Last Thursday in Detroit, General Motors presented its rescue case to the Society of Automotive Analysts, a group of Wall Street securities analysts. [pdf here] The story was chock full of “not good.” In fact, the company presented enough information to make the case that bankruptcy is inevitable. But I’m still waiting for a single report from Wall Street telling everyone what we’ve known at TTAC for at least three years. GM is bankrupt and putting another dime of government money into this car wreck is merely good money after bad.
It’s too bad GM presented nothing more than damning evidence of why the company has to file bankruptcy. Not that management didn’t try the old positive spin manipulation of bad news – they did. But you won’t see any analyst reports coming out telling the truth that there is no where to go but to the Bankruptcy Court in Manhattan. So we’ll do it for you.
For starters, GM lowered its forecast for new car sales in the US auto market overall. As recently as December 2, when GM last presented to Congress its non-starter rescue plan, the company anticipated that 2009 car sales would come in at 12 million units. (2008 saw 13.2 million units sold.) Now, the company sees the market at 10.5 million units, a haircut of 1.5 million units or another 300,000 units less for GM from its previous lowered forecast.
Assuming GM’s correct, and assigning a 20% market share to GM for 2009 (reduced fleet sales, negative consumer confidence, more incentives from the Toyondissan camp, etc.), GM will sell 2,100,000 units in 2009. That’s nearly 900,000 fewer units than last year or a reduction of 30%.
Add to that the desperate attempts by everyone else – and especially those manufacturers with stronger capital structures – to move units in a terrible market. The incentive money will be huge. Despite production cut backs, four day work weeks, and extended plant holidays, it’s simply too costly to just shut down for an extended period beyond a few weeks for any auto manufacturer.
The high fixed-cost nature of vehicle assembly, marketing, and white-collar staffing demands that the products keep moving out the door just to minimize losses. The Japanese will give away cars with thousands of dollars on the hood to keep the metal moving. The Europeans will provide money through the back door – so-called “trunk money” – to keep iron from stacking up at the ports. And yet GM’s management thinks it can improve the gross contribution during this period. Sure.
Revenues at GM will decline with fewer cars sold and shrinking gross contributions per unit due to incentives needed to match or exceed the competition. At an average revenue to GM of $25,000 per vehicle (my estimate before incentives which are paid after retail delivery), 900,000 fewer units sold in 2009 means a revenue loss of – ready now – $22.5 billion from the top line. And with the company already bleeding cash at the rate of $20 billion per year in 2008, is there any chance of cutting costs fast enough to become cash flow positive?
The killer chart proving my point came from Rick Henderson, the Chief Operating Officer. When the crap really started hitting the fan at GM back in 2005, management outlined its goal to reduce “structural costs” to 25% of revenue. (In 2005, GM’s structural costs were 36% of revenue.) Target date for 25% – something like 2009 if I remember correctly.
Liars may figure, but figures don’t lie. GM has never gotten close to achieving this target percent. In 2007, structural costs accounted for 29.5% of revenues, the best performance since 2005. But in 2008, they rose to 33.9% as revenues shrunk faster than costs could be cut. Anyone care to guess what will happen in 2009? GM’s simply chasing the rabbit down the hole.
But let’s heap on more bad news. GM Europe, like GMNA, will bleed cash badly in 2009. The sales projections for Western Europe are dismal. Maybe Andrea Merkel will lend GME some dough? Spain’s a write-off. And England looks like it will be a gloomy London gray for the year for car sales. GM’s key overseas unit will need cash too.
And here’s the worse news. By next month, after the last round of government bail out loans, GM will have a staggering debt load of $76 billion (including the present value of its VEBA liability). But let’s suspend reality and assume that the unsecured public bond holders and the UAW agree to the mandated debt-to-equity conversion.
Guess what? GM will still have $43 billion in debt – practically the same amount it had in 2007 ($39 billion exclusive of the VEBA liability). On a smaller revenue base in 2009.
And there you have it. GM itself has made the case for bankruptcy. There’s simply no point at giving this company more money to try and restructure. It just doesn’t make sense. Now let’s see when Wall Street tells the government that’s the case. Heck, we’ve done it for them.
Again, there’s no such thing as an orderly bankruptcy, just look at Circuit City. If GM goes into bankruptcy, they will not survive 2009. That’s my prediction.
Circuit City is a slightly different animal. They were forced into Chapter 7 because they couldn’t find a buyer.
GM is kind of in reverse from that, they’ve already found a “buyer” of sorts in Uncle Sugar, before even hitting Chapter 11, much less 7. All the TARP check did was let them maintain the legal status that they aren’t bankrupt, which operationally is a fiction.
If the government really wanted to “save” GM, they would’ve let the thing hit Chapter 11. The structural earthquakes in the company would have been severe but needed. I don’t think we’d be talking about Rick Wagoner as CEO in the present tense for instance. Gettelfinger’s crew wouldn’t be thumbing their noses at the painful reckoning that awaits their slice of the pie as well, because they wouldn’t even have the choice of thumbing a nose at anybody. Where the US Government could step in at that point, if they chose to do so for political reasons, would have been to be the lender of last resort for bankrupt financing.
