Bailing Out GM
| Fri Nov. 14, 2008 11:29 AM PST
BAILING OUT GM....The basic argument against bailing out GM (and Ford and Chrysler) is fairly simple: They're dinosaurs who can't compete, don't make good cars, have a terrible corporate culture, and will never get better. If we're willing to bail out companies like these, where will the bailouts stop?
The basic argument in favor is also fairly simple: Even if all that stuff is true, and even if in normal times we'd let them die, right now we're on the edge of a truly catastrophic recession. Killing them off, along with the 2-3 million jobs they support, could be just the catalyst that turns a catastrophic recession into a full-blown depression. We'd be cutting off our economic noses to spite our free market faces.
But would Chapter 11 reorganization really be all that terrible? Maybe not. Maybe the companies would shed a few jobs, but in the end come back leaner and stronger. That's an argument that strikes me as persuasive, but what if it turns out that Chapter 11 isn't an option? Jon Cohn explains:
In order to seek so-called Chapter 11 status, a distressed company must find some way to operate while the bankruptcy court keeps creditors at bay. But GM can't build cars without parts, and it can't get parts without credit. Chapter 11 companies typically get that sort of credit from something called Debtor-in-Possession (DIP) loans. But the same Wall Street meltdown that has dragged down the economy and GM sales has also dried up the DIP money GM would need to operate.
That's why many analysts and scholars believe GM would likely end up in Chapter 7 bankruptcy, which would entail total liquidation.
If this is true, it probably tips the scale in favor of a bailout — especially given the cost, quality, and labor reforms that all three automakers have already put in place over the past few years. Maybe. For now, I'm just passing this along, but I'll keep my eye out for anyone else either confirming or debunking the Chapter 7 scenario.
Continues Below
Continued From Above
Comments
Submitted by James of DC (not verified) on Fri Nov. 14, 2008 8:53 PM PST.
Very few really gets this.
The auto industry is right?partly at least. Their biggest sin has been giving us what we want. For many years, Detroit operated on glitz and flash because the people ate it up. Image cars like Mustang and Thunderbird and GTO were poorly engineered compared to European cars, but people bought fins and pillow soft rides and huge engines and cared little for efficiency. Even today, Americans buy image over substance?those giant, macho SUVs will never go farther off road than the mall parking lot.
But whoa! A significant number of Americans suddenly started buying quality. It wasn't only that we wanted more efficient cars, German and Japanese cars were superior in design. They handled and braked better, they were more fun to drive, they were more clever and better looking. American car companies had relied on image for so long they just didn't know how to compete. Doing design is much harder than glitz.
Surveying the current crop of Michigan cars, there is not one that stacks up to the foreigners. The new Buicks are almost as cleanly designed as Camerys or Accords, but only someone who knows little about cars would buy the American copy over the real thing. This is a very big problem and nothing short of radical surgery will fix it.
The fix? I'm serious. Fire all the executives and move the headquarters to California. Steve Jobs and the whole Silicone Valley thing could never have happened in cold old Michigan. CA nourishes new ideas?demands them. Did you know every foreign manufacturer has a styling studio in LA? That is because LA is where new things happen and they know they have to be there. GM used to have a styling studio in LA but they closed it because they didn't have enough control out there in far-away Michigan. I rest my case.
Lets address the real issues on whether a bailout is called for. When you talk about competing with the foreign cars you have to remember or should I say learn one thing. Toyota and others were propped up for years by the Japanese govt. In fact Toyota started out as a textile company. The american car companies recieved nothing from the govt except for Chrysler who paid everything back and more.
When you talk about not being able to compete lets look at the latest facts.
The Chevrolet Malibu has better initial quality than any competitor, including the Honda Accord, Toyota Camry and Nissan Altima. The Ford Fusion also beat all 3 Japanese competitors, according to he J.D. Power Initial Quality Survey, which also reveals that above average are American brands Mercury, Ford, Cadillac, Chevrolet , Pontiac, Lincoln, and Buick. Below average are import brands Acura, Kia, Nissan, BMW, Mazda, VW, Subaru, and Scion.
