Knowing very little about the auto industry I decided to do a little research. Based on that I’ve come to a couple of conclusions (though others have come to them well before me and have written about it in detail). Basically, GM has an infrastructure to support a company with a market share of about 50%. GM’s market share is currently about 21%. They have significantly more dealers and models (evidently 7.000 dealers in the US to Toyota’s 1,000). They are, whether you like it or not, crippled by their contracts with the UAW including a “job banks” scheme that apparently pays workers for not working.
So I’mnot sure the bail out will really help. That said, I’m not sure what else to do. If one of the big 3 files for protection under the Bankruptcy Code then that might sound the death knel for the other two. It would not be fair for one company to have protection from their creditors whilst the other two did not.
SoI don’t know what to do. A band-aid of 25B won’t work. Perhaps put all three into BK and go from there.
They no longer have the kind of capacity you are quoting.
Since 2000 they have reduced their U.S. hourly workforce by 52 percent, to 64,000 from 133,000, and their salaried employment by 34% to fewer than 29,000 from 44,000. In the last three years they cut their structural costs by $9 billion.
Last year GM’s new agreement with the United Auto Workers union reduces their health-care costs by billions of dollars annually to be help them be competitive with foreign automakers that make cars in the US, but most of the benefits of the deal won’t kick in until 2010.
Four truck plants are in the process of closing and design focus was dramatically shifting to the production of smaller engines and smaller cars. They have the Volt on the way and a hybrid portfolio with six models on the road and three more planned by mid-2009.
The sharp increase in gas prices and souring of the full size SUV market was painful, but a manageable change with some efficient restructuring. This costs money, and was already underway when the credit crisis hit. People can’t get credit to purchase vehicles, and the auto manufacturers can’t get credit to restructure.
Bankruptcy for an automaker will not be like it was for the airline industry. A plane ticket is a one time payment for a service. When you buy a car you expect a warranty and access to service parts over several years. Who would expect to get that from a bankrupt company? The loss of market share would be unrecoverable. They’ll need to get financing to from the government anyways to remain operational. Who’s else is going to provide credit these days? And who will provide the credit for them to emerge after the huge market share loss?
If GM goes chapter 11 it will start a chain reaction that will pull hundreds of suppliers along with them, along with the other domestic automakers. Several domestic foreign automakers will have temporary plant closure as well due to part shortages. A mass liquidation will occur. Millions of additional unemployed all over the country.
Vehicle imports will dramatically increase, but it will be a seller’s market due to the shortage. Expect to pay 10%-15% more if you can find financing.
Holy shit that guy (Ackerman) is an idiot. 9.3 million people worldwide bought GM vehicles last year. That’s more vehicles than any other automaker in the world sold. And in the U.S., which is the world’s largest market, GM sold more vehicles than any other manufacturer in 2007, and it has sold more than any other automaker to date in 2008.
In 2008, the Chevy Malibu was named North American Car of the Year, and the Cadillac CTS was Motor Trend’s 2008 Car of the Year. In 2007, the Saturn Aura and Chevy Silverado won North American Car and Truck of the year. Those awards are given and judged by automotive journalists.
Same difference. Giving taxpayer’s money to failing auto companies or failing financial companies violates the same principle. I’m agreeing with you (I think).
I’m not too impressed with those awards, based on the rules, their past history, and what passes for journalism in the trade press.
Every time I buy a car, I look at the Consumer Reports survey of automobile reliability to get an idea of who is making reliable cars and who is making junk. I haven’t been impressed with Detroit’s record.
I currently own a 9-year-old base model Toyota Corolla. Other than replacing the tires a few times and changing the oil, it has needed no maintenance. What can Detroit offer me that is competitive with that?
My Town Car is a 2000. I have not put a dime other than brakes ,tires and a battery. It does only have 60 thou miles though. It has been extremely dependable.
GM uses Chapter 11 to close down dealerships that are not profitable, renogiate ruinous union contracts, restructure its debt, and emerges stronger and more able to compete.
GM goes into Chapter 11, and this forces it to merge with Ford and/or Chrysler and restructure.
GM goes into Chapter 11, and is rescued by someone like Warren Buffet (who just pumped 3 billion into GE, for example).
GM doesn’t go into bankruptcy at all, but instead consolidates with Chrysler or Ford.
GM goes into Chapter 7, its assets are purchased at firesale prices by Toyota or Nissan or some other car company, and production starts again after a writedown of capital assets that allows them to be more competitive.
