Auto bailout maybe a good idea?

[Kembal]

So I've been somewhat against an automaker bailout, because I figured a Chapter 11 bankruptcy filing might be better. But looking at the credit markets lately, there is a case to be made that the DIP financing needed to go through Chapter 11 might not be there, which would mean a Chapter 7 bankruptcy....and liquidation would be bad.

Today I read an article/essay from the New Republic (I know, it's a liberal mag, yadda yadda), that kind of spelled out the dangers of GM going into Chapter 7 and argued that a bailout might be better. Kind of eye-opening.

Thought I'd post it up and see what people thought. (I know there's an old thread on this with a poll.)

http://www.tnr.com/politics/story.html?id=a4893b49-36df-4784-9859-2dfa3a3211bf


Panic in Detroit
by Jonathan Cohn
This is not your father's Oldsmobile we're rescuing.
Post Date Friday, November 14, 2008

General Motors has come to Washington, begging for a $25 billion bailout to keep it and its ailing Detroit counterparts going next year. But nobody seems too thrilled about the prospect. Liberals dwell on the companies' gas-guzzling sport-utility vehicles. Conservatives obsess over all the well-paid union members with gold-plated benefits. And people of all ideological backgrounds remember how they used to buy domestic cars, years ago, but stopped because the cars were so damn lousy. "The downfall of the American auto industry is indeed a tragedy," the Washington Post editorial board sermonized recently, "but the automakers and the United Auto Workers have only themselves to blame for much of it." And, if they have only themselves to blame, the argument goes, why do they deserve taxpayer help? Let them fail and file for bankruptcy. In the long run, the economy will be stronger and the workers better off. It'd be worth?the short-term pain, which might not even be so severe.

In normal times, with another company, that might be correct. But these are not normal times, just as GM is not any old company. Nor is the simple economic morality tale everybody repeats about the auto industry accurate. Detroit has come a long way since the days of wide lapels and disco. GM, Ford, and Chrysler are taking precisely the sorts of steps everybody says are necessary--or, at least, they were taking those steps until an unexpected trifecta of high gas prices, vanishing credit, and a deep recession hit. Rescuing the auto industry is not, as so many people suppose, a question of giving Detroit one extra shot at transformation. It's a question of giving Detroit a chance to finish a transformation that was already underway.



One reason for the casual support for letting GM fail is the assumption that bankruptcy would be no big deal: As USA Today editorialized recently, "Bankruptcy need not mean that the company disappears." But, while it's worked out that way for the airlines, among others, it's unlikely a GM business failure would play out in the same fashion. 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. The company would close its doors, immediately throwing more than 100,000 people out of work. And, according to experts, the damage would spread quickly. Automobile parts suppliers in the United States rely disproportionately on GM's business to stay afloat. If GM shut down, many if not all of the suppliers would soon follow. Without parts, Chrysler, Ford, and eventually foreign-owned factories in the United States would have to cease operations. From Toledo to Tuscaloosa, the nation's?assembly lines could go silent, sending a chill through their local economies as the idled workers stopped spending money.

Restaurants, gas stations, hospitals, and then cities, counties, and states--all of them would feel pressure on their bottom lines. A study just published by the Michigan-based Center for Automotive Research (CAR) predicted that three million people would lose their jobs in the first year after such a Big Three meltdown, swelling the ranks of the unemployed by nearly one-third nationally and leading to hundreds of billions of dollars in lost income. The Midwest would feel the effects disproportionately, but the effect would reach into every community with a parts supplier or factory--and, to a lesser extent, into every town and city with a dealership. In short, virtually every community in the country would be touched.

This is, admittedly, a worst-case scenario--the sort of dire projection you'd expect from a Michigan-based think tank that receives a small amount of industry money. (And, as a Michigan resident, I should disclose my own small conflict: My wife, an?engineering professor, once directed a research project funded by Ford.) But the economists and industry analysts I tracked down this week vouched for CAR's integrity and suggested the group's estimate was in the right ballpark. Susan Helper, an economist at Case Western University and a specialist on the automobile industry, told me her rough calculations suggest the most optimistic outcome would be "just" half a million jobs lost--and that's only if the failures are contained to GM. But she expects much worse, given the likely spillover effects: Her best estimate is that between 1.5 and two million jobs would be lost. The price of addressing such human misery with unemployment benefits, Medicaid, and other services would be huge, making a $25 billion loan seem like a bargain-particularly if the companies pay it back, just as Chrysler did after its bailout in the 1980s.



Still, not everybody finds such arithmetic compelling. Critics of a bailout note, rightly, that bankruptcy isn't simply about giving distressed companies financial protection to get through rough patches. It's also about letting the free market do its work--about forcing inefficient companies to reorganize or, failing that, to make way for others. If the government spares Detroit from failure, the government might end up supporting obsolete companies while rewarding both management and labor for their oafish behavior.

Make no mistake: The Big Three deserve some scorn. For decades, they were complacent about foreign competition and the need to make more fuel-efficient cars; then they responded by seeking government protection in the form of trade barriers and lax mileage standards. The United Auto Workers (UAW) were willing accomplices to these acts, insisting upon rigid work rules defining who could do what job and under what conditions. That, plus their fierce protection of jobs even at unprofitable plants, made it difficult for the Big Three to adapt as consumer desires changed. Detroit steadily lost business to companies like Honda and Toyota that managed to make cars more efficiently--and figured out, early on, that rising gas prices would increase?demand for more fuel-efficient vehicles.

But what's missing in the tsk-tsk editorials is any recognition that the culture of Detroit has been changing, however belatedly, starting with its labor relations. Ford led the way years ago by reaching site-specific "competitive operating agreements" with locals at different plants, rather than sticking to one national agreement, thereby enabling it loosen work rules and engage in the sort of collaborative quality management on which industry leader Toyota made its reputation. Then, last year, the UAW reached a breakthrough agreement in which it granted the companies similar flexibility, agreed to a two-tier wage structure for new hires, and set up a separate trust fund to finance future retiree health benefits. The companies would provide the initial money for this trust, but, henceforth, the unions would manage it--thereby taking off the companies' books a tremendous burden that had, on its own, accounted for about half the gap in compensation between unionized workers for the Big Three and non-unionized workers for foreign-owned automakers. "I think they've shown unprecedented ability to change and transform the union," says Kristin Dziczek, who directs CAR's Automotive Labor and Education program. "They understand what is at stake."

So far, the results are promising. According to the most recent Harbour Report, the benchmark guide for manufacturing prowess, Chrysler's factories now match Toyota's for the most productive, while both Ford's and GM's are improving. (A Toledo Jeep factory was actually named the nation's most efficient.) Consumer Reports now says Ford's reliability is approaching that of perennial leaders Honda and Toyota, whose ratings actually slipped last year. In late 2010, GM will introduce the Chevrolet Volt, a plug-in hybrid that can go 40 miles without gas, and the Chevrolet Cruze, a compact that relies solely on gas but that gets 45 miles to the gallon. The Volt would represent a rare leap ahead of the Japanese, who never embraced plug-in technology with the same enthusiasm. It's also typical of the better cars that observers say Detroit has in store. "There's a lot of accumulated negativity about these companies out there," says Wharton's John Paul MacDuffie, who directs the International Motor Vehicle Program. "U.S. consumers gave the Big Three the benefit of the doubt for a long time before turning away from them, and now their reputation is worse than their actual performance and progress toward needed reforms."

MacDuffie would be the first to say the progress is incomplete. As proof that Detroit still has a lot to learn, he points to recent strategic mistakes like its overreliance on deep sticker-price discounts and large rebates, which dilute brand reputation and resale value. But Chapter 11 seems like a particularly poor way to fix these sorts of lingering problems. Bankruptcy is a messy, expensive process that would likely do more for lawyers than for the automaker, which has already taken the most obvious steps toward efficiency. "With the airlines, it was to get out of their labor contracts and to get out from under the underfunded pension positions they created," says Mark Oline, a highly regarded automotive analyst with Fitch Ratings. "But, in the case of GM and Ford, they have done a very good job with the UAW to address those problems of wages and benefits."

If anything, Chapter 11 might reinforce some of Detroit's worst habits--starting with its tendency to seek the lowest prices from parts suppliers, even if that means switching companies frequently and paying relatively little attention to part quality. Toyota is famous for taking the opposite approach: It eschews easy savings in order to maintain long-term relationships with suppliers; these relationships, in turn, allow Toyota and its suppliers to collaborate on design and quality. It's precisely the sort of production technique that the Big Three should be adopting. But, in a Chapter 11 filing, under pressure to improve the bottom line as fast as possible, they'd be unlikely to do that.

And that's assuming they even make it to Chapter 11. In the more likely event that GM had to shut down altogether under Chapter 7, as most experts I consulted predict, the company's institutional knowledge would end up on the proverbial shop floor. Among the casualties could be the Volt--and any near-term hopes of a marketable plug-in for the domestic auto industry. "Maybe those engineers get rehired, maybe not," says Case Western's Susan Helper. "But you lose those working relationships; you lose all the time invested. ... [People] don't really have a sense of the things that have to get put in motion, when you have ten-year planning horizons for new engines. When you disrupt that, it's very costly."



Those are among the reasons most analysts and economists, however reluctantly, have concluded that a better solution would be another government bailout--albeit one with lots of conditions attached. Those conditions would include limits on executive compensation, as in the Wall Street rescue, but also more specific requirements designed to push the Big Three toward greater innovation and fuel efficiency. The bailout might also require more concessions from the unions, perhaps over the relatively generous health benefits UAW workers enjoy. And it would?probably mean cleaning house in GM's executive suites. (Vice Chairman Bob Lutz, a notorious skeptic of climate-change theory, should be the first to go.)

It appears as if President-elect Obama and the Democratic leadership in Congress are thinking along those lines already (although it'll be surprising if they demand concessions from unions that just played such a big role in electing them). But, if the government demands that the Big Three and its workers live up to more obligations, the government--which is to say, the taxpaying public--must live up to some obligations of its own. Companies like Honda operate out of countries that made health and retirement benefits a national responsibility. And the perennially high price of gasoline, a product of high gas taxes in virtually all other highly developed countries, has ensured a steady market for their smaller, more fuel-efficient vehicles. There's no reason not to treat U.S. car companies, and car owners, the same way.

For now, that would mean government would assume some health and pension obligations (which it would have to do in a bankruptcy anyway, though its Pension Benefit Guaranty Corporation) while subsidizing the purchase of fuel-efficient cars (something it is already planning to do, thanks to recent tax changes). But the debate over a Detroit bailout should begin a larger political conversation, one that sprawls beyond the Midwest and the intellectual confines of lean production techniques and workers' legacy costs. Whatever mistakes the Big Three and the UAW have made, their struggles are a pretty good indicator of why the government--not employers--should be responsible for providing health insurance and why, without broader action to fight climate change, improving fuel efficiency will be a struggle. Naturally, the Big Three should enthusiastically promote these reforms, something they haven't done in the past.

Nothing can stop the revolution in auto-making and drivetrain technology; even under the best of circumstances, the Big Three need to become smaller, more efficient, and more environmentally conscious. But if the government manages that change and uses it as a springboard for discussion of broader economic reforms, everybody can benefit.

[Drew]

I think the auto companies should be allowed to fail, unions have destroyed most of America's heavy industry and nothing more obviously than the automakers. Until the unions are swept out of the auto industry the American companies have no way to compete.


That said, I highly doubt the Dems will let them fail since they are in the back pocket of the unions. I own Ford Cap Trust II right now, because I'm fairly certain they won't be allowed to fail, and instead will be propped up for another 10-20 years with cash/tariffs.

[Drew]

And it would?probably mean cleaning house in GM's executive suites. (Vice Chairman Bob Lutz, a notorious skeptic of climate-change theory, should be the first to go.)


This is also funny because Lutz is already totally marginalized, he's a figurehead put in to make car guys happy.

[crb]

Let the government finance their bankruptcy operating costs, I would have no problems with that.

But to give money to an unprofitable company at a severe competitive disadvantage without a sound business model... no, not a good idea.

GM's problem is that years ago the union was way too aggressive and the parasite killed the host, and it isn't the current workers, and especially the new workers, it is the workers who retired at 50 with fat pensions and health benefits that are the albatross over GM's neck. They are trying to shoulder those costs onto the UAW (the healthcare) but what that means is that GM pays the UAW billions of dollars, and the UAW takes over administration of benefits - but GM is still paying.

The only way to fix it is to get rid of those legacy costs, and that requires bankruptcy. And you know what? I kinda think those workers deserve to lose their pensions, they got greedy in good times and hurt the company that was their lifeblood. That, and GM needs the power to fire people without having to buy them out.

I find it disengenuous to say "GM needs government financing now to stave off bankruptcy, because if they enter bankruptcy they'll not be able to get financing for ongoing operational costs to keep the lights on."

Why not say... "Don't give GM financing now, let them go bankrupt so they can get the flexibility chapter 11 provides, then give them financing to prevent chapter 7."

Why not?

It'll be a hard pass in anyway, any politician from a state with foreign auto factories will have to tell his constituents WHY he is bailout of their competitor.

You'll also have to worry about an overseas response. CNBC Europe mentioned something about European leaders weighing a potential response to a US bailout. Aka trade war. Good for no one.

[crb]

But if the government manages that change and uses it as a springboard for discussion of broader economic reforms, everybody can benefit.

And that is the crux... they're more or less admitting they want to see more socialism, so of course they come out in favor of a bailout.

[Gan]

Ironically the Democrats are pushing for a bailout. The GOP is not.

Who would have thought that the liberal agenda would support big business?

Oh wait, we're talking unions here!
:whistle:

On topic:
On one hand I'm in favor of the bailout but with heavy stipulations on reorganization of the company (including salaries, bonus, operations, accounting, etc.). But the likelihood of that happening has to be close to zero.

So, I can understand why the bailout is facing so much resistance.

Therefore I could also agree to let the market take run its course and absorb the sinking ship into another more wisely run, stable, efficient company. When everybody screams about massive unemployment that it would force on the industry, I think thats only with the assumption that no other car manufacturer will come in and pick up with a more efficient business practice and hire the same workers back. What is not guaranteed is the pay, hence why the Unions are so against it.

I'm happy to see another partial example of a union sucking another business dry to the point of going belly up.

To blame the whole mess on unions is not quite accurate either. But make no mistake that they play a part in its demise.

[Parkbandit]

To blame the whole mess on unions is not quite accurate either. But make no mistake that they play a part in its demise.

"Playing a part" is being disingenuous. They play the leading role. When you have to pay DOUBLE the cost per employee than your competitors, it doesn't take a rocket scientist to figure out why these businesses are failing. Americans and the Government have been propping up these shitty companies for YEARS now, feeling guilty about buying a foreign vehicle.

[Warriorbird]

All bailouts pervert capitalism. I'm not laying it on one side or another.

[Mabus]

I feel we have to prop up at least one domestic automaker, just like we must keep a steel industry.

It is a matter of national security. We cannot turn to China during a potential war with them (or against their interests) and ask them to build more tanks for us, nor would we likely have time to rebuild and retool shutdown factories.

The loss of a manufacturing base is the loss of military superiority in the long run.

[Drew]

I feel we have to prop up at least one domestic automaker, just like we must keep a steel industry.

It is a matter of national security. We cannot turn to China during a potential war with them (or against their interests) and ask them to build more tanks for us, nor would we likely have time to rebuild and retool shutdown factories.

The loss of a manufacturing base is the loss of military superiority in the long run.



The automakers don't need propping up though, the unions do. Toyota, Honda, Nissan, BMW and many other brands have proven you can build cars economically in the United States. They all have non-union factories.

[Mabus]

The automakers don't need propping up though, the unions do. Toyota, Honda, Nissan, BMW and many other brands have proven you can build cars economically in the United States. They all have non-union factories.
While "Joe the Broom-pusher" should not be getting $27.50 an hour that is a separate consideration, and deals more with how some unions have become corrupt businesses in their own right, bad management decisions, and several other issues. I am not discounting these issues, simply stating that they cannot be the only issue when considering our national security.

The issue of unionized corporations versus non-unionized corporations gets back to trade deals, tariffs and "free trade versus fair trade" arguments. I support a sliding scale of tariffs on foreign trade, one variable of which would deal with worker rights and union availability.

We must maintain the domestic availability of producing the weapons of war. This requires that we have the resources, resource refinement and manufacturing ability. Each of those requires their own specific industries and the trained workforce able to do the jobs.

[Warriorbird]

Republicans blame the unions... Democrats blame auto companies with horrifically shitty/mistimed products.

I think they're both right.

[Cephalopod]

I say let them fail. There is going to be some serious job attrition from connected industries, but propping the auto manufacturers up will be artificially propping those industries up as well. There will eventually have to be a reckoning.

If the 'big three' fail and there is a demand to be met, other manufacturers will fill the vacuum.

[Gan]

Republicans blame the unions... Democrats blame auto companies with horrifically shitty/mistimed products.

I think they're both right.

If the Democrats are blaming the companies for horrifically shitty/mistimed products - why are they so intent on saving the very same companies from going under? Why not let that bad form of business yield to companies with more successful business plans?

[Gan]

I say let them fail. There is going to be some serious job attrition from connected industries, but propping the auto manufacturers up will be artificially propping those industries up as well. There will eventually have to be a reckoning.

If the 'big three' fail and there is a demand to be met, other manufacturers will fill the vacuum.

I'm leaning more and more this way myself.

[Warriorbird]

If the Democrats are blaming the companies for horrifically shitty/mistimed products - why are they so intent on saving the very same companies from going under? Why not let that bad form of business yield to companies with more successful business plans?

It is sort of like why Republican Congresses outspend Democrats... people get blindspots. To the average Republican some of the money doesn't count (even if it isn't physically conservative at all.) To the average Democrat unions are the good guys.

