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tangerine dream indeed. what a dumb spin soundtrack that is
Some “new” math:
Loan 25B now, and lose 181B later.
They should have saved the money for this video and spent it on developing good products…
Pathetic, Scare Tactic B.S.
All of these doomsday scenerios seem to imply that if the D3 disappear, that all the demand associated with it will disappear as well. There will still be demand for 11MM+ vehicles per year in the US, whether they are made by the D3 or someone else.
Manufacturing: Worst case (Chapter 7), I’m sure there are plenty of companies that would pick up former D3 factories for pennies on the dollar (far less than it would cost to build them). These plants will continue to produce and employ people, albeit at a more realistic, non-UAW pay scale.
Suppliers: These plants will still need components, regardless of who owns them.
Dealerships: Some domestic branded dealerships will undoubtedly close, but others will expand or be created as demand shifts to other brands.
The point is, the collapse of the D3 will not create a vacuum as they are implying: Other companies will come in to fill the void.
@ thalter,
Right on. The demand will be here in US. The only casualty will be:
a) Some GM management and PR schmacks
b) All union management
c) Those union workers who would not want to adjust to market reality
However, there will those who will gain: consumers. Since cost of union and management overhead will be driven out of cost of product, consumers should benefit from lower vehicle prices.
At 10% us unemployment, you can rest assured that there will be massive demand destruction for vehicles. Even if you give suppliers (at 10x the employment levels) a year to change over to supply the other car makers. In addition, it would be easier to supply that demand through more imports rather than building factories here. Japanese companies built factories here because of massive political pressure — and one you don’t have a domestic auto industry nobody cares where the car comes from (see consumer electronics).
I think what everyone is missing is I’m not sure c11 can get around the franchise relationships laws. You would create a huge class of creditors that need to be satisfied. All this talk about a pre-package ignore that. Gm has 4600 dealers and needs about 1800. A c7 sale of assets would solve that problems (sell all good assets to new corp, and close up GM).
I have no problems with a bailout to save UAW workers, but a bailout to save auto dealers? the thought makes me sick.
“Collapse?”
What about Chapter 11? You know Mr. Waggoner, there is an option here.
–chuck
I am not thrilled with rewarding incompetent management, but there ARE other opinions.
http://www.newsweek.com/id/169162
Maybe we need to be careful what we wish for.
@snabster – There are practical reasons far beyond simply “political” for imports to build vehicles in the US.
* Building in the same country protects the company from currency exchange rate fluctuations that suck up all your profits.
* Shipping costs. Current lull aside, energy prices have nowhere to go but up. As energy prices increase, it will become more expensive (and eventually cost prohibitive) to ship goods halfway around the world.
* Create demand. As you pointed out, the unemployed do not buy new cars. It is in manufacturers best interest to make sure that people in their largest market are able to purchase their products.
Actually, Chapter 11 means a loss of over 80% of potential your customers – they won’t buy cars from an automaker in formal bankruptcy proceeding.
snabster is one poster here who gets it – the unemployment that results would be disastrous for demand for new cars. That is an absolute. Two other absolute factors are that, one, even the Japanese and German automakers share suppliers with the Detroit , and with the Detroit 3 still accounting for 70% of the vehicle production in the USA, the suppliers can’t survive a bankruptcy filing by any of the Detroit 3. The financial condition of several large suppliers is so precarious, that one or more will also fail, and disrupt production at the foreign owned plants, with Toyota and Nissan being very vulnerable, as is the Mercedes plant in Alabama. The domino effect of one Detroit auto maker filing for bankruptcy is unarguable. The only people disputing it are people with no background in the industry.
All auto production in the United States accounts for 20% of all manufacturing, and Detroit’s three automakers, account for 70% of that auto production, are responsible for 14% of all United States manufacturing.
If any of you think that, given how much the economy has already started slowing down since the mid summer, we can weather a massive disruption of manufacturing by a GM bankruptcy, then you’re sadly mistaken. A GM bankruptcy will have serious ripple effects in the economy that will be felt for years.
Len_A:
If any of you think that, given how much the economy has already started slowing down since the mid summer, we can weather a massive disruption of manufacturing by a GM bankruptcy, then you’re sadly mistaken. A GM bankruptcy will have serious ripple effects in the economy that will be felt for years.
I think that is also Newsweek’s conclusion.
To play devil’s advocate for a a moment, couldn’t many of these same arguments be made about the banking industry?
