The Bush Auto Bailout Deal

[cannon_fodder]

Well, it appears the talk of a "structure bankruptcy" were just hype.  Bush is giving them the bailout within minimal strings attached.  $17,400,000,000.00 to GM and Chrysler, Ford gets nothing because they didn't threaten to take their ball and go home.  The basics of the "loan:"

- Have to prove "soon" that they will be profitable and able to repay the loans

- Callable on 03/31/09

- non-voting stock warrants to the Fed

- Government loans senior to all other debt (this provision will certainly hurt chances of other future lending)

- No dividends issued

- Government can block transactions > $100m

- Limits on executive compensation (not defined) and perks (no corporate jets)

Then some "suggestions that apperently have no weight:
—Reduce debts by 2/3 via a debt for equity exchange.
—Make one-half of VEBA payments in the form of stock.
—Eliminate the jobs bank.
—Work rules that are competitive with transplant auto manufacturers by 12/31/09.
—Wages that are competitive with those of transplant auto manufacturers by 12/31/09.
- - - -


Pretty close to just handing them $17B.  No way the loan gets called in March no matter what the circumstances.  It just won't happen because it would be a governmental death sentence (as opposed to letting them die of natural causes).  

By definition, the loans will be called on March 31st, 2009

quote:f the firms have not attained viability by March 31, 2009, the loan will be called and all funds returned to the Treasury.

Definition of Viability: A firm will only be deemed viable if it has a positive net present value, taking into account all current and future costs, and can fully repay the government loan.

GM's current balance sheet:
Assets:  110.4B
Liability: 170.4B
NET PRESENT VALUE:  -$60,000,000,000.00

You have lost money each quarter for the last 16 in the tens of billions.  You have not made Net $60B in the last two decades.  In the last three years you've lost $50B.  

Now, when you are struggling more than ever before... you are going to eliminate $60B in negative value in a quarter?  

Does this make sense as a realistic proposal to anyone else?  If you want to give them $17B then do it, I'm just a citizen I can't influence the Treasury.  But the going concern language and definition is not realistically attainable.

http://www.politico.com/news/stories/1208/16740.html

http://online.wsj.com/article/SB122969367595121563.html?mod=googlenews_wsj

Details still forthcoming.

[inteller]

3 months....pft.  GM and Chrysler are so going down.  

They better start merger talks....SOON.

I can see the suppliers lining up at Ford's door.  Ford is the only hope right now, because they have already made the hard decisions.

[Gaspar]

It seems that Bush has tossed a grenade into Obama's lap.

[we vs us]

As I said on the other thread, I agree that the drop dead date is hugely unrealistic in a downturn that's forecasted to last till the end of 2009.  It just won't be enough time.  No automaker, foreign or domestic, will be able to turn around profit in that time frame and under the general economy's condition.

As far as terms go, as reported they're pretty thorough . . . compared with the no-strings-attached giveaway that the financial industry's gotten to date. On first blush, I'd like to see the gov get voting rights with their stock.  Time and again, the Fed has declined to be a voting stockholder of the companies it's bailing out.  That's a mistake in my opinion.  That would be the quickest method to achieve reform and to prep for a resale to private interests.

________


I think, CF, if you see this as a bailout with bad logic behind it, none of the terms will be fair and balanced.  It's gonna look like a giveaway no matter what they do. But if you're ok with it going forward, then the terms are probably the best you can get under the circumstances.  

Of course, this loan doesn't just bridge the automakers through till next year, it also bridges them to the next administration, who will undoubtedly take up the torch and hopefully tailor any future funds a little bit better.

[Hometown]

Any one out there with a memory?  

Do you recall how Bush inherited a robust economy and then "talked us into a tiny little blip of a recession so that he could push through his tax cuts."  One leading economist of the time said he had seen presidents try and talk us out of recessions but he had never seen a president talk us into a recession.

Now that we are facing a truly frightening situation, the creation of which Bush presided over, with potential to snowball into deflation and financial collapse – he is just so "so what."

