This did not make me any less right about GM being too screwed up to be helped by a temporary cash infusion, apparently:
In a presentation to analysts Thursday, GM executives said it is now planning on total vehicle sales of 10.5 million cars and trucks in the U.S. this year. That's down from an earlier forecast of 12 million vehicles that GM gave to Congress in early December when it first sought federal assistance to keep it out of bankruptcy.
GM President Fritz Henderson said that volatility makes any forecast for sales very difficult, and it is for that reason the company is now using more conservative estimates for sales.
The lowered outlook is important because it could be a sign that GM believes it will need more money in order to make it through this downturn. When GM submitted its turnaround plan to Congress last month, the company said that sales of 10.5 million vehicles in 2009 was a "downside scenario."
The CNN article goes on to speculate that the fine folks at GM may be lowballing their expectations in order to a) get more money from Congress and b) hand analysts a nice surprise at the end of the year. But it seems to me that if they ask for any more money, they should get a long, hard grilling by Congress about why their forecasts changed so drastically in a month.
They won't get such a grilling, of course; more like Harry Reid will roll over on his back so Rick Wagoner can scratch his belly. But they should.
They should just declare bankrupty and get it over with.
The way auto sales are collapsing, 10.5 million seems high to me.
GM has been sliding for four decades because the company is out of touch with the market and makes too many products that people don't want.
The company needs to make fewer products, while setting realistic sales and price expectations that allow it to sell those products at a profit, with the understanding that lower market share is a given.
It's not a cost or a union problem, so much as it is a revenue problem. Unless the product deficiencies are addressed and the brands rebuilt based upon having high quality, desirable products, it's just a matter of time before it fails.
In other words, we're not getting that money back, and blaming the unions is fun, but a waste of time. An uncompetitive enterprise that ignores customer needs cannot slash its way to prosperity. GM has allegedly been controlling costs for those four decades, and we can all see what good that didn't do.
"the brands rebuilt based upon having high quality, desirable products"
How can they build a higher quality car at a given price point than Toyota if their labor costs are $1000 higer?
If you have a $20,000 Malibu and a $20,000 Camry Toyota will be able to spend a $1,000 more on higher quality parts and features than GM. That's not even considering that no one is going to pay $20k for a Malibu if you could get a Camry for the same money.
The only way GM can compete is to sell a car that is both cheaper and higher quality than a Toyota - and with the current pay scale and union rules that is impossible.
" But it seems to me that if they ask for any more money, they should get a long, hard grilling by Congress about why their forecasts changed so drastically in a month."
Couple hundred thousand more unemployed people? Seems kind of relevant.
Care to comment on the $20,000,000,000 BoA bailout and the $98,200,000,000 backstop, Megan? It's a tad more relevant today than GM revising its sales estimates by less than 15%, no?
Considering the new economy it's obvious what they should do:
Give away their cars for free. More people will then know about and experience the awesomeness of GM , building a loyal customer base, and GM can make money on touring car shows.
"so that all the workers would have to become footmen in the houses of my rich patrons."
Why would your rich patrons want a bunch of lazy whites and blacks to become their footman? They'd just aggravate for higher wages and threaten them with lawsuits.
Far better to hire illegal aliens for those jobs.
s/aggravate/agitate in my previous comment; I skipped my morning coffee.
"How can they build a higher quality car at a given price point than Toyota if their labor costs are $1000 higer?"
The Malibu is a bad example because it actually doesn't suck.
Consider instead the Cobalt, which apparently was an exercise in saving $1000 in parts, but as a result, sells for about $5000 less than a Civic or Corolla. How, exactly, does losing an EXTRA $4000 per car help GM?
When I said last month that GM was too screwed up to be helped by a temporary cash infusion, I was called an anti-union hack who just wanted to see good union jobs destroyed so that all the workers would have to become footmen in the houses of my rich patrons.
Man you knocked that strawman into next Tuesday.
I'd like to comment on this, but all I can hear is
"Now everyone can make wholesome, healthy, and delicious..."
