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- brad3378, on 11/17/2008, -1/+35Here's the full story for those of us having problems getting past the registration page:
How to Bail Out GM
By Robert J. Samuelson
Monday, November 17, 2008; Page A19
So it's come to this: General Motors, once the world's mightiest industrial enterprise, is now flirting with bankruptcy. Ford and Chrysler may not be far behind. Car and truck sales have collapsed. With cash reserves rapidly falling, GM may soon be unable to pay its bills. Here's the dilemma: GM and other U.S. automakers ought to be rescued to minimize damage to the economy, but the rescue should require tough conditions that neither the Democratic Congress nor the incoming Obama administration yet supports.
In a booming economy, a GM bankruptcy might be tolerable and useful. It would remind everyone of the social costs of mediocre management and overpriced unionized labor. But far from booming, the economy is declining at an apparently accelerating rate. By one survey, confidence among small businesses is at a 28-year low; in October, retail sales dropped a stunning 2.8 percent.
No one knows what further havoc a GM bankruptcy might inflict. The Center for Automotive Research (CAR) estimates an initial job loss of 2.5 million. The logic: If any of the "Big Three" went bankrupt, many suppliers would also fail; because car companies share suppliers, all U.S.-based manufacturers would suffer parts shortages. American production would virtually stop until new supplier arrangements emerged. "It takes 6,000 to 14,000 parts to make a vehicle," says Sean McAlinden, CAR's chief economist. "If you don't have one, you can't make it."
This may be too pessimistic. In a Chapter 11 bankruptcy, GM would "reorganize." It would suspend many existing debt payments and continue normal operations. Perhaps. The snag is that even in "reorganization," GM would require new loans that might be unavailable. "Historically, when companies go bankrupt, there's 'debtor in possession' financing -- investors lend you money, but they get repaid first. That market has evaporated because of the credit crunch," says auto analyst Rod Lache of Deutsche Bank.
Why run these risks when the 6.5 percent unemployment rate seems headed toward 8 percent? Just to satisfy a purist "free market" ideal? It doesn't make sense. But neither does it make sense simply to heave taxpayers' money at automakers. The goal is not to rescue the companies or workers; it's to shore up the economy and improve the U.S. industry's competitiveness. A bailout won't succeed unless other things also happen.
First, auto companies' existing creditors need to write down their debts. Even with federal aid, companies will shrink. McAlinden estimates that the country has surplus assembly capacity of about 4 million vehicles, much of it owned by the Big Three and destined to be shut. GM will need a $25 billion government loan to get through the recession and cover closing costs, says Lache. But GM already has $48 billion of debt. Unless the old debt is sharply written down, GM would be overburdened, and its rendezvous with bankruptcy would merely be delayed.
Second, labor costs need to be cut. By Lache's estimates, GM's hourly compensation -- wage plus fringe benefits -- totaled $71 in 2007, compared with $47 for Toyota's U.S. plants. Health benefits for retirees (many in their 50s, having retired after 30 years) are expensive. But the United Auto Workers opposes concessions. Government aid, says UAW President Ron Gettelfinger, is needed "so that auto companies can meet their health-care obligations to more than 780,000 retirees and dependents." The bailout should be more than union welfare.
Finally, automakers need a consistent energy policy. Congress demands that companies produce more fuel-efficient vehicles (35 miles per gallon by 2020, up from 25 mpg now). But politicians also want low gas prices. These goals are contradictory. To encourage consumers to buy fuel-efficient vehicles, Congress should mandate higher gas prices. Gasoline taxes could be raised gradually (say, a penny a month for four years, possibly offset by other tax cuts). Wild swings between low and high fuel prices have crippled the U.S. industry by erratically shifting buyer preferences -- to and from SUVs.
In bankruptcy, a judge can modify a firm's labor contracts and debts. GM needs the benefits of bankruptcy without the uncertainties, but the political process -- so far -- disdains that desirable bargain. The conditions that Democrats mention are mostly rhetorical gestures against high executive compensation and in favor of more fuel efficiency. The Bush administration resists additional assistance without saying why.
We are seeing the fallout of the open-ended $700 billion rescue of financial institutions. Boundaries need to be established. Who deserves support and why? Imposing tough conditions on automakers not only improves the odds of success but also -- by the sacrifices required -- makes the process sufficiently unpleasant to deter a stampede of other industries seeking handouts. In 1979, when the Carter administration rescued Chrysler from bankruptcy, the price was concessions from management, investors and labor. We should do as much. - Trekhawk, on 11/17/2008, -3/+29"Why run these risks when the 6.5 percent unemployment rate seems headed toward 8 percent? Just to satisfy a purist "free market" ideal?"