We are a long ways from getting out of the woods.  I don't like to see our Congress play politics with the worse economy in my life time.  I want our government to support our auto industry now.  A whole lot of politicians are about to earn a permanent position on my sh** list.

Bush is the absolute low point of my generation's political life times a thousand.  He and his buddies are so pathetic.  He is the mean spirit and empty innards of Reagan's rhetoric.

If it weren't for his Daddy, Baby Bush would have been lucky to make it as far as a low-end car dealer in Midland, Texas.

I guess we got what we deserved.  I hope it ends here.

[cannon_fodder]

HT, you lost me at "inherited a robust economy."

quote:Any one out there with a memory?

Thank god we don't rely on your memory to write history.  The economy was crashing when GW took office, critique his response if you like but pretending Bush caused any of this is a joke.  When Bush took office in 2001 the Nasdaq was off 60%, the S&P 20%, and the DOW off 6% and all trending down.

Employment was down (and in fact, there are more jobs today than when Bush took office.  In spite of the recent down turn).

Bush inherited an inflated tech bubble that was bursting, a weak manufacturing sector,  rising oil prices, global instability, and a housing bubble that the previous 8 years were spent encouraging.

"Inherited a robust economy" is simply not an accurate statement.  Please don't make me defend Bush, but your statement was blatantly wrong.  His "give cash away!" response to the crisis and refusal to make the hard decision to allow the bubbles to pop was a poor decision.  His lack of fiscal responsibility was poor decision.    He has had plenty of poor economic decisions (as well as others)... no need to pretend he inherited a bank and drove it into the ground though.

The underlying economic conditions which are plaguing us today developed under President Clinton (and many before).  Encouragement to purchase home above your means, lack of savings, irrational exuberance in the markets, faltering manufacturing.  These are not new developments under Bush.

Preemptive strikes.  Occupation.  Loss of civil liberties.  Record deficits.  Rising American hatred among allies.  These you can safely attribute to GW.  No need to stretch the truth.  Please go do some research on economic indicators and correct your memory.
- - -


Wevus:

Toyota, Nissan, Hyndai, VW... et. al are still posting profits.  Their profits are down in light of the economic conditions.  But they are not posting the massive losses you seem to think (they may, however, take a bath when the opportunity presents itself).  

The moral of the story holds though, expecting some ground breaking turnaround at this juncture is unrealistic.  It will not be enforced anyway, so why pretend?  I think it is a bad decision as at best it delays the inevitable restructuring (at worst it allows them continue on their course until utter destruction).

Frankly, I wouldn't loan GM $10 for lunch right now.  They are not a viable company and won't be in 4 months.  The terms are the best they are going to get as they have dug themselves into a real nice hole and no one else will give them any money.

[Hometown]

Sorry Buddy, I'm older but my memory is better.

Cheney Denies 'Talking Down' Economy for Political Gain : Talk of Recession Strains Transition

By Brian Knowlton

Published: FRIDAY, DECEMBER 22, 2000

WASHINGTON: Vice President-elect Dick Cheney sought Thursday to dampen controversy over whether he and President-elect George W. Bush were emphasizing the threat of an economic recession as a means of preemptively laying blame on President Bill Clinton's administration should one arrive.

White House officials have expressed mounting displeasure with repeated warnings from Mr. Bush and Mr. Cheney about a possible recession.

Mr. Cheney, after a meeting Thursday with Senator Joseph Lieberman, who was Al Gore's running mate on theDemocratic ticket, denied that he and Mr. Bush were being overly pessimistic about the economy for the sake of political gain, especially to increase support for their 10-year, $1.3 trillion tax cut.

"We don't want to talk down the economy, clearly," Mr. Cheney said, "and I think both President-elect Bush and myself have tried to be cautious."

"But there does seem to be a lot of evidence out there that, in fact, the economy has slowed down some," he added. "Whether or not this ultimately results in a recession — that is, negative real growth — nobody knows."

http://www.iht.com/articles/2000/12/22/bush.2.t_5.php

[cannon_fodder]

So because Clinton and Gore were saying the economy was fine... it was fine.

