Do you support a government bailout of Detroit?

The case for bankruptcy

chicagotribune.com/news/nati … 6186.story

[quote]President-elect Barack Obama and Democrats are facing the first important test of their promise of change, and they are about to land heavily on the side of the status quo in the most embarrassing and contemptible way.

In their hyperventilated drive to “save” General Motors (read: the United Auto Workers union), they are deploying our wallets to save a failed business, when real “change” would be bankruptcy, from which would emerge a better and more competitive enterprise.

The $25 billion lifeline, to be sliced from the $700 billion Troubled Assets Relief Program meant for the financial industry, rewards GM for decades of incompetence, greed and sterile thinking. We should scram as far as possible from GM’s legacy, not resuscitate it. But if Senate Majority Leader Harry Reid, House Speaker Nancy Pelosi and President George W. Bush, with Obama’s blessing, put GM on life support, they would be wallowing in exactly the kind of capitulation to special interests that just weeks ago Democrats condemned.[/quote]

Wow, harsh stuff.

I think that there’s a reason to help the financial system, since without it the economy can’t function properly, but I think that that help should come with real oversight, and a lot of strings attached, including real pain for the executives and shareholders of the financial firms – otherwise the moral hazard is too great. Now, should that help be extended further, to all kinds of major corporations? I don’t think so. What’s the source of the US automakers’ woes?

Personally, I think that it is a combination of the arrogance and incompetence of GM and the excessive power and short-sightedness of the unions. So I’m not sure either the companies or the jobs deserve saving.

Sure, the sudden economic downturn and credit crunch have hit car sales hard, but GM’s position was already precarious, and that was largely their own fault. They thought people would buy whatever crap they put out. People did. And stupid Americans wanted big gas guzzling monsters, so GM built a lot of those too, even as gas prices rose. Now enough Americans have realized that the Japanese make better and more fuel efficient cars that these savvier individuals won’t buy GM, and the remaining Americans can’t afford to buy GM’s gas guzzlers, so GM is in trouble. Well, boo hoo. Serves them right. Will a bailout require serious realignment by the automakers in terms of fuel efficiency? I doubt Republicans would support that, and without that string attached, I don’t support a bailout.

The UAW pushed wages and benefits so high that they put their own jobs at risk. Uneducated grease monkeys making more than teachers. The UAW stifles attempts at reform at every turn. The big three can’t build a car at the same price as the Japanese, even if both cars are built in the US. Again, boo hoo, when the UAW workers lose their jobs. The Democrats, beholden to the UAW, want to save those jobs, but the UAW contracts really need rewriting or the companies won’t be competitive. Will the Dems demand change by the UAW? I doubt it, and without that I don’t support a bailout.

GM is out of cash, so they are postponing their product development. Well, what they NEED is proper product development. How does such a huge company not budget properly for this? Gross incompetence.

But reading up a little on this in Time, I see the following:

So with those kinds of costs to the taxpayer if GM fails, it makes sense to invest a little to prevent such failure if possible. Ok, so maybe it should be considered, but in addition to the above strings, I would want to know whether that investment stood a high chance of success, though, or else it’s just throwing good money after bad. I wouldn’t want the same people in charge of GM. They’re proven losers. Fire management, put limits in place on bonuses and perks, cut costs at the top as well as at the bottom, and a bailout is a possibility.

GM, like the UAW, is too powerful. Power breeds corruption, arrogance, and sloth. Maybe it’s time to break the company up, like into Chevy, Buick-Pontiac-GMC and Cadillac-Saab-Saturn? Let them compete with each other more.

Or let them reorganize after filing for chapter 11 bankruptcy; according to this WaPo article, the bankruptcy court could compel the unions to rewrite contracts, bringing wages down to competitive levels. But elsewhere I’ve read that the kind of credit normally available to rescue companies in chapter 11 is unlikely to be available due to the current credit crisis, so bankruptcy might have to be chapter 7, meaning dismemberment of the firms. Well, the government could step in and provide that credit, but require that it occur in the context of chapter 11, no?

