That ain’t me talkin’ (no, no, no, it ain’t me, babe). The headline comes straight to you from CNNMoney, with a little help from Chris Isidore—a reporter who literally laughed down the phone a year or so ago when I suggested GM would go Tango Uniform. So, from what industry could Mr. Isidore find anyone with a shred of credibility—without a bust of Lenin on their desk—who’d argue to nationalize GM (other than the people who’ve already done it)? Rail!
Larry Kaufman, a former rail executive and consultant, argued in a railroad industry newsletter Monday that the U.S. Railway Association, the special government agency set up in 1974 to deal with bankrupt railroads, is a good model for saving the U.S. auto industry…
Kaufman suggested that a special government agency would help the companies continue to sell cars while they reorganize because it would assure consumers that the companies and their warranties were not about to disappear.
OK, that’s one. Here’s another.
John Barnum, a former deputy secretary of transportation who was involved with the creation of the USRA and Conrail, said taxpayers are likely to lose an even greater percentage of the loans already made or requested by GM and Chrysler unless the government takes a more direct role in restructuring the companies.
“You can not let the people who mucked it up to this point continue to get tax dollars,” said Barnum, now an attorney at with McGuireWoods LLP.
He argues that a government agency making the decisions during a bankruptcy reorganization would work better than having the companies trying to reorganize themselves.
“That’s the only way to get the industry slimmed down to where it can make money again,” he argues. “The bankruptcy courts can’t do it alone.”
Any more takers on this idea? Someone OUTSIDE the fail industry perhaps? Hey, CNN doesn’t pay Isidore just for regurgitating other people’s papers (says a professional regurgitator).
One auto analyst thinks the idea of nationalization, while not perfect, may be the best of the available options — especially since the government has already committed billions of dollars to trying to save GM and Chrysler.
“We’re paying for it anyway,” said Kevin Tynan, auto analyst with Argus Research. “Would it be that much worse than the people now at GM continuing to make the decisions?”
I’m thinking . . . yes. Yes, it would.
UPDATE: Slate columnist Matthew DeBord continues his call for a “soft nationalization” of GM and Chrysler. [Thanks to Detroit-Iron for the link.]
GM leapfrogged the Japanese on electrification, and this was strategically smart because GM knew it was going to get clobbered on hybrids. We need to keep this and other advanced-mobility development alive for reasons that have nothing to do with Detroit’s survival and everything to do with the fact that, as Lewis points out, we’ve run out of air in which to put our CO2. It’s our own survival we should be worried about.
In the recent past, I’ve argued for a “soft” nationalization of the U.S. auto industry, but it’s become clear, based on how much it’s going to cost us to keep GM and Chrysler alone in business, that a good old-fashioned hard nationalization is now a better long-term option and would deliver a better return-on-investment. We won’t get our money back, but we will be able to put GM in a position to use its immense manufacturing capacity to begin the process of replacing oil-consuming vehicles with EVs, a transitional process that will consume decades.
GM is complex. If the government continues to intervene before Chapter 11 reorganization then it will be a disaster, and GM, as a viable company with marketable products, will be destroyed.
On the other hand, if the government simply guarantees the warranties (which they could charge GM an insurance premium for, FDIC style) and acts as the initial debtor in possession in a Chapter 11 then that might be the best solution.
Optimally the government would encourage/force some of the major TARP participating banks to act as debtor in possession for the GM restructuring. The banks would not hesitate to drop brands and rip up UAW contracts.
All I’m hoping for right now is that the government has the courage to let Chrysler go Chapter 7. Chrysler is a failed company with no future (it would be cheaper to start a car company from scratch than save Chrysler), it has very few US employees, and its liquidation is the reality check that the dealers, bondholders and union workers at GM and Ford need.
It didn’t have to come to this. I am a capitalist my parents fled communism but what we have here is not capitalism. What we have here is what we have too often in this country. We have a company that is run for the benefit of management and not for the benefit of the owners. Every attempt to reform management or change management has been shot down by the board of bystanders. The board refuse to change the management of GM because they do what management tells them to do. Rick Wagoner is on the board hell he’s the chairman.
Why do you think they paid huge bonuses complete with backslapping and high fives over the years that GM was losing money and market share. GM refuses to change its leadership hell it refuses to change period. I am not a communist but the ownership of GM has been usurped many years ago from the true owners the shareholders. At this point if GM goes Ch11 the true owners are wiped out anyway so I say go ahead. It the only way now to change GM because the government is going to give them the loans regardless. If we have to give loans that are never going to be repaid and the alternative is the company going out of business ( and at this point I don’t think it will be CH 11 but CH 7) then so be it better that than to let these pigs continue. I ‘m looking at you Rick Wagoner
Dear GM,
Please die soon.
