This past week marked the arrival of the most important Auto Show in our nation's history to Washington, D.C. (Although with the hypocrisy of Congressional leaders front and center, it looked more like a dog and pony show).
Two weeks ago, the CEO's of the three largest car manufacturers in the United States came to Congress asking for financial assistance. Foolishly, the raised the ire of the public by arriving in luxury jets, which led NY Congressman Gary Ackerman to comment, "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 hands."
The CEO's came completely unprepared to answer the flurry of tough questions posed by lawmakers and the public, and consequently were sent back to Detroit to do some homework. When they arrived on Tuesday, these CEO's didn't make the same mistakes.
Driving eco-friendly, politically correct vehicles with promises in hand to sell off thier jet fleet, they presented detailed plans of how and why they should be given financial assistance. The plans are graded here. A funny CNBC video rendition of thier "road trip" is here.
GM seems poised to discontinue some of their lesser sold brands like Saturn, Pontiac, Saab, and Hummer and focus on their more functional brands which account for more than 80% of thier business, and to eliminate nearly 25% of their dealerships. To accomplish this while still not going bankrupt, GM says it will need $18 billion in assistance.
One of the largest problems facing GM appears to be it's financing arm, GMAC, which their CEO, Rick Wagoner, admits can only finance 6% of present day sales - as opposed to more than 50% of all sales this time last year. Without available financing options for consumers, many believe car sales will continue to lag.
Chrysler seem to be in dire straights right now, offering little more than a token gesture at corporate reform in thier plan. It's been known for a while in the market that Chrysler's owner, Cerberus Capital Management, would like to sell the failing business. Their plan, and thier CEO, Bob Nardelli, seemed to have asked for $7 billion to keep thier assembly lines rolling while they look for a suiter.
Ford, on the otherhand, may need assistance at a later date, but declined to ask for direct support now. They appear to be in the best shape of the Big Three. They outlined some reforms they will make over the next few years and plainly asked for $9 billion line of credit for use at a later date, if necessary.
Should these companies, who the financial world is unanonymous in the belief that they were their own worst enemies get a "bailout" of any sort? If consumer credit problems persist for a few months if not the entire year, what realistic chance is there that any of these "loans" will be paid back to the taxpayer?
With all this being said, it is important to note that these companies directly employ hundreds of thousands of Americans in a part of the country without other major industries to fall back onto. If these autoworkers were to lose thier jobs, it would be doubtful that they could find decent employment in the near future, putting the federal government and the states where the plants exist on the hook for longterm unemployment benefit liabilities and other social welfare costs. As is true for most large states today, the resources for these expenses is just not available.
As well, these businesses have tenticles that range from auto-parts makers to chemical giants like DuPont who, for example, produce paints for the car manufacturing industry. It is said that if GM were to go backrupt, more than 100,000 people would lose thier jobs in short order, all around the country and in a variety of industries.
Should America be giving these entities what they asked for, which is a bailout in the form of bridge loans to avoid all these individual hardships?
One side says that the risk to the overall economy is too great to allow them to fold. These bailout supporters also state that the carmakers have presented plans to reform thier businesses, making cars that are not only more efficiently produced, but that are more technologically advanced - improving thier marketability globally and in the United States.
As well, many cite the fact that the UAW has been an active participant in these negotiations and that the Union representing auto-workers has made a number of important concessions in an effort to protect as many of these jobs and their retiree's pension benefits.
The other side believes that these bridge loans will not only fail to stabilize this dying industry, but will not be able to be repayed, putting billions of dollars of taxpayer funds in the junkyard along with the millions of unsold SUV's and pick-up trucks. Also, opponents state that by bailing out non-bank businesses such as these, America is stepping down a slipperly slope. If they get bailed out, why not other major employers, such as the struggling retail industry or home-builders?
In the end, some experts believe that Japan's Toyota Motor will eclipse GM as the US sales leader for the first time in history. As well, these companies have been so wrong about their own businesses, it's hard to trust they can get themselves to stability and profitability, demonstrated by the fact that automakers were projecting a "hiring binge" in 2008.
No matter which side you're on, I'm led to believe that it doesn't make sense to bail these guys out now. Bankruptcy is an option that they should consider as it more than likely will be the end result of the midwest's economic decline...
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written by spunky , December 07, 2008
The carmakers shouldn't get anything from the taxpayer - even if they promise to reform business models and start making more environmentally friendly cars. That environmental aspect would only be rewarding the Democratic agenda with no gain for the financial future of the carmakers. And these CEOs should have thought of reforming their business models before this crisis. That link above that shows these guys were planning on increasing new hires to replace older workers is amazing. even as sales were dropping rapidly, they were functioning in a business-as-usual fashion.
written by Jay Golub , December 08, 2008
The funny part about the plans of these automakers is that they are going to cut expenses by reducing wages/benefits from workers through union concessions and by laying off thousands of workers.
How is this good for the economy right now?
I know they need to reform thier business models, but what is the point in saving these dying businesses if they save themselves by putting people out of work at a time when the unemployment rate is rising fast?
This all just demonstrates how badly these businesses have been run over the past decade or so - that layoffs and ending certain car brands needs to be done immediately even find enough funds to avoid chaper 11.
What were these CEO's doing? How were they justifying their enormous salaries?
written by Jay Golub , December 08, 2008
http://www.cnbc.com/id/28108528
Looks like we're going to see "the big two" soon as Dodd believes that GM and Chrysler should merge as part of the conditions of recieving the funds. I'm sure the administration agrees.
