RE: Auto bailout deal done; first vote could come today

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RE: Auto bailout deal done; first vote could come today - 12/11/2008 9:04:17 AM

Mercnbeth

Posts: 11766
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quote:

ORIGINAL: SilverMark

Merc,
What of the economists that hold the position that GM's survival is so closely related to our survival as an economy?

Mark,
Gotta go and be a 'capitalist' but wanted to leave you with this thought to consider.

What was in Detroit before GM? What ever became of horse buggy makers, wooden wagon wheels, buggy whip artisans? Well, okay the buggy whip guys now have a booth at Folsom every year; but they too experienced some down sizing.

The point is, there is more opportunity here than disaster.

For example, do you know that it is impossible to get from LA to Vegas by any method other than auto/bus/air? Amtrak is in reality a bus ride! Consider the economic boom of putting in some type of fast rail transport. Factor in that every inch of the way gets 340 days of sunshine every year and you can even include the 'global warming' religious cult.

Put out the call for all entrepreneurs to think outside the box of private passenger transportation. Get them in front of Congress and have the 'winner' move forward on a plan with seed money from the government. Seeding is an investment in new ideas, versus bailout which rewards failure.

People will move to the jobs. At least those that haven't bought into the welfare nanny government being sold and confirmed by this failure bail out.

Many details left out, but unfortunately, that financing meeting dialog was a dream and I've got the real one to go to now. Except if I were failing, I wouldn't be silly enough to go to my banker and ask for more money. I'm just trying to beat them down on rate.

Take care!

(in reply to SilverMark)

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RE: Auto bailout deal done; first vote could come today - 12/11/2008 9:19:26 AM

samboct

Posts: 1817
Joined: 1/17/2007
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It seems as if there's a lot of obfuscation here- Let me throw out a few observations-

1) Everyone's saying that GM has been horribly mismanaged. Well, there may be some truth to that, but GM has been getting squeezed for decades. Friedman in the NYTimes points out that if GM made products everybody wanted to buy- they'd be in better shape and there seems to be a lot of that finger pointing going on here. But the Japanese car makers sales aren't doing any better- Toyota, Honda, Nissan etc. all report a sales slump of between 30-40% or so. Prius's that used to have 4 month waiting lists are going begging. Mercedes are stacking up on lots in NJ. Why have the Japanese automakers not been in the news? Well, they've always had access to effectively gov't backed loans at much lower rates than any US car mfg. Let's face it-there has been tremendous overcapacity in the automotive market globally because many governments want to enter the market and make sure that their own mfg are propped up to do so. Last time I checked, the Korean chaebols had a very hard time showing they were profitable- but they had lots of investment from the Korean workforce anyhow in very secretive financial structures. So while free marketers saying that GM should be allowed to fail have a point if none of the other companies weren't getting governmental subsidies- it's very hard for a for profit company to compete in such an environment.
2) Should GM had enough reserves to weather the storm? Well, automakers really don't make that much on a car- maybe 10% or so? Margins are very tight. (German luxury brands used to have higher margins- suspect that they still do.) Given the need for long term supply contracts due to the large volumes of materials, machinery, and energy needed to produce cars, there's no way that GM can basically slow production enough to meet falling demand without violating lots of supply agreements.
3) GM's does take a hit in terms of pensions and health care costs that most other companies don't. This adds between $800-1200 per vehicle depending on who's math you use compared to Japanese auto mfg. in this country. In a certain sense- it's not more because the manufacturing process has become heavily automated- thus the labor costs are not the real problem here.
4) The financial markets endemic corruption, cronyism, and bond ratings have had a tremendous effect on GM because their margins are so tight. Why was GM's bond rating downgraded? Compared to companies like AIG, Lehman, etc, GM seems like a far sounder investment- they at least have tangible products! While its one thing to use the example of Rover and say that the executives need to be pitched- it's not exactly fair. The English car companies went broke because they were mismanaged- it's not clear that the debacle GM faces is really of its own making. No car company could stay in business trying to anticipate this type of downturn- the margins are too tight. They'd have gone broke long before. I will not disagree that the culture of isolation of the executives and the idea that they should take 3 corporate jets to a meeting doesn't rankle and shows that they're out of touch with the political theater required, but I'm not sure that's worth throwing them out on the street for. What strikes me is that a lot of the people criticizing Detroit today have long memories of admittedly shoddy cars and abysmal warranty service, but at least the cars have improved dramatically.
5) Another reason for the dramatically slowing sales in the auto industry is the lack of credit available, since most people can't afford to pay cash for a new car. Banks are still continuing to use FICO scores and have increased the requirements to have at least 700 to qualify. This just strikes me as insane. Why on earth should we be evaluating people's credit on the basis of FICO scores? Have they worked well to date or is the reliance on credit scores part of the reason we're in this mess today? Rather than helping us get out of the downward spiral we're in, tightening up credit is making it worse.
6) It seems like the drama of the car companies is smoke and mirrors to obscure the real debacle of the financial industry bailout. It seems to me that the idea of giving the financial industry what- $350 billion or so with access to more was to free up credit so that the rest of the economy wouldn't tank. Let me point out that $350 billion is enough to buy 17.5 MILLION CARS- which is a bit more than what's sold in a year. WHERE DID ALL THIS MONEY GO?????
7) My supposition is that the hedge fund people have been made "whole" first. All the folks that were holding "complex financial instruments" with no real collateral are being bailed out. I don't see this as very effective in helping an economy. Rich SOBs contribute little to an economy- a strong middle class is what distinguishes rich countries from poor ones.

