Nothing like last minute preparations. Just as I waited until two hours before the first major snowstorm of the year to Blizzak my minivan, President Bush waited until the eleventh hour thirty to provide life-sustaining bailout bucks to Chrysler and GM. At first glance, the deal looks like something of a giveaway: here’s a $13.4b TARP under which you can shelter. Get back to us with the real plan in 90 days. I’m outahere. At second glance, it looks like the bailout is designed to fail. Our Torygraph friends across the pond get straight to the meat of the matter. “Bush’s Detroit bailout looks like a path to bankruptcy for General Motors and Chrysler. Billed as a way to give the two automakers breathing room, the deal actually imposes tough targets that must be hit in only three months. It’s likely the companies will fall short, which would force them to file for Chapter 11 protection. But that’s not necessarily bad – so long as they use the coming months to cut the deals with workers, creditors and others that they’ll need to get out of bankruptcy fast.”
Checking Automotive News’ [sub] bailout cheat sheet, those Brits ain’t kidding. The automakers must prove that they’re viable by March 31. “A firm will only be deemed viable if it has a positive net present value, taking into account all current and future costs, and can fully repay the government loan.” As if. Then there’s the requirement to “reduce debts by 2/3 via a debt for equity exchange.” I don’t think so. “Work rules that are competitive with transplant auto manufacturers by 12/31/09.” Yeah right. The UAW are so up for that. “Wages that are competitive with those of transplant auto manufacturers by 12/31/09.” Sure. Whatever you say.
The problem: even with these tough (not to say impossible targets), the loans have enough wiggle room to fit Jeff, Murray, Sam and Anthony and Captain Feathersword. “These terms and conditions would be non-binding in the sense that negotiations can deviate from the quantitative targets above, providing that the firm reports the reasons for these deviations and makes the business case to achieve long-term viability in spite of the deviations.”
To wit: twenty seconds after the deal was announced Michigan Democratic Rep. John Dingell rejected wage concessions on behalf of his unionized friends and family.
“We all want to see the Big 3 restructure and be competitive in the future, but it is irresponsible during a time of economic crisis for the White House to insist that workers take further wage cuts on top of the historic concessions they have already made.”
So, it all comes down to this: does anyone think this is anything but a stop on the way to bankruptcy station? Bush? The automakers? Bueller?
Yes, conceding nothing (except for throwing new, never to be hired workers under the bus) and calling it concessions is historic.
The toughest problem in a bankruptcy might be the dealers. If there are bond holder and worker concessions they will at least effect all of the bond holders and workers relatively equally.
On the other hand, the shut down dealers lose everything, and the dealers that remain open win out big with the cut-throat competition gone.
Hopefully the dealers can’t hold up a Chapter 11, otherwise it’s just going to be a matter of time, and taxpayer impatience, before Chapter 7.
Regarding at least the “positive net present value” terms of the package, over at Fortune, they seem to think that’s the biggest joke of all:
http://money.cnn.com/2008/12/19/news/gm.viability.npv.fortune/index.htm?postversion=2008121916
I haven’t read the package, but from what I gather in this article, there aren’t any guidelines for the assumptions that GM/Chrysler must make in proving their positive net present values: You say annual cars sales will be 13.5 million in 2009? Sounds good to us.
As for the UAW, I notice the quote you use says “Work rules that are competitive”, not pay that is competitive… regardless of what changes with the UAW, how do you think this would affect Ford? Will they get some UAW love too?
MattVA :
As we’ve stated all along (and I mean all along), if GM finds major UAW “love” (i.e. death) in C11, Ford will have to declare C11 to compete.
If Ford has to declare C11 to compete with a new GM, doesn’t it follow it has to declare bankruptcy to compete with Toyota et. al.?
Or are we assuming they are just fighting for the domestics-only buyers?
They don’t have to meet the goals set forth by the government if no one enforces them. The strings are just there for show; to make the public feel like GM/Chryco aren’t getting money for nothing. The goals of financial “viability” are open to interpretation. The government will never hold their feet to the fire. This is a spigot that once opened will take years to close. I wonder how many bailouts it’s going to take before we get some genuine outrage.
For a moment, I thought that was Serpentor from the upcoming GI Joe movie.
But yeah, March will roll around, GM/C (perhaps sans the slash) will claim the dog ate their homework and the UAW stole their lunch money, and Obama will pat them on the head and give them some more.
The targets can be modified, eliminated or ignored as the government sees fit.
This is meant to keep GM and Chrysler afloat with as little commitment as possible. The government is buying time and keeping its options open.
I doubt that the government has a firm long-term plan yet. The pace of the economic recovery will likely have a lot to do with what happens next.