I think we should also note that the supposed strategy for reviving the big 3 by having them produce fuel efficient hybrids, electric powered and other fuel efficient vehicles ignores the fact that these companies have no presence in the market for fuel efficient passenger cars, indeed any passenger cares, and haven't for years. Many commentators have pointed out the Detroit has survived on SUV's, 4x4's, pickups and other light trucks since the '80's. However, I was surprised by the extent of this dependency; an article bt Micheline Maynard in the Dec. 20 NYT pointed out that almost 60% of GM's YTD sales, and over 70% of Chrysler's, were light trucks. This led me to start looking around at the nameplates of the cars (passenger cars, not light trucks) I see on the road. By my thoroughly unscientific count no more than about two in ten bear big 3 nameplates. If you don't count gas guzzling Cadilacs, Chryslers and Mercuries, the number is quite a bit lower. The fact is that Honda and Toyota have become the ford and Chevy of passenger cars, particularly small, reasonably efficient passenger cars. GM, Ford and especially Chrysler are small players in this market. It is true that I live in the Northeast and the picture might be a bit different in the Midwest or South, but not much. To remake themselves by producing fuel efficient cars will require them to remake their brands from the ground up. This is impossible in the timeframe available to them.
If you have a $20,000 Malibu and a $20,000 Camry Toyota...
...the Camry will sell with few incentives and in large numbers, while the Malibu will be loaded up with incentives, as they desperately attempt to push a fraction of the volume. So the Malibu will be cheaper AND they will sell far fewer of them.
Consider instead the Cobalt, which apparently was an exercise in saving $1000 in parts, but as a result, sells for about $5000 less than a Civic or Corolla. How, exactly, does losing an EXTRA $4000 per car help GM?
Exactly. Comparing revenues makes the problem quite clear.
Instead of listening to the bleating of GM management, which has never taken responsibility for the company's long string of failures, these folks need to read the financial statements and compare them to those of its successful competitors. If they took the trouble, they would find that the main difference is not with costs, but with sales, revenue, and the direction of market share.
Hire illegal immigrants?
As a small wallpaper contractor, illegal labor has hurt the small man considerable. Don't these company executive's know it is illegal to hire illegal labor? When will the government actually do something about this?
Our new president has said that anyone wants a job and able shall have one. I am looking for my 50$ an hour position like the auto workers that get bailed out with a lousy tarp that is not controlled or the right thing to do.
hope he spells my name right on the check,after he has a big exspensive party in washington on the taxpayers exspense.
But as you know a little guy does not have a few million to donate to get any favours from washington.
In need of work..
not far from the street.
and it is a cold world.
CP Smith
Unions are a significant part of a very, very large problem. Fixing the Unions will not fix GM but Gm cannot be fixed without fixing the unions.
Yes, they should get grilled. But not as much as AIG or Citigroup or Bank of America, all which have gotten far more.
"How can they build a higher quality car at a given price point than Toyota if their labor costs are $1000 higer?"
Not to mention the fact that work rules create an additional $1000 wedge.
"Consider instead the Cobalt, which apparently was an exercise in saving $1000 in parts, but as a result, sells for about $5000 less than a Civic or Corolla. How, exactly, does losing an EXTRA $4000 per car help GM?"
Domestic economy cars do typically have a lower price point than their foreign competitors but this is usually a bit misleading. This may have changed but I remember when I was shopping for an economy car a couple of years ago (06) and if you wanted a basically naked car but with ABS brakes, this was impossible to do with the domestic producers. You could get a Honda Civic for 16k or 17k that fit that description, a Volkswagen Golf for $15k, etc. With ABS, a PT Cruiser, Ford Focus, or Chevrolet Cobalt bumped you into one of their higher trim levels and all of a sudden you were looking at a $20k car. I have always thought this was insanely stupid because one of the things that people buying economy cars typically don't want to skimp on is safety.
Freddie,
The footmen comment was a bit of hyperbole, but every time she wrote that GM should be allowed to enter bankruptcy, there were more than one commenter here that called her an anti-union hack.
