With a bit of luck, I’ll finish this editorial before House Speaker Nancy Pelosi tells America how Washington will save Detroit by spending your tax money on a domestic automobile industry beyond salvation. I doubt it. As we’ve previously reported, our duly elected representatives have already met with the titanic captains of Ford, GM, Chrysler and the U.A.W. in a closed-door session. I’m sure they got their ducks— and our bucks— in a row. Nancy will sing an ode to the working man and pen a paean to the importance of American heavy industry. Grim faces will then face a grim task: figuring out the fastest way to put Ford, GM and Chrysler on federally-funded life support.
GM first, of course. It’s out of money. Today’s third quarter financial report admits that the American automaker doesn’t have enough cash to last until the end of the year (actually next month). While GM’s impending implosion virtually guarantees prompt federal mammary provision, “prompt” may not be good enough. In truth, GM is a breached and rudderless ship slipping into a sea of red ink. If Pelosi and pals don’t get the bailout done in a couple of weeks, the public will see GM’s situation as one that’s beyond repair.
Now that the GM bankruptcy story has “broken,” the mainstream media will start asking the tough questions that TTAC’s been asking for years. Such as, who is this NSFW who’s run GM into an iceberg, and ram it repeatedly? Why was this corporate helmsman paid over $100m in salary and benefits to do so? (Someone might even mention Wagoner’s bankruptcy-proof pension.) Why should we believe a thing he says? And why is he still here?
When Congress doled-out $700b to the financial industry, the average American had no clue what the Hell the money was for, why it was needed and what was going to be done with it. Credit swaps? Sub-what? They revolted. And then the stock market dropped and the bailout bill passed. But cars are a different matter. Cars they know. What are the chances that GM’s going to build a car I want to buy using my tax money? Sure, I want to protect jobs. But I also want to protect my tax money. So… screw it.
GM has but one weapon to counteract this argument: the plug-in hybrid electric – gas Chevrolet Volt. The Volt is a damp squib stuck in development Hell. GM may have fooled the financial community (and itself) with its constant talk of the next Next Big Thing, but with gas prices hovering at $2 a gallon, the wind has gone out of the Volt’s sails (sales?). It’s too much, too late.
Detroit’s bailout backers face another problem: there is an alternative.
Our anonymous contributor’s pro-bankruptcy editorial contains the kernels of a GM bailout backlash, based on sound business principles. Once Ms. Pelosi’s emotional appeal to working class values loses its emotional resonance, pundits will argue against “throwing good money after bad.” The General’s public will cotton-on to the idea that it’s not a case of bailout or die. It’s a case of bailout AND die.
As Bill O’Reilly would say, the bailout bonanza also has an “unresolved problem” segment. Cerberus. Chrysler’s owners are a deep-pocketed private equity firm. If they glom onto a federal bailout– and ChryCo CEO Bob Nardelli was in that room with Pelosi– voters will NOT be happy subsidizing Feinberg’s fat cats. Or, for that matter, the Ford family, who still control The Blue Oval through their special class of stock.
It’s no wonder we’re hearing rumblings that Detroit is willing to consider taking federal bailout bucks with ”strings” attached. They recognize that the PR war– and thus the bailout itself– is not a done deal. They know they need to appear “willing to work” with legislators to “ensure that taxpayers’ money is protected.” Yada yada yada. Just get this thing done. Whatever it takes.
Of course, the truth of the matter is that there’s nothing federal funds can do to “save” Detroit. Chrysler is a basket case, and Ford and GM have no long-term future without a Chapter 11 reorganization.
Under C11 protections, using debtor-in-possession financing, GM and Ford can shed onerous labor contracts, kill brands, terminate dealers and get out from underneath mountainous debt and build something American want to buy. In fact, there’s only one way the feds can help GM and Ford, and the hundreds of thousands of current and former workers who depend on their survival: withhold our money from their coffers.
GM is dead. Chapter 11 is the only method by which a new GM can rise from its ashes.
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Good read:
http://www.247wallst.com/2008/11/airline-chapter.html
Women, children and CEOs to the lifeboats.
If they bail out GM does that mean Obama is going to give me a new Chevy? Will Oprah be handing out keys to G8s all over America?
