Automakers: about $35 Billion should do it, or 50B

[sgrizzle]

quote:Originally posted by HazMatCFO

GM's CEO said the words Total Liquidation yesterday if GM doesn't get help.

I equated that to failing as a company.

GM makes cars and people buy them. They are still spending millions on sponsorships and advertising and have done no significant changes to their vehicle lines and have even expanded the low-volume markets like the hummer lineup.

Failing is not having to close down a couple of lines, I'll know they're close when they make some real cuts to management and product lines and sell some stuff off.

[Red Arrow]

quote:Originally posted by TheArtist
But lets take the Murano as a case in point. The economy is slowing down and I know danged well that as an artist, its likely to hurt me more than most. That Murano aint cheap, nor is the insurance and gas etc.

I have to believe that in your line of work that image is part of the package. If the Murano meets your needs for hauling stuff and gets you work for whatever reason, then it becomes a necessary business expense.  If you like the vehicle, so much the better.

[waterboy]

Some of you guys are pretty cavalier about gutting an industry player whose ripple effects on employment and wealth would be felt all over. Especially during a time of already weakening economics. Would you support the liquidation of Exxon/Mobil or the other oil titans should they find that the world insists on greener sources of energy? We would be begging at the trough just like the automakers believe me.

That said, American automakers are incompetent and their products are clumsy trash cans for the most part that seem to have been made to enable a vehicle for financing. They have steadfastly made short term decisions paramount.
Some free market punishment is in order. They need someone like Boone Pickens to work windmill magic on them.

[inteller]

quote:Originally posted by waterboy

Some of you guys are pretty cavalier about gutting an industry player whose ripple effects on employment and wealth would be felt all over. Especially during a time of already weakening economics. Would you support the liquidation of Exxon/Mobil or the other oil titans should they find that the world insists on greener sources of energy? We would be begging at the trough just like the automakers believe me.

That said, American automakers are incompetent and their products are clumsy trash cans for the most part that seem to have been made to enable a vehicle for financing. They have steadfastly made short term decisions paramount.
Some free market punishment is in order. They need someone like Boone Pickens to work windmill magic on them.

poor analogy, because the big energy companies have alternative energy waiting in the wings, they just aren't going to play those cards until people demand it.  on the other hand other automakers bedies GM have invested LOTS of money in better vehicles, but GM just plodded along, making guzzling vehicles and piling tons of incentives on top to make them move.  it is no one's fault but their own.

[cannon_fodder]

quote:Originally posted by waterboy


American automakers are incompetent and their products are clumsy trash cans for the most part that seem to have been made to enable a vehicle for financing. They have steadfastly made short term decisions paramount.

You said enough right there.  So yes, they deserve to fail.  I will be 100% cavalier about that statement.

Because we are having economic problems it is MORE important to let bad companies fail. Otherwise new companies can not emerge nearly as fast.  I can understand the need to ensure a smooth transition, and that is what bankruptcy trustee and the automatic stay is for.

The auto industry is not failing because the government regulated them out of business (as would be the case in the Exxon example), they are failing from nearly 40 years of incompetence.  That should NOT be rewarded with free money.  And if we save them, who is next?  Boeing?  AT&T?  

quote:They need someone like Boone Pickens to work windmill magic on them.

You realize he lost 33% of his net worth in the last 3 months?

[inteller]

How quickly we forget history.   If you want to get an idea of what a government bailout of domestic car companies gets you, look no further than British Motor Holdings.

The UK tried to "save" its domestic autos back in the mid 20th century, but all it yielded was a slow failure instead of a swift one.  It brought years of mediocrity and poor reliability as now the unions were just sucking off the government dole.

The Brits eventually figured out that this nationalized auto stuff was crap, and sold the pieces off to companies like BMW and Ford.  BMW did something good with MINI, but Ford realized that you can't take crap and turn it into gold so they eshewed Land Rover and Jaguar to Tata and the Chinese.

The US should cut right to the chaise and let GM et al fail.  Let the Chinese and Indians buy up the pieces and see what they can do with them.  If the products are worth anything let them succeed, if not, let them remain bottom rung Chinese crap that they are.

There is a new argument going around that we should bail them out because of national security.  Let me be clear, GM owns NO PART of AM General that make HUMVEEs.  They just own marketing rights to the HUMMER name and design effects.  H2s and H3s ARE NOT military vehicles.

