Bailout Nation 2: General Motors

[Jeebus]

Look, the big 3 make vehicles, and they sell tons of them. It's not like we're talking about a product with no demand here, there is a ton of demand. If they are too stupid or greedy to run their business in a profitable manner, then let them die and someone else will take over the reins. In the end they'll still make the same cars, production probably won't even stop.

I agree 100%. Bailing them out will only reward the behavior by both the UAW and the CEOs, and only delay the inevitable.

[RedScare]

Look, the big 3 make vehicles, and they sell tons of them. It's not like we're talking about a product with no demand here, there is a ton of demand. If they are too stupid or greedy to run their business in a profitable manner, then let them die and someone else will take over the reins. In the end they'll still make the same cars, production probably won't even stop.

Really?

November 2008 sales

Here's another one...

2008 YTD sales

Note that total sales for 2008 may not even reach 13 million vehicles for EVERYONE, including the foreign makers. Last December, they were whining that 2008 would suck because they might ONLY sell 14.5 million vehicles. They used to look for 17 million.

I know it is easy to say everyone is whining over nothing and that this is not a bad recession, but just because it is not raining on your house does not mean that it is not raining anywhere. And anyone who thinks that a business should run as well at 65% of sales as it did at 100% of sales is, well...

[N Judah]

It's not a bailout, it's $14b in *loans* that they wanted. The financial industry is getting trillions in loans. In contrast, the financial industry "bailout" as I understand it refers to the actual *purchase* of $800b in crappy securities at a price greater than what they were actually worth. The equivalent for the car industry would be if the Big 3 through negligence produced a trillion dollars' worth of defective cars that they couldn't get rid of and the government decided to buy them and send them to the junkyard.

[TJones]

Judah, what's the collatoral on that $14bill ? The Govt. bought up the bad paper with houses attached, so they have something tangible. What is the big 3 offering, a percentage stake in their companies ? No, they are just saying, "Give us some money, although we know we aren't viable in our current state."

[N Judah]

I don't know what the collateral is, but that doesn't necessarily mean there isn't any.

[editor]

Judah, what's the collatoral on that $14bill ? The Govt. bought up the bad paper with houses attached, so they have something tangible. What is the big 3 offering, a percentage stake in their companies ? No, they are just saying, "Give us some money, although we know we aren't viable in our current state."

Maybe if Detroit doesn't pay back the loans then Uncle Sam will repo everyone's cars!

I still don't understand why we're rewarding failure.

[memebag]

Really?

November 2008 sales

Here's another one...

2008 YTD sales

Note that total sales for 2008 may not even reach 13 million vehicles for EVERYONE, including the foreign makers. Last December, they were whining that 2008 would suck because they might ONLY sell 14.5 million vehicles. They used to look for 17 million.

I know it is easy to say everyone is whining over nothing and that this is not a bad recession, but just because it is not raining on your house does not mean that it is not raining anywhere. And anyone who thinks that a business should run as well at 65% of sales as it did at 100% of sales is, well...

That sounds like a great argument against a bailout. If demand isn't there we shouldn't prop up supply.

[RedScare]

Maybe if Detroit doesn't pay back the loans then Uncle Sam will repo everyone's cars!

I still don't understand why we're rewarding failure.

What would you suggest? Surveys show well over half the populace would not buy from an automaker in bankruptcy (the "bailout" that was going through Congress was intended to be a bankruptcy without the stigma of going to court). We've lost 1.2 million jobs in the last 3 months. Would you rather roll the dice and see if all this is a bluff? If it is not, will your mea culpa make it all better? Is this when we should be testing our willingness to buy from bankrupt automakers?

I understand the tough talk about the Big 3. I even understand the requirement that good Republicans must trash the UAW. But, the $700 Billion given to the financial industry to loosen up credit did not work. There is no one to lend to the Big 3. And with US auto sales down 37% across the board, the foreign auto makers are not going to buy up the Big 3 and reopen the plants. If their factories do not build enough cars, they will ship them from Japan.

Again, what do you suggest?

That sounds like a great argument against a bailout. If demand isn't there we shouldn't prop up supply.

I ask you the same question I asked the editor.

[20thStDad]

Really?

November 2008 sales

Here's another one...

