As GM goes so goes the nation (and market), your thoughts and predictions

[shotgunner]

I am watching Cramer this evening and he said the following. The Lehaman Bros. failure was a mistake by the government, the biggest they made thus far in the crisis. If Lehman had not failed the DOW would be at 10,000 now.

He went on to say that another possible Lehman disaster is in the wings, that is if the Gov't allows GM to fail. He believes the a GM failure (I am sure most of have heard the projections they will be kaput between Christmas and Feb) would send the DOW down to 6000. The resulting unemployment and loss of business by GM suppliers would be devastating.

He is putting the Great Depression II possibility back on the table.

So here are some questions, How likely do you think a GM failure is? If likely do you see it sending the DOW down another 2000 points. If so, are going to take any action relative to your investments?

I will add I think GM's failure is likely without governement aid. I am unsure if they will get said aid or enough of it to survive. I am beginning to believe all aid is a band-aid delaying the inevitable. I am starting to think that the Doom and Gloom pitch has some good points and I don't like thinking that way.

Is much worse coming, because if Cramer is right and GM fails we are not near the bottom right now?

 

[Notmuchlonger]

Why do you believe Jim Cramer?

 

[shotgunner]

Because nobody is wrong 100% of the time

However he presented a believable scenario so I would appreciate thoughts on the questions I posed.

 

[FIREd]

"in Cramer we trust"...

 

[Notmuchlonger]

Because nobody is wrong 100% of the time

However he presented a believable scenario so I would appreciate thoughts on the questions I posed.

No, I wont be taking any actions with my investments. In fact I will ride my investments down to 0.

 

[Goonie]

Why do you believe Jim Cramer?

Really. I'd much rather watch Cosmo Kramer than Jim Cramer......he's much more level headed and not nearly as annoying.

 

[boont]

Buy, no, Sell

I agree Cramer is annoying and frequently wrong but he is the only one talking on a regular basis that was a hedge fund manager and daily Wall Street insider.

To do what he used to do, trade by the minute, you had to think by the minute. Buy, buy, buy. Sell, sell, sell. Right now. No pondering. He made a ton of money doing that.

I take him for what he is worth. I used to email him back and forth when he first started TheStreet.com. He doesn't answer emails like that anymore as far as I know but he did when the site was brand new.He taught me stuff I had never heard before.

I notice that Bill Gross mentioned, in his column last month that he also watches Cramer. Why would he do that? Because, he said, he learns stuff from him.

Me too.

b.

 

[Notmuchlonger]

Its great you learn things from him Boont. He certainly is an interesting character.

 

[kjrn]

I'm not a Cramer fan either, but I did catch what he had to say about letting GM go. The numbers of those affected were interesting.

14,000 GM dealerships across the country
Suppliers of everything from office supplies to outsourced electronics
479,000 pensioners and dependents

Quite a scenario...

 

[unclemick]

Meanwhile BUD slips away while Congress fiddles.



heh heh heh -

 

[kumquat]

Because nobody is wrong 100% of the time

Yet. There's always a first time.

 

[clifp]

14,000 GM dealerships across the country
Suppliers of everything from office supplies to outsourced electronics
479,000 pensioners and dependents

Quite a scenario...

No doubt a GM Bankruptcy will cause huge disruptions. Still we have seen literally scores of airlines enter bankruptcy over the last 20 years ago. For the most part they continued to fly airplanes, sell tickets and people continued to earn frequent flyer points while in bankruptcy. Most emerged smaller and more competitive a few such as Aloha and ATA stopped operations. Tens of thousands of employees were laid off, pension were screwed up, suppliers were hurt, travelers inconvenienced, many smaller cities saw dramatic reductions in commerical airlines. Yet through all of this chaos the country survived. Other airlines expanded and took market share, new airlines were started.

If GM declare bankruptcy it is very very likely they will continue to manufacturer and sell cars, and certainly GM dealers will continue to service GM vehicles for a decades to come.

Honda employs 25,000 (and many respect is as much an American company as GM) Toyota employs 38,000, indirectly they employee several hundred thousand through suppliers, dealers etc. If all of GM car capacity is shutdown, you'll see the competitors increase market share, and I bet you'll see hiring on the part of Toyota and Honda.

As a lady who grew up in Cleveland told me, GM going bankrupt is God's way of telling people to get out of Detroit before winter...

 

[Midpack]

I'm convinced GM needs to make or break on their own, a further bailout only prolongs the inevitable (whatever that may be). And if Cramer thinks we need to bail out GM, I'm sure a bailout would be a mistake. I wrote Pres Bush, my Senators and Congressman today to tell them not to waste any more of our money on a bailout of GM, Ford or Chrysler...

