By on October 24, 2008

General Motors will soon be a ward of the United States federal government. Make no mistake about it. Without some kind of massive financial injection– not a mere few billion dollars but tens of billions– there’s no real solution to the problems of GM’s legacy of epic, chronic mismanagement. We know that day of a government bailout will come-– and much sooner than even Wall Street wants to believe. In fact, it’s almost upon us.

The Chrysler “absorption” only proves that when you confront normally sane men (though maybe not that smart) with death and destruction, they will resort to a nuclear option, even if it defies their own best interests. Kind of like saying “if we’re going down, everyone else is going with us.” And that makes government intervention inevitable.

When Congress faces the bomb lobbed by GM, it will react in predictable fashion: by making sure that every group gets a shot at the bailout dough. First, labor. Got to protect jobs, especially high paying union jobs. That’s the street cred of the Democratic party. Second, the huge Midwest industrial base of suppliers. They’re vital to keeping the behemoth going. Third, dealers. Can’t throw them out on the street; every state has too many GM dealers already and most of them donate significantly to their respective state and federal politicians to keep their franchises safe from greedy automakers. Finally, all of the associated vendors that now pray every month that GM pays their bills. Well, they can’t be ignored either.

GM’s got a ton of allies in this fight. Besides the aforementioned groups, the biggest supporter of a massive government bailout may turn out to be the national and local media. GM spends upwards of three billion dollars on advertising in the United States every year. Its dealers spend god-knows-how-much additional millions on local TV, radio and print every wee. If that money disappears, there’s gonna be a world of hurt applied. So, sure enough, media owners (think Gannett, Viacom, GE-Universal, Comcast, your local newspaper, etc.) will lobby hard to make sure GM stays in business as is.

Keeping General Motors afloat with government dollars (i.e. your tax dollars) will be done in a manner that keeps the status quo. Same brands, same dealers and few job losses.

Of course, that’s exactly the wrong way to do it. Nothing will change. And while GM might make it through the short term, everything that’s wrong with the company today will merely continue on into the future: too many brands, excess dealers and a labor force that lives by entitlements. And let’s not forget about an executive management team that got us here in the first place. They’ll stay too.

There is an alternative.

The feds should arrange a pre-packaged bankruptcy of General Motors, whereby the Federal Government provides 100 percent of the Debtor-in-Possession financing. No one else can participate. Not private equity (think Appaloosa with Delphi), not the money center banks, and definitely not any investment banks (oh wait, they’re already gone).

GM must shed its excesses that have become unmanageable. TTAC and others have talked about this ad nauseam. Without a bankruptcy, there’s no way to rearrange GM’s balance sheet (without a nasty cram down of the current lenders, and that takes time and politics), wipe out the existing equity (not much left there), and simply get rid of the unnecessary brands and dealers. The laws can’t change just to accommodate General Motors and accomplish any of this if the corporation and its North American subsidiary remain intact and out of bankruptcy.

With a prepackaged bankruptcy-– overseen by a governmental administrator with an independent Board of Overseers-– GM can quickly emerge as a viable, but smaller company. Jobs will be lost. Factories shuttered. Suppliers and dealers will disappear, but not all. (Dealer franchise contracts are deemed executory contracts and can be terminated in a bankruptcy without compensation.)

The key point here: none of the existing GM stakeholders today would have an alternative option under this bankruptcy scenario. There simply aren’t any other lenders willing to provide GM any financing while in bankruptcy, and that would lead to a liquidation for which stakeholders wouldn’t get much. Hence, the government can and should dictate the terms everyone gets if it provides the debtor-in-possession funding.

This plan would cost less to the government (that’s you and me) than a politically-crafted bailout to keep General Motors afloat “as is.” A reorganization exit plan would also bring in new equity and debt to replace all government advances. GM would emerge as a living and breathing entity, not as a dead-corpse walking, as in any other government plan.

And that’s how the nuclear genie at GM can best be contained. Now, if only Washington DC would listen.

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54 Comments on “General Motors Death Watch 207: Saving General Motors...”


  • avatar
    TexN

    sad but true. and it F@%^#ing pisses me off that my tax dollars will go to these idiots!

  • avatar

    I suppose if enough of GM were pruned away so that what was left was a much smaller, less sclerotic company, it might be viable. A conventional bailout is just plain unacceptable because it is such a dysfunctional company. Saturn was supposed to lead GM into a new era; instead, GM pulled Saturn back into the mother company and ruined it.