Thanks,
America’s future.
These are interesting times. The government owns insurance giant AIG, owns the dominant mortgage backers (Fannie & Freddie) and controls Citigroup. Using these entities along with the traditional government agencies they have the capability to do just about anything they like.
From the CNN piece, Kaufman’s best quote:
“Management of bankrupt rails were spectators. They could not fix their own companies,” Kaufman wrote. “Similarly, expecting auto manufacturers’ management to fix their own companies reminds one of the definitions of insanity: the same people repeatedly doing the same things but expecting different results.”
This bit from CNN was interesting as well:
“You can not let the people who mucked it up to this point continue to get tax dollars,” said Barnum, now an attorney at with McGuireWoods LLP.
How much you want to bet Barnum didn’t actually use the word mucked?
Somebody needs to replace the management at GM with better people. The board of directors certainly isn’t going to get that job done, so who?
Here are the potential short term outcomes, ordered, in my opinion, from best to worst. I fear that what will really happen will be near the bottom of the list.
-GM is put into a government backed Chapter 11, and Chrysler is left to the market, which will quickly result in its Chapter 7.
-The government continues to fund GM without Chapter 11, but leaves Chrysler to the market, to go Chapter 7.
-GM and Chrysler are both put through government backed Chapter 11s.
-The government continues to fund GM and Chrysler without Chapter 11.
-The government continues to fund GM and Chrysler without Chapter 11 and forces them to merge.
By the way I love that Stalin era style illustration although is it off an old bond or stock certificate?
“Amen!” to just about everything said up above.
But here’s the kicker – most everything everyone has done so far has been legal. Executives and board members cuddling up together? Legal. Raiding pension fund? Legal. 6, 7 and 8 figures in compensation for destroying one of the largest companies in the world? Legal. Giving them billions of taxpayer dollars? Legal.
I think the real problem is us. Shareholders and citizens are letting this go on far too long. Some of these titans of industry and politicians are just like little children – they shouldnt be allowed to run around and do things unsupervised. Unfortunately, that’s exactly what we’re doing, letting them run around unsupervised.
no_slushbox I think we will get your next to last option unfortunately
they haven’t listened to The Buickman and won’t. have a leak, call a plumber. need to sell some cars, ask a salesman. duh.
AAAAARRRRRGH!
Where is the courage in the corridors of power?
In a world where Soviet Unions et al were not “too big to fail,” GM and Chrysler should join their bigger, eviler brother in the dustbin of history.
The problem with the government taking over GM and Chrysler is that it would resist the steps necessary to make these companies viable – namely, a radical restructuring that would involve large numbers of white- and blue-collar job losses – even more than current management for political reasons. It’s also unlikely that the government would encourage a large-scale reduction in the dealer ranks, although market conditions may take care of that one.
Actually, given the way government works, I wouldn’t be surprise if the government actually kept current management, which would give us the worst of both worlds.
The WTO would have a hissy fit! GM’s competitors would also have a thing or two or three to say also.
Can anyone say ‘can of worms’! Hey pass that can opener please!
Marcus there have been numerous attempts by shareholders to hold management accountable but they have all been shot down. Typically you have the board support or not support measures taken for a vote by the shareholders. Which way do you think the board of directors goes when it comes to change or reforms?
I don’t have any problem with exorbitant rewards for success, I don’t have a problem with titans of industry when they are the actual owners like Bill Gates or even the original Henry Ford. They built their empires and it was theirs. My problem is with employees like Rick Wagoner acting masquerading and paying themselves as if they are the owners when they are in fact suppose to be the servants to the owners..
Buickman Nor will they listen to you or to Jerry York, Kerk Kerkorian or to Ross Perot. They should have but now its too late. I really would have liked to have seen what you could have done.
Geeber I hope we don’t get that disaster scenario.
Nice pic.
How can anyone regard the American railway system as a model of success?
no_slushbox: Your scenario summary seems spot-on. I fear the worst.
@Sherman Lin – Numerous failed attempts by shareholders and relatively few seat changes in the House and Senate (and a President that voted for the bailout) this past election. We’re doing a bang up job holding those accountable who aren’t taking their responsibilities seriously (or have completely different ideas of what those responsibilities are).