I have worked for GM,Chrysler, and suppliers for 40 years. I am from oriental heritage.
I watched my father work 18 hours a day 7 days a week and never take a vacation. My father never failed to get up never complained, never had health insurance or paid vacation.
When I heard that the US workers had to compete against these folks for market share. I new they were on the wrong playing field.
My father laughed at the ignorance of the US to think that the could compete against voluntary slave labor that was happy to get a meal.
If the bailout goes through, we’ll be seeing tax refund checks replaced by vouchers for your choice of fine American-made iron. The government can force you to buy a new domestic car! GM keeps its factories running and gets a chance to dispel that pesky “perception gap” once and for all. Market share rockets, and all is right with the world.
You won’t get to pick your model though. Under Obama and the Dems, you’ll get the car they decide you need. As in, “from each according to his ability, to each according to his needs.” You know, that Marx thing.
It’s change you can believe in.
Ah! The chicken soup of collectivism…coming home to roost!
Great synopsis, RF.
I don’t understand why taxpayers that earn modest salaries and have no, or modest health care benefits, should bail out auto workers that earn generous salaries with fabulous health care benefits.
It’s gotta sting a bit for a construction worker in Texas to subsidize an auto worker in Detroit.
At this point, they might as well file. The publicity damage of a C11 that they have been so scared of has been done (or will be soon), now that the pop press has finally picked up on this.
The public now knows GM is bankrupt, so you might as well make it official and get some benefit from it.
Unfortunately, our legislature works for themselves and have the same short term view as GM management. They will play the fear tactic again and ram this through with little strings attached. There will be no accountability similiar to all the previous bailout bills.
I can imagine this will generate more discussion than the bank bailouts though especially since there has not been any talk of cutting executive compensation.
Under C11 protections, using debtor-in-possession financing, GM and Ford can shed onerous labor contracts, kill brands, terminate dealers and get out from underneath mountainout debt and build something American want to buy. In fact, there’s only one way the feds can help GM and Ford, and the hundreds of thousands of current and former workers who depend on their survival: withhold our money from their coffers.
GM is dead. Chapter 11 is the only method by which a new GM can rise from its ashes
Amen… I’m glad to see TTAC spreading the word on the ONLY viable solution. Now just add breaking them into individual companies by brand and you’d have it perfect.
Cicero
3 models only
Chevy Niva
Pontiac Lada
Cadillac Volga
It’ll be just like the Titanic, first class passengers board the life boats first (Read: CEO, Chairman, Upper Management, Board Members), third class passengers (line workers, lower management, etc…) get to drown in the red ink flooding the decks of the ship. Davy Jones’ Locker, here they come!
You won’t get to pick your model though. Under Obama and the Dems, we’ll get the car they decide we need. As in, “from each according to his ability, to each according to his needs.” You know, that Marx thing.
You know what? This sort of thing is getting really tiring. Every political party elected to power in a western social-democratic nation, without fail, drifts just to the right of centre after election. Every. Single. One. Remember Clinton? Did you watch what happened with the “new Labour” under Blair in Britain? Do those look even remotely Marxist to you?
Hell, even the traditional right drifts leftwards to that particular just-right-of-centre point. Witness Bush, Chirac, Berluscon, Merkel and Harper.
It happens to every party. The gentle right side of centre is the natural state of governing parties because, quite frankly, that’s where the balance between equitable treatment of the populace and economic reality sits. There’s differences between countries (what qualifies as moderate right wing in the US or Austria would be full-bore whacko in France or Canada) but generally, that’s where government rests.
I can count one recently elected governments that stuck to leftist principles post-election, and that’s Spain, and even it’s drifting rightwards as reality sets in. So please, let’s drop the ideological sour grapes: Obama will not be wresting the means of production from private industry, breaking the back of religion and/or inspiring a proletariat revolt. His administration will just be an average politician, probably no pinker than Clinton or GHWBush (who, really, were pretty much exactly at the same spot on the spectrum). Classical leftists like myself are probably going to be disappointed in Obama come year two of his administration–or at least I would be if I hadn’t seen this happen before.