[Gan]

It is sort of like why Republican Congresses outspend Democrats... people get blindspots. To the average Republican some of the money doesn't count (even if it isn't physically conservative at all.) To the average Democrat unions are the good guys.

So which is it? Horribly bad product/business model? Or save the unions?

You're going to have to get off the fence on this one.

[droit]

I think people are missing the point of the article. The author is saying that under normal circumstances, the automakers going bankrupt would be fine. The airlines, for example, were able to file chapter 11 bankruptcy, meaning they kept running their businesses while the government protected them from creditors. However, the current financial and credit crisis changes that dynamic. When filing for chapter 11 bankruptcy, the company relies on loans to continue operating. Today, the credit institutions have been hit so hard, they're barely giving loans to businesses in good standing, let alone those filing for bankruptcy. So instead of the chapter 11 bankruptcy we'd see under normal conditions, we're looking at a chapter 7 bankruptcy in the auto industry--complete liquidation. This means 3 million people lose their jobs.

It's sort of a perfect storm for the auto industry. Years of incompetence (on both sides, union and company) are finally coming to a head just as the credit market collapses. This isn't just a matter of letting the industry feel the consequences of its actions. We're looking at a 2% unemployment increase in a single year from a single sector.

[CrystalTears]

I'm biased as I want the auto bailout. I'd like to keep my job, thanks!

[TheWitch]

Today, the credit institutions have been hit so hard, they're barely giving loans to businesses in good standing, let alone those filing for bankruptcy.

Which is certainly not helped by the fact that these greedy bastard financial institutions who have been the recipients of billions of dollars of tax payer money are sitting on the money instead doing with it what was intended - borrowing.

This whole thing is all entertwined, you're absolutely right.
In the end, the taxpayer is screwed.
I can see no way around that.

[Daniel]

So which is it? Horribly bad product/business model? Or save the unions?

You're going to have to get off the fence on this one.

Uh, why? The two things aren't mutually exclusive. There is very rarely one simple cause of a failure and thus rarely one simple solution.

If American cars were flying off the showroom, (like they were in the past) then the unions aren't an issue.

If the unions aren't an issue than maybe the companies can get by with a little less.

That doesn't mean that you can only fix one or the other.

[Gan]

Uh, why? The two things aren't mutually exclusive. There is very rarely one simple cause of a failure and thus rarely one simple solution.

If American cars were flying off the showroom, (like they were in the past) then the unions aren't an issue.

If the unions aren't an issue than maybe the companies can get by with a little less.

That doesn't mean that you can only fix one or the other.
...


To blame the whole mess on unions is not quite accurate either. But make no mistake that they play a part in its demise.

[droit]

Which is certainly not helped by the fact that these greedy bastard financial institutions who have been the recipients of billions of dollars of tax payer money are sitting on the money instead doing with it what was intended - borrowing.

Ugh. This is one of the few things that actually makes me visibly angry. When I hear about these financial fat cats just taking our money and sitting on it in flagrant disregard for its intended use, it makes me want to punch a financier in the face.

[Daniel]

...

That doesn't make your either or proclamation any less bewildering.

[Gan]

That doesn't make your either or proclamation any less bewildering.

Its not bewildering if you actually follow the statement that WB made.

[Tsa`ah]

While unions certainly have played their part in the current state of the domestic market, to suggest that they had a major role is asinine.

GM, Ford, Chrysler made themselves victims via poor leadership on all fronts. We're talking about a management style that hasn't changed in over 40 years. Hell, had any of them retained something that had any semblance of the original puritan model .... they'd be in far better shape.

The domestic manufacturers have been 5 years behind the foreign markets since the 70's. Decent concepts have taken that long to make it to production (concepts two markets behind foreign contributions). Once the concept made it to production, it bore no resemblance to the original concept and become nothing more that a minor redesign of the previous model ... a cosmetic redesign.

No, foreign companies producing within the US have had to deal with unions as well, and the end result has been an even benefit. This is largely due to a completely different style of management.

As far as the bailout goes ... I don't like it. The reality is simply this, allowing them to go chapter 13 will allow them to restructure, but that also means dropping/restructuring union contracts. When that happens, they'll be back in line to for another bailout, or filing for chapter 7.

Bailing out the "Big" three is pretty much a necessity at this point, not because they're too big, but rather none of them produce many of their own parts. If these three go down, the entire vendor market goes with it. For anyone not aware, the vendor market is easily four times the size.

[CrystalTears]

If they can manage to bail out AIG again, they can give some to the auto makers, ffs.

[Cephalopod]

If they can manage to bail out AIG again, they can give some to the auto makers, ffs.

I don't believe we should be bailing out AIG either.

There are fundamental flaws in the business operations of these companies that cannot be remedied unless they go into bankruptcy and are forced to reorganize.

If they cannot reorganize under bankruptcy to become profitable, they need to liquidate so that new manufacturers can step in.

If the required lending is unavailable to help them through a chapter 11, the financial bailout has failed and needs to be revisited before we bail out other companies.

As I said in a previous post, there is going to be some tremendous job attrition any way this gets sliced. In the event of a total domestic auto failure, I don't believe it will be on the order of the 3 million predicted, since I believe other companies will step in to create new contracts for these venders. It WILL be bad... but it's going to have to happen.

I say this as someone who has been laid off TWICE before -- I sure as hell didn't want to lose those jobs, and I don't want those related to the automakers to lose theirs. But this is NOT the way to save those jobs.

[CrystalTears]

PA is all over the auto bailout. I know because they forwarded the request to encourage others to write to senators to vote it in, along with a template letter to use.

[TheWitch]

I'm of the opinion, and have been since the outset, that the 700 billion dollar boondoggle shouldn't have happened, and none of them should have been bailed out in the first place.

Now they're all in line for a hand out, and none of them can see the forest for trees - it's just greed. And it's just throwing good money after bad. It has to stop.

One of these companies, I forget which, just made some announcement this morning - no bonuses for us!!! What do they want, a parade?

What's bugging me, and maybe I'm not reading/watching/listening to the right things....

Where is the constituent opposition to all this stupidity and insanity? For only the second time in my life, I got pissed off enough this morning to write the state senator. A very partisan Democrat, not likely to do me any good, but I felt better after. Meh.

[Daniel]

If they cannot reorganize under bankruptcy to become profitable, they need to liquidate so that new manufacturers can step in.



Who are these mythical american manufactorers that are going to step in and reorganize these companies?

The likely scenario is that they get bought up by our foreign competitiors that make us even more dependent (as opposed to interdependent...the corner stone of a good globalized market) on foreign corporations for our automotive output.

There are many of reasons as to why this is a bad thing and it goes beyond a few million jobs.

[Parkbandit]

While unions certainly have played their part in the current state of the domestic market, to suggest that they had a major role is asinine.

Sure... because we all know unions would never artificially drive up employee related costs.. ever. /sarcasm



GM, Ford, Chrysler made themselves victims via poor leadership on all fronts. We're talking about a management style that hasn't changed in over 40 years. Hell, had any of them retained something that had any semblance of the original puritan model .... they'd be in far better shape.

The domestic manufacturers have been 5 years behind the foreign markets since the 70's. Decent concepts have taken that long to make it to production (concepts two markets behind foreign contributions). Once the concept made it to production, it bore no resemblance to the original concept and become nothing more that a minor redesign of the previous model ... a cosmetic redesign.

No, foreign companies producing within the US have had to deal with unions as well, and the end result has been an even benefit. This is largely due to a completely different style of management.

Got a source on this, or are you just talking out your ass again? Show me how the costs of non-US Automakers are an 'even benefit' of US Automakers. In another thread about this same thing, I produced a link showing that the "Big 3" automakers spend almost TWICE as much per employee hour than the foreign automakers who produce cars in the US.



As far as the bailout goes ... I don't like it. The reality is simply this, allowing them to go chapter 13 will allow them to restructure, but that also means dropping/restructuring union contracts. When that happens, they'll be back in line to for another bailout, or filing for chapter 7.


Let them come back then. Go into 13, restructure the bloated union contracts and get them back to CLOSE to the industry standard and average. It's a start... and a far better idea than just throwing 25 BILLION dollars at them while putting stipulations on what cars they can now produce.



Bailing out the "Big" three is pretty much a necessity at this point, not because they're too big, but rather none of them produce many of their own parts. If these three go down, the entire vendor market goes with it. For anyone not aware, the vendor market is easily four times the size.

Weren't we also told how necessary the 700 BILLION dollars was "necessary" to save the financial markets? That worked out real well so far, hasn't it.

[Cephalopod]

Who are these mythical american manufactorers that are going to step in and reorganize these companies?

The likely scenario is that they get bought up by our foreign competitiors that make us even more dependent (as opposed to interdependent...the corner stone of a good globalized market) on foreign corporations for our automotive output.

There are many of reasons as to why this is a bad thing and it goes beyond a few million jobs.

If the 'big three' themselves cannot reorganize, other car companies that are not having these issues will acquire their liquidated assets: all international, because domestic car companies have been tied down by unionized labor in a lot of unsavory ways. (I support unions and unionized labor -- but what has happened to the car companies is unions, cost management and general management run amok. This needs to be rectified.)

It's quite possible that at the end of this America will only be a place for international car manufacturers to perform final assembly of product.

Alternately, new car developers and manufacturers producing energy efficient cars at reasonable prices could generate an entirely new market out of the ashes of the old domestic auto market.

If you can dream that infusing cash into a poorly managed behemoth of a company will work, I can dream that not infusing cash into that company will force them to make themselves better; or they will die and be replaced by many smaller companies. Let's all hug and dream together.

[Daniel]

Let's all hug and dream together.

Hey. I totally appreciate the underhanded bullshit comment. However, I assure you I'm not the one living in some fantasy world where everyone hugs it out and things will be okay.

The point being made is that there is no way that letting the domestic car production fail is going to help American businesses. It may help foreign companies, but you're living in lala land if you think that there isn't (or shouldn't be) any consideration given to our own capacity to build automotives.

At the end of the day it's within our best interests to maintain some sort of domestic capacity to do so. You're right in that blindly infusing money dying companies with failed business models is not going to do a whole lot of good, but you don't recognize that the infusion of capital with the forced re-alignment of priorities and practices (to include union contracts) have a possibility of success.

[Tolwynn]

One could argue that forced union concessions, especially from a party now beholden to said unions, is as much a part of a fantasy world as the previously mentioned hugs.

[Tea & Strumpets]

I don't really like unions and I've done a lot of research into the subject (from what I've seen in movies they are run by the mafia). But there are a lot of companies/whatever that I wouldn't trust to behave fairly without unions as well.

I'm not really offering any solutions, I'm just saying.

[Daniel]

I don't really like unions and I've done a lot of research into the subject (from what I've seen in movies they are run by the mafia). But there are a lot of companies/whatever that I wouldn't trust to behave fairly without unions as well.

I'm not really offering any solutions, I'm just saying.

There's a reason why unions exist. A fact that many people seem to convenient forget.

[Tea & Strumpets]

There's a reason why unions exist. A fact that many people seem to convenient forget.

I wasn't forgetting anything, I was just joking around with my movie mafia reference. I'm sure countless workers have been exploited (everywhere in the world throughout history, and in America too).

I just think the union's (whichever one we are talking about) power is just as easily abused (and sometimes is).

[Cephalopod]

At the end of the day it's within our best interests to maintain some sort of domestic capacity to do so. You're right in that blindly infusing money dying companies with failed business models is not going to do a whole lot of good, but you don't recognize that the infusion of capital with the forced re-alignment of priorities and practices (to include union contracts) have a possibility of success.

The fact is that 'forced re-alignment of priorities and practices' was not stipulated or enforced with the banking bailout, so I have zero belief that it would happen in an automotive bailout.

Chapter 11 bankruptcy will provide a forced re-alignment of priorities and practices, including reworking of all union contracts. There doesn't need to be additional cash infusion involved unless the auto manufacturers can demonstrate they are unable to restructure without it and are willing to make incredible concessions to accept the money.

[Gan]

The fact is that 'forced re-alignment of priorities and practices' was not stipulated or enforced with the banking bailout, so I have zero belief that it would happen in an automotive bailout.

In the previous thread (with the poll) I was for support with stipulations. Now I'm not so sure those stipulations will be enforced. So my opinion on how this should be handled is shifting towards - natural selection of the market.

Darwin strikes the big 3!

[Parkbandit]

Who are these mythical american manufactorers that are going to step in and reorganize these companies?

The likely scenario is that they get bought up by our foreign competitiors that make us even more dependent (as opposed to interdependent...the corner stone of a good globalized market) on foreign corporations for our automotive output.

There are many of reasons as to why this is a bad thing and it goes beyond a few million jobs.

Probably the same type of companies that filled the void left from Eastern Airlines and PanAm going tits up.

There are always entrepreneurs waiting for the chance to step up to the plate and fill a void if the population demands it.

[Daniel]

Probably the same type of companies that filled the void left from Eastern Airlines and PanAm going tits up.

There are always entrepreneurs waiting for the chance to step up to the plate and fill a void if the population demands it.

These were snapped up by Continental and Delta airlines respectively. Both of which are common household names and major players. If you can point me to a major domestic car manufactor that is in a similar position today then I'll retract my statement.

[Stretch]

On a random note, I was accosted on the Metro on Saturday night by an old drunk white guy who was berating me because my people were bankrupting the auto industry.

[TheWitch]

Unions are a sound idea.

Unions that are drunk with power and effectively strangle the companies their employees work for with pointless and petty demands, endless arbitrations over these pointless and petty demands, strike threats over petty greivances, etc., are an abuse of a sound idea.

The unions have lost sight of what they're supposed to do, largely because the government is doing the most important stuff for them, OSHA, EOE, etc.

In the car plants that are non-union, are the employees in danger? Are they made to work double shifts at single shift pay? Are they not provided with adequate compensation and benefits? Not from what I've read. And they didn't need a union. Interesting.

[Daniel]

Unions are a sound idea.

Unions that are drunk with power and effectively strangle the companies their employees work for with pointless and petty demands, endless arbitrations over these pointless and petty demands, strike threats over petty greivances, etc., are an abuse of a sound idea.

The unions have lost sight of what they're supposed to do, largely because the government is doing the most important stuff for them, OSHA, EOE, etc.

In the car plants that are non-union, are the employees in danger? Are they made to work double shifts at single shift pay? Are they not provided with adequate compensation and benefits? Not from what I've read. And they didn't need a union. Interesting.


So no business in America exploits it's workers? In an indeal world you don't need unions. We don't live in an ideal world.

[TheWitch]

So no business in America exploits it's workers? In an indeal world you don't need unions. We don't live in an ideal world.

I said that where?

I said we don't need unions that exploit the employees themselves, and strangle the businesses with their excessive and often petty demands in an effort to justify their own existance. It creates an us against them environment, and I think you need to recognize the time of abuse the unions were put forth to stop (meat packing, for instance) has ended. Are there sweat shops, sure. Are the unions busy busting down the doors at the sweat shops, no. No money to be made there. So who are they protecting but themselves, far too often?

There are miles and miles between the stranglehold the UAW has on the Detriot auto industry, and anything even remotely resembling explotation on the part of the non-union auto manufacturers. A reasonable union wouldn't be called to the carpet for their activities, and virtually every article or report on this topic discusses the negative impact of the UAW. None have placed the sole responsibility for Detroits failure at their feet alone, either.

Unions that collectively seek the best interest of the employee, with an ability to compromise with the company, are needed. Modern unions seem to resist being reasonable far too often.

[Warriorbird]

Let the companies go... if both they and the unions want to continue and compete they need to change, Gan.

It won't happen though. If not the Democrats bailing them out it'll be Republicans.

Big oil ought to step up.

[Kembal]

Glad I posted the article. Got some interesting thoughts. (btw, Chapter 13 is personal bankruptcy. Chapter 11 is for corporate reorganizing bankruptcy)

My take: There's no way in hell that GM will get private DIP financing. It's just not there.

So then the options become: let GM file for Chapter 11 and have the federal government do direct DIP financing, or do a bailout before that point.

Allowing a Chapter 7 would destroy any chance of economic recovery for 3 to 4 years, at the very least. Too many people would be out of work for an extended period of time, and the current macroeconomic conditions just don't support that. (and these foriegn manufacturers aren't going to want to pick up the idle capacity either...it's not like demand is suddenly going to increase for them to need it)

So then, under which scenario does the stipulations that will make GM/Chrysler/Ford profitable and retooled properly have more effect? A federally funded Chapter 11 or a bailout?

If it was strictly profitability, I'd argue a Chapter 11. But the proper retooling seems to me impossible in a Chapter 11, because of the havoc it'll wreak on supplier networks. So....a bailout. But proper structuring will be key.

Will it happen? That's the 25 billion dollar question.

[Parkbandit]

These were snapped up by Continental and Delta airlines respectively. Both of which are common household names and major players. If you can point me to a major domestic car manufactor that is in a similar position today then I'll retract my statement.


I hadn't realized the only way a business can start is by already being a big company taking over another.

[Keller]

I hadn't realized the only way a business can start is by already being a big company taking over another.

Are you really this dumb?

[Parkbandit]

Glad I posted the article. Got some interesting thoughts. (btw, Chapter 13 is personal bankruptcy. Chapter 11 is for corporate reorganizing bankruptcy)

My take: There's no way in hell that GM will get private DIP financing. It's just not there.

So then the options become: let GM file for Chapter 11 and have the federal government do direct DIP financing, or do a bailout before that point.

Allowing a Chapter 7 would destroy any chance of economic recovery for 3 to 4 years, at the very least. Too many people would be out of work for an extended period of time, and the current macroeconomic conditions just don't support that. (and these foriegn manufacturers aren't going to want to pick up the idle capacity either...it's not like demand is suddenly going to increase for them to need it)

So then, under which scenario does the stipulations that will make GM/Chrysler/Ford profitable and retooled properly have more effect? A federally funded Chapter 11 or a bailout?