  • avatar
    1996MEdition

    terms dictated to every party by a governmental administrator overseen by an independent Board of Overseers to ensure fairness

    This is where the plan will fail. The word governmental is synonymous with corrupt. I’m not real familiar with corporate governance laws/rules, what options do the shareholders have, if any? Can they oust the BD?

  • avatar
    ronin

    The government will use “emergency powers granted in the Great Depression” to buy GM stock. Without imposing any responsibility on the company, taxpayers will bail out this stinking dinosaur corpse, just as they did with banks and quasi banks.

    So taxpayers that got screwed buying their trash cars for decades will now also get screwed by paying all over again.

    High union salaries and even higher pensions will be paid for by people with low salaries and no pensions.

    It is only fair. The redistribution of wealth from those who were and are responsible to those who were completely irresponsible is only fair, and the American way, as Congress is so wisely aware.

  • avatar
    928sport

    When the dust settles,”or should I say when the tax payers Billions”it the GM piggy bank,lets step back and figure what that will cost on top of every car they sell.The Camaro is not such a great deal now.I only hope that the car buying public will boycott these Company’s that take bailouts.For decades they have put them selfs where they are now.I for one am sick of bailouts and at some point we just need to let these things work out on there own.

  • avatar
    volvo

    In a word Trabant and Lada. I imagine there will have to be a law in place to find willing or unwilling buyers.

    Next will be subsidies for newspapers that can’t sell enough product to meet their overhead.

  • avatar
    ra_pro

    A bankrupt federal government rescuing bankrupt companies and not just any companies. The biggest investment banks, the former biggest company in the world and still the second-biggest car producer, throwing hundreds of billions (soon trillions) left and right at anybody who asks for a bailout.

    The only way this is still possible is that the scared investors don’t want to see the true picture and are stampeding to the US dollar. What will happen when these investors finally come to accept as I am sure most know in the back of their mind that the US is insolvent and will not be able to pay its bills in the next 10-20 years. What then?

  • avatar
    AG

    Ladies and gentlemen, this isn’t a government takeover of GM and the banking industry. This is a GM and banking industry takeover of the government!

  • avatar
    Matt51

    ra-pro-

    The govt has already decided to pay off the debt the same way they paid for WWII – with the printing press. Inflation is a tax against everyone – this is their solution, as awful as it is.

    Still, it is hard for me to argue against saving Detroit, even if it means just handing over some cash. We need to keep as many jobs as we can – they are in very short supply these days. The govt knows they need to keep cash in circulation, or we get the Great Depression again.

  • avatar
    GS650G

    the first scenario, for sure. This delays the real day of reckoning as long as possible

  • avatar
    parimento1

    Why should we pay for their mistakes. We are not shareholders, let them do that. For all I care, let them go out of business. Only in this way will they learn their lesson. If they are bailed out the same morons who are in charge now will continue to fumble and bumble their way into more and more debt. The unions also have too much control I am all for unions, but the unions are bending the auto companies over and screwing them blindly while the auto companies say OK. In the end though the greedy unions are screwing themselves because they are partially responsible for the predicament that the auto companies find themselves in. They simply bled the companies dry with wages and benefits, etc. In the end the only fitting end to all this is either bankruptcy or a gov’t take over. Seeing as how the government is giving out so much money, they should be seen as owning the company. If the automakers didnt accept the bailout that is one thing. But if they do, the gov’t should have the right to run things as they see fit, as they are the ones footing the bill.

  • avatar
    windswords

    Ken, as much as I like your plan, it doesn’t have a chance in becoming reality because the Congress won’t be able to make the hard choices in which brands, suppliers, vendors, dealers, and union workers “take one for the team”. The various special interests groups will scream bloody murder and it will be a circus. This Congress of fools won’t be able to take the heat. So much better for them to just steal our money and hand it over to Detroit to squander, all the time saying they’re are doing it for “the children”.

  • avatar
    yournamehere

    “Its dealers spend god-knows-how-much additional millions on local TV, radio and print every wee. If that money disappears, there’s gonna be a world of hurt applied. ”

    i am an artist at a direct mailing house. 99% of our clients are car dealers. regardless of how many TTAC articles i send my boss about the car industry crash, he doesnt seemed phased. “its gonna perk back up next month”. In April of this year we did 1.2 million pieces each week. next week we have 150k.

    im updating my resume this weekend.