@ geeber :
My thoughts exactly. In fact, I predict the government will nationalize GM and Chrysler, appoint the Car Czars as supervisors, and keep GM and Chrysler’s management teams intact.
I got to agree with Geeber…but take the management teams issue aside, what about ‘the workers’?!?!? Can you imagine the ‘Czar Board’ and accompanying U.S. President trying to explain why they felt compelled to ‘allow’ the OEM to close a plant, layoff workers, cut pay, benefits etc? Like that would ever happen. Gov’t rarely shrinks any ‘program’ it touches…like Geeber predicts, a true nationalization of the auto industry might mean an entire industry filled with effectively Federal Gov’t employees…
Without a profit and competitive market motive, I don’t foresee American Leyland making anywhere near competitive vehicles. As such, I would much rather see the Federal Government insure loans issued by private banks, not federal nationalization and let the bankers hold their feet a little closer to the fire then a political entity scared to death of making waves.
I’m at the point where I think they should do whatever would be most likely to benefit Ford.
Time to Euthanise GM!
Headline corrected.
Bunter
BDB-you are right, however “wiser heads than ours” will probably do as Geeber and no-slushbox predict.
AAAAARGH is right.
Bunter
not finished as yet…just a bit more time consuming than one might have imagined.
Wilmington or Bust.
http://en.wikipedia.org/wiki/John_Galt_(Atlas_Shrugged)
“Nationalization” does not necessarily imply a Soviet-style management takeover or even an American Leyland scenario, so much as it does a variant of bankruptcy. It puts the reorganization plans into the hands of a third party — the government’s representative — and takes it out of the hands of the current management, which clearly aren’t capable of doing it.
Unless you want them to die, it’s a bit late to talk about Chapter 11 as a solution. We have to acknowledge that as of today, Chapter 11 would inevitably lead to liquidation.
These companies cannot survive Chapter 11. There is no workable plan to justify a court-approved reorganization, and no sources of private debt or assets to pay for it. Bankruptcy could have worked a few years ago, but now it’s too late — in this particular case, Chapter 11 means death, not reorganization.
If the government could control the assets, break them apart into a “good GM” and “bad GM”, and then sell off the “good GM” to a third party, then that would be the best deal you could get, short of death. But whatever happens, the money is gone and we’re not getting it back.
I’m at the point where I think they should do whatever would be most likely to benefit Ford.
Bingo. The focus should be on getting one of them to be a winner, not on propping up three losers.
As such, I would much rather see the Federal Government insure loans issued by private banks, not federal nationalization and let the bankers hold their feet a little closer to the fire then a political entity scared to death of making waves.
I like this idea–as long as I get to participate. What is the minimum loan I need to make to put myself in a position where I get to collect the upside rewards and the government takes all the downside risks? Although I will not be at all confident in seeing any rewards seeing as how the same bankers who destroyed the world economy will be running the show.
I would much rather see the Federal Government insure loans issued by private banks, not federal nationalization and let the bankers hold their feet a little closer to the fire then a political entity scared to death of making waves.
A government guarantee has the opposite effect. Why would a banker hold the management’s feet to the flames when the bank gets repaid, no matter what happens? The lender’s incentive would be to draw down on the guarantee, not to fix the borrower’s business.
In any case, a lender is not in any position to do anything to oversee the operations. That’s the job of management and equity holders, not the lenders. If there is to be a turnaround, new management will be required.
We have already nationalized GM. It is like feeding a stray cat. Once you do that, you own it, whether or not you wanted to.
Without the Government’s cash GM is dead. The real issues are: can we privatize it and recover something, and can we privatize it in a form that can survive in competitive world market. In order to do that current management must be replaced and the unions must be lobotomized. The current gang in Washington has neither the guts nor the will to do either.
S.N.A.F.U.
Whatever form it takes, the union and dealer contracts, as well as current management have to go.
Let Chrysler die, the sooner the better. Sell Jeep to a decent company.
If we’re going to pay for GM anyway, what’s wrong with owning it? On the upside, I think with government ownership, there’s more likely to be an active effort to turn closed facilities into productive resources. Each closed facility will become the target of local development efforts, and it will be easier to turn them over to local control.
Quote Stu Sidoti: ” I would much rather see the Federal Government insure loans issued by private banks, not federal nationalization and let the bankers hold their feet a little closer to the fire then a political entity scared to death of making waves.
