The automakers are screaming “Depression!” if they go, but of course, that’s to be expected.
Ben Stein and other economists are extremely worried for their own reasons, as mentioned in other threads.
Others insist that the arguments of the above mentioned groups of short-term two million plus jobs lost is a myth, a scare tactic intended to get Congress to force taxpayers to give failing businesses free money.
Your thoughts?
Is this just another for/against the auto bailout thread?
Because, judging by the title, I thought you were asking about the actual historical effects of large corporations failing in the past, and whether that history merited spending billions of taxpayer dollars to prop up failed businesses today. Which is a pretty interesting question if you ask me. Have large US corporations never failed during a recession before?
But now that I think about it, I suppose you could be asking about what we think the effects will be. In that case, the question above still stands. If all hell didn’t break loose the last time a large business failed, maybe we should save our tax money and buy stock in Toyota instead.
Not a large corporation ,three huge corporations at the same time. A snowball effect for suppliers, dealers, mechanics, advertisers, restaurants ,bars and all kinds of businesses. Much,much bigger.
http://www.visteon.com/index.html This is one of the auto suppliers,Visteon. They make fuel pumps, gas tanks and many,many other items. They are a spinoff of Ford. They are attempting to get more independent from Ford ,but they will sink if Ford does. They are a huge company. This is just one of many.
Except that the automakers, want to think, like gonzomax, that if they go bankrupt they will mysteriously vanish and that anyone and anything connected to them will instantly go out of business too.
That is highly unlikely. And when I say highly unlikely, I mean, “it isn’t going to happen in this universe.”
What will happen is that investors will happily pick up the peices and buy out while the buying’s cheap. Even strapped for cash as they are, it’d be too good not to get in on the action. If GM fails, expect two or three new car companies to emerge from the rubble. Most likely, GM won’t even stop business until the breakup and selloff is done. Chrysler may due and be broken into the new companies. Ford probably won’t die, but it may sell off a business unit.
Investors can “happily pick up the pieces” all they want, but actually doing something with those pieces is another matter entirely.
The first thing that’s going to happen is that folks are going to stop buying the cars. (According to one survey I heard, a majority of people have said that they won’t buy a car from a car company that files for chapter 11, so forget about people wanting a car from a company that most assuredly won’t be there.) While investors might be willing to buy up the assets of GM or Chrysler, how many banks do you think are going to be willing to underwrite a loan so someone can buy one of the cars?
People who already own a GM, Ford, or Chrysler vehicle are going to be very eager to dump theirs, since they’re going to be worried about finding parts. (Yes, yes, I know, I know, there will be people who’ll continue to stock and make the parts after the company goes under, but that’s not really going to sink in with most of the general public.) Not to mention, unless the government steps in, people who have a relatively new car are going to have to pay for any repairs, since there’s no one left to honor the warranty. So there’ll be a glut of used cars on the market, which will drive down the value of those, unless they happen to be made by a foreign company.
There will also be job losses, lots of them. With no new models rolling off the assembly lines, and a relatively low demand for spare parts, you won’t need to keep as many people employed. Starting a new company out of the ashes of an old one, isn’t necessarily going to change this, either. You trot out an '09 Chevy with a new nameplate on it, and people are going to look at it with a rather jaundiced eye. To entice people to buy the cars, you’re going to have to sell them very cheap (which will paradoxically disincline folks to want them, since they’ll figure the quality of the car must be even worse than what it was before).
Any new business that tries to make a go of things is also going to have all kinds of supply chain disruptions to deal with (critical people will leave, businesses will go bankrupt, etc.), which will further hinder efforts at gaining traction in the market place. It will take a long time to sort out the mess, and it will make it that much harder for the economy as a whole to rebound.
God, no. I can see perfectly fine the thread about that already here. 
Not my intent, but it could certainly be used as a way to answer. And as you said, a little historical perspective would be interesting.
Bingo.
Just because a company currently does all of its work for one of the Big Three does not mean that that company will sink if the Big Three go out of business. For example, the company could do work for any company that buys up the Big Three’s assets or could (for example) start making parts for snowmobiles.
I’m against the (inevitable) bailout of the Big Three.
To who?
There are millions of Ford, GM and Chrystler cars on the road. I’m sure any company that makes a living selling spare parts and servie for them will continue to be profitable for quite some time.
Sort of like the American steel industry?
The question is whether throwing $16 billion at the car companies is tossing good money after bad. If it is simply a short term capital problem and they just need the money to get through a rough patch, I say bail them out. The bailout will surely cost the taxpayers much less than having hundreds of thousands of new layoffs will.
The problem is that the Big 3 car companies have been run like crap for decades. So maybe it is time for them to go.
So what is wrong with the Republican’s idea that chapter 11 would work? They seem to have a point with the airline industry. GM has been fucking us over ever since they took part in killing off the American streetcar. The more pain they feel, the better.
But seriously? Why would chapter 11 not work? That’s all I want to know. The Republicans make it sound like it would be like it was with Delta. Are there specific reasons that make this different? What are they?
This doesn’t make sense to me. In the transaction described, the loan is the product, not the car. Shouldn’t matter at all what the make of the car is.
The car serves as collateral on the loan, if you don’t make your payments, they take the car and try to resell it. If its a car that no one wants, then the bank isn’t going to underwrite the loan, unless you offer up something else as collateral.
Why would nobody want a GM car if it had gone bankrupt? For warranty service? Sure it would suck if GM wasn’t around to back up any warranty, but it wouldn’t make it worthless. I’m not entirely sure how much guarantees even affect used car sales in the first place. There will certainly be a parts market, no doubt.
That company has been on the edge since it was spun off from Ford. yes it will go down and many like it will.
Warranty service will be a big issue. (Warranties are often transferrable, so that serves as an incentive for people to buy a used car.) This isn’t like the 1950s where a problem with your car can be fixed by buying a $5 part, many of the parts for cars these days cost hundreds of dollars or more.
Think about the attitude of the workers building the final cars to roll of the assembly line. You think they’re going to care if something’s not quite right? Or that its not installed properly? What are you going to do to them, fire them?
There was a story in the Detroit Free Press on this a few days ago. I have no access to the actual reports by the two economic groups, but there was a PDF of a more detailed article on Anderson group’s website.
Page two is of interest. There are mentions of industries that will be hurt by this that nobody ever seems to think of. If the automakers go down, the dealerships will fail. If the dealerships fail, they won’t advertise, and as the article mentions, 25% of virtually every local TV station’s advertising revenues come from auto dealers. Not only will your local TV stations lose out in that scenario, so will the local production companies that film such ads. The cascade effect will touch businesses most people don’t bother to imagine have any connection to the auto industry.
IIRC when Rover went bust, the cars became very popular because they were at fire-sale prices.
What was the economy like when Rover went under? Also, I doubt that Rover had quite the dominance of the British market that the Big Three have in the US.
Look, the prices of cars will obviously go down without a covered warranty, the question is, by how much? You guys make it sound like they won’t be worth a penny which just sounds ridiculous to me. There is obviously a large majority of it’s value tied up in the object itself. How much would an outside warranty cost, for example? It would essentially be an insurance policy for your car. I would be willing to bet that in a three-year period, the average car-customer is not very likely to need much warranty repair.
Just how much of the price of a new car is a warranty worth? It is a price, and I doubt it is more than 25 percent.