GM Bailout? Feh!

[JAMESBJOHNSON]

BFW

Read David Halberstam's book THE RECKONING. He already did the math for you.

Detroit makes lots more money on land-yachts. Americans love land-yachts. But when we have gas problems and economic problems Americans stop buying land-yachts and scream for Yugo's. SO, what Detroit does in slow times is wait for good times. But now they have no money to sit on till happy days are here again.

Halberstam said its the same goddamned story since the 60s.

 

[Joe Wordsworth]

I think what we're seeing is the natural selection of the market. GM deserves to fail, but it has to be slowed. A drastic elimination would hurt everyone too much, but a paring down of operations isn't a bad way to go.

And regarding GM not making the EVI... please. Let's have some perspective here.

The idea to scrap it was based on the idea that it wouldn't be financially beneficial. Even if 90% of the people that drove it liked it... that 90% didn't represent but a small portion of the 15 million cars a year auto retail market. I can show you how 40% of mid-California loves the idea of a SMARTcar... but 98% of the American South and Midwest don't want one.

It wasn't a foreseeably profitable enterprise. Lets not blame them for choosing to not waste money when the data said it would be a waste.

 

[JAMESBJOHNSON]

JOE is right. Econo cars are great FOR YOU, but not for me.

 

[Selena_Kitt]

I think what we're seeing is the natural selection of the market. GM deserves to fail, but it has to be slowed. A drastic elimination would hurt everyone too much, but a paring down of operations isn't a bad way to go.

And regarding GM not making the EVI... please. Let's have some perspective here.

The idea to scrap it was based on the idea that it wouldn't be financially beneficial. Even if 90% of the people that drove it liked it... that 90% didn't represent but a small portion of the 15 million cars a year auto retail market. I can show you how 40% of mid-California loves the idea of a SMARTcar... but 98% of the American South and Midwest don't want one.

It wasn't a foreseeably profitable enterprise. Lets not blame them for choosing to not waste money when the data said it would be a waste.

Right. Because choosing to do the "profitable" thing instead if the "right" thing has really gotten them where they wanted to go, hasn't it?

 

[Joe Wordsworth]

Right. Because choosing to do the "profitable" thing instead if the "right" thing has really gotten them where they wanted to go, hasn't it?

Doing the right thing wouldn't have gotten them where they wanted to go either. The obstacles for domestic auto makers haven't been as simple as "building that car back then". And if a business isn't making strategic decisions based on profitability, I think its being pretty damn stupid and at the least careless with investors' money.

 

[stephanie_webster]

grrr....so the big 3 ceo's fly into DC on private jets....crying we need your money! Maybe its time that the big 3 become the big 1....or the big Zero. The CEO's don't get it...haven't for years...the union finds no issues with the contract...the dow will fall below 7,000....so let them all fall! the the union will not make changes, let the union try unemployment! see how the CEO's stand up in chapter 11 and do not offer them any package.

Ten years ago GM abandoned the EV1, an electric car that had a very limited release. They claimed there was "not enough consumer interest" to justify its going to production. This was in spite of evidence that 90% of the people who had driven the car wanted to buy theirs. GM said no. They took them all back - and aside from a very few, which went to museums and collectors - they crushed them.

Now, GM is offering The Volt, due to come out in 2010. This vehicle is much less superior to the EV1. It has "worse mileage, longer charge times, still reliant on gas to travel further than 40 miles, and presumably higher maintenance costs."

If GM had been selling the EV1 for the past ten years, would they be asking for a handout right now? I doubt it. They'd probably be leading the pack, especially considering the new administration's push toward green technology.

And why are they going with The Volt instead of using the EV1?

Money. The EV1 has a clean engine - there's very little to do in terms of maintenance. No oil changes. No constant trips to the dealer for engine repair. The Volt, on the other hand, will make GM more cash once the customer walks out the door.

And now they're asking for a handout from the government? If it were me, I'd tell them to stick those crushed EV1s where the sun doesn't shine.

Maddening.

 

[Belegon]

You think the economy sucks now?