With most of the banks in the country being bankrupt under much stricter regulations then those applied to bailout, whom are we kidding about compliance? The conditions in March will be the same as today, will Obama risk shutting down factories? Nah, will never happen. The taxpayers bleeding will continue, like Chinese water torture. The only “positive” note is that we will not have enough years in life to re-pay those “loans”, the reckoning will be passed as inheritance to our children.
It only puts the failure or BK on to Obama’s watch.
I don’t think this thing is a road to bankruptcy. Some “unprecedented event” will occur between Jan. 20th and March 30th that will justify another snort of Patriot Crack.
What I fear is Obama and his green crew (look at all his appointees so far on this issue) will cook up some bizarro cockamamie scheme to “convert” the Bailing 2 into the “green auto-companies” of the “future.”
He’s planning a huge trillion dollar Obamagasma that will also be supposed to make millions of “green collar jobs” and make us “energy independent” and all that. I see the Bailing 2 being co-opted into heavily subsidized actors in this endeavor when I change my crystal ball to the Cynical Channel.
No one told CNBC’s chyron guy that Ford didn’t take the handout. They’re calling it the BIG 3 BAILOUT.
It only puts the failure or BK on to Obama’s watch.
If the automakers fail, Republicans will blame it on Obama, Democrats will blame it on Bush.
If the automakers recover, Republicans will claim it was the Republican Congress, Democrats will claim it was the Democratic Congress.
The only surprise is that some people will be surprised.
Since the bailout loan is not a statutory act by Congress it can and will be changed on a whim when the Soft Drink takes office. He could even terminate it if he wants to but that will never happen. More likely is a trade war with Japan where imported cars are taxed while transplant cars are not. The Japanese will cave in and buy a huge allotment of Boeing airplanes. Mulally who I’m sure still owns plenty of Boeing stock will be happy. Ford may not be however if they continue to lose money. They are not in that much better of a position than the other two because they are leveraged out the wazoo. They have to pay those loans back, hence they are selling Volvo even though it makes more business sense to keep them and control their engineering/platform contributions to mother Ford.
Bush rolled over and played dead.
Once Obama is in he will give all they want to the minorities and welfare states that elected him.
Funny part is that they expect productive states to pay taxes.
All of these details about Detroit. But whether we are talking three months or whatever, isn’t the only real question, can these companies build and sell cars at a profit?
The honest truth is nothing will change. It never really does. What may change is that Detroit will ask the government for a couple billion every year. It will be a new annual thing in the industry called bailout time. Just as a whore usually goes back to the same pimp, Detroit will be back for handouts every year. Trust me this is the only change we are going to see in the domestic auto industry.
I waited till the last minute to put the Blizzaks on my wagon as well. What is it about getting around to doing that?
I don’t think its anything close to a managed bankruptcy in disguise. It might have been if (a) when the next deadline comes the same people would decide, (b) there were actually specific targets instead of generalities and moving targets to meet, and (c) the money wasn’t committed before nailing down all the loose ends. I think it may end up to be bankruptcy but this package is just blame shifting when it happens. You know, ‘if the x or y group had only agreed then this would have worked’.
“Just as a whore usually goes back to the same pimp, Detroit will be back for handouts every year.”
Except that it’s the other way around. The whore is the one that gives up the money, and I can’t think of a better word to describe our government officials.
This whole thing is a bunch of crap and really ticks me off. I heard Ron Gettelfinger on the news today – swore I’d never even consider buying a UAW made product again.
Hopefully, GMAC will just go Tango Uniform and put us (and GM) out of its misery.
@ RF
Jeff, Murray, Sam and Anthony and Captain Feathersword
Australia’s greatest export!
jeremy cohn :
I’m with you. Why isn’t Ford’s stock price rising faster?? They are sitting pretty right now (comparatively)!
@Robert
If the UAW gives GM huge concessions, they would have no choice but to give Ford those same concessions, regardless of if Ford is in bankruptcy or is in normal operations. This would be especially true if a GM bankruptcy resulted in the death of the UAW in GM-owned plants; they would have no choice but to make huge concessions or risk losing the entire Ford membership.
It’s sort of like what happens during UAW contract negotiations; the first company to negotiate is the bellwether for future negotiations with the other two. If GM gets huge concessions with the UAW in bankruptcy, Ford would likely get the same.
@ picard234
The Ford stock price response is interesting.
Perhaps people see a future where the desperados at GM/Chrysler continue to distort the market in vehicles they would otherwise make money on. (Incentives on top of incentives on Trucks).
Toyota might be quite amused to see GM/Chrysler/Ford trying to steal Truck sales from each other. Especially with so many dealers.
Is there a cycle of price competition that is about to repeat again?