2008 YTD sales

Note that total sales for 2008 may not even reach 13 million vehicles for EVERYONE, including the foreign makers. Last December, they were whining that 2008 would suck because they might ONLY sell 14.5 million vehicles. They used to look for 17 million.

I know it is easy to say everyone is whining over nothing and that this is not a bad recession, but just because it is not raining on your house does not mean that it is not raining anywhere. And anyone who thinks that a business should run as well at 65% of sales as it did at 100% of sales is, well...

Clearly they didn't put themselves in a good enough position to survive the current economy, which many other auto-makers and businesses did. The others might not be setting records but at least they are in business and not caving. The auto industry isn't the only one seeing sales way down from the last few years. It's just the only one asking to get bailed out. Everyone else has to make adjustments and hard decisions, change their business methods if need be.

I don't think this is not a big deal, it definitely is. All I'm saying is that people will still need cars, they will still want their cars. If not as many, fine. Either make less and get by or figure out how to make them want more, or do everything they are doing more effectively. I can't even tell any more if I am arguing for or against the bailout, but my point is that whatever it takes to actually force them to seriously change the way they do business - that's what needs to be done.

[RedScare]

Clearly they didn't put themselves in a good enough position to survive the current economy, which many other auto-makers and businesses did. The others might not be setting records but at least they are in business and not caving. The auto industry isn't the only one seeing sales way down from the last few years. It's just the only one asking to get bailed out. Everyone else has to make adjustments and hard decisions, change their business methods if need be.

I don't think this is not a big deal, it definitely is. All I'm saying is that people will still need cars, they will still want their cars. If not as many, fine. Either make less and get by or figure out how to make them want more, or do everything they are doing more effectively. I can't even tell any more if I am arguing for or against the bailout, but my point is that whatever it takes to actually force them to seriously change the way they do business - that's what needs to be done.

If I may be so blunt, for a company that may only have a few weeks of cash left to remaining operating, your answer is no answer at all. Of course, they must change. They argue that they already are! They just need more time.

I ask you the same question I asked the other two. Just saying no is not good enough. Your legacy depends on it. What are you going to do, Senator/Mr. President?

[20thStDad]

If I may be so blunt, for a company that may only have a few weeks of cash left to remaining operating, your answer is no answer at all. Of course, they must change. They argue that they already are! They just need more time.

I ask you the same question I asked the other two. Just saying no is not good enough. Your legacy depends on it. What are you going to do, Senator/Mr. President?

Will ALL plants shut down as soon as that cash is gone? I highly doubt it. Some will, now or later, I don't think a bailout or bankruptcy will change that. Demand is lower, so make less or find a way to increase demand. But what have they been doing for the past few months aside from begging? I think if they are left to fail, someone will swoop in and buy them up. Then starts the real change. There's no guarantee whoever buys will do everything right, but I would hope only someone with a damn good plan would take that chance in the first place.

Neither the current or future owners can afford to just shut down (all) production, so they won't. But I don't believe giving the current leadership a bunch more money will do anything but cost money and delay the changes that need to be made. If they get their paycheck now, they'll be going under again less than a year from now. Then it would have been a huge waste of both time and taxpayer money (not that there aren't tons of other examples of that, but why throw another one on the pile?).

[RedScare]

Somebody tell me why this analysis is wrong...or, why it is preferable to $14 Billion in loans.

GM bankruptcy would be catastrophic to economy

Mind you, I am no fan of GM and its screwups over the years. Go back and read some of my remarks on GM in past threads. I am also no fan of wasteful government spending. But, in times like these, I feel we must do some distasteful things to keep the ship upright. I also would like to see some posts that provoke some thought, some suggestions to counter the easy to type, "NO!", with no attention paid to the aftermath. If you still say, "No!", why? And what do you think will happen?

Thanks in advance.

[Jeebus]

What would you suggest? Surveys show well over half the populace would not buy from an automaker in bankruptcy (the "bailout" that was going through Congress was intended to be a bankruptcy without the stigma of going to court). We've lost 1.2 million jobs in the last 3 months. Would you rather roll the dice and see if all this is a bluff? If it is not, will your mea culpa make it all better? Is this when we should be testing our willingness to buy from bankrupt automakers?