[we vs us]

Ok, so what about the gigantor workforce associated with Ford and GM?  What about the city of Detroit which relies almost exclusively on the American automotive industry to survive? Not to mention smaller towns scattered across the country that are host to GM and GM-related factories.  I know we're purists on this board about how capitalism should work, but what about the massive human costs associated with the collapse of any/all American automakers?  

In pretty much any hypothetical collapse of GM or Ford or even Chrysler, thousands of workers -- from the factory on up to the office parks -- would be idled during the middle of a nasty nasty recession.  With the credit environment the way it is, there'd be no guarantee of any of the other automakers picking up the slack.  At that point, who gets to pick up the slack?  The government, in the form of UI, food stamps, and any other safety net programs.  So the question really is, do we give money directly to the companies and hope that they turn themselves around, or do we wait for them to fail, and spend that money on helping the workers stay afloat until they get hired again?  

Also, as someone mentioned, the government can offer the money with as many strings attached as they want.  So, feasibly, they could mandate that GM funnel all the bailout money into alternative fuel vehicles, as a for instance.  Or whatever.  Point being, the gov doesn't HAVE to just dump truckloads of cash on GM and then walk away.  It can use it as a swift kick in the rear as well.

*NOTE: I don't like the fact that this rewards GM for sucking.  And I understand the slippery slope argument (why not Boeing?  why not McDonald's?).   And Paulson has shown zero appetite for making industries who take the federal bailout hit any benchmarks whatsoever.  So, yeah, I'm skeptical.  Still, there're compelling reasons for this to happen.

[sgrizzle]

As mentioned above. $35B, $50B, it just buys time. Time with which GM has proven they will adjust nothing.

Want to help the US auto industry, kill the "Jobs Bank" that is leeching Billions annually.
http://wsjclassroom.com/archive/06may/auto2_jobsbank.htm

[inteller]

quote:Originally posted by we vs us

Ok, so what about the gigantor workforce associated with Ford and GM?  What about the city of Detroit which relies almost exclusively on the American automotive industry to survive? Not to mention smaller towns scattered across the country that are host to GM and GM-related factories.  I know we're purists on this board about how capitalism should work, but what about the massive human costs associated with the collapse of any/all American automakers?  

In pretty much any hypothetical collapse of GM or Ford or even Chrysler, thousands of workers -- from the factory on up to the office parks -- would be idled during the middle of a nasty nasty recession.  With the credit environment the way it is, there'd be no guarantee of any of the other automakers picking up the slack.  At that point, who gets to pick up the slack?  The government, in the form of UI, food stamps, and any other safety net programs.  So the question really is, do we give money directly to the companies and hope that they turn themselves around, or do we wait for them to fail, and spend that money on helping the workers stay afloat until they get hired again?  

Also, as someone mentioned, the government can offer the money with as many strings attached as they want.  So, feasibly, they could mandate that GM funnel all the bailout money into alternative fuel vehicles, as a for instance.  Or whatever.  Point being, the gov doesn't HAVE to just dump truckloads of cash on GM and then walk away.  It can use it as a swift kick in the rear as well.

*NOTE: I don't like the fact that this rewards GM for sucking.  And I understand the slippery slope argument (why not Boeing?  why not McDonald's?).   And Paulson has shown zero appetite for making industries who take the federal bailout hit any benchmarks whatsoever.  So, yeah, I'm skeptical.  Still, there're compelling reasons for this to happen.

you are incorrectly assuming that the assets GM has hold no worth and will not be purchased in bankruptcy auctions by various companies.  You also incorrectly assuming that employees at said assets will be swept away and new owners will hire a completely new work force.  No company is that stupid to throw the baby out with the bathwater.  These are chicken little sky is falling alarmist bull****, the same bull**** that scared congress to bail out banks for $700 bil.

Worthless assets that employ americans will fall by the wayside, and the governemnt will help those people through traditional unemployment means....but they will be the exception not the norm.  GM has done some bad things, but most of that is in management and not the assets themselves.  A smart company will see GM for its assets and buy the pieces that fit with the new owners the best.  Tata Silverados and Nanjing Corvettes?  Whatever it takes to fix a broken company.