Its funny how Megan defends bailing out the financial big guns while ferociously attacking GM & co. getting some chump change (relatively speaking). I know, I know ... if the financial firms don't get their trillions, the world as we know it would end. See that's the problem with GM/Ford... they aren't big enough. Now if only they could take down the world (rather than merely devastating MI, OH and maybe Western PA), Megan would be in the frontlines cheering for their continued survival.
Domestic economy cars do typically have a lower price point than their foreign competitors but this is usually a bit misleading.
There is nothing misleading about it. The domestics sell models in fewer numbers, with far higher fleet percentages (resulting in lower margins), and with far more incentives.
For example, as of last June, GM's incentives were roughly $2,300 per vehicle higher than Toyota's and $2,100 higher than Honda's. The problem has only worsened over time.
GM sells slightly more vehicles than Toyota, yet produces substantially less revenue from those sales. Clearly, vehicle buyers aren't willing to pay nearly as much to GM to own a given type of vehicle. If Toyota tried to survive on GM's per-unit revenues, it would be failing, too.
The revenue shortfalls are substantial and obvious. Assessing these problems isn't as amusing because it forces us to blame the management, instead of the workers, but it gets closer to the heart of the matter.
"Now if only they could take down the world (rather than merely devastating MI, OH and maybe Western PA), Megan would be in the frontlines cheering for their continued survival."
It wouldn't take the world, just what Megan cares most about: New York City.
Yeah. They should get a grilling, just like the bankers got.
rub with oil, salt, and then grill over hot coals.
Your continued double standard still is clouding your vison, Megan. Nobody thought December sales would be as bad as they were (though I have a different theory -- I believe folks are sick of the Dec. buy-a-thon, and economic hard times gave everyone a great reason to buy out of it.) Given the continued overestimates of economic activity, why shouldn't auto also have originally overestimated?
And why aren't you calling for as hard a grilling for the risk peddlers on Wall St.? They, too, have their hand out for a much larger chunk of the borrowed pie.
10.5 million is fairly optimistic... the annualized rate based on December was 9.9.
We'll get 10.5 if the recovery starts mid year.
I don't know if the bank bailout is the right course, but the reason people are for them is because they are worried that a global financial failure would lead to things that make the current credit crunch look like the good ole free wheeling days. There's pretty good reason to be for bailing the financial system out, without having to also be fore a futile attempt to save a dying dinosaur like GM and a rotting corpse like Chrysler.
I wonder what their sales forecasts would look like if all taxes associated with automobile sales were suspended for, say, 2009?
more like Harry Reid will roll over on his back so Rick Wagoner can scratch his belly.
It's going to take something stronger than anything I have in the liquor cabinet or the medicine chest to purge this demon from my head.
Proper footmen should be tall, good-looking, and fop-ish, so as to properly represent their household when waiting at dinner.
I'm not seeing that coming out of the UAW meeting.
RW,
But why are the revenue and profits so low? It's because they build sh*ty cars that no one wants to buy. Why do they do this? Because their costs are too high, to make a car as good as a Corolla they would have to sell it for the price of a Camry. And if they did that no one would buy one.
What they need to do is sell a car as good or better than a Camry for the price of a Corolla. And they can't do with their current cost structure. If they were selling Camrys for the price of Corllas they would have $100s of billions in revenu and 10s of billions in profits within a decade.
I think your main premise here is wrong. GM is not the only car company reappraising their sales volume forecasts for the TOTAL MARKET for 2009. Toyota and Honda are cutting production in North America AND in Japan by amounts greater than they had committed to just six weeks ago.
10.5 million annual rate is drastically low by recent historical standards, when 14 million was regarded as a bad, bad year. It's not just GM.
In fact, it's not just the auto industry. Perhaps if Megan had worked at one time in a commercial or manufacturing enterprise she would have appreciation for the turmoil confronting all company managements since about October.
Where should any company project sales volumes in their markets over the next year? Nobody has any good idea, most companies are making continual adjustments downward because the overall economy is looking ever less optimistic. These are not normal times, and the usual guideposts have lost their predictive capabilities.