Per J.D. Power, the highest quality large car is the Pontiac Grand Prix, beating the Toyota Avalon. Two other Detroit cars that beat the Avalon are the Mercury Sable and Mercury Grand Marquis.
According to J.D. Power, the Dodge Dakota has the best quality for midsize pickups, proving that Chrysler too can beat the imports. Both the Dakota and the Ford Ranger beat the Toyota Tacoma.
Edmunds.com, the premier automotive analysis site, the most-economical car in America, taking into account not only mileage but all costs, is the Chevrolet Aveo.
Cadillac makes a better car than BMW or Mercedes or Lexus or Infiniti, and that car is the 2008 CTS. ? Dan Neil, LA Times.
The Chevrolet Tahoe Hybrid wins this award. How could a full-size SUV defeat the media darling Toyota Prius? Read what greencar.com has to say and you'll discover that, "What's equally eye-opening is that the Tahoe's 21 mpg city fuel efficiency rating is the same as that of the city EPA rating for the four-cylinder Toyota Camry sedan." Did you catch that? A huge, full-size SUV from Chevrolet that gets the same city mileage as a four-cylinder Toyota Camry. Chevy obtained this remarkable achievement through the use of its 2-Mode hybrid system.
More reasons why GM is not tone deaf as the media implies when it comes to competing and why it needs special consideration at this time.
Submitted by James of DC (not verified) on Fri Nov. 14, 2008 8:53 PM PST.
Very few really gets this.
The auto industry is right?partly at least. Their biggest sin has been giving us what we want. For many years, Detroit operated on glitz and flash because the people ate it up. Image cars like Mustang and Thunderbird and GTO were poorly engineered compared to European cars, but people bought fins and pillow soft rides and huge engines and cared little for efficiency. Even today, Americans buy image over substance?those giant, macho SUVs will never go farther off road than the mall parking lot.
But whoa! A significant number of Americans suddenly started buying quality. It wasn't only that we wanted more efficient cars, German and Japanese cars were superior in design. They handled and braked better, they were more fun to drive, they were more clever and better looking. American car companies had relied on image for so long they just didn't know how to compete. Doing design is much harder than glitz.
Surveying the current crop of Michigan cars, there is not one that stacks up to the foreigners. The new Buicks are almost as cleanly designed as Camerys or Accords, but only someone who knows little about cars would buy the American copy over the real thing. This is a very big problem and nothing short of radical surgery will fix it.
The fix? I'm serious. Fire all the executives and move the headquarters to California. Steve Jobs and the whole Silicone Valley thing could never have happened in cold old Michigan. CA nourishes new ideas?demands them. Did you know every foreign manufacturer has a styling studio in LA? That is because LA is where new things happen and they know they have to be there. GM used to have a styling studio in LA but they closed it because they didn't have enough control out there in far-away Michigan. I rest my case.
Lets address the real issues on whether a bailout is called for. When you talk about competing with the foreign cars you have to remember or should I say learn one thing. Toyota and others were propped up for years by the Japanese govt. In fact Toyota started out as a textile company. The american car companies recieved nothing from the govt except for Chrysler who paid everything back and more.
When you talk about not being able to compete lets look at the latest facts.
The Chevrolet Malibu has better initial quality than any competitor, including the Honda Accord, Toyota Camry and Nissan Altima. The Ford Fusion also beat all 3 Japanese competitors, according to he J.D. Power Initial Quality Survey, which also reveals that above average are American brands Mercury, Ford, Cadillac, Chevrolet , Pontiac, Lincoln, and Buick. Below average are import brands Acura, Kia, Nissan, BMW, Mazda, VW, Subaru, and Scion.