I understand the tough talk about the Big 3. I even understand the requirement that good Republicans must trash the UAW. But, the $700 Billion given to the financial industry to loosen up credit did not work. There is no one to lend to the Big 3. And with US auto sales down 37% across the board, the foreign auto makers are not going to buy up the Big 3 and reopen the plants. If their factories do not build enough cars, they will ship them from Japan.

Again, what do you suggest?

I ask you the same question I asked the editor.

If I may be so blunt, for a company that may only have a few weeks of cash left to remaining operating, your answer is no answer at all. Of course, they must change. They argue that they already are! They just need more time.

I ask you the same question I asked the other two. Just saying no is not good enough. Your legacy depends on it. What are you going to do, Senator/Mr. President?

We do NOTHING. We let the companies that are failing fail. They file bankruptcy, they get sold off in chunks, the people who were laid off re-apply under the new ownership and we MOVE ON.

Just saying no IS good enough. Musicman said it best, why prop up a business who's product is not in demand? How long must we give them loans before they would be able to make a profit and even start to pay them back? What will likely happen is that after the bailout, they will ask for an extension and get it. This could happen two or three times before they finally cave and file bankruptcy. Some fools will attempt to buy portions of the split up former companies, but the inherited debt from the bailout will be too much and they will fail. Eventually, there will be nothing but me, the taxpayer, holding the bill.

I understand the worry that when if the domestics did close, that the imports would not re-open them, but rather just import the excess demand. Thats when congress SHOULD get involved by passed higher import taxes on all vehicles. That would help persuade the imports to re-open some of those closed plants here instead of shipping in the excess.

The fact that no one in favor of the bail out seems to grasp - even though you mentioned it Red - is that demand is down 37%. ANYTIME you are down 37% on sales, no matter what the product, you're going to lay some people off! I for once would rather see my tax dollars go to the unemployment checks of the laid off workers, rather than prop up a business to make a product that there is 37% less demand for.

[Jeebus]

Somebody tell me why this analysis is wrong...or, why it is preferable to $14 Billion in loans.

GM bankruptcy would be catastrophic to economy

Mind you, I am no fan of GM and its screwups over the years. Go back and read some of my remarks on GM in past threads. I am also no fan of wasteful government spending. But, in times like these, I feel we must do some distasteful things to keep the ship upright. I also would like to see some posts that provoke some thought, some suggestions to counter the easy to type, "NO!", with no attention paid to the aftermath. If you still say, "No!", why? And what do you think will happen?

Thanks in advance.

From the article:

"There will be massive job losses not only directly related to the auto makers, but also their suppliers. It would exacerbate the existing financial and some of the ongoing credit problems as well."

Funny, when I warn of this happening from an abrupt end to the war in Iraq, as thousands would be laid off from lack of demand for war supplies, I was practically called an idiot and boo'd out of the forum. But now that it could happen state-side, suddenly people are listening and taking it more serious.

I say let the ship sink. All three of my lifeboats are domestically made Japanese. They are more buoyant, economical, stylish, and will retain their value twice as long as that rusty old barge called GM.

[20thStDad]

And if demand is down 37% or more and it's gonna stay that way, no bailout or bankruptcy will save those jobs. They will simply have to make less product from here on out. Later on, doing it more efficiently will likely only help the bottom line, in the end you can bet that will cost a few jobs too.

Seriously, under which scenario can all of those jobs be saved? Neither create more demand, that I can tell. Unless there is a plan to cripple foreign (company) auto sales here. I bet that would do it. Don't import cars any more, problem solved. Everyone has to drive a POS Ford now.

[memebag]

I ask you the same question I asked the editor.

I suggest not bailing them out. GM may fail, Chrysler may fail, or Cerberus will keep them afloat. Ford will probably survive and benefit from reduced competition. It may even open the market enough for new domestic car companies like Tesla to grow.

I'm not saying letting them fail will be pleasant. It will be very unpleasant. But it will leave us in a better position than keeping them. I don't believe they are capable of becoming profitable with a few loans. They're bad at what they do and they need to stop doing it.

[N Judah]

The Japanese could buy them. They're rolling in $ right about now.

[memebag]

The Japanese could buy them. They're rolling in $ right about now.

