This is also what I would like to see discussed. I work for bankruptcy attorneys, and I have seen many business go into an 11 and make it out the other side.
It seems like a good plan to me - file an 11, get out from under those contracts, and try to rebuild. That’s what Chapter 11 is for…
That will depend upon a number of factors. One of which will be the perceived quality of the brand as a whole, as well as the quality of that particular model. Some models will retain more of their value than others. The ones which retain the highest amount of value, will be those that don’t have any comparable equivalent produced by the surviving makes. I would expect Corvettes to hold most, if not all, of their value.
They’ll always have some value, but it may be little more than that of scrap metal.
Scrap metal prices have fallen dramatically from their recent highs, having a glut of cars that no one wants will only drive the prices lower.
Warranties last much longer than three years these days. You also have the issue of recalls. Today, if it turns out that a component was defective, a car maker will issue a recall and repair the problem. What happens if its discovered that there’s a defect in one of the parts on a car that was made by a company no longer around? Recalls aren’t always for minor cosemetic issues, either, they’re often for safety or routine operation of the vehicle matters. Equally important, is the development of new technology and having a centralized source for evaluating if it is, in fact, safe to use that new technology on an existing vehicle. The last year Studebakers were equipped with disc brakes, and when the cars were built steel belted radial tires were not common on vehicles. Collectors of Studebakers have discovered, the hard way, I might add, that putting steel belted radials on such cars causes vibrations which loosen the bolts holding the brake calipers in place! Had Studebaker not gone tits up, they could have done a recall and fixed the problem, or at least advised people to not put steel belted radials on their cars. If the Big Three go under, expect to see similar things happen.
But will there be enough demand for cars produced by a make slated to die to justify someone setting up such a program? And how do you convince people that the company running that operation is going to be around in a couple of months? Telling them that its underwritten by AIG is not going to do it, I’m sure. Getting the government to do it, is probably not the best idea, either. Not that I think the government couldn’t do it, but because people are already screaming that the government doesn’t have any business shoring up the automakers. Do you think that they’ll change their tune if the Big Three start to go under?
Bear in mind that the costs for letting just two of the Big Three die are estimated at nearly $70 billion and thats without setting up programs to handle warranty/safety issues.
Surveys have shown that a majority of people will not buy a car from a company that has filed bankruptcy, even if the company has “merely” filed for Chapter 11. The Chrysler bailout in the 70s could serve as an excellent model of how to do things, as the terms of the loans given to Chrysler were nearly identical to those under a Chapter 11 filing, they simply didn’t have the label “bankruptcy” applied to them.
Which surveys are these? I don’t disbelieve you, but I have never heard that before.
In addition, is it possible that, by actually showing the Big Three getting their act together without taking taxpayer’s money, some people may have renewed faith in their ability to redesign and make a decent car? Particularly if that car isn’t priced above the market standard, because the contact costs have been cut?
CNW did one survey, according to the WSJ.
The problem is that without someone (or something) big (i.e. the Federal government, Warren Buffet, etc.) throwing their weight behind the car makers, its going to be hard to for them to dig themselves out of the mess. And if the folks at GM and Chrysler are right when they say they’ll be lucky to make it to the end of the month, they don’t have a lot of time to get their shit together.
I just wanted to point out that the article with the survey goes on to point out that the evidence to back it up is mixed, at best.
And, there’s nothing stopping the Senate from putting out a statement saying “This Chapter 11 represents the best of all worlds for the Big Three, and we stand behind them” or something to that effect. Or Warren Buffet or anyone else, for that matter.
I have no survey to back it up, but I’d bet there’s an equal number of consumers who would never buy a Big Three auto if they got the bailout. People of all kinds are pissed as hell about this.
Agreed. Detroit is hampered by the fact that their cars aren’t much in demand any more. A primary cause of this is the perception that their cars are crap. However, at this point in time Ford’s cars are generally thought of to be on par with Japanese imports. And GM isn’t too far behind.
Chrysler, however, is probably doomed.
I don’t think that analogies to the failures of previous large companies, or of the American steel industry, are really appropriate. I think what we’re talking about here is the failure of an entire industry that produces differentiated products (as opposed to a commodity like steel). The loss of this industry means the loss of intellectual capital, like brands (which are pretty damaged already), as well as the loss of skilled production capacity as the companies’ suppliers go under due to lack of payments from the Big Three.
I’m of the opinion that this is an unprecedented crisis in American economic history.