Bail out U.S. automakers?

[chinaco]

I think most people fall into a couple of camps on this issue. And their point of view depends a bit on the impact of the possible outcomes.

• If you were concerned that the immediate bankruptcy of GM (i.e., the domestic auto industry) right now would cause economic loss (spiral to an additional 10% unemployment that takes 10 years to recover) and securities market loss of another 30% - 40% from the current level... you are probably in favor of immediate triage.
• If you think is is a small blip and will not affect you... then you are against it.
• There are a few fools that would be ok with making them suffer the consequences even though it meant ruining themselves to stick with principle.
• The majority of people who are not directly impacted (investors... including us and people who will not lose their job) are oblivious. These are the poor, working poor or lower middle class that have no clue about what has occurred. To them this is just noise. Or they may be the super wealthy that have the resources to weather the storm.

IMO - Our votes are based on most people perception of the outcome and their personal impact. If the poll were stated with an outcome identified... it show a bit more insight into their opinions.


I think we are in a severe crisis of which little is due to GM's recent decisions... Even if half of their cars were hybrids... they would be in trouble. Most of their woes right now are due to the havoc caused by financial institutions... including the oil bubble that was driven by speculation... mostly by large financial institutions.

I do not like the idea of a bailout... but if bailout = time to become stable and figure out next steps... I am for it. Especially if no bailout means a continued spiral downward.


The villains in this situation are our large financial institutions. Businesses that produce things are just swept up in it because they rely on the capital markets.

 

[gqlefty]

Cars

Bail them out but have some REAL strong strings attached. DON'T just give them cash to burn like they are burning now !!! They need a lot of tough love to turn their act around. Management and the Unions need to step up and commit to do what ever it takes!!!! Yea sure, dream on.

 

[ziggy29]

The business model has to change for the entire business -- management AND labor have to accept a long-term sustainable model. That requires ALL of them to make sacrifices because the alternative is worse for all of them. Then, we'll talk. If it doesn't require systematic changes to management compensation, business decisions and union contracts, I would be dead set against giving them one cent.

 

[Ronstar]

I say no bailout, but my idea would have the gov't temporarily give auto buyers a tax credit for auto purchases, the amount of which would be proportional to the mpg of the vehicle purchased. That will provide a little relief for the auto makers, but they still need to overhaul their entire business model.

 

[cardude]

From GM:

• Prior to this crisis, the U.S. auto industry was aggressively and successfully restructuring.
  • The industry has invested $10 billion in U.S. plants and equipment each year.
    [*]U.S.-based companies have closed the productivity gap with leading imports.[ii]
    [*]GM has all but closed the quality gap with Asian carmakers.[iii]
    [*]New labor agreements will make U.S. manufacturers’ labor costs competitive with the transplants by 2010.

• GM has been in the process of building a winning auto company for the long term. These efforts are threatened by a severe downturn in sales and a sharp drop in revenue caused by a widespread economic and credit crisis.
  • GM is focused on building sustainable success, not short-term results.
  • New GM vehicles such as the Saturn Aura, Cadillac CTS, Chevy Malibu and Buick Enclave are getting great reviews from the experts and enthusiastic support from customers.
  • GM is committed to leading in the development of advanced propulsion technology, including breakthrough technologies like the Chevy Volt extended-range electric car.
  • At the same time GM has been creating these award-winning vehicles, the company has been taking tough action to cut costs. In fact, since 2005, GM has reduced structural cost in North America by over $9 billion. And more recently, GM has outlined plans to enhance its liquidity position by $20 billion through 2007.
  • GM has been streamlining its U.S. operations. It has reduced its U.S. salaried workforce from 44,000 in 2000 to 32,000 in the fall of 2008, and its hourly workforce from 132,000 to 64,000 during the same period.
  • In response to the recent economic crisis, GM is further tightening its belt. The company recently took additional actions to reduce salaried employment costs by 30 percent, eliminate raises and discretionary bonus for executive and management employees, and suspend the 401k match for salaried employees.
• The long-term security of the U.S. requires a strong auto industry and strong domestic R&D programs.
  • The auto industry will play a critical role in diversifying our energy sources away from imported petroleum.
  • The U.S. should not trade its dependence on imported oil for a dependence on imports of critical technologies – batteries, biofuel technology, advanced internal combustion engines and transmissions, hybrid systems, and fuel cells.
  • The U.S.-based auto industry is second only to the semiconductor industry in R&D spending -- $12 billion last year alone.[iv]

• Federal assistance to help the U.S.-based carmakers through this historic downturn is a good investment in America’s future.
  • Potential cost for supporting loans to the industry would be a fraction of one year’s lost tax revenue should the industry collapse.[v]
  • Because of pent-up demand, the industry should recover quickly once the economy improves, implying a fast payback for loans and interest.
  • A healthy auto industry is an engine for creating the jobs, the new technologies, and the global business growth that America needs if it is to remain a great power.