Sam

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RE: Auto bailout deal done; first vote could come today - 12/11/2008 8:22:26 PM

Lorr47

Posts: 862
Joined: 3/13/2007
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quote:

ORIGINAL: celticlord2112

quote:

I am not so sure how the economy suffers through such a thing as a GM bankruptcy? The repercussions may scare me more than the proposal.

I am not so sure the economy suffers at all if GM goes into Chapter 11. In fact, Chapter 11 is what's needed--and what the UAW is scared to allow. Chapter 11 would allow the automakers to restructure their labor agreements. There is no escaping the reality that the labor costs are a major part of what makes the Big Three non-competitive.

I would be in favor of a bailout regime so long as a few preconditions were met:

1. The bailout is structured as a "pre-packaged" Chapter 11.
2. The boards of directors and executive officers of the automakers are fired with no severance package of any kind, and surrender any and all options and stock in their respective companies.
3. The UAW is decertified, and all UAW labor agreements shredded. If the workers want to re-unionize, no UAW personnel can be involved--it has to be a completely new union structure.

THAT would salvage the automakers and the jobs.

CL I know you do not believe the proposition that there simply is not enough lending available to pull off a Chapter 11 as Krugman claims but even the Grand Rapids Press, the most conservative rag I know, had a front page editorial screaming that there is no lending available so a Chapter 11 means a Chapter 7. If you know who is lending tell us? Has this Wall Street bailout done anything to increase lending? As I have said before my daughter used to put $50,000 on her American Express card to finance Christmas stock and paid the money back in January. She got a letter from American Express saying her credit limit was now $5,000. When she asked American Express why her credit rating had tanked she was told that her creditworthiness was better than ever but that American Express would not have the money to lend this year. This is so even though American Express changed its entire corporate structure in a month so that it could siphon billions off from Tarp. Could it be that you are so interested in sinking the UAW that you do not care what happens to the economy? The more I think of Pat Buchanan's statement that if the conservative/republicans do not stop playing politics with the economy that the end result will be their ceasing to exist, the more I believe him to be correct. However, to tank the conservative/republicans we have to go from recession to depression. Doesn't that seem excessive? Put another way, if you achieve your agenda of destroying the UAW is it worth being in a depression?

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RE: Auto bailout deal done; first vote could come today - 12/11/2008 9:05:49 PM

celticlord2112

Posts: 5732
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quote:

CL I know you do not believe the proposition that there simply is not enough lending available to pull off a Chapter 11 as Krugman claims but even the Grand Rapids Press, the most conservative rag I know, had a front page editorial screaming that there is no lending available so a Chapter 11 means a Chapter 7.

If this were actually true, the bailout package currently being hawked by the Democrats would not exist. As the package does exist, obviously there is lending available, and we can dispense with this foolish canard.

If, in all this mess, the government has to be the lender of last resort, as it is being asked to do now, so be it. But let the government lend wisely, and upon conditions best geared to ensure that the industry is restructured on a firm foundation.

Chapter 11 bankruptcy provides the legal vehicle to perform the radical restructurings necessary. It is what companies seeking relief from burdensome debt and space to reorganize their operations do--so let it be done now. Rick Wagoner's mantra that Chapter 11 is not an option because people won't buy cars from a company in Chapter 11 fails to persuade for one simple reason--no one is buying GM cars in this country as it is.

The rest is simply what prudent lenders providing post-petition financing should mandate--a restructuring plan that eliminates the crap, the dreck, the debris, and the non-functioning parts of the bankrupt companies, and gives the viable parts a chance to thrive. The UAW is the non-functioning crap, and incompetent executive management is the dreck and debris. Scrape the UAW and the top brass off, shitcan the whole sorry lot of them, and let the companies begin anew, with solid business plans based on selling a competitive product.

Given the inept, inane, and incompetent behavior of both executive management and union leadership, why anyone would want to preserve either is a mystery.

If I were lending GM the money, booting top management and the union would be the preconditions for getting any of my money....oh, wait, it is my money, isn't it?

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Post #: 24