Yup. Freedom to succeed. Freedom to fail. - Trekhawk, on 11/17/2008, -0/+24I drive a Cavalier. Try and destroy the value any more. I dare you.
- nelsy, on 11/17/2008, -0/+24Someone should write an article on "How to not bail out GM".
- commentposted, on 11/17/2008, -1/+25Forget Detroit! Christmas in the US: How to bail out irresponsible and shoddy companies.
- kenedamick, on 11/17/2008, -3/+26***** the bailouts.
- inactive, on 11/17/2008, -2/+25Let them file chapter 11 and force the UAW to negotiate on real terms. I'm not financing the UAW's health care plan which is 100% remium paid plus NO CO-PAY.
What company in 2008 offers that sweetheart health care plan? - neflm, on 11/17/2008, -0/+23They're politicians, not miracle workers.
- zacharytelschow, on 11/17/2008, -4/+23"Congress demands that companies produce more fuel-efficient vehicles (35 miles per gallon by 2020, up from 25 mpg now)."
And I demand Congress not play Sim City with America and her companies. - craighoxton, on 11/17/2008, -1/+20So why aren't Toyota, Honda or Nissan asking for money? Oh yeah, they make cars people actually want to drive.
- superkendall, on 11/17/2008, -1/+17Why should the taxpayers spend billions on companies that together have a market cap of less than seven billion:
http://www.powerlineblog.com/archives/2008/11/0220 ...
What happens if we bail them out now? They're just going to need it again later. If you attach "tough conditions" then they effectively become government run companies - remember Fannie Mac & Freddie Mae? How do you think they got where they were. - zacharytelschow, on 11/17/2008, -1/+15Why let GM go into chapter 11? This article lays out numerous good reasons significantly more compelling than the above.
http://online.wsj.com/article/SB122688631448632421 ... - Dalhectar, on 11/17/2008, -1/+15Does anyone really see an alternative to this? People don't buy the small fuel efficient cars the Big Three already make. They sit on dealer's lots, and only get picked up after huge mark downs. Eventually, these companies are going to fail. American consumers aren't interested in these cars, and will prefer to pay more money for a Toyota or Honda over comparable Big Three cars. It's a sad day, but we need to get a grip on what's happening.
- georgemason01, on 11/17/2008, -1/+14Can they bail out the Detroit Lions too while they're at it?
- superkendall, on 11/17/2008, -0/+12You totally misunderstand what bankruptcy means for large companies. It wouldn't necessarily let them out of warranty obligations. It certainly would not close a single dealership.
There's a reason why it's called "reorganization".
What would be "very, very bad" is to let huge companies screw up and then reward them for said behavior by handing them free money. - niradg, on 11/17/2008, -1/+12one thing i would add: let's make the relationship between management and labor less adversarial. put the UAW on the board of GM, and make the employees shareholders whose pay/pension is performance-based.
- DarkStar3333, on 11/17/2008, -2/+12Evolve or die.
This is where GM fell short. Rather then investing money into proper R&D they just kept making the same stuff year after year.
Just because your old doesn't mean your important. - shame126, on 11/17/2008, -2/+11It would be...weird if GM files for bankruptcy :/
- musntSurfatWork, on 11/17/2008, -2/+10can someone PLEASE give me $50 so I can use my roll of ten to land on free parking?
Suck it up GM, you had a good run, it's over. Make cars (and more importantly your parts) last longer, or compete with the imports. The fact that 1 in 3 americans now drive imports, says something. - falstaff, on 11/17/2008, -0/+8They are all running right at the brink with labor costs about 60% of the big 3. Demand is weak across the industry, but when costs are so much lower, they can weather the storms a little better.
- YodaJones, on 11/17/2008, -0/+7I am so sick of American corporate management deciding what to do or build only to fail then firing or laying off the people who built the products when the management should be fired for choosing what was made.
- jbignell, on 11/17/2008, -1/+8Where would GM be if they had not killed the "EV One"? I say let them crash and burn!
- Tzen, on 11/17/2008, -0/+7NOOOOOOOOOOO!!!!!!!!!
I want the first 0-16 team. - Harabeck, on 11/17/2008, -1/+8Because if they dont learn theyll just fail again later.
- rewinn, on 11/17/2008, -0/+7You missed or misstated the health-care point. The PENSIONER's health care plan is the issue. They FULLY SATISFIED their part of the contract; to re-write the contract now to eliminate something already earned is stealing.
