Friday, October 31, 2008 at 1:13 pm
GM needs bankruptcy, not a bailout
General Motors would like some taxpayer cash—a bit more than $10 billion should do—to help it buy Chrysler. As a company spokesman told TIME: "We believe the Federal government should consider all of the tools available to it—some recently enacted—to support industries that are in distress and that are essential to the U.S. economy." (Update: The Detroit Free Press is reporting today that the Treasury Department said no dice, although of course the last word will be with Congress.)
Now all is fair in love, war and lobbying for government bailouts. But this attempt to align GM with the banks that have recently benefited from Washington's largesse is quite a stretch. We have a well-developed process for helping companies in distress fend off creditors and prepare themselves for a comeback if in fact they have a comeback in them. It's called Chapter 11 bankruptcy, and it is one of the most glorious creations of the American political system. Bankruptcy allows for a moderately orderly version of the creative destruction that makes capitalism dynamic. The willingness of American companies to make use of it is one of this country's great competitive advantages. It's one key reason why, while the next year or two will certainly be tough, we're extremely unlikely to land in a decade-long malaise like Japan in the 1990s.
Bankruptcy doesn't work so well for leveraged financial institutions like banks, because the mere existence of rumors that a previously healthy bank is headed for failure can be enough to drive it under. That's why we have a separate infrastructure for both preventing and dealing with bank failures, with the FDIC at its center. It was the lack of such an infrastructure for the "shadow banking system" of investment firms, hedge funds, derivatives and the like that has made the past year so scarily and unpredictably eventful. And it was the real fear of a systemic collapse--a run on the entire financial system--that sent Ben Bernanke and Hank Paulson scurrying to Capitol Hill in September to ask for $700-billion bank bailout.
It is true that, as Steven Pearlstein writes today, the half-baked way in which Paulson has sold and implemented the bailout has encouraged other industries to ask for similar help. I can't see any case for giving it to them, though. A GM bankruptcy would possibly pave the way for a rebirth of the company as a lower-cost, slate-wiped-clean entity with an actual chance of succeeding (I'm not making any guarantees here), and it wouldn't threaten the systemic collapse of anything. What it would threaten are jobs, dealers and suppliers, and pensions.
Those first two sets of threats are endemic to capitalism. I happen to work in a struggling industry. I feel like my job is threatened. I think what I do is important to the functioning of American society. I think it's possible to make a case--I'm not gonna make it, but Ezra Klein will--for taxpayer support of journalism. And there's definitely a case for temporary taxpayer help for workers whose industries have imploded. But there's really no case that I can conceive of for taxpayer subsidies for the shareholders of media companies or of auto manufacturers.
The issue of pensions is more complicated, because they are promises, and promises should be honored. GM, to its everlasting credit, has not been shortchanging its pension plan. The company's pension fund was actually overfunded by anywhere between $9 billion and $19 billion (depending on whom you were asking) at the start of the year, and while that's surely no longer the case, the way the fund's $100+ billion in assets were allocated (only 26% in equities) would indicate that it has probably survived the market's carnage better than most. So GM's retirees wouldn't suddenly be left in the cold if the company filed for Chapter 11. But even if they would, I think we'd be far off better dealing with that problem explicitly rather than bailing out the company's shareholders.
Political calculations are political calculations, and the Chrysler bailout of 1979 seems to have worked out okay, in that taxpayers got their money back. But we'll never know the counterfactual. It's possible that the U.S. auto companies would be much stronger and more competitive now if Chrysler had been allowed to go bankrupt. Managing our way through business failure is something we're extremely good at in this country. So why don't we take this opportunity to show what we're made of?
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Friday, October 31, 2008 at 1:38 pm
aren't GM's difficulties based almost entirely on GMAC, the "banking" arm of GM? If this is the case, a taxpayer bailout of GM makes a hell of a lot more sense than bailing out the greedy scum who ran Goldman Sachs, Morgan Stanley, Bear Stearns, and Merrill Lynch. GM actually produces stuff, unlike the brokerages who do nothing by move money around while skimming some off the top.
IMHO, Chapter 11 bankruptcy "bails out" stockholders at the expense of employees and suppliers. If it works, the company re-emerges with the value of the stocks restored. If it doesn't work, and the company files for Chapter 11 bankrupcy, the employees and suppliers who got screwed during Chapter 11 just get screwed more.
