The last hope. We’re making a final appeal. Senate Republicans, led by Jim Shelby (R-AL) and Bob Corker (R-TN), need to send the proposed loan program to Detroit into the dustbin of history. As constructed, the legislation represents a waste of taxpayer money. It’s a pretend piece: A bridge to nowhere. The bill’s based on the false hopes of a new car czar, entrusted to negotiate a restructuring outside of court for General Motors and Chrysler. That won’t happen-– and shouldn’t happen. Only the party of Lincoln can stop this foolishness now.
TTAC does not want Detroit to fail. (Ok, Chrysler should fail – unless its rich Daddy wants to continue their foolishness.) There are lots of good, honest people in the auto industry who have been sold out by decades of GM, Ford, and Chrysler mismanagement. Executive leadership working under a bubble of opaque glass, ignorant to the changes in the real world of auto sales.
As legions of American consumers departed for Japanese, German, and Korean iron, these Detroit managers found comfort in placing blame squarely outside of their control: foreign currency, unfair trade, health care, etc. In truth, their decisions and indecision lead to vehicles that failed to deliver the goods. Had it not been for the ascent of truck-based vehicles and cheap gas in the 1990s, Detroit would have been dead years ago.
Today, again. Rick Wagoner and his GM minions continue to claim that they were victims of circumstance, sandbagged by lousy economic conditions caused by Wall Street’s disastrous mortgage orgy. Nothing could be further from the truth. Any student of Detroit has known for years-– and as repeatedly documented by TTAC– that GM and its cohorts have been headed for disaster for decades. The economic crisis is simply the straw that broke the camel’s back.
Against a backdrop of soaring unemployment, Democrats in Congress decided it could not adjourn without doing something, anything, for Detroit. And so it’s created an even bigger economic disaster, lying in state for the new President. The current President doesn’t want to leave office as “the President who killed Detroit.” So it’s up to the final bastion of rationale thinking– the Senate Republicans– to kill this deeply flawed, hugely wasteful piece of legislation.
We propose something different. And simpler. Something that might satisfy all of the political demands and protect American taxpayers.
Just give GM six billion dollars and Chrysler four billion dollars. No strings attached, other than a requirement for collateral to back it up. If there’s no equity at Chrysler (there isn’t), the automaker’s private equity owners Cerberus should step up. By their own testimony, Ford doesn’t need money now. So don’t give them any.
Don’t try to craft any solution involving government terms and conditions beyond collateral. No warrants, no car czar, no “green car” requirements. And get rid of that stupid “no jet” clause. How the heck can you run a multi-national company without one or two?
Under this plan, Congress will force The Big 2.8-– and their creditors-– to craft their own reorganization now, rather than waiting for the car czar to propose one. Better, it’s all accomplished outside of court, without any political overtones. Best, it sets an immediate time limit on a resolution.
The money provided today will run out-– that’s a guaranteed fact. And then it will become Obama’s problem to decide if he wants to continue funding corporate welfare. But by then we’ll know the truth about any restructuring progress. Whether Rick Wagoner and Bob Nardelli are the men they say they are.
In the end, a straightforward, no-strings-attached loan will prove with all finality that there can be no restructuring of GM outside of court. We highly doubt that GM really understands the depth of its problems; it will refuse to take the painful but necessary medicine unless dragged kicking and screaming into bankruptcy court.It’s now owned by its creditors and the UAW, not its shareholders. Just hand them the keys.
Chrysler cannot function as an automaker going forward. Cerberus’ plan for its baby to become merely a distributor for other products-– while keeping the financing-– didn’t work. Time for liquidation.
We hope Senators Shelby and Corker read this. They understand that giving these companies funding today under the proposed legislation will become an endless money pit, with no restructuring accomplished under government purview. Not one creditor will accede to the haircuts required without compensation– from the taxpayers, not the companies. We’ll hear future requests, with half-baked restructuring plans, none of which will work.
Instead, just give these companies a lifeline today without fuss or muss, and let them make their own way out of the wilderness if they can.