If that happened, along with all the strings attached above, I might consider supporting it. Otherwise, no deal.

Don’t bail them out! I don’t feel sorry for them at all. Americans have been brainwash by the big three to believe that you have to have a car, it has to suit your style, and blah, blah, blah. Everything’s built and structured in favor of Car, Inc. and public transportation and biking is hindered on purpose. DB is right when he says well boo hoo. Let’s see–gas might be a limited resource, so lets make and sell cars that burn tons of gas! We screwed up now come bail us out! Frankly, I have never understood the attraction of an American car anyway–I have this amount of money, and I can buy a foreign car or an American car that looks about as exciting as soggy polyester.

As a side note, I have long been snickered at by other Americans (incl. friends and family) for taking public transportation, riding a bike, and never buying a car. Now that gas prices have gone up and the US economy is starting to crumble, guess who’s got the last laugh?

[quote=“Dragonbones”]Or let them reorganize after filing for chapter 11 bankruptcy; according to this WaPo article, the bankruptcy court could compel the unions to rewrite contracts, bringing wages down to competitive levels. But elsewhere I’ve read that the kind of credit normally available to rescue companies in chapter 11 is unlikely to be available due to the current credit crisis, so bankruptcy might have to be chapter 7, meaning dismemberment of the firms. Well, the government could step in and provide that credit, but require that it occur in the context of chapter 11, no?

If that happened, along with all the strings attached above, I might consider supporting it. Otherwise, no deal.[/quote]
The point about credit is not a bad one.

Mind you I’m worried that any bailout will end up being more like a nationalisation though. I.e. keep your current wages and don’t sack any workers, keep your current bad management (or get new worse management picked by the government from their UAW cronies) and in return you must produce more eco friendly cars. Which turn out to be even harder to make money off than current gas guzzlers:

en.wikipedia.org/wiki/General_Motors_EV1#Costs

I’m in the same boat. I was against the financial bailout and I’m against the auto bailout.

[quote]The Big Three have been so stubbornly, steadfastly, immensely stupid for so long, that I voted for your last choice. It violates capitalist principles to bail them out, or however you phrased it.

Dammit, how many hundreds of billions of dollars do hard-working taxpayers have to shell out to bail out massive corporations that ignored reality, took massive gambles and lost? How many decades must our children and their children pay for such corporate stupidity. Moreover, will a bailout truly help the economy? And will those idiots ever truly learn? I doubt it. I doubt it.[/quote]

Very well said.

In the short run, yes. But constantly bailing out bloated, inefficient industries that have run themselves into the ground is bound to be more costly in the long run. $70 an hour to push iron? You gotta be kidding me. And how’s this one?

[quote]Big Three auto CEOs flew private jets to ask for taxpayer money

Some lawmakers lashed out at the CEOs of the Big Three auto companies Wednesday for flying private jets to Washington to request taxpayer bailout money.

[b]“There is a delicious irony in seeing private luxury jets flying into Washington, D.C., and people coming off of them with tin cups in their hand, saying that they’re going to be trimming down and streamlining their businesses,” Rep. Gary Ackerman, D-New York, told the chief executive officers of Ford, Chrysler and General Motors at a hearing of the House Financial Services Committee.

“It’s almost like seeing a guy show up at the soup kitchen in high hat and tuxedo. It kind of makes you a little bit suspicious.”

He added, “couldn’t you all have downgraded to first class or jet-pooled or something to get here? It would have at least sent a message that you do get it.”[/b]

Rep. Brad Sherman, D-California, asked the three CEOs to “raise their hand if they flew here commercial. Let the record show, no hands went up. Second, I’m going to ask you to raise your hand if you are planning to sell your jet in place now and fly back commercial. Let the record show, no hands went up.”[/quote]

The non-UAW US auto industry, though in very tough times, doesn’t need the bail-out. So why the big 3?