As it sits, that’s still an option the government faces (especially with political pressure thrown in) but they currently are out ~$15 billion for essentially no change in the prospects for the company as currently envisioned. Very different situation than Circuit City, which apparently wasn’t good enough for a hit from the TARP pipe.
I think this article is misrepresenting the data in the presentation.
1) It is not saying that GM is forecasting 10.5m 2009 car sales, it is saying that GM is building a plan that would allow them to break even if the number was that low.
2) GM say they need to find $9B in savings. You say $22B, but basically you have pulled your supporting numbers out of thin air ($25K per car, 20% market share.) BTW, according to GM’s 2007 report, mean revenue per car worldwide was $19,190. ($178.2B / 9.3M units.)
There’s more. I am by no means a GM apologist – based on some of the products they have put out there, they have a long tradition of cluelessness – but this article reeks of cherry picking.
Allerton, the document doesn’t say anything about viability in a 10.5 million sales market. It is all about the Dec 2 plan for profitability, which they define as EBIT, based on a 12.5-13 million sales market. The $9 billion in savings needed for profit is based on that larger sales market (see page 9).
So if you need to improve by $9 billion in a 12.5-13 million market, how much more do you need to improve to make a profit in a 10.5 million unit market? That’s what Farago is estimating.
And remember that’s EBIT, which does not include interest.
There’s absolutely no chance of anything like success with Wagoner on the scene. About the time of the hearings in Congress, he talked about doing a strategic review of Saturn. Given the brand has produced loses for every year of its existence save one, such a review would mean abolition. A few days ago I read that he’s decided to keep Saturn; no need for a review then. Unless the trajectory of the economic mess can be turned around, a great many formerly viable US companies won’t be. Wagoner has be replaced soon for GM to avoid Chapter 7.
He’s in a bubble. He really seems to believe his claim the GM has the best management team. Wagoner might have substantial knowledge of the car business, but how could he not given his years of standing around. What he doesn’t understand is that successful management requires making the right decisions, and he’s made the wrong decision on Saturn every day he’s been CEO.
GM can succeed…and bankruptcy is the first step. They must cut all of the greedy, bloodsucking contracts with the UAW.
I have said all along that if I were king for a day, I would force GM to file for CH.11, and then assure them that they will remain viable through that process through a bailout. But Ken is right, without vast “fat trimming”, it really is just throwing good money after bad…and that is something I cannot support…unless I get a G8 GT out of it or something.
A Biologist may conclude that the Dodo bird was the stupidest animal on earth but I would say the stupidest animal on earth is the Taxpayer.
GM needs to do what sucessful businesses do, If you don’t produce you don’t work here! There are too many people in the GM organization whose only contribution is to build Potemkin villages. These people work in all facets of the business producing nothing but useless paperwork. They give lip service to ISO, Red X, Six Sigma, GMS, etc. but most of their efforts are concentrated on making up problems and then claiming to solve them. There needs to be a performance review from the top down and those people who can’t produce documentation of actual performance that positively impacts the bottom line should be let go. They need more car guys and fewer MBA climbers trying to pad their resumes with bullshit.
Doesn’t really matter since the government is just as bankrupt as GM. They can only keep up this charade for so long.
The US was better off having the King of England ruling. Less taxes and all and cheaper inaugarations.
bleach: So re-reading (in particular the small print on p9) shows that I was mostly wrong on both of my points, oh well.
However do I still believe the conclusions drawn here (bankruptcy is inevitable and GM should just give up) are not purely drawn from the presented data but instead are based on combining that data with the author’s guesswork. It might not be far off the mark but it is still guesswork.
GM are insolvent. I don’t think there’s an industry analyst, investor, or perhaps many of the “common” people who don’t believe it.
Now that the taxpayer is along for the ride with the stated aim of not adding to a huge wave of unemployment, the UAW, bond holders and indeed management have been given the signal to hold out for their own improved “deals”. It won’t be long before we hear about them playing rough.
Meanwhile, the real reason this whole process started; the employers of a much greater number of people in the supply chain and dealers are just fading away.
Someone (Congress? GM?) forgot to look it see if cars could be sold!
The government means well (for themselves). Letting GM and Chryco go bankrupt would result is millions of upset people that may not vote for them. This would also remove thousands of lobbyists who feed millions of $$ into the DC political machine.
So they put GM and Chryco on life support. All this does is maintain excess capacity in the market and destroys Ford’s chance for profit.
Bank of America is in serious trouble now, because of the government helped Citibank over the last 6-12 months. Circuit City is an example of how it should work. With Circuit city going down, Best Buy should be in a much better position to handle things.
If congress want to help fix the economy, they would have given all of the money for Ford so that Ford could handle the GM and Chryco liquidations and pick up Chevy, Cadillac and Jeep.
But since we know what the government will do (invent more money / debt to maintain power) we can profit from that knowledge. Unfortunately it will harm millions that either don’t know or know and can’t profit from it. Very sad time in our history…
“Circuit City is a slightly different animal. They were forced into Chapter 7 because they couldn’t find a buyer.”