And if they do come back with a restructuring program that truly works, then Congress and the new POTUS can craft a loan program with necessary government oversight. But why try and figure that out now? Someone needs to teach Congress how to negotiate. We’ve done our best.
What’s a dustbin?
The point of the bailout is simple. They are replacing sales (and profits) with our money. You may not have chosen to buy from them, but the government under threat of law will force you to support them.
Democracy at it’s finest. Something this big should be on a national referendum. Wars are one thing, rebuilding a city below sea level is another, but these are private companies and in the end a few may benefit massively at the expense of us all.
GS650G :
I don’t think the last part of your statement should be a great concern. Considering the beat down the U.S. taxpayer is going to take on this, a few million or even hundred million is nothing.
Egads, Nanci Pelosi was on the TV saying “We won’t give up on the U.S. Auto industry”.
I guess that guarantees bailouts on demand forever. Rick Wagoner will be happy.
We hope Senators Shelby and Corker read this.
Well, getting it to them is fairly easy – senate.gov. No guarantees about reading it, but I did get a letter back from my senator when I sent a previous TTAC article his way.
Any alternate that avoids civil service mobiles is worth consideration. They would make us misty for Wagoner and his bean counters.
The UAW payoff continues. Taxpayer dollars will be used for UAW buyouts. Chrysler will be broke in a month and they are paying their employees 140k to retire?
“About 3,500 eligible Chrysler employees in Fenton must decide this week whether to accept the automaker’s early retirement and buyout offers.
Workers have until the close of business Sunday to decide, said Mary Beth Halprin, a Chrysler spokeswoman.
For workers eligible for retirement, a $70,000 lump sum payment is offered. Those nearing retirement are offered full retirement benefits, and workers who qualify for neither are offered one of two packages: Workers with more than 10 years’ experience are eligible for a $140,000 lump sum and workers with less than 10 years can get $100,000. Health insurance benefits will be extended to both.
Chrysler, which said it could run out of cash by ear end, wants to reduce its work force by 5,000.”
cont.
http://stlouis.bizjournals.com/stlouis/stories/2008/11/24/daily36.html
An executive of a publicly traded corporation has a fiduciary responsibility to the shareholders to explore EVERY avenue to make the company successful.
If these boobs are not even considering or preparing for bankruptcy, and instead putting all of their eggs in the bailout basket, than they are not meeting their number one responsibility as executives.
They should be denied any funds on this basis alone. If they cannot meet their basic duty, then how can they be trusted with other people’s money?
Having watched every minute, via C-Span’s excellent internet video archive, I would confidently say that Rep Corker was the standout inquisitor.
As for the others, I wouldn’t hold out much hope. Each seemed to have an opening statement along the lines of;
“We wanna help you, you’re such nice people, we really wanna help you.”
Then, oblivious to the irony of their own lack of attention to detail in approving the TARP, most managed to slip in;
“The financial bailout isn’t being managed properly and we’ll be finding out about that.”
TTAC does not want Detroit to fail. (Ok, Chrysler should fail – unless its rich Daddy wants to continue their foolishness.)
Who is “TTAC”? It’s nitpicky, I realize, but being new to the readership I thought all the writers spoke for themselves. Is there an editorial board?
Just give them the same kind of deal AIG got…
AIG employs 100,000 people world-wide and received 150 Billion for an average bailout-per-job-saved cost of 1,500,000 per employee.
The Big-3 employ somewhere around 600,000 world-wide and using the same 1,500,000 per-job-saved cost they would receive a cash-liquidity injection of $900,000,000 with seemingly zero strings attached. Not too mention, okay I’ll mention it…the fact that for every OEM job there is an estimated 6-8 jobs that directly or indirectly relies on the Big-3’s existence and if all of those jobs were to just disappear, the boobs in Congress would suddenly be left to explain why everyone’s taxes will have to skyrocket to make up for the missing $150 Billion in tax revenues once America finds itself with 1-4 million newly unemployed people who would now NOT be paying taxes but they would soon be drawing unemployment, welfare, medicare and medicaid. While loaning the Big-3 our money seems like an anti-capitalist idea, and in general it IS…the economy would be healthier if those people stay employed. I don’t think we will see a return to 16Million in U.S. sales anytime soon, but we could see 12Million in U.S. sales quite swiftly if the credit crisis can be resolved and once that happens, the world might be a brighter place for all.