If it was strictly profitability, I'd argue a Chapter 11. But the proper retooling seems to me impossible in a Chapter 11, because of the havoc it'll wreak on supplier networks. So....a bailout. But proper structuring will be key.

Will it happen? That's the 25 billion dollar question.

It's a difficult issue, that is for sure. Do we throw still more money on the fire and bail these car companies out? What's next? Credit card companies? Other insurance companies? Construction companies? Newspapers? Television?

We can't simply keep printing up money, bailing out failing companies and think there is no repercussions to our actions. We can't afford the debt we already have.. and now we simply want to create even more?

We're headed for a USSR type meltdown if we continue down this road.

[Gan]

There's a reason why unions exist. A fact that many people seem to convenient forget.
What reason is that again? I'm having a hard time thinking of any protection a Union has to offer that is not already offered by another protective agency or remedy available through the justice system.


These were snapped up by Continental and Delta airlines respectively. Both of which are common household names and major players. If you can point me to a major domestic car manufactor that is in a similar position today then I'll retract my statement.
There's way more to the dismantlement of Eastern by Frank Lorenzo (who also owned a major portion of Continental and numerous other airlines) than what you're alluding to. I understand what you're trying to say, but using Eastern and Continental is a very bad example to use in saying it.

[Daniel]

What reason is that again? I'm having a hard time thinking of any protection a Union has to offer that is not already offered by another protective agency or remedy available through the justice system.


Really? So there have been no complaints against corporations as far as you know? Ever heard of a living wage? How about exploited immigrants? How about inadequate healthcare? Work hour manipulation in order to deny benefits?

Ignorance is not an excuse.



There's way more to the dismantlement of Eastern by Frank Lorenzo (who also owned a major portion of Continental and numerous other airlines) than what you're alluding to. I understand what you're trying to say, but using Eastern and Continental is a very bad example to use in saying it.

Really? How's that? My point was that large corporations that fail require a lot of capital to take over and that you can't just point to "other" corporations buying them up without having some idea of who that might be. In the case of the auto industry all of those entities are foreign, unless you or PB know of some domestic company with that kind of money that I've forgotten about.

[Kembal]

It's a difficult issue, that is for sure. Do we throw still more money on the fire and bail these car companies out? What's next? Credit card companies? Other insurance companies? Construction companies? Newspapers? Television?

We can't simply keep printing up money, bailing out failing companies and think there is no repercussions to our actions. We can't afford the debt we already have.. and now we simply want to create even more?

We're headed for a USSR type meltdown if we continue down this road.

Right now, we have to spend a lot of money. We're in a liquidity trap, where monetary policy has no traction on jumpstarting the economy. No sector of the economy is spending.

Something has to jumpstart it. Government spending is the only tool left.

That's not to say we should bail out every company there is. That'd just be stupid, and there's more effective fiscal stimuli. But right now is not the time to think about increased debt. Otherwise we'll pull a Japan during the 90s and lose a decade of economic growth.

[Gan]

Really? So there have been no complaints against corporations as far as you know? Ever heard of a living wage? How about exploited immigrants? How about inadequate healthcare? Work hour manipulation in order to deny benefits?
I'm still not seeing any justification for a union shop for the conditions you have just described. If the employmer is that bad I'm surprised the company can find any employees to work there. Let conditions in our current economy worsen and remain for any length of time and you might have a point. But since the early 1980's - high unemployment has not been a severe enough issue to see rampant abuse as your'e describing to merit massive activity in unions. People just found another job elsewhere if conditions were unsatisfactory. Face it, unions are really not necessary under the current protections of agencies and laws that currently exist in our workplace. And if Obama has his way and makes healthcare for all - there's one less excuse. ;)




Really? How's that? My point was that large corporations that fail require a lot of capital to take over and that you can't just point to "other" corporations buying them up without having some idea of who that might be. In the case of the auto industry all of those entities are foreign, unless you or PB know of some domestic company with that kind of money that I've forgotten about.
That does not preclude a group of investors from getting together and forming a new corporation to purchase parts of the disolved company at pennies on the dollar. The barrier to entry that you are describing is not the end all be all barrier to overcome to gain entrance into this kind of market. And having the threat of a foreign entity taking over one of the big three automakers in order to make a better more efficient product to compete in this market would be a hell of a wake up call to the big "2" domestic auto makers to fix their shit. Or we could just nationalize all the US automakers and paint every new car red...

[Parkbandit]

Really? So there have been no complaints against corporations as far as you know? Ever heard of a living wage? How about exploited immigrants? How about inadequate healthcare? Work hour manipulation in order to deny benefits?

Ignorance is not an excuse.

I hadn't realized that a union automatically made all employee/employer grievences go away. Nice to know. /sarcasm



Really? How's that? My point was that large corporations that fail require a lot of capital to take over and that you can't just point to "other" corporations buying them up without having some idea of who that might be. In the case of the auto industry all of those entities are foreign, unless you or PB know of some domestic company with that kind of money that I've forgotten about.

New companies form everyday. If one or all of the big 3 automakers fail, then someone will fill the void if there is money to be made.

[TheWitch]

What would Warren Buffett do?

[crb]

Ugh. This is one of the few things that actually makes me visibly angry. When I hear about these financial fat cats just taking our money and sitting on it in flagrant disregard for its intended use, it makes me want to punch a financier in the face.
It our fault. We haven't changed accounting rules, they still have to prop up their balance sheets because of M2M accounting, and they can't use the money when they've already used it for that.

[crb]

Hey. I totally appreciate the underhanded bullshit comment. However, I assure you I'm not the one living in some fantasy world where everyone hugs it out and things will be okay.

The point being made is that there is no way that letting the domestic car production fail is going to help American businesses. It may help foreign companies, but you're living in lala land if you think that there isn't (or shouldn't be) any consideration given to our own capacity to build automotives.

At the end of the day it's within our best interests to maintain some sort of domestic capacity to do so. You're right in that blindly infusing money dying companies with failed business models is not going to do a whole lot of good, but you don't recognize that the infusion of capital with the forced re-alignment of priorities and practices (to include union contracts) have a possibility of success.
What is a foreign company, what is a domestic company?

Is a domestic company one with a domestic name? Is a foreign company one with a foreign name?

Do you do it by where the corporate offices are?

Do you do it by where the majority of shareholders live?

How do you do it?

Is Anheuser-Busch a Domestic company?



It is really silly in today's world where anyone in the world can (and does) buy stock in companies, where foreign sovereign wealth funds buy stock in companies, where mergers and acquisitions create large multinationals, to call any company "foreign" or "domestic."

Did you know Toyota manufactures in the US? Did you know GM manufacturers in Canada, Mexico, and China? A LOT in China actually, it is the one brightspot in their business.

In fact, GM's foreign operations are so successful many have called for the company to split like Philip Morris just did. Let the successful foreign GM be unhinged with the anchor of domestic GM.

We don't have a free trade agreement with Japan, which, in addition to freight moving vehicles, Japanese automakers build cars here. Ditto for European automakers. They build plants here, in low tax pro business right-to-work southern states.

If we bailout the big three it isn't a bailout of our automotive industry, it is a bailout of the upper midwest automotive industry, a bailout of Michigan (whereI live, so believe me, I'd seriously personally benefit from not living in an area with 15% unemployment). Our southern automotive industry would keep humming along fine.

So, I repeat my question, if you're going to keep insisting we have domestic automakers, please define what those are.

[Daniel]

I'm still not seeing any justification for a union shop for the conditions you have just described. If the employmer is that bad I'm

Let conditions in our current economy worsen and remain for any length of time and you might have a point. But since the early 1980's - high unemployment has not been a severe enough issue to see rampant abuse as your'e describing to merit massive activity in unions. People just found another job elsewhere if conditions were unsatisfactory. Face it, unions are really not necessary under the current protections of agencies and laws that currently exist in our workplace. And if Obama has his way and makes healthcare for all - there's one less excuse. ;)


Like Walmart?

You really think there isn't a monosopy right now?

Yea, and I'm the one living in the dream world.



That does not preclude a group of investors from getting together and forming a new corporation to purchase parts of the disolved company at pennies on the dollar. The barrier to entry that you are describing is not the end all be all barrier to overcome to gain entrance into this kind of market.


Then it should be a simple question to answer. Who are these companies with billions of dollars in capital that you think are poised to enter the automarket?



And having the threat of a foreign entity taking over one of the big three automakers in order to make a better more efficient product to compete in this market would be a hell of a wake up call to the big "2" domestic auto makers to fix their shit.


So would the government taking them over.



Or we could just nationalize all the US automakers and paint every new car red...

Or we could just throw out hyperbolic dumb shit to try and make a failed point.

[Daniel]

I hadn't realized that a union automatically made all employee/employer grievences go away. Nice to know. /sarcasm



Is that what I said?



New companies form everyday. If one or all of the big 3 automakers fail, then someone will fill the void if there is money to be made.

So you got a few billion dollars laying around to buy up a car company, establish a brand and compete with Toyota? Nice.

[Daniel]

It our fault. We haven't changed accounting rules, they still have to prop up their balance sheets because of M2M accounting, and they can't use the money when they've already used it for that.

Accounting rules don't make money. They make it seem like money is there when it isn't. M2M would only make the problem worse in the long run.





If we bailout the big three it isn't a bailout of our automotive industry, it is a bailout of the upper midwest automotive industry, a bailout of Michigan (whereI live, so believe me, I'd seriously personally benefit from not living in an area with 15% unemployment). Our southern automotive industry would keep humming along fine.

So, I repeat my question, if you're going to keep insisting we have domestic automakers, please define what those are.

Why? You just did.

[CrystalTears]

Then it should be a simple question to answer. Who are these companies with billions of dollars in capital that you think are poised to enter the automarket?
Why are you assuming that no company or private entity has the kind of money that would help create another car company? The people of the nation aren't broke.

[Daniel]

Why are you assuming that no company or private entity has the kind of money that would help create another car company? The people of the nation aren't broke.

Because it's not an easy industry to break into. It requires tons of investment, R&D and then even if you make a good product you have to get name recognition and compete with people like Hyundai and Toyota who have been kicking our ass for years. Any company that starts today is already 15 year behind the curve.

It's not a hotdog stand. What's the last start up of an auto company that you've seen succeed?

Daewoo?

[Daniel]

To be explicit. I just looked @ the debt of Ford alone and it's 156 Billion.

You don't pull that kind of money out of your ass.

[Gan]

Like Walmart?

You really think there isn't a monosopy right now?

Yea, and I'm the one living in the dream world.
LOL. Yea, people are forced, FORCED, to work for Wal-Mart at poor substandard work conditions. :lol:




Then it should be a simple question to answer. Who are these companies with billions of dollars in capital that you think are poised to enter the automarket?
If I could answer that in detail, do you honestly think I would be pissing around with a bunch of people on an internet gaming forum? Seriously?


Or we could just throw out hyperbolic dumb shit to try and make a failed point.
And I thought it was pretty funny. Must be rough to be so SERIOUZ all the time...

[CrystalTears]

If I could answer that in detail, do you honestly think I would be pissing around with a bunch of people on an internet gaming forum? Seriously?
Hey! :(

[Gan]

Hey! :(

:lol:


Come to think of it. Gates/Buffet/Microsoft would be a sweet takeover of GM. We could have the first Microsoft automobile line.

http://forum.gsplayers.com/images/icons/icon3.gif

[Tsa`ah]

I'm going to skip just not responding to you for a moment and address the misconception you're partaking in.


Sure... because we all know unions would never artificially drive up employee related costs.. ever. /sarcasm

Artificially? No such thing as an artificial increase in employee related costs union side ... unless you're inferring that company administration is book cooking.

The increase in the average hourly rate, with the inclusion of benefits, is very real. No where have I defended it. No, my statement stands. It's asinine to suggest that unions have played a major role in the situation, just like it's asinine to suggest or imply that businesses will fail with a higher tax rate.


Got a source on this, or are you just talking out your ass again? Show me how the costs of non-US Automakers are an 'even benefit' of US Automakers. In another thread about this same thing, I produced a link showing that the "Big 3" automakers spend almost TWICE as much per employee hour than the foreign automakers who produce cars in the US.

I'm going to suggest you go back and re-read the entry about 20 more times and then read your own response .... if you don't come to the conclusion that your comprehension is lacking .... well then ask your wife or kids to tell you.


Let them come back then. Go into 13, restructure the bloated union contracts and get them back to CLOSE to the industry standard and average. It's a start... and a far better idea than just throwing 25 BILLION dollars at them while putting stipulations on what cars they can now produce.

First you have to get over the notion that this is a bailout and accept that it's a loan. This isn't free money.

Second, filing for chapter 13 gets them out of union contracts. The only thing they have to restructure for would be the pension accounts.

At this point they would have the option of entering into negotiations or hiring non-union employees. Entering into new negotiations would take time ... a huge amount of time. Hiring a new labor force, outside of causing some violent picketing, would take time ... huge amounts of time ... and then there's the training.

While all of this time is being consumed, guess what's not happening? Not only is it not happening on the assembly lines, but it's not happening vendor side. Vendors start hemorrhaging cash, and then you hear the halt of production, and then you hear doors locking.

While the vendors aren't working/producing, neither are the big three .... but they're still hemorrhaging cash themselves. Then it's chapter 7 and that 25 billion is gone.


Weren't we also told how necessary the 700 BILLION dollars was "necessary" to save the financial markets? That worked out real well so far, hasn't it.

An apple to an orange comparison on your part. Main Street and small business is the direct benefactor of labor .... guess what the financial markets aren't.

[crb]

... 11 != 13. It is hard to take you seriously when you keep mucking that up, after it has been corrected once already.

sigh

[Keller]

... 11 != 13. It is hard to take you seriously when you keep mucking that up, after it has been corrected once already.

sigh

I think he was just using PB's incorrect terminology.

Not that he caught the error or knew the difference, but that he was going on the assumption the PB had it correct.

[Clove]

Because it's not an easy industry to break into. It requires tons of investment, R&D and then even if you make a good product you have to get name recognition and compete with people like Hyundai and Toyota who have been kicking our ass for years. Any company that starts today is already 15 year behind the curve.

It's not a hotdog stand. What's the last start up of an auto company that you've seen succeed?

Daewoo?Oh come on Daniel. For starters they would be able to buy the capital left behind by the failed manufacturers at a discount; then of course there are all the skilled designers, marketers, auto workers who know how to build cars and don't need to be woo'd away from their good-paying existing jobs to join your enterprise; you'd likely get the labor at a discount. So it really isn't unfeasible at all and not quite the same as starting up a car manufacturer from scratch.

The unfortunate reality is that if the big three go under the Japanese auto makers are more likely to buy up the capital and to expand their operations.

[Daniel]

Oh come on Daniel. For starters they would be able to buy the capital left behind by the failed manufacturers at a discount; then of course there are all the skilled designers, marketers, auto workers who know how to build cars and don't need to be woo'd away from their good-paying existing jobs to join your enterprise; you'd likely get the labor at a discount. So it really isn't unfeasible at all and not quite the same as starting up a car manufacturer from scratch.

The unfortunate reality is that if the big three go under the Japanese auto makers are more likely to buy up the capital and to expand their operations.

Oh come on what? How is what you qualified your statement with any different then what I've been saying?

At the end of the day, the most well positioned entities (aside from the US Government) to buy up failed US automakers are foreign. If there was someone else, domestically, it wouldn't be hard to point them out. Regardless of discounts to capital or labor.

Mark Cuban isn't going to see a struggling automaking company and all of a sudden decide to start making cars.

[Daniel]

:lol:


Come to think of it. Gates/Buffet/Microsoft would be a sweet takeover of GM. We could have the first Microsoft automobile line.

http://forum.gsplayers.com/images/icons/icon3.gif

Combined they may have the resources, but what do they know about making cars? Why would they invest nearly all of their resources in a sector they have no experience or comparative advantage in?

Get your head out of lala land. I know you seem to think that the mythical capitalism beast will show up and make everything alright, but that's not likely to be the case.

[Daniel]

LOL. Yea, people are forced, FORCED, to work for Wal-Mart at poor substandard work conditions. :lol:



I'm guessing you missed the multiple unemployment threads on these boards huh?



If I could answer that in detail, do you honestly think I would be pissing around with a bunch of people on an internet gaming forum? Seriously?


Yea. It's not a difficult question to answer.



And I thought it was pretty funny. Must be rough to be so SERIOUZ all the time...

Lol. Right.

[g++]

:lol:


Come to think of it. Gates/Buffet/Microsoft would be a sweet takeover of GM. We could have the first Microsoft automobile line.

http://forum.gsplayers.com/images/icons/icon3.gif

They have enough problems engineering stationary objects. Im not going 70 miles an hour in a 404 error.




First you have to get over the notion that this is a bailout and accept that it's a loan. This isn't free money.


Yah in the same way that giving a degenerate gambler 25,000 dollars is a loan. You know their just going to lose it and go under anyway. The auto industry isnt in dire straights because of a hurricane or because of the financial fall out. Its in dire straights because its a dysfunctional industry its like throwing money into a pit.

[Clove]

Oh come on what? How is what you qualified your statement with any different then what I've been saying?

At the end of the day, the most well positioned entities (aside from the US Government) to buy up failed US automakers are foreign. If there was someone else, domestically, it wouldn't be hard to point them out. Regardless of discounts to capital or labor.

Mark Cuban isn't going to see a struggling automaking company and all of a sudden decide to start making cars.I said it was unlikely to happen because foriegn auto makers are in the BEST position to benefit from the situation. That's nowhere NEAR the same as saying there aren't domestic entrepeneurs who aren't in a good position to benefit
or wouldn't be attracted to taking advantage of the situation.

I think it's unlikely but you seem to think that a failure of the Big Three fates the industry to go offshore. That simply isn't true.