GM is just being prudent in the face of new information, like everybody else.
On Camry vs. Malibu
Malibu's high feature V6 (LY7 engines) is one of the best engines in the business. For the consumer, LY7 powertrain means zippier, more reliable, and most importantly, higher resale value. I know I sound like a car salesman, but that engine is significant to GMs health. Most of the applications of this platform have been major recent hits for GM (Aura, CTS, STS, Vue, upcoming Camaro, etc). You're basically driving a standard cadillac engine.
Malibu is basically a super evolved Opel Vectra (Europe's Saturn Aura). The vectra is one of Europe's best selling cars.
While GM has had its issues with products (Aztek, Lumina van, etc), it's flaws are in the ways it operates and produces products. It's complete bull shit when congress claimed GM was in the dumps because they didn't produce a Prius or Insight. The foreign automakers have been making their profits for years on basic sedans like the non-hybrid standard V6 Camry and Accord.
Don't get me wrong, there is plenty of interest in fuel-efficient alternative propulsion, but there isn't demand. For most people, this stuff is just a novelty. How many old outdated cars on the road do you see on the road today that everyone would laugh at the MPG on the sticker if it were new? Without a pigouvian gas tax, there isn't true demand for this stuff unless you drive significantly more than others.
As others have pointed out, revenue tells us nothing. While a desirable tesla roadster is the sexy renaissance to the American Automobile, its not an easy nor big profit for Tesla motors. Keep in mind when the Volt comes out, it will carry a $40,000 price tag (if its cheaper, it won't be by much). Considering the costs of developing it and it won't be produced in high volumes, the Volt in all it technological might could be barely profitable.
A question for the bankruptcy crowd: Given the nature of manufacturing, firms must be producing on large scales to make money. These large scales often require serious financing to operate and acquire parts from suppliers. Does the timing of a bankruptcy matter? Aside from the issues of DIP financing, could this companies operate in bankruptcy with the recession going on? If they totally go down (ch 7), is there any private sector desire to invest in the liquidated assets? No one seems to want to do anything that involves credit lately.
Is there any advantage to keeping these firms on life support and doing a bankruptcy in a better climate? Or, does GM want to restructure in its own way (backs of suppliers, etc) and bankruptcy wouldn't be necessary when the market come back?
I know I sound like a little bit of populist when I ask: many educated middle class unemployed with no mobility (no home equity and/or can't sell house) vs. a few billion out of growing trillions?
J
If I thought that the money would save GM, that would be one thing.
It won't, not without structural changes that can only be accomplished in bankruptcy or something so like it as to be the same thing even if by a different name.
And sure, the whole car industry is crap right now, but Toyota lost 1.1 billion last year; GM is losing that PER WEEK.
It's because they build sh*ty cars that no one wants to buy. Why do they do this? Because their costs are too high, to make a car as good as a Corolla they would have to sell it for the price of a Camry
That isn't the reason, and there is no evidence to support that contention. Even when GM was profitable and the competition was profoundly weak, they still failed to compete in every segment that didn't feature the traditional attributes upon which they built their successes in the 30's and 50's, such as large motors and large body styles.
Their failures are largely a function of having a bureaucratic culture that focuses on internal costs instead of providing value to the customer, and their inability to adapt production to serve customer needs. They have consistently failed in segments of the business that required delivering high quality in small- to medium-sized packages, and maintaining that quality over the long run.
The company needs new management. Products need to be built so that they are good enough to be sold at price points comparable to the competition. Even if you believe that there is a $1,000 cost gap, that doesn't even come close to explaining the revenue gap of several thousand dollars per vehicle, which is lost not only from incentives but other discounting. The labor costs have become a lame excuse for not addressing the real problem.
RW,
I think your correct but I would put a higher weight on the cost issue than you do.
