Post #299,448
11/11/08 4:24:50 PM
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GM situation gets progressively worse
http://www.bloomberg...8&refer=worldwide
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General Motors Corp. fell for a fifth day in New York trading as House Speaker Nancy Pelosi called on Congress to pass an emergency rescue package for the ailing auto industry.
Lawmakers should take ``immediate action'' to help the companies before a new session of Congress begins in January, Pelosi, a California Democrat, said today in a statement. Only federal aid can prevent a collapse for GM, and reorganizing in court may not be possible because the credit crunch has dried up financing, analysts said.
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GM needs immediate help and not in a small way. They are burning through a bit over $10 billion a month. And since there is no real signs of the market getting better any time in the near future, your probably talking $100 billion as a minimum bail out, and possibly a lot more.
But the economic damage the US could be measured in the hundreds of billions of dollars also, so it is very possible that Congress could pony up the money.
http://www.nytimes.c...=1&hp&oref=slogin
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The struggling auto industry was thrust into the middle of a political standoff between the White House and Democrats on Monday as President-elect Barack Obama urged President Bush in a meeting at the White House to support immediate emergency aid.
Mr. Bush indicated at the meeting that he might support some aid and a broader economic stimulus package if Mr. Obama and Congressional Democrats dropped their opposition to a free-trade agreement with Colombia, a measure for which Mr. Bush has long fought, people familiar with the discussion said.
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Bush doesn't want a car industry bail out unless he can get his otherwise unpopular Colombia free-trade treaty passed, the big three don't want it unless they are given the money without requirements. The unions don't want the Colombia pact, because they see it as supporting the anti-union government. So it's going to be a messy negotiation.
Jay
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Post #299,454
11/11/08 5:25:51 PM
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Of course Obama urges Bush to do this . . .
. . as soon as possible. That way he can take credit for it now and blame Bush for it later. An excellent tactic - I'd do it myself.
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Post #299,457
11/11/08 6:26:22 PM
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Should be popular, that scheme -
it's the same mindset as financial 'instrument' conmen, CIEIOs and assorted social Darwinists (and rlly-Free Market fans) exemplify - in those wet dreams of cornering the hog fat market.
Obama should play the Sheep to a nation of Wolves?
Question seems to be - has anyone a workable alpha model for a successor to the Vulture Capitalism scheme and it's multi-Trillions periodic welfare payments?
Since Econ-priests manifestly possess no workable recipes in their formula inventory and Congresscritters never did grok their astrology in the first place: all are floundering; bloviating is the traditional space-filler, while hand-wringing.
Seems we all are On Our Own -
may reasonably expect random ejaculations, This!-Will-Work {maybe, ummm}
until the soup lines form.
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Post #299,466
11/11/08 7:30:07 PM
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may all those UAW pensioners camp in yer living room
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Post #299,456
11/11/08 6:09:10 PM
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Re: GM situation gets progressively worse
If there was ever a company that deserved to die....they've completely ignored the market for decades. Ford and Chrysler have at least attempted to address the new demands of the customer...GM seems to think its still 1960 and people will line up to buy whatever they feel like building.
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Post #299,458
11/11/08 6:27:05 PM
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Agreed
Although it would play holy havoc with the economy in my state. :-(
Regards,
-scott
Welcome to Rivendell, Mr. Anderson.
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Post #299,463
11/11/08 6:58:04 PM
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Yes, but they're too big to fail.
GM in the US does seem to be brain-dead, but I'm not sure I'd give Ford and Chrysler more credit. Ford and GM in Europe have had to fight more for market share, and they've made more interesting and better cars there.
But they're too big to fail. At the very least, the DOD is a big customer of theirs. GM was the #57 US Department of Defense contractor in 2007:
http://www.govexec.c...5/0807-15s2s1.htm
($806M in sales to DOD).
Ford and Daimler-Chrysler are much farther down the list.
I'm a little torn on what to do about GM, Ford and Chrysler. They probably need a decade to do an orderly shrinkage and changeover to more efficient vehicles, but without a government bailout that's not going to happen. Normally, bankruptcy would seem to be the most sensible course of action for a company in as bad a situation as GM, but that would take too long and damage too much of the rest of the economy. In addition to decimating their supplier companies if they took that route, doing even more damage to the manufacturing base in the US, there could be millions of more people dumped on the unemployment rolls when the economy is already very fragile. Trouble is, even with a bailout millions of jobs may be lost anyway. In that case, some argue, why dump the money into the companies - why not just spend it on the workers directly? The problem with that approach is that unemployment benefits and retraining and so forth won't help the companies make products that the market needs. There needs to be a pragmatic approach.
