Bailout Nation 2: General Motors

[TJones]

You gotta let them go bankrupt so they can file Chap. 11, reorganize and vanquish the UAW.

[RedScare]

Something else to consider while we all rush to put the Big 3 in their respective graves.

China wants to buy Big 3

[Fringe]

Something else to consider while we all rush to put the Big 3 in their respective graves.

China wants to buy Big 3

Kind of scary but we already owe China $350 billion.

link

[Jeebus]

Something else to consider while we all rush to put the Big 3 in their respective graves.

China wants to buy Big 3

I have mixed feelings on this. I don't want them bailed out, but I don't want China to buy them either. I say stick to our guns and deny the bailout, but also deny any outside attempt to buy them. Force them to restructure and keep us, the American taxpayers, from having to pay twice every time we "buy American".

[Deut28Thirteen]

Dang, China wont stop tell they have the worlds biggest economy! Cant be mad at them since America is almost handing it to them. We have to bail out the Big Three to help save jobs. People keep yelling why are we loseing jobs but they are willing to let Auto fail and have the potental to lose milllions of more jobs. Media needs to stop making the bailout as if it were just going to help the CEOs. It will help keep jobs! If it was oil that needed a bailout The whole state of Texas will be up in arms in why arent we helping keep jobs in Texas?

On a Side Note.

Watching Lou Dobbs and is wondering why do we outsource so much jobs to China and import billions of billions of dollers in goods that could be produced in America? It seems like they dont like us all that much and their products don't seem very safe. We import nearly 900 million$ of our mediciens and almost 5 billion in food. WHY? We can give some of those jobs to the mid west cities like Cincy and Clevland and Detorit, and other Midwest cities/Great Lakes areas and other areas in America hit hard by the economic downturn. We are the Medical capital of the world why not make meds here in Houston? Invest in America and not just China.

[TheNiche]

Obviously you don't if I have to explain it to you but here goes:

1. This person is making millions despite his company loosing revenue. How much of this bailout will go to paying his salary?

GM's YTD 3Q 2008 total costs and expenses were $132,534,000,000. The CEO's compensation (incl. salary, bonus, and "other") was $15.7 million in 2007. That's about 0.01% of their total costs and expenses.

2. Has this CEO made any sacrifices for his company? I'm guessing not.

He got a 64% raise last year. One would think that he's doing *something* right.

Then again, "Wagoner had accepted a reduced base salary in 2006 and 2007 and only about 16 percent of his compensation is guaranteed. In March, GM granted Wagoner a raise to $2.2 million per year, restoring his salary to 2006 levels."

3. Can we really trust a person that is obviously incompetent with our money?

Is he incompetent? And if he is so incompetent, how on earth did he land himself this sweet, lucrative gig? And how come he keeps getting raises?

Maybe GM should be offering more money to prospective CEO candidates if they're so completely unable to find a competent one.

And you speak of "our money". Whose money? Are you a GM shareholder? If so and you've ridden it out for this long, are you sure that it is Wagoner that is the incompetent one?

4. Obviously, despite their stock dropping to all time lows, there is still plenty of money for the executives.

As of Sept. 30, 2008 GM had $16,007,000,000 of cash and cash equivalents on hand. In the 50 days since, it would be expected that the CEO would have earned only about $2.15 million in compensation, or about 0.013% of that category of assets.

[TheNiche]

It gets better. When they went to Washington to beg for still more public funds all three CEOs took private jets. After all, it just wouldn't do to go commercial.

Assume that the CEO flew by himself (a completely unreasonable assumption). The opportunity cost of his time, assuming 60-hour work weeks, is $5,233 per hour. Now consider that flying on the corporate jet saved him four hours on the round trip, allowed him to be more flexible in arranging his schedule, and allowed him to work from the office that is on the jet. Also consider that the price of jet fuel these days is substantially reduced. I have no doubt that the use of the corporate jet was an investment that paid off for GM.