I realize the American political variety is badly myopic (as in you have two parties: the Right and the Ultra-Right) but has it really gotten so bad that even centrists get labelled as Bolsheviks?
Good article. Though many of the fantastic observations in the anonymous op-ed from yesterday regarding Cerberus are right-on, many of those details fall into a what Farago refers to above as “Credit swaps? Sub-what?” category.
And yeah, where’s my free Z06? By the time I’m done paying China back for all this money GM needs with interest, at the current rate it will at least be a stripped-down C6 worth of cash. Unlike GM used to be able to do, the Chinese aren’t willing to give us zero-percent for thirty year carry on this loan.
@ Cicero:
I like your idea! With gas at $1.80 here, I hope I get a Tahoe.
Seriously guys, does anybody on here really believe that Obama is gonna start his Presidency with GM going chap 11?
As Delorenzo says, notgonnahappen.com
Well, indi, B.O. may not have a choice in the matter, now, may he?
After 8 years of being totally trashed by the left, Bush has already as much as told the Detroit 2.8 to go NSFW themselves and no monies would be forthcoming while he was at the helm.
Isn’t the baton-pass to B.O. on January 22nd?
Do the math.
Chrysler and GM are – TOAST.
Political paybacks ARE truly a bitch, eh?
After all, Michigan and Ohio, hell, most of the old rust belt voted for B.O. The pro-democrat unions TELL their rank & file how to vote, for God’s sake.
Some freedom of choice.
Of course, a Chapter 11 GM and possibly even Chrysler will be “bailed out” with our taxpayer money by the B.O. and Pelosi crew.
But it’ll have to wait until February.
GM and Chrysler may be described as the “Black Knight.”
http://www.metacafe.com/watch/710431/monty_python_the_black_knight/
Perhaps, just perhaps, Ford will survive.
Congratulations RF,
After a seemingly looong time of being the (sometimes not so popular) naysayer predicting GM’s demise, you’ve finally been proven correct.
With the economy melting down all around us and Congress printing and shoveling money out like toilet paper, maybe it’s time to start the America Death Watch series.
Watch the News tonight and see where this falls in terms of importance to the MSM. It may be the 3rd!!! story behind Obama’s first press conference and the Jobs report.
So…don’t think avg Joe will hear it.
There’s 1 argument for a bailout that no president is going to be able to swallow. The loss of 250,000 jobs. The number being floated if the Detroit 3 shutter just half their US plants.
Remember, all the suppliers will be impacted too. It’s not just GM or Chrysler going down.
However, and this is rare, I agree with RF. There is no reason Chrysler should be in these talks or receive moneys. Cerebus from day 1 said they were going to sell Chrysler in bits and pieces, they just made up the part of “after it returns to profitability.” That’s never going to happen.
Now, can Chrysler declare bankruptcy to help it sell itself off? If so I see them going bankrupt. I see GM getting bailed out. They’re just too big for bankruptcy. They’ll have lots of strings attached though.
Ford will get help but is much more nimble than GM and has better leadership.
And please remember, Pelosi is NOT a fan of the auto industry and is trying to force out Dem. MI politicians out of this conversation. She wants to skewer them and make them kiss her ass. She needs to go and I’m a Dem.
You’d think someone at GM would be a little embarrassed. A little nervous. A little apologetic.
Apparently not. It’s business as usual. Just another quarter full of losses, failed managerial decisions, and cash burned.
I’m amazed that any of them can get time with a US Senator let alone private meetings. Maybe the lure of watching a train wreck in progess is so fascinating that Nancy Pelosi wanted a front row seat?
I know I’d love to hear what $14M worth of whining sounds like.
What is GM making that the world needs?
If Obama would not spend all the money on campaigning, he could bough GM or Chrysler (or both if he is a good negotiator).
I need to be more direct. The US life style for everybody in the US cannot be supported.
When somebody looks over and says your over paid for what you are doing. The over paid is everybody in the US. Everybody in the world wants to live our lifestyle. They would work 18 hours a day for their entire life to support their children for our lifestyle.
Are you willing to work 18 hours a day for life.
Admit it. We are all overpaid and the eagle is coming home to roost and it won’t be pretty unless we all understand we are a country and we need to protect everybody in this country. Or, we will wind up outsourcing everything because the world will out work US.