[we vs us]

quote:Originally posted by inteller

quote:Originally posted by we vs us

Ok, so what about the gigantor workforce associated with Ford and GM?  What about the city of Detroit which relies almost exclusively on the American automotive industry to survive? Not to mention smaller towns scattered across the country that are host to GM and GM-related factories.  I know we're purists on this board about how capitalism should work, but what about the massive human costs associated with the collapse of any/all American automakers?  

In pretty much any hypothetical collapse of GM or Ford or even Chrysler, thousands of workers -- from the factory on up to the office parks -- would be idled during the middle of a nasty nasty recession.  With the credit environment the way it is, there'd be no guarantee of any of the other automakers picking up the slack.  At that point, who gets to pick up the slack?  The government, in the form of UI, food stamps, and any other safety net programs.  So the question really is, do we give money directly to the companies and hope that they turn themselves around, or do we wait for them to fail, and spend that money on helping the workers stay afloat until they get hired again?  

Also, as someone mentioned, the government can offer the money with as many strings attached as they want.  So, feasibly, they could mandate that GM funnel all the bailout money into alternative fuel vehicles, as a for instance.  Or whatever.  Point being, the gov doesn't HAVE to just dump truckloads of cash on GM and then walk away.  It can use it as a swift kick in the rear as well.

*NOTE: I don't like the fact that this rewards GM for sucking.  And I understand the slippery slope argument (why not Boeing?  why not McDonald's?).   And Paulson has shown zero appetite for making industries who take the federal bailout hit any benchmarks whatsoever.  So, yeah, I'm skeptical.  Still, there're compelling reasons for this to happen.

you are incorrectly assuming that the assets GM has hold no worth and will not be purchased in bankruptcy auctions by various companies.  You also incorrectly assuming that employees at said assets will be swept away and new owners will hire a completely new work force.  No company is that stupid to throw the baby out with the bathwater.  These are chicken little sky is falling alarmist bull****, the same bull**** that scared congress to bail out banks for $700 bil.

Worthless assets that employ americans will fall by the wayside, and the governemnt will help those people through traditional unemployment means....but they will be the exception not the norm.  GM has done some bad things, but most of that is in management and not the assets themselves.  A smart company will see GM for its assets and buy the pieces that fit with the new owners the best.  Tata Silverados and Nanjing Corvettes?  Whatever it takes to fix a broken company.

It's a global recession.  Tata and Nanjing aren't buying, either (China just announced their own bailout package.  $849 billion worth.).  And if they are there's no guarantee that they'll make use of the assets they purchase.  It's not like Tata swoops in, retools overnight, and gets down to making a gajillion Nanos here in the US. There will be major dislocations if GM is liquidated and the assets scattered.

My point is that there're added dimensions to the what and why of a bailout that don't include how the company itself performs, but do include the ripple effects of a failure.  I think it might actually be in the interest of the government to prevent a collapse.

[cannon_fodder]

Wevus:

Then why not guarantee all US jobs?  Why let any company fail, it will cost Americans jobs!

Detroit has known for a long time that the auto industry there is failing.  More auto jobs are out of Detroit than in.  Most are in Southern States (Tennessee, Texas, Georgia) now.  Detroit got too expensive (read: too unionized) to do business.  

Tulsa had the same problem (different reason).  We had to branch out and tried to get more into aviation, finance, and telecom.  It happens all the time.  Why should every other city in the US be forced to cough up $50BIL to help out Detroit, which failed to stay competitive?  Milwaukee used to be a Mecca that rivaled Chicago, Tulsa used to be far and away the largest city in Oklahoma... things change.

And as Inteller pointed out - the jobs will not disappear. They will be shifted around (just like all the jobs lost to robots or to them there Mexicans, we still got down to 4.5% unemployment).  Even if they did, a large skilled workforce would draw in new jobs.  That's how the system works.

What long term good would come from this?  GM would fail just the same.  Give $100,000,000,000.00 to GM with no strings attached and it would be gone in 2.5 years (using current losses).   There is no real plan to turn it around and hasn't been for decades. They have consistently demonstrated an ability to blow through money.

Why not have the federal government just take over GM and any other company that loses money and subsidize them to keep jobs?  At that point, we can mandate gas pumpers, elevator attendants, 2 drivers per truck, and tons of other unneeded positions that make no economic sense but retain/create American jobs (actually, just drain capital and workers away from beneficial uses).