At the moment, I'm of the opinion that it's worth spending the money to keep GM running at least until the economy picks up again. After that, GM and the others can undergo a more-orderly shrinkage and the workers will have greater opportunity to change jobs without the risk of sitting unemployed for excessive periods. IOW, let's see what Obama and his team can do. We can always send GM to Chapter 7 later if it doesn't work out. With all of the money being dumped into "toxic paper", spending (ultimately) even a few hundred billion on saving the manufacturing base seems like a reasonable thing to consider to me.
Cheers,
Scott.
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Post #299,477
11/11/08 9:32:26 PM
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Remember Chapter 11 bankruptcy is NOT the same as...
being out of business. They would continue to operate.
The real question is who would buy a GM car and have a questionable warranty?
There may be merit in letting GM enter Chapter 11 and then help them with a lot conditions as well guarantees to customers. The upper management has to be blown away and the GM stockholders should be left holding the proverbial empty bag. Some divisions can then be sold off to other car companies, e.g. Toyota, that know how to run the business.
Alex
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Post #299,481
11/11/08 9:45:59 PM
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The Bloomberg story says Chapter 11 is not an option.
It's a great piece - lots of details:
http://www.bloomberg...8&refer=worldwide
=== begin cut ===
[...]
Default Risk
Credit-default swaps protecting against a GM default for one year rose yesterday to a level that implies the market has priced in a more than 71 percent chance of default, according to CMA Datavision.
One-year credit-default swaps were quoted at a mid-price of 55.5 percentage points upfront, compared with 51 percentage points on Nov. 7, CMA data show. That means it would cost $5.55 million initially in addition to $500,000 over one year to protect $10 million of GM bonds.
Bill Ackman, manager of the Pershing Square Capital Management LP hedge fund in New York, said GM shouldn't take government money because ``it has been hamstrung for years because it has too much debt and it has contracts that are uneconomic.''
Ackman, who said he doesn't have a position in GM securities, said yesterday on the Charlie Rose show the automaker should file for a so-called prepackaged bankruptcy with financing to keep operating while in court protection.
That may be difficult. Such debtor-in-possession loans have ``all but shut down,'' CreditSights Inc. said yesterday in a report. The loans, which are paid off when companies exit bankruptcy, aren't being made as lenders become more averse to risk, wrote Chris Taggert, a New York-based analyst.
GM would have no choice but to shut down, said Maryann Keller, an independent auto analyst and consultant based in Greenwich, Connecticut. A GM failure that stops production would cost 2.5 million jobs in the U.S. in the first year, according to the Ann Arbor, Michigan-based Center for Automotive Research.
``In this world, you don't go Chapter 11 reorganization,'' Keller said in an interview. ``You go Chapter 7 liquidation.''
To contact the reporter on this story: Mike Ramsey in Southfield, Michigan, at mramsey6@bloomberg.net
Last Updated: November 11, 2008 16:27 EST
=== end cut ===
Maryann's been monitoring the Big 3 for decades and has been a critic of them almost as long. (She was often a guest on Louis Rukeyser's "Wall Street Week".)
Cheers,
Scott.
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Post #299,516
11/12/08 10:06:54 AM
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Which is a good argument for breaking it up
The fact that companies like GM are so big that we can't afford to let them fail is a good argument for not letting them get that big and breaking them up when they do need help.
A few economists have raised the issue, but for the most part it's being swept under the rug. The corporate Chicago school economists don't want to face up the contradiction between unregulated business and huge bailouts. Heck, the companies we are offering bailout too are still trying to dictate terms of their own bailout.
Jay
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Post #299,527
11/12/08 11:41:22 AM
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What part of General Motors...
as a huge set of Brands are you forgetting...
Consolidation means less cost to make things.
Consolidation means less over head.
Consolidation means making better things for better margin.
Unless of course you are too big and have to deal with a union that stretches into making design and assembly decisions. Making sure maximum PEOPLE are still kept on lines.
I have been in a multiple GM plants in Michigan, Ohio and Indiana.
One type of "making jobs" is many many examples of disabling automatic screw insertion so a Union person can start threading *a* screw. Then the next station is the automatic tightening station... except one bolt on the tightener is disabled allowing another person to use an air driven screw tightener (the same as the disabled one) for that screw.
