Is GM finished?

[davefoc]

Pensions are protected from creditors in bankruptcy proceedings. Even secured creditors can't touch existing benefits. At most bankruptcy can end further accrual of benefits.

Autoworker pay already starts at $13 an hour. Cutting that, health plans and capping pension benefits would pretty much guarantee the union wouldn't play along which would guarantee a chapter 7 under which even secured creditors would get nothing.

The bottom line is that Chrysler and GM are only worth anything if they stay in business, which can only happen if the workers are on side.

How exactly would the UAW force GM into chapter 7? And how exactly would it have been in the union's interest to force GM into chapter 7?

What pension benefits is a bankrupt GM on the hook for? If the unfunded pensions were truly ahead of the secured creditors would the secured creditors in a bankruptcy have gotten anything?

Your idea that the government transfer of wealth to the UAW was anything other than pure political payout is naive. It had nothing to do with saving GM. Almost certainly a GM with greatly reduced encumbrances from unfunded pension and medical plans, UAW contracts, secured creditor debt and government ownership as it would have been after a real chapter 11 bankruptcy would have been in better shape than the current GM is after the government has spent 50 billion dollars mostly for the purpose of paying off the UAW.

That 50 billion dollars was used to enrich a very few at the expense of everybody else in the country. At a time of great financial hardship in the country as a hole it was shameful. But that is the nature of politics. The Bush administration enriched the drug companies with taxpayer funds and now the Democrats, enabled by the Bush administration, have executed a massive transfer of national wealth to one of their benefactors.

What I think is going to happen is that GM market share will continue to shrink. The result will be a triple whammy. They will sell less cars and thereby get less revenue, they won't hire new workers so their labor cost mix stays high and as they need to lay off workers, the unneeded workers will continue to draw wages from GM leaving GM even less able to go forward. GM will attempt to raise prices to make up for their increasing costs and as a result they will lose market share and the cycle will just continue.

Essentially, the government in a politically necessary (for Democrats) move has left in place the essence of the UAW agreements which are partially responsible for the relentless decline of GM over the last 30 years.

 

[Disbelief]

Too bad GM pensions weren't fully funded and thus are not protected from COMPLETE FAIL. I have a feeling the congress will wind up bailing out the pension plans and lumping them in with congress and railroad workers.

The pensions funds were overfunded just a year before, so GM was using the extra money to buy out employees and get things in order for the new contract in 2010. With the big drop in the stock market, the pension fund quickly became underfunded - something that very few saw coming. GM was doing things to be successful, the economic crisis changed the timeline and made them more vulnerable.

 

[lomiller]

davefoc, if the automakers are going to be paying Wal-Mart wages the workers have nothing to lose in a bankruptcy. No one gains if Chrysler goes chapeter7 but at this point the auto workers have less to lose then most and more direct influence in putting together a successful deal then most because if they walk out its all over for Chysler.

If you can get past the political talking points that have been drummed into your head it’s obvious that a restructured company is best for everyone and none of the players are simply going to role over like you are demanding the workers do. This is why they cut a deal since the autoworkers have a bigger stick then most it was inevitable they would get a lot in the final agreement.

 

[davefoc]

davefoc, if the automakers are going to be paying Wal-Mart wages the workers have nothing to lose in a bankruptcy. No one gains if Chrysler goes chapeter7 but at this point the auto workers have less to lose then most and more direct influence in putting together a successful deal then most because if they walk out its all over for Chysler.

If you can get past the political talking points that have been drummed into your head it’s obvious that a restructured company is best for everyone and none of the players are simply going to role over like you are demanding the workers do. This is why they cut a deal since the autoworkers have a bigger stick then most it was inevitable they would get a lot in the final agreement.

It's obvious to those who received a massive transfer of funds from everybody else in the US.

The problem is this only works to make some people richer at the expense of everybody else. If it really worked we could do it for everybody. Then we could all have our wages guaranteed by the federal government and our deals with bankrupt companies guaranteed by the federal government.

There were plans in place to insure the pensions of people with pensions from bankrupt companies. Why are these plans good enough for the vast majority of Americans whose pension plans become insolvent but not good enough for GM workers?

All across the US there are people losing their jobs. Where are the job buyouts for these people? All across the US there are companies scrambling to stay in business as they cut prices and try new ideas. Where is the federal bailout for these folks?

FWIW, I was something of a moderate on this whole thing. If a sustainable plan could be put in place by reducing GM's unfunded liabilities, I was fine with the federal government throwing in a few bucks to give GM the best chance to keep going. Nothing like that happened. The fix was in. The plan was to transfer government money to the UAW and to leave GM in the stranglehold of the UAW. That plan has now been fully implemented.

