competitiveness disappears in 2010, so why not just bridge the gap with the requested loan. While others here talk about how the "suits" have ruined the industry, they have zero idea of all the changes that have taken place in the past ten years to truly make the Big 3 more competitive. Knowing that 2010 was the make or break year, they were buckling down even more to make it there. The current financial crisis, which the $700 billion recipients are mainly responsible for, is what has driven them so quickly to this point. Toyota lost money in the third quarter and even with 0% financing they have done poorly in the current market.
 
While others here talk about how the "suits" have ruined the industry, they have zero idea of all the changes that have taken place in the past ten years to truly make the Big 3 more competitive.

Maybe they have, in fact, done a good job! However, I wonder if something highly symbolic, like all 3 resigning, might prompt a loosening of the purse strings...
 
But that might be a bad decision if they are truly capable, yet paying the price for failures of previous executives.

That's why I called it a symbol. They're being taken to task for having travelled on private jets. They may have to make hard personal decisions and fall on the sword. Perhaps others just as (or more) capable could be put in their place. I'm thinking PR move. They don't seem to have that game down, if the last couple of days are any indication.
 
That's why I called it a symbol. They're being taken to task for having travelled on private jets. They may have to make hard personal decisions and fall on the sword. Perhaps others just as (or more) capable could be put in their place. I'm thinking PR move. They don't seem to have that game down, if the last couple of days are any indication.

No, they clearly do not have the PR moves down considering the beating they take for asking for a little while the financial fatcats haven't been heard from.

Anyway, I think that they should forego a salary (and bonuses) next year as a symbolic move and show that they are truly there to fix things. That may be more symbolic than falling on the sword and even show the UAW that they are willing to sacrifice.
 
Perpetuation of deeply uncompetitive union agreements is one of the big reasons why those who favour bankruptcy do so.

I suppose that if a democrat government "can't touch that" at this stage of the game, they never can.


That is the point. If none of these management teams can stomach planning for and executing a reorganization at this point, they will never have the guts to do it.

And in 60 days the Obamama administration will show up and green-light the business killing "Card Check" union-boosting legislation for the UAW. "Game over, dude." :(


But much of the non-competitiveness disappears in 2010, so why not just bridge the gap with the requested loan. [snip]


GM is burning through more than $1 billion per month - how much will it cost to get them to last until March 2010? Add in Ford and Chrysler. How much in US taxpayer dollars are you willing to burn to achieve that limited (and practically meaningless) goal?

And do you really think anything will change after that? :boggled:


Maybe they have, in fact, done a good job! However, I wonder if something highly symbolic, like all 3 resigning, might prompt a loosening of the purse strings...


And yet that would require some slight interest from them in having these companies survive. No sign of that yet. :(

.
 
I find it curious that Congress will allow 500-700 billion in aid to banks, a non industrial sector, but is fudging on about 25 billion, less than a five percent of the suggested bank bailout, to an industrial sector that has suppliers, supply chains, logistics chains, and third order impacts all over the economy. Liposuction in order? Sure. Death out of petty revenge? What for?

In whose pockets are the Senators and Congressmen, folks? Looks like the financial sector, whose interests cross our national boundaries. The Big Three, for all their faults and the UAW's recalcitrance, are a domestic asset, a potentially warm industrial base. We have seen twenty years of a worship of an abstract free market, with some significant downsides. At what point does one consider a course change?

Granted, US automakers have, since the early 1970's, consistently turned their backs on leading the tech. rik, your EV-1 story is germane. Likewise the Maverick and Gremlin.

But rik, regardless of how odious you or I find the suits in charge of the Big Three, I look to those who build cars, and their families, and their communities, and I ask: must we sacrifice them for the sake of sticking our fingers in the eye of those G-IV flying suits?

My gut says no.

DR

Well DR ole buddy,...
Maybe you are right. However I'm not convinced. Of course Obama will sign off on the bailout because his allegiance is with the UAW in saving those jobs you mentioned. I however have more personal experience. See, I once worked for a little company called MCI/Worldcom. When our management was sent off to jail with our company in bankruptcy, the commercially viable bits of the business were sold off to properly run corporations. I never lost my job, my paychecks just started coming from Verizon instead. Our corrupt management went off to jail where they belonged. If they could have gotten a gov't bailout they'd have simply pissed that away on limos and hookers and god knows what... No DR, the only correct thing to do is let these businesses fail or thrive by the free market. There's a reason why the "Big 3" are failing and they need to evolve along with the market. If they can't do that then market Darwinism is supposed to take over. Capitalism right? Do we socialize their profits? (other than the proper taxes that is) If not, then why must we socialize these losses?

I'm a union guy myself and I really, really feel for the people all down the line who may lose jobs over this...but it simply is not right to use the rest of us as a safety net for any business big or small. Maybe I'm not being particularly pragmatic or realistic? But maybe, just maybe the pain of collapse and reorganization is just what we need for long term health?? The US auto industry is a sick old man, giving him a cane may seem nice and helpful but maybe letting him croak and getting a new fresh start would be smarter.... ??

Just sayin'
-z
 
See, I once worked for a little company called MCI/Worldcom. When our management was sent off to jail with our company in bankruptcy, the commercially viable bits of the business were sold off to properly run corporations. I never lost my job, my paychecks just started coming from Verizon instead.