Please look up ECONOMIC INDICATORS.  The markets were crashing, unemployment was up, the housing bubble was still growing.

Irrational exuberance was a phrase from mid-clinton term.  The housing bubble is not a new phenomenon, it's collapse inevitable.  Unemployment numbers are not subject to much "office of the president elect" manipulation.

Hey, you know what.  I think the current economic problems are just because Obama is talking down the economy.  Yep.  That makes sense.

Please look up ECONOMIC data.  BLS, markets, etc.  There are plenty of sources.  A fluff piece on the White House not getting along with the president elect is not one of them.

[Red Arrow]

quote:Originally posted by Hometown

Sorry Buddy, I'm older but my memory is better.

You must be old enough to remember a different administration and think it was Clinton's. (Oldtimer's disease does that.)

The economy was already going toward negative growth in manufactured goods, at least industrial goods.  The company I worked for had slow sales for many months and was reducing the work force through attrition.  I almost voted for Al Gore (Notice no sarcastic "Algore" in this statement.) so that he would inherit the economy that he and Bill rode to the top and were now on the downhill slide.  I couldn't do it. Knowing what I know now vs. what I knew then... I still would have voted for W.

[nathanm]

quote:Originally posted by cannon_fodder


Please look up ECONOMIC INDICATORS.  The markets were crashing, unemployment was up, the housing bubble was still growing.

NASDAQ was trashed due to the tech bubble (yay for VCs who would spend money on anything!), and the jitters surrounding that were bringing down the other markets, but overall things were OK. Not great by the standards of most of the 90s, but OK.

Anyway, while I'm happy with Bush for extending the loans, I think the way he chose to go about it is going to end up helping exactly zero. A 12 or 18 month term would have been far more appropriate. So would government DIP financing to facilitate bankruptcy.

My concern has been GM going into BK without any way to get reasonable financing to continue operations during the restructuring process. This doesn't help that problem in the least.

[guido911]

I will never buy another UAW-maunfactured car.

[we vs us]

quote:Originally posted by guido911

I will never buy another UAW-maunfactured car.

And not with a bang but with a whimper does another one-man-market collapse.

[guido911]

quote:Originally posted by we vs us

quote:Originally posted by guido911

I will never buy another UAW-maunfactured car.

And not with a bang but with a whimper does another one-man-market collapse.

That gem brought to you by a one-man band.  

Here's another reason not to buy cars made by these UAW union jerks:

http://www.clickondetroit.com/video/10235271/index.html

[godboko71]

quote:Originally posted by guido911

I will never buy another UAW-maunfactured car.

So blame the union for management missteps at GM, Chrysler, and Ford? That makes plenty of sense.

Is it the unions fault that GM has to many models? Is it the unions fault Chrysler "decided" to restructure right about the time the recession started? Is it the unions fault that America's big three have not streamlined there product lines and there factories like Toyota and others?

Seems to me shareholders, managers and executives are to blame not the union workforce who builds the vehicles.

Should over time the unions lower there payrolls and costs to help out the auto industry? Yes, that is a given, But a good part of those costs will come streamlined factory's that have to hire less people, and a very slow decline in pay for the remaining workforce.  

But to blame the unions is beyond silly, there payroll plays a small roll in the grand scheme of things.

Here is the thing I don't think CEO's should work for free, that's silly. But if they do a ****ty job they should not get bonuses like its business as usual.

[we vs us]

quote:Originally posted by guido911

quote:Originally posted by we vs us

quote:Originally posted by guido911

I will never buy another UAW-maunfactured car.

And not with a bang but with a whimper does another one-man-market collapse.

That gem brought to you by a one-man band.  

Here's another reason not to buy cars made by these UAW union jerks:

http://www.clickondetroit.com/video/10235271/index.html

This is an interesting mutation from the late 80's when supporting the American autoworker was all the rage.  Buy American and all that.  Now we're vowing to buy anything BUT cars made by Americans.