Per J.D. Power, the highest quality large car is the Pontiac Grand Prix, beating the Toyota Avalon. Two other Detroit cars that beat the Avalon are the Mercury Sable and Mercury Grand Marquis.
According to J.D. Power, the Dodge Dakota has the best quality for midsize pickups, proving that Chrysler too can beat the imports. Both the Dakota and the Ford Ranger beat the Toyota Tacoma.
Edmunds.com, the premier automotive analysis site, the most-economical car in America, taking into account not only mileage but all costs, is the Chevrolet Aveo.
Cadillac makes a better car than BMW or Mercedes or Lexus or Infiniti, and that car is the 2008 CTS. ? Dan Neil, LA Times.
The Chevrolet Tahoe Hybrid wins this award. How could a full-size SUV defeat the media darling Toyota Prius? Read what greencar.com has to say and you'll discover that, "What's equally eye-opening is that the Tahoe's 21 mpg city fuel efficiency rating is the same as that of the city EPA rating for the four-cylinder Toyota Camry sedan." Did you catch that? A huge, full-size SUV from Chevrolet that gets the same city mileage as a four-cylinder Toyota Camry. Chevy obtained this remarkable achievement through the use of its 2-Mode hybrid system.
More reasons why GM is not tone deaf as the media implies when it comes to competing and why it needs special consideration at this time.
then let the government provide DIP financing: that's not a persuasive argument not to let the bankruptcy system function the way it's designed to function.
there are some better arguments that cohn makes (although i remain unconvinced that the obama administration should start its life with bailing out the auto industry), but that one doesn't cut it.
The car companies provide the backbone, liver, and intestines of American manufacturing. I am a free trader to the bone, but having at least a skeleton manufacturing industry is a national security imperative in case of war. There is no way they let these firms fall.
These companies are TOO BIG TO FAIL.
How then is it not a requirement that a bailout entails a breakup?
Competition and the country will do much better with more, smaller, healthier companies than with a few large zombies stumbling around eating our brainzz.
GM used to be five automakers? Let them become five automakers again, Chevrolet, Cadillac, Pontiac, Saab. Break AC Delco back out. (Bring back the Fisher Body Company.)
Encourage GM, Chrysler and anyone else to takes bailout money to organize horizontally.
And make this money available to Tesla, Aptera, and any small competitors.
RE: Bailing Out GM
Submitted by Ms. Car (not verified) on Wed Jul. 8, 2009 6:38 PM PDT.
Yes they are too big to fail. Just imagine 2 to 3 million jobs will be lost if they let GM die. Banks power will die as well. I think if they let it be, then it will be a way of being able to implement the long-term strategic goals of Obama's administration especially in energy independence and green technology.
It took Detroit a long time to loose their reputation; it's going to take a while to reestablish it, even though some of their cars are now much improved. Fords recent quality ratings have been competitive with the Japanese cars. One keeps hearing Detroit is making a product no one wants to buy, but this isn't really true. No one is buying cars today, Toyota and Nissan are hurting just like Ford and GM. Detroit shouldn't be let off the hook, but they didn't exactly force us to buy all those oversize SUV's, did they? In truth their lucrative monopoly on such vehicles was ending any way, as Nissan and Toyota were aggressively marketing SUV's every bit as ugly and gas guzzling as what the homies were building.
It's important to realize there has not been a major new car company outside of Asia in about 50 years. If Ford and GM go away (Chrysler is already toast), American owned car manufacturing is gone forever.
Yeah. What Jerry said.
And put other demands on them, too: the guys at the top, stuck in the fifties with their gas hogs and their middle finger out to the rest of the world? Fire them - and I mean FIRE, not retire. Also, CAFE standards go up, up, up, and apply to all passenger vehicles.
The bailout could be a good thing.
Do whatever gives the Obama team a shot at helping shape Big Auto into something that serves the entire country, and not just a few special interests.