You may make a good point, but Circuit City’s business model is/was as busted as GM is now. That has to be taken into account, methinks. And Uncle Sugar will inevitably bail themselves out of this mess soon, putting themselves in the same situation, the anti-import backlash will begin and get huge, etc…
(Hopefully, the 34K people out of work can find a new job soon and that Fry’s expands to Florida, too.)
No one can predict how many cars will be sold this year. We have to make our plans without that knowledge. But we do now that GM and Chrysler are bankrupt no matter how many cars are sold. To believe that they can be saved by infusion of government money is a nice thought.
And it may happen. But it is more likely that, as many people have pointed out, infusions of government money will be a waste of that money. It will not help, and the money will just be sucked into a hole.
Bankruptcy is not necessarily a cure. Circuit City found that out. And we have lots of experience with other companies dying out. Just like humans, companies are born and die. They don’t live forever.
GM is seriously ill, but not yet dying. Taking the bankruptcy cure will be painful, and GM may not survive. But any other treatment is just the same as ignoring the illness.
On the other hand, why Chrysler was bailed out I cannot fathom. Pork barrel politics? There’s no financial reason I can see. Chrysler has no chance of survival, and should be left to die now.
So why didn’t Uncle Sugar slide a few hundred million to Circuit City and “save” 34K jobs?
Is there a rule? More than 100K employees and your on the government payroll?
I’m guessing that electronic retailers aren’t regulated much. Industry’s with significant govt. regulation naturally have significant lobbying due to the regulation and therefore must be saved to maintain the flow of lobbyist fundulation..
Finance/Insurance/Real Estate.. Highly regulated… Automobiles.. Highly regulated…
Expect the nationwide health care plan to bail out the Health Industry, another area with heavy duty regulation/lobbyists…
So why didn’t Uncle Sugar slide a few hundred million to Circuit City and “save” 34K jobs?
There’s some reasons Circuit City was left out in the cold. One, those 34k jobs are spread over hundreds of metro areas in comparatively tiny retail outlets. They aren’t a concentrated political force anywhere.
If all those 34k jobs were in the biggest city of a big state like Detroit, Michigan your Sugar-lotto odds improve dramatically I imagine. Ditto for all those sharks in Manhattan.
And you’re right about lobbyist-bux. Poor Circuit City probably had less representation than Kyrgyzstan in the halls of D.C. power.
It also isn’t helpful that Circuit City essentially functions as a trade-deficit-upload-portal selling all those foreign-made gizmos. Politically toxic these days. Unless your planning on selling a hybrid-electric plug in vehicle with Korean batteries along with Daewoo re-brands, it’s hard to “look” American while selling Korean goodies.
We all agree that it is the “jobs” that cannot be lost in this horrific economy as the reason to save GM & maybe chrysler. This is the only clout that these companies have over everyone. The problem is circular. Once you save all these jobs for say sixth months, you then have two reasons to go on. First, the jobs are going to be lost this year rather than last, and secondly how do you admit to the taxpayers you threw good money away on a temporary fix. So, you make the fix permanent by shoveling more money in (again and again). It would be one thing to send in enough money to make better cars, but to try and prop up the debt service and obligations of these dinasours is unbelievable.
Ken,
Your conclusions, based on a loose set of your own assumptions, and in contrast to automotive investment experts on Wall Street, are quite novel.
I am unpersuaded by your arguments.
TheRealAutoGuy –
Wall Street’s so-called “experts” have mostly been wrong on their calls about GM until recently. Only Ron Tadross, BoA’s former auto securities analyst, went out on a limb several years ago and said GM’s stock was worth $10/share target price – an “option” price in his opinion then. TTAC has made the call for years that GM would face bankruptcy.
As far as conclusions, I’d say they’re anything but novel. And let’s face facts, without government money, GM would be bankrupt today.
While I think it’s likely, it’s not certain that the bailout of GM and Chrysler will continue for much longer. Obama and Congress have another swing at things when the much anticipated plans are brought forth. IMO, Nardelli was much the best of the bunch in presenting his case. Too bad that he has no case to present. And I’d think that the pull of Snow and Quayle would be diminished at least after Tuesday. Wagoner’s presentation will be a joke. God I’d love to be up on that dais asking him questions about Saturn, Hummer, the Cobalt, Aveo, etc. Maybe get Minimum Bob a seat at the table and tell him he has en minutes to use as he sees fit. This would complete the picture of utter incompetence at the top of GM.
I think the best we can hope for is that Wagoner gets his head handed to him and is quickly pushed out along with the bystanders. Then their replacements come back with a realistic plan that almost has to involve Chapter 11, and we see some movement in a positive direction instead of the years-long drift downward that Wagoner has produced.
I truly dont understand why so many people are down on the UAW.These are hard working middle class people only looking to put food on the table and live a decent life. They make excellent cars and ask only for what is right. If you want to point fingers ask GM and the UAW why they promised to give profit sharing to their employees and in order not to give them any they spent billions on failing companies like Fiat. All in order not to be fair. By the way why arent any Americans questioning the Financial bailout. These are the same people foreclosing on Americans daily. Why dont we loan them the money the way they loan. With a huge percentage and an ARM. Why isnt anyone questioning the pension plans of the goverment. They serve four years and receive a full pension no matter what the condition of the government is. Thats our money too. I can go on and on.