• What happens to the U.S. auto industry matters on Main Street.
  • There are some 14,000 U.S.-brand dealers in cities and towns across the country[vi], employing approximately 740,000 people, with a total payroll of some $35 billion.[vii]
  • U.S.-based companies have 105 assembly and component plants in 20 states, including such “non-auto” states as California, Texas, Kansas, Louisiana and Maryland.[viii]
  • The three companies purchased $156 billion in parts, materials and services, supporting jobs in all 50 states.[ix]
  • The companies provide benefits for 775,000 retirees and surviving spouses, and provide health care benefits for 2 million.[x]

• Automotive manufacturing is a 21st Century growth industry, and the U.S. needs to earn its share.
  • A strong U.S.-based industry lets America benefit from global growth of one of the largest, most important industries.
  • Less that 15% of the world’s population owns a car, so growth potential is significant.
  • The industry sold 70.6 million vehicles globally in 2007, an increase of 13 million units from 2002.
  • U.S. companies can compete: GM’s now sells 61 percent of its car and trucks outside the U.S., and continues to set sales records overseas.
  • CYTD, GM sales in LAAM are up 13 percent, while sales in Asia-Pacific are up 7.6 percent.
  • Motor vehicles and parts are the single largest export from the U.S., topping aerospace, medical equipment and communications.[xi]
• The collapse of the U.S.-based auto industry would be devastating. In just the first year:[xii]
  • Direct, indirect and spinoff employment would drop by 2.95 million people
  • Personal income would drop by $150.7 billion
  • Government transfer payments would increase by $14.3 billion
  • Social security receipts would drop by $21.1 billon
  • Personal income tax paid would drop by $24.7 billion

• This is an auto industry crisis, not just a U.S. industry crisis.[xiii]
  • CAR assumes that a 50 percent drop in production by U.S.-based carmaker would cause a 50 percent drop in production at the transplants due to supplier disruptions and bankruptcies.
  • A complete shutdown of the U.S.-based carmakers would also shut down the transplants for at least one year.

Driving the Future: The New American Auto Industry, The Automotive Trade Policy Council (ATPC). 2008

[ii] The Harbour Report North America 2008, Oliver Wyman. June 5, 2008.

[iii] Various reports and publications, J.D. Power and Associates, Consumers Union

[iv] ATPC

[v] Center for Automotive Research Memorandum: The Impact on the U.S. Economy of a Major Contraction of the Detroit Three Automakers. November 4, 2008

[vi] ATPC

[vii] Based on NADA average employment and payroll figures, NADA Data 2007.

[viii] ATPC

[ix] ATPC

[x] ATPC

[xi] ATPC

[xii] Center for Automotive Research Memorandum: The Impact on the U.S. Economy of a Major Contraction of the Detroit Three Automakers. November 4, 2008

[xiii]CAR Research Memorandum

 

[FinanceDude]

From GM:

• Prior to this crisis, the U.S. auto industry was aggressively and successfully restructuring.
  • The industry has invested $10 billion in U.S. plants and equipment each year.
    [*]U.S.-based companies have closed the productivity gap with leading imports.[ii]
    [*]GM has all but closed the quality gap with Asian carmakers.[iii]
    [*]New labor agreements will make U.S. manufacturers’ labor costs competitive with the transplants by 2010.

• GM has been in the process of building a winning auto company for the long term. These efforts are threatened by a severe downturn in sales and a sharp drop in revenue caused by a widespread economic and credit crisis.
  • GM is focused on building sustainable success, not short-term results.
  • New GM vehicles such as the Saturn Aura, Cadillac CTS, Chevy Malibu and Buick Enclave are getting great reviews from the experts and enthusiastic support from customers.
  • GM is committed to leading in the development of advanced propulsion technology, including breakthrough technologies like the Chevy Volt extended-range electric car.
  • At the same time GM has been creating these award-winning vehicles, the company has been taking tough action to cut costs. In fact, since 2005, GM has reduced structural cost in North America by over $9 billion. And more recently, GM has outlined plans to enhance its liquidity position by $20 billion through 2007.
  • GM has been streamlining its U.S. operations. It has reduced its U.S. salaried workforce from 44,000 in 2000 to 32,000 in the fall of 2008, and its hourly workforce from 132,000 to 64,000 during the same period.
  • In response to the recent economic crisis, GM is further tightening its belt. The company recently took additional actions to reduce salaried employment costs by 30 percent, eliminate raises and discretionary bonus for executive and management employees, and suspend the 401k match for salaried employees.
• The long-term security of the U.S. requires a strong auto industry and strong domestic R&D programs.
  • The auto industry will play a critical role in diversifying our energy sources away from imported petroleum.
  • The U.S. should not trade its dependence on imported oil for a dependence on imports of critical technologies – batteries, biofuel technology, advanced internal combustion engines and transmissions, hybrid systems, and fuel cells.
  • The U.S.-based auto industry is second only to the semiconductor industry in R&D spending -- $12 billion last year alone.[iv]