And to what end? On a going forward basis the US probably has too much car manufacturing capacity, especially if car companies are forced to pay wages that leaves them uncompetitive with foreign companies. How is that going to be dealt with? Is any part of keeping Chrysler alive to make cars that few people want a good idea? Has all this government largesse been fair to the other car manufacturing workers in the US? They are making cars that people want to buy and now they are forced to compete with subsidized car companies. What a bunch of crap.

And on your little liberal knee jerk shot at Wal-Mart:
All across the country there are people whose economic situation is substantially improved by Wal-Mart. Vast numbers of people, many not all that well off, are able to afford things that they couldn't otherwise because of Wal-Mart. Wal-Mart probably does more for many people than all the government freebees put together. You don't like the fact that people starting out don't make as much money as you have decided people should make. But those people seem happy enough since they have elected to work at Wal-Mart instead of some place else. What has GM done for people in the last thirty years which is remotely as helpful as what Wal-Mart has done? One thing that GM did was charge my 75 year old step mother $450 to change a battery cable on her Cadillac which she eventually sold for a tiny fraction of what an equivalent Honda would have sold for. Don't look for me to be too enthused about GM after that.

And how much of my tax dollars this year went into bailing out Wal-Mart? That would be zero. So you want to bang away on Wal-Mart in a thread discussing the disaster that is GM and the UAW? Maybe you think things would be so much better if only the UAW could get in and control Wal-Mart the way it has GM? The problem with all your labor unions are good fantasies is that you are staring at massive empirical evidence that this isn't so and yet you cling to your fantasies even when it requires massive unsustainable government bailouts to keep them alive.

 

[balrog666]

davefoc, if the automakers are going to be paying Wal-Mart wages the workers have nothing to lose in a bankruptcy. No one gains if Chrysler goes chapeter7 but at this point the auto workers have less to lose then most and more direct influence in putting together a successful deal then most because if they walk out its all over for Chysler.

Really? No job and no benefits is better than a Wal-Mart job with benefits in a place like Michigan that has 20% unemployment and a silly person acting as Governor?

If you can get past the political talking points that have been drummed into your head it’s obvious that a restructured company is best for everyone and none of the players are simply going to role over like you are demanding the workers do. This is why they cut a deal since the autoworkers have a bigger stick then most it was inevitable they would get a lot in the final agreement.

Well, gee, has anyone argued that restructuring is bad here?

And the UAW has nothing to offer to anyone; let them cut off their nose to spite their face all over again.

 

[lomiller]

There were plans in place to insure the pensions of people with pensions from bankrupt companies. Why are these plans good enough for the vast majority of Americans whose pension plans become insolvent but not good enough for GM workers?

The plan for other pensions in the US is that they are kept in a separate fund that by law can't be touched by creditors and is insured by the federal government. Are you seriously suggesting Chrysler and GM be saved by they US taxpayer shelling out for the pensions of nearly 1 million people just so creditors can illegally grab the pension fund?

 

[lomiller]

And the UAW has nothing to offer to anyone; let them cut off their nose to spite their face all over again.

Really? How exactly are these companies supposed to stay in business when they have no cars to sell because the autoworkers walked away? Are you suggesting some form of legislation to force them to work for some wage a politician deems sufficient?

 

[balrog666]

Really? How exactly are these companies supposed to stay in business when they have no cars to sell because the autoworkers walked away? Are you suggesting some form of legislation to force them to work for some wage a politician deems sufficient?

As long as the union members allow the union to speak for them, they will remain losers.

 

[lomiller]

you have spent the whole thread claiming the union managed to get to much in it's negotiations, now you try to claim the workers would have received more? Pick a lane already!

 

[davefoc]

I think that the rule of law should have been followed. To the degree that the pension fund beneficiaries had priority over other creditors they should have been given priority. If the result was they had control of GM in a bankruptcy they should have been given control of GM. Then they could elect to deal with their GM asset in a way that was most beneficial to them.

It seems likely that it would be in the interest of whoever ended up with the assets to keep GM going. Especially if a court following the rule of law had reduced the GM liabilities to the point that GM might be a viable company again.

None of this would have required $50 billion dollars of government money to keep GM going. The main purpose of giving GM that money was to transfer wealth to the UAW. It is also possible that other corruption was afoot. Certainly it is hard to see exactly what motivated the Bush administration to throw money at GM without any concessions from stake holders that were necessary for GM to survive. With regard to the Bush administration it was often difficult to figure out whether just plain ineptitude, politics or corruption was the driving factor.

 

[lomiller]

Davefoc, the rule of law *is* being followed. The whole purpose of chapter11 is to get all the key players around the table with the aim of keeping the company operating because it’s worth more that way. Everyone then negotiates for what they can get, keeping in mind there won’t be enough in the pot for everyone to get everything they are owed. Like it or not the workers are one of those key players because if they walk away the company shuts down.