I am a UAW member and I make 27.00 an hour. I have medical benefits that cover me if I get sick. When I get 30 years in I can retire in which I have paid into a pension plan just for this purpose. I have three children and one in college,is that a bad thing? I work hard and I dont have an office job where I sit all day. I am tired as hell when I get home and nothing is givin to me. I am ashamed at americans that dont stand up for their rights and dignity as human beings and those that send their money overseas instead of spending their money where they live.
scartooth :
Then you should be ashamed of your employers, for their Mexican, Canadian, Chinese (parts) and South Korean imports.
Robert Farago:
Really now Robert, you’re not satified unless GM has 100% local content? What do you do, walk? Barefoot? I’ll bet you’d be one of the first to criticise them if they did not have foreign operations.
You know why they outsource so why pretend that you don’t with comments like this?? They exploit cheap foreign labor to hold costs and prices down. That’s something they learned from the Japanese.
In this globalized world it’s the only way to keep American pay and standard of living from falling. It’s one of the failures of globalization. If lowering that standard is what you want, than I can honestly say i’m not onboard with you.
Luther :
January 17th, 2009 at 5:39 pm
A Biologist may conclude that the Dodo bird was the stupidest animal on earth but I would say the stupidest animal on earth is the Taxpayer.
LOL. You should read up on what conditions are like in parts of the world sans functional governments. Utopias they ain’t.
I think it’s a good thing that GM is being forced to be at least mildly transparent with its finances since they’re begging from Uncle Sam. Now only if the financial sector getting vastly greater sums of cash than GM would do likewise.
I ask one thing. No matter what your JOB or where you went to school or for how long or what your major,whether Harvard or Yale or community college or high school. “Ask yourself” CAN MY JOB BE DONE BY SOMEONE ELSE FOR LESS? The ANSWER is YES it can and is being thought out as I speak. No matter what your occupation. At what costs? At the costs of slave labor? YES At the costs of unregulated industries? YES Who shall reap the benefits? The billionairres and corrupt politicians. Who will pay the costs? Americans and the exploited around the globe. Who is at fault. Americans Why? Because of their self centered untouchable ignorance. WE SHALL RISE TOGETHER OR WE SHALL FALL TOGETHER. WE ARE ALL INTERWINED. When you buy foreign products and do not think about who is making them and at what costs to them and the environment only worrying about saving a penny you are inadvertently becoming the slave owner to greed and also the instrument of your own demise.
The problem is being fixed, we just don’t have enough govt. money to finish the rejuvination. Look what we did with the paltry few billions you gave us say GM & Chrysler, imagine what we could do with 10 times that much. It will be the slogan for the next go around in Washington as they step up to get “real money”. (What really happened was that Washington kicked bankrupcy from Dec until March with their first injection of money).
I see comments referring to bankruptcy on the part of the automakers saying “people don’t buy cars from a company in C11”.That’s just smoke and mirrors.Under the right conditions people would continue to buy.I think that most people are more apprehensive now as opposed to GM being in C11 . At least the consumer would have an idea that they were serious about staying in business. I don’t think that there is a fair comparison. You can look at circuit city and say that that didn’t work. You can look at Delta airlines and say that worked very well. They came out of C11 much stronger and more competitive. In any case , Gm is not a big box store nor do they carry ticket buying passengers. Certainly the biggest concern would be retaining suppliers. I don’t know the answer but pumping money into the industry as it exists now is not the answer.
Many companies around the world are financed by their country.WHY Because they know that if their local businesses fail the whole country will then be depleted of monies. These monies that benefit their country go to human services,medical benefits which are NATIONALIZED and these companies provide this CAPITAL through the TAX system. NO Taxes no money and thereby no progress for anyone in their country. This same process has worked in the USA since its existence. Yet many politicians in the USA has promoted Businesses to leave the USA and knowing all to well the ramifications. We are headed for a deep depression and noone is immuned. The USA cannot compete with countries that have Nationalized health care and no laws governing human rights and workers welfare. This is how and why we must FIGHT for all American JOBS. UNION or No UNION you cannot compete with foreign goods. YOUR JOB IS NEXT. LOOK BEYOND YOUR NOSE. ALL JOBS CAN BE RELOCATED AND THEY WILL UNLESS AMERICANS STAND TOGETHER AND QUIT GETTING HERDED LIKE COWS TO THE SLAUGHTER.
I believe that we as Americans should embrace our companies and back them full force. Our businesses are being attacked daily from Walmart and such that are comprised of foreign goods that have drove American businesses out of business. The rule of SUPPLY AND DEMAND. WHAT WILL WE BE SUPPLYING IF EVERYTHING IS MADE ELSEWHERES. NOT EVERYONE CAN WORK AT WALMART AND EVENTUALLY THEY WILL GO OUT OF BUSINESS BECAUSE YOU HAVE TO HAVE A JOB TO BUY ANYTHING FROM WALMART OR ANYWHERES ELSE.