 

[treypar]

Cramer may be right. He is some of the time but sometimes not. The problem with bailing GM out and, I am sure that this will happen, is that there are problems with their product and union contracts that will cause continuous need for more billions every month with no end in sight. If it was just a one time bailout, I might approve but to set up monthly bailouts for GM forever is not reasonable. What about everyone else that is going to ask for bailouts such as state and city governments and other industries that will claim similar distress. I ,for one, would like a bailout for me.

 

[Midpack]

This says it all. How much debt should the rest of us take on to help big three auto workers with wages & benefits few of us enjoy plus pensions and retiree health care - while offering a product very few people want? And do you think the industry you're in will get a bailout? It's not impossible to be successful building automobiles, Toyota, Honda & Nissan aren't asking for a bailout...

 

[boont]

Humpty Dumpty

"If all of GM car capacity is shutdown, you'll see the competitors increase..."
CLIP

That is not what I'm hearing. Toyota and Honda use the same suppliers and they are very worried that if GM goes their same suppliers will not survive. It will happen very quickly and will be very hard to put Humpty Dumpty back together again.

I'd listen to Toyota.

b.

 

[NW-Bound]

I have also read that GM has 2.5 retirees drawing benefits for every current worker. Is that benefit included in the $73/hr above, I wonder.

If yes, then it is going to be tough to reduce the $73/hr without jettisoning the benefits already promised to their retirees.

If no, then it means that the burden on GM is beyond what the above chart shows, and it is truly hopeless.

Now, think about the US population at large. For years, I have asked myself why what is happening to Detroit will not happen to the US, 20-30 years from now. Are we a bunch of ostriches trying to ignore the elephants in the room, i.e. SS and Medicare? Demographics is catching up with us, and none of our honorable politicians ever wants to confront this.

Will the younger generation declare "open season" on us baby boomers?

http://www.nytimes.com/2005/06/30/business/30auto.html

 

[clifp]

I'm surprised that Toyota and GM would share suppliers, it is not like a headlight, radio, etc for GM truck would work in a Corolla. If the headlight supplier makes a 1,000,000 headlights a month 300K for GM, 300K for Toyota , 200K for Ford, 200K for Honda and they lose 300K from a GM shut down, the others should pick some of the slack. Now this is in theory perhaps in practice it is different.

There is immense pressure for a bailout, so I expect that PR machines of GM, and the UAW are working on overtime trying to scare everybody. Do you have a link to what you are hearing? Color me dubious.

Here is Forbes link supporting what I said.

 

[Bestwifeever]

Really. I'd much rather watch Cosmo Kramer than Jim Cramer......he's much more level headed and not nearly as annoying.

Not to mention much more interesting hair

 

[Steve O]

I think this is a good read...

Im a car guy and this article pretty much agree's with me.

Rants - Autoextremist.com ~ the bare-knuckled, unvarnished, high octane truth...

Im a die hard Oldsmobile fan and as far as Im concerned GM screwed the pooch in 2004 when they killed Olds

 

[Texarkandy]

......

He went on to say that another possible Lehman disaster is in the wings, that is if the Gov't allows GM to fail. He believes the a GM failure (I am sure most of have heard the projections they will be kaput between Christmas and Feb) would send the DOW down to 6000. The resulting unemployment and loss of business by GM suppliers would be devastating.
......

The way I see it something big is going to happen with GM & I don't expect a $50 billion cash injection by the feds is going to help except maybe to help them meet payroll & pension obligations for 8 or 10 more months.

I'm not so certain the bailout's going to happen & if it does i think the market will respond negatively anyway. It's not like consumers will suddenly start buying those cars again at those prices because GM got a short term cash injection.

...
14,000 GM dealerships across the country
Suppliers of everything from office supplies to outsourced electronics
479,000 pensioners and dependents

...

Even if there's no bailout, thse are the reasons the govt will make every accomodation to keep GM afloat. GM in particular will be considered a national security issue. Probably they will somehow be allowed to break union & pension agreements to cut those costs.

The govt may end up picking up a lot of the tab for reduced GM pensions.

No doubt a GM Bankruptcy will cause huge disruptions. Still we have seen literally scores of airlines enter bankruptcy over the last 20 years ago. For the most part they continued to fly airplanes, sell tickets and people continued to earn frequent flyer points while in bankruptcy. Most emerged smaller and more competitive a few such as Aloha and ATA stopped operations. Tens of thousands of employees were laid off, pension were screwed up, suppliers were hurt, travelers inconvenienced, many smaller cities saw dramatic reductions in commerical airlines. Yet through all of this chaos the country survived. Other airlines expanded and took market share, new airlines were started.

