Another Idea for a Bailout for the Auto Industry

[saluki9]

Yeah, it's called PBGC (Penion Benefit Guarantee Corporation). However, there is NOT enough money to absorb huge pension losses like GM and others. Also, the PBGC limits the amount you get, I think you are limited to a specific dollar amount or percentage of what you used to get, so its less........

I wouldn't worry, of all the problems GM has, pension funding isn't one of them.

Health care is another issue, the question is if they will be able to fund the VEBA with the unions.

 

[FinanceDude]

I wouldn't worry, of all the problems GM has, pension funding isn't one of them.

Health care is another issue, the question is if they will be able to fund the VEBA with the unions.

I was under the opinion GM's pension has been underfunded for quite some time. I wonder which one the retirees would elect to give up, the pension or the medical? Probably the medical.........

 

[Zoocat]

If the automakers go into bankruptcy, there is speculation that no one would buy their cars, so in effect they would go out of business. But in actuality I think a lot of people are going to avoid buying from those automakers anyway. Getting bailed out is not a good recommendation for a company well run.

Assuming you have bought American in the past, would you still buy a Ford, GM or Chevy in the next few years if you were in need of a new car?

 

[clifp]

Only bankruptcy can save Ford and GM. They can't survive unless they change their corporate cultures and dump their existing contracts. Pumping taxpayer money (no matter how it is done--top-down or bottom-up) into the existing wasteful and poorly-run companies would be a disgrace, and would only prolong the inevitable.

I agree. I think the important thing to understand about Ford and GM is their capital structure is very different from a typical non-financial corporation.

Most corporations have roughly equal debt and equity. Now obviously there is a wide range with many healthy companies have no debt and many unhealthy companies (e.g airlines) and some healthy companies (e.g. utilities) having more debt than equity.

In contrast a company like GM has a market cap of only $3 billion. It has $120 B in debt and another 37 billion in accrued liabilities (presumably pension and health care). GM has had a negative shareholder equity starting in 2006 and as of last quarter had -57 Billion in shareholder equity.

Unlike banks these isn't because the asset side of the equation has suffer a rapid and severe decrease in value. GM just keeps borrowing more and more money while it loses money on every car it sells.

At this point the bond holders should be running the company, not the shareholders and management. Bankruptcy doesn't mean that everybody in GM is out of a job, or no cars will be built, although obviously many jobs will be lost. It isn't like the possibility of bankruptcy is a sudden shock, people have been predicting it for close to a decade.

 

[haha]

I agree. I think the important thing to understand about Ford and GM is their capital structure is very different from a typical non-financial corporation.

Most corporations have roughly equal debt and equity. Now obviously there is a wide range with many healthy companies have no debt and many unhealthy companies (e.g airlines) and some healthy companies (e.g. utilities) having more debt than equity.

In contrast a company like GM has a market cap of only $3 billion. It has $120 B in debt and another 37 billion in accrued liabilities (presumably pension and health care). GM has had a negative shareholder equity starting in 2006 and as of last quarter had -57 Billion in shareholder equity.

Unlike banks these isn't because the asset side of the equation has suffer a rapid and severe decrease in value. GM just keeps borrowing more and more money while it loses money on every car it sells.

At this point the bond holders should be running the company, not the shareholders and management. Bankruptcy doesn't mean that everybody in GM is out of a job, or no cars will be built, although obviously many jobs will be lost. It isn't like the possibility of bankruptcy is a sudden shock, people have been predicting it for close to a decade.

Clearly, the American carmakers are dead men walking.

But I will fall over if a new Demo admisistration could turn its back one of the few big non-public unions left. That would be the end of any Demo chances to get Joe 6-pk's vote.

Some sort of "keep this wounded beast from falling" plan will be contrived.

Obama and Pelosi may be a lot of things, but stupid is not one of them.

Ha

 

[Zathras]

Problem is, if they don't fix the underlying problem, any 'keep this wounded beast from falling' plan will be temporary at best.

 

[FinanceDude]

If the automakers go into bankruptcy, there is speculation that no one would buy their cars, so in effect they would go out of business. But in actuality I think a lot of people are going to avoid buying from those automakers anyway. Getting bailed out is not a good recommendation for a company well run.

Assuming you have bought American in the past, would you still buy a Ford, GM or Chevy in the next few years if you were in need of a new car?