Fair’s fair right? We’re all equal right? The Congress is a group of fair-minded individual right? No, not really, I think we all can clearly see who they love and who they don’t. Where’s the oversight board for Citi and AIG? Oh that’s right, they’re the folks that let the organizations they were supposed to oversee LET get this way so now we have to bail them out only to watch them deposit OUR money and NOT make any new loans. Some oversight board!
I think we can forget the Big-3 getting anywhere near the special treatment the banks got, so…I actually like Mr. Elias’s idea but I would do this: Loan them enough money to run themselves for an entire quarter as a debtor-in-possession type of loan. Have them come back in March or April and now that they have had an entire business quarter of financing their books should be pretty cleared up of a lot of their problems and be able to set sail smoothly…if they still need money then, do it as Ken outlines…if they look like they have no idea out of this mess then oh well, C11 for you-can’t say we didn’t help.
IOtheworldaliving :
Generally speaking, each TTAC writer speaks for him or herself. But in this case, Mr. Elias summarized a broad consensus. While some of our freelancers would like to see a C11 ASAP, NONE of them (that I know of) want Detroit to die and disappear.
“So it’s up to the final bastion of rationale thinking– the Senate Republicans– to kill this deeply flawed, hugely wasteful piece of legislation.”
Wow that’s a thin reed on which to hang things. Personally, I was hopping to appeal to their bitterness and resentment at being so badly beaten by the Democrats in November.
Actually, I think I have a better idea for Senators Corker and Shelby.
Given that their states gave massive subsidies to Honda, Hyundai, Nissan, Toyota, Mercedes-Benz, etc. to build auto plants in their states (some estimates are $200k per job in Alabama), the should recuse themselves…or at least shut up as they have no credibility in this area.
It really bothers me that the ‘line in the sand’ is being drawn here with the auto industry after the banks, insurance companies, defense contractors, FEMA trailer manufacturers, etc. were given a ‘free pass’.
It has the stench of class warfare and union-busting being wrapped in the language of fiscal prudence.
Well, you might as well just burn the $15B if you give it to them no strings attached. I don’t see any wisdom in this – they’ll be back in March with excuses and stories and just need more money. Other than shift the problem to the next admin at the cost of $15B, it achieves nothing.
I have zero faith a car czar will accomplish anything, and I agree the jet clause is plain stupid – the “wooden arrows” equivalent – but still. $15B just thrown away to save Bush from the stigma of having killed Detroit? Why bother?
It seems like the logical follow on to the loan plan is:
(1) Harmonize EU and US Federal safety and regulations so that a vehicle only has to be certified once. This opens up the US more readily to Ford and GM vehicles that are profitable in overseas markets, and it allows all US makers to operate as global companies rather than two houses divided.
(2) Abolish CAFE, or let Chrysler be Chrysler: Chrysler makes certain desirable products — Dodge Ram, Jeep Grand Cherokee, 300C — and it makes undesirable products — Dodge Caliber, Jeep Patriot, Jeep Compass, Chrysler Sebring. Why does it make these others? Consumers don’t want them; consumers don’t buy them. They clearly are made to compete on price rather than desirability or price. They have to make and move them because of CAFE. It creates a vicious cycle for Chrysler (and we can substitute Ford or GM here, too, but Chrysler has that beautiful, soon-to-be-stillborn new truck) where, to move the profit making vehicles people want, they have to shovel out the door offsetting larger numbers of crappy vehicles people don’t want, made crappier because, to get them to move, they have to take a bath on price to get the volume to cover the larger vehicles. Long term, Chrysler could be smaller but profitable and successful making big RWD cars, trucks, and SUVs only.