But I would conceed that it was a poor management decision because there are lots of uninformed people that take spun rhetoric about corporate jets at face value without actually granting it the slightest bit of critical thought...and those people are in touch with their politicians.

So I would concur that in this case, maximizing the effect of GM's investment in management is an example of executive incompetence.

[TheNiche]

Dang, China wont stop tell they have the worlds biggest economy! Cant be mad at them since America is almost handing it to them. We have to bail out the Big Three to help save jobs. People keep yelling why are we loseing jobs but they are willing to let Auto fail and have the potental to lose milllions of more jobs. Media needs to stop making the bailout as if it were just going to help the CEOs. It will help keep jobs! If it was oil that needed a bailout The whole state of Texas will be up in arms in why arent we helping keep jobs in Texas?

On a Side Note.

Watching Lou Dobbs and is wondering why do we outsource so much jobs to China and import billions of billions of dollers in goods that could be produced in America? It seems like they dont like us all that much and their products don't seem very safe. We import nearly 900 million$ of our mediciens and almost 5 billion in food. WHY? We can give some of those jobs to the mid west cities like Cincy and Clevland and Detorit, and other Midwest cities/Great Lakes areas and other areas in America hit hard by the economic downturn. We are the Medical capital of the world why not make meds here in Houston? Invest in America and not just China.

http://en.wikipedia.org/wiki/Comparative_advantage

http://stevesuranovic.blogspot.com/2007/10...-advantage.html

[RedScare]

Assume that the CEO flew by himself (a completely unreasonable assumption). The opportunity cost of his time, assuming 60-hour work weeks, is $5,233 per hour. Now consider that flying on the corporate jet saved him four hours on the round trip, allowed him to be more flexible in arranging his schedule, and allowed him to work from the office that is on the jet. Also consider that the price of jet fuel these days is substantially reduced. I have no doubt that the use of the corporate jet was an investment that paid off for GM.

But I would conceed that it was a poor management decision because there are lots of uninformed people that take spun rhetoric about corporate jets at face value without actually granting it the slightest bit of critical thought...and those people are in touch with their politicians.

So I would concur that in this case, maximizing the effect of GM's investment in management is an example of executive incompetence.

In considering that the purpose of the trip was to convince Congress to loan GM $25 Billion, Wagonner could not have made a worse investment. Appearances DO matter, both on the showroom floor and when asking for loans, and Wagonner proved spectacularly that he does not understand the psyche of the American consumer OR the American taxpayer. At our last HAIF happy hour, someone suggested that he pictured me as a liberal lawyer with a ponytail. I pointed out that, while I sometimes wish that I could go hippy like that, my duty to my clients dictates that I keep my salt and pepper hair cut short, in order to project an image that I am a competent attorney. Wagonner projected an image of an executive completely out of touch with how to successfully market his company, critical for selling automobiles.

I am very concerned with the US attitude toward its manufacturing base. We very much need a viable manufacturing component to maintain a viable economy. Yet, our US CEO's are projecting such an air of incompetence that I am reluctant to support a bailout, even though I know that we will suffer as a country for doing so. Your support of incompetent CEO's and the outrageous pay they receive for their incompetence suggests that you are more concerned with supporting overpaid executives than a balanced economy. Frankly, I don't think you get it. These economically ignorant consumers that you dismiss with economic theories comprise 70% of the US economy. Ignore them at your...and GM's...own risk.

[Deut28Thirteen]

http://en.wikipedia.org/wiki/Comparative_advantage

http://stevesuranovic.blogspot.com/2007/10...-advantage.html

We learned about Comparative advantage in Economics. We had to use that information and a 60 min(the show not lenght) video on Wal-Mart, then write a paper on if Wal-Mart was good for America or bad. I sad bad because although it makes prices cheaper but it ships American jobs overseas creating a need for cheaper prices because people have lower wage jobs and an higher unimployment rates. And Wal-Mart got it start by saying "Made in America". The fact that Americans need jobs now more than ever and we seem to be losing any advantage we have to China and that their products have not been safe as of late, seems to me the Gov. needs to bring some of those jobs back to America. IMO I dont want our meds produced in another country or our food when it is dangours to our health and we need jobs. I am also more concerened with National Security issues since there are tensions between the two Nations.