[Daniel]

I said it was unlikely to happen because foriegn auto makers are in the BEST position to benefit from the situation. That's nowhere NEAR the same as saying there aren't domestic entrepeneurs who aren't in a good position to benefit
or wouldn't be attracted to taking advantage of the situation.

I think it's unlikely but you seem to think that a failure of the Big Three fates the industry to go offshore. That simply isn't true.

Okay. So who steps up domestically?

[g++]

Kia in 2014, after we invade Korea and inexplicably convert Hyundais car manufacturing plants into tank manufacturing plants for our planned invasion of Nissan.

[CrystalTears]

I doubt anyone can know for sure what would work to fix this, and what won't. To say the bailout will work over letting them all fall (or vice versa) is a huge leap of faith and doesn't make it any more effective.

[Daniel]

I doubt anyone can know for sure what would work to fix this, and what won't. To say the bailout will work over letting them all fall (or vice versa) is a huge leap of faith and doesn't make it any more effective.

I haven't said anything about a bailout in this thread. I'd want to see government intervention done effectively, which doesn't exactly mean throwing money at a failed business model. I am simply saying that there isn't some mythical domestic corporation that is going to swoop in and save the big three once they fail.

So, unless we're comfortable with the ramifications of either A) some foreign entity taking control of them or B) letting the foreign entities gobble up their market share and relegating ourselves out of the entire market, then the government is gonna have to do something.

[Parkbandit]

I'm going to skip just not responding to you for a moment and address the misconception you're partaking in.


You should have stuck to that idea...



Artificially? No such thing as an artificial increase in employee related costs union side ... unless you're inferring that company administration is book cooking.

The increase in the average hourly rate, with the inclusion of benefits, is very real. No where have I defended it. No, my statement stands. It's asinine to suggest that unions have played a major role in the situation, just like it's asinine to suggest or imply that businesses will fail with a higher tax rate.

Union members are not paid the same as non-union members doing the same job in other industries. That is the artificially inflating of wages. When you pay DOUBLE what your competitor is paying for labor, you are at a very big competitive disadvantage. Employee related costs are what are killing the auto industry and unions are artificially driving up those costs. You would have to be a complete and utter dumbfuck to not realize this. Oh wait.. it's Shit4Brains claiming unions aren't a problem.




I'm going to suggest you go back and re-read the entry about 20 more times and then read your own response .... if you don't come to the conclusion that your comprehension is lacking .... well then ask your wife or kids to tell you.

Don't blame me for your lack of good communication skills Shit4Brains.



First you have to get over the notion that this is a bailout and accept that it's a loan. This isn't free money.

Second, filing for chapter 13 gets them out of union contracts. The only thing they have to restructure for would be the pension accounts.


Then they should immediately file for chapter 13... which is what I've been saying from the get go.



At this point they would have the option of entering into negotiations or hiring non-union employees. Entering into new negotiations would take time ... a huge amount of time. Hiring a new labor force, outside of causing some violent picketing, would take time ... huge amounts of time ... and then there's the training.

They will be far better off in the long run. THIS time, take care of your employees so they don't feel the need to get these union gangsters into the factory.


While all of this time is being consumed, guess what's not happening? Not only is it not happening on the assembly lines, but it's not happening vendor side. Vendors start hemorrhaging cash, and then you hear the halt of production, and then you hear doors locking.

While the vendors aren't working/producing, neither are the big three .... but they're still hemorrhaging cash themselves. Then it's chapter 7 and that 25 billion is gone.


Training will not take nearly as long as you are leading us to believe. Non-union workers/managers will be doing on the job training as they still produce vehicles and the pace will quickly pick up as the new employees gain experience and knowledge.



An apple to an orange comparison on your part. Main Street and small business is the direct benefactor of labor .... guess what the financial markets aren't.

Both are plans to purchase stakes in companies.

You should have left me on ignore.. but I'm glad you didn't. :)

[Clove]

Okay. So who steps up domestically?MS-GMC.

[Gan]

Combined they may have the resources, but what do they know about making cars? Why would they invest nearly all of their resources in a sector they have no experience or comparative advantage in?

Get your head out of lala land. I know you seem to think that the mythical capitalism beast will show up and make everything alright, but that's not likely to be the case.

Right because no entity would come in and take over the existing resources as they are now, just with different direction, etc.

Speaking about la la land. How's the weather over there?

[Gan]

I'm guessing you missed the multiple unemployment threads on these boards huh?
Lol. Right

[Gan]

MS-GMC.

Nice to know someone can think outside the box.

:clap:

[Gan]

They have enough problems engineering stationary objects. Im not going 70 miles an hour in a 404 error.

:lol:

[Clove]

Combined they may have the resources, but what do they know about making cars? Why would they invest nearly all of their resources in a sector they have no experience or comparative advantage in?All the experience (from executive on down) WOULD BE LOOKING FOR A JOB. You would HIRE them and likely for less compensation since they'd all be desperate for work in an industry that suddenly didn't exist Could that be an advantage?

[Keller]

Why aren't the unions being proactive and volunteering to renegotiate their contracts?

That really makes no sense to me.

[g++]

All the experience (from executive on down) WOULD BE LOOKING FOR A JOB. You would HIRE them and likely for less compensation since they'd all be desperate for work in an industry that suddenly didn't exist Could that be an advantage?

Right but its an entirely different industry, when microsoft was trying to buy yahoo that made sense because it was in the same sector they could cut positions and consolidate to be more efficent. Having an entity that has absolutely no experience in the industry at all come in and buy it would not make much sense. It would be like hey were going to add our beuro bloat to yours and somehow equal success even though no one over here knows jack shit about your industry and you have already proven the people over there are running it into the ground.

On top of that if your a large corporation buying bonds prolly seems like a better investment than buying an auto plant, or just putting it the bank even. They have way better investment opportunities than bailing out a tanked industry full of unions.

[Clove]

Right but its an entirely different industry, when microsoft was trying to buy yahoo that made sense because it was in the same sector they could cut positions and consolidate to be more efficent. Having an entity that has absolutely no experience in the industry at all come in and buy it would not make much sense. It would be like hey were going to add our beuro bloat to yours and somehow equal success even though no one over here knows jack shit about your industry and you have already proven the people over there are running it into the ground.What's Microsoft got to do with NBC?

Entrepeneurs invest in industries they don't know about all the time; as long as they have people who DO know the industry working FOR or WITH them. Those people exist in this country. They're the employees of the current auto manufacturers.

[g++]

they have people who DO know the industry working FOR or WITH them. Those people exist in this country. They're the employees of the current auto manufacturers.

All empirical evidence says otherwise.

[Gan]

Right but its an entirely different industry, when microsoft was trying to buy yahoo that made sense because it was in the same sector they could cut positions and consolidate to be more efficent. Having an entity that has absolutely no experience in the industry at all come in and buy it would not make much sense. It would be like hey were going to add our beuro bloat to yours and somehow equal success even though no one over here knows jack shit about your industry and you have already proven the people over there are running it into the ground.
I think a very important fact is being overlooked.
When a company is absorbed or taken over, its up to the leaders of the takeover to determine how much talent is kept, how much is not kept, and how much and where new talent can be sought.

Whats to keep a restructured MS/GM from seeking out talented individuals within the industry at other companies and offering them opportunities? There's a huge field to choose from on an international scale - and the makeup of the team does not necessarily inherently mean the company is foreign. We're in a global market now, remember?

With regards to a merge between two industries as in an example given (MS/GM) it would take a special collaboration between a visionary group seeking innovation between the two industries in order to steer assets (including experienced labor from the existing bankruptcy company) and perhaps seeking to attract talented mid to top executives from other automotive companies looking for an opportunity to advance.

So aside from the visionaries/financial backers who are heading up the merger/acquisition (like Gates/Buffet/Microsoft) you would then have a secondary level of executives who know the ins and outs of the manufacturing process who have transferable skill sets that still could be used under a different direction. Not to mention those with the same skill sets who are with different companies that could be brought over.

I think the barriers to entry could be easily overcome considering a significant amount of infrastructure required is already in place. All it requires is some big capital, savvy vision, and the desire to do so. Oh and the right opportunity...

[g++]

I think a very important fact is being overlooked.
When a company is absorbed or taken over, its up to the leaders of the takeover to determine how much talent is kept, how much is not kept, and how much and where new talent can be sought.

Whats to keep a restructured MS/GM from seeking out talented individuals within the industry at other companies and offering them opportunities? There's a huge field to choose from on an international scale - and the makeup of the team does not necessarily inherently mean the company is foreign. We're in a global market now, remember?

With regards to a merge between two industries as in an example given (MS/GM) it would take a special collaboration between a visionary group seeking innovation between the two industries in order to steer assets (including experienced labor from the existing bankruptcy company) and perhaps seeking to attract talented mid to top executives from other automotive companies looking for an opportunity to advance.

So aside from the visionaries/financial backers who are heading up the merger/acquisition (like Gates/Buffet/Microsoft) you would then have a secondary level of executives who know the ins and outs of the manufacturing process who have transferable skill sets that still could be used under a different direction. Not to mention those with the same skill sets who are with different companies that could be brought over.

I think the barriers to entry could be easily overcome considering a significant amount of infrastructure required is already in place. All it requires is some big capital, savvy vision, and the desire to do so. Oh and the right opportunity...

Im not saying its impossible I am sure it could be done, but I would say If I was a visionary with a lot of capitol and was not a saintly figure but just a capitolist trying to make money I doubt I would be taking many trips to Detroit. Regardless of how it comes about to survive the industry needs to severly renegotiate labor so the whole 25 bil thing to me seems more like a delay to addressing the problem then anything else.

[Clove]

Im not saying its impossible I am sure it could be done, but I would say If I was a visionary with a lot of capitol and was not a saintly figure but just a capitolist trying to make money I doubt I would be taking many trips to Detroit. Regardless of how it comes about to survive the industry needs to severly renegotiate labor so the whole 25 bil thing to me seems more like a delay to addressing the problem then anything else.Yeah see if I had the chance to buy (fictional numbers) the assets and capital of a company worth 80 billion for 40 billion (including labor and management) and then needed to invest 10 billion retooling factories to produce more high-demand vehicles, without having to compete with other domestic manufacturers? I'd consider that very attractive. Yes it would be a risk, but still feasible with extremely attractive potential and there are entities here that could (and just might) do it in the event that the current auto manufacturers failed entirely.

[g++]

Yeah see if I had the chance to buy (fictional numbers) the assets and capital of a company worth 80 billion for 40 billion (including labor and management) and then needed to invest 10 billion retooling factories to produce more high-demand vehicles, without having to compete with other domestic manufacturers? I'd consider that very attractive. Yes it would be a risk, but still feasible with extremely attractive potential and there are entities here that could (and just might) do it in the event that the current auto manufacturers failed entirely.

Hey go for it man, just saying Im still buying a Hyundai. I wish them all luck.

[Clove]

Hey go for it man, just saying Im still buying a Hyundai. I wish them all luck.I'm still waiting for my business loan approval.

[Kembal]

Why aren't the unions being proactive and volunteering to renegotiate their contracts?

That really makes no sense to me.

That's actually a good question. That'd increase the chance of a bailout politically.

Maybe they're worried they'll get taken to the cleaners by management? That'd be paranoia though...management would be putting a bailout in jeopardy by doing so.

Yeah, I don't understand why the unions aren't doing so.

[Daniel]

Yeah see if I had the chance to buy (fictional numbers) the assets and capital of a company worth 80 billion for 40 billion (including labor and management) and then needed to invest 10 billion retooling factories to produce more high-demand vehicles, without having to compete with other domestic manufacturers? I'd consider that very attractive. Yes it would be a risk, but still feasible with extremely attractive potential and there are entities here that could (and just might) do it in the event that the current auto manufacturers failed entirely.

and maybe if we all close our eyes and wish very hard, unicorns will come down with lollipops and play with us all day.

That would be awesome!

[CrystalTears]

Why is it so hard to conceive that as a possibility?

[Kembal]

Quoting an article from Time.com about the chances of an auto bailout being lower until January about the risks of letting GM fail.

http://www.time.com/time/nation/article/0,8599,1859962,00.html


There is no denying that the risks of letting GM fail are high. Economists warn that if it fails, GM is more likely to end up with Chapter 7 bankruptcy liquidation than Chapter 11 restructuring. Given the current credit crunch, the traditional bridge loans available to companies in Chapter 11 are all but impossible to obtain. And few consumers would be likely to buy a car — the sale of which depends on long-term warranties, service and parts — from a company in a bankruptcy reorganization. The Big Three and their affiliated suppliers account for 2% of the U.S. workforce, or more than 2.5 million jobs. GM alone employs more than 100,000 workers, the same number of autoworkers that have been laid off so far this year. And that's not to mention the hit the Federal Government would take if GM dumps its pension, insured by quasi-governmental agency the Pension Benefit Guarantee Corp.; with nearly 1 million participants, it is the largest private defined-benefit pension plan in the U.S. Some experts estimate that that hit alone could cost taxpayers more than $100 billion, with another $100 billion in lost tax revenues and $10 billion in increased Medicaid expenditures annually.

"The fallout of a single manufacturer like GM failing is huge because of the tightly knit web between manufacturers and suppliers," says Dave Cole, chairman of the Center for Automotive Research, an organization with ties to the industry. "Given the fragile state the supply base is in today, with a lot of them already in bankruptcy, it would likely take the entire industry down. Not because the other manufacturers would fail but because the suppliers would go down. We've been concerned about the cascade effect."

[Daniel]

Why is it so hard to conceive that as a possibility?

You can read G++'s posts for my general thoughts, but at the end of the day, if the best you can put forth is Microsoft; a company with 1\3 the revenue of 1 of the 3 industries being discussed and which is in a sector that couldn't be any further away from auto manufactoring, then you have a very serious problem.

Bottom line: You let these companies fail and all evidence points to it being bought up or marginalized by the foreign companies. If you want to rely on "What if's" and "could possibly happen in an ideal world where everything goes my way" on a cornerstone of our economy, that's your choice.

However, I do not personally subscribe to the wishful thinking school of public policy.

[Gan]

You can read G++'s posts for my general thoughts, but at the end of the day, if the best you can put forth is Microsoft; a company with 1\3 the revenue of 1 of the 3 industries being discussed and which is in a sector that couldn't be any further away from auto manufactoring, then you have a very serious problem.

Bottom line: You let these companies fail and all evidence points to it being bought up or marginalized by the foreign companies. If you want to rely on "What if's" and "could possibly happen in an ideal world where everything goes my way" on a cornerstone of our economy, that's your choice.

However, I do not personally subscribe to the wishful thinking school of public policy.

Coming from someone who will probably spend the rest of their career working in and for the government. Thats really not a surprise.

[Kembal]

Why is it so hard to conceive that as a possibility?

The sheer amount of capital required. No one has that much cash on hand, and to get the financing necessary would be impossible in the current credit market.

Hell, GE's being bailed out right now via the FDIC.

[CrystalTears]

The sheer amount of capital required. No one has that much cash on hand, and to get the financing necessary would be impossible in the current credit market.

Hell, GE's being bailed out right now via the FDIC.
Okay, so what could the sliver of billions from the bailout possibly help?

[Clove]

and maybe if we all close our eyes and wish very hard, unicorns will come down with lollipops and play with us all day.

That would be awesome!And right after that the government will solve an economic problem efficiently.

[Clove]

The sheer amount of capital required. No one has that much cash on hand, and to get the financing necessary would be impossible in the current credit market.

Hell, GE's being bailed out right now via the FDIC.So you think that if the Big Three failed their manufacturing assets would have to be bought en masse by one company in order for auto manufacturing concerns to be reconstituted? It wouldn't be feasible for the big 3 to be bought by say a dozen interested corporations? Interesting.

[Gan]

So you think that if the Big Three failed their manufacturing assets would have to be bought en masse by one company in order for going auto manufacturing concerns to be reconstituted? Interesting.

Of course!
http://ihasahotdog.files.wordpress.com/2008/03/funny-dog-pictures-head-stuck-in-tissue-box.jpg

[Clove]

Of course!
http://ihasahotdog.files.wordpress.com/2008/03/funny-dog-pictures-head-stuck-in-tissue-box.jpgWhy wouldn't a Microsoft or Boeing buy say say one or two GM production lines and focus on small, highly fuel efficient vehicles that are in demand?

[Daniel]

Coming from someone who will probably spend the rest of their career working in and for the government. Thats really not a surprise.

Is this an insult?

I get the sense that you are trying to insult me, but I can't seem to get what you're implying? That I don't believe in wishful thinking? That I expect people to be able to provide reasonable evidence to support their line of thinking?

Yea. Man. You really got me there.

[Daniel]

Why wouldn't a Microsoft or Boeing buy say say one or two GM production lines and focus on small, highly fuel efficient vehicles that are in demand?

You ever heard of the term "Economies of Scale?"

[Gan]

Ford and General Motors have threatened to leave Detroit and take their car manufacturing operations overseas if unions do not agree to a massive pay cut for hourly paid workers.The threat to quit the city they call Motown because of its rich automotive heritage would be a crippling blow to Detroit, which is suffering amid a prolonged economic downturn and has been hit by the sub-prime mortgage crisis.

Ford and GM are in the thick of negotiations with the United Auto Workers union, the most powerful labour group in the industry. The car makers maintain they must dramatically reduce manufacturing costs if they are to survive in today's global economy.

Their biggest burden is the current labour cost per vehicle - an estimated $71 (around £35) per man hour. Workers earn about $27 an hour with the remainder made up of overheads such as pensions and healthcare costs for the thousands of retirees on their books.

Ford and GM have made it clear that they expect to reduce the hourly cost from $71 to about $50 - a cut of about 30 per cent. The companies are keen not to cut workers' hourly pay, but they insist that other overheads must be reduced.

If a deal cannot be reached, Ford and GM negotiators have said the companies will have no choice but to move their North American operations to countries in Latin America and Asia where manufacturing costs are cheaper.