  • avatar
    CliffG

    You know, when you write stuff such as this:

    With a prepackaged bankruptcy-– overseen by a governmental administrator with an independent Board of Overseers-– GM can quickly emerge as a viable, but smaller company. Jobs will be lost. Factories shuttered. Ssuppliers and dealers will disappear, but not all.

    I really should not be drinking a cup of coffee. It hurts when it comes out of my nose. Franklin Raines and Jimmy Johnson are available I believe. Look, bureaucracies always expand. MADD is still around even though their original mission, lowering drunk driving levels to near zero, has been accomplished. If you think a bunch of G14s are going to be easier to move out of their positions than the careerists already at GM you are nuts. The government unions would never stand for the stuff the UAW does. A government takeover would be FOREVER.

  • avatar
    psarhjinian

    This is where the plan will fail. The word governmental is synonymous with corrupt.

    How much worse could it be, realistically, than GM’s current executive and board of bystandersdirectors. Really, they’re probably a hairsbreadth from negligence lawsuits and certainly don’t operate in a fashion that demonstrates any accountability to shareholders, employees or creditors.

    Sure, government oversight isn’t ideal, but GM’s leadership has been so poor I can’t see public management being any worse. In fact, I’d much rather see government oversight accompanying a bailout then a carte-blanche cheque to keep doing things as they have been.

  • avatar
    Verbal

    A nationalized GM? Could it get any worse than that?

  • avatar
    geeber

    A government-run GM would make us pine for the good old days when Rick Wagoner was in charge…

  • avatar
    928sport

    Verbal, be careful what we ask for! I used to ask that same question. As long as the Government can keep there printing machine’s going It will get worse.We the tax payer are the power source that keeps them going, not the wall socket there pluged into.

  • avatar
    Pch101

    I’m sorry, but I simply don’t see how turning the federal government into GM’s lender solves anything. This plan puts the US treasury and taxpayer totally on the hook for the operation of a manufacturing company, while failing to raise the additional funds or outside expertise needed to pay for and drive a turnaround.

    There are much easier ways to handle this. If it were my gig, I would broker the sale of some of GM’s North American assets (plant, equipment, brands, etc.) to an outside operator who would love to play a bigger game in the US market and that can afford to dump cash into a new company, such as VW or Renault-Nissan, and then bankrupt the remaining entity that is loaded to gills with liabilities.

    By selling the conspicuous components to an outsider, American car buyers would know that there is a company standing behind the new General Motors. The bankruptcy, handled quietly as a footnote post-sale, makes it possible to sell off the assets in the first place.

    The government wins because it can get away with some guarantees ala the first Chrysler bailout, which can be structured in such a way that they will likely never be exercised, instead of cutting a fat check as would be required with DIP financing.

    The new owner wins because they get to scoop up a huge piece of the US market for a relatively low price. If GM was stripped of its liabilities to become a relatively clean slate, there is likely someone out there who would dump several billion dollars to grab up that much business.

    The losers would be the shareholders, who would get wiped out, and the union, which would find that their pension funding requirements are lost at the bottom of the pile. As usual, the little people get hurt the most, but that’s the way of the world, they always do.

  • avatar
    geeber

    Pch101: The losers would be the shareholders, who would get wiped out, and the union, which would find that their pension funding requirements are lost at the bottom of the pile.

    Wouldn’t the workers’ pensions be covered by the Pension Benefit Guaranty Corporation (PBGC) if the stripped entity does go bankrupt? They would lose their health benefits, as the PBGC doesn’t cover those, but not the actual pension checks.

  • avatar
    Pch101

    Wouldn’t the workers’ pensions be covered by the Pension Benefit Guaranty Corporation (PBGC) if the stripped entity does go bankrupt?

    I should have been clearer — I’m referring to the much-discussed VEBA.

    From what I can tell, Wagoner outfoxed the UAW on this one. If my understanding is correct, the funding requirement is secured with convertible debt, which could be categorized as equity, rather than debt. If that’s the case, that means that the UAW is screwed, because debt comes before equity in bankruptcy cases, leaving them stuck at the back of the line.

  • avatar

    Who exactly in the federal government is ready and able to take control of GM?
    It’s seems daunting.