From what I can see the executives at GM like Jack Smith (famous for the line "Americans won't pay for what they can't see.") were presented with the option of doing battle with the unions or continuing to use 4-speed automatics when everyone else had moved on to 5-8 speeds, from push-rods to overhead cams, from beam axels to independent suspensions, drum brakes vs. disks, they continued to use the old cheap technology.
So, it was the fault of management for not taking the company to the brink of bankruptcy and the fault of the unions for insisting they be paid with money that should have gone into R&D and high quality parts if GM wanted to be sustainable long term.
"But it seems to me that if they ask for any more money, they should get a long, hard grilling by Congress about why their forecasts changed so drastically in a month."
So does that attitude also apply to the financial institutions who seem to be coming back to the trough?
As long as we continue to make "free money" available people will keep running back with empty buckets.
The revenue shortfalls are substantial and obvious. Assessing these problems isn't as amusing because it forces us to blame the management, instead of the workers, but it gets closer to the heart of the matter.
I don't see that as forcing us to blame management. If you have high labor costs you're going to cut costs somewhere else. In GM's case it's design and quality. No doubt if management was better they could do a bit better. But I don't see how any change in management is going to make the labor cost disparity go away. They are never going to be able to offer the same quality car at the same price.
The American car companies caught a big break when consumers decided they liked big SUVs. But in a business with such long lead times it's impossible to stay ahead of consumer taste.
But in a business with such long lead times it's impossible to stay ahead of consumer taste.
A diversified mainstream consumer products company has no alibi of any kind for not having a diversified lineup.
No company can be managed based upon psychic ability. Instead, car makers need to build strong products and brands in segments that sell consistently so that they can adjust production to match demand.
Detroit clearly failed to do that. Being an SUV company was obviously a risky proposition. In 40 years of car production, their smaller vehicles have always been second rate.
Even when fuel is cheap, the compact and midsized segments are substantial spaces in the market that cannot be neglected. There is no legitimate excuse for screwing up that badly.
Blaming labor is a copout for an obvious systemic failure to address much of the market that these companies purportedly serve. The numbers speak for themselves. The labor costs are a small tree in a very large forest. Focusing on that tree will missing the fire is going to lead to a flawed analysis.
Lately, I've been wondering if the Big 3's problems lay rooted in something else; Reading "Outliers" makes me more certain of it -- the trend to removing industrial arts programs from high schools in the 1980's and forward.
Did that destroy the environments where the geniuses would have emerged from?
I've been pondering on it, for I see it carried over into our lack of appreciation for blue collar trades, our disregard for the intellect of the auto mechanic, plumber and electrician.
Did we doom our design and engineering skills by removing the hands-on environment and touting jobs on Wall St.? Perhaps we've got a workforce full of Martys with nobody to build the time machine.
Labor, healthcare, and pension costs were astronomical at GM. I don't know where this revisionist history is coming from that they aren't.
Mismanagement is/was part of the problem, but how do you dig your way out of the union contract to make profits at this point?
If they restructure and sell fewer cars, they're still on the hook financially for a lot of employees and ex-employees. And they won't make as much money if they sell fewer cars.
No company can be managed based upon psychic ability. Instead, car makers need to build strong products and brands in segments that sell consistently so that they can adjust production to match demand.
Exactly my point. American car companies have been unable to do this for decades, but they made a profit every now and then because they got lucky. What's happening now is the reckoning delayed by the gold mine that was the SUV.
Small cars cost almost as much to build as SUVs without commanding the SUV premium, which is why American companies gave up trying to compete in that segment. They simply can't carry the extra labor cost without losing money.
From Rob Lyman:
Obama already has a different offer.
I love that the only retort to Megan's comments is, "What about AIG/BoA/etc?"
Christ, why can't we just admit that the ONLY reason for the Big 3 bailout is political payback for Unions (whose members I generally love) and the industrial midwest (where I live)?
Anyone who's not willfully obtuse understands that the financial sector bailout package was premised on the interlocking, interdependent nature of that industry, and its ties to the rest of our economy. Hell, GM needed the financial bailout as much as anyone.