If GM declare bankruptcy it is very very likely they will continue to manufacturer and sell cars, and certainly GM dealers will continue to service GM vehicles for a decades to come.

....

I think "clifp"'s assessment is mostly right. And the market may well respond negatively - perhaps even to the level of Cramer's 6000 prediction. And life will go on.

But I'm far from an expert in these matters. In any case I'm staying on the sidelines for now.

 

[Culture]

I know very informed sources who state that GM is a UAW pension plan that builds cars. Why would I want to use my money to subsidize the unsustainable retirement that the UAW extorted from previous stockholders. While I wish them the best of luck, and hope they manage to pull it out (seriously), I would not spend any of my or your cash to sustain an unsustainable business model. They made their bed, now they can sleep in it.

 

[Gardnr]

No doubt a GM Bankruptcy will cause huge disruptions. Still we have seen literally scores of airlines enter bankruptcy over the last 20 years ago. For the most part they continued to fly airplanes, sell tickets and people continued to earn frequent flyer points while in bankruptcy. Most emerged smaller and more competitive a few such as Aloha and ATA stopped operations. Tens of thousands of employees were laid off, pension were screwed up, suppliers were hurt, travelers inconvenienced, many smaller cities saw dramatic reductions in commerical airlines. Yet through all of this chaos the country survived. Other airlines expanded and took market share, new airlines were started.

If GM declare bankruptcy it is very very likely they will continue to manufacturer and sell cars, and certainly GM dealers will continue to service GM vehicles for a decades to come.

The one difference I'd point out is that there would probably be a significant effect on the consumer's confidence in buying a car from a company in bankruptcy because of the concerns about warranty service. I know that would effect my decision. I don't know how you overcome that but it is very different than buying an airline ticket, or most other products/services.

I'm still not sure what the right answer is myself. My first inclination is to say let them restructure. But the macroeconomic effects may indeed be more than we want to risk, especially while in the middle of the credit crisis, etc. I don't really have enough knowledge of the situation myself to say one way or the other.

 

[Culture]

If there is going to be a bailout, it should take the form of allowing GM to unilaterally renegotiate all union contracts, i.e. eliminate the UAW.

 

[Running_Man]

I'm surprised that Toyota and GM would share suppliers, it is not like a headlight, radio, etc for GM truck would work in a Corolla. If the headlight supplier makes a 1,000,000 headlights a month 300K for GM, 300K for Toyota , 200K for Ford, 200K for Honda and they lose 300K from a GM shut down, the others should pick some of the slack. Now this is in theory perhaps in practice it is different.

There is immense pressure for a bailout, so I expect that PR machines of GM, and the UAW are working on overtime trying to scare everybody. Do you have a link to what you are hearing? Color me dubious.

Here is Forbes link supporting what I said.

Previous to my present job, I worked in another division for our company that supplied paint to the automotive industry. Indeed many of the suppliers in the automotive industry supply as we did to Honda, Toyota, Ford and GM. Almost all of the automotive parts suppliers are already running on a shoestring and near bancruptcy themselves, having seen the credit reports from our AR department. As we provided paint we provided it to the Tier One, Tier two and Tier three suppliers. There is a huge interconnectiveness of the suppliers. We would supply the paint to a tierIII supplier for a trim part, such as say a dashboard glove compartment door that would be sent to a Tier Two supplier where it would be assembled with the dashboard that would then be sent to the Tier one supplier where the completed component would be assembed and shipped to the GM plant on the morning it is needed to be placed in the car on the line. Each of the autom manufacturers had their own proprietary colors but we bid on all of them. I believe our product universe was in the order of 20,000 unique end paint products.

Should GM go bancrupt that will mean the suppliers will not be paid and have a loss on their receivables with GM. There is certainly not going to be enough money to pay the unsecured creditors. There would therefore be a giant cascading effect, Many would go under and parts would be delayed as would production for Honda and Toyota.

As for the Forbes link, that is very simplistic and missing the point, for one he speaks of retirees as having to get their health care through Medicare. That of course excludes any under 65 retirees and the Medicare supplemental paid by GM. Pensions for anyone under 65 could easily be reduced as I doubt there is anything near enough to pay the pension liabilities on the books of GM. Home prices in Michigan and Ohio would take another run down and put further pressure on banks.

Over the long run, yes other businesses will step in and Honda and Toyota will become more successful. That being said this is a process set in motion decades ago that was allowed to build to this stage, it will be a painful process to reach a resolution. Any action by the government will I believe just transfer private sector losses to the federal government and further weaken the ability of the government to respond to the activities that a government is designed to respond to. Going into competition with Honda and Toyota should not be a government function.

If the government thought running AIG was worse than they thought wait till they try and run GM!