  • avatar
    Ken Elias

    Pch101 – I’d agree with your scenario except it’s not politically feasible to sell off the best parts to a foreign automaker and then bankrupt the company. Instead, most of GM (Corporate and GMNA) needs to be bankrupted which cleans up the balance sheet as I suggested. GM’s already well into a product turnaround, but just needs to get rid of excess brands, products, and dealers. And it’s a quick trip – and the government money is returned through new debt/equity holders taking a stake in a now viable company.

  • avatar
    Pch101

    Instead, most of GM (Corporate and GMNA) needs to be bankrupted which cleans up the balance sheet

    This would absolutely destroy the company. Americans are not going to spend $25,000 on a product that they assume has no warranty or support.

    I think that anyone who thinks that GM can survive a public bankruptcy in an economy this challenging is kidding themselves. There would be the equivalent of a run on the bank, which in this case means zero customers.

    Let’s consider the uniqueness of the times. The planet has been treading on the brink of an economic depression, one that it avoided by a matter of weeks or months. Consumers and lenders are all running scared. Slapping a BK label on GM is a good way to assure that it won’t be selling any cars.

    As a financial matter, the GM corporate entity needs to be cleaned up. But that has to be conducted in such a way that the average consumer sees a new owner who they can trust, and not a bankruptcy that they associate with death.

    GM could have probably succeeded with a bankruptcy some time ago, when times were good and consumers might take a chance. But right now, everyone is quite risk averse, and there are no reasons to roll the dice when there is a Toyota or Honda for sale down the street.

    Putting government money into a DIP financing program that turns quickly into Chapter 7 would cost the taxpayer billions of dollars.

    You could dress up the GM foreign-led turnaround by adding a token Ford presence into it. Since Ford is more likely to survive a bailout anyway, you may as well get Ford some guaranteed loans in exchange for their “support,” whatever that means.

  • avatar
    Ken Elias

    Warranty claims are not necessarily wiped out in a bankruptcy under Chapter 11. In fact, they may be considered operationally necessary to preserve the debtor and would survive in a reorganization. Keep in mind that there would be broad latitude to determine what’s required to protect and pay (and what to cut) to get to an emergence point and attract new capital.

  • avatar
    Pch101

    Warranty claims are not necessarily wiped out in a bankruptcy under Chapter 11.

    Sure, that’s true, but that isn’t the issue. The issue is that the consumer associates “bankruptcy” with “car that I ain’t gonna buy, no matter what.”

    Sales will plummet through the floor if GM files without a mechanism to create a comfort level for the consumer. GM would need to be clearly, er, transplanted into other hands that everyone can see and understand in order to avoid the stigma, otherwise it will look like a rudderless ship. Americans are not going to be confident that a government-operated GM is going to be a company with which they’d care to do business.

    In any case, if a Chapter 11 turns into 7, then the warranties absolutely won’t be honored because the company will truly be dead. In that case, the government loans would be repaid at pennies on the dollar, at best.

  • avatar
    Lokki

    Just out of curiousity, what about the World Trade Commission?

    Seems like we would be screaming bloody murder if a foreign country (Read Japan or Korea) was subsidizing one of their car makers with Government funds.

  • avatar
    blowfish

    In a word Trabant and Lada. I imagine there will have to be a law in place to find willing or unwilling buyers.

    Hey common in the old days u be lucky to see the tail lights in any given light year at all ( 10 yrs vaiting time)

    Now U can have any GM product drove home before your dinner gets cool off at all.

  • avatar
    Adub

    Yeah, and considering Daewoo already went under and GM bought the corpse, I don’t see how this can fly.

  • avatar
    toxicroach

    Well the WTC seems to be ok with all sorts of subsidies and government funding.

    The WTC didn’t kick up a fuss over Airbus, for instance, or at least didn’t do much to stop it.

  • avatar
    davey49

    Will Ford be the only American car company left?
    I guess I could only blame GM for their problems but I also blame customers who insist that American cars always break down because of something that went wrong in 1986.

  • avatar
    indi500fan

    Those who think Toyota, Honda, and Nissan will prosper in the wake of GM Chap 11 don’t grasp part 2.
    Protectionism and unionization of their US plants via card check.

  • avatar
    psarhjinian

    I guess I could only blame GM for their problems but I also blame customers who insist that American cars always break down because of something that went wrong in 1986.

    If you make a good product, you should be able to sell it. If you can’t, that’s a failure of your marketing department and thusly the leadership of your company.