• Federal assistance to help the U.S.-based carmakers through this historic downturn is a good investment in America’s future.
  • Potential cost for supporting loans to the industry would be a fraction of one year’s lost tax revenue should the industry collapse.[v]
  • Because of pent-up demand, the industry should recover quickly once the economy improves, implying a fast payback for loans and interest.
  • A healthy auto industry is an engine for creating the jobs, the new technologies, and the global business growth that America needs if it is to remain a great power.

• What happens to the U.S. auto industry matters on Main Street.
  • There are some 14,000 U.S.-brand dealers in cities and towns across the country[vi], employing approximately 740,000 people, with a total payroll of some $35 billion.[vii]
  • U.S.-based companies have 105 assembly and component plants in 20 states, including such “non-auto” states as California, Texas, Kansas, Louisiana and Maryland.[viii]
  • The three companies purchased $156 billion in parts, materials and services, supporting jobs in all 50 states.[ix]
  • The companies provide benefits for 775,000 retirees and surviving spouses, and provide health care benefits for 2 million.[x]

• Automotive manufacturing is a 21st Century growth industry, and the U.S. needs to earn its share.
  • A strong U.S.-based industry lets America benefit from global growth of one of the largest, most important industries.
  • Less that 15% of the world’s population owns a car, so growth potential is significant.
  • The industry sold 70.6 million vehicles globally in 2007, an increase of 13 million units from 2002.
  • U.S. companies can compete: GM’s now sells 61 percent of its car and trucks outside the U.S., and continues to set sales records overseas.
  • CYTD, GM sales in LAAM are up 13 percent, while sales in Asia-Pacific are up 7.6 percent.
  • Motor vehicles and parts are the single largest export from the U.S., topping aerospace, medical equipment and communications.[xi]
• The collapse of the U.S.-based auto industry would be devastating. In just the first year:[xii]
  • Direct, indirect and spinoff employment would drop by 2.95 million people
  • Personal income would drop by $150.7 billion
  • Government transfer payments would increase by $14.3 billion
  • Social security receipts would drop by $21.1 billon
  • Personal income tax paid would drop by $24.7 billion

• This is an auto industry crisis, not just a U.S. industry crisis.[xiii]
  • CAR assumes that a 50 percent drop in production by U.S.-based carmaker would cause a 50 percent drop in production at the transplants due to supplier disruptions and bankruptcies.
  • A complete shutdown of the U.S.-based carmakers would also shut down the transplants for at least one year.

Driving the Future: The New American Auto Industry, The Automotive Trade Policy Council (ATPC). 2008

[ii] The Harbour Report North America 2008, Oliver Wyman. June 5, 2008.

[iii] Various reports and publications, J.D. Power and Associates, Consumers Union

[iv] ATPC

[v] Center for Automotive Research Memorandum: The Impact on the U.S. Economy of a Major Contraction of the Detroit Three Automakers. November 4, 2008

[vi] ATPC

[vii] Based on NADA average employment and payroll figures, NADA Data 2007.

[viii] ATPC

[ix] ATPC

[x] ATPC

[xi] ATPC

[xii] Center for Automotive Research Memorandum: The Impact on the U.S. Economy of a Major Contraction of the Detroit Three Automakers. November 4, 2008

[xiii]CAR Research Memorandum

Good info. However, what about the fact that GM will NEVER be competitive until they get out from under their health care albatross? I think if they get $15 billion or whatever, they only delay bankruptcy for another 1-2 years, and they still go bankrupt.

Is that worth $15 billion? Maybe........

 

[cardude]

Good info. However, what about the fact that GM will NEVER be competitive until they get out from under their health care albatross? I think if they get $15 billion or whatever, they only delay bankruptcy for another 1-2 years, and they still go bankrupt.