Maybe we need the strings that come with loan/bailout to protect our future transportation from special interests.
Breaking up Detroit doesn't make sense. Modern cars are complicated systems that take billions to engineer. Only giant companies with huge resources and economies of scale can compete. The trend has been consolidation with the smaller companies (Saab, Volvo, Subaru, Chrysler, and even Nissan) being gobbled up by the majors (and spit out again in the case of Chrysler). Japan has two majors, Germany three, France and Italy one each, and Korea one or two. The question is, will the U.S. have any?
I couldn't disagree more with Jerry and cmac. I think there's only room for two US-based automakers, and that the weakest of them has to go, as unfortunate as that is. Micro-manufacturers will get buried by the Japanese, who will have vastly superior economies of scale. Anyway, the handwriting's on the wall: the taxpayers will pick up much/most of the legacy costs in exchange for a cash infusion. It's true, they're too big to fail -- at least amidst 1929-like conditions. As much as it sticks in the craw of this free-market liberal, we can't afford another Lehman.
Submitted by Arachnae (not verified) on Fri Nov. 14, 2008 11:51 AM PST.
Jay Leno, believe it or not, came up with what I thought was a pretty good argument to save the auto makers last night. He said that during WWII, one plane an hour was coming off the production lines, and if the big manufacturers go under and all our cars come from overseas, we lose our capacity to regear when we really need it.
Well, he said we'd lose the capability 'forever', which is clearly hyperbole - you can always rebuild factories. But rebuilding a capability is a helluva lot harder than retooling existing plants.
Why not issue vouchers for, say, $20,000, to each household to help pay for an automobile.
The vouchers could be used to purchase any automobile: Hondas, Mercedes, as well as Big Three; so if GM makes lousy cars and nobody buys them, that's its tough luck.
Vouchers would be exchangeable; so those not in the market for cars could sell them.
Here's my crazy idea:
Nationalize the industry, no point in giving automakers public money without equity stakes. Just giving them loans, which will never be paid back, is a very dumb idea.
Then set a goal of requiring that all new autos sold in the U.S. five years from now will be hybrids. Invite Toyota and Honda, who have the technology and also know how to run auto companies, to participate. They can either take equity stakes in the automakers or just form operational tie-ups, it's up to them.
This way we can achieve national environmental and energy goals and also modernize an industry. Hybrids are also a bridge to a pure electric vehicle. Let's start the shift now.
Everywhere we look we see companies getting bigger and competitors reduced.
Boeing was Boeing and McDonnell Douglas was Boeing and McDonnell and Douglas was Boeing and ....
HP was HP and Compaq
Is this due to economy of scale? Or because it's a lot easier to sell your crap when you have no competition.
The mergers are usually sold on synergy arguments and economies of scale arguments. And then years later the accountants tell us none of that worked out.
Economy of scale is good. But we're a country of 300M consumers and roughly six car manufacturers. Add another five manufactures to that and ya know what you have? Economy of scale.
And if you agree with Leno's argument, his argument works a whole lot better with 10 domestic car manufacturers than with 2 manufacturers who have closed down all their plants.
$700B for Wall St, no problem. $25B for car companies, that would interfere with the free market!
As much as I hate the American car companies, letting them die now would be a terrible idea. Given that all car sales are in the toilet now, the loans might even buy them enough time to become actual competitive companies.
"Toyota and Nissan are hurting just like Ford and GM"
Everyone's hurting. But Toyota is still making a profit - albeit a smaller profit, whereas Ford and GM are posting enormous *losses*. And IIRC the last Q's sales figures showed Toyota down about 25%, but GM down 45% YoY. Which means Toyota (and I think Honda) are increasing their market share a lot.