Chyrsler is looking to be bought anyway and GM appears ready to do what it takes to survive. Wagoner has been with the company since the 70's, which may be why their corporate thought process has been so stale...
written by Jay Golub , December 08, 2008
http://www.cnbc.com/id/28111911
guess the dealmaking is going into overtime. One thing is sure, GM and/or Chrysler will be bankrupt soon if this deal isn't done...
written by Jay Golub , December 08, 2008
http://www.cnbc.com/id/28084343
Kudlow's view of things from above...
"There still will be considerable job losses for downsized Detroit carmakers. They’ll have to cut a huge chunk of their dealer networks. Domestic brands will have to be sharply reduced. But essentially, as would be the case under Chapter 11 bankruptcy, the federal government will provide short-term financing while Detroit goes through its radical restructuring. It looks like bankruptcy lite, and it will completely change the direction of the former Big Three."
they should just go bankrupt with really good terms...
written by Jay Golub , December 09, 2008
http://www.cnbc.com/id/28116360
here's the highlights of the Democratic Plan that Bush essentially rejected yesterday...
written by Jay Golub , December 09, 2008
http://www.cnbc.com/id/28131234
Another update on the "bailout." Looks like the Republicans in the Senate may block the entire thing.
down the page in the above link is Sen. Judd Gregg from New Hampshire, who is not that enthusiatic about any action to save the automakers...
written by Jay Golub , December 10, 2008
the Republicans might filibuster this deal (from cnbc.com)...
"Congressional Republicans, left out of negotiations on the package, are expressing grave reservations and may seek to block it.
Sen. David Vitter, R-La., promised to filibuster the measure, which could delay a final vote for days. He said the package has an "ass-backwards" approach to curing what ails the U.S. auto industry.
Nevertheless, Democratic leaders were confident enough that a bill could advance that they set a procedural vote for the House floor later Wednesday.
Still, Sen. Mitch McConnell, the GOP leader, said in late morning that his side hadn't seen the measure yet and wouldn't agree to votes on the measure Wednesday."
Will the Dems have enough votes to make this happen AND will the UAW make enough concessions to make the "car czar" approve the actions of the bailed-out automakers?
The deal hinges on the plans of the companies recieving support and that they expected to be fully functioning/independant entities, and to be able to prove that they are on the right path by March or April of next year.
The early discussion taking place on this is that the UAW will not make enough concessions to make this deal work...
written by spunky , December 10, 2008
The Republicans in the Senate look like they are about to stop this stupid bailout from occuring. The taxpayer should not be fronting any of this stuff. I hope they filibuster it from the get-go even if it passes in the House.
written by Jay Golub , December 10, 2008
It's becoming clear that this "bailout" is only going to stall the inevitable - GM and Chrysler are going bankrupt.
The deal in place, with the "auto czar" deciding the big three's fate in March or April, can't possibly work out where all three entities still exist.
This deal is being done to give a soft landing to the auto industry and the negative economic waves that will ultimately be created by the end of the auto industry as we know it.
But, at this very bad time for the US economy, it is critical to consider whether or not it is better to allow these failed companies to slowly enter into bankruptsy, rather than to force them, on principle, to go there right now.
Although against our principles, in general, economic forces dictate the soft-landing approach. The country doesn't need a few hundred thousand more employees entering the unemployment insurance offices in the midwest - and thousands more in cities where auto-company suppliers do business.
The deal as it has been reported, seems to hinge on major union concessions for it to be approved by the auto-czar. The law will also ensure that if the companies enter bankruptsy, the taxpayer goes to the head of the line in terms of getting paid.
Either way, these companies are being restructured as if they are in bankruptsy. They will soon be there "officially." It's in all our interests to allow a slow-paced move in that direction...
written by Jay Golub , December 11, 2008
http://www.cnbc.com/id/28166347
Looks like this thing isn't going far. In many ways, this is what i think the Democratic Congress is going to look and function like. The special interests, as i've predicted before, on the Left can't find a path to work together.
If the Democrats can't save their buddies over at the UAW and in Detroit - than what good will they be for the average American?
written by Jay Golub , December 12, 2008
Nothing has happened and who is to blame?
The Democrats and the UAW are blaming the GOP and the GOP is blaming the Unions. And now the Administration is saying they might use the TARP to bail out the Automakers.
This TARP thing is getting way out of it's original intent...
written by Jay Golub , December 19, 2008
Bush does it again!
The adminstration has announced its plan to bailout the automakers and it is a horrible proposal.
Effectively, Bush has given the automakers and the UAW a NON-BINDING document that sets guidelines for what the companies and it's workers will need to do to honor the terms of the $14 billion in short-term bridge loans. This is even a bigger waste of taxpayer funds than the bank bailouts that have had such little effect on the credit markets.
The UAW gets until the end of 2009 to meet the terms of wage parady with foreign carmakers fabricating cars in the United States and even with those weak terms, the union has already released a statement that asks the President Elect to get involved to make those non-binding terms more acceptable to their workers.
As all of us know that these loans will not really make a short-term difference for the automakers, the Federal government will need to either step in again and risk more taxpayer funds early next year or let all of these funds go to waste and allow them to go into bankruptsy.
Bush really punted on this one and showed how much of a big government fiscal liberal he really is. What a coward!
America's free market is on life support now. The banks are owned by the Feds and now GM. What's next....?
written by Jay Golub , May 11, 2009
http://www.cnbc.com/id/30682967
As GM is about to NOW - after billions of taxpayer dollars have been pointlessly pumped in - going to face bankruptcy. What was the administration waiting for?
The unions really blew this one - even after they used the President as their "advocate-in-Chief" to keep the solvency hopes alive.
What a waste of time and money and I will tell you, the bankruptcy now will cause a ripple effect throughout the economy that would have been masked if GM had been allowed to go under back in December...
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