The current credit crisis is not helping the ailing US car manufacturers to reverse their fortunes. Many senior figures in the industry are calling for action from the Federal Reserve to spur markets and the economy. Bob Nardelli, the new Chrysler CEO, has been most vocal in calling for an interest rate cut to help boost consumer activity.

Alan Mulally, the Ford chief executive, said last week that economic conditions were proving to be a 'big headwind' working against the company's turnaround plan. He stopped short of calling for an interest rate cut but stressed the importance of 'focusing on economic growth'.

A GM spokesman said: 'From a GM perspective, the focus of the talks is on closing the competitive gaps and building a viable long-term future for the company and our people.'

Sources close to senior GM executives confirmed that the prospect of shifting operations away from North America was very real. 'We have seen it in every other industry,' one said. 'There are no sacred cows today. Globalisation means just that, it's a worldwide playing field.'

Dave Cole, chairman of the Centre for Automotive Research, a leading car industry think tank in Detroit, said: 'This threat is very real and the UAW is aware of it. Both GM and Ford have made it clear to the union that you do whatever you have to do to stay in business.'

The car makers are also discussing ways in which they can work together with the UAW to offload billions of dollars of pension and healthcare costs they have amassed. It is understood the talks focus on creating a 'Voluntary Employee Beneficiary Association', which would be part-funded by the companies to take care of retiree health care costs. The talks must reach a conclusion before their current contract with the UAW expires on 14 September.

http://www.guardian.co.uk/business/2007/aug/26/motoring.lifeandhealth
____________________________________

I believe someone did post this story before, because I seem to remember a discussion on the labor costs of unions vs. foreign auto manufacturers (PB)...

Either way, its interesting to see how some things come to pass.

[DeV]

The whole system needs to be fundamentally changed before any tax dollars are committed. Top brass needs to either be completely replaced or take a huge pay cut and those departments need some serious restructuring. The American auto industry has been producing overpriced, sometimes shoddy, hunks of metal that are neither gas efficient or cost effecient for years. They're losing money nearly every quarter, yet their CEO's and top executives are taking home millions of dollars in pay. They continue to mass produce gas guzzlers (2009 Hummer anyone) while Americans continue to shift toward purchasing foreign made cars. I don't know what time period these executives are living in, but it's not 1950 anymore. What happened to personal sacrifice, one of the qualities that gave the auto industry its start?

[Gan]

Is this an insult?

I get the sense that you are trying to insult me, but I can't seem to get what you're implying? That I don't believe in wishful thinking? That I expect people to be able to provide reasonable evidence to support their line of thinking?

Yea. Man. You really got me there.

If you wish to take it as an insult, thats your business. I'm merely pointing out what I perceive to be the cause of your shortsightedness in considering alternatives to the bailout.

Insult, fact, whatever. You're a big boy, deal with it.

[DeV]

So you think that if the Big Three failed their manufacturing assets would have to be bought en masse by one company in order for auto manufacturing concerns to be reconstituted? It wouldn't be feasible for the big 3 to be bought by say a dozen interested corporations? Interesting.Wouldn't it make more sense for the big 3 to merge?

[Daniel]

If you wish to take it as an insult, thats your business. I'm merely pointing out what I perceive to be the cause of your shortsightedness in considering alternatives to the bailout.

Insult, fact, whatever. You're a big boy, deal with it.

I could care less if you're trying to insult me. The problem is that you make no sense.

[Gan]

Why wouldn't a Microsoft or Boeing buy say say one or two GM production lines and focus on small, highly fuel efficient vehicles that are in demand?

I'm still looking for the law on the books that allows for only 3 car makers in the US...

Why not 5? 7? 10?

One would think that (as in AIG's case as well) that these industry entities have been allowed to become too big and thus immune to the natural effects of markets, risk, and bad management/decisions simply because they are too embedded into the American economy. Like a malignant cancer with tentacles. Perhaps its time to start cutting.
:thinking:

[Gan]

I could care less if you're trying to insult me. The problem is that you make no sense.

LOL if you say so.

You not getting it just reinforces my point.

[Daniel]

I'm still looking for the law on the books that allows for only 3 car makers in the US...

Why not 5? 7? 10?

One would think that (as in AIG's case as well) that these industries have been allowed to become too big and thus immune to the natural effects of markets, risk, and bad management/decisions simply because they are too embedded into the American economy. Like a malignant cancer with tentacles. Perhaps its time to start cutting.
:thinking:


Once again we get back to the issue of market entry. You have an Econ degree right? Go look up the dynamics of market entry in ogliopolies.

[Daniel]

LOL if you say so.

You not getting it just reinforces my point.

Lol. That I think critically and am not apt to fantasies?

Okay.

[Gan]

Once again we get back to the issue of market entry. You have an Econ degree right? Go look up the dynamics of market entry in ogliopolies.

We never studied ogliopolies at my school. Is that something special where you were edgumacated?

[Gan]

November 16, 2008

Bail Out the Big Three Auto Producers? Not a Good Idea-Becker

The big three American auto producers General Motors, Ford, and Chrysler, are in terrible financial shape. They have asked the government for a bailout, and the Democratic leadership in Congress is eager to give them one. The United Auto Workers union was a strong supporter of President-elect Obama and of Democratic candidates.

These companies have lost tens of billions of dollars during the past few years, and they will shortly run out of cash. GM's shares have lost almost all their value, and Ford has not done much better. Cerberus Capital, a private equity company, owns Chrysler, and it has lost most of what it invested in the company. For this reason Cerberus is trying get out of the automobile manufacturing business. All three companies were heavily into producing trucks and SUV's when the sharp run up in gas prices induced consumers to shift away from these gas-guzzlers and toward smaller and more fuel-efficient cars. Moreover, what money GM had been making came mainly not from car production but from its automobile credit business, (GMAC). This company would borrow from banks to lend to consumers who needed help in financing their GM car purchases. The financial crisis has dried up the money available to auto financing companies, and hence eliminated the major source of their profits.

If GM is not bailed out, the company claims it will be forced into bankruptcy within a few months, and Ford's situation is only slightly better. GM is blitzing Congress, President Bush, and President -elect Obama with pleas for a bailout, followed by a warning that bankruptcy will also hurt auto suppliers throughout the nation that depend on GM's business. GM is also claiming that bankruptcy will put major financial pressure on the Pension Benefit Guaranty Corp, the federal agency that insures benefits to retirees in the auto industry as well as to million of other workers.

Nevertheless, I believe bankruptcy is better than a bailout for American consumers and taxpayers. The main problem with American auto companies is that during the good times of the 1970s, 1980s and 1990s, they made overly generous settlements with the United Auto workers (UAW) on wages, pensions, and health benefits. Only a couple of years ago, GM was paying $5 billion per year in health benefits to retirees and current employees because their plans had wide health coverage with minimal co-payments and deductibility on health claims by present and retired employees. In those days, the UAW was one of the most powerful unions in the US, and it bargained aggressively with the auto manufacturers, carrying out strikes when its demands were not met. When the American auto industry began to face tough competition from Japanese and German carmakers, they were saddled with excessive pay to their workers, and vastly excessive pensions and health benefits to their current and retired workers.

It is not that cars cannot be produced profitably with American workers: the American plants of Toyota and other Japanese companies, and of German auto manufacturers, have been profitable for many years. The foreign companies have achieved this mainly by setting up their factories in Southern and border states where they could avoid the UAW, and thereby introduce efficient methods of production. Their workers have been paid well but not excessively, and these companies have kept their pension and health obligations under control while still maintaining good morale among their employees. In recent years GM and the other American manufacturers have chipped away at their generous fringe benefits, but their health and retirement benefits still considerably exceed those received by American auto workers employed by foreign companies. As a result of lower costs, better management, and less hindrance from work rules imposed by the UAW, about 1/3 of all cars produced in the US now come from foreign owned plants.

Bankruptcy would help GM and Ford become more competitive by abrogating significant parts of their labor contracts with the UAW. One of the greatest needs would be sizable reduction in their health costs through sharp increases in the deductibility and co-payments, and a reduced coverage of medical procedures. Bankruptcy should also help bring the wage rates of GM and Ford in line with those of foreign producers in the US. Some of their pension liabilities may be shifted onto the Pension Benefit Guarantee Corp, but even that would be preferable to an overall bailout.

A good analogy is what happened to United Airlines. By entering bankruptcy it was able to reduce its inflated cost structure by breaking contracts it had with the pilots union and other employee unions. It exited bankruptcy a slimmer and more efficient airline. Whether it is able to compete effectively in the long run is still not certain, but it is in much better shape to compete than before it entered bankruptcy.

Bankruptcy may also force out the current management of GM and Ford. I do not know for certain whether they have competent management- GM surely did not have top management for much of its recent history. I do believe, however, that when a coach of a team loses a few games, he might legitimately explain that by injuries, bad luck, or even bad officiating.

These excuses become lame when he consistently loses many games, and the correct and common practice is then to fire the coach. The same considerations apply to top management. When a company consistently does badly while some of its competitors (like Toyota) are doing well, its time to fire the management team, and see if another team can do better.

Is GM "too big" to fail? I do not believe the company is too big to go into a reorganization-which is what bankruptcy would involve. Such reorganization would abrogate its untenable labor contracts, and give it a chance to survive in long run. A bailout, by contrast, would simply postpone the needed reforms in these labor contracts, the business model of GM, and its management.

http://www.becker-posner-blog.com/archives/2008/11/

[Gan]

Lol. That I think critically and am not apt to fantasies?

Okay.

I'm sure some investors told Bill Gates that when he said he wanted to put a personal computer into each home way back when he first started. Looks like Bill got the last laugh.

Thinking Outside the Box: A Mantra for Entrepreneurship. If its not a book, it should be.

[Daniel]

We never studied ogliopolies at my school. Is that something special where you were edgumacated?

oh snap! First failed ad hominim arguments and now pointing out typos. You're on the fast track to winning the Internet!

[Gan]

oh snap! First failed ad hominim arguments and now pointing out typos. You're on the fast track to winning the Internet!

oooh burn

[Clove]

You ever heard of the term "Economies of Scale?"Yes, and you really believe that as large as the auto market is in North America that scaling three automotive manufacturers to 6 or 9 or 12 would be infeasible?

Clearly all the aggregating they've done over the past 30 years really helped.

[Daniel]

Yes, and you really believe that as large as the auto market is in North America that scaling three automotive manufacturers to 6 or 9 or 12 would be infeasible?

Clearly all the aggregating they've done over the past 30 years really helped.

You really think that by the time 6-12 brands try to come to scale and become viable that Toyota and Hyundai won't have swooped in to corner the market share in America? Get real.

I'm not advocating giving the automakers a 25billion blank check. I'm advocating that there be government assistance with effective government oversight of a re-structuring into a viable business model (which could entail the splintering off of operations).

Letting these companies fail and hoping that the market works everything out in America's favor is downright dangerous. It's kinda like assuming that once you invade Iraq that everyone will greet you as liberators and everything else will work it self out. Yea, it *could* do that but there are too many other factors stacked against it and you'd be an idiot to risk the stability of your country upon it.

[Sean of the Thread]

http://www.usnews.com/pubdbimages/image/10663/TH_PR_081117sankdetroit185x163.png (javascript:openWindowTMP()

The global financial crisis is suffocating the Detroit automakers, but the problems at General Motors, Ford (http://usnews.rankingsandreviews.com/cars-trucks/browse/ford/), and Chrysler (http://usnews.rankingsandreviews.com/cars-trucks/browse/chrysler/) have been festering for years—even when the mighty "Big Three" were earning billions. Aging factories, inflexible unions, arrogant executives and shoddy quality have all damaged Detroit. Now, with panicky consumers fleeing showrooms,......


Short article here continues here

http://www.usnews.com/blogs/flowchart/2008/11/14/10-cars-that-sank-detroit.html


Next up: Engineers Rule (in response to the hybrid discussion)

At American auto companies, finance guys and marketers rise to the top. Not at Honda.

Of all the bizarre subsidiaries that big companies can find themselves with, Harmony Agricultural Products, founded and owned by Honda Motor, is one of the strangest. This small company near Marysville, Ohio produces soybeans for tofu. Soybeans? ...

Continues here. Good short read. http://www.forbes.com/forbes/2006/0904/112.html

[radamanthys]

500k employees could be paid 50k for one year to find a new job on that bailout.

The whole idea is ridiculous. Continuing to subsidize a failing non-critical corporation is idiotic.

[Mighty Nikkisaurus]

500k employees could be paid 50k for one year to find a new job on that bailout.

The whole idea is ridiculous. Continuing to subsidize a failing non-critical corporation is idiotic.

QFT.

[Gan]

Isnt it ironic that the Democrat leadership is trying/pushing for bailing out the very industry that they blame for trashing the environment and the very industry they blame the GOP for being in the hip pocket of?

As Clove says... "Bizarrely ironic."

[Clove]

500k employees could be paid 50k for one year to find a new job on that bailout.

The whole idea is ridiculous. Continuing to subsidize a failing non-critical corporation is idiotic.x10.

[Gan]

A Chapter For Detroit To Open


By Martin Feldstein
Tuesday, November 18, 2008; A27

The Big Three U.S. automakers need more than an injection of $25 billion from the federal government. Because of their ongoing losses, they would burn through that money in less than a year and would soon be back for more.

General Motors, Ford and Chrysler can make excellent cars, but they cannot sell them at prices that are competitive with the prices of cars produced in the United States by Toyota and others or with the prices of cars imported from Europe and Asia. The basic reason is the labor costs imposed by union contracts.

The Big Three pay much higher wages than production workers are paid in the nonunion auto firms and in the general economy. And the health-care costs of current workers and retired union members are an enormous additional burden.

The simplest solution is to allow GM and the others to file for bankruptcy. If the companies file under Chapter 11, they would be able to continue producing cars, and the workforce would remain employed while the firms reorganized. The firms would also be able to get short-term credit under bankruptcy protection.

The bankruptcy court could require the unions to rewrite contracts, bringing wages down to levels that would allow the firms to compete and therefore to maintain employment. Scaling back employee and retiree health benefits would further improve price competitiveness and allow better cash wages. The firms' bondholders and other creditors would have to take losses. Shareholders' fate would depend on how firms responded to this restructuring.

Restructuring in bankruptcy and resetting wages are measures that have saved airlines as well as manufacturers. The claim that bankruptcy would mean the loss of millions of jobs is nonsense intended to scare the public and force legislators and the Bush administration to throw money at the auto industry's problems.

Only by reducing wages and benefits will the firms be able to survive and provide good jobs.

If politicians in Washington cannot live with the thought of the auto industry in bankruptcy and decide that some cash must be delivered, this should be done as part of a fundamental restructuring plan imposed by the government in exchange for those funds.

The goal of that restructuring should not just be to require the companies to make cars that are fuel-efficient and more environmentally sound, as President-elect Barack Obama has said, although that can be included in the government's list of requirements. The goal should be to put the companies on a course that will allow them to survive for the long term, producing cars and creating jobs.

To do that, the government should insist that the unions accept reductions in wages and benefits to levels that allow the firms to compete with imports and with nonunion U.S. auto firms. The trustees of retiree benefits should be required to accept reductions in those benefits. The government should also insist that management eliminate dividends and restrain salaries until the firms return to profitability. Even creditors should have to accept write-downs in the value of their debts.

The government has substantial leverage to ensure that these changes occur. The auto companies' management, unions, trustees of retiree benefits and creditors would recognize that without government assistance, the firms would be forced into bankruptcy and that the bankruptcy court could require even more severe cuts in incomes, benefits and payments to shareholders and creditors.

Administering bitter medicine is difficult for politicians. President Bush would do his successor a favor by forcing such a restructuring. It would relieve Obama of his promise to help the auto companies and in a way that improves prospects for the American automobile industry.

The writer, an economics professor at Harvard University, is president emeritus of the National Bureau of Economic Research.

http://www.washingtonpost.com/wp-dyn/content/article/2008/11/17/AR2008111702917.html

[Clove]

You really think that by the time 6-12 brands try to come to scale and become viable that Toyota and Hyundai won't have swooped in to corner the market share in America? Get real.No, I've offered some scenarios where the domestic market could be reconstituted. If these businesses fail it is within our market's grasp to rebuild our auto industry. You seem certain that it isn't. I'm not certain at all. I am certain that I don't want to pay for companies that fail simply because they've managed to become so bloated that they frighten everyone with threats of "If we go down, we'll take you all with us".

[Gan]

No, I've offered some scenarios where the domestic market could be reconstituted. If these businesses fail it is within our market's grasp to rebuild our auto industry. You seem certain that it isn't. I'm not certain at all. I am certain that I don't want to pay for companies that fail simply because they've managed to become so bloated that they frighten everyone with threats of "If we go done, we'll take you all with us".

And of course you understand that if the new smaller companies do not come right out of the box the first year and blow stalwart players such as Honda and Toyota out of the water then its all a huge failure...

[Daniel]

No, I've offered some scenarios where the domestic market could be reconstituted. If these businesses fail it is within our market's grasp to rebuild our auto industry. You seem certain that it isn't. I'm not certain at all. I am certain that I don't want to pay for companies that fail simply because they've managed to become so bloated that they frighten everyone with threats of "If we go down, we'll take you all with us".

You either pay for it now or you pay for it later. Like I said, I'm not in favor for throwing money @ the problem without some serious concessions.

[Parkbandit]

Isnt it ironic that the Democrat leadership is trying/pushing for bailing out the very industry that they blame for trashing the environment and the very industry they blame the GOP for being in the hip pocket of?

As Clove says... "Bizarrely ironic."

I don't know.. there seemed to be many democrats who were pretty cold to the idea of throwing money on this fire.

[Suppa Hobbit Mage]

I haven't read a post in the thread but I fail to see why anyone feels the government should bailout a for profit company is beyond me.