There simply was no corresponding need for a Big 3 bailout, so it's appropriate to apply greater scrutiny to the automakers, particularly as GM (surprise!) seems to be preparing for another handout merely weeks after the first.
(Expected response: "Blah blah blah class warfare blah blah blah parts makers blah blah blah glibertarian")
I love that the only retort to Megan's comments is, "What about AIG/BoA/etc?"
Christ, why can't we just admit that the ONLY reason for the Big 3 bailout is political payback for Unions (whose members I generally love) and the industrial midwest (where I live)?
Anyone who's not willfully obtuse understands that the financial sector bailout package was premised on the interlocking, interdependent nature of that industry, and its ties to the rest of our economy. Hell, GM needed the financial bailout as much as anyone.
There simply was no corresponding need for a Big 3 bailout, so it's appropriate to apply greater scrutiny to the automakers, particularly as GM (surprise!) seems to be preparing for another handout merely weeks after the first.
(Expected response: "Blah blah blah class warfare blah blah blah parts makers blah blah blah glibertarian")
That, that probably sums it up. Oh, and avoiding a depression with a couple million jobs lost.
Re: If they restructure and sell fewer cars, they're still on the hook financially for a lot of employees and ex-employees.
Actually, they aren't on the hook for ex-employees for too much longer. The pension fund is a separate beast, and retiree healthcare is being offloaded to the unions.
Re: Christ, why can't we just admit that the ONLY reason for the Big 3 bailout is political payback for Unions (whose members I generally love) and the industrial midwest (where I live)?
Um, how about not driving the economy even further dwon the road to depression? And as others have pointed out the costs (to the government and hence the taxpayers) of the auto companies collapsing would be far greater than the costs of the bailout.
Hey DB Cooper
Here's Barry R. from the The Big Picture (http://www.ritholtz.com/blog/2009/01/the-45-billion-dollar-club/):
"Like Citi, the B of A monies are a terrible deal for the taxpayer — not a lot of bang for the buck, and leaving the same people who created the mess in charge.
Organ transplant medicine understands certain truths: You do not give a healthy liver to a raging alcoholic, as they will only destroy the organ via their disease/bad judgment/lifestyle.
Why do we give billions of taxpayer dollars to incompetent managers who failed to protect their assets, who destroyed shareholder value? These people have demonstrated a marked INABILITY to run these firms. Why reward them with 10s of billions of dollars?
Its nothing short of madness . . ."
So maybe it is a bad deal to bail out GM and Detroit. But it may be a worse deal to bail out the financial guys. That's the problem with Megan. She can't see it.
Apparently your problem, too.
And as others have pointed out the costs (to the government and hence the taxpayers) of the auto companies collapsing would be far greater than the costs of the bailout.
You're assuming facts not in evidence. What's the cost of the bailout? As the initial post makes clear, the estimates that the bailout was premised on are now known to be overly optimistic.
Who knows how long the auto subsidies will be needed for and how much it will end up costing? I don't think anyone has a clue at this point.
It may be wind up being cost-effective, but I don't think that can be stated with any certainty at this point.
"I was called an anti-union hack who just wanted to see good union jobs destroyed so that all the workers would have to become footmen in the houses of my rich patrons."
The only thing outrageous about these posts is you act like your predictions are somehow new or original or daring.
Predicting doom and gloom for the autos? Accusing government bailouts of being thinly disguised special interest spending? That's exactly what everyone has been saying over and over again for the last twenty years. It's completely true, of course, but this is the safe common consensus save for a small fringe that has emotional ties to the auto industry.
They won't get such a grilling, of course
... unless you act now to purchase your very own Rocket Grill!
"Here's Barry R. from the The Big Picture (http://www.ritholtz.com/blog/2009/01/the-45-billion-dollar-club/):
"Like Citi, the B of A monies are a terrible deal for the taxpayer — not a lot of bang for the buck, and leaving the same people who created the mess in charge.
