Let GM go Bankrupt

One thing I can not understand is why we can cheerfully dumped over a 100 billion dollars to save AIG an insurance company of all things and yet a large number of you wish to see millions of manufacturing jobs go down the drain instead of providing aid to the big three cars companies.

Aid that will fall far short of the funds we had already handled over to AIG.

Seem real odd to me.

Simple - they want to kill UAW if possible, and they don't care who has to fall in order to do it. AIG has no union.

Cycloptichorn

Being an employee of GM 23 years an a skilled trades Electrician I have seen personally the mismanagement that has been done. Example parts for a machine that are in inventory waiting for breakdown , but come inventory time with that much sitting on the books they are thrown away. Now I am talking 100's of thousand dollars here. Thats just a small example of managements idea to make the books look good. Wage wise at 32.00 an hour we are below the IBEW in our area and $6 above the non-union factories. My BCBS policy amounts to about 10,000 per year plan bought on the outside. Retirement now for a 30 year employee is right at $3000.00 a month. I wish when people talk of the $77 an hour wage GM would give that to me and let me take care of it(lol). Letting the Big 3 fail would please alot of people wanting to see the UAW crippled but you never here of them wanting to destroy the union teachers belong(AFT) to or NFL players union. Now with our wages making up approx. 10% of the vehicle cost I dont think its the problem. When GM can cut the price of a new full size truck from 19K to 9.5K and still make money I really wonder where the profits go when sold at regular price. There are around 400 suppliers to the Big 3 which the would fail also. The word is its around 3 million people to be affected by this but when you really look at it its many more. The local dinner,bar,bowling allies the list just goes on. The word changes from Recession to Depression something this country cant afford.

Have you ever worked in an auto plant Cyclo? As I understand it American education is geared to avoiding such a fate. Are you blue collar?

Agree. Very odd. AIG should not have been bailed out either.

UAW is equally at fault for the mismanagement and failure of the industry. Yet, they will never admit it.

Let Detroit Go Bankrupt


By MITT ROMNEY
Published: November 18, 2008

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.

Mitt Romney, the former governor of Massachusetts, was a candidate for this year’s Republican presidential nomination.

http://www.nytimes.com/2008/11/19/opinion/19romney.html?_r=2

Good article by Mitt. I'm pretty much in full agreement.

I am guessing that of all the prophets, gurus, pundits, and guessers in this difficult situation, Mitt is probably speaking from sound principles and facts instead of emotion. Steve Forbes said much the same thing on Fox News Sunday this week and he is another who I trust to have solid financial instincts.

Rewarding people for or rescuing them from th consequences of bad or destructive behavior has never worked in the past. If we make it easy for people to be irresponsible or incompetent, there is little incentive for them to change.

Mitt Romney is making a hell of a lot of sense there. Rewarding incompetence is a demonstration of incompetence.

U.A.W. badly overplayed their hand, and that's tough luck. I have more than once over-negotiated my compensation package only to later realize that the company couldn't really afford to pay me.

Apart from that though, the "Big Three" have for years operated seemingly oblivious to current events. The housing bubble was no less obvious than the stock bubble before it... which were both signs that investment in fuel efficiency and alternative fuel vehicles would be money well spent. Our problems with Oil producing nations is hardly new... yet for the last decade it's been all about more horsepower and SUV.s

I say manage the bankruptcy in as fair of dissolution/distribution as possible and make loans available to those who wish to buy the pieces to replace them. We don't need auto manufacturers; we want them. I do too... but I don't see any reason to prop up the malfunctioning behemoths we have today. Let dozens of smaller manufacturers replace them. This is money that we could reasonably expect to get back. Rewarding incompetence at the expense of the American Taxpayer’s grandchildren is obscene.

At some point in the near future this country is going to have to realize that everyone can't be a winner. The idea of guaranteeing Education, Police, Fire, and hopefully Healthcare is daunting enough. But pretending we can collectively guarantee everyone's investments in the Stock Market, Real Estate, and now even Manufacturing, is beyond absurd. That kind of money doesn't exist... and if it did; I think few here would truly want the United States government to be in control of it.

I can only assume that Washington is even more incompetent than Detroit when it comes to manufacturing. Throwing good money (that we don't even have) after bad is not a solution; it is an exercise in denial. We should let nature take its course on the big three and stop pretending that we have either the collective wealth or responsibility to bail out everyone’s (selected few, really) private interests. Some people will win and some people will lose in a capitalist society. It is the nature of the beast and we can't all be winners.