Don’t worry too much about the bail-outs. In most cases in 5yrs you will be reading how the gov. made a lot money as they are taking stakes & re-capitalizing, as opposed to buying debt.

I think the thing with the US auto industry, though I’m not certain, is partly product driven but mostly finance driven. The finance arms of GM and Ford have seen big loses especially in mortgage refinance and car loans.

As car makers, they have a strategy that is out of step with the global economy. They have too many products tailored for specific markets, especially in America but in other locations as well. The great range of brands and tooling costs are simply non competitive. I think, however, the US would be crazy to let them fold at this stage in their economic cycle. The emotional impact will be huge. Not only will there be big job losses but there will be a big fat dint in consumer confidence that will easily cost the 25 billion in lost tax revenue.

If the government does bail them out it should do so with a strategy in mind for creating a globally competitive car industry. They have the brands. That is not an easy thing to develop, just ask KIA or Hyundai. They should probably move their profit focus away from finance and into products. That’s what will drive sales.

Here’s a bailout for Detroit: Universal Health Care. (Which they railed against in '92.)
(The non-unionized car industry doesn’t provide health care, and doesn’t have the pension legacy to deal with, among other things.)

MT pretty summed up my feelings, and the irony is he doesn’t live in the States :laughing: As a result of this need to bail out, car dealships are pratically giving away cars. There’s one dealership here that is offering people to a buy a car whose’s sticker price is in the range of 30 to 40k and walk away with a second one for a $1.(psst-seeking sugar daddy) Then there’s problem now of getting a car. You have to have at least a credit rating in the 700s to qualify for a loan, have a higher down payment and one other thing that escapes my mind at the moment. CNN reported that dealerships are now going to Canadian banks for loans because it’s hard to get one here for certain types of people.

Then there’s also that report of imports sitting in Long Beach because dealerships are turning them down and companies like BMW, Toyota,etc are having to lease space until those cars can be moved.

The problem with all this began in the 90s when the Big Three refused to go with their “Blue” plan, a plan that would have put more economic/hybrid cars on the road, but they didn’t because gas prices were so good and gosh darn it, those 4x4 pickup trucks were selling like hotcakes and they could figure out how to deal with union costs at the same time. :fume:

Heck, it’s little wonder those idiots in Detroit are failing. These are reaaaaally tough times. The much more competent, imported car makers are also suffering a major crisis.

Check out this nice slide show on the thousands of import cars being unloaded at ports in the US, that once would have been shipped right off to dealers, but are now parked indefinitely in vast parking lots down by the port, waiting till this crisis will eventually pass.

And here’s the article that slideshow came from: A Sea of Unwanted Imports

EDIT: Japan’s exports dropped by 7.7% last month, compared to a year earlier, the biggest drop in their exports in seven years. If people aren’t even buying hondas and toyotas, why would anyone expect them to buy chryslers?

[quote=“Jaboney”]Here’s a bailout for Detroit: Universal Health Care. (Which they railed against in '92.)
(The non-unionized car industry doesn’t provide health care, and doesn’t have the pension legacy to deal with, among other things.)[/quote]

My understanding was that they do provide healthcare. I was led to believe the biggest difference between union & non-union shops is with regards to work rules in the plant. The legacy pension is a different matter. But then again, if they didn’t face falling volumes, that wouldn’t be an issue either.

Japanese automakers manufacture in the US, so I don’t think all the suppliers to US auto companies are threatened by the demise of the Big 3.

Unfortunately, this is a classic case of mismanagement. I would like to point to UK domestic auto companies and their bail out, it didn’t work.

Unless their is oversight on a complete restructuring at those 3 firms, there is no point in throwing good money after bad.

There is a bit of a discussion ongoing in Germany what to do with Opel, a 100% GM daughter which may go downhill as well. But GM had just brought Opel back to life from a previous crisis with new attractive models and new technology waiting, like the VOLT hybrid car, which was developed (at least what German news say) by GM’s European tech center in Germany.

