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In a rare turn of truth-embracing, the Freep is printing the total cost of a fully-funded auto industry bailout: a cool $97.4b. That’s “up to $39 billion in survival loans for General Motors Corp. and Chrysler LLC, a $25.5-billion rescue sought by auto suppliers and $25.4 billion in requests to retool auto plants to build more efficient models” plus $6b for GMAC and $1.5b for Chrysler Financial. “And,” admits the Freep, “it’s likely not the end.” They even mention the minor detail that “the aid sought by Detroit’s automakers is many multiples of their current market values,” but not before forcing the reader to sit through some choice relativism from Clinton Labor Secretary, Robert Reich. And they wonder where the love is?
23 Comments on “Bailout Watch 410: Freep Does The Math: $97.4b And Counting....”
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Here’s some more math to chew on…
How many profitable vehicles would GM need to sell per month to offset a $2B/mo. cash burn?
I believe in a typical year Toyota makes approx. $1500 per buggy vended in the USA.
$2B/$1500 = 1.33 million per month.
16 million per year. Doubtful that will happen.
Current cash burn may be higher.
Dear Domestic Defenders-Please stop telling the rest of us to “Buy American”.
Sales won’t help.
This company is a freaking mess. Your purchases have the same effect as throwing snowballs at a forest fire.
Bunter
Dear Import lover-Please stop trying to justify your support of foreign car companys by bashing domestics.
GM’s market capitalization closed the day at $1.22 billion. Shows how much people who have to live with the consequences think the company is worth.
Well, lately, even Toyota loses money on each sale.
Auto profits depend on factories producing cars at a rate near 100% of capacity and buyers paying close to sticker.
US capacity is still over 18 million vehicles per year. Nobody makes a profit unless capacity is cut to the current 10 million per year sales rate or sales return to 2005 levels.
dear mikey-I am not bashing the domestics.
I am pointing out that GM’s cash burn is so staggering that even a sales rate greater than the entire US market at profitable prices would not cover it.
The insistence that our vehicle choices will in anyway affect the outcome of the GMS Titantic is insupportable.
BK is the way. Those jobs are already, irretrievably, lost. They were years ago.
BTW, here is my personal vehicle ownership history.
GM-3 vehicles
Dodge- 1
Toyota-1
Honda-1 (current)
Mazda-1 (current)
I buy based on design, reliability and need.
I need a minivan and a small car that actually gets good mileage on the road.
GM offers? Zip. (Compare actual road test mpg on their offerings if you doubt). And a CUV is just an overpriced minivan with poor mpg and interior room.
So lighten up a bit on the assumptions…OK?
Respectfully,
Bunter
njoneer-hence, I specified “typical year”.
Your fellow njoneer,
Bunter
“Please stop trying to justify your support of foreign car companys by bashing domestics.”
Good point. It’s not necessary to justify support of foreign companies in any way.
@Bunter 1 I support buy American I’m from Canada,go figure.Hey buy whatever you want but don’t knock the guy that prefers domestics.I’m a loyal guy I buy and support the company that fed me for 36 years.Though I’m not too sure about the next 36 years,or 36 days for that matter.
We got one thing in common Bunter, I got no time for CUVs.either
Respectfully,
Michael
mikey, I respect your opinions and don’t have any personal quarrel with you. And I actually like the Impala, built in the plant where you formerly worked. However, I have to be honest with you in our family we owned two GM vehicles manufactured in Oshawa. A 1978 Caprice, which had a good drivetrain but absolutely abominable quality. And then a 1985 Caprice (I guess the durable drivetrain was enough to persuade my dad to go back.) The latter couldn’t even boast a quality drivetrain; the 305 sucked and the tranny was a step back vs the old one. And the rest of the car was an embarassing joke. I will spare you a blow by blow accounting of it’s numerous, ridiculous faults. (The only solace GM can take from this is that my dad went to Ford after that, and his Crown Vic was a disappointment as well.) That was the end of our GM ownership. Judging by friends service bay queen Suburban (isn’t GM supposed to at least do SUVs well?) they are still turning out some real dogs.
I’d still by a Corvette or maybe a Cobalt SS or an Impala at a price. But any ‘bashing’ GM (and Ford and Chrysler) get is well deserved. I’d be delighted if that wasn’t the case, but that’s been my experience.
Huh. So, if I remember Econ 102 (macro) correctly, the auto industry has a smallish number of players because it has significant barriers to entry, yes? It costs a bunch of money to start a car company (see Tesla deathwatch). Let’s exaggerate and say it costs a billion dollars, for the sake of argument.
For the cost of this auto bailout, the federal government could have found nearly 100 entrepreneurs who really, really wanted to start car companies but couldn’t scrape together the financing, and given them a billion goddamn dollars each to have a go at it. Anyone else think that might have brought a measure of innovation and perhaps even success to the US auto industry over time? Maybe even a better chance of the taxpayer getting paid back some day….
MMH: I’m with you. Give the money to Tesla and other entrepreneurs who have good ideas, no UAW, and no bad quality records, and get started.
Funny/sad about the $97B price tag – CBS News (of all people) reported back in the Fall of 2008 that the actual price tag for the Beg 3 bailout could reach $75-100B to do the whole job. Nobody cared then. But the $97B sounds spot-on.
Ever hear the joke that “we lose money on every one we sell, but we make it up with volume”? Well, “buying American” will only hasten the demise of the Beg 3.
Ever hear the joke that “we lose money on every one we sell, but we make it up with volume”? Well, “buying American” will only hasten the demise of the Beg 3.