@ scartooth
Most businesses around the world are NOT financed by their governments. That is a recipe for a bankrupt country, not a bankrupt company. If we all only buy American, and the foreign countries only buy from their domestic companies, many more people get hurt, including your coworkers. GM sells many cars outside the US. What happens if those countries stop buying them? You can’t understand why Americans are angry at the UAW? I do not get lifetime benefits when I retire. Neither do almost all other Americans. But the UAW does. And now we are all paying for it. THAT is what we are angry about. That and the crazy work rules that cost us money, and the job bank that costs us money, and the refusal to negotiate that is costing us money, etc. Getting the picture?
I’d like to edit or correct a comment I made in an earlier post. When I said “it’s the only way to keep American pay and standard of living from falling.” The way I wrote it suggests I believe due to globalization, outsourcing preserves American wages and standard of living. I do not believe this; in fact outsourcing is the leading cause for the decline in wages and jobs in this country. However I do acknowledge companies outsource to lower costs in order to better compete. Right now, it’s really their only option.
Since the foreign transplants use far more outsourced parts than the D3, along with the fact they import half of the cars they sell here with 100% of non-US made parts, the suggestion the D3 is doing something wrong in using 10 or 20% non-US made parts is fallacious.
The transplants benefit by using their imports to subsidize the costs of their US made cars by raising the price of their imports and lowering the actual price of their US made cars. There is not a bigger outsourcing scam than that. The critics like to blame the workers, the unions and the labor costs for the price difference, this is far from the reality.
They also benefit from nationalized healthcare and the manipulation of the Japanese yen to artificially low values. This is why they are screaming about the yen going up recently. Honda is threatening to move out of japan (Search at autonews.com for the article) The healthcare issue alone is one reason they can produce cars in japan at far less the cost than any manufacture can do here.
The side that advocates bankruptcy for GM as being the only viable option are wrong for many reasons but the most obvious one is it ignores the unfair advantages the foreign companies have over them. GM cannot and would not survive a bankruptcy of any type since they would fall years behind in R&D with the loss of revenue that finances it. With the risk of losing thousands of jobs with the best pay and benefits, along with the millions already lost we, the US, would not be better off for it. Those that call for bankruptcy because of their free-market capitalist philosophies are missing the point when they adhere to one small part and ignore the big picture. To advocate the further erosion of our manufacturing base is lunacy.
Instead, what we should be doing is uniting behind the US manufacturers and the workers much the same way our parents and grandparents did in the 1940’s. Demand a level competitive playing field through trade policy, eliminate the unfair advantages that make a mockery of free market capitalism and start buying products that are made in the USA.
NJDAVE
I truly believe you are naive or truly ignorant to the facts,but it is well known that foreign governments do subsidize and will even lower the value on their currency in order to undermine the US economy. The benefits earned by the UAW were earned and payed for prior to their retirement. Its called a retirement fund. The work rules you talked so much about do not exist unless you are speaking of current State laws which the union enforces with OSHA and others and these laws or work rules apply to even the transplants. But they do not apply to the foreign parts that come from the foreign countries of origin and that is why they are able to undermine American companies.
njdave :
January 19th, 2009 at 3:53 pm
No, they are not financed, but they are most certainly supported. When they fall into financial trouble through no fault of there own,(I know thats debatable in GM’s case but the fact is they were on their way to a viable long term restructering before the credit crisis hit) foreign businesses have been supported by there governments many times.
Airbus in Europe is a good example, the governments there funded and supported that extensively. Another example is the toyota prius research costs was provided by the gov. even with tToyotas large cache of cash. We won’t even go to foreign pharmacuticals.
Blaming the workers and the union serves no purpose since those costs are miniscule in comparison to all the other costs. The difference in compensation between GM and Toyota workers is not what you’ve been told by the media. I won’t be surprised to learn it’s less than 3%. To make it even just to pacify the republicans is like paying a few pennies toward a million dollar debt.
The costs and prices will go up each year even if the workers worked for nothing.
I always find it interesting when people compare the wages and benefits of UAW to there own. People make choices, when someone decides to work somewhere and is paid better than you, they obviously made a better choice. Why are they maligned and demonized for that? Anyone could have stood in line and applied for that job. The fact is, you are paying more because of a unfair or non-existant trade policy more than anything else.
Insolvency, or lack of financial viability in the current sense is not the same as an argument for bankruptcy if one regards it in the national interest to bridge a company out of its existential crisis rather than incur an unacceptable disruption beyond the economic confines of said company. That’s where we are with GM, and the US-owned auto industry as a whole. BK is for less pivotal economic entities whose restructuring or demise does not threaten political and social disaster, even catastrophe.
Now, there are matters of governance, including assessment (and replacement) of badly flawed executive management, for which the rescuing entity must assume and exercise its own responsibilities. You can argue all day and night for weeks on end that you don’t have confidence in the Federal government to do this right, or that nothing positive can happen if one or two specific individuals remain in charge of their companies, but that doesn’t change the fact that hardly anyone believes that any of these companies will emerge from bankruptcy restructured and reconstituted as smaller, sleeker, functioning carmakers. Nor is belief that consumers will buy cars from companies in bankruptcy convincing as anything other than an intellectual abstract. It’s irreconcilable to believe on one hand that a good car like Malibu can’t find its footing because the brand of GM is damaged, and then to contend that bankruptcy won’t deter buyers. Balderdash. It’s a gamble too huge to take if you’re interested in retaining US-owned automotive manufacturing.