Why are GM and Chrysler so afraid of a strike? Tell the UAW to pound sand and lock the doors. They want jobs? Here is a new contract. Don’t like it? Tough shit. Everyone else in America has to deal with this stuff everyday, we get hired, fired, laid off, whatever.
Maybe they should put Ron Get-a-finger in the top job at both companies and call it done. It’s obvious they are only trying to keep those ridiculous benefit and wage programs afloat.
Yeah right. As has been said, this is nothing but a punt to Obama. The automakers are under no obligation to do any of these things. Ceberus will suck that money directly into their bank accounts and come right back for more. GM will burn through it before March and also return for more. Obama will ride in with much, much more.
Bush bailed out the carmakers. The only similarity between this bailout and a bankruptcy of any kind is that both words start with “b.”
Not buying the Torygraph’s reading. How do you prepare better for bankruptcy? Lose MORE money? How will the mere passage of time make GM more ready for bankruptcy than it is at this moment.
There are no concessions by the UAW. You and I know that was media happy talk. When the UAW really needed concessions- prior to the taxpayer throwaway- they conceded nothing. Why should the mere passage of time make them more pliable?
The executives three months from now are the same as the executives today. How will the mere passage of time make them more clever?
Most importantly, car lots are overflowing today. How will the mere passage of time, with even more cars built in the interim, and more taxpayer resentment building, foster the selling of any more cars?
There has been a lot of talk about the Bush legacy lately. What a brilliant last act. This rollover, more liberal and lucrative than even the Senate offering, is what will most define his legacy in memory.
Any good he might have done has been overshadowed in this new qualification for the anti-Mt Rushmore, where we can already gaze admiringly at the eternal sculpted images of Jimmy Carter and Jerry Ford.
Glad you were able to find a garage to mount your tires at the last minute. Usually, that doesn’t happen.
Here in Canada the CAW says they too wont accept any concessions period and so it continues.
Great you got your Tires fitted just in the nick of time! Merry Christmas to all.
“twenty seconds after the deal was announced Michigan Democratic Rep. John Dingell rejected wage concessions on behalf of his unionized friends and family.”
As M. Levecque says above, the CAW agrees with this stand. The twit in charge of the CAW, whose name escapes me now that Buzz is running round in ever diminishing circles, says that they have made enough concessions already.
Hmm, to whom exactly? With $4 billion of Canadian lolly going to bail out these bankrupt jokers, I say, CAW, you have made no concession to me, part of your bailout package group of taxpayers who had no say in the matter. Wake up! You are getting special treatment boys, unlike ANYONE else in this country in this depression.
PR and commonsense are not virtues of the CAW, and I’m fed up with their “justifications” for why they need not give any more. Screw you too, buddy. Get real or join the breadlines, which will probably happen in April anyway, as GM/Chryco pisses away the bailout money, and cannot meet the conditions.
First it’s $4 billion for our small country, then it’s unemployment payments for 39 weeks. I’m just so delighted. Not.
Can anyone tell me why on God’s green earth GM’s share price went up 23% upon news of the bailout?
What in this bailout would lead an investor to believe that this company is going to be able to not only survive without a bankruptcy, but also save a place at the feasting table for current equity holders?
Also, why is GM’s stock trading higher than Ford stock?
Can anyone tell me why on God’s green earth GM’s share price went up 23% upon news of the bailout?
Sure. The company is getting free money. It appears, at least to some observers, that Uncle Sam is going to do anything and everything to keep GM alive. The market likes it when companies get money. Having the government watching your back is a nice plus.
Medium-term speculators smell a big payoff if GM is propped up for years to come, and they are willing to roll the dice. If they are right, they could make many multiples above their investment.
The dumb money thinks GM stock is cheap, because it costs less than it used to. They’re dumb, but dumb money is still money.
I disagree with those people, and I think that smart speculators with a high risk tolerance would play the bonds and avoid the stock.
Short-term stock traders will just play the momentum of the speculators and the dumb money, and will try to hop off the wagon before it crashes, if it does. I’m more sympathetic to that position, but personally, it’s a bit risky for my blood.
Also, why is GM’s stock trading higher than Ford stock?
You can’t compare these things directly. It’s not as if they have equal quantities of shares.
Look instead at the market capitalization. Last I checked, the total value of Ford’s stock is above that of GM’s. That gives you a sense of how hard GM has fallen.
In disguise.
And by disguise I mean Rosie O’D dressed up as Rosie O’D….
GS650G: “Tell the UAW to pound sand and lock the doors.”
It’d be interesting to see what that would lead to. In the 30’s the UAW achieved its first great victory by occupying GM factories and making fortresses of them. It was illegal, but with the Wagner Act the union had the whip hand. No bad consequences for the union. Today, we have to wonder: have things changed so much a “sit-in” wouldn’t work?