Too frequently lately; I've observed arguments seemingly compelled by a belief that we should provide assistance according to need, rather than deed. This way, maybe, we can all be winners! The problem is: this is the summary difference between communism and socialism... and I think it’s important that we recognize the road this could lead to before investing too much of our great grand children's money in demonstrably, disastrous non-solutions.

WE CAN’T ALL BE WINNERS.

Christ, that's a good article.

I'm not sure, however, that Romney is fully exploring the consequences of 'drastically restructuring.' It will certainly mean a huge hit for our economy and many job losses. I'm cool if that's what has to happen - you have to cut away dead wood at some point. But I have a hard time seeing the incoming Obama administration being praised by Republicans for letting those jobs be lost and the economy take a downward turn.

Cycloptichorn

It was a good article. However him referring to American Motors and others referring to Chrysler as comparison is somewhat misleading as they were singular events. Bailout or restructure 1 company.

This is all 3 at the same time. Can this country absorb all 3 companies going into Chapt 11? The trickle down effect on the economy would be enormous.

I think once again Washington "effed-up" by bailing out AIG and setting the precedent. The remaining companies in the insurance industry probably could have absorbed AIG.

The Auto Industry as a whole is at risk in this country makes this a very difficult situation.

Obama does has his hands full, and no one really knows what the correct decision is.

cyclo wrote :



from what i've read and heard , letting the big 3 go will wipe out about 3 million jobs - NO ONE could afford that to happen .

i don't think enough jobs could be "re-constituted" to even take up half of those unemployed . imo it would be the death of america's (and ontario's ) auto industry - and perhaps more .
there is also the question of whether people would be willing to buy cars from an "unknown/new" manufacturer .
a/t a panel on CNBC , not many people would be inclined to buy from such an unknown entity .
i understand that the new chevy malibu (and some other cars) are now able to compete in the marketplace . would it not be more sensible to assemble the top-cars of GM in a restructured GM - same for ford and (perhaps) chrysler .

drastic re-structering i can see - letting them go under ... ... they'd be gone forever . they'd be another american motors , studebaker ... ...
just my opinion .
hbg

I have a hard time seeing how it's either all 3 succeed or all 3 fail.

If GM, Ford, and Chrysler are going to sell 10,000 cars this month, that's 3,333 cars / company.

If GM goes out of business, aren't 10,000 people still going to be looking for cars/trucks? Won't Ford and Chrysler sell more vehicles?

If 2 companies fail, won't the 3rd remaining company sell even more vehicles?


Why does it have to be all or none?

And also, won't GM/Chrysler/Ford still exist after they leave Chapter 11?

Won't you still be able to buy cars from these automakers even if they file Ch11? Business will not stop. Production lines will not stop. Am I wrong?

the question is : will they have enough money to pay their employees and parts suppliers ?
that is : will they get a loan guarantee from the government ?
suppliers will be loathe to ship unless they are guaranteed payment .
as i posted earlier : european suppliers to the big 3 are unable to get insurance to guarantee payment .
it's a pretty iffy situation imo .
one question really is : how many new cars will ALL the north-american automakers be able to sell in 2009 in north-america ?
if they produce many more cars than the market will absorb , there is a real problem imo .
hbg

Unfortunately, it's not clear that this is true. In regular financial times, the big three going down would attract hordes of jackals and crows to pick at the remains and/or buy it up at a cheap price, injecting capital with which to further operations. Now, it's not clear that this will happen. GM also runs a pretty significant bank; will that fail as well? It is extremely hard to predict what will happen if this goes on. In the meantime however foreign cars will continue to be sold apace and the big three will slide even further behind.

Shitty situation

Cycloptichorn

Unfortunately it's also very unclear that 25B will save the big 3.

And I have a hard time believing that there won't be people lining up to buy the corvette brand, the F150 brand, or the cadilac brand (among others). Those are extremely valuable brands to own.

And what about my point about GM failing having a positive impact on the other 2?

I would rather the government provide this type of financial assistence than what I've seen proposed.

I don't know about your other point, I think that so many of the suppliers in this case do work with all three companies, the drop in business may take many of them down and impact the others.

I guess the brands are valuable, but all three of those cars have heavily declined in sales over the last several months. Hard to see enough private capital being pumped into the system to save it, just for the brands.

I agree that the money won't save them either; they should instead be taken over by the gov't and united into one, with a re-focusing on efficiency. Forget the share and bondholders, they're already screwed anyways.

Cycloptichorn