    Case in point for success: Hyundai/Kia.

    GM could have offered ten-year warranties and made it easier for customers to get warranty claims honoured. They could have taken the Saturn model and deployed it across the whole line. But they didn’t to any of these things because, both at the executive level and as a collective, GM does not believe they’re at fault.

  • avatar
    ihatetrees

    Pch101:
    Sales will plummet through the floor if GM files without a mechanism to create a comfort level for the consumer.

    As I’ve written before, at the right price, everything moves, even with no warranty.
    Consider my price points:
    2009 Silverado 4×4, Nicely Equipped : $8K
    2009 Cobalt, Nicely Equipped: $2.5K

    Although, that’s not gonna happen. Mr Elias’ first point is probably right: No major changes under government ownership. Keep on muddling…

    Fast forward to October 2010:

    The GOP runs ads asking the Obama administration to release the (top secret) data on how many ten’s of thousands of UAW members are in the “taxpayer” job banks (at $50K each / year + benefits).

    And heck, if talk radio hasn’t been shut down by then, we may actually find out.

  • avatar
    jkross22

    Ken,

    Photo is worth 1000 (or 800) words. Well done.

    GM’s done. Bailout is a misnomer as there is no one actually getting bailed out. It’s the taxpayer getting thrown on board that sinking ship in Ken’s picture.

    I wonder how much GM (soon to be known as “Government Managed”) is going to blow at the LA Auto Show this year in hot women wearing sequent dresses, nice displays showcasing their C- efforts in cars and all those fancy brochures that get thrown out in a few days.

    Any official TTAC presence planned?

  • avatar
    NickR

    but I also blame customers who insist that American cars always break down because of something that went wrong in 1986.

    davey49, that is simply wrong. The first GM in our family was a 59 Chev. That I don’t remember. The next was a 68 with a 250 inline 6. We got good use out of that. The next one was a 78. The drivetrain was good (350 auto) but the build quality and materials were appalling. When that died, my dad got an 85 with a 305. The build quality and materials were even worse, and the 305 sucked (burned oil). My dad gave up, but friends continued to buy GMs…Pontiac 6000s, Grand Ams, Cavaliers, and a Phoenix. They sucked. All of them. Even now, I look at my boss’s Trailblazer. It is a turd. The only solace for him is that when he goes to sell it he can advertise ‘low miles!’ due to its being in the shop so often.

  • avatar
    billc83

    “But I also blame customers who insist that American cars always break down because of something that went wrong in 1986.”

    It stretches back further than the 80s. The perception gap between GM and the competition (read: imports) is impossible to ignore. And a lot of the blame lies not with the American consumer who remembers their horrid GM car and/or GM dealership experience, but with the company itself for allowing those to happen.

    I’m sure many people were longtime GM loyalists until they finally became fed up with the company’s product and practices. And people remember when they’ve been burned; they probably will take their bias to the grave. Though the product has improved, they’re not winning back those former buyers (and probably not their children, either).

    The rise of import automobile ownership in America (very) loosely parallels the rise of Christianity during the Roman Empire. At first, it was persecuted. Over time, however, it became more and more mainstream until it became the official religion of the land.

  • avatar
    telrbm1

    Washington doesn’t listen if people don’t complain. I just sent 4 emails. One to my congresswoman; two to my state senators, and one to Nancy Pelosi.

  • avatar
    Bill Wade

    Pch101 :
    October 24th, 2008 at 2:51 pm

    I think that anyone who thinks that GM can survive a public bankruptcy in an economy this challenging is kidding themselves. There would be the equivalent of a run on the bank, which in this case means zero customers.

    You’re implying this isn’t already almost the case.

  • avatar

    Bill Wade :

    Easy now. GM still accounts for 18 or so percent of the U.S. market. Although they can’t survive on that, it’s still a big ass chunk of sales.

  • avatar
    Bill Wade

    # Robert Farago :
    October 24th, 2008 at 8:49 pm

    Easy now. GM still accounts for 18 or so percent of the U.S. market. Although they can’t survive on that, it’s still a big ass chunk of sales.

    True, but I remember when I was in high school, GM accounted for roughly 50% of all new vehicle sales. I haven’t seen a market share graph from 1970 forward, but I’m guessing the downward trend line is accelerating.