But the terms of the bailout need to be super strict -- separation og GMAC from the rest of the company, and a requirement that only vehicles that meet high mileage standards be built from now on -- including at least one affordable car with a minimum of bells and whistles that is designed to let people do their own repairs.
Friday, October 31, 2008 at 1:52 pm
@paul lukasiak: GMAC, which is now trying to become a bank holding company to get its hands on some of that Treasury money, is mostly a separate issue here. Not totally separate: It's 49% owned by GM, 51% by Cerberus, which also owns Chrysler. But I think the main problem is that GM and Chrysler both owe lots of money and aren't selling many cars.
I do love the easy-to-repair car idea though. An American 2CV!
Also, I've been meaning to say this for a couple of days: It's good to have you back in the comments section.
Friday, October 31, 2008 at 3:54 pm
@paul: In Chapter 11, common stockholders are usually wiped out, and rarely receive compensation after the company emerges from bankruptcy (although they often get to deduct at least a portion of the loss against taxable income).
I grew up in steel country in an era when the steel mills were mostly going out of business. While they tried to claim they were a strategic industry, little Federal help was forthcoming. There was a lot of pain among the workforce and retirees, and it took perhaps a generation, but today's steel manufacturers are highly competitive internationally, and make just as much steel by tonnage as they did in the earlier era. And the steelmaking regions have largely recovered economically. Perhaps that is the model for the US auto industry.
Friday, October 31, 2008 at 4:00 pm
@Curmudgeon: That could be a really good column idea.
Friday, October 31, 2008 at 4:04 pm
@Justin: It's yours
Friday, October 31, 2008 at 4:37 pm
Justin,
You'll get no argument out of me. The law encourages restructuring to rehabilitate companies. The problem with the bail-outs...even for houses is that it distorts a perfectly reasonable and well-established systemic method for dealing with entities that are in dire straits. Ultimately, I would argue that failure to utilize the system distorts rational responses to economic conditions.
.
Ex. A- Banks significantly slow effort at repricing and selling houses which are on their books. The initial bail-out, it seems, has convinced banks to either hold on to properties seeking to sell when the markets recover or wait for the government to come in and buy up vacant homes. Neither position is assetable when you are referencing a very large and impaired asset class.
.
GM is in the same boat...waiting on a bail-out that they are sure that Congress will deliver. I just hope that Reid and Pelosi have the cajones (well, at least Reid) to stand up and say pound sand. Go file Chapter 11, restructure and then come back to the party when you've sobbered up. The method we are currently employing is the one last drink method which never works for a recovering alcoholic.
Friday, October 31, 2008 at 4:56 pm
The US tax payers never lent a dime to Chrysler in 1979. The government backed loans that were made by insurance companies. Just wanted to set the record straight!
Friday, October 31, 2008 at 5:42 pm
A GM Bankruptcy will drag all detroit three into bankruptcy because no one could be as cost-competitive as GM. And if all detroit three go under, many suppliers (if not most) will also be bankrupt very soon. It's so funny those financial companies always tried to convince us that bailing out those wall street liars and robbers is a right thing while saving a company who produce real goods rather than worthless paper is not justified. A contry as big as US cannot be sustainable without a strong real economy. I cannot imagine we can keep playing this money-moving game forever. Let real economy fail and one day we would not be able to buy anything from other countries with worthless dollar.
Friday, October 31, 2008 at 5:51 pm
Paul,
I may be wrong but when GM sold part of its stake in GMAC to Cerberus, it was because the company in general was having solvency problems and it was their most profitable division.
Friday, October 31, 2008 at 6:02 pm
GM is asking for a loan from the U.S. Government that created the credit crisis that stops GM from finding a conventional loan source. The congress should act responsiibly and save 2,000,000 jobs and stave off a tax loss of estimated 300 billoin. Contrary to the talking heads, GM cars ARE in demand. They sell more cars than anyone else in the industry. The cost structure is a profit killing problem GM has been working on for several years. It has shown more responsibility towards its employees, suppliers, dealers, and customers than the people who seem to have an unreasonable hate for the domestic aut industry. They would feel nothing for the real human damage caused by the callous philosophy of "to hell with GM'. The U.S. government has subsidised Japan and German economies for decades. Much more has been spent to prop up these countries, than G.M.is asking for to save a very important AMERICAN industry.