Sure it's rough for the people working there, but if Sony was going tits up, do you think they'd get bailed out? Why is everything a matter of entitlement? Fuckers. Everytime I watch the news it pisses me off.

[Gan]

I don't know.. there seemed to be many democrats who were pretty cold to the idea of throwing money on this fire.

Lets hope there is more than what can be leveraged by Pelosi & Co.

[Cephalopod]

I consider myself 'somewhat liberal', and I hate the idea of this auto bailout. It makes me even more angry listening to the automaker CEO's begging for the money in front of congress, saying they were on a path to profitability before this financial crisis caught them unawares.

Nothing really to add to this thread that hasn't already been said, but also: I can't stand listening to Barney Frank speak.

[CrystalTears]

I've always been against the bailout in general, but after reading this thread, I'm really against an auto bailout.

[TheWitch]

I've always been against the bailout in general, but after reading this thread, I'm really against an auto bailout.

x289123

In combination with the groveling in Congress, the analysis I saw on Bloomberg about how much of that bailout money (read: OUR money) would wind up in the pockets of the unions (take OUR money to pay them, great, because they're entitled), and my 150% confidence they'll be back for more and ultimately fail anyway.....Let 'em fail now and get it over with. Rip off the bandaid.

[Gan]

The CEOs of the big three automakers flew to the nation's capital yesterday in private luxurious jets to make their case to Washington that the auto industry is running out of cash and needs $25 billion in taxpayer money (http://abcnews.go.com/Business/Economy/story?id=6274941&page=1) to avoid bankruptcy.

The CEOs of GM, Ford and Chrysler may have told Congress that they will likely go out of business without a bailout yet that has not stopped them from traveling in style, not even First Class is good enough.

All three CEOs - Rick Wagoner of GM, Alan Mulally of Ford, and Robert Nardelli of Chrysler - exercised their perks Tuesday by flying in corporate jets to DC. Wagoner flew in GM's $36 million luxury aircraft to tell members of Congress that the company is burning through cash, asking for $10-12 billion for GM alone.

"We want to continue the vital role we've played for Americans for the past 100 years, but we can't do it alone," Wagoner told the Senate Banking Committee.

While Wagoner testified, his G4 private jet was parked at Dulles airport. It is one of eight luxury jets in the GM fleet that continues to ferry executives around the world despite the company's dire financial straits.

"This is a slap in the face of taxpayers," said Tom Schatz, President of Citizens Against Government Waste. "To come to Washington on a corporate jet, and asking for a hand out is outrageous."

Wagoner's private jet trip to Washington cost his ailing company an estimated $20,000 roundtrip. In comparison, seats on Northwest Airlines flight 2364 from Detroit to Washington were going online for $288 coach and $837 first class.

After the hearing, Wagoner declined to answer questions about his travel.

Ford CEO Mulally's corporate jet is a perk included for both he and his wife as part of his employment contract along with a $28 million salary last year. Mulally actually lives in Seattle, not Detroit. The company jet takes him home and back on weekends.


Plants Closed, Company Jets Stay

Mulally made his case Tuesday before the committee saying he's cut expenses, laid-off workers and closed 17 plants.

"We have also reduced our work force by 51,000 employees in the past three years," Mulally said.

Yet Ford continues to operate a fleet of eight private jets for its executives. Just Tuesday, one jet was taking Ford brass to Los Angeles, another on a trip to Nebraska, and of course Mulally needed to fly to Washington to testify. He did not address questions following the hearing.

"Now's not the time to do that sort of thing," said John McElroy of the television program "Autoline Detroit."

"Now's the time to be humble and show that you're sharing equally in the sacrifice," McElroy said.

GM and Ford say that it is a corporate decision to have their CEOs fly on private jets and that is non-negotiable, even as the companies say they are running out of cash.

Private jet travel is perhaps the greatest perk of all for CEOs, who say it allows them to travel more efficiently and safely, even in a recession.

AIG, despite the $150 billion bailout, still operates a fleet of corporate jets. The company says it has put two out of its seven jets up for sale and is reviewing the use of others. Though there are no such plans by GM or Ford.

"It appears that the senior management of the automakers simply don't get it," said Schatz.

Copyright © 2008 ABC News Internet Ventures
http://abcnews.go.com/Blotter/WallStreet/story?id=6285739&page=1

[Keller]

Sarah Barricuda for GM CEO, AMIRITE?

[CrystalTears]

Fuck em. Fuck em with a big stick.

[Gan]

GM - Google Motors?

[Keller]

GM - Google Motors?

Google can do no wrong in my eyes. Sounds good.

[Gan]

From an earlier Press Release/news clip:
------------------------------------------------

Google.org, the for-profit philanthropic arm of Google, announced (http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/06/20/BUGEQQI1521.DTL) that it will give $1 million in grants as part of a new initiative dubbed RechargeIT, that seeks to develop plug-in hybrid electric vehicles with both a gasoline engine and batteries that can be recharged by plugging into the U.S. electric grid. The search giant also completed a project to install solar panels at the company's (http://www.techspot.com/news/25781-google-launches-rechargeit-hybrid-vehicle-initiative.html#) Mountain View headquarters.

The company also said it's dedicating an additional $10 million to developing this technology and, on Monday, activated the largest solar-power installation on a U.S. corporate (http://www.techspot.com/news/25781-google-launches-rechargeit-hybrid-vehicle-initiative.html#) campus, capable of generating enough juice to meet about a third of the power needed for Google's headquarters.

"We think this is something [plug-in hybrids] we need to be pushing very, very hard because it answers so many problems the world faces right now," he said.
Google.org claims that if all U.S. cars on the road by 2025 were hybrids, current daily oil consumption would drop from 10m to 2m barrels per day, thus reducing overseas oil dependency while promoting clean energy (http://www.techspot.com/news/25781-google-launches-rechargeit-hybrid-vehicle-initiative.html#) technologies.

This not the first of Google's environmental initiatives, the company recently sponsored the Climate Savers Computing Initiative along with Intel and other industry leaders, to promote the adoption of energy-efficient computers in an effort to reduce greenhouse gas emissions (http://www.techspot.com/news/25781-google-launches-rechargeit-hybrid-vehicle-initiative.html#) linked to global warming.
http://www.techspot.com/news/25781-google-launches-rechargeit-hybrid-vehicle-initiative.html

[Parkbandit]

NY Times Op Ed by Mitt Romney-

IF General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.

Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.

I love cars, American cars. I was born in Detroit, the son of an auto chief executive. In 1954, my dad, George Romney, was tapped to run American Motors when its president suddenly died. The company itself was on life support — banks were threatening to deal it a death blow. The stock collapsed. I watched Dad work to turn the company around — and years later at business school, they were still talking about it. From the lessons of that turnaround, and from my own experiences, I have several prescriptions for Detroit’s automakers.

First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.

That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota’s Avalon. Of course the Avalon feels like a better product — it has $2,000 more put into it. Considering this disadvantage, Detroit has done a remarkable job of designing and engineering its cars. But if this cost penalty persists, any bailout will only delay the inevitable.

Second, management as is must go. New faces should be recruited from unrelated industries — from companies widely respected for excellence in marketing, innovation, creativity and labor relations.

The new management must work with labor leaders to see that the enmity between labor and management comes to an end. This division is a holdover from the early years of the last century, when unions brought workers job security and better wages and benefits. But as Walter Reuther, the former head of the United Automobile Workers, said to my father, “Getting more and more pay for less and less work is a dead-end street.”

You don’t have to look far for industries with unions that went down that road. Companies in the 21st century cannot perpetuate the destructive labor relations of the 20th. This will mean a new direction for the U.A.W., profit sharing or stock grants to all employees and a change in Big Three management culture.

The need for collaboration will mean accepting sanity in salaries and perks. At American Motors, my dad cut his pay and that of his executive team, he bought stock in the company, and he went out to factories to talk to workers directly. Get rid of the planes, the executive dining rooms — all the symbols that breed resentment among the hundreds of thousands who will also be sacrificing to keep the companies afloat.

Investments must be made for the future. No more focus on quarterly earnings or the kind of short-term stock appreciation that means quick riches for executives with options. Manage with an eye on cash flow, balance sheets and long-term appreciation. Invest in truly competitive products and innovative technologies — especially fuel-saving designs — that may not arrive for years. Starving research and development is like eating the seed corn.

Just as important to the future of American carmakers is the sales force. When sales are down, you don’t want to lose the only people who can get them to grow. So don’t fire the best dealers, and don’t crush them with new financial or performance demands they can’t meet.

It is not wrong to ask for government help, but the automakers should come up with a win-win proposition. I believe the federal government should invest substantially more in basic research — on new energy sources, fuel-economy technology, materials science and the like — that will ultimately benefit the automotive industry, along with many others. I believe Washington should raise energy research spending to $20 billion a year, from the $4 billion that is spent today. The research could be done at universities, at research labs and even through public-private collaboration. The federal government should also rectify the imbedded tax penalties that favor foreign carmakers.

But don’t ask Washington to give shareholders and bondholders a free pass — they bet on management and they lost.

The American auto industry is vital to our national interest as an employer and as a hub for manufacturing. A managed bankruptcy may be the only path to the fundamental restructuring the industry needs. It would permit the companies to shed excess labor, pension and real estate costs. The federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk.

In a managed bankruptcy, the federal government would propel newly competitive and viable automakers, rather than seal their fate with a bailout check.

[Daniel]

NY Times Op Ed by Mitt Romney-

IF General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.

Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.

I love cars, American cars. I was born in Detroit, the son of an auto chief executive. In 1954, my dad, George Romney, was tapped to run American Motors when its president suddenly died. The company itself was on life support — banks were threatening to deal it a death blow. The stock collapsed. I watched Dad work to turn the company around — and years later at business school, they were still talking about it. From the lessons of that turnaround, and from my own experiences, I have several prescriptions for Detroit’s automakers.

First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.

That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota’s Avalon. Of course the Avalon feels like a better product — it has $2,000 more put into it. Considering this disadvantage, Detroit has done a remarkable job of designing and engineering its cars. But if this cost penalty persists, any bailout will only delay the inevitable.

Second, management as is must go. New faces should be recruited from unrelated industries — from companies widely respected for excellence in marketing, innovation, creativity and labor relations.

The new management must work with labor leaders to see that the enmity between labor and management comes to an end. This division is a holdover from the early years of the last century, when unions brought workers job security and better wages and benefits. But as Walter Reuther, the former head of the United Automobile Workers, said to my father, “Getting more and more pay for less and less work is a dead-end street.”

You don’t have to look far for industries with unions that went down that road. Companies in the 21st century cannot perpetuate the destructive labor relations of the 20th. This will mean a new direction for the U.A.W., profit sharing or stock grants to all employees and a change in Big Three management culture.

The need for collaboration will mean accepting sanity in salaries and perks. At American Motors, my dad cut his pay and that of his executive team, he bought stock in the company, and he went out to factories to talk to workers directly. Get rid of the planes, the executive dining rooms — all the symbols that breed resentment among the hundreds of thousands who will also be sacrificing to keep the companies afloat.

Investments must be made for the future. No more focus on quarterly earnings or the kind of short-term stock appreciation that means quick riches for executives with options. Manage with an eye on cash flow, balance sheets and long-term appreciation. Invest in truly competitive products and innovative technologies — especially fuel-saving designs — that may not arrive for years. Starving research and development is like eating the seed corn.

Just as important to the future of American carmakers is the sales force. When sales are down, you don’t want to lose the only people who can get them to grow. So don’t fire the best dealers, and don’t crush them with new financial or performance demands they can’t meet.

It is not wrong to ask for government help, but the automakers should come up with a win-win proposition. I believe the federal government should invest substantially more in basic research — on new energy sources, fuel-economy technology, materials science and the like — that will ultimately benefit the automotive industry, along with many others. I believe Washington should raise energy research spending to $20 billion a year, from the $4 billion that is spent today. The research could be done at universities, at research labs and even through public-private collaboration. The federal government should also rectify the imbedded tax penalties that favor foreign carmakers.

But don’t ask Washington to give shareholders and bondholders a free pass — they bet on management and they lost.

The American auto industry is vital to our national interest as an employer and as a hub for manufacturing. A managed bankruptcy may be the only path to the fundamental restructuring the industry needs. It would permit the companies to shed excess labor, pension and real estate costs. The federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk.

In a managed bankruptcy, the federal government would propel newly competitive and viable automakers, rather than seal their fate with a bailout check.

Nice post.

Bolded with what I agree is a good course of action.

[Kembal]

Why wouldn't a Microsoft or Boeing buy say say one or two GM production lines and focus on small, highly fuel efficient vehicles that are in demand?

What demand? Why would anyone jump into the automotive industry right now? (and uh, Boeing's got enough trouble manufacturing planes)

I just read Romney's Op-Ed...and damn, if he had been nominated instead of McCain, I get the feeling Obama would have lost. That was a clear-cut argument as to why to do a managed bankruptcy.

If the federal government is willing to provide direct DIP financing, then I'm good with a Chapter 11. But that better not be called a bailout.

[SHAFT]

nm

[Clove]

What demand?Well for starters you couldn't get your hands on a Toyota Prius two months ago. And I don't know how things are where you live but most of America has woefully inadequate public/mass transportation and I don't see people switching to bicycles.

There's demand (even if it's declined some in the recent troubled economy), just not for pick-up trucks and SUV's. And certainly not for 20+k cars. Cheap, small, fuel-efficient cars are very much in demand.

Until we make some serious changes to our infrastructure cars can't NOT be in demand; but the Big Three hasn't been producing the right cars at the right price. Don't confuse a poor product line with a lack of demand.

[Gan]

What demand? Why would anyone jump into the automotive industry right now? (and uh, Boeing's got enough trouble manufacturing planes)

Demand for fuel efficient vehicles in the wake of almost $4 a gallon gasoline and the urgency of losing (some of) our dependence on foreign oil.

Considering Car Max lots are overflowing with gas hogs and smaller more fuel efficient vehicles are flying off the lot (I know, I just bought a more fuel efficient vehicle), I would say there is healthy demand. Finding credit to satisfy the demand is an issue, but the demand is still there.

[Tsa`ah]

You should have stuck to that idea...

I know ... responding to you has become something of an energy drain. It's not like you understand half of the posts on the forum, so the drain is associated with the ongoing effort in futility.


Union members are not paid the same as non-union members doing the same job in other industries. That is the artificially inflating of wages. When you pay DOUBLE what your competitor is paying for labor, you are at a very big competitive disadvantage. Employee related costs are what are killing the auto industry and unions are artificially driving up those costs. You would have to be a complete and utter dumbfuck to not realize this. Oh wait.. it's Shit4Brains claiming unions aren't a problem.

Again, you're using the term artificial when there's nothing artificial about it. Artificial would be something like home values, the value of military contracts, how you perceive your intelligence (considering every automotive assembly job is union ... so there isn't a valid comparison between union and non-union). In this instance there's nothing artificial, it's all cause and effect.

Again to suggest that the unions are the core issue and not management is asinine.


Don't blame me for your lack of good communication skills Shit4Brains.

When it's just a small handful of people that can't understand my composition, it's a safe bet to suggest that it's not an inability to communicate on my part.


Then they should immediately file for chapter 13... which is what I've been saying from the get go.

Yes, let's gamble with four million jobs and a few hundred billion in annual tax revenues. Fucking brilliant.


They will be far better off in the long run. THIS time, take care of your employees so they don't feel the need to get these union gangsters into the factory.

Proper management could do this now. Unfortunately the current management is as entrenched as the unions are. In an era where incompetence actually pays better than competence ... what's the incentive?

Loaning the industry the 25 billion with specific conditions, such as restructuring the management model, management, and union affiliation would do far more than allowing four million jobs to fly north, south, east, and west.


Training will not take nearly as long as you are leading us to believe. Non-union workers/managers will be doing on the job training as they still produce vehicles and the pace will quickly pick up as the new employees gain experience and knowledge.

This only proves that you are absolutely clueless when it comes to manufacturing.


Both are plans to purchase stakes in companies.

This statement makes absolutely no sense as a response ... which isn't surprising.


You should have left me on ignore.. but I'm glad you didn't. :)

Short bus, you were never on ignore .... that's like blocking comedy central.

[Daniel]

Short bus, you were never on ignore .... that's like blocking comedy central.

lol

[Parkbandit]

I'll skip most of your blather, since it was rather typical Tsa'ah Shit4Brains stupidity...



Again to suggest that the unions are the core issue and not management is asinine.

Who said that Management wasn't an issue? Show me again where I posted that? Otherwise, seriously, stfu.

Unions ARE a core issue. They go hand in hand with piss poor management, retardedly stupid retirement benefits and an inability to change to meet market conditions.



When it's just a small handful of people that can't understand my composition, it's a safe bet to suggest that it's not an inability to communicate on my part.

It's not the ability to understand.. it's the sheer intestinal fortitude needed to muddle through the constant stream of your stupidity to find a morsel of intelligent thought. I've yet to find that morsel from you.. but hey, when I do, I'll create a whole new thread to celebrate. Maybe your mommy can print it out and put it on her fridge with a big yellow crayon smiley face.

Like I've stated from day 1.. let them fail.. go through Bankruptcy and make some changes that will really mean saving the companies. Sounds like Mitt reads these forums and pays attention to my posts... you should too.

[DeV]

What demand? Why would anyone jump into the automotive industry right now?


The demand has always been there. Car dealerships have been struggling to keep small, fuel efficient cars on their lots for years. This is not some new development in the wake of the oil hike we're coming down from and the current economic crisis. Looks to me like fuel efficiency is trumping horsepower and the collective consensus is that automakers need to cater to demand and reduce the production of gas guzzling cars and trucks that people aren't buying, can't afford, etc.

Most people simply need to change their habits, driving or otherwise and learn to better conserve. As far as this not being a good time to jump into the auto industry and take over 3 failing giants, I agree, and for the most part big companies should be concerned with making sure they won't be asking for a handout within the next year or two.