When the recession and credit crunch ends, presumably sales will ramp up again. But it isn't clear that GM/Ford/Chrysler will gain back the market share they're losing now. I rather doubt it: now that people have seen $4/gallon gas, they're going to be leery of buying big SUVs. And even if the Big Three have actually figured out how to make reliable fuel-efficient smaller cars, it's going to take many years for them to establish such products on a par with the reputation of the Toyota Corolla and Honda Civic.
The chickens have really come home to roost.
Same goes double for AIG and the other financial bastards.
WHY do we keep pouring money into AIG? Why do we let Wells by Wachovia AND GET EVEN BIGGER?
How come it's not here AIG, have some money and we expect a breakup plan from your board in 60 days, or we'll give you ours in 90?
It's not safe to have companies that are too big to fail just laying around to blackmail us.
Go for Chapter 11 & break em up into functional pieces. Fire the top levels of "management" and let their cream rise to the top.
And quit whining about jobs. More people will be working at actually producing something of value if these monoliths are broken up & their supply chains will thrive.
"...it`s the end of the world as we know it and I feel fine..." - REM
Submitted by Howard (not verified) on Fri Nov. 14, 2008 12:08 PM PST.
Robert Reich writes:
"In exchange for government aid, the Big Three's creditors, shareholders, and executives should be required to accept losses as large as they'd endure under chapter 11, and the UAW should agree to some across-the-board wage and benefit cuts. The resulting savings, combined with the bailout, should be enough to allow the Big Three to shift production to more fuel efficient cars while keeping almost all its current workforce employed. Ideally, major parts suppliers would adhere to the same conditions."
Read more here:
http://www.rgemonitor.com/us-monitor/254357/the_real_difference_between_...
A lot of mostly good comments. A few observations -not all pointing in either a pro or con direction:
The most innovative parts of the US auto industry are outside of the big 2.5 (Chrysler only counts as .5)
Past historical examples, imply that once an auto company declares bankruptcy very few prospective customers will buy its products. This of course involved bit players in the market, If the big 2.5 declare bankruptcy together, and the event is accompanied by a major buy American PR push, this effect might be diminished.
J Frank P's comments seemed to be the best informed. However the sales decline and level of financial distress of the big 2.5 is much more severe than for the foreign companies -especially Toyota. So while this is a world-industry event, the US piece of it is in a class by itself.
We will probably end up with two companies, rump-Ford, and rump-GM, not three.
Bankruptcy -especially chapter 11, doesn't mean complete destruction of the industrial assets, or the business. The most important thing is to preserve the continued economic employment
of the factories, and of the human talents that man them, and design the products.
I think we're missing the point here. The proposed 'bailout' is not of the auto companies but the UAW. Bankruptcy would allow the companies to renegotiate their labor contracts and bring average wage/benefit costs more in line with the averages of other American manufacturers. At present, the American-owned auto industry pays roughly double the average manufacturing wage. With 2X the labor cost, is it any wonder the Big Three can't compete?
And for those who fear loss of an automobile industry in the US, don't forget there are is an auto industry operating here that's not headquartered in Detroit.
Submitted by Arachnae (not verified) on Fri Nov. 14, 2008 12:17 PM PST.
I totally agree with the 'if they're too big to fail, they're too big to be allowed to continue to exist' argument. But I find it peculiar that we're rescuing all these organizations that don't actually make anything in preference to those that do.
Corporate bankruptcy attorney here: none of the Big 3 will ever file a chapter 7 case. That puts everything in the hands of a trustee, and effectively ceases operations immediately. World's biggest fire sale. Even if there was no choice but to liquidate, that can be accomplished under a chapter plan and/or a series of assets sales. Sure DIP financing is pricey these days, but DIP loans are also really, really safe and one would assume there is ample collateral to cover them. Bottom line: chapter 11 may be a good decision from a business or policy pov, but chapter 7 would be an unmitigated disaster.
Questions I will ask innocently, because I really don't know: how many Big Three vehicles are assembled overseas? How many Japanese and German companies' cars are assembled in the U.S.? To what extent are these manufacturers no longer easily identifiable as "American" or "foreign"? Except when it comes to getting a particular government to come to their rescue ...