Friday, October 31, 2008 at 7:16 pm
Sweet Jesus!!! The only people who are calling for a GM bankruptcy are the secured creditors....does anyone have any idea of the fallout??? The destruction of pension funds (not only automotive workers but state, county, teachers, etc.??? The impact on ERISA???
Envision a world where the U.S. where the does not have domestic capacity to provide produce heavy machines, military hardware, and an ability to provide for its defense internally, and I will show you a third world country in the making!!!
The focus seems to be on bailing the "money people" and to protect executive bonuses than to revive the infrasctructure of American heavy industry. I'm not real keen on supporting an industry that has outsourced jobs overseas but that is part of the bailout equation....but don't destroy American companies.
Friday, October 31, 2008 at 7:59 pm
Well, I'm fine with the idea of providing $ 10 billion to GM and why not a fat cats of Wall Street got away with $ 700 billion and Justin's argument about saving Wall street nothwithstanding. While that said, GM sounds greedy and miopatic when it wants to take over Chrysler. Isn't GM a too big company to manage? My me congress should provide or gaurantee $10 B to GM on the condition that it breaks company into 5 managable individual car companies and each produces it's own original model and not 5 cars models with different badge out of single platform. Yes to GM bail out but absolutely no for further acquisition. The argument about scale and capacity and there for efficiency sound hollow now a days. We want a couple of right size nimble corporation flexible enough to weather boom and bust cycles of economy. Big is no more beautiful.
Friday, October 31, 2008 at 8:10 pm
Why is the auto industry so different then the airline industry? Nearly all of the major iconic airlines in this country have been in and out of bankruptcy and each time the industry seems to emerge a bit smarter and a bit more streamlined. Why doesn't the nation own up to the fact that we are no longer going to be a force in the global supply of automobiles? It may be painful, but perhaps Detroit needs to revisit the way it produces cars, sells cars, services cars, etc (do we really need a Dodge and GMC dealership within 10 minutes of one another). The model is wrong and a bankruptcy, even of all three, might be a perfect way for a sort of industry wide timeout. Maybe only one or two survive. As Justin states bankruptcy is a powerful tool when used appropriately and there are more then a few provisions that provide relief to pensioners.
Friday, October 31, 2008 at 8:12 pm
I think it is grossly wrong for out government to use taxpayers money to bail out any corporations in this country; and they should not shelter their income in foreign countries. We need plants here in the usa to put americans back to work.
Friday, October 31, 2008 at 9:00 pm
These are major corporations with a huge cadre of talent in many levels and in many ways. THEY need a bailout? They simply sucked up the profits from the SUV's, etc. and are now whining about the fact that they are now suffering because they didn't 'notice' the rush from other markets. Come on! This company has been in business for upteen years and they didn't see it coming? Duh!
No, I have no sympathies for GM or Chrysler. They both screwed up.
Steve
Friday, October 31, 2008 at 9:35 pm
I dont want to live in a world without any American cars. Period. I do have sympathies for , Ford, GM and Chrysler. These companies deserve a generous loan from the Govt. And they are more honest than Wall Street banks.
Friday, October 31, 2008 at 10:55 pm
It's a problem of product. GM-Opel in Germany and GM-Holden in Australia build good vehicles that customers want to buy and are thus profitable. Apart from a couple of models GM in the USA build rubbish that no one wants. It's their own darned fault if they can't make a profit.
Saturday, November 1, 2008 at 12:01 am
This is what happens when you allow your car markets to be flooded by FOREIGN automakers. Despite all the pissing and moaning by everyone GM makes GOOD cars. But you have so many IDIOTS out there thinking that they don't. They would rather support a German or Japan economy. WHAT have either of those 2 countries done for us? Besides fight us in WWII?
If GM goes bankrupt you can expect the US to go into a depression so deep that it will make the last one look like a recession.
The government doesn't care about the auto industry but they sure love the TAXES they get from it.
It is OK to bail out a bunch of f'ing thieves that robbed and raped the finical markets but not for a company that employees THOUSANDS of peoples.
Stop buying all these cheap crappy goods from China, India and Mexico. These trade deals have raped the US of good jobs.
You will have all these idiots say "its a global economy" It is funny how we never would of saw this 5 years ago when we didn't GIVE AWAY our markets to countries that have slave labour!