If, however, you’re not committed to US-owned automotive manufacturing as in our essential shared interest, then BK is a convenient abstract and your agenda is bare of any obfuscation. We get it.
At least the threat of bankruptcy, wielded by a tough, relentless and authoritative head-knocking negotiator begins to align the interests of recalcitrant parties across the board. So there’s leverage in the idea of bankruptcy, but to actually pull that trigger — do not pass go, do not collect $200, go straight to the demise of American-owned scalable automotive manufacturing.
There is no notion of “good money after bad” in this case. There is only the imperative of good money made good. We can do a much better job with this than the British did more than a generation ago. Let’s get on with it.
Phil
scartooth,
You are speaking of China keeping their currency artificially low and so hurting the US economy. This is true, but is not at all the same thing as the government supporting the car industry. As for your retirement fund, do you seriously believe you are the only company/industry to have your retirement fund suddenly yanked on you? Haven’t you been reading the papers? There has been a wave of that all across the country, across all industries. Millions of Americans lost their retirements, but you think you should have all of us bail out yours because you are in a union. We do not think so. I myself do not have such a retirement fund. I have no expectation of social security being solvent when I need it. I consider my retirement fund to be up to me, and am investing accordingly. I expect you to do the same. I do not want my money used to bail you out, unless you use some of your money to bail me out. Is this really such a hard concept for you to comprehend?
Yes I am speaking of CHINA manipulating their currency to undermine all AMERICAN business.They are not the only ones doing such practices. Every country we trade with has sanctions on our products and penalties and we let them in our economy scot free. As far as retirement,I hired in GM with the condition of a pension,just as Senators,Congressmen and even yourself agrees o terms of your employment.This is not a bad thing,it is only a bad thing in your mind. As far as LOANS there has been loans to private businesses from Government since the beginning of time. The only reason this has become such a big deal is due to someone termed it bailout now. Well there was a BAILOUT it was to the FINANCIALK Institutions which took OUR money with no terms whatsoever and then celebrated with bonuses and parties. GM on the other has set terms and dates of payback with interest. This Company also pays extreme taxes for over 100 yrs. as well as their employees. The financial firms have done what? They are now going to take my money and loan it back to me with HIGH INTErest RATES. I believe you are banging your head against the wrong wall unless of course you are either anti-American or have interest in foreign entities yourself.Either way you are truly mixed up.
So what makes a product enticing. Do we say hey look that guy gets a pension,oh that’s bad,he should work until he dies. Then we say look at them they don’t get a pension they work till they die and not only that they hire underage workers and pay them 10 cents an hour to make tennis shoes.
Or do we say hey I’m not buying those foreign products because they do these things and they poison our animals and have no human rights policies. Oh and that’s why they can undermine ALL AMERCAN BUSINESSES because they don’t adhere to the same rules as those in the USA.
I have MORALS and this dictates my purchases.
scartooth,
The fact that you hired on with an agreement for a pension means nothing, as you and countless others have found out. A company that has no money has no money for your pension either.
It is not my fault that you did not read the writing on the wall and make plans accordingly. You should have been saving and investing as much money as you possibly could for years, since everyone with a pulse knew the auto companies pension funds were insolvent.
Now you get to join the people at AT&T, GE, most of the financial industry, etc. who have all lost their pension plans, too. What makes you think you are special and your pension should be bailed out when theirs wasn’t?
Relying on other people to take care of you in your retirement is always a huge mistake.
scartooth,
I would not brag about your morals. you want everyone else to pay through the nose to fund your job protection, your lame work rules, your health care and your retirement. You belong to an organization that gets those things by threatening other organizations, with strikes and with physical violence on many occasions. In other contexts that is called organized crime, or simply “The Mob”. Sounds appropriate to me.
njdave,
In a company funded defined benefit plan you are paying into it with each hour you work. You are earning it and paying into it with your labor. With your personal investment plans you are paying into it with your earned income. Except for the convenience, there’s really little difference in how they are funded as long as the company is actually putting the funds into it. In the company plan you trust the company to manage and invest it for you. It’s too soon to know which works better since most middle class blue collar retirees are only supplementing their company pension and SS with a 401k. Those that believe they will be better off in the future with nothing but personal investments may be in for a rude awakening if it dries up and they are still alive.
Unlike you njdave, I do believe we owe the previous generation the financial security they worked for and earned. When a catastrophic event like the one we find ourselves in now occurs and wipes out retirement plans is why we have the PBGC, as well as FICA insurance on savings and CD’s. For obvious reasons, there is no insurance or guarantees for personal investments, IRA’s or 401k’s. Although it is something that could be looked at for retirement accounts once you reach a certain age.
Advocating bankruptcy for GM directly contradicts your “no bailout for your pension” stance. Since that is exactly what will happen. Keeping GM from bankruptcy will keep the pensions in their private control which will be much much less costly for the tax payer. That is unless you think the government will let the PBGC run out of money and make destitute millions of retirees, both union and non union. The PBGC is currently funded and working for the retirees that you made reference to. If the pensions of hundreds of thousands of retired auto workers would be put into it, the fund would be broke in no time.