Try removing the U.S. auto industry from it. The Big 3 go down, their suppliers go down, U.S. steel industries go down, stereo speaker plants close...

How do you think the economy is gonna look with 12% or higher unemployment? How big do you think the ripples will be?

you know, we've saved an automaker before... Chrysler. And they paid us back, with interest, ahead of schedule.

I think it is in our best interest to save them. I also think we do it while playing hardball. Chris Matthews suggested on Leno that if we bail them out, executive pay should be capped at the President's salary level.

I liked that. Made me smile. Those board members would consider 400K a year as being right up against the poverty line.

 

[stephanie_webster]

yeah, 10%..12%....20% or more? I'm just not sure if they went chapter 11 if things would fall apart. did Chrysler go under chapter 11 back in the 80's? most airlines are in chaper 11, right?

the big question, how will the big 3 compete? will it be 25 billion this year, and then $30 billion in 2012? Granted in 2011 the union is taking a hit for some of the labor cost.

what if the big 3 go into chapter 11, labor per hr is cut by a 1/3 and managment gets no bonus and a 40% pay cut? unions have no control over the % of robots in the factor. those in a pension say in and those that are not go into a 401k? or what if a pension is converted to a 401k?

btw the u.s. goverment needs to do the same thing with the pension....between social security, welfare, corportate welfare, and the pension...this must be 80% of the budget

You think the economy sucks now?

Try removing the U.S. auto industry from it. The Big 3 go down, their suppliers go down, U.S. steel industries go down, stereo speaker plants close...

How do you think the economy is gonna look with 12% or higher unemployment? How big do you think the ripples will be?

you know, we've saved an automaker before... Chrysler. And they paid us back, with interest, ahead of schedule.

I think it is in our best interest to save them. I also think we do it while playing hardball. Chris Matthews suggested on Leno that if we bail them out, executive pay should be capped at the President's salary level.

I liked that. Made me smile. Those board members would consider 400K a year as being right up against the poverty line.

 

[Belegon]

what if the big 3 go into chapter 11,

If we can achieve the re-org without it, why bother the courts? If not, maybe they should be allowed to fall into Chap. 11... but who do you want making the decisions about the re-org? Answering that question may answer whether it is wise to let them reach Chap. 11.

 

[stephanie_webster]

it totally scares the shit out of me...any way you look at it. do i want to see someone lose his or her job..hell no. a loan for the big 3.....but can they ever pay it back? i agree with so many others here, if a big 3 falls...and this being a black xmass...unemployment will hit 10%, the DOW falls under 6,000....when will it stop?

If we can achieve the re-org without it, why bother the courts? If not, maybe they should be allowed to fall into Chap. 11... but who do you want making the decisions about the re-org? Answering that question may answer whether it is wise to let them reach Chap. 11.

 

[jeninflorida]

I’m not sure who is more arrogant or the bigger fool, the ceo of any one of the big 3 or the freaking UAW leader and his speech that the union is not responsible for any issues at the big three and will not offer any compromises. When I hear that it’s like, screw you and hope you enjoy unemployment. After all the union is a leach sucking the life out of the union worker so maybe its time to cut the union from its food source.

it totally scares the shit out of me...any way you look at it. do i want to see someone lose his or her job..hell no. a loan for the big 3.....but can they ever pay it back? i agree with so many others here, if a big 3 falls...and this being a black xmass...unemployment will hit 10%, the DOW falls under 6,000....when will it stop?

 

[jomar]

grrr....so the big 3 ceo's fly into DC on private jets....crying we need your money! Maybe its time that the big 3 become the big 1....or the big Zero. The CEO's don't get it...haven't for years...the union finds no issues with the contract...the dow will fall below 7,000....so let them all fall! the the union will not make changes, let the union try unemployment! see how the CEO's stand up in chapter 11 and do not offer them any package.

For upper management excesses, you might enjoy reading Barbarians at the Gate: The Fall of RJR Nabisco.

Welcome to the AH, by the way.

 

[fifty5]

{threadjack}
Just curious, but why are the gas guzzlers known as 'land yachts'?