So everybody better WAKE UP and start supporting your own economy and not someone else's!
BAIL OUT GM, FORD and CHRYSLER and PISS on Toyota, Honda, Kia and the rest of these FOREIGN cars!
Saturday, November 1, 2008 at 12:57 am
what deprived the us of jobs are the american businesses who outsourced jobs overseas.
Saturday, November 1, 2008 at 12:57 am
If these companies had been actually building the cars that people (and sometimes congress) have been screaming and pleading for they would not be in this trouble!
Low emission and fuel efficient cars have been a practical reality for at least a decade but these companies have resisted to their ultimate detriment. Why should anybody else pay for their poor judgement?
Saturday, November 1, 2008 at 1:34 am
I couldn't agree with Don more!
Saturday, November 1, 2008 at 2:50 am
@Don, why people *want* to support foreign economies ? People just want good cars. If foreign made cars happen to be better, well, surprise, they shall rule the market. I just wish there were some other way to help the employees instead of handing GM/Chrysler 10billion.
Saturday, November 1, 2008 at 3:51 am
It may help to be mindful that one is certain to find somewhere in the shadow banking mileau a bank or two or three. Also, in GM as in GE, AIG and many, if not most, of America's other finest corporations, one is also certain to find the work of those shadow banks. I suggest the problem facing GM, the general market, the Treasury and their counterparts elsewhere in the world is SIZE. Think that some ten years ago LTCM, a $4 Bn problem, threatened the financial system and resulted in a bailout then. Now the problem, still not quantified, could be $4 Tn, a thousand times bigger.
This is new ground that hasn't been tilled before. One guess is as good as another. If it is to be solved, old methods may not work this time. If there is a number that is too big, we may have surpassed it already.
As I see it, we are likely in the early stages of a reformulation of our system that either takes the form of a crash or a generation of no/slow growth.
Saturday, November 1, 2008 at 5:19 am
@Don: "These trade deals have raped the US of good jobs."
Yeah, but these trades make things so cheap in order for us to buy them. Otherwise we wouldn't have huge buying power we have...
Saturday, November 1, 2008 at 8:09 am
The United States is a free-market economy based upon fairness and competition. Provided that the playing field is level the strongest company should survive. That goes for GM or my law practice. No one is immune from competition. If we cannot be competitive, then GM will need to figure it out or get beat. It is pretty simple.
Saturday, November 1, 2008 at 8:57 am
no one will make a 20k or 30k purchase that needs service and parts for a number of years from a bankrupt company with no guarantee of a sound future. That's why the auto company's won't consider it and that's what the author doesn't understand. They are in dire straights but they know a bankruptcy is in the end.
Saturday, November 1, 2008 at 9:38 am
My friends....GM has been playing on an "uneven field" for decades, and beating the competition. You can't fight a multi-front war forever. When you have a small group of companies in conspiracy with a small number of governments and they have vertical and horizontal control of the world's oil and raise the cost to beyond what the market can bear, "things" will break. Sure, the price of oil has almost halved...why? Because the greedy bastards are afraid of losing their ill-gotten plunder. They precipitated this crisis!!! Granted, a lot of guilt to spread around for wreckless and ill-advised business practices...but the actual cost of getting product out of the ground and to the pump did not change...just the direction of the manipulation of the price. But, in the process they have brought down the whole economy...the guilty with the innocents. What GM was making is what their customers wanted. Is that a strange concept? Point the finger (and maybe insert it where it belongs). If there is one good thing to come out of all this mess, it may be to shine the light on the corporate executives who are corrupt, irresponsible, criminal and unabashed (even on their way down...ala AIG).....where are the boards of directors? Who are the watchdogs for the stockholders? Where are the government agencies? There are a lot of people who should be wearing orange jumpsuits but I don't think a corporation who is as much a victim of greedy oil as the American public should be one of them. Cut GM some slack, she will recover and she will build what we want and need...affordable transportation....and employ hundreds of thousands in the process.
Saturday, November 1, 2008 at 9:48 am
I would sooner see our taxpayer dollars invested in Tesla. GM is a bloated dinosaur, Ford is a bloated sloth and Crysler is a private equity plaything. Consider the SUV mania a business IQ test that Detroit flunked in spades. This was strike two, the first oil crisis was strike one. As far as I'm, concerned their out.