At the end of the day each employee at GM is NOT adding to our economy.  The output they produce costs more to make than GM is able to sell it for.  Ergo, as a whole, the company is a net LOSS for our economy.  They are taking in capital, using it poorly, and putting out less capital on the other side.  A magic machine that exchanges a dollar bill into 73 cents.

Economically speaking, the fact that the company is failing is telling us that the resources consumed by that company are better used elsewhere.  The same skilled employee who works at GM losing money would contribute to making money for someone else.  The capital that is blown and the industrial capacity would contribute better elsewhere.  

Perhaps a different company would actual PAY taxes to the Federal Government!  GM hasn't paid a dime yet this decade.

And to alleviate your concerns directly and to prove Government does have a role... yes, GM is too large to just evaporate.  That's why we have bankruptcy laws, receivership, corporate spin offs, and the ability to buy and sell capital.  Different units of GM might make sense as individual companies.  For $1.5B Daimler might take back Chrysler.  A private equity group would love to take Ford private (Kerkorkian tried and was rejected).  

I am in favor of the government stepping in to retain order and a coherent exchange.  To facilitate the beneficial use of capital (a plant and workers doing nothing is wasteful) while the process plays out.  It makes sense. But throwing money into a failing venture will just drag out the process, cost tax payers money, and discourage new ventures from employing those workers.
- - -

FYI.  This is how it will play out.  They will get some of the money. But the BIG ticket will be the Federal assumption of retirement and medical debts.  In essence, GM and Ford will pass the buck to Uncle Sam and I will pay for some union guys full pension and complete medical care.  Chrysler will whine that they should get the deal too, and they will. The CEO and board will get HUGE bonuses for accomplishing this task.  Union heads will get bonuses and rewards, as will the pension mangers when they lose control of the funds. There will be some mock restriction on such bonuses, but they will have no teeth.

Lesson learned:  do whatever you want and the Federal government will step in and assume your debts.

[inteller]

quote:Originally posted by we vs us

quote:Originally posted by inteller

quote:Originally posted by we vs us

Ok, so what about the gigantor workforce associated with Ford and GM?  What about the city of Detroit which relies almost exclusively on the American automotive industry to survive? Not to mention smaller towns scattered across the country that are host to GM and GM-related factories.  I know we're purists on this board about how capitalism should work, but what about the massive human costs associated with the collapse of any/all American automakers?  

In pretty much any hypothetical collapse of GM or Ford or even Chrysler, thousands of workers -- from the factory on up to the office parks -- would be idled during the middle of a nasty nasty recession.  With the credit environment the way it is, there'd be no guarantee of any of the other automakers picking up the slack.  At that point, who gets to pick up the slack?  The government, in the form of UI, food stamps, and any other safety net programs.  So the question really is, do we give money directly to the companies and hope that they turn themselves around, or do we wait for them to fail, and spend that money on helping the workers stay afloat until they get hired again?  

Also, as someone mentioned, the government can offer the money with as many strings attached as they want.  So, feasibly, they could mandate that GM funnel all the bailout money into alternative fuel vehicles, as a for instance.  Or whatever.  Point being, the gov doesn't HAVE to just dump truckloads of cash on GM and then walk away.  It can use it as a swift kick in the rear as well.

*NOTE: I don't like the fact that this rewards GM for sucking.  And I understand the slippery slope argument (why not Boeing?  why not McDonald's?).   And Paulson has shown zero appetite for making industries who take the federal bailout hit any benchmarks whatsoever.  So, yeah, I'm skeptical.  Still, there're compelling reasons for this to happen.

you are incorrectly assuming that the assets GM has hold no worth and will not be purchased in bankruptcy auctions by various companies.  You also incorrectly assuming that employees at said assets will be swept away and new owners will hire a completely new work force.  No company is that stupid to throw the baby out with the bathwater.  These are chicken little sky is falling alarmist bull****, the same bull**** that scared congress to bail out banks for $700 bil.

Worthless assets that employ americans will fall by the wayside, and the governemnt will help those people through traditional unemployment means....but they will be the exception not the norm.  GM has done some bad things, but most of that is in management and not the assets themselves.  A smart company will see GM for its assets and buy the pieces that fit with the new owners the best.  Tata Silverados and Nanjing Corvettes?  Whatever it takes to fix a broken company.

