Bailout Nation 2: General Motors

[frheard]

It is my understanding that the plan is that none of the vehicles from Pontiac or the other discontinued brands is to be shifted to another make.

What is interesting is that it appears now that the federal government will end up the largest GM stakeholder, so GM will effectively end up a state-owned enterprise.

And the 2006 Pontiac GTC is NOT an "American icon". Good grief.

I say it is, so it is.

[BryanS]

So tell me your favorite car manufacturer and I'm sure I can find a rundown, old-school, dull, boxy image of it too.

Here is some old school for you:

Boxy! I love boxy! You can't get any more boxy - or old school - than the 1980's MR2! Which I still have... run-down, dull.... but still working in my garage... =)

MortorWeek was out of its mind when it picked Fiero over MR2. I mean... Look at the shots of the Fiero interior! Could they have possibly made the manual gear shift any more clunky? What a gutless V-6 the Fiero had.

That was back in the 1980's. Domestics sucked then. And in the 1970's. Starting in the 1990's-ish, to the present, domestics are no better or worse than foreign makers; and certainly no better or worse than the Toyota and Honda transplants. Even Mercedes is building cars in Alabama now.

[RedScare]

GM to file Bankruptcy at 8 am Monday.

[barracuda]

Yes this is an old thread, but I figure it's worth noting what has happened in the two years since the last post.

- Chrysler has paid off it's $5.9B in U.S. loans.

- G.M. has paid off half it's $50B in U.S. loans, with approx. $11B more to be recovered from the government's stake in the company

The government is estimating it will lose about $14B overall from the auto company bailout funds once they recover the remainder from G.M. Despite this loss, I still think the bailouts were preferable to letting both companies go bankrupt. In the short-term, it helped avert an economic depression that would have affected us all. And in the long-run, it retained and rebooted an economically-important American manufacturing sector along with hundreds of thousands of jobs and thousands of interdependent companies. The domestic automakers are healthier now than they've been in decades, thanks to new labor agreements that allow them to compete on cost, and due to newer vehicles that are efficient and competitive with global rivals. Their existence also provides counterbalance in the global automotive market. The Japanese carmakers -- who it should be noted also received government loans from their government -- are struggling to fill lots due to the earthquake, so it's good that there's more than just Volkswagen and Hyundai/Kia to supply the low- and mid-market and keep prices from jumping.

I'm curious if anyone still thinks these bailouts were a mistake...do you think we'd be better off today if the domestic carmakers had been pushed into bankruptcy?

[Triton]

- Chrysler has paid off it's $5.9B in U.S. loans.

- G.M. has paid off half it's $50B in U.S. loans, with approx. $11B more to be recovered from the government's stake in the company

Ha! Ha! Those numbers are a real joke. They mainly got that money to "pay off" the loans by borrowing LARGE sums of money. They are trying to paint this picture that they are doing fantastic when in reality they have quite a long way to go.

[TheNiche]

I'm curious if anyone still thinks these bailouts were a mistake...do you think we'd be better off today if the domestic carmakers had been pushed into bankruptcy?

Bankruptcy doesn't mean, "poof, it's gone!" The legal purpose of bankruptcy protection is to allow individuals, companies, and even governments that have taken on a crushing load of debt or made deals adverse to their very existence to get a fresh start, renegotiate agreements, stabilize, and continue on. In a worst-case scenario, Chapter 7 bankruptcy allows an entity to liquidate its valuable and productive assets into a marketplace that provides fresh capital so that they can be put back into productive use.

What the government did with GM and Chrysler was redundant from an economy and jobs perspective. The only real difference was that bondholders were protected. It was a financial arrangement. I'm not especially confident that it was a sham or a means of political kickback to companies with powerful lobbyists...but I wouldn't be surprised one bit.

[barracuda]

Bankruptcy doesn't mean, "poof, it's gone!" The legal purpose of bankruptcy protection is to allow individuals, companies, and even governments that have taken on a crushing load of debt or made deals adverse to their very existence to get a fresh start, renegotiate agreements, stabilize, and continue on. In a worst-case scenario, Chapter 7 bankruptcy allows an entity to liquidate its valuable and productive assets into a marketplace that provides fresh capital so that they can be put back into productive use.

If I may speculate, the weaker Chrysler would most certainly have gone poof. Some of their more valuable resources would have eventually been bought by others, but the company would cease to exist. I wouldn't be so sure about G.M.'s survival either. Ford may have been dragged into bankruptcy as well, due to all their suppliers going out of business, but they were most prepared for this and may have survived a much smaller company.