GM goes completely under, its assets are liquidated. The huge hole in car manufacturing left over causes the other auto manufacturers to expand their operations, build new factories in the U.S., and the auto industry becomes more efficient.
One automaker out of the big 3 goes under, and the removal of that supply makes it easier for all the other auto makers to sell their products, making the industry slightly smaller, but much healthier.
The one thing that isn’t going to happen is that suddenly we will start making hundreds of thousands of cars less per year. The demand for cars isn’t going to change if GM goes out of business. And these cars aren’t going to be made overseas and shipped to North America - Toyota and Nissan and the rest make plenty of cars in the United States, and they’ll just expand.
And what will happen if they’re bailed out? They’ll continue burning through billions of dollars in losses a year until that money is used up. A one-time bailout does not change the underlying factors that resulted in the need for a bailout in the first place. In fact, it makes it worse by creating a moral hazard. And where did the 50 billion come from? From taxes on other parts of the economy which ARE productive. So you’re forcibly taking assets from the productive side of the economy to prop up the non-productive side and allow it to avoid the changes necessary to become productive.
That may have worked a year ago, but in today’s credit market, many companies who go into bankruptcy are finding they cannot secure the credit necessary to restructure their debt. That’s why major retailers who went into chapter 11 (like Linen’s & Things and Mervyn’s Department Stores) are being forced to simply liquidate their assets to pay creditors; their cannot secure the credit necessary to restructure their debt. Why would car makers find it any easier?
You are completely ignoring the main reason for the current crisis. It’s not mismanagement from the auto execs, it’s the current loss of consumer confidence and the freezing of the credit markets. Neither of which the auto companies had control over.
The changes were already in process to make the US automakers more competitive. UAW contracts negotiated in 2007 slashed wages for new workers by 50%. In addition, new workers will not be guaranteed any retiree health care benefits, and will not participate in the traditional defined-benefit pension plan.
The UAW also agreed that the responsibility for health care benefits for existing retirees would be transferred from the auto companies to an independent trust, called a Voluntary Employee Benefits Association. The labor cost gap between the Detroit-based auto companies and the foreign transplants should be largely or completely eliminated by the end of the current contracts.
Unfortunately the savings won’t start to kick in for another year, and the industry was hit with both a gas price spike and credit crisis in the span of a few months.
The bridge loan is to keep things operational until the economy stabilizes and planned improvement in the cost labor gap is realized.
Chapter 11 bankruptcy is a fantasy. They have already extensively restructured product lines and labor contracts. They would be unable to get debtor-in-possession refinancing to continue operations, and consumers would be unwilling to buy cars from bankrupt companies.
My employer has already been hit hard-we are taking a 2-week unpaid shutdown, end of year.
So, it is hitting home-I hope all of you who bought japanese cars remember this!
Is this supposed to mean something? North American Car of the Year awards in a region that has three notable car manufacturers that are currently doing poorly, continue to design and build cars that don’t reflect the market, and that only recently have started making gains in quality largely because they were forced to by the market? The same three that refuse to innovate unless forced to by either legislation or market trends? “Car of the Year” I can get behind, but “North American” car of the year? It’s as laughable as Superbowl champions proclaiming themselves “world champions.”
I’ll admit my ignorance - I don’t know which manufacturers are included in the North American region, but I’m betting it excludes Honda, Toyota, Nissan, hell, even Hyundai. If I’m wrong, I’ll happily retract my above statement.
It’s been 8 years since GM has shown a profit from operations. They’ve had one turnaround plan on the books after another, and there’s no guarantee that this latest plan would have worked any better than any of the others. Every time they cut jobs or get the UAW to give a little, it’s in response to even more loss in market share, and it’s always been too little, too late. Including the cuts in 2007. You’ve give the impression multiple times in this thread that you think Detroit’s current situation is a recent happening based on bad luck. That’s simply not the case.
Even if the Big 3 can weather this economic storm and return to, say, 2005 levels of profitability, they’ll ALL still be losing money. I’ve seen nothing that will convince me of the opposite. Yes, they make some good cars now, but even their hits have been selling at a loss. The Malibu is, by all measures, a great car, but unlike the competition, they still have to slap incentives on it and sell it at a loss.
This oft-repeated “fact” came from a Chrysler insider, has been vehemently denied by the president of Toyota, and no corroborating support has been found. Most auto journalists have come to the conclusion that it’s a complete fabrication.