I have a hard time feeling sympathetic toward GM and its cries of "bankruptcy" when they just opened a brand new plant in Russia LAST WEEK. http://www.indiacar.com/newsarchives/news_details.asp?id=n95868.
So U.S. taxpayers are supposed to hand over money to GM so they can ship jobs overseas? Hmmm.....
Marc is correct, DIP financintg is usually very safe. If safety is a concern, the government can guarantee the DIP loan which a) gets the money and b) ensures adult, commercial supervision of the loan. The Feds should just make sure that most of the spread between what the government would pay for a like term loan and what GM/Ford pays goes back to the government.
The banks will have a good deal on a risk-adjusted basis while still getting some free bps for their trouble.
The US auto industry is incapable of competing with the rest of the world's automakers. The US auto industry has had over twenty years to catch up with the modern manufacturing techniques pioneered by Toyota, but has not. The government bailing out the US auto industry is equal to the Soviets saving their auto industry. The money used for the bailout should be used to pay the unemployment relief of the soon to be unemployed auto workers.
Jack, I don't know the numbers, but both GM and Ford operated auto plants around the world, just as Japanese and European companies operate here. The automotive idustry is a global industry, where global scale matters. Integration in operations is less important that in the past. It's not yet as 'dis-integrated' as electronics manufacturing, but it's headed that way. Some day your engine might come from Spain, the electronics from Japan, the lights and electrical system from Germany and the body from China, with final assembly in So. Carolina and distribution via the internet. Who's going to bailout whom then?
one quick comment: the notion of too big to fail has some resonance in the financial world, where the complete system could, in fact, collapse if a key link in the chain breaks.
but there is no reason to treat a manufacturing company as too big to fail. maybe there are other reasons to keep the companies alive as they are today (i'm not seeing them yet, but i could be shortsighted), but not because they are "too big to fail."
For GM and Chrysler, taxpayer help will only postpone bankruptcy, not prevent it.
Chrysler is clearly headed for bankruptcy and liquidation, unless it can find a dancing partner. Nissan has shown interest but only wants the Dodge truck division. Tata Motors may be interested in the Chrysler brand and dealer network, but not the manufacturing facilities. Either company would be better off buying these assets as part of a bankruptcy liquidation.
There is no foreseeable scenario that leads to a chapter 7 BK for GM; anyone who says otherwise clearly has a hidden agenda. Without a very large, no strings attached taxpayer bailout, GM will surely enter chapter 11 in the coming months. Right now, the company is so highly leveraged that it is essentially insolvent (GM's market capitalization is only $1.86B, yet it costs $1B/mo. just to keep the lights on). Credit default swaps for $10M of GM's debt currently run over $5M (in other words, to borrow $10M, GM must pay over $5M up front). Depending upon the length and depth of the current recession, GM may suffer as few as six, and as many as ten loosing quarters before it returns to profitability. This means that without a BK and court supervised restructuring of debt, a taxpayer funded bailout will cost between $18B and $30B, and this only if the money is available without substantial preconditions. Having said that, let me say this: GM is a viable automaker with a solid, competitive product line. However, GM is clearly headed for bankruptcy and reorganization. Make no mistake, it will be painful for a lot of businesses and individuals. But the net loss of jobs will be no greater than the number that GM must shed in any event.
Could our government guaranty DIP loans for GM? Absolutely. It would be less expensive and less risky than a bailout, while leaving more funds available for what we really need: a large stimulus package with heavy spending on infrastructure.
The problem with Leno's point is that the Japanese manufacturers employ more American auto workers than the Big 3. If the Big 2.5 go belly up, we'll still have automobile manufacturing plants, they'll just be Toyota, Honda and Daimler plants.
I say if we bail them out, make it conditional on Chapter 11 and have the Federal Government be the DIP lender of last resort.