Poor decisions by industry leaders put them in a perilous position when the market slowed… all of this was foreseeable and in fact, predicted by some, but the managers were all making so much money that nobody was willing to acknowledge the threat. (exchange mortgage-backed securities for SUVs)
The effects of not bailing them out could be dire, but on the other hand it’s possible that new firms or competitors could step in to take over the demand. In the case of the investment banks, the profit potential was so high that it’s hard to believe nobody would step in.
Former industry CEO is the secretary of the treasury and hands over $750 billion to his old cronies without conditions and very little oversight. Oops, that just explains the Wall St. bailout.
Let’s also focus on the scam PR job being perpetrated by the Center for Automotive Research and its lackey president David Cole.
@LenA
How many people are going to buy a vehicle from a manufacturer that is almost bankrupt? One that is visibly and publicly begging for assistance? Assistance that will likely prop it up for only a few months until it needs another handout?
At this point, the damage has already been done, and the wound is fatal. Rather than using $25bbn of my money to prop up the corpse (which will still result in massive layoffs and plant closings) and instead use the money to soften the blow to workers (in the form of unemployment and training assistance). Meanwhile, GM gets a real chance to fix their business in the way that only CH 11 can (eliminate brands and dealerships).
gus :
Let’s also focus on the scam PR job being perpetrated by the Center for Automotive Research and its lackey president David Cole.
Just where does your industry expertise come from, to call if a scam PR job? I’ve been in this industry for over twenty-five years. Center for Automotive Research has been spot on on all their previous criticism of the Detroit 3 – what makes those observations valid and what they have to say on the fallout from a GM bankruptcy filing invalid?
I’ll repeat what I posted before: All auto production in the United States accounts for 20% of all manufacturing, and Detroit’s three automakers, accounting for 70% of that auto production, are responsible for 14% of all United States manufacturing. All the automakers, Detroit and non-0Detroit alike, share most of the same auto suppliers. Those suppliers generate the biggest amount of their cash flow from Detroit, not the transplants. The effects of a GM bankruptcy on their accounts receivable alone will cause factory shutdowns.
stevelovescars :
The effects of not bailing them out could be dire, but on the other hand it’s possible that new firms or competitors could step in to take over the demand. In the case of the investment banks, the profit potential was so high that it’s hard to believe nobody would step in.
Possible in the distant long run, but not likely. At last quarters auto industry sales levels, even Toyota lost money – over a third of a billion dollars ($336 million). Nissan will probably report a loss for this quarter, in January. Honda is not that far behind. Nissan is offering Tennessee employees $100,000 buyouts, and so is Mercedes in Alabama. With credit and capital markets in such a state of freeze, no one is going to run out and build more auto plants, not until the market gets above 15 million sales a year.
@thalter –
We went through it with Chrysler in 1979. Sales rebounded as soon as the loan guarantees went through, and between the minivan and the K-car and it’s derivatives (and I’m not commenting on the quality of either, just the sales), Chrysler repaid the loans back in 1983, and repurchased the stock warrants back form the federal government at a profit to the federal government. They got profitable enough, that when Renault wanted to unload AMC/Jeep, Chrysler was able to buy them.
Don’t underestimate the psychological effects of the loan guarantees on the market place. If they can make it to 2010, the new (as of last October, 2007) labor contracts last provision kick in, and GM’s labor cost (and Ford’s and Chrysler’s) drops to within spitting distance of Toyota’s, about $1.50 over, and one Wall Street analyst said they could actually end up with a $200 a vehicle cost advantage over Toyota. But they got to make it just over one stinking year.
As bad as things are, had we not had sales in the whole industry take such a dump the last three months, we wouldn’t be having this situation coming up.
@ thalter;
1. currency fluctuation; very important, given we expect high dollar for the next five years. Factories take several years to spool up, with the US in a hard recession Toyota/Honda will be bleeding as NA market shrinks. Stlll cheaper to hedge in near-term than build factories. 10 years later, we could see that happening.
2. shipping is marginal cost.
3. Much easier to create demand with 0% financing than build a factory and wait for money to flow through a massive enconomy and then have people buy your cars.
You’re ignoring my larger point is that c11 won’t let you break free of dealer contracts. Only c7 will do that. Removing 2000 delalers will also result in massive job losses and a huge bill for GM ($100 billion?). Granted dealers will take a haircut, but GM, by comparsion, only has $43 billion in long term debt. Take a 90% haircut on dealers you’re still looking at $10 billion.
