GM needs bankruptcy, not a bailout

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.

@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.

@Justin: It's yours

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.

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!

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.

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.

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.

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.

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.

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.

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.

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

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.

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.

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!

what deprived the us of jobs are the american businesses who outsourced jobs overseas.

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?

I couldn't agree with Don more!

@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.

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.

@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...

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.