(3) Switch to a gas tax. There is an honest-to-God Constitutional role for a federal gas tax if it is spent in maintaining the network of interstate highways. Instead, we have stupid CAFE. CAFE and this bailout stink of Soviet-era central planning. The CAFE was born from that mindset. We have had an excellent example of the motivating power of gas prices — decades of federal regulations and manipulation of how auto makers in this country do their business could not switch consumers to want high MPG cars like gas prices hitting $3-4 could. You cannot force people to buy crap — either as the government or the domestic auto makers — people have to make the decision that is right for them. If gas is $4, and I want a pleasure car that I’ll drive 3k miles a year, it is my choice if the pleasure of driving is worth the cost of the gas. If gas is $4, and I want to drive 15k miles a year, I either pay the freight or I downgrade to a four cylinder. Consumers made these decisions themselves in the first half of 2008 with high gas prices; let consumers make their decisions. Make it a variable cost, the price mechanism will attribute it as efficiently as possible against whomever is using the roads the most, the mechanism of market price will accomplish more in changing the behavior of drivers because it will be in their interest than the meddling of central planners ever can or has, and American makes can survive making cars people want in that environment since it works in Europe, where GM and Ford are king.
RF: thanks for the explanation.
” … the final bastion of rationale thinking– the Senate Republicans … ”
From which alternate universe do you hail?
Eric_Stepans:
Given that their states gave massive subsidies to Honda, Hyundai, Nissan, Toyota, Mercedes-Benz, etc. to build auto plants in their states… [Corker and Shelby] have no credibility.
Even if any subsidies given to these companies were “massive” (and you offer no proof) your emphasis in that sentence should have been on the word states. Incentives like property tax breaks are SOP for state economic development boards. If TN or AL offered them, that’s something the citizens of those states had greater input on at the front end and greater ability to ratify or not at the ballot box afterward. But to say that this compromises Corker and Shelby’s credibility is ludicrous.
Here in Georgia, we were were looking to attract some of those same companies and bowed out when the price of incentives got too high for us. (We have a Kia plant scheduled to open next year.) By comparison, we have much less control over whether Reid, Pelosi et al. decide to waste our money on the Detroit gang. The 2.5 should ask the state of Michigan for incentives, but oh yeah, it’s as bankrupt as the companies based there.
Talk about a blistering case of bailout fatigue. The public is just sick and tired of this crap. All to prop up the stock and job markets in this bubble-wrapped economy.
@WEGIV
I wrote my Senators and Congressman about the bailout, but all I got back was a form letter. A few others I know wrote as well, and they got the same letter back verbatim. I’m guessing there’s a staffer somewhere on Capitol Hill who figures out what you’re writing about and sends back a pre-packaged response.
I see no point in giving GM $6 billion and Chrysler $4 billion with no strings attached. That is a recipe for ensuring that every pizza delivery shop and flower shop in America gets in line to ask for free, no-strings-attached money. It only creates the basis for giving them more.
I will beat on my lonely drum with my suggestion (which I know will not be heeded): Sell the assets of General Motors to another business, in exchange for working capital, and Chapter 7 the rest.
On the cost side, Chapter 7 would wipe out the dealer and labor obligations. On the revenue side, the new owners would infuse capital, bring in new management and their pre-existing R&D and be able to employ the brands, the workers and dealers who survive and a few of the factories to rebuild it as a smaller company that can turn a profit by making products that people want.
Chapter 11 bankruptcy is too little, too late. The creditors have no incentive to agree to it, now that Uncle Sam has shown his cards and made it clear that the government does not want these companies to fail.
Chapter 11 made a lot of sense when the market was stronger, consumers were revved up and credit was easy to get. Now that the economy is in the toilet, it no longer makes any sense at all unless your real hope is to have it go into Chapter 7 liquidation. Times have changed, and that makes it necessary that the plan be changed along with them.