Saturday, November 1, 2008 at 9:53 am
ok i work at a dealership in NJ , right now the automakers have had several internal mails in regards to the fact of all the rumors that havebeen circulating . I know here in the this dealership on oct 31 friday 5 people were just laid off , 2 were single worker fathers with children , one was a single mom with 2 children . This industry is being relentless to all employees of it . Because of the economic downfall right now unemployment is making it harder to collect and the 3third party health insurance is more expensive than what unemplyment would even pay in some states . Now these fat cat big wigs in the cooperate banks that make 6 figure bonuses and control the housing market and banks , they can get bailout money but 3 of the biggest companies in the country can't get support !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! there are alot more issues at hand here , this country needs to take itself back from the foreign importing ans exporting deals , start creating our own jobs again , stop sending everything overseas , stop letting hte imagration get our of hand , get a presedential party in office that will take the bull by the horns and lead this country BACK to the best . until then its sad to say the outlook for this country just doesnt seem good . . . . sorry america it was a fun ride !!
Saturday, November 1, 2008 at 10:01 am
GM's (and Ford's and Chrysler's) cost structures are out of line compared with their competition. Even Honda and Toyota manufacturing facilities based in the US are more competitive. Why bail out a sinking ship?
In order for the big 3 to restructure their labor contracts and other obligations (pensions, health insurance) to improve their competitive position, the only option is to use all of their cash supporting the current position and then go bankrupt.
After that, replace all of the dumbass execs and marketing losers with other successful leaders and maybe the US base can revive. If it were not for these execs and managers with their mega-pay packages for no results, how else would foreign companies like Honda and BMW come to the US with no experience in our market and eat our lunch? At the same time US cars do not sell anywhere else in the world. Read the tea leaves!
Saturday, November 1, 2008 at 1:07 pm
This is absolutely unacceptable! I did not force GM to make crappy low quality,and enviormentaly unfriendly vehicles. I did not force the CEO and other execs to take money out of stock and line their own pockets with it and take vacations with it. Why should I as an American tax payer bail a company out that I had nothing to do with the downfall of. This is corporate swine at it's best. Screw GM and Ford. Drive Toyota, Honda, or Mercedes. Some Toyotas are made in the US also.
Saturday, November 1, 2008 at 5:19 pm
I didn't like the idea of a "bailout" for the financial community nor do I like the idea of a "bailout" for GMAC, or any other car manufacturer.
Each industry made thier bed, now let them sleep in it. I dont' see anyone running to "bailout" Mr. and Mrs. America who due to poor planning (budgeting) cannot make thier mortgage payment, nor drive thier car to a job more than 25 miles away because the price of gas exceeds $3 per gallon.
Perhaps it is time that we fix things at home rather than spending (read as giving) money to countries who dont like us anyway.
Let's start with Mr. and Mrs. America, the rest will fix itself.
Sunday, November 2, 2008 at 1:20 am
Great article, I too have taken some strong stances on Big 3 assistance at my blog: http://www.notjoesixpack.com. I really am opposed to qualifying GMAC as a bank as well.
Sunday, November 2, 2008 at 1:41 am
GM is one aspect of a contemplated "deal" about which we still have little facts in terms of it's projected structure. Should some type of deal come to fruition, I would be appalled were Cerebus to get any type of benefit using taxpayer dollars. This private equity group bought a controlling interest in both GMAC and Chrysler, not out of altruism but avarice and lot's of debt. If anyone needs to be held accountable, it shouldn't be taxpayers but the "Bubble" investors in this equity group.
Sunday, November 2, 2008 at 9:38 am
[...] General Motors would like some taxpayer cash—a bit more than $10 billion should do—to help it buy Chrysler….” Read the rest here. [...]