A c7 liquidation by GM (sale of assets to a new corp) would be terrible for consumer confidence. If I was GM, I would just sell all foreign assets and the Malibu/Aura plant to new corp, then close the rest in c11.
@ snabster:
You’re 100% right – all fifty states franchise laws protect the dealers, and all the internet keyboard jockeys assertions that a C11 downsizing would be feasible shows a lack of understanding of those laws. GM’s just finished paying for all of the Oldmobile elimination costs. They just had the Hummer dealers put huge bucks into remodeling their dealerships, and Pontiac, Buick, and GMC have been married to each other. The costs of settling with those dealers would be horrendous, a C11 does NOT trump the franchise laws. On a C7 will.
All the critics are failing to see one huge point: For all the snipping and crabbing at the Detroit 3, as of January, 2010, all their labor cost problems change. In fact, they start giving Toyota a case of heart burn, as all three automakers costs, assuming they make it that far, drop to within a $1.50 an hour of Toyota. In Ford’s case, one, their quality ratings from both Consumer Reports and J.D. Powers puts them on par with Toyota and Honda, and two, they have six small, high content cars, designed in Europe, being brought up to U.S. safety and emissions standards, with three truck plants being converted to build them here (one in Detroit, one in Kentucky, and one in Mexico).
GM has new small cars coming , plus the Volt. Chrysler’s admittedly the question mark, but Nissan is supposed to supply their small cars, and Chrysler is already making VW’s minivan and will make the Nissan Titan’s replacement. All they need is freaking bridge loan to make it through to January 2010. That’s it – one their labor costs drop, prospects even with the current product mix improved markedly, let alone wit the new product that start production any where from next summer, 2009 through spring, 2010.
For all the snipping at the Detroit automakers, one thing is not their fault – the current credit market. Given that their business model is under going such changes already, why the hell let them fail, and risk taking down the rest of the economy?
@Len_A
I appreciate your insiders view. I was a mere child of 11 when the Chrysler loan guarantees went down, but I can still remember it.
The outcome was also pretty positive, as I recall. My father bought one of the first K cars (a 1981 Reliant). As we all know, it turned out to be a very innovative (for the time) and versatile platform, and the components were surprisingly well engineered and built(I ran the 2.2L 4 for hundreds of miles with 1 quart of oil without any dire consequences).
Unfortunately, I don’t see a similar product renaissance coming from GM. In fact, they’ve pretty much canceled or suspended all future product development. Other than the Volt (which we can all agree will not make any money), and possibly the Cruze, I don’t see any innovative product coming down the pike from GM. Really, I don’t see any way GM can keep 8 brands full of fresh, innovative, appealing vehicles that people will pay profitable prices for. They couldn’t do it before in good times, so they certainly can’t do it now when cash is tight.
I don’t claim to have a solution for GM. Quite the opposite – to me the problem appears to be unsolvable. As near as I can tell, GM has nothing but tough options: They are pretty much toast no matter what happens. So I think the best thing the government can do is to try to soften blow.
@Len_A
Thanks for your insight on the franchise laws. This just reinforces the fact that GM is even more doomed.
I think GM is more than just a bridge loan away from success, and that the problems are related to the current credit crunch. Yes, the credit crunch is hurting, but the problems go way back. GM has not turned a profitable year for what, 3 or 4 years now? Plus, they are already in debt up to their eyeballs, so I fail to see how borrowing even more money is a good long term strategy.
I don’t think either the Cruze or Volt are going to help out. GM has never been able to sell small cars at a profit.
It is not that I want to see GM fail. I just don’t see that it has any options at this point.
For a cash strapped corporation, they seem to have a ton of very expensive PR showing up everywhere.
Anyone see the hour long GM informercial on TV last night? It was dressed up to be a docmentary about the “crisis in the auto industry” but it was really the same BS as this video. (CNBC 9 PM)
I like the website URL gmfactsandfiction.com perfect for a corporation that nobody can trust anymore.
I’ll say it here first, if GM gets the money (loans, gifts….) the next move they make is to cut jobs in the US and Canada, and I mean BIG cuts.
For an example City Bank; Got the bailout and now say they will cut 20% of work-force. About 53000 jobs!
@thalter:
I’m not a huge GM fan either, and a third of my relative work there, including my brother-in-law, an engineer.