TTAC may have some amusing and occasionally insightful insights on the car industry and the car media.
But as political commentators you make Lou Dobbs look reasoned and informed.
Corker and Shelby and in the pay of the Japs and Krauts. No shame about it. The resistance to a deal was not being done by Republicans, but by Democrats. Being Democrats, they can’t tell the UAW that so they let Corker and Shelby be face men.
Why the resistance by Democrats? Mostly about Obama wanting to have this mess handled NOW (before he is President) rather than later (where he has to take responsibility for it). the Climate-nazis are at it to — they really thought the DoE loans should be kept for building more fuel-efficient cars. Hence the argument about which pool of money to drink from. Democrats couldn’t get their own internal votes in order to give $35 billion from TARP.
What the deal does is give Obama some breathing room until March or so to dispose of the problem. That way the first act of his presidency isn’t the “bailout” or massive layoffs.
bad move by obama but an understandable one.
@Dave Baker:
You wrote: Incentives like property tax breaks are SOP for state economic development boards
Exactly. You prove my point. We, as a society, are constantly subsidizing and providing incentives for various economic interests, because we perceive it to be to our societal benefit to do so.
Which is why Shelby and Corker saying we should *not* do this for the Detroit 2.75 (and their silence about the incentives in their own states) says more about who is lining their pockets than their political philosophies.
Excerpt from: http://news.yahoo.com/s/huffpost/20081204/cm_huffpost/148380
“…Alabama offered $253 million but the state offered to train the workers, clear and improve the sites, upgrade the utilities, buy 2,500 vehicles and it is estimated that that incentive package totaled somewhere around $175,000/per employee to create those jobs there. And on top of this, that state gave this automaker a large parcel of land-around $250-$300 million dollars. That was the same price or cost to them of building a facility.
I also note that, when complaining about unresponsive public officials, you choose to aim your ire at Nancy Pelosi and Harry Reid, not Dick Cheney and Hank Paulson. I think that says something about your perspective.
@snabster – Nice summary of the political realities surrounding this issue.
snabster: But as political commentators you make Lou Dobbs look reasoned and informed.
The TTAC commenters against the bailout have a much better grasp on what is driving this bailout than the pro-bailout forces, who can only offer hysterical predictions of a new Dark Age with the collapse of GM or rail against the “Japs” and “Krauts.”
snabster: Corker and Shelby and in the pay of the Japs and Krauts. No shame about it.
Please note that Toyota has said that it does not want GM to go under, and Honda has supported the idea of the federal government providing help to GM, Ford and Chrysler.
It looks as the “Japs” are in favor of some sort of aid to the domestics, so your conjecture is wrong.
Maybe these senators oppose a bailout because – gasp! – they recognize a bad deal when they see one.
snabster: The resistance to a deal was not being done by Republicans, but by Democrats. Being Democrats, they can’t tell the UAW that so they let Corker and Shelby be face men.
Really…I guess that explains the op-ed piece I just read by Democratic Senator Christopher Dodd supporting the bailout?
Eric_Stepans: Exactly. You prove my point. We, as a society, are constantly subsidizing and providing incentives for various economic interests, because we perceive it to be to our societal benefit to do so.
Compare apples to apples, please.
There is a considerable difference in STATES offering economic incentive packages to VIABLE companies in exchange for locating factories and facilities in a state and the FEDERAL GOVERNMENT offering bailout money to companies that will collapse even after receiving the government funds.
Please note that the domestics have regularly received the former type of aid when they threatened to close a plant or a facility.
And apparently everyone conveniently forgets the bidding circus that surrounded GM’s announcement of the Saturn venture in the 1980s. States were falling all over themselves with incentive packages to lure GM. Tennessee was the ulimate winner – and not because GM executives liked the warmer climate or southern cooking.
If you are against this type of subsidy – fine, I’m against it, too. But let’s please drop the fictions that only the transplants have benefited from this practice, or that this is the same type of aid that Detroit is now requesting, or that two wrongs make a right.