So a lot of Opel-friendly people are waiting for GM to do their last breath to Opel can become a pure German brand and survive with government help and re-emerge as a tech leader.

:blah: Bob Opelblitz,

[quote=“Gao Bohan”][quote=“Muzha Man”]And how’s this one?

While I’m as disgusted as others here over the fiscal and management behaviour of the Big Three, as well as the outrageous perks given to high end executives, I don’t think this is a good example. When your company needs US$1 billion, a US$20,000 company flight is less than pocket change. It is not ‘like seeing a guy show up at the soup kitchen in high hat and tuxedo’.

They already own or lease the aircraft, so there’s no reason not to use it for core business. Flying commercial and leaving your own aircraft on the ground is actually wasting money. If they could make a billion dollars by selling their aircraft, that would be a different matter. But I doubt they could.

No, everything depreciates when it goes off the lot.

There is already 25 billion earmarked to bail them out. They’ll get that. They will also get more on the condition that they streamline. They’ll streamline. The American public isn’t in the mood to put up with bailing out companies that don’t, and nor is it in a position to see the big three go under. Right now oil prices are low and this will to some extent mitigate the effect of low consumer confidence. And as the American economy tanks there might also be a little more tendency to “buy american,” to practice a form of voluntary protectionism. I’m guessing that when the bailout is announced there will be quite a blip in the value of those companies stocks, which of course represents an opportunity to make money. Make that money and then look for a good solar panel company to invest the profits in. That’s my plan. What’s wrong with it? (Be gentle, I’m new at this.)

No, you’re confused here. Those money already earmarked were set aside for the developement of fuel efficient cars, not to bail out the auto makers. I’ve heard talks about using that money for the bailout but there’s a lot people who feel that money shouldn’t be touched.

Now you’re basically saying the bailout is already a done deal, why is that? Where do you get your news from? The last I heard of it is Harry Reid cancelling the vote as it didn’t have nearly the number of votes necessary to pass. Right now nothing is approved and there’s no guarentee the big 3 will get anything. There’s a lot of reasons why the bail out is a bad idea. And it’s not just the Republicans who think that way, which by the way still has enough seats in Congress to block any bailout plan and Bush is still president which has to sign it.

Also, steamlined or not, the American public just might not want to bail the companies out, period. Like representative Spencer Bachus said, " My constituents do not understand why their tax dollars should go to support what they consider less efficient businesses."

[quote=“reztrop”]Just want to conduct a poll on whether you support a government bailout of domestic automakers.

Do you think it is a good idea? A major factor why GM, Chrysler, and Ford are short on money is the costs related to union pay and benefits. Toyota and Honda do not have union-negotiated contracts to the extent the Big Three has.

If the government bails them out, our taxpayer money could be used to pay these huge union pay.

Opponents say the Big Three’s current dilemma is a result of their own doing. The Big Three automakers repeatedly lobbied against raising fuel economy standards. When Toyota released the Prius, GM’s president dismissed it as a public relations gimmick. The Big Three continued to emphasize SUVs and pickup trucks even when the Prius was gaining popularity.

Supporters say that the economy will be devastated if the Big Three are allowed to fail. Hundreds of thousands of jobs will be lost.[/quote]

I read that if GM stopped paying its share dividends for two years they would save over a billion dollars (almost 600m shares and about $1/share dividend). I don’t know about anyone else, but companies that aren’t making money shouldn’t be paying dividends since there are no profits to share.

The same goes for the other car makers. Stop paying out shares, cut out executive payouts and giveaways, and start making cars that will sell (e.g. Ford should make the Fiesta they sell in Europe).

The rightwingers go on and on about “being against socialism”, yet the bank bailout at taxpayers’ expense is the biggest act of socialism in world history.

The bailout will come once Obama is in office, he’s pushing for it.

Stop paying dividends and the stock will plummet, easy for an aggressive buyout to occur at that point.