I’m not sure for whom you work, but I can recall as a kid my dad who retired from Ford, went through a 1 or 2 week retool every year, they usually scheduled it end of calendar to give the workers the time off around the holidays. This may be odd for your company, but it’s not unheard of in the industry.
As far as the OP, I say two words to the big three; Chapter Eleven.
The banks were “bailed out” because the implosion of the banking industry would damage, almost critically, the economic infrastructure and leave us weaker in the long run. I still disagree with it, but history has shown that the ROI can be significant when the investments are done properly and there is great regulation and oversight.
With a $25B handout to Detroit, there would be no oversight and what there was would be at a further cost to the taxpayer because there isn’t an agency already in place that oversees that industry like there is for the financial sector. What’s more, the big 3 CEO’s had the audacity to come, hat in hand, to the hill to ask for our money riding in on their private jets. One of the companies reportedly owns 8 corp jets. When asked in testimony who would be willing to a) sell their jets on the spot and fly home commercial not a one raised their hands and b) willing to do as Iacocca did and work for $1 only the GM CEO said he would.
I think if you’re going to come up to the taxpayers and put your hand out, you ought to be ready to jettison everything that isn’t nailed down to keep your boat above the waterline. Failure to do that is a failure to lead and directly responsible for the sinking of the ship. I have a great love for detroit products and American cars, but if you can’t compete in the market, Hello Toyota.
I’m glad there isn’t going to be a hand-out to these fuckers. One Congresscritter noted yesterday the irony of them having flown in to DC on private, luxury jets to beg for money from Congress.
Why bail out the auto industry as opposed to, say, the construction industry? We don’t have a “Big 3” in that industry, but thousands of small companies that are going to be hurting big time-- many already are. I suspect there will be as much, if not more, job displacement in that industry than in the auto sector. And how about restaurants, clothing stores, etc.? If we are going to just hand out money, I’d rather see us give it to consumers and/or the actual people displaced from their jobs. Let the market take care of failed companies.
I’m not buying the bullshit about all they need is a little to tie them over. Sounds like a junkie telling his dealer to give him just enough for the weekend, and he’ll be good after that. Yeah, right.
Where will they obtain the financing to restructure their debts? Many corporations who have recently entered chapter 11 are now liquidating their assets because they cannot get financing to fund the reorganization.
That’s not the problem of the American taxpayer. Where and how they obtain financing is their issue but if in the original asking they first refuse to make concessions and cuts from the top down, then don’t have a solid plan to pay back, with interest, the people from whom they are requesting the loan and THEN can’t or won’t guarantee, to the degree it’s possible, that they won’t be back in the next two, five, ten years with their hands out again with nothing changing in their companies. It’s not a worthwhile venture for the American taxpayer. They want us to take a greater interest in their companies than they do. Frankly, it’ll do both the 3 AND the stinking UAW some good to feel the pinch.
It is if the taxpayers are led to believe that the big 3 can survive chapter 11. Many taxpayers will support a bailout to protect the 3 million jobs that depend on the big 3, but not if they are misled by those who claim that chapter 11 will allow the big 3 to emerge stronger and with those jobs intact.
GM has been incredibly effective at hiding the losses in their books through tax credits and the sale of assets. It all came crashing down when they had to write-off $30 million in deferred income tax credits in 2007 when it became apparent they’d never get to use them. In reality, that 23 million loss from 2007 should be spread out over most of the decade. Add in a few key sales, like most of GMAC, and they were able to pretend like they were making money while their cash reserves were dwindling.
I don’t feel up to going through all of them because I’m not a finance guy, but here’s 2004 from their own quarterly earning releases:
AUTOMOTIVE AND OTHER OPERATIONS
Income (loss) from continuing operations before
income taxes, equity income, and minority interests – (1,716 million)
Income tax (benefit) – (1,847 million)
Equity income (loss) and minority interests – 710 million
Income from continuing operations – 797 million
Add in 2.2 billion in revenues from their financing operations, and you’ve got roughly around a 2.8 billion profit in 2004, just like you posted. But what’s the real story? They lost 1.7 billion on their automotive operations, took a 1.8 billion tax credit, and added in some money they made in the mortgage market… and I ask you, who WASN’T making money on mortgages in 2004? So I’m not willing to grant them the whole of the financial profits.
Bottom line, every year is like this. 2004, is very typical for them - a 1.7 billion dollar loss from automotive operations. Making cars has been, for years now, a money loser for GM.