In the case of AIG, and Fannie and Freddie as well, the government showed then-current management the door as part of the terms of the capital injections. The initial bolus of government capital into Citi was made as part of the first $125 billion tranche of TARP recapitalization of the financial sector, where the government's intent was to get broad participation to avoid stigmatizing any institutions. A case could be made that the subsequent capital injection for Citi should have required some management changes, but it looks like that's happening in any case. Rubin announced his retirement, Pandit's hold on the CEO job looks tenuous, etc.
Bank of America is a different animal in once sense: by most accounts, it has been a well-run bank (one of the few that Buffett owns in Berkshire Hathaway, for example). Most of its problems seem to have come from its acquisitions (e.g., Merrill), but it was in the government's interest for B of A to gobble up weak firms like that, so it make some sense to help subsidize the acquisition, de facto, with this additional capital injection.
Yes, they should get grilled. But not as much as AIG or Citigroup or Bank of America, all which have gotten far more.
The Detroit 3 and UAW should get exactly the same treatment that the big financial firms have gotten. Can we pro-Detroit, pro-UAWers agree on that? OK, agreed ...
Wachovia, Washington Mutual, Lehman Bros, Bear Stearns, and Merrill Lynch are no more, gone into history.
AIG got an 11% loan to be repaid in two years by breaking up the business and sellings its parts to the high bidders.
The big banks that are solvent -- but which have investments that turned illiquid in the financial system crisis temporarily, and which as a result would otherwise be forced to reduce the scale of lending operations, thus harming countless third parties around the world and maybe sink more entire countries like Iceland ... and possibly even further sink US auto sales by another million! -- received cash injections in the form of secured loans that pay interest and must be repaid, or preferred stock paying a significant dividend (interest equivalent) that will have to be redeemed (effectively repaying a loan), in order to let them avert the need to so reduce operations.
The big banks and financial institutions that were not solvent but headed into bankruptcy ... did I mention Wachovia, Washington Mutual, Lehman Bros, Bear Stearns? And now Citi is being broken up and its parts sold off too.
The thing about GM and Chrysler is they are not solvent they are bankrupt, plain and simple. Which puts them in the Wachovia, Washington Mutual, Lehman Bros, Bear Stearns & AIG group.
Same treatment, we agreed -- so break 'em up and sell off their parts to whatever other firms can make the best use of them and will thus pay the most for them. Same treatment! It's only fair!
Why should Detroit get such a better deal than the bankrupt big financial firms??
GM cannot pay back loans or redeem preferred shares that inject liquidity because it's problem is not temporary illiquidity while being solvent and profitable on operations.
It's problem is that it is bankrupt and losing billions of dollars of cash each month on operations. The only solution to this is that it's costs be brought down, slashed, to meet its revenue. Until that happens, "bailout" funds from the government will be just be an operating subsidy coming right out of the taxpayers' pockets -- and as long as the UAW refuses to cut those costs, that operating subsidy will have to run perpetually ... and it will never be repaid.
No financial firm has gotten a deal anyhwere near as good as that. Why should GM get such a better deal than anyone in the financial sector?? It's just not fair!
The right option for GM is prepackaged bankrupty, have everyone agree now to cut those costs as needed under the authority of a judge who can remake contracts ... or, if one party is obstructionist enough to block it, the AIG model.
Treat GM the same as AIG, sell it off for parts, giving it enough financing at an above market interest rate to keep operating long enough to sell off its parts in an orderly manner.
Toyota will end up selling Hummer hybrids at a healthy profit, and the world will be a better place for it.
My main brief against these posts about the auto bailouts is that they are miniscule in relation to the banking and financial bailouts, yet received a huge portion of Megan's output. However they fit in with the age old narratives which include a visceral distaste of production workers and the job they do. Hidden within complaints that they get paid too much. So of course it got pounced upon with smug delight masked by the usual blather about free markets etc. etc.
Well sure the Big 3 are a disaster and have been since 73, officially. However they are a small part of the disaster which is our entire financial and economic system driven by the corruption of our elites. You think I exaggurate I know.