[TheNiche]

In considering that the purpose of the trip was to convince Congress to loan GM $25 Billion, Wagonner could not have made a worse investment. Appearances DO matter, both on the showroom floor and when asking for loans, and Wagonner proved spectacularly that he does not understand the psyche of the American consumer OR the American taxpayer. At our last HAIF happy hour, someone suggested that he pictured me as a liberal lawyer with a ponytail. I pointed out that, while I sometimes wish that I could go hippy like that, my duty to my clients dictates that I keep my salt and pepper hair cut short, in order to project an image that I am a competent attorney. Wagonner projected an image of an executive completely out of touch with how to successfully market his company, critical for selling automobiles.

On that I agree. In fact, if you'd bothered reading to the bottom of my post, you'd could've saved a lot of your time which you instead bothered to spend convincing me of a point that I'd already made. In so doing you have failed to project the image of a competent counterparty in this argument. And therefore, in the spirit of our posts and allowing for the truth that properly-executed rhetoric in the spirit of gaining popular support trumps pragmatism, I declare that your post is redundant, therefore wrong, and that nobody should listen to you anymore--even when you're agreeing with me (who was original and not redundant and therefore "competent" and therefore "right").

[Highrise Tower]

On that I agree. In fact, if you'd bothered reading to the bottom of my post, you'd could've saved a lot of your time which you instead bothered to spend convincing me of a point that I'd already made. In so doing you have failed to project the image of a competent counterparty in this argument. And therefore, in the spirit of our posts and allowing for the truth that properly-executed rhetoric in the spirit of gaining popular support trumps pragmatism, I declare that your post is redundant, therefore wrong, and that nobody should listen to you anymore--even when you're agreeing with me (who was original and not redundant and therefore "competent" and therefore "right").

That is good stuff.

I did not read this thread*

[TheNiche]

We learned about Comparative advantage in Economics. We had to use that information and a 60 min(the show not lenght) video on Wal-Mart, then write a paper on if Wal-Mart was good for America or bad. I sad bad because although it makes prices cheaper but it ships American jobs overseas creating a need for cheaper prices because people have lower wage jobs and an higher unimployment rates.

F

The fact that Americans need jobs now more than ever and we seem to be losing any advantage we have to China and that their products have not been safe as of late, seems to me the Gov. needs to bring some of those jobs back to America. IMO I dont want our meds produced in another country or our food when it is dangours to our health and we need jobs. I am also more concerened with National Security issues since there are tensions between the two Nations.

It was marketing to a poorly-educated customer base. It had to mislead them or it would've gone out of business. In so doing, they made a good business decision and were rewarded--unlike GM, whose executives have no clue how to mislead Americans and therefore should be denied a bailout, so sayeth RedScare.

Seriously though, times change. Wal-Mart got where it is by demanding that producers lower their costs and by then passing along the savings to consumers. And the outcome of that was that producers have moved production overseas. It has increased the buying power of a ridiculously large number of low-income American consumers and is responsible for the employment of millions of people formerly living in squalor in third-world countries. They are a testament to everything that is great about capitalism and about the United States. They are true humanitarians. Someone needs to give them a frickin medal.

The fact that Americans need jobs now more than ever and we seem to be losing any advantage we have to China and that their products have not been safe as of late, seems to me the Gov. needs to bring some of those jobs back to America. IMO I dont want our meds produced in another country or our food when it is dangours to our health and we need jobs. I am also more concerened with National Security issues since there are tensions between the two Nations.

I'd beg to differ. So would my grandparents, who lived through the Great Depression and had to rely on squirrel, oppossum, raccoons, and other such scumptious varmints for meat during those years.