Sunday, November 2, 2008 at 3:58 pm
The problem is that the banks are not loaning the money that Congress gave them, against the will of the American people, to loan out. So far, the bailout money has only been spent on banks that don't need it. If anyone was going to be bailed out, it should have been places like GM and Chrysler who employ people. The 90% of Citizens who opposed the bank bailout don't look so stupid now. The legislatures that went against the will of the people do look stupid. It was called a bank bailout or bank rescue, if you prefer. It was not called a enrich banks not in trouble bill. Perhaps you should have asked if the banks intended to loan out the money ahead of time? The banks have said that they intend to use the money to buy up the assets of failing banks for pennies on the dollar. In the meantime, foreclosures and layoffs are still on the increase while reporting of the situation by the corporate owned media is on the decrease. Are we really going to put these clowns back in office?
http://ewebsmith.com/Finance/notlistening.html
Sunday, November 2, 2008 at 8:21 pm
I feel sorry for the employees who like soldiers fighting a losing war due to an incorrect and obscure objective from their commanders...GM has brought this upon themselves through Waggoner's idiotic grasping at some attempt to stay number one in the world instead of shrinking to a manageable and profitable size. The boys in charge are going in the wrong direction and taking the company down.
Sunday, November 2, 2008 at 9:03 pm
[...] General Motors (GM) needs bankruptcy, not a bailout. (Curious Capitalist) [...]
Monday, November 3, 2008 at 6:29 am
Its sad that so many people find a sense of "justice" in the destruction of corporations that once defined American society. What we need now is rational thinking and a back-to-basics business approach.
One of the fundamental reasons for a company to exist is to produce goods which people want to buy. Then the company is profitable and it attracts investors. If the total cost required to produce the product exceeds the selling price, then you just lost money. If the reverse is true, then you were smart and you made money. Its pretty simple. If you produce a car cheaply, but it sits on a dealer lot without selling, then your cash flow has stopped. At that point you have further choices- let the car continue to sit on the lot to fill a space, mark the price down to make it more enticing, or advertise to entice people. I'm sure there are other choices, but these are the most obvious to my simple mind.
American car manufacturers are spending too much to produce their cars due to numerous inefficiencies, and sales have slowed for many reasons. My generalizations are intentional- look at the big picture- Henry Ford and the American supermarket system taught Toyoda how to make cars. It took Toyota 50 years to perfect that system. Wake up, American companies! Admit that the Japanese have beaten us at our own game (the game we taught them), learn from this, re-assess the situation, dig in our heels and fight back. Will the real leaders please step forth? There are enough brilliant people in this country to devise a way out of this mess. The plan must start with simple, sound manufacturing principles and expand from there. Whatever happened to pride and nationalism? We are not simply spectators in a massive trainwreck. We must not be distracted by the parade of clowns passing through town and fail to realize that WE are ON the train.
Monday, November 3, 2008 at 8:47 am
The Big 3 need to be allowed to go bankrupt. They are archaic institutions incapable of change.
Honda and Toyota are profitable in the US because they focus on cutting waste and inefficiency from their factory production lines. They do not have unions because the AFL/CIO has nothing to offer the line workers that Honda/Toyota don't already give them. The only difference, of course, is that the union fees would have the workers earning a lower wage.
The industrial engineering principles of Lean and Six Sigma are NOT implemented system-wide in the Big 3.. because the union will not support them. This is inane, because the union has been "saving" jobs in the short term merely to continue getting their profits from those excess worker salaries -- not with the fundamental survivability of the company in mind. If the Big 3 want to compete with Honda and Toyota, they need to cut the union out completely, and eliminate pensions moving forward. Workers at Big 3 companies need to get NOTHING more than what other workers get - matched up to 6% in an employee-sponsored 401k, nothing more. That full pension garbage needs to be stopped yesterday.
If the union is not willing to do everything that's needed to be done in order to save the companies, then it's bankruptcy time.
As a taxpayer, I do NOT support loaning one dime to these failed relics of American stupidity.
Monday, November 3, 2008 at 9:07 am
Pensions are promises. Contracts are promises. Debts are promises. Bankruptcy ultimately is about how to break promises when keeping all promises is evidently no longer possible.
Anyway, I agree with your column. The automakers have too many legacy debts and their costs are too high, but much of their operations is more valuable alive than dead if they can be allowed to pay market wages and don't have to distort their operating decisions to try to maintain debts that aren't ultimately going to be sustainable. Bankruptcy seems ultimately to be in the cards, and it's better to do it sooner than later.
Monday, November 3, 2008 at 10:13 am
can i get a government bailout too? im an average, middle class, hardworking American who is finding it difficult to make ends meet in today's economy, just like those big banks and car makers. what about my bailout rather than having to declare bankruptcy? seriously, where can i get the application form for government bailouts too?