For me, the decision is outside of any financial problems they had. I bought domestic cars for over 20 years, and now I own two used Hondas. The reason for that is simple: while I have been hearing for twenty years that the "gap in quality between domestic and import carmakers is closing", I still don't see it. The last new vehicle I bought was in February of 2004, a new Chrysler Town and Country. 40,000 miles later, after needing TWO new rack and pinions, replacing the power steering pump, front tie rod ends, a new fuel pump, a new catalytic, and a bunch of other little problems, I threw in the towel. After 100 years of making cars, GM still doesn't "get it"..........

 

[haha]

The last new vehicle I bought was in February of 2004, a new Chrysler Town and Country. 40,000 miles later, after needing TWO new rack and pinions, replacing the power steering pump, front tie rod ends, a new fuel pump, a new catalytic, and a bunch of other little problems, I threw in the towel. After 100 years of making cars, GM still doesn't "get it"..........

Do you mean that Chrysler doesn't get it?

Also something which has not been mentioned is that the mostly Southern states where Japanese cars are made may have a better workforce than that which is available to GM in its historic manufacturing locations.

If GM could lose the UAW look for them to burn rubber getting out of Michigan. Of course everyone knows this, so don't hold your breath waiting for the UAW to cave.

Ha

 

[FinanceDude]

Do you mean that Chrysler doesn't get it?

NONE of them get it. I had a 96 Grand Prix I bought brand new. It needed a new transmission at 32,000 miles. How is that progress?

Also something which has not been mentioned is that the mostly Southern states where Japanese cars are made may have a better workforce than that which is available to GM in its historic manufacturing locations.

UAW workers as a whole are pretty skilled. However, all the QC and QA programs in the world don't help when you use inferior parts.......

If GM could lose the UAW look for them to burn rubber getting out of Michigan. Of course everyone knows this, so don't hold your breath waiting for the UAW to cave.Ha

Pelosi and Obama will throw them a lifeline. If they let GM fail they will never get re-elected......

 

[Bestwifeever]

I'm thinking of the straight Dem ticket voters/Obama worshipers (hey, I voted for him, not knocking that) I know and to a person they all own non-US cars. I wonder how upset they really would be if a big 3 auto bailout/bankruptcy plan means the UAW is toast.... Wonder how many of Pelosi's constituents actually own domestic cars.

 

[ERD50]

So, is GM worth buying at $2.xx?

Or do I assume any bailout means shareholders get nothing?

-ERD50

 

[haha]

So, is GM worth buying at $2.xx?

Or do I assume any bailout means shareholders get nothing?

-ERD50

I would assume that it would take a lot of luck to make out. There are likely better gambles around, if you are in a sporting mood.

So far bailouts have not been kind to common stockholders, and not always to preferred holders, or even bondholders.

This just in...
http://biz.yahoo.com/rb/081111/business_us_generalmotors_bonds_jpmorgan.html


Ha

 

[SteveL]

Both GM and Ford can't support the retiree medical, and pension benefits they have committed to paying. Each GM car contains $8000 of benefits that the Toyota, and Honda plants in the south don't have to cover. Neither GM or Ford can compete. Nothing the government can do can change this. So, the bigger question is how to manage the transition from having GM and Ford, and to not having them. Ultimately, the pension benefits will end up the the Pension Guarantee Fund, and the medical will just disappear. A broader healthcare solution would deal with this part of the problem. The oil crisis of 2008 will be back by 2011, with high gas prices. Giving billions to GM and Ford will just drag out the pain.

 

[Midpack]

Both GM and Ford can't support the retiree medical, and pension benefits they have committed to paying. Each GM car contains $8000 of benefits that the Toyota, and Honda plants in the south don't have to cover.

Where are you getting your numbers? Last I heard, GM had a liability of about $1500-2000 per car, I'd be surprised if it's $8000 now. And Toyota and Honda have benefit costs in their cars too, just not nearly as high.

 

[OAG]

Where are you getting your numbers? Last I heard, GM had a liability of about $1500-2000 per car, I'd be surprised if it's $8000 now. And Toyota and Honda have benefit costs in their cars too, just not nearly as high.

Additionally, on the last GM/UAW contracts the UAW gets the Medical responsibility in 2010.

 

[chinaco]

RW ONLINE: The Collapse of Argentina's Economy: Free Market Madness Could Argentina be our future?

We were in Aruba around 2002 and met a couple from there. A couple of attorney's... well to do. They left the country because they could. Apparently there was unrest.


Yes the US could ruin itself. We need to make fundamental changes. The US is seen as a beacon a stability. If people (Domestic and foreign investors) lose confidence in our economy and financial system... we will be in big trouble.

I think most Americans are operating on blind faith that the repair is inevitable. That is not the case.