The only way out, in the long run, is single-payer health care. It's an advantage our foreign competitors have and Detroit needs. - korvan504521, on 11/17/2008, -2/+8it will also destroy the value of every vehicle they have ever sold, as all their warranties will be nullified. all the dealerships will basically be out of business, in addition to the factories.
it would be very, very bad. - upick, on 11/17/2008, -0/+6indeed, its such an old company go out like that
- Nerys, on 11/18/2008, -0/+6Here are the only conditions I will accept.
2 years they must have mass produced under $12,000 electric vehicles on the road that meet the following conditions.
4 door midsize econobox. Radio Air Heat. Manual everything if need be (and preferred)
Battery Electric using NIMH batteries with a MINIMAL worst case scenario range of 100 miles and a typical range exceeding 150 miles per charge. If at all possible DIRECT DRIVE no tranny and NO wheel hub motors. ONE central motor to a drive shaft and then NORMAL off the shelf components from there.
Slow (standard 110v outlet) and quick charge modes
250,000 mile expected life on the battery and a 100,000 mile warrany on 100% of the electronics and batteries and drive train that drive the car. 150,000 mile warranty on the battery
No gas motor of any kind. Regen not required and the range requirements above are NOT counting the range extension of regen (ie assume it failed)
Batteries replaceable for $4500 or less Customers able to purchase outright.
If the frame will permit design space for installation of second optional battery that the customer can purchase.
make the batteries available to ANYONE whether they buy the car or not.
As part of the bailout the government would REVOKE the chevron nimh battery patent (that GM sold to them a decade ago) to make this possible.
Those are the ONLY conditions for which I would even CONSIDER a bailout. PERIOD.
and before anyone says thats impossible or too hard. Besides the 4door requirement EVERY SINGLE ONE of my conditions was already MET or SURPASSED 10 years ago when GM made the EV1 - rewinn, on 11/17/2008, -0/+6It cannot be said often enough: foreign car companies have a built-in subsidy for health care. They aren't foolish enough to expect their auto companies to finance the health care of current and past workers, and neither should we. Single-payer health care will be a BIG boost to our auto industry, or at least put us on a more level playing field.
- oboshoe, on 11/17/2008, -0/+6All the airlines have filed BK over the past 10 years.
Yet, the only thing weird at the airport is the idiots at TSA. - dusanmal, on 11/17/2008, -1/+7Some ideas he puts forward are sane (ex. save automakers if UAW agrees on realistic pay and benefits, which they oppose, hence making all this an UAW bailout plan). However, I stopped here:
"To encourage consumers to buy fuel-efficient vehicles, Congress should mandate higher gas prices. Gasoline taxes could be raised gradually (say, a penny a month for four years, possibly offset by other tax cuts)."
Obama did win, but please slow down on Governmental social engineering by the people's money... Role of Govt. is to advocate, educate, set standards. All that should help. And I am for 45 mpg average by 2020. But stay out of social engineering with MY (our) money. Gas prices should be as any other - what market dictates. As electric, hydrogen, nat.gas vehicles spread around price of gas will drop (to compete) until it can't compete and than we have grown out of that energy source. But, until than energy that should be used is the cheapest one, not the one Govt. approves at the moment and tax the least.
And for what purpose author think Govt. will use newly gained money source? To grow,... That is not good. Less Govt. less taxes, free markets. NO SOCIAL ENGINEERING. - northwatuppa, on 11/17/2008, -1/+6Samuelson lays out several pre-conditions for success of a possible bailout. Each of the preconditions would be very, very, hard to achieve--harder than the bailout itself. Loan write downs. Lower wages. A consistent national energy policy. Put them all together and Samuelson might as well be asking for the moon.
- oboshoe, on 11/17/2008, -3/+8How to save GM:
"Start making good ***** that people want to buy"
Thats it. thats all they gotta do. Do that one thing and its more than enough. Do anything less, and no bailout in the world can save them. - Target91, on 11/17/2008, -0/+5Two thirds of Americans buy domestic made vehicles?
- shredswithpiks, on 11/17/2008, -0/+5Don't.
- AmusedToDeath, on 11/18/2008, -0/+5You guys always say "they" like GM is four guys in a cave twiddling their mustaches. GM employs over a million people. If they go under, it will have a HUGE negative impact in the entire economy. Why are you guys always rooting for your own team to fail? You'll suffer too stupid!