The bottom line is, because of the financial crisis laid on us by the corrupted greed of wall street and the rich speculators we have two choices for a bailout. One will cost $XX dollars and provide bridge loans to GM and the other will cost $XXXXX dollars for many years to come.
The easiest, cheapest way to avoid the expense of bailouts is to put all of the anti-GM and anti-union biased rhetoric aside and start trading Hondas and Toyotas in for a D3 produced product. We need to return to a time when neighbors supported each other and end all of this divisive, sometimes blatantly hateful talk and feelings towards fellow Americans. Whether you are pro or anti union you need to realize we are all in this together and a united front will be what’s needed for a viable solution. I’m more concerned about my grand kids and great grand kids than I am about myself, we all should be.
dealmaker,
You make some good points. But, at least if we let the pensions go into the PBGC, it is a onetime shot.
Trying to prevent bankruptcy in a company with no viable business plan, and with infrastructure and contract commitments commensurate with a company owning 50% market share is an ongoing, never ending money hole.
The government can’t make this work any more than GM management can. God knows GM management made horrendously bad decisions, but I have no faith that the government can or will make better ones. The only things governments are good at is killing people and spending money like drunken sailors.
I am much more hopeful about private enterprise fixing the auto industry, if the government only lets it. If we let the D3 go C11, then new car companies will emerge to fill that void. The new entities will be making new contracts with suppliers, dealers, and labor that are appropriate to a manufacturer of their size and market share. They will also hire many of these same workers, since they are in fact the workforce that is trained in that work. Not all of them perhaps, but the best of them.
I also share your belief that we should take care of the previous generations of workers. That is a noble thought, but there is also reality to be dealt with. When the company has NO MONEY, they can’t honor the contract. When the government also runs out of money, which it will eventually do if it tries to fund all of the D3s commitments in perpetuity, they can’t honor the contract either.
Pensioners have to realize that. They have to plan for that. It is foolish to do otherwise. You are speaking of the world as it perhaps SHOULD be, I am speaking of the world as it really is. The money is not there. Period.
Everyone just buying American is not the solution either. We do that, then the Asians and the Europeans do the same, and then it is every country financing itself. There is no overseas market for anyone’s cars. A downturn in one country devastates that countries car industry because they can’t stay in business by selling cars someplace else until the home country economy revives. Is that what you really want to see?
The only thing keeping the D3 as semi-alive as they are now is overseas sales. What you propose would kill that.
Njdave,
I share your concerns whether this can be done or not, however I also feel because of the size and the number of people that could be adversely affected I think they should at least be given a set period of time to show they can make the necessary changes. I’m not willing to just write them off, there’s just too much at risk. Considering the amount of bailout money given to Wall Street with no stipulations of repayment, providing bridge loans to companies with the hope of helping survive this recession seems to be the just thing to do.
I have to disagree that the PBGC would be a one time shot, the numbers involved and the amount of money it would take would be much more than what the companies are asking for in loans, I think they (we) would be putting money into that for years to come. Right now the PBGC is already underfunded. If you add perhaps millions of people, there would be no way it could avoid government funding.
To my knowledge there has never been a bankruptcy of a company the size of General Motors so we really have no historical data to follow to see how successful it may be. Your faith in unrestricted private enterprise stepping in to create new companies and new jobs is admirable but because of the scale of such a project, it would most likely take years to complete. Meanwhile the cars would not be produced thus creating a void in the market that even Toyota would not have the capacity to fill. On the other hand with the job losses there may not be a large increase in demand anyway. Which is much more likely and would effect many more companies and businesses. Double digit unemployment would affect many more times people whose jobs are far removed from the auto industry.
Considering current events it’s curious to me that you still have faith in the concept of private enterprise. Their success to failure rate is abysmal. The fact we have lost so many jobs this past year attests to that. Not to mention the entire financial mess we are in, which is why we talking about BK for GM. I see that entity as being the most corrupt of the corruptible. Because of the fraud, ponzi schemes, corrupted greed and how every area of the market is manipulated almost daily they have all but destroyed any semblance of free-market capitalism all in the name of private enterprise. No, unrestricted free enterprise is what got us to where we are today. There is far too much at stake to allow ideologues that much control without government interaction. Old rules no longer apply, not just for unions (which has been suggested) but for business too. Welcome to that “new world order” that globalization brought to us. One house of cards come falling down on another and here we are blaming companies, workers, unions for things they really had nothing to do with, yet are the ones that could pay the heaviest price.
A final thought, I believe all pensioners plan for their retirement, and they take their pensions into account when they do. No offense but, to suggest they were fools to count on company benefits as opposed to doing it your way is an unrealistic and frankly an elitist comment to make. When you work for a company that provides a defined benefit pension plan it is not unreasonable at all to believe it will be there when you are ready to retire. Up until the end of ’07, GM’s pension fund was fully funded, one of the only funds in the country to be that healthy. Since it would be the first thing to get raided, bankruptcy would likely wipe it out.
dealmaker,
I do not believe in UNRESTRICTED free enterprise, just private enterprise which is regulated. But your view is a little narrow minded.