What the government did with GM and Chrysler was redundant from an economy and jobs perspective. The only real difference was that bondholders were protected. It was a financial arrangement. I'm not especially confident that it was a sham or a means of political kickback to companies with powerful lobbyists...but I wouldn't be surprised one bit.

I'm not so sure about redundancy. Nobody was going to immediately fill in the gap left by two (and possibly three) automakers going under during a recession and the resultant loss of millions of industry jobs. More likely, you would have seen a mass exodus of people from the Midwest to Houston and other cities with more opportunities that are less affected by the auto industry.

I think the bottom line politically is that the long-term consequences to ignoring the plight of this industry were worse than the shorter-term consequences of bailing it out. Obama and many Democrats consider it a success story, and some are even campaigning, at least regionally, on the fact that they saved the American wing of this industry.

[TheNiche]

If I may speculate, the weaker Chrysler would most certainly have gone poof. Some of their more valuable resources would have eventually been bought by others, but the company would cease to exist. I wouldn't be so sure about G.M.'s survival either. Ford may have been dragged into bankruptcy as well, due to all their suppliers going out of business, but they were most prepared for this and may have survived a much smaller company.

So?

I'm not so sure about redundancy. Nobody was going to immediately fill in the gap left by two (and possibly three) automakers going under during a recession and the resultant loss of millions of industry jobs. More likely, you would have seen a mass exodus of people from the Midwest to Houston and other cities with more opportunities that are less affected by the auto industry.

Whatever the demand was for cars, it would've been filled by utilizing productive capacity in terms of land, capital, and labor. If the cheapest way to accomplish that is by fresh capital coming in to purchase existing production lines, rather than retooling those production lines to a completely different kind of car, then that is exactly what would've happened. Such a reallocation of resources may not have been flagged by GM or Chrysler any longer...but who cares, really, what the name is? We're talking about economics, not tradition or some such ridiculousness.

I think the bottom line politically is that the long-term consequences to ignoring the plight of this industry were worse than the shorter-term consequences of bailing it out. Obama and many Democrats consider it a success story, and some are even campaigning, at least regionally, on the fact that they saved the American wing of this industry.

...or some such ridiculousness.

[barracuda]

So?

So poof, they're gone,

Whatever the demand was for cars, it would've been filled by utilizing productive capacity in terms of land, capital, and labor. If the cheapest way to accomplish that is by fresh capital coming in to purchase existing production lines, rather than retooling those production lines to a completely different kind of car, then that is exactly what would've happened. Such a reallocation of resources may not have been flagged by GM or Chrysler any longer...but who cares, really, what the name is? We're talking about economics, not tradition or some such ridiculousness.

Eventually. I don't think most people would prefer the preceeding years of even higher national unemployment, homelessness, foreclosure rates, bankrupt states (Michigan), etc., versus a relative drop in the bucket financially to the national budget to stem that tide. The fact that both companies are now highly profitable and are selling record numbers of cars show that there is demand for these company's products, so it seems the bailout was a productive allocation of resources both short-term and long-term.

[TheNiche]

So poof, they're gone,

When an organ donor dies, are their corneas gone? Their heart? Their liver? Their kidneys? That's Chapter 7, the worst case scenario, which would've only come about after an unsuccessful run at Chapter 11...which would've allowed them all the necessary time to renegotiate labor agreements and bad contracts in the first place, and for the capital markets to heal to such an extent as that there would be a buyer for their assets.

Eventually. I don't think most people would prefer the preceeding years of even higher national unemployment, homelessness, foreclosure rates, bankrupt states (Michigan), etc., versus a relative drop in the bucket financially to the national budget to stem that tide. The fact that both companies are now highly profitable and are selling record numbers of cars show that there is demand for these company's products, so it seems the bailout was a productive allocation of resources both short-term and long-term.

You aren't addressing my counterpoints at all, merely repeating yourself.

[barracuda]

You aren't addressing my counterpoints at all, merely repeating yourself.

I thought I did. In my scenario, the bankruptcies result in a great depression. So there is no capital or credit to purchase and restart production lines for years. They sit idle and grow weeds until they lose value due to natural damage and obsolecense.

[TheNiche]

I thought I did. In my scenario, the bankruptcies result in a great depression. So there is no capital or credit to purchase and restart production lines for years. They sit idle and grow weeds until they lose value due to natural damage and obsolecense.

Your scenario ignores Chapter 11 of the Bankruptcy Code.

[TheNiche]

So sad. We build Excitement!

oh wait. That's a piece of crap. A "stylish" piece of crap.

I saw this post and couldn't help but be reminded of how Ford is marketing the Focus with an irreverent puppet.