All this bailout talk is coming just in time for Christmas bonus time, too.

Give the 25 million to the other Big 3, let them take over the Big 3 with the condition that they keep the factories churning, restructure management, get rid of the CEO's and let the American autoworkers do what they do best.

[Gan]

Sounds like Mitt reads these forums and pays attention to my posts... you should too.

:lol:

ALERT: ClydeR has hijacked PB's account!

[Kembal]

Demand for fuel efficient vehicles in the wake of almost $4 a gallon gasoline and the urgency of losing (some of) our dependence on foreign oil.

Considering Car Max lots are overflowing with gas hogs and smaller more fuel efficient vehicles are flying off the lot (I know, I just bought a more fuel efficient vehicle), I would say there is healthy demand. Finding credit to satisfy the demand is an issue, but the demand is still there.

Credit's the problem though. The demand for fuel efficient vehicles is there, but not too many people are able to get credit at the moment.

However, I just don't see any big company stepping into the automotive market right now....they've got to keep cash for core businesses due to the lack of credit.

A year from now might be a different story. But still a dramatic hit to the economy if the Big Three go under within the next 90-120 days. (and by go under, I mean liquidation)

[CrystalTears]

Enough with this coddling the companies with more money. Let them fail! Rip that band-aid off! Because if in a few months or a year those fuckers ask for more money, I'll kill them myself.

[Keller]

Credit's the problem though. The demand for fuel efficient vehicles is there, but not too many people are able to get credit at the moment.

Are you implying that more people would be on the waiting list for hybrids if they could only get the credit?

[Gan]

What demand?


Demand for fuel efficient vehicles in the wake of almost $4 a gallon gasoline and the urgency of losing (some of) our dependence on foreign oil.

Considering Car Max lots are overflowing with gas hogs and smaller more fuel efficient vehicles are flying off the lot (I know, I just bought a more fuel efficient vehicle), I would say there is healthy demand. Finding credit to satisfy the demand is an issue, but the demand is still there.


Credit's the problem though. The demand for fuel efficient vehicles is there, but not too many people are able to get credit at the moment.
Agreed. I was just responding to your initial question about "What Demand?"


However, I just don't see any big company stepping into the automotive market right now....they've got to keep cash for core businesses due to the lack of credit.
Thats the beauty of it. One big company does not have to step in and accept all that risk and fight the barrier to entry - even as its starting to crumble. I can think of lots of smaller companies that can step in and pick up specific plants and percentage ownership in the engine plant and or the powertrain plant as well as pickup with new contracts to the aftermarket parts suppliers and focus on one area (like trucks, or focus on small cars, etc.) and specialize in that end of the industry. The idea is not to follow the same trend that led to the big 3 to begin with. Lets see some diversity and specialization that might lead to come better strategy, operational management, and creativity. Who knows, it might even lead to greater efficiency in the universalness of aftermarket parts.


A year from now might be a different story. But still a dramatic hit to the economy if the Big Three go under within the next 90-120 days. (and by go under, I mean liquidation)
The trend appears to be forcing Ch. 11 and affecting the necessary change that the big 3 are currently unwilling to do in order to survive.

It will be interesting to see what happens between now and the end of the year.

[Kembal]

Are you implying that more people would be on the waiting list for hybrids if they could only get the credit?

From what I remember from buying my Prius, they didn't check my credit until the car actually came in.

(And then they tried to sack me with a 16.9% interest rate, since I had little credit history, being a recent college grad at the time. My father had to co-sign on the loan to bring it down to 5.9%. I just paid it off last month.)

So I suspect that in a month or two, if the credit situation doesn't unfreeze, those waiting lists will start becoming much shorter as people are unable to buy the cars and then they are offered to other people on the waiting lists.

[LMingrone]

It's funny how the three major auto reps flew into the meeting to BEG for money on private jets. Hmmm, I wonder how they could cut costs.

[Clove]

It's funny how the three major auto reps flew into the meeting to BEG for money on private jets. Hmmm, I wonder how they could cut costs.

You'd think they'd use their own product at least.

[Clove]

Are you implying that more people would be on the waiting list for hybrids if they could only get the credit?I think there is such a thing as "pent up demand".

[Clove]

From what I remember from buying my Prius, they didn't check my credit until the car actually came in.

(And then they tried to sack me with a 16.9% interest rate, since I had little credit history, being a recent college grad at the time. My father had to co-sign on the loan to bring it down to 5.9%. I just paid it off last month.)

So I suspect that in a month or two, if the credit situation doesn't unfreeze, those waiting lists will start becoming much shorter as people are unable to buy the cars and then they are offered to other people on the waiting lists.

This isn't a lack of demand.

[Gan]

http://i286.photobucket.com/albums/ll102/learningtewfly/autobailout.jpg

[diethx]

ROFL

[Twitch]

It may have been said, I didnt take the time to read all the posts but Ford will NOT need a bailout. They said they have the finances to last it out. Good for them. Fuck the rest.

And thats coming from a guy who will never buy a Ford, hate the trucks and that fucked up window style that cuts down at your forearm......WTF?

[CrystalTears]

The Senate turned down the auto bailout package. So if they get any money it would be some from the current bailout.

[Tolwynn]

And surprise, surprise, the bailout package died because the UAW refused to make paycut concessions at any time before 2011.

The UAW needs to evolve, and quickly so - it's never an effective parasite that kills the host.

[ClydeR]

And surprise, surprise, the bailout package died because the UAW refused to make paycut concessions at any time before 2011.

The UAW needs to evolve, and quickly so - it's never an effective parasite that kills the host.

It's definitely payback time. The auto unions always support Democrat candidates, and the Republicans aren't going to forget it when the unions come around begging. If their political leanings were more like the big Wall Street firms, then they might find Congress more receptive, just as the banks did.

[g++]

And surprise, surprise, the bailout package died because the UAW refused to make paycut concessions at any time before 2011.

The UAW needs to evolve, and quickly so - it's never an effective parasite that kills the host.

I really hope the President, fucktard that he is, does not break and compromise with them. I could see him being stupid enough to hand out money to try to make his legacy look better before he leaves office and its the absolute wrong thing to do. If they refuse to operate under an effective business model its just stupid to give them money.

[Clove]

And surprise, surprise, the bailout package died because the UAW refused to make paycut concessions at any time before 2011.

The UAW needs to evolve, and quickly so - it's never an effective parasite that kills the host.It's difficult to contain my shock. UAW is killing the goose that lays the golden eggs.

[Parkbandit]

It's definitely payback time. The auto unions always support Democrat candidates, and the Republicans aren't going to forget it when the unions come around begging. If their political leanings were more like the big Wall Street firms, then they might find Congress more receptive, just as the banks did.

Many of the Conservatives were against this bailout as well.. but nice try.

[Parkbandit]

And surprise, surprise, the bailout package died because the UAW refused to make paycut concessions at any time before 2011.

The UAW needs to evolve, and quickly so - it's never an effective parasite that kills the host.


That is the best description of a union I've seen.

[CrystalTears]

http://img.photobucket.com/albums/v412/Jemah/funnies/bailout.jpg
http://img.photobucket.com/albums/v412/Jemah/funnies/freddiefannie.jpg

[Fallen]

I've recently heard that the waiting lists for hybrids and the like went away with the high gas prices. There is still interest in the cars, but nothing like before.

This was a very entertaining thread. I learned a lot about the situation.

[Twitch]

Im not so sure I would lay all the blame on the UAW, I mean ya, they force GM to pay the wages, so I guess they are to blame in part for this failure, but what are we really talking about here? Im just in awe that they are even considering bailing out private industry in the first place. Pumping federal money into the private sector as a loan can only mean higher interest rates not? At least thats what Im getting out of it, and or it wont work and we suffer a full economic collapse anyway.

What will solve this? I mean everyone knows them condescending bastards in the banking industry had no small part in causing this mess to begin with. I think nothing less than a total restructuring of banking principals will suffice. First, the American people need to learn the goddamn difference between simple interest and compound interest.
Simple interest, you do not pay interest on your interest, ie Vehicle Loans, Personal loans.
Compound interest you DO pay interest on your interest, ie Mortgages and Credit Cards

The problem is Americans are not educated enough to know that unless you can pay off that house in 5 years, your pissing away money for 25 additional years in interest. Appreciation can only go so far. I mean seriously, minimum wage and cost of living has been outpacing wage increases for years.

Our government, who is now a big owner of these banks could, and maybe should force them to do some things differently. I think maxing the length of a mortgage would go a long way to bringing the affordability of housing into perspective for people. I say this because it should be obvious to everyone now that average person cannot afford these long term mortgages. Sure you would have to settle for much less in a house, but at least they would have a better chance at paying them off.

I mean we are talking about millions of dollars in interest and fees collected by the banking industry every day, where does all the money go? I mean seriously, their banks are paid for (christ they loaned themselves the money) and how much does it cost to run a bank? I find it hard to believe their businesses are not generating enough income to keep a branch open. Dont get me wrong, I dont know the banking industry inside and out but damn, if they cant keep their finances straight, they dont belong in business. Epic Fail beyond any Epic Failure ever!

[g++]

Im not so sure I would lay all the blame on the UAW, I mean ya, they force GM to pay the wages, so I guess they are to blame in part for this failure, but what are we really talking about here? Im just in awe that they are even considering bailing out private industry in the first place. Pumping federal money into the private sector as a loan can only mean higher interest rates not? At least thats what Im getting out of it, and or it wont work and we suffer a full economic collapse anyway.

What will solve this? I mean everyone knows them condescending bastards in the banking industry had no small part in causing this mess to begin with. I think nothing less than a total restructuring of banking principals will suffice. First, the American people need to learn the goddamn difference between simple interest and compound interest.
Simple interest, you do not pay interest on your interest, ie Vehicle Loans, Personal loans.
Compound interest you DO pay interest on your interest, ie Mortgages and Credit Cards

The problem is Americans are not educated enough to know that unless you can pay off that house in 5 years, your pissing away money for 25 additional years in interest. Appreciation can only go so far. I mean seriously, minimum wage and cost of living has been outpacing wage increases for years.

Our government, who is now a big owner of these banks could, and maybe should force them to do some things differently. I think maxing the length of a mortgage would go a long way to bringing the affordability of housing into perspective for people. I say this because it should be obvious to everyone now that average person cannot afford these long term mortgages. Sure you would have to settle for much less in a house, but at least they would have a better chance at paying them off.

I mean we are talking about millions of dollars in interest and fees collected by the banking industry every day, where does all the money go? I mean seriously, their banks are paid for (christ they loaned themselves the money) and how much does it cost to run a bank? I find it hard to believe their businesses are not generating enough income to keep a branch open. Dont get me wrong, I dont know the banking industry inside and out but damn, if they cant keep their finances straight, they dont belong in business. Epic Fail beyond any Epic Failure ever!

You must be rich. I understand compound interest that does not mean I am not forced to use it on a daily basis. I keep forgetting the check book for my millions I suppose.

[CrystalTears]

If you're able to pay your house off in 5 years, then you're VERY well off and a lot of what's going on these days won't affect you as it does the rest of us.

[Fallen]

Or you bought a house for a price which allows you to do that. Problem is, no one would want to own a house they can afford to completely pay off within 5 years.

[TheWitch]

Everything worked pretty damn well when home ownership wasn't considered to be a right. It's not a right, it's something you have to work for. It's a responsibility some people simply aren't equipped to handle, whether it's financially or otherwise. And look where this social engineering got us.

When 30 year mortgages with 20% down were considered the norm, and anything less down than that required private mortgage insurance until you reached a minimum of 20% equity in the property, people were not getting forclosed upon at even a fraction of the current rate. When banks held people to a standard of credit and an income ratio that made sense for the principle they were looking to borrow, things went quite smoothly.

Only when people began to get greedy did we start circling the bowl. The mortgage writers were greedy to write the mortgage, the home buyer was greedy wanting to buy more house than they should reasonably expect to be able to afford.

Combine this with greedy consuming, snapping up the 0% interest (for six months) credit cards and promptly went out a bought a bunch of shit they now can't pay for, along with big ass expensive cars on leases they can't carry, and you have - I hate to use this tired phrase - a perfect storm.

It was not sustainable.

[Clove]

Everything worked pretty damn well when home ownership wasn't considered to be a right. It's not a right, it's something you have to work for. It's a responsibility some people simply aren't equipped to handle, whether it's financially or otherwise. And look where this social engineering got us.

When 30 year mortgages with 20% down were considered the norm, and anything less down than that required private mortgage insurance until you reached a minimum of 20% equity in the property, people were not getting forclosed upon at even a fraction of the current rate. When banks held people to a standard of credit and an income ratio that made sense for the principle they were looking to borrow, things went quite smoothly.

Only when people began to get greedy did we start circling the bowl. The mortgage writers were greedy to write the mortgage, the home buyer was greedy wanting to buy more house than they should reasonably expect to be able to afford.

Combine this with greedy consuming, snapping up the 0% interest (for six months) credit cards and promptly went out a bought a bunch of shit they now can't pay for, along with big ass expensive cars on leases they can't carry, and you have - I hate to use this tired phrase - a perfect storm.

It was not sustainable.It isn't entirely the consumers fault. When you have negative population growth in MA and home prices still increase you know there's a problem. Where I live the average home is about 200k. The average family income is 53k. You do the math.

[Twitch]

You must be rich. I understand compound interest that does not mean I am not forced to use it on a daily basis. I keep forgetting the check book for my millions I suppose.

You kinda miss the point I think, the idea is that banks were lureing people in to believe they could afford much much more than they actually could for years.

[g++]

You kinda miss the point I think, the idea is that banks were lureing people in to believe they could afford much much more than they actually could for years.

I think I read it correctly. I agree banks gave too much credit to people that should not have received it but even those of us who are responsible need loans. This particular quote seemed to me to be disparaging of people who need to borrow money for homes at all.


The problem is Americans are not educated enough to know that unless you can pay off that house in 5 years, your pissing away money for 25 additional years in interest. Appreciation can only go so far. I mean seriously, minimum wage and cost of living has been outpacing wage increases for years.


You must be rich. I understand compound interest that does not mean I am not forced to use it on a daily basis. I keep forgetting the check book for my millions I suppose.

I dont get what im missing.

[TheWitch]

It isn't entirely the consumers fault. When you have negative population growth in MA and home prices still increase you know there's a problem. Where I live the average home is about 200k. The average family income is 53k. You do the math.

I didn't say it was. I also wasn't making any sort of regional qualifications on those statements. If I did, I would bring up the fact that median HHI on LI is ~$75, while homes in Nassau county were selling for $650K.

The bottom line is, some fool was willing to pay that, some other fool was willing to lend that, after some fool actually gave an appraisal that said the home was really worth that. There's plenty of blame to go around.

But trying to blame this entire mess on the big bad banks will pretty much insure that the same crap happens again. People need to take responsibility, and stop with this sense of entitlement.

The country and far too many of it's residents and corporations have been living far, far beyond their means for far too long. This had to happen.

[Twitch]

I dont get what im missing.

Two things - 1) That people need to own a home they cannot afford, simply because they didnt make an educated buy, ie not understanding compound interest over the long term. 2) That people need to own a home at all. It seems your looking at this from a perspective of needs vs. wants. Its not a must have to survive situation.

Additionally, whats the difference if you saved money up for 15 years and bought the house for cash? In that case, you didnt need a loan at all.

[g++]

Two things - 1) That people need to own a home they cannot afford, simply because they didnt make an educated buy, ie not understanding compound interest over the long term.


Most people(people who are not rich) live with debt. Plenty of people have taken out compound interest loans and paid them off in full understanding completely that half their payments would not be going toward principle.



2) That people need to own a home at all. It seems your looking at this from a perspective of needs vs. wants. Its not a must have to survive situation.
.

If you want to start telling me what I think just start writing the responses to your posts yourself. I never said anything close to that.



Additionally, whats the difference if you saved money up for 15 years and bought the house for cash? In that case, you didnt need a loan at all.

What would be the difference between going to college when your 18 and getting a job as a pizza delivery driver and saving up 100k dollars over the next 20 years to go to college? Oh right because you would be half dead by the time you attended. If your a 30 year old newly wed if you waited 20 years to buy a home you might not even want kids by the time you saved up. That argument is insane if everyone in this country waited till they had the cash in hand to buy everything the entire economy would collapse.

[Clove]

But trying to blame this entire mess on the big bad banks will pretty much insure that the same crap happens again. People need to take responsibility, and stop with this sense of entitlement.A sense of entitlement has nothing to do with the big bad banks keeping a proper debt to asset ratio instead writing out bad paper and discounting it to investment banks. Consumers can clamour for credit they can't afford all they like, but if you're a lender with unviable lending practices it IS your fault if you can't cover your loans.

[Twitch]

This particular quote seemed to me to be disparaging of people who need to borrow money for homes at all.

I believe you did.

[Twitch]

That argument is insane if everyone in this country waited till they had the cash in hand to buy everything the entire economy would collapse.

I was gonna ask this earlier but there's no question I have to ask it now, Do you live in your parents basement? HELLO???? :wtf:

[CrystalTears]

Living in your parent's basement is the only way people will save money these days. If you get an apartment, you still have to pay rent. And rent on some places is worse than having a mortgage. So while you're still paying bills, when are you supposed to save for that house?

George Bailey is rolling in his grave right now for such outlandish thinking. :D

[g++]

I believe you did.

Yes that says need to borrow money for a home. Not are entitled to a home. The sentence does not mean everyone needs a home. Look PM me and we can read some Dr. Seuss books together to iron this out. Ill buy the book outright I promise.

[g++]

I was gonna ask this earlier but there's no question I have to ask it now, Do you live in your parents basement? HELLO???? :wtf:

Never mind you need a professional kindergarten teacher.