I mean, real land yachts are stripped down skeletons that use the wind as motive power (and go like shit off a shovel). There's no relationship at all that I can see!
{/threadjack}

 

[JAMESBJOHNSON]

BELEGON

People arent buying cars in sufficient numbers to make a difference. Present sales dont cover overhead. If they give GM money it simply postpones the inevitable. All of the BIG 3 are loaded with expensive union pensions they cant pay for.

 

[Handprints]

There's two parts to these questions, I think: why haven't the big 3 been able to sell their way out of trouble, over the course of a 20-year bull run in global car buying; and should they be bailed?

On the first question, I think they're actually pretty good at designing cars (and other vehicles) that appeal to the broad mass of Americans. Their key problem has been that almost no-one else in the world wants to buy those cars in meaningful numbers and, when they've bought foreign car-makers to address this problem, they've tended to Americanize the products they bought. I don't think I have to go beyond the basics in describing the common non-American view of big 3 cars: too heavy, too big, too fuel-hungry, ride too squashy, and too unreliable after the first three years of ownership. Because none of those things really changed, as descriptions of the core products, for 20 years, other, non-US car companies took over not just the bottom end of the car market globally, but the middle and the top ends too. This is not a problem that goes away quickly: the only two non-US comparators I can think of (in terms of product perception) are Audi and Fiat. Audi needed about 20 years to become a credible mid-range niche player; Fiat basically gave up on anything more expensive than a starter car and, even then, doesn't make much of a sales dent outside southern Europe. Maybe Renault is another reasonable comparison, but their result is just Fiat with a smaller geographic sales footprint.

Are they worth bailing? My reasons for thinking no aren't the ones that commonly come up in discussion, partly because I don't really care whether they remain US-owned and partly because I think government money used to preserve jobs at uncompetitive companies is usually a waste of cash, no matter what the plan for the future is. I really can't think of a bailed-out car industry anywhere (and Europe has an incredibly long list) that resulted in a strong, surviving company. While there was heavy government investment in Honda, Toyota, Mercedes and Hyundai, these firms were already succeeding and used the money to accelerate global expansion plans. Rescue-to-success stories really don't come to mind. You sometimes get temporary returns to health - Land Rover and Maserati come to mind - but both of those are looking highly vulnerable right now.

The second reason to bail them would be to limit the damage to the rest of the economy. I've no doubt that the closure or even bankruptcy of the Big 3 is going to lift the US unemployment roll by 2-4% at an absolute minimum. However, the Big 3 just aren't a threat to the health or survival of the rest of the economy the same way the banks are. As an economy, you can live without new cars being made domestically (or by domestic owners); you can't live without bank lending.

Finally, and I know just how cold this sounds, jobs are what you trade to gain competitive, surviving businesses. They are the currency that gets spent to produce a better future - one which, I accept, not every laid-off auto worker is going to participate in. Put another way, you had to bail the banks if the government was going to retain any influence over the direction and health of the economy. With the big 3, you can take the hit and keep on rolling. It's a different order of problem and one with substantially smaller stakes than the credit crisis. (I haven't tried to do the math, but I suspect that's true for overall employment numbers as well. The difference is that financial types tend to find new jobs a lot faster than un- and semi-skilled labour, especially in recessions.)

Hope that's of interest,
H

 

[JAMESBJOHNSON]

HANDPRINTS

GM's has to sell cars for the same price as Toyota and Honda, but GM has 2K more labor money in each car it sells. Toyota doesnt have the labor expense, so its 2K goes into car quality.

I own 2 GM cars. Both were built overseas.

 

[Boota]

The whole thing about wages and benefits being the problem is a myth. Those costs account for about 11% of the cost of a vehicle. The simple fact is that the Big 3 insisted on making cars that no one wants. Some cars of the Big 3 are doing well. Just not the trucks that they bet the mortgage on. I support a bailout because I don't support the loss of between 2 and 10 million jobs. And I like the idea of capping executive salaries. The Big 3 are worth saving, but some safety for the investors, i.e. the tax payers, needs to be provided.