The fact that Americans need jobs now more than ever and we seem to be losing any advantage we have to China and that their products have not been safe as of late, seems to me the Gov. needs to bring some of those jobs back to America.

Your lines of argument are contradictory. We're losing advantage to China, which manufactures inferior products. Seems to me more like the reality is that to the extent that there is a market for inferior products, we're letting China take the lead, and that to the extent that there is a market for superior products--we buy Japanese.

I am also more concerened with National Security issues since there are tensions between the two Nations.

China is really more friendly to us than we are to them. They want peace between us. If we cut ties with them, they'd be up ____ creek. If there's any doubt about it, just look at their economy right now; they're so reliant upon us that when we go into recession, they go into depression.

If ever there was an argument for Globalization, peace between nations is that argument.

[memebag]

Watching Lou Dobbs and is wondering why do we outsource so much jobs to China and import billions of billions of dollers in goods that could be produced in America?

Because if we paid Americans like we pay Chinese, Americans wouldn't be able to afford any of that stuff we buy from China.

Re China buying the Big 3:

I say let China buy them. I'll feel much better about unions if they're sticking it to those.

[crunchtastic]

http://www.nytimes.com/2008/11/18/business...y/18sorkin.html

This is probably the best argument I've read in a week. Of course, after reading it myself, I find that my favorite markets blogger Rittholz linked to the same article. As always I like to direct people here:

http://www.ritholtz.com/blog/2008/11/why-a...than-a-bailout/

You can choose to believe the UAW and/or Waggoner, or you can choose to believe that their cut of $25 billion will last approximately 6 weeks, with no systemic problems solved.

GM needs restructuring. Period.

[sifuwong]

I believe China tried to buy Unocal several years ago, but Congress wouldn't allow it. Chevron eventually gobbled up Unocal.

[SecondTour]

For decades, the big three put their greed & their goal of billions in profits above their desire to make quality automobiles.

In 1982, I made the switch to much higher quality Japanese automobiles. I never looked back.

The big three deserve to be where they are.

[TJones]

Red, Toyota is shutting down ALL production at plants for the next 30 days, starting TODAY, supposedly. I heard it through the grapevine.

[sifuwong]

http://www.nytimes.com/2008/11/18/business...y/18sorkin.html

This is probably the best argument I've read in a week. Of course, after reading it myself, I find that my favorite markets blogger Rittholz linked to the same article. As always I like to direct people here:

http://www.ritholtz.com/blog/2008/11/why-a...than-a-bailout/

You can choose to believe the UAW and/or Waggoner, or you can choose to believe that their cut of $25 billion will last approximately 6 weeks, with no systemic problems solved.

GM needs restructuring. Period.

Good article dude. Yeah, let it restructure and go from there.

[Subdude]

I have mixed feelings on this. I don't want them bailed out, but I don't want China to buy them either. I say stick to our guns and deny the bailout, but also deny any outside attempt to buy them. Force them to restructure and keep us, the American taxpayers, from having to pay twice every time we "buy American".

I don't see what difference it would make if Chinese companies bought them. Look, China is accumulating trillions of dollars. They are going to want and have to recycle those dollars somehow, and using their dollars to buy dollar-based companies makes a lot of sense. There's no rational ground to deny an outside attempt to buy them. In the long run we aren't benefiting from so much protectionism and state sponsorship of industry.

[RedScare]

Red, Toyota is shutting down ALL production at plants for the next 30 days, starting TODAY, supposedly. I heard it through the grapevine.

I'm not worried. I pay off my truck completely on Friday. Because it is a Toyota, I need not worry that it will break down, nor am I worried about planned obsolescence. I'm not buying a new truck in the next 30 days, so a shutdown won't hurt me.

Of more relevance to this thread is the fact that Toyota makes the decisions needed to keep their company solvent, including factory shutdowns when needed. GM flies its jets to DC to ask me to give them a loan. It is worth noting that I am one of those bailout votes at the top of the thread. I wish to change my vote to Chapter 11.