Another area of "making jobs" is "part transfer" de-automation. There also many many examples of this, where a machine automatic transfer (sliding, catching, moving or placing) of parts to the next stage of work to be done... no inspection, no value add, no nothing except taking part X from line 1-A after stage 4 and putting in the "queue/hopper/line" for Line 1-A stage 5.
Heck even engine and transmissions are done this way. I witnessed places where the line had a 5-6 foot section cut out of the conveyance system. The entire line was run by a single "chain system", the section had the chain route into the floor to keep the system running on a single chain cog system at the section.
ASCII Art representation Line 1-A
"Stage 4" -->-->-|__,__,__|->-->-- "Stage 5"
Man works {--this--} area
Then a "man assisting" lifting device used to transfer a transmission carcass from "initial" pad trimming to the next section. There was no reason needed for the "workstation". Pad trimming is to get reference points for the rest of the machining, the base for the locating of everything.
I've also been in multiple Ford and Chrysler plants and one Toyota plant, similar but fewer examples were there of the "making jobs" setups, but they still were there (unfortunately).
One marked difference between the GM plants and All the others... cleanliness. Ford, Chrysler and Toyota(only one though) you could nearly "eat off the floor" outside of the actual "working area" of the machines. Inside the working area you could still see it was cleared and cleaned regularly. The GM plants, every one (except final assembly plants) had 1 to 12 inches of greasy dirt in MANY areas, especially around stamping machines, or machines dealing with heavy machining. This also extended into GM hanging area markers from frames rather than having them on the floor and able to be seen.
One last thing, due to the fact that the machine I worked on used electricity, use compressed Air and had Hydraulic operation (air was used to push fluid), I got to have a Pipe fitter, a Hydraulic Engineer and an Electrician all around and assist me to do my job. This was at *ALL* of the Big Three only, Toyota, I only had a white collar person assisting me.
The whole Auto-Industry thing is screwed... kill them all and let $DEITY sort them out. (Yeah I know... that would be bad)
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Post #299,532
11/12/08 1:24:36 PM
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Hush now
unions are good for business.
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Post #299,534
11/12/08 1:39:13 PM
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No, they're bad for business
they're good for society. Pas le meme chose.
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Post #299,540
11/12/08 1:53:27 PM
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If GM goes under
and we lose 5M jobs and have to cover double that from a pension standpoint...when does that "good for society" balance tip vs the "bad for business" scale?
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Post #299,543
11/12/08 2:07:44 PM
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GM isn't going under because of their unions
they're going under because their vehicles suck.
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Post #299,537
11/12/08 1:44:45 PM
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Unions are only part of the problem
Over powered unions and badly written union contracts are only part of the problem. And bad union contracts are partially management's problem.
The management for the big three where too quick to sign contracts that minimized costs that year but setup the company for long term problems. High retirement benefits, big health care, and rigid staffing levels in exchange for reductions in salary. It makes this quarter profits look better, but those expenses accumulate down the road, and eventually the company ends up hosed.
Jay
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Post #299,539
11/12/08 1:48:02 PM
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employer supplied healthcare, what were they thinking
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Post #299,544
11/12/08 2:10:00 PM
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It isn't employer health care per se
It isn't employer health care per se that is the problem.
The problem is that they traded lower salary now for higher long term health benefits.
Essentially what they said is that we will take x% of your salary now and increase your health benefits coverage. They did this knowing full well that health benefit costs where going up far faster then inflation. They had to know it would cost more in the long run, but it does look better for this years expenses, because the salary reduction reduces costs now, while health care only costs years down the road.
Jay
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Post #299,548
11/12/08 3:41:08 PM
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Yes, but those executives didn't plan . . .
. . to still be there by time it came due.
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Post #299,558
11/12/08 6:09:01 PM
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+5, Informative
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Post #299,473
11/11/08 9:16:24 PM
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The White House has denied the Colombia stipulation.
http://www.reuters.c...TRE4A82MV20081111
But reports in The New York Times and Washington Post quoted unidentified aides to Obama as saying that Bush indicated he might support help for the automakers and a broader economic stimulus package if Democrats in Congress approved a stalled trade deal with Colombia.
NO QUID PRO QUO
The White House was quick to try to correct what it said were inaccurate reports.
"We just want to make sure that we let everybody know that the president did not suggest a quid pro quo, but he did talk about the merits of free trade," White House press secretary Dana Perino told reporters.
Alex
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