- Harabeck, on 11/17/2008, -1/+6You know, a lot of the production for these US companies is done in Mexico or Canada, but because theyre US based companies, theyre still exempt from import taxes. While companies like Subaru have their factories within the US to avoid import taxes, but at the same time are employeeing American workers. Honestly, ***** the Big 3.
- DarkStar3333, on 11/17/2008, -0/+5They also have the business sense to only build what they can sell. The big 3 business model relies on very large volumes of vehicles in order to make money because they have an insane amount of manufacturing capacity.
If GM hits bankruptcy they should skip an entire model year, close 1/2 of the plants and of retool the survivors into flex manufacturing facilities. The only way GM can become profitable again is to cut the fat and produce only the vehicles they can sell in the first place.
Sales of new cars are going to drop like a rock over the next few years, car purchases are frivolous expenses most people can do without. Why buy new when you can get an almost identical car from lease turn-ins? - FreddieD, on 11/17/2008, -0/+5I initially read this as "Christmas in Detroit - How to Bail Out a GM" and thought it was another article about how Matt Millen is the worst general manager in the history of north american team sports.
- StratoStreak, on 11/18/2008, -0/+5I would ask President bush what he wants to do and then do the opposite.
- inactive, on 11/17/2008, -0/+4i feel for you man, i bought one once, with a working AC!!
- etx313, on 11/17/2008, -0/+4LOL! Doubtful.
- Nerys, on 11/18/2008, -1/+5Because they DON"T FRELLING MAKE ANY !!
Show me ONE single 50mpg car from the big three? anything less than 45-50mpg is NOT overly fuel efficient considering we HAD 50+ mpg cars as recently as 10 years ago. (and no NOT the rip off hybrids)
THEY ALSO need to be CHEAP. whats the point of buying a new car when the cost of the new car will cost you more than it will save you in gasoline over its entire lifetime? - maximoo2, on 11/17/2008, -1/+5***** GM. They could have started being innovative like 20 years ago if they had any foresight. I thought the US was all about capitalism? If people are buying foreign cars because they are better, that isn't this GM's fault? Why should the tax payers bail them out over any other industry?
Maybe if GM built cars that more people actually wanted, they won't be losing a billion dollars a month or whatever the heck it is. - jiganto, on 11/18/2008, -0/+4You argument has merit, there is a strong stigma associated with purchasing american cars. However, it does not meant the trend is not reversible. The big three have begun building far better cars, ones that favorably compare to foreign cars in quality and performance. It's going to take time to reverse the consumer bias against American cars though.
- cufford, on 11/17/2008, -0/+4These bastards were at the front of the line lobbying for the passage of NAFTA and GATT so that they could fire American workers, close American factories, and move off shore so that they could increase their short term profits. Now the consequences of these deals means that nobody can afford to buy their cars anymore, they want free taxpayer money for their execs before they completely go under.
Does anybody serious think that they'll do anything with our money that will benefit this country? Of course not.
Let em fail, and fail hard. They asked for it, they got it. - faithforever, on 11/17/2008, -0/+4I want to run an experiment. The Big Three have made fuel efficient, small cars. And they don't sell, despite good reviews and high safety ratings. My hypothesis is that the people in the market for these types of cars have such a bias against the Big Three (for good reason, I might add) that they'd never even consider a GM, Ford or Chrysler made car.
Digg this post if you would never buy a car from the Big Three, no matter if it was fuel efficient and had a good safety rating. - wilf_brim, on 11/17/2008, -1/+5Forget the "no social engineering" cries. The American electorate (for better or worse) strongly endorsed a President and Congress that, almost as a matter or religion, believes in social engineering. This is what they said they are going to do, have said they want to do for many years, and now are going to do.
- Nerys, on 11/18/2008, -0/+4He is right and wrong. Bailout is not an option if it means bailing out the leaders.
Here is how it should work. If a company needs to be "bailed out" to survive it should be like this. Take the average salary of the people working there from the janitors on up NOT counting the upper crust.
NOW if a bailout happens you summarily FIRE the entire upper manageament and put NEW people into position to operate the company.
No golden parachutes. No stocks No options NO board positions.
If the original owners which to resume control of the company they can. Just as soon as they pay back 100% of the loan plus interest.
this way the people who SCREWED IT UP in no way can BENEFIT from the rescue and it keeps the workers working and the company and economy going.
something along those lines MIGHT get me interested. Maybe. - pak314, on 11/18/2008, -0/+4My Honda was giving me 35 mpg from 10 years ago. Still does well.
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