To be fair, many of the costs are fixed independent of the number of cars sold so selling more cars could postpone not hasten out-of-cash death. This only works for models that could sell at a profit like a Chevrolet Silverado but wouldn’t work for the likely unprofitable Cobalt.
Assuming the US auto market can support car sales of 10m per year for the next few years, how much would GM need to cut to make a profit at that sales rate?
Uh, Governor Schwarzenegger, can you please tell us how small your pee-pee is now after all those years of pumping iron?
Really ? Thanks Gov…good to know.
A-Rod? Are you gettin’ this?!?!?
Yeah Nick R we built the 78 I remmember them well.The 85s we built out in Nov 84 so I don’t know where you dads came from.My loyalty will always be with GM.I’m truly sorry that your dads car was such a piece of shit,but lets not forget that Toyota and Honda cars wern’t perfect then or are they now.
mikey the 1988’s Vans that GM built in Scarborough were none too good either, I have one here, its resting till Spring, it still runs good and I keep it road worthy, the engine was great, gas hug but ran well, I also have a RAV4 Toyota and have never had any problems with a Toyota product, granted all vehicles from a lot of Makers are not all perfect, but I do like what Consumer Reports mention about Vehicles, like the Chev Aveo in the March issue, GM should never ever produced such a vehicle, but I know they where looking for a vehicle like the Aveo to save Gas! as they dont know how to produce a small 4 cyl Car period.
I’m wondering if the ‘Buy American’ crowd goes the whole nine yards and chucks their Sony Playstation 3s into the garbage, or stops shopping at WongMart, or stops buying food from manufacturers that package foodstuffs made in China, or tosses out that Toshiba laptop with Intel chips made in the Philipines, or checks out the labels on all their clothes and realizes they are all made in Bangladesh.
Does that happen? I’m just curious.
The buy american thing is getting old. How bout the GM lovers start spouting “buy Brazilian?” Oh, thats right, cant talk about taxpayer money going there, can we?
Look at Honda, because they have new plants, no union contracts, and they just plain know what they are doing. They have published nice summaries of their North American operations. Honda has the capacity to manufacture 1.6 million vehicles, from 12 Plants employing 25,000 workers. The plants cost almost $11 billion.
Let’s just take a billion dollars for a 200,000 v/yr plant as a rough baseline. Now in 2007 when everything was coming up roses, the domestics produced about 8 million vehicles. To produce that many units would at these ratios require 40 plants costing — tada — $40 Billion. Let us be generous and throw in $2 Billion of development costs for 16 lines of vehicles that will sell at the rate of 500,000 v/yr each. Another $32 Billion.
So for a mere $72 Billion we could have a brand new industry. Now the mfgs would also need working capital, but, OTOH, not all of the Beg 3’s* plants need to be replaced and many of their vehicle lines do not need development — most of the trucks have been completely renewed in the last couple of years and a number of lines are either fairly new (Ford Fusion, Chevy Malibu) or are close to market (Chevy Cruze, Ford Fiesta).
The only conclusion I can reach is that much of the money in the bailout is going to go to legacy claimants, i.e. UAW, dealers, bondholders. But, you knew that.
*kodos to gslippy for naming the malefactors of great worthlessness.
mikey,
Have you read the Viability Plan? Have you noticed that one of the key features of the plan is tens of thousands MORE terminations?
Why would any US taxpayer loan GM tens of billiions of dollars to axe tens of thousands of jobs and probably send even more overseas?
Interesting…had to type the below twice to get it in. Deleting first post in EDIT.
I am getting tired of the “they dont know how to produce a small 4 cyl Car” routine.
It’s a machine. Engineers design and build machines. They have engineers on the payroll who haev successfully designed and built 4 cyl cars.
I have a Ford 4 cyl with 500,000 miles. I have some body cancer to attend to but I expect at least another 100,000 out of it (if I can save the body in this salt air environment). It is in in house design (Ford) and not an engine sourced from another supplier (i.e. FIAT).
Both GM, FORD, and for that matter Toyota and Honda are International Corporations. They long ago stopped being American or Foriegn.
Well, until the US Govt bought them…
Please, lets drop the “they dont know how to produce a small 4 cyl car” and buy American routine. We’ve bashed it to death.
hey mikey,
Nothing personal on this side either.
Perhaps you missed my point.
I was NOT critisizing YOUR choices.
My point is that many (not all) of the Domestic Defenders try to shift the blame to those who have chosen other vehicles and ignored the fact that the internal systems at GM are terminal.
I was mearly asking that they recognize that we are not the problem, GM is it’s own self-sufficient problem. See Mr. Kleinbaum’s excelent series on this.
If anything, the attempt to blame GM’s finacial difficulties on the “Import Lovers” illustrates that GM’s destructive culture extends far outside of the company itself.
Respectfully,
Bunter
MMH :
February 19th, 2009 at 5:36 pm
Huh. So, if I remember Econ 102 (macro) correctly, the auto industry has a smallish number of players because it has significant barriers to entry, yes? It costs a bunch of money to start a car company (see Tesla deathwatch). Let’s exaggerate and say it costs a billion dollars, for the sake of argument.
That’s probably an understatement of entry costs, not an exaggeration. I would estimate that if one wanted to start a mass market auto manufacturer in the United States (not a niche maker of expensive sports cars like Tesla), one would need to have twenty billion dollars one would be willing to invest.
Needless to say, there hasn’t been a new mass market auto maker in the US in at least fifty years.