That said, the current Chevy Malibu is very competitive against the Accord and Camry. The large crossovers have given the market a great alternative to both minivans and huge SUV’s. Their trucks are actually more competitive against the Tundra and the Titan. CTS, especially, is doing well against any of the luxury cars in it’s class, and STS is fairly competitive, but due for an update soon.
The Chevy Cruze comes out at the same time as Ford’s new Fiesta next year- both will compete well in their segment. And the Volt is going to be the first time in a long time that a Detroit automaker finally leapfrogs the competition.
As far as their finances – you have a point, but consider this: If they can make it to 2010, at 2008 sales levels, even early 2009’s sales levels, and with Volt, and the the new Cruze, they might come pretty close if the economy stabilizes, the change in their labor cost would makes them profitable. I know some people have a hard time with that, but dems da facts.
And if Ford makes it through next year, even more so in their case. A lot of things they can’t control. Neither can Toyota. Does any one think Toyota saw into their crystal ball about four years ago,and saw that their multi billion dollar truck plant investment in San Antonio go idle for THREE MONTHS? That after all their investment in pick up truck development, Nissan would turn to Chrysler for their next Full size truck? This summer’s $147 a barrel oil coming that soon, and the financial/credit collapse no one in automotive saw coming.
As much of a support of Detroit’s 3 automakers, my fourteen, going on fifteen months,of unemployment also makes me one of their biggest critics. That said, if a year ago you would have told me that Nissan and Mercedes would join the Detroit 3 in offering $100,000 buyouts to employees, I would have laughed at you.
Interesting analysis of the problems for suppliers:
http://www.ft.com/cms/s/0/d6b348aa-b412-11dd-8e35-0000779fd18c.html
@rcguy ; yep, same move as Delphi. Shut down all US operations. They have no idea what the backlash will be if they get $50 billion then fire 50K people. GM management IS that stupid.
I watched this silly video and immediately thought of something I had read earlier today at wikipedia for completely unrelated reasons.
GROUPTHINK:
Irving Janis, who did extensive work on the subject, defined it as:
A mode of thinking that people engage in when they are deeply involved in a cohesive in-group, when the members’ strivings for unanimity override their motivation to realistically appraise alternative courses of action…
In order to make groupthink testable, Irving Janis devised eight symptoms that are indicative of groupthink (1977).
1. Illusions of invulnerability creating excessive optimism and encouraging risk taking.
2. Rationalising warnings that might challenge the group’s assumptions.
3. Unquestioned belief in the morality of the group, causing members to ignore the consequences of their actions.
4. Stereotyping those who are opposed to the group as weak, evil, disfigured, impotent, or stupid.
5. Direct pressure to conform placed on any member who questions the group, couched in terms of “disloyalty”.
6. Self censorship of ideas that deviate from the apparent group consensus.
7. Illusions of unanimity among group members, silence is viewed as agreement.
8. Mindguards — self-appointed members who shield the group from dissenting information.
People supposedly won’t buy from a company in bankruptcy, but I wonder how many want to buy from a company that is publicly pleading for taxpayer money. I think this is a damaging PR campaign that only serves to disgust the general public.
And I seriously doubt that some UAW concessions are going to turn GM around. We’re talking about a company that is losing billions per *month* and is over 50 (60?) billion in debt. The Volt and Cruze don’t matter. The Volt is too expensive, isn’t a mainstream product, and doesn’t make money. The Cruze is the new Malibu. The product that’s supposed to save GM but doesn’t amount to a damn thing. No one cares. People aren’t going to buy enough Cruzes to support this busted company. It’s over people.
@Demetri:
May I point out that history proves that opinion wrong. I speak specifically to Chrysler in 1979. Sales went up shortly after the loan guarantees, and by 1983 the loan guarantees were paid back in full. Early.
UAW concessions are unnecessary if the company is allowed to make it to January, 2010. Then GM’s (and Ford & Chrysler’s)labor costs drop by a third. At that point, their labor costs are within a $1.50 an hour of Toyota’s, and more importantly, they stay that low. If the critics can still complain about that, then they just want to complain and criticize for the sake of complaining and criticizing.
Correct me if I’m wrong but I don’t recall Chrysler execs getting on TV and begging for money.
GM has bigger problems than labor costs. The rot is so deep that I think the only thing that could possibly save them is C11. And even that probably wouldn’t work. Ford I have a little more hope for, but I think it will at least take Chrysler or GM to go down so that they can pick up some volume.