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

[Texarkandy]

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Originally Posted by shotgunner ...... 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.

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Originally Posted by kjrn ... 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.

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Originally Posted by clifp 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]

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Originally Posted by clifp 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]

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Originally Posted by 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.

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!

[Steve O]

The answers simple. If you care about US manufacturing and you need a new vehicle buy American

Honda and Toyota wouldn't be here if people didn't buy em

[Notmuchlonger]

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Originally Posted by Steve O The answers simple. If you care about US manufacturing and you need a new vehicle buy American Honda and Toyota wouldn't be here if people didn't buy em

You really believe that?

[Steve O]

Yes

[Notmuchlonger]

I buy the best deal and quality. When the big 3 manages to do that I might reconsider No, I dont need a truck..

[shotgunner]

Sooooooooooooooooooooo..........

Can I conclude many of you think a bankruptcy of GM could indeed produce a domino effect or otherwise send a shockwave through the economy? Can I also conclude that many of you feel that the bailout should of GM should not happen and if it does it won't fix the problem?

is a further 2000 point decline in the DOW unrealistic if GM fails? (if so that is a 25% drop from where we are at present)

So, if a failure of GM is likely and if it could send the DOW down another 25 points, are we buy and holders simply whistling by the graveyard?

If you think GM is likely to fail why not get out of the market now and plan to go back in at DOW 6000 or 6500 or whatever it falls to when the news/decision is announced? Market timing is gambling, gambling is playing odds, then which odds are better GM failing or surviving?

These are crazy times.

[Frugality_of_Apathy]

If the government really wants to throw 50 billion dollars at the problem, they should at least do something that might help.

They could put out $50 billion in grants to start 5 new car companies with the caveat they they can never buy another company, merge with another company, or be bought by another company. Saturn started from scratch and would still be around today if GM hadn't sucked them dry to limp on a couple more years.

[Texarkandy]

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Originally Posted by Frugality_of_Apathy If the government really wants to throw 50 billion dollars at the problem, they should at least do something that might help. ....

You mean like sending it back to the taxpayers?

[boont]

Do you have a link to what you are hearing? Color me dubious. Clifp


'Detroit meltdown' worries Toyota, Honda

Nicolas Van Praet And Alia McMullen, Financial Post Published: Thursday, November 13, 2008

Japanese automakers Toyota Motor Corp. and Honda MotorCo. say they are "very concerned" about the potential failure of Detroit's three car companies as analysts warn a bankruptcy would throw the entire auto supply base into chaos and rattle the operations of even the most profitable manufacturers.

"We're very concerned" about a Detroit meltdown, said Mike Goss, spokesman for Toyota Motor Engineering &Manufacturing North America Inc. "In the past couple of days I've been asked 'Wouldn't it be great for Toyota if others fail?' We think the opposite is true."

The vehicles Toyota builds in North America contain an average of 75% domestically sourced parts and systems, and Toyota is reliant on many of the same suppliers used by GM, Ford Motor Co. or Chrysler LLC, Mr. Goss said.

[chinaco]

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Originally Posted by boont Do you have a link to what you are hearing? Color me dubious. Clifp 'Detroit meltdown' worries Toyota, Honda Nicolas Van Praet And Alia McMullen, Financial Post Published: Thursday, November 13, 2008 Japanese automakers Toyota Motor Corp. and Honda MotorCo. say they are "very concerned" about the potential failure of Detroit's three car companies as analysts warn a bankruptcy would throw the entire auto supply base into chaos and rattle the operations of even the most profitable manufacturers. "We're very concerned" about a Detroit meltdown, said Mike Goss, spokesman for Toyota Motor Engineering &Manufacturing North America Inc. "In the past couple of days I've been asked 'Wouldn't it be great for Toyota if others fail?' We think the opposite is true." The vehicles Toyota builds in North America contain an average of 75% domestically sourced parts and systems, and Toyota is reliant on many of the same suppliers used by GM, Ford Motor Co. or Chrysler LLC, Mr. Goss said.

Great point... GM and Ford have ownership in a number of foreign car manufacturers and almost all of them are intertwined in some way.

[clifp]

I am not suggesting that a GM bankruptcy is a good thing. It isn't but the alternative government loaning more money to GM is worse.

GM's balance sheet is simply to ugly too many liabilities and not enough assets and each and every quarter GM loses more money and the situation gets worse.

The situation is much different than bank or even an AIG, when housing prices stabilize most banking problems go away. When this will occur is anybody guess.

But there is simply to many troubles at GM, Gas is back to two bucks in parts of the country, GM should be able to make money in this environment but of course they are no where close.

One possible compromise would be for the government to step in and provide bankruptcy financing. These are loans that help a company emerge from a bankruptcy reorganization, companies make these loans because they are at the front of the line for being paid back. Given the current treasury rates, we could afford to loan money at the TARP rate of 5% but have taxpayers at the front of the line. GE capital used to be a big provider of bankruptcy loans but they have there own problems.

But in order to have a chance of long-term survival GM needs to be reorganized, shareholders wiped out, and all creditors share in the pain. There is a system to do this reasonably equitable way and it is called bankruptcy court. Without bankruptcy I fear we taxpayers are just shovel dollars into a black hole and we can't afford to do this.