[TJones]

I'm not worried. I pay off my truck completely on Friday. Because it is a Toyota, I need not worry that it will break down, nor am I worried about planned obsolescence. I'm not buying a new truck in the next 30 days, so a shutdown won't hurt me.

Of more relevance to this thread is the fact that Toyota makes the decisions needed to keep their company solvent, including factory shutdowns when needed. GM flies its jets to DC to ask me to give them a loan. It is worth noting that I am one of those bailout votes at the top of the thread. I wish to change my vote to Chapter 11.

I don't tell you this info. as a "Hey, you better watch out!" type of deal. I have full confidence in the Japan Big 3. A buyout by another manufacturer is not always a bad thing though. I.E. Nissan being bought by Renault years ago. I do however have a problem with China buying into our American Icons. If the past 2 years of "Quality" shown by China is any indicator, then any infusion of money from them will be a giant waste for everyone involved. Let the industry file, and have the whole board wiped clean, and restructure.

[BryanS]

The whole jet questioning today was absurd, gotcha politics. Their multi-million dollar jets are just a drop in the bucket vs. the BILLIONS that are needed to keep the companies going. I would say that pretty much all executives at that level in this country, of companies that size, have such perks - no matter what the economy is doing. Hey CONgress, what kind of perks do you have? You hypocrites.

Unlike the bank bailouts, I think we really are playing with fire here, when it comes to our domestic auto companies; our MAIN STREET manufacturing base in this country. Just today, I had to purchase some black iron pipe for a project I am working on in my house. Went to Lowes... MADE IN CHINA it said on the plumbing fittings. Didn't buy them. Went to Home Depot... looking for a way, any way, to pay *just a little more* for an American piece of cast/forged iron... no luck. I had no choice, had to buy Chinese. Damn. It used to not be like that. NOT buying the Chinese pipe wrenches, either. I go to Sears tomorrow, looking for Craftsman. God save Sears.

You want to buy Chinese cars instead of American vehicles? Just let GM fail. We will be sorry, as a nation.

[musicman]

Just today, I had to purchase some black iron pipe for a project I am working on in my house. Went to Lowes... MADE IN CHINA it said on the plumbing fittings. Didn't buy them. Went to Home Depot... looking for a way, any way, to pay *just a little more* for an American piece of cast/forged iron... no luck. I had no choice, had to buy Chinese.

you could have gone to a plumbing supply instead. My parents just had 15' added and it was all domestic. not saying all plumbing supplies are like that but that is an option.

[Jeebus]

I don't see what difference it would make if Chinese companies bought them. Look, China is accumulating trillions of dollars. They are going to want and have to recycle those dollars somehow, and using their dollars to buy dollar-based companies makes a lot of sense. There's no rational ground to deny an outside attempt to buy them. In the long run we aren't benefiting from so much protectionism and state sponsorship of industry.

I fundamentally agree with you. As a conservative who strongly supports "Defense" though, I'm nervous about selling our three biggest means for manufacturing heavy equipment in a time of war. I know thats overzealous conservative paranoia, but its still there none the less.

I would rather see them collapse, consolidate, restructure, and the have one or two brands emerge as the victor. Yes, some jobs will be lost, but that's the risk of capitalism. I'd rather see bailout money go to the laid off workers for a set period of time, than to go to the companies themselves. I don't think it will help them recover, and we have all seen the mixed results with banking bailout.

You want to buy Chinese cars instead of American vehicles? Just let GM fail. We will be sorry, as a nation.

Worst case scenario is that we'll still have Japanese. I would however prefer the notion of knowing at least one american vehicle manufacturing company will survive.

[TheNiche]

I fundamentally agree with you. As a conservative who strongly supports "Defense" though, I'm nervous about selling our three biggest means for manufacturing heavy equipment in a time of war. I know thats overzealous conservative paranoia, but its still there none the less.