    Already I believe the uncertainty surrounding GM is costing them even more sales. This could easily turn into a catch-22 tailspin.

    Disturbing to say the least.

    http://www.businessweek.com/lifestyle/content/oct2008/bw20081023_883385.htm?chan=top+news_top+news+index+-+temp_top+story

  • avatar
    obbop

    As the big-wigs at GM do all they can to amass as much personal wealth as possible if/when their money-maker collapses leaving them with their accumulated savings and Golden Parachutes the working-poor harvesting the food we all need still must work 60 hours in one week before the over-time pay even begins to kick in (and it is not uncommon to not even get over-time then; “If you don’t like it there’s 30 others ready to do your job and it’s your word against mine that you did actually work over-time”).

    Saw it, lived it.

  • avatar
    hltguy

    18 percent of U.S.marketshare is a “big ass” portion, what percentage of those sales actually make a profit? They may move a couple of million units a year (however shrinking below that) but they still are losing billions of dollars on the units. Without profit, it makes no difference, the result is what it is, bankruptcy. I would guess very few people of with clarity of thought pay anything close to retail for a GM product. What will the rental car companies do?

  • avatar
    Redbarchetta

    With a prepackaged bankruptcy-– overseen by a governmental administrator with an independent Board of Overseers-– GM can quickly emerge as a viable, but smaller company. Jobs will be lost. Factories shuttered. Suppliers and dealers will disappear, but not all.

    I really should not be drinking a cup of coffee. It hurts when it comes out of my nose. Franklin Raines and Jimmy Johnson are available I believe. Look, bureaucracies always expand. MADD is still around even though their original mission, lowering drunk driving levels to near zero, has been accomplished. If you think a bunch of G14s are going to be easier to move out of their positions than the careerists already at GM you are nuts. The government unions would never stand for the stuff the UAW does. A government takeover would be FOREVER.

    I’m not paying for another Amtrak and USPS. A bigger dumber more costly burden on my tax dollars, and my childrens and grand childrens. I paid for one of their sh*t products, a 2000 not 1986, and it continues to cost me money and a giant headache(with less than 100K miles). If GM becomes a nationalized blood sucking leach on my taxes I am going to seriously start looking for another country to pay taxes to.

    And if the Democrats under Obama do this 401k theft to make Social Security #2 I’m out of here for sure.
    Would Obama, Dems Kill 401(k) Plans?

    Here is the proposal if you want to read the madness, Guaranteed Retirement Accounts.

  • avatar
    Redbarchetta

    GM is losing a ton of money at the 18% they have now without being labeled a “bankrupt” company. When they file there will be a drop in sales, I don’t think anyone can dispute that, how much we could argue about for weeks, and already have. The drop in sales makes their situation worse even with the courts protection, they need increases in sales at least in the very near future to have a future. Product cycles are too slow, especially the ones they need to get them looking like a healthy company, add to that that they are pushing back product releases of ones that could help because they can’t fund them and that’s another nail. They would need a ton of money in bankruptcy to keep the company afloat while at the same time requiring a ton of money to get those products they so desperately need into showroms. Then they would need even more money to restructure the company in a timely manner, so the filing doesn’t last a decade.

    After all is said and done the amount of money to successfully bring them out of bankruptcy(probably $100-120billion) could be used to create a brand new American Electric Autos or something like that , that wouldn’t have all the cancer still left floating around inside it. The money is better spent in so many other ways than to resurrect that dinosuar after that meteor hit.

    Having the government manage it is an even worse idea, they can’t even balance a check book. GM would just become a new way for pork to suck even more of our money away.

    I vote for taking the economic pain NOW, even if it means a slight depression. We can’t keep acting like children and whining for uncle Sam to fix it when the lumps look like they might hurt. Poorly run companies go out of business and people lose their jobs and the economy goes down, it’s the natural cycle, we just have to learn to deal with it. And if a company gets so big that it hurts the economy in big bad ways just because it fails of it’s own doing, don’t let the economy become so dependent on one company next time. It’s called learning from your mistakes, something American’s really need to learn.

    telrbm1 I was going to ask you what your letter looked like, but then I remembered Congress didn’t listen to me or the millions of people who protested the $700B bailout. They don’t represent us they represent their major contributors and own self interests. I’m going to vote almost all my incumbants out come Nov. 4th, the rest of you might want to consider it also. At least send them a message.