Why is it that there is no mention of the fact that for years American manufacturers have been saddled by an overvalued US dollar?
Had the US dollar been maintained at a level that allowed our foreign trade to remain in balance, the US car manufactures could have competed in the small fuel-efficient car market. Instead, they differentiated into the truck/SUV market where they could compete on price, and still earn a profit.
The car manufactures need a bailout for the same reason that the financial system needs a bailout: the government failed to fulfill its oversight responsibilities. Free-market ideology (Globalism! the earth is Flat!)took the place of realistic management of the nation's affairs.
No bankruptcy of any kind - provide the financing they need, and exercise the oversight necessary to see the money is used properly. In short, we need an industrial policy that is not based on free-market fairy tales.
It's amazing how interesting the discussion is on a topic like this. You won't get this on a t.v. show or in most magazines.
Ensuring cash flow and holding onto the big money for other stimulus spending sounds like the sort of thing politicians will find appealing.
I suspect there's a large dose of Bushie politics in all this. Consider where the car manufacturing jobs are in America, how the GM workers likely voted and how the non-GM workers likely voted. I can just imagine a large long stream of Democratic Michigan and Ohio car manufacturing workers walking slowly South towards Ohio, West Virginia and Tennessee to non-union foreign-owned car mfg. plants. Funny how these economic disasters of the Bush era always play right into their political plans to end unions, punish any state which votes Democratic and hurts African American communities. Just an amazing coincidence I'm sure.
One consideration neither Cohn nor Drum mention is the impact of bankruptcy on consumer confidence. Buying a car from a bankrupt company is not the same as buying tickets for a United Airlines flight. Will my dealer still be around? What about parts and service? Who'll take care of the inevitable recall?
This is another reason why people are coalescing around a quasi-bankruptcy in which the federal govt. provides funding at the cost of some structural changes (albeit not as radical as you might get in a Chapter 11).
They didn't exactly force us to buy all those oversize SUV's, did they?
Love this argument. As if the long-term solvency of a company is the responsibility of its customers.
You know what Ben & Jerry's customers would like? Free ice cream sundaes seven days a week!
But B&J won't offer that to the public because they know pursuing such a course would eventually drive the company into bankruptcy.
Damn those American car consumers, forcing the Big Three into corporate suicide!
Interesting comments in this thread, and a minimum of snark. Thanks to all for that.
A couple of small observations to add: it's not at all clear that GM and Ford are still building "junk," as more than one poster above asserts. IIRC Consumer Reports just rated the Chevy Malibu as the best mid-sized car on the road, ahead of Toyota Camry, Honda Accord, and Nissan Altima. (The only exception on that: reliability, due to it being too new to judge. But reliability for Ford and GM has been improving for some years now). Anyhow, I know several folks -- previously confirmed Honda, Toyota, and Mazda buyers -- who are very, very happy with their recent GM and Ford models.
A second point: the Detroit automakers can and should be criticized for their incredible lack of foresight. They had been incredibly resistant to outside ideas, especially from the environmental community. Amory Lovins, of the Rocky Mountain Institute, was the first guy I ever heard expounding on the virtues of the hybrid design ... back around 1992. He had convinced GM and Ford engineers at the bottom of the heap, but (as we've seen) at the top it was the Japanese who moved on it. More recently, he and his colleagues have gone to incredible lengths trying to interest Detroit in carbon-fiber bodies, a frameless system in which pieces -- tougher than steel -- would weigh a fraction of stamped steel. With such an approach, you would see enormous improvements in mileage, an easier conversion to all-electric designs, and many other huge gains. Detroit had been uninterested, while -- again -- foreign makers have been very interested.
So any bailout of any kind should involve a change in leadership, giving the industry more leaders who have the same kind of intrinsic eye for innovation that (for example) is routine in the computer industry.