Monday, November 3, 2008 at 10:18 am
[...] soon.” Probably that’s still literally true, since even a Chapter 11 filing — which plenty of industry watchers are talking about openly for GM these days — would not immediately shutter auto plants. These ancient beasts of General Motors and [...]
Monday, November 3, 2008 at 12:48 pm
Take the pension money from the hands of the auto companies and give it to PBGC, take the healthcare liabilities off their balance sheet - Obama's national healthcare's first INVESTMENT - these companies would do terrific...These two are their problems...not car designs...
Monday, November 3, 2008 at 2:08 pm
Driving a car doesn't give you the skills necessary to run a car company, just as watching ER doesn't make you a surgeon. If you haven't tried to pull together a vast enterprise, it's impossible for you to objectively judge the success of the Big 3, especially in a vacuum. How many of you predicted the recent high gas prices, plus the credit crisis, plus the housing crisis? Not many, I bet.
As to the attacks on the domestic auto companies, we've heard it all before. For those who think that high-mileage cars should've been offered 10 years ago...they were. And Americans didn't buy them. Sales of 100,000 vehicles per month are necessary to keep a domestic car line running profitably. Five thousand sales to a bunch of tree-huggers isn't going to do it. People want luxury, electronic toys, power windows, seat warmers and full-size spare tires in their cars. When you're ready to give that up, Detroit has plenty of high-mileage cars for you.
Think the unions are the problem? The excessive pay was over in the 70's. Now, it's all about survival at any pay wage. And don't forget, if not for the unions, there wouldn't be a middle class in America. They invented it. They gave the common man a way to stand up to the oligarchs. And if you think the Toyota way is better, then you've never worked in a foreign automaker's factory. It's their way, or the highway. Your job is always hanging by a thread. Employment is at-will. And they will fire you with little or no warning.
If you're knocking the domestic automakers, don't forget to take aim at Congress. This country allows any vehicle to enter the country without a single import tax. Yet Japan, Korea, and Germany have extremely high import taxes on American-made vehicles. They're far more protectionist than the US is. This disparity has allowed Toyota to be the largest global automaker, while handcuffing the domestic automakers, forcing them to settle for bits and pieces of the US market.
It's easy for TIME's readers and columnists to blithely suggest that the domestic automakers be dropped into bankruptcy. After all, who cares about a bunch of people out of work in Michigan? What you may have failed to take into account are the many companies that rely on the automakers for employment. A conservative estimate is that 1 in 6 American jobs are tied to the domestic automakers. Take away all those taxpayers, and all the rest pay more in taxes. Take away all the health plans, and all the rest of you will pay more for health care. Lay off all those workers and watch welfare, Medicare and other social service costs shoot up. Take away all that competition and watch the cost of cars climb, just like airline and cable prices have done as the competition has thinned.
The domestic automaker's are in a world of hurt. But unless you believe that America's industrial might has been completely spent, it's important to find an answer other than bankruptcy. Or the failure of one industry may just reveal the weakness in your own.
Monday, November 3, 2008 at 5:19 pm
[...] Fox over at the Curious Capitalist thinks GM needs bankruptcy, not a [...]
Monday, November 3, 2008 at 5:28 pm
We are to blame also. The big three sold us exaxtly what we wanted to buy, so no whining about the lack of fuel efficient cars by the American big three. They have always been there, mainly forced from goverment quota's (CAFE standards) not because they thought they could make money selling cars to the buyers clamoring for small cars (not).
It's what is called a free market, goods get produced for what people want to buy, so if there is a product(big SUV's)that people really want to buy and will pay a premium for, that is whats gets made and those are the factories that get invested in because that is where money can be made, the only reason any capitol intensive industry gets money to build factories. All the good small cars are made for foreign markets because that is what is in demand there. A number of them are being brought over here, unfortunately, I think they will fail in the market place since the brief gas price spike that brought on a lot of this mess is over and stupid Americans won't buy them.
Monday, November 3, 2008 at 7:05 pm
[...] Fox over at the Curious Capitalist thinks GM needs bankruptcy, not a [...]
Monday, November 3, 2008 at 9:28 pm
[...] GM needs bankruptcy, not a bailout [Time via Deal [...]
Monday, November 3, 2008 at 9:57 pm
[...] lay in it. In a blog post titled “GM needs bankruptcy, not a bailout” over at TIME, Justin Fox said: We have a well-developed process for helping companies in distress fend off creditors and [...]