  • avatar
    John Horner

    “This is where the plan will fail. The word governmental is synonymous with corrupt.”

    And the world of big business private enterprise has shown itself to be less corrupt ?????

    People often talk about how the US mobilized to win WWII, but seem to forget that part of how that was done was through full federal government control of just about every aspect of society. Young men were conscripted into the military in staggering numbers, household basics like sugar and fuel were rationed by the government, industry was put under the direct control of various national boards of production and so on. Don’t get me wrong, I actually like the idea of free enterprise … but it chaps me when people say government control always equals BAD and private control always equals GOOD. The facts are there and the real answer is that in every situation IT ALL DEPENDS ….

  • avatar
    Pch101

    18 percent of U.S.marketshare is a “big ass” portion, what percentage of those sales actually make a profit?

    Probably little to none of it. The answer could also vary quite a bit based upon how they choose to allocate the costs, so the result could be debatable.

    That percentage of market share should be attractive to a buyer, assuming that the buyer can acquire it without too many of the liabilities that the current company carries. A competent operator should be able to make a profit with market share that high and the benefits that come with it.

    If the feds were to broker the sale of GM to a third-party, structured so as to hand them the good bits without too many of the bad ones, then GM becomes an attractive buyout target. Even if the new buyer were to lose some market share (which seems likely), the new owner would still have a solid foundation for launching a turnaround built upon a smaller, more rational product line.

    A GM that has 20 or so models, several of which are winners, could be brought back to life and eventually be made profitable for a patient, savvy owner. The return on investment for that new owner would be impressive.

    In its current form, GM is not very attractive at all, and I would question the judgment of anyone who would want it with the idea of continuing to operate it.

    GM’s lack of cash is the byproduct of incompetent management and a culture that disrespects the customers who keep it in business. Giving them more cash without addressing those root causes is only going to cost someone a lot of money. I hope that someone isn’t me.

  • avatar
    ihatetrees

    Redbarchetta:
    I vote for taking the economic pain NOW, even if it means a slight depression. We can’t keep acting like children and whining for uncle Sam to fix it when the lumps look like they might hurt.

    If GM were liquidated, the pain would be concentrated in GM areas. But there’d be opportunity for others. Given the likely 20% drop in US annual sales, don’t other firms have the capacity to pick up the slack?

    It’s not gonna happen, but it makes more sense than having car making zombie firm(s) hang on for years at taxpayer expense.

  • avatar
    Redbarchetta

    ihatetrees The loss will have a ripple effect and will impact us all, some more than others, like the midwest would be in a world of hurt, but in pockets. We will also see booms in areas where the transplants will struggle to make up the slack. I think the short term pain no matter how difficult is necessary to bring us out the other side stronger.

    I have said it 100 times the loss of GM does not mean the loss of American made autos, and I don’t mean the transplants. GM has billions of dollars of resources, technology, and brilliant hard working employees, they are just not using it properly and more or less destroying American manufacturing rather than making it fruitful. PCH101 is right GM has tons of value and potential for profit tied up in all that debt and mismanagement, the good parts are still there, well right now. Someone with real vision will be able to take that good stuff after the bad bits have been tossed in the trash and revive the industry and probably within one product cycle due to all the pent up demand. In these rather depressed times it would need to be someone with deep pockets and real vision with an eye on the longterm return, not like Chrysler.

    Let me toss this one into everyones head. Say GM goes Ch 7 by the end of this year. The good parts get bought up at a discount(powertrain divisions, product development, research, the flexible factories , whole car tooling for good models or ones that have real potential, maybe 2 or 3 brand names), unions GONE. After 6 months of everything being shut down do to the court process(I’m guessing here I don’t really know how long that would take), you start hiring back the good lost employees including assembly but with a complete new management and a business model that works in the world wide global market today not like the dinosaur it is now, set up for maybe 15% of the market. No beaurocracy, no fiefdoms, just everyone working toward an end goal of making the best product for the market at a good profit to continue the cycle and grow. With new marketing and a focus on the product and customer this would make for huge comeback of the American car.

    Unfortunately I know it will never happen. The government will just keep wasting our money until we are just like the UK.

  • avatar
    Geotpf

    GM’s sales suck now. A GM in bankruptcy, with several brands cut, will have sales drop by an additional 30-50%. People will avoid buying cars from a bankrupt automaker, plus if you eliminate brands, factories that break even by selling similiar vehicles under several nameplates will lose tons of money once some of those nameplates are dropped. You can not shrink to prosperity. It’s not possible.