ScottB -
It would be torches and pitchforks for any bankruptcy judge who allowed an automaker to escape warranty responsibility. Nonetheless, it would be incumbent upon any auto company entering BK to reassure their customer base that the purpose of said bankruptcy is to assure the future viability of the automaker and further assure the automaker's ability to service warranty claims. Bankruptcy is a beginning, not an end.
Submitted by mg (not verified) on Fri Nov. 14, 2008 3:17 PM PST.
Allowing GM to file 11, even with a government DIP, is rolling the dice at a time when we literally cannot afford to lose. It's reckless. If this were any other time -- if this were two years ago, or ten years ago, or with luck, two years from now -- I'd say go ahead and let them file. But it ain't any other time.
Preventing a depression is, to steal from Ford, job one. Almost nothing else matters. Saving GM from an immediate filing will cost what, 25-30 billion, at least some of which the government will get back. Letting them file will still cost the government (remember these companies and the people they directly and indirectly employ pay taxes), and carries with it the risk that you'll destroy whatever shreds of confidence people have left. Can anyone explain to me why this is a good risk to take at this moment, given the relative cheapness of a bailout compared to the risk of exacerbating an already potent economic meltdown?
In recent years it seems as though GM and Ford have picked up on their quality and design issues for mid-size sedans. However, none of the "Detroit 3" have competitive vehicles in the compact and small car market. Given that it took GM/Ford several concerted attempts at getting the mid-size sedans in the ballpark of the Japanese (and WRT Ford, not without the help of a Mazda donation), I'd imagine it'd be a similar development to get the smaller vehicles up to snuff. That's probably decades and several billion in development costs away. Since that's where the growth in the market is, I'm not sure GM/Ford could exist at anywhere near their current size for that long.
A bailout would reward some amazingly bad (and completely cynical) business decisions on the part of the Detroit manufacturers. They don't help their cause when their 2-3 million job loss scare number is complete FUD, including practically all jobs within a 15 mile radius of any manufacturing facility that produces anything that might be construed as automotive-related.
http://gmfactsandfiction.com/wp-content/uploads/2008/11/110408-car-emplo...
This feels as opportunistic as the airline bailout talk post 9/11. Can we afford to operate without a financial system? Probably not. Can we afford to operate with the "Detroit 3" existing at a post-bankruptcy reduced scale? It'd be a growth opportunity for their market competitors, who would probably build capacity on their own or possibly even purchase assets to meet the consumer need. It wouldn't be fun, but there's not going to be much fun in this recession.
howard: the notion of too big to fail has some resonance in the financial world, where the complete system could, in fact, collapse if a key link in the chain breaks.
There's some truth in that, but it's no excuse for the sort of sweetheart loans (technically preferred stock, but 15% convertibility is a joke) that Paulson handed out.
Finance is treated as the prodigal son. Small wonder they're not risk adverse - Uncle Sam will always bail them out. A better approach would be to take companies into receivership as necessary, and actually run them in receivership instead of flipping them at firesale prices. Citi Group (or whichever) goes into receivership? Tough luck on the shareholders - next time tell them to invest in a responsibly run company. Meanwhile the finance sector will continue to run.
but there is no reason to treat a manufacturing company as too big to fail
mg at 6:17 explains it well.
And, as I've already noted, the money ($25B loan) the car companies are asking for is chump change compared to the financial sector's bailout.
Also, as Bob said at 4:52, the overvalued dollar has been killing the car companies (and all American manufacturing) for at least a decade.
The trade deficit is one of the (still) rarely mentioned catastrophe of the last decade. The only way to get out of it is by increasing our exports and reducing our imports of manufactured goods. Letting major industrial companies die is not a good way to do that.
How many of the Asian and European car companies are operating without American taxpayer assistance? The state of Georgia just gave Kia millions to build a plant for a bunch of $17 an hour no benefit jobs. How much has South Carolina gave BMW so they can hire workers from Manpower?