What do they have that the Japanese might want?

[Jeebus]

What do they have that the Japanese might want?

Everything except stylish design.

[editor]

Again, what do you suggest?

Let 'em go bankrupt. In spite of what the PR firms in Detroit want us to believe, it is possible for a company to go "bankrupt" but continue operating without laying off all of its staff. Look at the Tribune company, which filed for bankruptcy just last week. Nobody's out of work there. It's just reorganizing. Companies do it every day. STMG went bankrupt almost two years ago, and it's still in business with only a couple of hundred people laid off.

Let one or two of the failed auto companies in Detroit go bankrupt. They sell off products, divisions, and intellectual property to other, healthier, automakers or IP firms, or other companies that specialize in this sort of thing like KKR.

The result is fewer, smaller companies, but healthier companies. Maybe Ford ends up ONLY selling trucks. If that's a healthy way to run the company, then fine. Maybe Chrysler ends up only selling minivans and fleet vehicles. Good for them. Who says one car company has to provide every means of transportation possible. Let the auto makers excel at what they're good at. And if they're not good at anything, then they should just go away.

The notion that America can't survive without Detroit is 1950's thinking. I simply don't believe that throwing money into the pit that the automakers have created will do any good. They weren't able to turn a profit when they used their own money, why should I believe that suddenly they've figured everything out and if they're spending my money everything will magically be fixed?

How about this -- let China bail out the auto companies. Let Chinese companies loan billions to Detroit. If the U.S. automakers turn stuff around, great -- they pay back the loans with interest. If they don't, then the auto companies become owned by the Chinese. It's not like in 10 years we aren't going to see Americans driving hundreds of thousands of Chinese cars anyway.

Scoff if you will, but it was just 30 years ago that Americans were saying nobody would ever buy a Japanese car. And 15 years ago people said no one would ever drive a car from South Korea.

A car is a commodity, just like a tennis shoe, or a piece of rebar, or a box of band-aids. It's not special. If the American companies can't figure out how to make them, then they should step aside and let the people who know what they're doing have a crack at it.

[TJones]

Well, bankruptcy ain't gonna happen yet. Red's Harvard buddy, George Dubbya, is gonna help 'em out for the time being. It looks like only GM will be the winner though, and I know I have seen George driving a Ford Deisel on his ranch.

http://online.wsj.com/article/SB1229091337...wsj_gadgv1&

[N Judah]

The notion that America can't survive without Detroit is 1950's thinking.

If this is a harbinger of the beginning of the end of the top-to-bottom suburban lifestyle subsidization of the 'American Dream' then I am all for letting the automakers founder.

[N Judah]

Canada wants to help:

http://www.google.com/hostednews/ap/articl...ocYuYAD95213900

[Jeebus]

There's a reason we make fun of Canada.

[RedScare]

Well, bankruptcy ain't gonna happen yet. Red's Harvard buddy, George Dubbya, is gonna help 'em out for the time being. It looks like only GM will be the winner though, and I know I have seen George driving a Ford Deisel on his ranch.

http://online.wsj.com/article/SB1229091337...wsj_gadgv1&

Umm....Yale.

[TJones]

Umm....Yale.

Like there's a difference ? But yes, your buddy from Yale, the Messiah went to Harvard, my mistake.

[N Judah]

There's a reason we make fun of Canada.

What is that reason, and what does that have to do with their auto bailout?

[editor]

Does anyone else think it's oh so very convenient that all three American automakers are going bankrupt at once? That one isn't in a better position than the others and able to buy all or a part of it? Funny how that works.

[memebag]

Does anyone else think it's oh so very convenient that all three American automakers are going bankrupt at once? That one isn't in a better position than the others and able to buy all or a part of it? Funny how that works.

Ford said they aren't going bankrupt yet. They said they have enough cash to struggle through for at least 2009. I totally understand them lining up at the trough with the other two, though. Why would you let your competition take that advantage?

[20thStDad]

Does anyone else think it's oh so very convenient that all three American automakers are going bankrupt at once? That one isn't in a better position than the others and able to buy all or a part of it? Funny how that works.

Is their common downfall the UAW? Or do all the idiot CEOs go to the same country club to talk strategy?