 

[cloudy]

The whole thing about wages and benefits being the problem is a myth. Those costs account for about 11% of the cost of a vehicle. The simple fact is that the Big 3 insisted on making cars that no one wants. Some cars of the Big 3 are doing well. Just not the trucks that they bet the mortgage on. I support a bailout because I don't support the loss of between 2 and 10 million jobs. And I like the idea of capping executive salaries. The Big 3 are worth saving, but some safety for the investors, i.e. the tax payers, needs to be provided.

Not really a myth, Boota.

One of the first principles you learn in business is that the biggest controllable cost of any business is labor. If that control is taken away from you, then you have to cut costs elsewhere - possibly in quality.

(and 11% is HUGE)

 

[jeninflorida]

that is why the support for the bailout is not there, it seems that DC wants the big 3 to change

The whole thing about wages and benefits being the problem is a myth. Those costs account for about 11% of the cost of a vehicle. The simple fact is that the Big 3 insisted on making cars that no one wants. Some cars of the Big 3 are doing well. Just not the trucks that they bet the mortgage on. I support a bailout because I don't support the loss of between 2 and 10 million jobs. And I like the idea of capping executive salaries. The Big 3 are worth saving, but some safety for the investors, i.e. the tax payers, needs to be provided.

 

[Boota]

It's not labor costs that drive the prices. It's the executive costs. 11% is not bad for labor costs, in my opinion. It's the $15 million a year, $22 million year, $12 million a year in CEO wages, and close to that for slightly lower ranking execs. To draw that salary for making a business fail is ridiculous. To continue drawing that salary as the ship sinks is irresponsible. The people who actually do the work, which is hard work especially in assembly plants, deserve to be paid for it. I have no problem with the wages and benefits. It's the waste that sucks, and that comes from above.

 

[cloudy]

It's not labor costs that drive the prices. It's the executive costs. 11% is not bad for labor costs, in my opinion. It's the $15 million a year, $22 million year, $12 million a year in CEO wages, and close to that for slightly lower ranking execs. To draw that salary for making a business fail is ridiculous. To continue drawing that salary as the ship sinks is irresponsible. The people who actually do the work, which is hard work especially in assembly plants, deserve to be paid for it. I have no problem with the wages and benefits. It's the waste that sucks, and that comes from above.

I agree with that, as far as it goes, but it's also ridiculous that someone with next to no education can make more money than someone with a damn good college education. Ridiculous and short-sighted.

When they go under, and they will no matter if they're bailed out or not, those workers will be without jobs, and without alternatives.

In a labor-intensive environment, such as retail (which has to have salespeople constantly, and many of them), I would have been fired if my personel costs had approached 11%.

 

[rgraham666]

On the inverse, if wages get too low it doesn't matter if product sales prices are low. People won't buy things.

In fact I'd say wages have been too low for a long time. That's why so many people are burdened with large debts. They've been using credit to replace their wages.

Of course the fact that many people want more than they really need plays into it as well.

Shrugs. It's a complex balancing act. Unfortunately that's an especially difficult thing for Westerners to do as we don't believe in balance.

 

[DesertPirate]

I agree with that, as far as it goes, but it's also ridiculous that someone with next to no education can make more money than someone with a damn good college education. Ridiculous and short-sighted.

When they go under, and they will no matter if they're bailed out or not, those workers will be without jobs, and without alternatives.

In a labor-intensive environment, such as retail (which has to have salespeople constantly, and many of them), I would have been fired if my personal costs had approached 11%.

Correct Cloudy! I was at one time an Assistant Manager at Wal-Mart and later at Service Merchandise, we were always told that payroll would never exceed 8%.

 

[lil_elvis]

Correct Cloudy! I was at one time an Assistant Manager at Wal-Mart and later at Service Merchandise, we were always told that payroll would never exceed 8%.

And it always helps to make sure most of the workers don't reach 40 hr/week and qualify for idiotic things like health insurance

 

[dr_mabeuse]

From what I understand, it's not the labor costs of labor that are killing them, but what they pay in pensions, and the biggest part of pensions is what they pay in ex-employee health care.

So once again, we come down to the lack of a health care system in this country.