I would rather see them collapse, consolidate, restructure, and the have one or two brands emerge as the victor. Yes, some jobs will be lost, but that's the risk of capitalism. I'd rather see bailout money go to the laid off workers for a set period of time, than to go to the companies themselves. I don't think it will help them recover, and we have all seen the mixed results with banking bailout.

Where defense is concerned, the only thing that really matters is that we have the capability to manufacture the equipment here given a reasonable re-tooling period. I don't care whether the owner is Chinese, Japanese, German, Arab, Iraqi, or whatever. If worse came to worse, we'd nationalize the plant. And I really can't envision a scenario at this point where we don't have that capability.

[Jeebus]

Where defense is concerned, the only thing that really matters is that we have the capability to manufacture the equipment here given a reasonable re-tooling period. I don't care whether the owner is Chinese, Japanese, German, Arab, Iraqi, or whatever. If worse came to worse, we'd nationalize the plant. And I really can't envision a scenario at this point where we don't have that capability.

Good point. My worry is that once they buy the companies that they'll slowly dismantle them and move the majority of their operations out of the country. Then there would be nothing left to nationalize in a time of war.

[TheNiche]

Good point. My worry is that once they buy the companies that they'll slowly dismantle them and move the majority of their operations out of the country. Then there would be nothing left to nationalize in a time of war.

Contrary to popular belief, not every commercial property in Detroit is not going to get sucked into a black hole and deposited into the center of the sun. And that's pretty much what has to happen on midnight December 31st, 2008. for the worst-case scenario figures that are getting tossed around to be realized.

There's going to be a lot of idle plant, property & equipment there and throughout the upper Midwest for a long, long time. But, for instance, if we really had to, we could take Toyota's San Antonio plant (or any other random vehicle plant) and retool it to produce armored vehicles. It's just inconceivable to me that not a single auto manufacturer would do business in the U.S. out of xenophobia, ethnocentrism, or what-have-you, and that they'd basically just scrap every single plant in the country. It'd be irrational!

Perhaps more to the point, it'd be irrational of them to abandon us in a time of war because the resulting embargo would cripple them.

[Jeebus]

Contrary to popular belief, not every commercial property in Detroit is not going to get sucked into a black hole and deposited into the center of the sun. And that's pretty much what has to happen on midnight December 31st, 2008. for the worst-case scenario figures that are getting tossed around to be realized.

There's going to be a lot of idle plant, property & equipment there and throughout the upper Midwest for a long, long time. But, for instance, if we really had to, we could take Toyota's San Antonio plant (or any other random vehicle plant) and retool it to produce armored vehicles. It's just inconceivable to me that not a single auto manufacturer would do business in the U.S. out of xenophobia, ethnocentrism, or what-have-you, and that they'd basically just scrap every single plant in the country. It'd be irrational!

Perhaps more to the point, it'd be irrational of them to abandon us in a time of war because the resulting embargo would cripple them.

Unless said country was at war with us

But seriously, I do see you point.

[Jeebus]

http://www.nytimes.com/2008/11/18/business...y/18sorkin.html

I have to agree completely with this article. A restructured GM, and a dissolved Chrysler is what is needed. I agree that about the only thing salvageable from Chrysler would be the Jeep brand, and the Hemi & Cummins motors. Perhaps if GM absorbed Chrysler they could do sweetheart deals where they would release limited production models like the Dodge Challenger or Dodge Charger for those fans of the line.

As for GM, I wouldn't miss GMC, Saturn, Pontiac, or Buick (no matter how popular the article say they are in China). Stick to the basics like Chevrolet, and Cadillac. It works for the big three Japanese imports (Honda/Acura, Toyota/Lexus, Nissan/Infiniti). And unlike the Dodge branding, I can't really think of any model that could be re-made that would be as hot a seller as the Dodge models listed above.

In the midst of all this, all we keep hearing discussed are two of the big three. Where does Ford stand in all this?