[Clove]

Additionally, whats the difference if you saved money up for 15 years and bought the house for cash? In that case, you didnt need a loan at all.15 years of lost appreciation. 15 years of lost leverage opportunity. Potential loss of significant tax benefits.

[TheWitch]

A sense of entitlement has nothing to do with the big bad banks keeping a proper debt to asset ratio instead writing out bad paper and discounting it to investment banks. Consumers can clamour for credit they can't afford all they like, but if you're a lender with unviable lending practices it IS your fault if you can't cover your loans.

At no point would I defend the banks' lending practices of the past 7 or so years, nor the credit card companies, nor the finance companies that got people into cars they can't afford with bad credit, nor the financial firms that packaged and repackaged and repackaged again the shit loans that were doomed to go bad. Shit wrapped in pretty silver paper is still shit.

But that sense of entitlement has everything to do with it. A person without this swollen sense of entitlement won't go clamoring to the shady financial institution in the first place, they won't attempt to get a loan for a house 5+ times their annual salary with no money down, they won't think they should be driving a '08 Lexus when the checkbook says '98 Chevy. They'll realize that even though they'ld like to own that 5,000 sq. ft. house, the 2,000 sq. ft. one is the one upon which they can afford the payments. They'll realize that TV on that 32" tube TV is good enough, since they don't have the $3k for the 54" plasma.

A transaction can't happen without a buyer and a seller.

I'm also not saying every single person that's in trouble right now is a greedy SOB. There were people that were blatantly lied to, there were people that borrowed in good faith, within acceptable parameters, and then had a bad run of luck. I simply don't think that's the majority, since those types of situations have always happened.

[CrystalTears]

And as Clove said, the consumer can bitch and complain that they deserve a certain house all they want, but if they need a loan to get it, it was the financial institution's fault to give in and make it happen when they know it would be a bad investment.

[Clove]

And as Clove said, the consumer can bitch and complain that they deserve a certain house all they want, but if they need a loan to get it, it was the financial institution's fault to give in and make it happen when they know it would be a bad investment.Particularly when those institutions had no intention of servicing the loan in the first place. The regional banks that have been participating in responsible loan practices haven't had trouble at all; if a loan was a bad risk, or they were short on liquidity they simply didn't give out the loans.

And while we are allocating public funds to help people in foreclosure it doesn't hold a candle to the welfare we're giving the banks- banks that shot themselves in the foot.

Yes people have been living beyond their means here for some time and greed and entitlement have fueled it- but this is why we have statutes and regulations. If a doctor or lawyer push you into a bad deal for their own benefit you can sue them for undue influence. If a mortgage broker convinces you to take a loan you can't afford; he takes his point and walks away.

There's blame to go all around, but the banks knew far more about what they were doing than many of the consumers. I for one don't feel like paying for their mistakes.

[Twitch]

15 years of lost appreciation. 15 years of lost leverage opportunity. Potential loss of significant tax benefits.

Valid points but doesnt this transfer right back into the viscious circle? Housing can only appreciate so high until it is just plain out of reach. I'll say again, wages do not match economic growth, and no amount of tax benefits have benefitted the hundreds of thousands (millions?) of homeowners who can no longer afford to pay their mortgages.

I guess the question is, did the irresponsibility of banks and the ignorance of Americans cause this recession? I dont know, its pretty tough to say, and Im sure there's hundreds of problems feeding into it.

If it was in fact banks and ignorant Americans alike, wouldnt it make sense to restructure the banking industry to prevent them from overinflating housing prices and gouging americans of every last red cent?

[TheWitch]

Yea, make no mistake, I'm completely disgusted with the money that's been doled out to these banks because I agree, they knew a hell of a lot more about the scam they were running than the consumer could ever have known.

And as much as I didn't want to see the car companies get a bailout, the fact that the banks did, and they didn't (yet), just grinds my gears.

How much of the TARP money did Bank of America take, and now they're laying off 35,000 people? Who is accountable for this!?!?

[g++]

Valid points but doesnt this transfer right back into the viscious circle? Housing can only appreciate so high until it is just plain out of reach. I'll say again, wages do not match economic growth, and no amount of tax benefits have benefitted the hundreds of thousands (millions?) of homeowners who can no longer afford to pay their mortgages.

I guess the question is, did the irresponsibility of banks and the ignorance of Americans cause this recession? I dont know, its pretty tough to say, and Im sure there's hundreds of problems feeding into it.

If it was in fact banks and ignorant Americans alike, wouldnt it make sense to restructure the banking industry to prevent them from overinflating housing prices and gouging americans of every last red cent?


Just stop speculative lending. The system worked fine until banks started lending outside the bounds of common sense and credit scores. Its not a "viscious circle" its a bunch of jackass's lending money to people they knew should not have been getting loans in the first place so they could collect bonus money now knowing full well the loans would fail later.

[Twitch]

Never mind you need a professional kindergarten teacher.

Sesame street and Wile E Coyote rule!

WIN

[Clove]

Just stop speculative lending. The system worked fine until banks started lending outside the bounds of common sense and credit scores. Its not a "viscious circle" its a bunch of jackass's lending money to people they knew should not have been getting loans in the first place so they could collect bonus money now knowing full well the loans would fail later.Ding ding ding ding ding!

[Parkbandit]

Just stop speculative lending. The system worked fine until banks started lending outside the bounds of common sense and credit scores. Its not a "viscious circle" its a bunch of jackass's lending money to people they knew should not have been getting loans in the first place so they could collect bonus money now knowing full well the loans would fail later.

You haven't gotten to the main problem yet.. but you are close.

Why would a bank (a business for profit) issue loans that they knew would fail later on?

[g++]

You haven't gotten to the main problem yet.. but you are close.

Why would a bank (a business for profit) issue loans that they knew would fail later on?

Because the CEO's and people issuing the loans get bonus's based on how many loans they issue not how many are actually paid off.

[ClydeR]

Many of the Conservatives were against this bailout as well.. but nice try.

Yes, there's definitely a conservative bias against government bailouts. The Wall Street bailout had 25 no votes, and the auto bailout had 35 no votes, and the auto bailout also had a lot of Senators abstaining or absent. Still, the auto unions' liberal political bias is causing a lot of their problems, as shown by the internal, but leaked, memo being circulated among Senate Republicans.


Labor was another issue underlying the tense negotiations. An action alert circulated among Senate Republicans on Wednesday called for Republicans to "stand firm and take their first shot against organized labor."

In doing so, analysts said, Republicans were planting the seeds for a fundraising appeal to big business -- other than the Big Three, of course -- as they gear up for a major political fight next year over expected legislation that would make it easier for unions to organize.

"They may lose money from the auto industry, but a union fight will get them a lot of money from the rest of the business community," Sabato said.

More... (http://www.latimes.com/business/la-fi-gopcars12-2008dec12,0,4564430.story)

[Parkbandit]

Because the CEO's and people issuing the loans get bonus's based on how many loans they issue not how many are actually paid off.


Not entirely... you are missing a huge piece of the puzzle, my son.

Why would a business for profit loan money to people they knew couldn't afford it and would eventually default on.

[CrystalTears]

And because they'd be able to sell it to Fannie Mae or Freddy Mac and not have to worry about it anymore.

[Parkbandit]

http://weblogs.newsday.com/sports/football/bob_blog/winner.jpg


And because they'd be able to sell it to Fannie Mae or Freddy Mac and not have to worry about it anymore.

[g++]

Well ok, but thats kind of an after thought now I imagine. You would have to be a helluva speculator to know when all this started that there would be a dummy company around for you. These bad loans did not fail immediately they were set up like time bombs.

[Twitch]

Why would a business for profit loan money to people they knew couldn't afford it and would eventually default on.

Depends, but the long and short of it it, housing is considered real property with an appreciative value over the long run. Its a no lose investment for the bank, however it got out of control, they cant turn around resell these homes because there are not enough buyers.

[g++]

And because they'd be able to sell it to Fannie Mae or Freddy Mac and not have to worry about it anymore.


Ok I just read into the regulations the government put on them a little and I kind of see what your saying. Admittedly Im in unfamiliar territory.

Also here a great paper I am reading atm to catch up.

http://www.cato.org/pubs/bp/bp110.pdf

[Parkbandit]

Well ok, but thats kind of an after thought now I imagine. You would have to be a helluva speculator to know when all this started that there would be a dummy company around for you. These bad loans did not fail immediately they were set up like time bombs.

A bank would have no responsibility to worry about a loan defaulting if they simple acted like the middle man from consumer to Freddy/Fannie.

And why was Freddy and Fannie buying up all these risky mortgages? Because the US Government, in their infinite wisdom, decided that owning a home is a right and shouldn't be a luxury to only those that could afford one.

There's a pretty informative timeline about this mess here:

http://en.wikipedia.org/wiki/Subprime_crisis_impact_timeline

Highlight anything you see having to do with our government if you want to get to the root cause of this mess.

[ClydeR]

Why would a bank (a business for profit) issue loans that they knew would fail later on?

Because--

1. The bank sells the loan before the borrower stops paying.

2. And the people who buy the loans get them insured so they can resell them as a package.

3. And the insurers, which aren't really insurance companies, issue the insurance only if the loan packages have sufficiently high ratings from the rating agencies.

4. And the rating agencies get hired repeatedly only if they issue high ratings.

5. And investors buy the loan packages only if they have assurance that the loans are insured, so they don't have to worry about credit risk.

6. And nobody pays much attention to the insurers' finances or the rating agencies' practices.

[Daniel]

A bank would have no responsibility to worry about a loan defaulting if they simple acted like the middle man from consumer to Freddy/Fannie.

And why was Freddy and Fannie buying up all these risky mortgages? Because the US Government, in their infinite wisdom, decided that owning a home is a right and shouldn't be a luxury to only those that could afford one.

There's a pretty informative timeline about this mess here:

http://en.wikipedia.org/wiki/Subprime_crisis_impact_timeline

Highlight anything you see having to do with our government if you want to get to the root cause of this mess.

You do realize that Freddy and Fannie were only one of the parts of all of this.

To look simply at the parts of "Government" to place blame while excluding everything else is pretty retarded.

[g++]

You do realize that Freddy and Fannie were only one of the parts of all of this.

To look simply at the parts of "Government" to place blame while excluding everything else is pretty retarded.

Well after reading a bit I think it is a huge part of it though. Letting banks use the national treasury to buy high risk loans caused kind of a black hole effect. At least thats what I have been able to discern in the past 15 minutes of reading heh.

[Parkbandit]

You do realize that Freddy and Fannie were only one of the parts of all of this.


Quote where I said they were all of this. You might want to use your patented fabrication technique once again..



To look simply at the parts of "Government" to place blame while excluding everything else is pretty retarded.

They fostered the environment that allowed it to happen. To hold them blameless and faultless is pretty Danielish.

[Daniel]

Quote where I said they were all of this. You might want to use your patented fabrication technique once again..


Are you really that stupid?

"Highlight anything you see having to do with our government if you want to get to the root cause of this mess."





They fostered the environment that allowed it to happen. To hold them blameless and faultless is pretty Danielish.

Who said I held them blameless? I'm pointing out that there was a lot more to it than Freddie and Fannie. To hold the banks and institutions that ran wild with this blameless is pretty retarded and Parkbanditish, but I repeat myself.

[TheWitch]

If there's one thing I think we can all agree on here, it's that there is plenty of blame to go around for everyone.

Whether a person thinks any one entity in this sordid mess is more to blame than the other? That's pretty open for interpretation.

I personally hold them all equally responsible, and I hope several dozen dozen someones get prosecuted.

The banks.
The brokers.
Freddie/Fannie.
The government.
The credit card companies.
The consumer.

Bernard Madoff is a good start.

[CrystalTears]

^^

Which is why I feel we shouldn't bail any of them out. Granted some innocent people will get screwed on it, but oh well. Try again!

[Clove]

Not entirely... you are missing a huge piece of the puzzle, my son.

Why would a business for profit loan money to people they knew couldn't afford it and would eventually default on.

Didn't I cover this already?


Particularly when those institutions had no intention of servicing the loan in the first place.

Incidentally these loans weren't just discounted to Freddie and Fannie, investment banks were padding their funds with them as well, but the climate was certainly developed by Freddie and Fannie.

[DeV]

Because the CEO's and people issuing the loans get bonus's based on how many loans they issue not how many are actually paid off.
Let's not forget the credit rating agencies who made billions of dollars for themselve and Wall Street off of these risky loans.

[Jorddyn]

Slate has an interesting "article" on the bailouts so far this year.

http://www.slate.com/id/2206356/

My question is given that the total for this year stands at $5.596 TRILLION, why is it that we're fighting so hard against the $25 billion dollar (or $14b or $34b) loan to automakers? That's about 0.5% of the total.

Is it because we actually understand what they do? Is it because of the bad reputation they have - deserved or undeserved? Is it because we're just finally fed up? Is it because they're the only ones not in the financial sector? Is it because $5.571 trillion looks like a much more manageable number than $5.596 trillion?

[Clove]

$5.571 trillion looks like a much more manageable number than $5.596 trillion?Yes. $5,571,000,000,000 is much more manageable than $5,596,000,000,000.

I can't really support the "well we've already given this much away..." rationale.

For the record I didn't support any bail-out loans.

You might also consider that recent AIG shenanigans have had a negative impact on public receptiveness to corporate welfare.

[CrystalTears]

You might also consider that recent AIG shenanigans have had a negative impact on public receptiveness to corporate welfare.Those motherfuckers.

"We're not giving the top executives a bonus. No! It's a retention wage so that they stay with us, because we need the best people for the job to section off the company and help us with this crisis."

Fuck you, all of you need to be fired. If any of you were so good that you're worth keeping, this wouldn't have happened! You're fucking useless! GTFO!

[Clove]

If it were up to me, I'd give GM a contract to build 100k wind generators. They can use the profit to retool their factories and maybe, fuck over the UAW by opening a non-automotive revenue stream. If not, at least we'd have a tangible asset for our money.

[Jorddyn]

Yes. $5,571,000,000,000 is much more manageable than $5,596,000,000,000.

I can't really support the "well we've already given this much away..." rationale.

For the record I didn't support any bail-out loans.

You might also consider that recent AIG shenanigans have had a negative impact on public receptiveness to corporate welfare.

I'm not saying it's not a good chunk of change or that we shouldn't be questioning it. I probably should have worded my question to ask why there wasn't this amount of outcry against the former bailouts rather than why there is the outcry against the auto industry.

Good point on AIG, though. I'd forgotten about that.

Personally, I'm trying to recoup my losses (read: future taxes) from all this bailing-out by buying stock everytime there's a huge panic it won't go through, and selling when sanity returns. Much love to those who drove GM and Ford down significantly this AM.

[Clove]

Those motherfuckers.

"We're not giving the top executives a bonus. No! It's a retention wage so that they stay with us, because we need the best people for the job to section off the company and help us with this crisis."

Fuck you, all of you need to be fired. If any of you were so good that you're worth keeping, this wouldn't have happened! You're fucking useless! GTFO!


I'm not saying it's not a good chunk of change or that we shouldn't be questioning it. I probably should have worded my question to ask why there wasn't this amount of outcry against the former bailouts rather than why there is the outcry against the auto industry.People weren't exactly silent about those either.

http://farm4.static.flickr.com/3198/2908241495_39a0c74774.jpg?v=0

[Jorddyn]

Silent? No. Days of congressional hearings? No.

[Clove]

Silent? No. Days of congressional hearings? No.Your Government at work. Pre election. Post election. Coincidence?

[Parkbandit]

Are you really that stupid?

"Highlight anything you see having to do with our government if you want to get to the root cause of this mess."

You would have been better off just fabricating something.. since "root cause" doesn't equal "all of this". Simple English.. something you have proven to have difficulty with time after time.




Who said I held them blameless? I'm pointing out that there was a lot more to it than Freddie and Fannie. To hold the banks and institutions that ran wild with this blameless is pretty retarded and Parkbanditish, but I repeat myself.

Who said I held them blameless? I'm pointing out that there was a lot more to it than bank CEOs. To hold the government that ran wild with this blameless is pretty retarded and Danielish, but I repeat myself.

[Parkbandit]

If there's one thing I think we can all agree on here, it's that there is plenty of blame to go around for everyone.

Whether a person thinks any one entity in this sordid mess is more to blame than the other? That's pretty open for interpretation.

I personally hold them all equally responsible, and I hope several dozen dozen someones get prosecuted.

The banks.
The brokers.
Freddie/Fannie.
The government.
The credit card companies.
The consumer.

Bernard Madoff is a good start.

I don't hold them all equally responsible... but you are correct, there is plenty of blame to go around.

[Clove]

Things are really bad up here. Connecticut just met the national average for unemployment (which is unusual for us) and Rhode Island just hit 9% unemployment. Things are so bad in Rhode Island the Mafia had to lay off 2 judges.

[Stretch]

Securitization really is a bitch.

I distinctly remember in a class I took on fixed-income derivatives, we spent a few days covering mortgage backed securities. Simplified, a bank issues a loan, then pools it along with other mortgages and sells off pieces of the aggregate in tranches.

Tranche A was made up of loans made to the most creditworthy, and therefore got the lowest yield but also lowest default rate.

Tranche B was slightly more risky, higher yield, etc.

Tranche C was more risky, and so on.

The example in Fabozzi's text book had a default rate of 5% in the riskiest tranche.

Guess that didn't work out too well.

[Miscast]

I posted this a week or so ago under a different thread but I think it deserves repeating.

http://www.businessweek.com/magazine/content/08_48/b4110036448352.htm?chan=magazine%20channel_top%20s tories

Welcome to the new subprime.

[Stanley Burrell]

Just replace the workers with true AIs and harvest Mike the Mechanic's organs for black market trade.

And just to prove my point, because I don't feel like posting the serious cat jpeg, because this whole cat shit is fucking retarded and is the reason we're having economic crises:

http://theducks.org/pictures/cosmic-rex-excuse-me-wtf-r-u-doin.jpg