 

[drkitten]

I think that the rule of law should have been followed.

I don't think you understand what the rule of law involves.

There are two types of bankruptcy -- chapter 11 and chapter 7. If a company goes into chapter 11, the intention is to preserve the company's ability to operate as a profit-making entity and to avoid liquidation. To that end, the creditors are usually subordinated to the operating needs of the company, precisely because requiring the company to pay off the creditors in full would (almost by definition) require it to shut down.

If the creditors insist on having priority, then they can demand instead that the company enter chapter 7 and liquidate.

To the degree that the pension fund beneficiaries had priority over other creditors they should have been given priority.

Part of the process of entering chapter 11 is that the pension fund beneficiaries are given priority, and then voluntarily waive that priority in order to maintain the ability of the company to operate.

If the result was they had control of GM in a bankruptcy they should have been given control of GM.

But if they do that, they won't be able to operate the company. Specifically, if they insist on taking all the money (as is their right), then there won't be any to pay the workers. And the workers won't work for no pay. They'll have to give up some of the money that they are owed by the company to the UAW -- and we're back at the chapter 11 table.

Basically, the creditors have two choices, neither of them pleasant. They can shut out the UAW entirely and guarantee that the company will not be able to operate, or they can negotiate with the UAW and give them a good enough deal that they will be willing to continue to work.

.... which is basically what's been going on for the past months. The UAW has stated what its price is for the company to continue to operate. At this point, the creditors can either pay or not.

It seems likely that it would be in the interest of whoever ended up with the assets to keep GM going. Especially if a court following the rule of law had reduced the GM liabilities to the point that GM might be a viable company again.

Not at all. The "liabilities" in this case are the people whose cooperation you would need to keep it going.

 

[oggiesnr]

Down the road isn't it all academic? This year, next year, sometime soon, one of the big three is going to fail. My guess would be whichever one relies on FIAT the most.

Steve

 

[drkitten]

Down the road isn't it all academic?

Not at all.

There's a very important question of whether the creditors will get more money from a smaller repayment in full or a partial repayment now. Indeed, that's basically what chapter 11 is all about.

Suppose I owe you $100,000 -- but I'm basically flat broke right now. Yes, you can take my car and sell it for what you can get for it. Call it $2000.

=or=

You can agree to accept an IOU for $20,000, payable a year from now. And I tell you that I've just been offered a hundred thousand dollar advance by my publisher for a travelogue that I'm thinking about. Here's the contract they've offered me, check it out for yourself. But I need my car to finish writing the travelogue.

Your choice. You can opt to force me into chapter 7 and take the car. You can opt to let me keep the car and forego payment for a year and get considerably less than you are owed, but more than the car. That's chapter 11.

What you can't do, of course, is force me to write the travelogue. If you tell me "I'm not taking your car, but I want the entire advance when you get it," I'll simply refuse to sign the contract, and you have no legal way of making me. Twenty grand, take it or leave it.

That's the position of the UAW. The creditors can't force them to make cars. The creditors can allow them to make cars (and get paid for them) on the expectations that they'll get some of their money back from the cars they make, or they can tell the UAW to go to hell, they want their money now.

 

[HarryHenderson]

...FWIW, I was something of a moderate on this whole thing. If a sustainable plan could be put in place by reducing GM's unfunded liabilities, I was fine with the federal government throwing in a few bucks to give GM the best chance to keep going. Nothing like that happened. The fix was in. The plan was to transfer government money to the UAW and to leave GM in the stranglehold of the UAW. That plan has now been fully implemented...

Can we ditto here? Two thumbs up?

The part I still don't 'get' is how a company like GM could employ hundreds of thousands of workers, make and sell 9.3 MILLION+ vehicles WORLDWIDE (2006), have annual revenue of over $207 BEELLION DOLLARS, 5 years sales close to a TRILLION DOLLARS, with a tee, literally one of the WORLD'S 5 biggest companies...oh, and in a land that not only actively promotes capitalism, it wrote the book on it. YET, less than 2 years later they're askin' graveyard shift janitors for lunch money? I don't get it even a little.

And that's not trying to be simple minded. I understand how it can happen, mechanically, financially etc. Less revenue, higher costs blah blah. No I mean, PRIOR to this particular instance, I 'assume' GM was completely unaware (in 2006) they would be getting any kind of federal government aid, in any form or way, SINCE THEY HADN'T EVER GOT ANY BEFORE, in case they had a 'bad year', say. Soooooo, wouldn't you as the CEO and/or leadership of the company have some kind of 'real world' handle on the potential ups and downs of the market and it's (short and long term) affect on your company? Aren't you as CEO, not only responsible for the present state of being of the company, but, and ultimately as importantly, the foreseeable future of the company also? Nobody saw ANY of this coming (yes I know, we all saw it coming, but we don't count)? And if 'they' did, 'they' didn't do anything meaningful about it? I don't get that either.