Quote PCH101: “A government guarantee has the opposite effect. Why would a banker hold the management’s feet to the flames when the bank gets repaid, no matter what happens? The lender’s incentive would be to draw down on the guarantee, not to fix the borrower’s business. “
Good Question PCH101…here’s my swag of an answer…
1: I don’t think the Feds insure the full amount of interest if the OEM defaults so there an incentive to get the money out of the OEM not the Feds…I think (I could be wrong, someone correct me please; I know R&D , not Finance) that the Feds only insure the principal and a minimal amount of interest.
2: Having a private banker from my experience usually means they examine your books, plans and long-range goals a lot harder than some Federal ‘Board’ that doesn’t know squat about the car business…I have given internal tours at work to some very savvy bankers that know my R&D world pretty darned well…I’ve never met a state or Federal official with a similar level of knowledge. Some bankers and investment houses ask better questions than the Board Members…True that.
3: Which leads to…hopefully a more competitive company that repays the loans, maybe even early and hopefully if everything goes right, is able to borrow money again and do business over and over again…If you have a great banker’s rep or specialist at your investment firms, it can be a very helpful in navigating the finance world. Right now, we all may have a low opinion of our banks, but I have an even lower opinion of our Federal Government’s ability to understand business.
While our bankers clearly don’t know everything either, I’d much rather borrow the money from an organization hell-bent on making a profit, rather than from a government seemingly prone to a slavish devotion to public-opinion poll driving new regulatory policy based upon today’s cause-du-jour…. It’s bad enough borrowing the money…it’s even worse to tie that money to a social agenda that might be quite removed from technical realities.
@ TVC15:
Dear America’s Future:
Die.
Sincerely,
GM.
Nationalization is the brightest idea i have heard since this debacle with GM and Chrysler started. but the latter deserves to be put to sleep just because they OK’d the Sebring while they had the brainpower to design the 200C. anyway back to subject, i have always been shouting that the moron’s in charge of GM should be all kicked out. the shareholders are not being listened to, so inthis case you stage a coup and storm the GM board room, organize a sit in, and dont leave until wagoner and the other monkey’s resign.
then the genius quoted int eh begining of this post can choose a new board (hell let it be government sourced) and carry on the rebuild or whatever you want to call it.
what i dont understand still is why some so called capitalist call soft or hard nationalization communist? in desperate times, desperate measures have to be taken, instead of lending GM a gazillion dollars with no guarantee on getting it back from GM, send a taskforce to overthrow the board, (nicely so stalinisim is not invoked) and redirect the company in the right direction.
GM alone is said to tie up a total of 3 million jobs, there are countries out there smaller than that and in countries like that, when things get desperate the UN Security counsil intervenes.
consider GM is some third world country and the Obama administration is UNSC/IMF/World bank put together, let them take care of restructuring, and exile the deliquent oportunist and corrupt board of directors that currently rules (destroys).
but i’m just blabering….
I don’t think the Feds insure the full amount of interest if the OEM defaults so there an incentive to get the money out of the OEM not the Feds…I think (I could be wrong, someone correct me please; I know R&D , not Finance) that the Feds only insure the principal and a minimal amount of interest.
Doesn’t matter. The banker gets more with the guarantee than he does without. His incentives will be to collect on the guarantee in the event of the default.
Having a private banker from my experience usually means they examine your books, plans and long-range goals a lot harder than some Federal ‘Board’ that doesn’t know squat about the car business
You’re missing the point. Anyone who actually bothered to do that would give them zero dollars.
Making these loans makes no financial sense at all from the perspective that you are talking about. Anyone who underwrote these loans on the basis that you are suggesting would give them a thumbs down. There is no business plan that results in repayment — the monies that have been given thus far and will be in the future are effectively grants.
The only reason that we are talking about guarantees would be because the free market would give these companies a thumbs down. GM is a horrible risk that merits no more loans from anyone trying to make a profit.
Your point is inherently contradictory; you want people who would have denied them the money to work on a plan for repayment when they know that they cannot be repaid. I think that you need to sort out your priorities here, and understand that rational players don’t see a way to get their money back. They aren’t being bailed out because the companies themselves make any sense.
Considering both GM and Chrysler are probably net liabilities at this point anyway (hell, Daimler consider Chrysler a net liability some years ago now), the US fedgov has already “invested” more in these two than they are worth. They’re insolvent, pure and simple….GM lost money for the last four years in a row. Hence they’re no longer “going concern” commercial enterprises, they have become government charity cases, a vehicle manufacturing version of Amtrack. Just let them fold, total liquidation, Chapter 7 for both.
Beats the alternative, which is to keep them on trickle finance life support for….what, another 4 years? While their market share continues to evaporate into the teens? Then what?