    GM needs to find a way to increase sales with the brands they have (that is, buying Chysler will increase sales, but that doesn’t count). Hell, they need to stop having sales shrink to start. That is the only solution, and it may be impossible. Bankruptcy, even if managed by the government, is not a way out.

  • avatar
    Geotpf

    Verbal :
    October 24th, 2008 at 1:44 pm

    A nationalized GM? Could it get any worse than that?

    Sure. A nationalized GM-Chrysler combo.

  • avatar
    Packard

    The real issue in any reorganization, whether Chapter ll or a government mandated one of the type proposed, is the amount of money required to recapitalize the company.

    GM would need sufficient funds to develop new platforms that would be market-competitive and it would need enough money to keep operating until those products were on the market. Moreover, it would need to be assumed that some of those new products would fail, so that there would need to be investment across the board in various market segments. Part of GM’s current problem is the result of concentrating on one market segment, trucks, and ignoring another, small cars. The future is, by definition, unpredictable, so an investment would need to be rather broad.

    If you assume five years and five billion per platform, the costs quickly become staggering. Even shorn of the labor legacy costs, you’re still operating at a loss for five years,

    You can, of course, stuff the taxpayer with the legacy costs – they’re on the hook for those, anyway. But, you cannot turn out a competitive product overnight. So, it will be necessary to keep the company running, at a massive loss, for a minimum of half a decade.

    There is, of course, no way to avoid this. Cutting costs won’t make the company competitive in the future. Even when shed of it current costs, the company will still require massive amounts of capital to produce anything new and to survive until it can. And when it does, it will be producing in the most competitive possible world market, which means that it will need even more capital to be developing the next generation of everything, even before the first generation can pay off.

    The car business is one of the most capital intensive in the world.

    As a rough number, $250 billion would do it. $150 billion would be marginal. And that’s assuming the government takes over the pensions and the UAW is eliminated as a worker representative.

    Because – never forget – the ability of GM to make it depends, entirely, on eliminating the UAW from the equation.

  • avatar
    Matt51

    There is a real disconnect – blue collar wages have been declining in real terms since 1973.

    Just as Henry Ford found out positive sales benefit when he increased his workers wages, Detroit is getting hammered to some extent because cars are no longer affordable to the masses. They escaped for a while by going to five and six year loans and leases. I about crap in my pants when I read rags such as Car and Drive telling me how affordable a $25K Malibu is.

    I had to help my permanent student daughter buy a used car when hers was totaled by an uninsured driver. I had to go to Chicago to buy a Suzuki Forenza with 40K miles for $5800, which is what she got from insurance. Most clean used cars are 6K and up now. For people making $10 an hour, there is no such thing as an affordable new car. Now that Suzuki has discontinued their Daewoos, pretty much all that is left are the base Kia and the Chevy Aveo, but even those are now out of reach of masses of Americans.

    Wiping out GM debt in Chapter 11 would help, but the broader issue is how to make money in a mass market industry, when maybe only a small percentage of Americans can afford a $25,000 car.
    Henry Ford II was worried about affordability of cars with all the new 1970′s regulations. He was right to be worried. Someone wrote a 1970 Dodge Challenger at $3200 would be $16,000 in todays inflation adjusted dollars. OK, I want my Challenger to be $16,000. Could Chrysler make money at this price? No.

  • avatar
    quasimondo

    I’m not paying for another Amtrak and USPS. A bigger dumber more costly burden on my tax dollars, and my childrens and grand childrens. I paid for one of their sh*t products, a 2000 not 1986, and it continues to cost me money and a giant headache(with less than 100K miles). If GM becomes a nationalized blood sucking leach on my taxes I am going to seriously start looking for another country to pay taxes to.

    As if you really have any say in the matter. Your tax dollars are going towards a $700B bailout of investment banks (which I’m sure you wrote your congressman & senator to vote no on). Your tax dollars went toward purchasing 80-percent of a company that’s even more mismanaged than GM that still doled out bonuses and pay for lavish hunting trips after getting bailed out. And your congressmen didn’t even have a chance to vote on that.

    You may cry and stomp your feet and hold your breath until your face turns blue all you want, it’s not going to make a difference. In the end, you’ll be paying for this whether you want to or not.


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