It's a global recession.  Tata and Nanjing aren't buying, either (China just announced their own bailout package.  $849 billion worth.).  And if they are there's no guarantee that they'll make use of the assets they purchase.  It's not like Tata swoops in, retools overnight, and gets down to making a gajillion Nanos here in the US. There will be major dislocations if GM is liquidated and the assets scattered.

My point is that there're added dimensions to the what and why of a bailout that don't include how the company itself performs, but do include the ripple effects of a failure.  I think it might actually be in the interest of the government to prevent a collapse.

pft.  China just finally got fooled by the alarmist a**holes like everyone else.  The US wants China to take a bath in the sewer just like everyone else and they finally scared China enough to jump in.  But socialism and communism comes easy to China, so it won't be such a hard pill to swallow like it is here in the US with real capitalists.  In fact, the US should be ashamed for using China in this manner after trying to push capitalism there for so long.  Looks like to me it is "capitalisim when it is convienent"  What the US doesn't want is China calling in all that US debt they bought up.  It is a scummy scummy deal.

[cannon_fodder]

GM's cash burn rate is near $7,000,000,000.00 per quarter. Their share of the $25Bil would be about $10bil, or about 4 months of life support.  
http://www.businessweek.com/lifestyle/content/nov2008/bw2008117_534334.htm?campaign_id=rss_daily

Still not sure they deserve to die?  The unions negotiated "job banks" in the 1980's and they persist. Instead of laying people off they pay them to do nothing.  The man in the following story got $100,000 a year for six years to not work.  Good business and something I should subsidize!
http://www.cbsnews.com/stories/2008/11/12/politics/otherpeoplesmoney/main4595068.shtml

And finally, we are mirroring history.  Japan did this EXACT same thing.  When their bubble started to burst they propped up failing institutions.  The net result?  A stagnant economy and a stock market which, 19 years later, remains at 1/5th of it's high.
http://www.fool.com/investing/general/2008/11/11/failing-like-japan.aspx
(The FOOL article is REALLY REALLY worth the read)

Short term knee jerk reaction will get us a pretend short term gain (borrow from jack to pay jill is NOT really a net gain) but in the long run has dire consequences.  GM is a CAPITAL destroying company - it hinders out economy to the tune of $2.33 BILLION per month.

Too big to let explode, perhaps. But nothing is too big to let fail.  Give GM some morphine and ease it off of life support.  That very well may cost $25bil, but let it die at the end.

[we vs us]

There's no reason to guarantee all jobs, CF -- talk about an impossibility -- but the auto industry represents about 4% of GDP and 3 million jobs or so, so it's not peanuts.  And this is an industry, not just a company at risk.  That's actually a pretty compelling too-big-to-fail argument right there.

A Fox commentator of all people made a grudging comment that I actually agreed with, and that was that a bailout isn't and can't be a long term fix.  It's to tide the industry over till we reach calmer economic waters and they can take a cooler approach to righting themselves. While the industry track record in the last couple of decades has been crappy on balance, it doesn't mean that the whole sector is a dead duck.  Arguably it's a crucial component for a national initiative to ween us off oil and onto alternative fuels.  

I think you're right in that a bailout will consist of the Feds assuming autoworker pensions.  It'll also probably contain a strong incentive to make alternative energy cars, and if we're lucky a taxpayer equity stake in the businesses taking the bailout (the country's gonna have to recoup this investment SOMEWHERE).  I'd like to see the mgmt tossed out on their asses, frankly, and have the gov put together a team that might help retool the companies for a private sale at a later date.  

I don't think you can let the US auto industry tank, quite frankly.  Pretty much ever.  If the options are failure or keeping it afloat to fight another day, I think it's a political and economic no-brainer.

[TheArtist]

It may be 4%, but that includes a lot of companies manufacturing here in the US that arent GM, Ford or Chrysler. As in; Honda, Toyota, Nissa, etc. Also, parts of GM et. al. would likely be bought up. It would be far far cheaper to help pay for the employees who did lose their jobs similar wages and to go college for a few years, turn Detroit into a college town and build some large research centers and universities.