Eric_Stepans: Which is why Shelby and Corker saying we should *not* do this for the Detroit 2.75 (and their silence about the incentives in their own states) says more about who is lining their pockets than their political philosophies.
No, see above. And if any pockets are being lined, it’s the Democrats who received lots of manpower and financial assistance from the UAW in the last campaign. Amazingly enough, that is the organization that has the most to lose in a bankruptcy proceeding. Imagine that…
Eric_Stepans: I also note that, when complaining about unresponsive public officials, you choose to aim your ire at Nancy Pelosi and Harry Reid, not Dick Cheney and Hank Paulson. I think that says something about your perspective.
It probably has something to do with the fact that Pelosi and Reid are ELECTED legislators, and thus are expected to be more responsive to constituent concerns than appointed officials such as Cheney and Paulson, who answer to the individuals who appointed them.
That is the way our government was designed to work…
Other states have been offering subsidies to domestic automakers for decades. Manufacturing moves from state to state.
And why bail out the Domestics? They have so much in the way of tax credits for losing all this money that they could be profitable for fifty years and still never pay any taxes.
I should correct my above post…Cheney was chosen by Bush to be his running mate. But while he was elected on the Republican ticket, the reality is that he answers directly to Bush, who chose him to be his running mate.
Let’s be honest here guys… Congress rolled over for TARP, and they’ll roll over for this.
We don’t need the “big 3” for civil service mobiles. Mitsubishi manufactures Galants right in B.O.’s HOME STATE (you know, the one with the Governor in jail as we speak, for trying to get $$$ out of folks in order to sell B.O.’s senate seat), with UAW LABORERS.
I’d call that just about the perfect civil service mobile.
Probably significantly more reliable than the Chevrolet Cavaliers, Ford Tauruses etc. that the civil servants (which they are ironically, NEITHER) that I’ve seen tooling around.
Pch101
You are not alone. That would be the way to go IMO.
Why give Chrysler a dime?
If Cerberus won’t fund it, why should we?
They’re just playing a street hustle for a free loan they can default on by proxy.
-> Instant bump to the bottom line!
While I applaud intellectual rationalization/ self-preservational bent of statements like “…good, honest people…”
Let’s be ‘real’ for just a moment. This type of pablum falls under the umbrella of “they were just following orders”…
If they were cognizant of the horrid crap their company has been putting out for the last ~40 years,and they stayed, my pity meter is at zero. (Honestly, -4. On a 5 scale.)
Hey, you took the check as long as you could. Ride is over. Be thankful it lasted as long as it did.
Conversely, if you are such a rube as to not understand or face the fact that 20+ years of declining market share is a huge effen problem, well, time for your lesson in grown-up-life.
No mercy. No quarter. This is (right or wrong) the way it works in our economy. Provide the goods and/or services your clientele will pay you profitably for, or lose it all. That’s how the rest of us live. Time for these spoiled brats to man up.
I think MrGreenMan has it exactly right regarding repealing CAFE and implementing a gas tax, whether there is a loan/bailout or not. But I doubt that there is the political willpower to get it done.
Eric_Stepans:
Given that their states gave massive subsidies to Honda, Hyundai, Nissan, Toyota, Mercedes-Benz, etc. to build auto plants in their states (some estimates are $200k per job in Alabama), the should recuse themselves…or at least shut up as they have no credibility in this area.
You have a point. But you ignore the hidden subsidies the (northern) union-friendly bluer states have doled out to Detroit. From cushy non-confrontational state unemployment insurance (many senior UAW workers take VOLUNTARY layoffs) to ‘economic development’, ‘job training funds’ or ‘cheap electric power for jobs’, all states are guilty of the subsidy game.
In the end, as a New Yorker, I’ll take a right-to-work state over my home state (of confusion) every time. +1 to Senator Shelby.
I think we are all getting a little caught up in the bailout madness at this point, as we are all trying to rationalize our own alternatives. The simple answer is this, stop giving away our damn money.
It’s Senator RICHARD Shelby by the way.