Personally, I am not to hung up on calling GM a US company and Honda a Japanese company. Honda long ago started building and selling the majority of there cars in the US and relying heavily on domestic suppliers. GM had a large overseas work force. Now it is true that most profits and taxes on the profits will flow back to Japan from Honda, but GM is such a long long way from making a profit much less paying taxes that that hardly matters. They are interwined as Chicano has said. It is not like saving GM means we are only saving American jobs , or buying a Toyota or Honda risk throwing a US autoworker out of work. Not all money given to GM would be used domestically and not all US autoworkers work for the big 3.

[OAG]

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Originally Posted by clifp I am not suggesting that a GM bankruptcy is a good thing. It isn't but the alternative government loaning more money to GM is worse. GM's balance sheet is simply to ugly too many liabilities and not enough assets and each and every quarter GM loses more money and the situation gets worse. The situation is much different than bank or even an AIG, when housing prices stabilize most banking problems go away. When this will occur is anybody guess. But there is simply to many troubles at GM, Gas is back to two bucks in parts of the country, GM should be able to make money in this environment but of course they are no where close. One possible compromise would be for the government to step in and provide bankruptcy financing. These are loans that help a company emerge from a bankruptcy reorganization, companies make these loans because they are at the front of the line for being paid back. Given the current treasury rates, we could afford to loan money at the TARP rate of 5% but have taxpayers at the front of the line. GE capital used to be a big provider of bankruptcy loans but they have there own problems. But in order to have a chance of long-term survival GM needs to be reorganized, shareholders wiped out, and all creditors share in the pain. There is a system to do this reasonably equitable way and it is called bankruptcy court. Without bankruptcy I fear we taxpayers are just shovel dollars into a black hole and we can't afford to do this. Personally, I am not to hung up on calling GM a US company and Honda a Japanese company. Honda long ago started building and selling the majority of there cars in the US and relying heavily on domestic suppliers. GM had a large overseas work force. Now it is true that most profits and taxes on the profits will flow back to Japan from Honda, but GM is such a long long way from making a profit much less paying taxes that that hardly matters. They are interwined as Chicano has said, it is like saving GM means we are only saving American cars, or buying a Toyota or Honda risk throwing a US autoworker out of work. Not all money given to GM would be used domestically and not all US autoworkers work for the big 3.

Could not have said it better. I suspect this would cure the problem. Nice point about "American" cars. There has not been pure "American Cars" for about 30 years now. Lift the hood on "your American Car" and you will find parts from many places that are not within our shores. If GM, Ford, and Chrysler do not change drastically, the $50B will just be wasted, and the demise just put off for a while. Change is one thing that they have avoided for the past 30 years - I really doubt they want to, will, and therefore can't. As for Cramer's opinion, like everyone else, he is entitled to his, that does not necessarily make his any more valid than yours or mine.

[saluki9]

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Originally Posted by Gardnr 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. .

When you buy an airline ticket you are putting your LIFE in the hands of the airline. I don't know about you, but that's more important to me than my car warranty

[saluki9]

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Originally Posted by boont 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. .

Please don't admire the guy just because he was a Street insider, there are plenty of those talking many of them being much better at their jobs that Cramer was. Also, if the guy had his money making momentum trades like you just said, why would I trust his strategic vision for the auto industry?

Don't forger, he said Bear Stearns was just fine, and it was a great idea to loan up on Wachovia at 16. Ooops.

[Midpack]

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Originally Posted by boont "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.

Why would all suppliers fail? Some will fail, some will have to scale back (most probably already have) and some may even grow (picking up the business from those who fail outright). I have countless people claim the entire auto industry would fail - but none have explained how/why that's inevitable. There's a ton of precedent to suggest otherwise, and none to the contrary that I know of. I realize autos are a big industry and the failure of GM (or any of the big three) would be painful, but give me an example of an entire industry that failed only because a major player failed (obviously failure due to product substitution is not the same, ie, slide rules gave way to calculators - we are not talking about people not buying cars at all).

The poster who suggested (via linked article) that any of us take glee in seeing a major business failure is mistaken - but a bailout is not going to fix the major structural financial problems at GM or their products, it only prolongs it. Why take on more debt to simply forestall the inevitable? GM is going to have to completely reinvent itself, management, unions and everything else - a bailout temporarily discourages the sweeping changes that are needed.

It's very unfortunate that the market turned so rapidly, and the mainstream population did that, but not every automaker is failing as a result. Some recognized we weren't going to buy F150's and Suburbans one day.

My company's sales are down 30%, and believe me we've had to take very painful steps. I don't expect a bailout, not sure why I should be forced to bailout anyone else, and just increase the pain of all the non-auto workers.

[shotgunner]

My basic questions remain on the table, is a GM failure more likely than not? Would the announcement of a GM failure pull the DOW down significantly. perhaps down 2000 points? If so is this not an a good time to take on the risk timing the market with some portion of one's portfolio?
Pulling some dollars out of equities now and plan to go back in after the GM failure?