Is that worth $15 billion? Maybe........

Yeah, I think it's worth 15bn to give them some breathing room. I think bankruptcy tarnishes the brand too much and will kill off what few remaining sales we have.

Also, a bankruptcy kills all the franchise rights that I have as a dealer, and the main problem there is GM and Chrysler don't have to take back my inventory if I decide to close up shop. That means I'm stuck with millions of dollars of inventory that will be VERY hard to sell IMO because folks will think they won't get warranty work, parts won't be available, and that the value of their car would drop as demand falls even more.

 

[Keyboard Ninja]

I don't get it. How are other car companies not in trouble, but the Big 3 are? They have to be doing something fundamentally different from Toyota, Honda, etc.

Plus I'm against the bailout. I think it is mainly because I'm sick of just hearing of a new bailout each time I turn on the tv.

 

[OAG]

With $2 Billion a month required to service their debt I doubt they will ever become profitable.

Paying $75 an hour where Toyota/Honda/etc., paying about a third of that they will never become profitable, unless they get rid of the Union and all of the legacy obligations that involves.

 

[Independent]

With $2 Billion a month required to service their debt I doubt they will ever become profitable.

Paying $75 an hour where Toyota/Honda/etc., paying about a third of that they will never become profitable, unless they get rid of the Union and all of the legacy obligations that involves.

The $75 is discussed here: http://www.early-retirement.org/forums/f50/autoworkers-get-75-hr-40542.html

Basically "about a third" is an apples-oranges comparison. GM's costs in the US are higher than Toyota's. GM has a new contract which will "eventually" close much of the gap.

However, IMO GM has been running primarily for the benefit of it's unionized workers for some years. If we're going to "save GM", the taxpayers need more adjustments from the union.

We also need to think about the creditors. GM's long term debt has been trading at 30 cents on the dollar. If a bailout restores the bondholders, there will be a lot of "speculators" who triple their money.

 

[cardude]

Why bankruptcy probably will not work

Why GM can't survive bankruptcy

Some companies use the courts to reorganize and come out stronger. That would be difficult for GM, experts say.

By Chris Isidore, CNNMoney.com senior writer
November 13, 2008: 5:38 AM ET
NEW YORK (CNNMoney.com) -- It worked for the airlines, but it might not work for General Motors. Saving the company through bankruptcy is probably not a viable option for the troubled automaker. . . .

There is precedent for bankruptcy turnarounds. But those companies, filing under Chapter 11 of the bankruptcy code, were able to secure what is known as debtor-in-possession, or DIP, financing.
Lenders make such loans in part because bankruptcy law allow them to go to the front of the line of the company's creditors if the company is not able to stay in business. In turn, the bankrupt company uses the cash to make changes and return to profitability.
Without DIP financing, liquidation -- usually under bankruptcy Chapter 7 -- may be the only option left.
Experts in the field and even GM itself say that DIP financing might not be available for GM. . . .

http://money.cnn.com/2008/11/13/news/companies/gm_bankruptcy/index.htm

 

[youbet]

We lived through the steel mills closing and restructuring. We'll live through the auto plants closing and restructuring.

 

[al_bundy]

maybe uncle sam should invest in the DIP game?

 

[FinanceDude]

Think about Donald Trump. How many times have him or his LLCs went bankrupt? Many.many times, yet he still gets financing for his next venture.

I'm sure he's looked at differently than GM, but if GM can get OUT of their health care commitments that are killing them, I think the bond market would welcome their efforts with open arms.

 

[bigla]

We shouldn't bail them out unless the Board of Directors get totally overhauled and the union contracts are voided and new sensible ones are in place. No sense bailing out a sinking ship when there are too many holes to plug up.
Larry

 

[chinaco]

It will be interesting. If GM does fail and drives a systemic failure in the industry... Then the impact will be far and wide to our financial system and the economy.

It is not GM... it is the auto industry that could fail.

Those who are quick to say no govt help will $h!t if they lose another 1/3 of their assets from the current level... stocks and bonds (defaults).

We could see a DJIA at 6000. S&P 500 around 650. And perhaps 7 - 10 years to recover.

 

[FinanceDude]

It will be interesting. If GM does fail and drives a systemic failure in the industry... Then the impact will be far and wide to our financial system and the economy.

Those who are quick to say no govt help will $h!t if they lose another 1/3 of their assets from the current level... stocks and bonds (defaults).

We could see a DJIA at 6000. S&P 500 around 650. And perhaps 7 - 10 years to recover.