The project that was the conservative revolution was a reactionary response to the obvious ethical, moral and practical truths that Carter referred to as The Malaise. A call to downplay materialism and recogize limits. The limits were overcome with debt but now the debt has all gone bad. An era of limits beyond the imaginings of those under 50 is now upon us. Take your shallow comfort in watching the UAW die if you will.
http://theautomaticearth.blogspot.com/2008/11/debt-rattle-november-26-2008-from-top.html
Re: Which puts them in the Wachovia, Washington Mutual, Lehman Bros, Bear Stearns & AIG group.
Lehman is the odd one out in the list-- and almost everyone admits that allowing it collapse was a huge mistake.
The other banks were all sold to other institutions; they did not go bankrupt or collpase.
Is there another auto company out there that wants to acquire GM? If so, then full speed ahead on the merger! But I don't see any such rescue on the horizon, so we need a plan B.
By the way, last month people who thought GM shoudl go the Chapter 11 route were pointing to Circuit City as an example. Care to stand by that idea now?
This post is fundamentally pointless. As Seppo pointed out in a previous comment, the sales outlook for the entire auto industry is grim and getting grimmer. Why single out GM for lowering its forecast? This has nothing to do with whether GM is "too screwed up" to be helped by a bailout.
Hey Megan, If you aren't "an anti-union hack who just wanted to see good union jobs destroyed so that all the workers would have to become footmen in the houses of my rich patrons", then I am!
Unions are dinosaurs whose time has come. That's why membership is down so much. They are no longer relevant.
Why single out GM for lowering its forecast?
Because the earlier forecasts were based upon aggressively optimistic lies that they used to lowball their initial requests, and because they are at the head of the line of the government trough asking for money. Clearly, they wanted to get the government pregnant with debt, so that Washington would have no choice but to keep feeding it once the first installment had been lost...er, spent.
They deserve the ridicule. They aren't going to generate any profits to repay the "loans", because their business culture is too toxic to be fixed with taxpayer money. Profits aren't possible if vehicles can't be sold, and unless Americans fall back in love with massive SUV's, the company is managed well enough to ever generate the profitable sales that they need.
Christ, why can't we just admit that the ONLY reason for the Big 3 bailout is political payback for Unions (whose members I generally love) and the industrial midwest (where I live)?
The GM bailout is largely motivated by the desire to support the equity markets and to prevent the junk bond and related CDS markets from imploding due to a default. This may shed some light on the situation: http://www.tradingmarkets.com/.site/news/Stock%20News/2026115/
After some footstomping, the UAW will likely accept cuts, as well as compromises to VEBA that will be invariably be renegotiated or defaulted on later. The leadership needs to put on a good show, but it's a matter how much of how much they lose, not whether they do.
That, that probably sums it up. Oh, and avoiding a depression with a couple million jobs lost.
Posted by Tony Wesley
And how many jobs will be lost elsewhere because the government is siphoning capital out of the economy and giving it to the biggest losers? They won't be as visible, but it will be quite a lot more.
Re: And how many jobs will be lost elsewhere because the government is siphoning capital out of the economy and giving it to the biggest losers?
Those job losses will be China, not the US. Where do you think the capital is coming from?
Have you paid your illegal today?
Absolutely. The more accurate analogy would be if the Big 3 could claim that all of the cars already on the road would stop running if they were allowed to fail.
That wouldn't mean that they would deserve a bailout any more, just that there would be no choice but to give it to them. This is where the fairness argument breaks down. Nobody thought the financial giants deserved a bailout; the fear was that consequences of not bailing them out would be much, much worse than the consequences of bailing them out. Letting them get "too big to fail" was a mistake. So the "fairness" argument for bailing out the Big 3 boils down to the argument that two wrongs make a right.
Who in their right mind would buy a car from the Big 3, when everybody knows that chances are that they will go bankrupt anyway? If they were already in bankruptcy, with some sort of provisions in place to protect warranties, then they might barely have a chance. The longer this is stretched out by government handouts, thereby allowing their finances and public confidence to continue to deteriorate while everybody waits for the next shoe to drop, the worse their ultimate fate (and that of their workers) will be.