On a philosophical level, I agree. However, imagine if AT&T, Verizon, MCI, and every other domestic phone company all went bankrupt within the space of a few months. You might say that some other phone company would pick up the slack, but at least for a while no one would be maintaining phone lines. Businesses wouldn't be able to make phone calls. And, of course, all the phone companies and phone company employees would owe lots of people lots of money, and they wouldn't pay it back.

Keep in mind that this whole economic mess started because some people couldn't pay their mortgages. The auto company collapse would be bigger than that. Lots bigger.

If we were looking at a possible General Motors bankruptcy, with Ford having two years worth of life blood in it, and Chrysler being able to last four years, there would be no huge problem. That isn't what we're looking at with this impending crisis. In the space of six months, a huge chunk of American manufacturing could just stop.

If that happens, Francesca doesn't think Citi would fail. I think she's wrong. Citi is already on the brink of collapse, and is going hat in hand to the government. Citi would have a whole new wave of foreclosures to deal with, plus a lot of bad commercial loans. They would sink.

I really don't know what the government ought to do. I don't have enough data to say how bad things are. I don't know what the union reaction would be if GM entered Chapter 11, was allowed to cancel the existing contracts, and came back with 40% pay cuts and less job security. (That's likely what would happen. Those of you outside of Detroit probably haven't heard of American Axle, but that strike, and its settlement, was huge news, even if it was widely unreported. If you're interested, ask.) I don't know whether people would buy cars from a bankrupt company. Buying a car isn't like having a phone contract.

So, I don't know what to do, but I do know what to avoid. A sudden crash landing of the Big 3 would send us into a full blown depression. That has to be avoided.

but it simply is not right to use the rest of us as a safety net for any business big or small.

I think the analogy is more like a lifeboat. You are on the lifeboat. The auto industry is the Titanic. I don't think you can row fast enough to get away from the suction.
 
Well if one of those beggars was wearing a $100 suit and was named Mr. Iacocca I'd be inclined to agree. However Iacocca was brought in to save Chrysler and then rolled up his sleeves and went to work. These are the rich idiots who ran these companies into the ground...and come begging from G-IV bizjets.

Let them live or die by the market like good capitalists should.

-z


Iacocca responded by getting the smaller models on the fast track. And profitably.

The current auto makers treat the small cars as loss leaders to keep their average CAFE fleet standard down, while they sell the huge cars that make tons of profit.

So you just ride out the 1 1/2 year recession every 5 years, lose a few billions, then make tens of billions in profit selling the enormous, loaded cars.

It's a perfectly fine business model except for two things:

1. People don't want to buy large cars during recessions -- nor during periods of high gas prices. The latter has been going on regularly since the late 1990's.

2. Recent "credit crunch" devastating the auto market's loan arms, which in some cases, were the only part that was profitable (which is also fine.) But tough times and credit means no sales = no profits, and no 6.8% interest loans = even more no profits since people are defaulting.


Certainly someone in the industry should have woken up because of issue #1 above. European and Japanese car makers already make compact cars, and profitably, due to their domestic markets.

But it's easier as an exec to just float along, hoping to get through the next huge profit cycle, then retire. Indeed, the cycle, where you take over when it bottoms out in exchange for huge stock options, which you exercise when the profits are huge, is more their style, if you ask me.

And some got "unlucky" enough that the companies may not make it through this down cycle because of compounded effects.

But not insurmountable. And not without a decade of leading warnings.
 
Well I guess this is a case of; If I default on my $250,000 mortgage then I'm in trouble...but if I default on my $250,000,000 mortgage then my bank is in trouble.(Didn't Donald Trump get a bailout just for this reason?)
 
So today's headline is that Citi gets a 20 billion dollar bailout. Yay for Citi. I know I'm pleased as punch to give my share to make sure they remain solvent.

The more I think about the bailout of Citi et. al. versus the proposed bailout of manufacturers, the less sense it makes to me.

If the Big 3 went belly up and just ceased operations, I know what would happen. We would stop making cars in America. Even Toyota plants in Kentucky, and Mercedes in Alabama, and Honda in Ohio, would at least temporarily stop making cars. You can't replace an auto plant, or an auto parts plant, in the space of a few days.

If Citibank stopped making loans, some other bank would keep making loans. It's a lot easier to expand capacity at a bank than it is to expand capacity at a rivet making facility.

I'm not saying that there ought to be a bailout for automakers or the rest of the auto industry, but I'm just questioning why it is that there ought to be a bailout for banks. What is it about Citigroup that makes it too big to fail? I happen to have a mortgage with Citigroup. (I'm a B of A customer, but once upon a time my mortgage got sold, and it ended up with Citigroup.) If they went out of business, I could hope that no one would be able to collect my money but, sadly, I'll bet someone else could be found, and my life would be unaffected. Meanwhile, if I were about to take out a new loan, there are other banks.

The more I think about it, the more I think that this crisis came about because a lot of people can't pay their debts, and a lot of people are counting on them to pay their debts. And what is the proposed solution? Make sure people can continue borrowing money. I think there might be something fundamentally wrong with this analysis.
 

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