I guess the big question is WHEN is it better for GM to go bankrupt, now or after they burn through their $30 billion from the taxpayers?

There's no guarantee that folks will start buying cars like mad if the stock market goes up another couple thousand points on the Dow.......and if they did, WHY would they be GM cars??

 

[laurence]

Exactly, people don't want their cars. The brand has become somewhat toxic. It might not be fair, but it is what it is. The big 3 did have rather substantial cash reserves, it's just that their sales plummeted so rapidly they burned through it faster than anyone could have imagined. Restocking the cash reserve only delays the inevitable.

 

[al_bundy]

It will be interesting. If GM does fail and drives a systemic failure in the industry... Then the impact will be far and wide to our financial system and the economy.

It is not GM... it is the auto industry that could fail.

Those who are quick to say no govt help will $h!t if they lose another 1/3 of their assets from the current level... stocks and bonds (defaults).

We could see a DJIA at 6000. S&P 500 around 650. And perhaps 7 - 10 years to recover.

if GM goes into Chapter 7 then Toyota and the other automakers will probably buy up a lot of the plants at firesale prices and get cheap money from Uncle Sam to retool them. The auto bailout they passed a few weeks ago says anyone is qualified as long as they use the money for plants that are 20 years old or older

 

[chinaco]

If the American Automotive industry does fail, our GDP will fall a substantial amount... The impact to our economy and industry will the equivalent of a economic nuclear blast.


The ripple effect into businesses that have nothing to do with car manufacturing will be devastating also. Doesn't matter if you are in the industry. You will feel it. It will impact you directly and indirectly. And the impact will be for years.

I doubt anyone will cheer when (if) it happens. Those basic principles that some are repeating will be cold comfort if it happens.

 

[FinanceDude]

If the American Automotive industry does fail, our GDP will fall a substantial amount... The impact to our economy and industry will the equivalent of a economic nuclear blast.

Our GDP has already fallen a substantial amount.

The ripple effect into businesses that have nothing to do with car manufacturing will be devastating also. Doesn't matter if you are in the industry. You will feel it. It will impact you directly and indirectly. And the impact will be for years.

If we give GM $30 billion, WHAT is their incentive to make any better business decisions going forward? All they will do is take the taxpayer money and use it to make pension and health care payments to their retired workers. It's NOT going to make them any more efficient than they already are unless GM makes the DECISION to quit being stupid. Bottom line, all we would be doing is giving GM a NIV (no income verification) loan, much like we did for Joe Smith in 2005 so he can get the $500,000 house he didn't deserve.........

I doubt anyone will cheer when (if) it happens. Those basic principles that some are repeating will be cold comfort if it happens.[/quote]

I guess you are in favor of a new paradigm in the USA. If your public company makes bad decisions, don't worry, the govt will bail you out. So when Obama slaps the oil companies with windfall taxes as the price of oil drops $50 a barrel, or he decides that pharmaceutical companies make too much money, and hits them with an excess profits tax, can they get bailed out too?

 

[treypar]

I think that this bailout thing has gotten out of contol. Every state and local government and every industry wants or will want a bailout. Heck I even heard that the Atlanta Airport wants a bailout. GM and the other American auto makers have made some terrible decisions in their product line and union agreements. Even if they receive the $30 Billion, which they probably will get in January, they will burn through it quickly and be back again. There cars are not what the market wants. In order to design new cars and bring to market cars that the buyers want to buy at a price they are willing to pay, it will cost more billions in capital. Unless we are going to continue to pour billions into this hole, I see no solution in sight. If they are going to get this bailout, there should be some conditions attached such as renegotiate the union agreements and bring in new executives to run the company, preferably from Honda or Toyota.

 

[Midpack]

Why should all the average Joe's with inferior wages, no pension and no retiree benefits bail out autoworkers who make cars almost no one wants?

 

[ERD50]

Why should all the average Joe's with inferior wages, no pension and no retiree benefits bail out autoworkers who make cars almost no one wants?

That says it all - well done! Midpack - get - succinct - award.

Now for my blabber ....

Doesn't this give us some insight into the minimum wage issue? Does this show us what happens when you try to artificially raise someone's pay beyond what a free market would value it at? It isn't really sustainable, is it?

-ERD50

 

[haha]

On an NPR report last night some dude who is against the bailout pointed out that the casino industry directly employs twice as many people as the auto industry, and is also suffering a major downturn due to the economic hiccup we are currently experiencing. But nobody is talking about bailing them out.

Not only that, brothels in the countryside outside of Reno are going bust left and right. Since this is something Americans still do well let's save the whorehouses.

Ha