You point out the banking mess, which you say is leading the C11 for GM we are talking about. First of all, that ignores the 30 year trend of declining market share that GM had prior to the financial meltdown. If not for that GM could easily ride this out. Their refusal to face reality decades ago is what really got them into this.
Second of all, the government is what really got us into this financial mess. Corporate greed an malfeasance only made it worse. It start when ACORN sued Fannie Mae, Freddie Mac and HUD in the 1990’s claiming their lending standards unfairly kept a disproportionate amount of minorities from being able to purchase a house. The standard at the time was that you could not take out a mortgage more than one three times your annual income.
So HUD directed them to make loans available with lower underwriting standards. Fannie and Freddie did, and thus the sub-prime mortgage was born. To compensate banks for the increased risk of those loans, they were allowed to charge higher interest rates on them. Banks saw those rates, got greedy and went hog wild for sub-primes.
Then a bunch of MBAs couldn’t figure out that house prices couldn’t keep rising forever, and packaged up the sub-prime mortgage many firms standards would not let them but as mortgage backed securities that they could and did buy, and here we are.
So bad decision making was a broad mix of government agencies, bankers, mortgage brokers, government regulators, and even homeowners who bought houses they knew they could only afford at 1% teaser interest rates that inevitably went up and wiped them out.
But this didn’t kill GM, GM did.
My parents were a GM family for 5 decades, mostly Oldsmobiles. My mom’s fondest dream was to own a Cadillac. When they retired and move to a lower cost of living area, they got one. It was the worst car they ever had. Three transmissions, too many electrical problems to count, over weight, under powered, and brakes that started to fade as soon as you pushed the pedal.
Many times in snow, the car could not get up the hill to their house. They had to leave it at friend’s house and get a ride home in his Toyota. Add to this terrible dealer support and experience, no loaner car, most often 2 day service visits leaving them without a car.
After 5 years my mom got disgusted and bought a Honda. She loves it, and plans to buy another when it dies. No problems at all , great dealer experience, great loaner cars. And this is in a town called Uniontown, PA. So you can imagine the kind buy american, buy union made mentality in that town.
GM has permanently lost a loyal customer. If they can’t keep loyal customers in their 70’s, how do you expect them to attract new young ones?
As for me, after watching my parents experiences with a string of GM cars, I swore off GM except for the Corvette. If I didn’t have 2 kids in college I would like a Corvette but it ain’t happening.
I absolutely contend that the current financial tsusami is the cause of the D3’s problems. It’s without a doubt. The restructuring plans they had in place for 3 years prior were on many occasions breaking sales records before this credit crisis. They are certainly not the only businesses caught in its web. The reasons for it and who’s responsible is irrelevant at this point. What recourse we have to correct it should be our objective. Those that say do nothing and let the markets work it out are in my opinion the narrow minded ones. They ignore the magnitude of the harm to people, regular people that would be forced to bear the brunt of the burden. The list of small businesses that would be harmed goes from A to Z.
The market share decline is a red herring. In 1962 when they had a 50% share they sold fewer cars than they did in 2007. If we look at the numbers we can see how unlikely it would be to maintain a 50% share under any conditions. I believe the market sold 17 mil vehicles in the US in 07, think how large they would be if they produced and sold over 8 million vehicles in the US alone per year.
They (GM)are playing with a stacked deck and doing remarkably well considering all the facts. For example, they don’t have the luxury to import half their vehicles that cost considerably less than it costs to produce them here. They are not based in a country that routinely closes their markets and manipulates their currency. These are but two examples of that stacked deck.
I owned an 84 Chevy S10 I drove for 16 years, with nothing ever going wrong. I also owned a Toyota Corolla SR5 that was a nightmare, everything and anything went wrong with it. The point is, it’s no more logical to believe Toyotas are junk in 08 than it is to say the same for GM and Fords. The quality gains are one of the biggest successes they’ve made with their business plan restructuring of the past few years. They are currently meeting or exceeding world class quality standards yet the critics give them no credit whatsoever.
This whole issue gets me thinking about motives. I’m looking at a headline that states “new jobless claims hit 589K for the week”. We not only have to do whatever it takes to keep as many jobs in the D3 from disappearing. We have to look at the other pertinent industries that have been hurt as well. I can’t help but think some want BK for the D3 because they think it’s the perfect opportunity to break the union. They want to break the union no matter what the cost. Talk about narrow mindedness.
Its nice to see an American genuinely concerned about Americans. I would like to see transparency by the foreign businesses. I would like to see THE TRUTH ABOUT CARS show the differences in laws and restraints between foreign and Domestic businesses. They have no regulations from the fishing industry to killing whales,lead in their products to injecting synthetics into their foods in order to make their product seem something other than what it is. They have devestated families across America from Poisoned pet food to lead tainted toys ,candies for our kids. They run slave shops with forced child labor and they go unregulated and are able to pollute their environment at will. Yet we hold our businesses to standards from pollution controlled smoke stacks to carbon emmisions. Yet our Government has not penalized these governments for their tactics. They devalue their currenies in order to undermine Americans,and yet they are not penalized. They have been gave a free ticket to do as they please with out restraints and all at the costs of the American business, How many lobbyists and how much money has lead to the selling off of the American industry. The same Industries that pay taxes to the same who let these entities to run free.