 

[balrog666]

you have spent the whole thread claiming the union managed to get to much in it's negotiations, now you try to claim the workers would have received more? Pick a lane already!

No, that is not what I argued.

And, no, that was not my point.

Whooooooooooooooooooooooooosh! That is the sound of my point going over your head. Again.

I guess that you must be a union peon.

Although that's hardly a guess at this point.

 

[davefoc]

drkitten,
That is the single most insulting response that I have received in the entire time that I have been posting on the JREF forum.

There is not one thing that you said that wasn't obvious and that wasn't obviously understood by me.

At least the people who I have disagreed with me in this thread have understood what the dispute was about and made arguments related to the issue. If you had something to say with regard to that I would have read it with interest.

 

[lomiller]

so when you said

As long as the union members allow the union to speak for them, they will remain losers.

you were not suggesting autoworkers were worse off for being in a union but simply calling them losers for refusing to sign their paychecks away and work for peanuts?


In actual news the SCOTUS has given the go ahead for Chryslers bankruptcy deal

 

[Furcifer]

I have no clue what you're trying to say here. Are you forgetting that Toyota employs a great many people in the US? And that those people are not living in 700 sqft apartments? And what does any of that have to do with the fact that Toyota is sitting on a sizable cash reserve that the NA manufacturers do not have?

Of course you don't have a clue, you don't understand legacy costs. You need to take a look at NA pensions and what they get in Japan. Even if you don't get it Toyota does. 3 or 4 years ago Toyota said without a substantial increase in productivity they wouldn't be able to turn a profit in NA due to legacy costs by 2013.

There's several reasons Toyota is sitting on some money right now; they got huge tax incentives from short sighted southern politicians that thought the well would never run dry, they are a relatively new comer to the game and don't have to carry the legacy costs that we have come to expect in NA, they benefit from the protectionism and subsidies the Japanese government has wisely afforded them and last but certainly not least they happened to be in the right place and the right time with a very decent product.

I realize Toyota employs lots of people in the US. Do you realize it is at almost the same rate of pay as the Big 3 and that you are much more likely to be "let go" from your job at Toyota for suffering an injury on the job? Do you realize each dollar spent on a Toyota doesn't benefit the local economy as much as a dollar spent on one made in NA? Do you realize what this means to an industry that operates on razor thin margins?

 

[ZirconBlue]

Of course you don't have a clue, you don't understand legacy costs.

What, exactly, is your problem? You tried to act like Toyota is in just as bad a shape as GM. They are not. Prior to 2008, when was the last time Toyota posted a loss? Now, look at GM.

In the 90s, I knew people working for the big 3 in Michigan who spent a substantial part of the year laid off (the other part of the year working a bunch of overtime). When was the last time Toyota laid off any full-time employees?

How many factories has GM shut down in the past 70 years? Toyota? Yes, the entire industry is hurting right now, but to say that Toyota is not doing significantly better than GM is asinine.

You need to take a look at NA pensions and what they get in Japan.

No, I don't. Toyota is clearly in much better shape than GM at this point. If you've got information to the contrary, either put up or shut up.

Even if you don't get it Toyota does. 3 or 4 years ago Toyota said without a substantial increase in productivity they wouldn't be able to turn a profit in NA due to legacy costs by 2013.

Cite?

There's several reasons Toyota is sitting on some money right now; they got huge tax incentives from short sighted southern politicians that thought the well would never run dry, they are a relatively new comer to the game and don't have to carry the legacy costs that we have come to expect in NA, they benefit from the protectionism and subsidies the Japanese government has wisely afforded them and last but certainly not least they happened to be in the right place and the right time with a very decent product.

None of which has anything to do with the discussion at hand.

I realize Toyota employs lots of people in the US. Do you realize it is at almost the same rate of pay as the Big 3

Yes. US salary levels are based, in part, on industry benchmarks.

and that you are much more likely to be "let go" from your job at Toyota for suffering an injury on the job?

Evidence?

Do you realize each dollar spent on a Toyota doesn't benefit the local economy as much as a dollar spent on one made in NA?

Again, these cars are made in NA. At least the high runners like Camrys, Corollas, etc. I'd bet the local economy in Georgetown, Kentucky is probably benefiting a whole **** load more than the local economies in Michigan right now.

Do you realize what this means to an industry that operates on razor thin margins?

Why don't you explain it to me, since I'm such a moron?