The longest US presidential campaign in history cost $2.2 billion, with Obama’s campaign gathering 600 million.
That’s twice as much as was spent in 2004, and 3 times as much as in 2000.
However, according to CNN, in 2007, Americans spent $6.8 billion on buying potato chips.
I guess one should keep things in perspective.
I like potato chips.
I like Obama, But do not get confused as to which is more important.
Blindfaith, you’re touching upon the crux:
blindfaith :
November 7th, 2008 at 4:11 pm
Admit it. We are all overpaid and the eagle is coming home to roost and it won’t be pretty unless we all understand we are a country and we need to protect everybody in this country. Or, we will wind up outsourcing everything because the world will out work US.
Western companies managed to make their balance sheets look good by outsourcing jobs and manufacturing to low-cost countries; while western POLITICIANS managed to make voters feel good by getting them to believe that they were increasing their purchasing power.
This happened through a fall in the price of consumer goods, due to manufacturing abroad. Unfortunately, what looked like a win-win, is turning into a double whammy.
A country without manufacturing is nothing – somehow we managed to delude ourselves into thinking that the services industries were a viable substitute.
James Dyson (of the Dyson vacuum) has been screaming himself hoarse for years pointing this out. He takes no pleasure in being proven right.
A scythe will now cut through western job markets, and it will be ugly to beyond belief.
The gentle right side of centre is the natural state of governing parties because, quite frankly, that’s where the balance between equitable treatment of the populace and economic reality sits.
Gentle?!?!?! The Patriot Act, the warrantless tapping of basically every body’s electronic communication, The blurring of the line between the police and military the cameras on every street corner, the war on drugs and on Terror, the destruction of currency, the millions spent on pointless weaponry and the long, long list of laws designed to separate citizens from having some sort of control over their ’servant’. economic reality?, equitable treatment?
wait, Obama is anti-potato chip? I voted for the wrong guy! argh.
A country without manufacturing is nothing – somehow we managed to delude ourselves into thinking that the services industries were a viable substitute.
James Dyson (of the Dyson vacuum) has been screaming himself hoarse for years pointing this out. He takes no pleasure in being proven right.
A scythe will now cut through western job markets, and it will be ugly to beyond belief.
When they came for the shoe industry, I didn’t care, I wasn’t a shoemaker.
When they came for the apparel industry, I didn’t care, I didn’t make apparel.
When they came for the shipbuilding industry, I didn’t care, I wasn’t a shipbuilder.
When they came for the consumer electronics industry, I didn’t care, I didn’t make electronics.
When they came for the machine tools, I didn’t care, I didn’t work for Bridgeport or Cincinnati Milicron.
When they came for the domestic auto industry, there was nobody left to care.
While it’s true that the Big 3 have been mismanaged, can you say the same about all the other US industries that have been allowed to wither?
GM “The Mark of Excellence”
is now
GM “The Mark of Incompetence”
http://en.wikipedia.org/wiki/Incompetence
When they came for the domestic auto industry, there was nobody left to care.
Nobody “came” for the domestic auto companies. They destroyed themselves.
Your efforts to compare the demise of Detroit to the Holocaust trivializes the Holocaust and is an insult to the millions murdered by the Nazis. Unlike Detroit, the Jews didn’t purposely commit suicide, they were murdered.
Cicero, you’re totally right! I was shocked, SHOCKED I tell you, when Osama bin BarackHussein started each of his rallies with a communist loyalty pledge! Then, when he promised to wrest industry from the hands of the capitalist pigs and place it in the hands of the proletariat, why, I nearly fell out of my chair!
You’re right, Obama is a big-time Marxist, as his statements and actions have proven. I admit that I rather like his pledge to keep lazy people from having to work and forcing the rich to slave in the fields, as I am a bit lazy myself. Golly gosh, I hope one of the two cars he allows to travel our roads is a Malibu, I may want to apply to Obama’s proposed Ministry of Population to allow my wife and I to have a kid and that looks like a good family car.
The Patriot Act, the warrantless tapping of basically every body’s electronic communication,
No hyperbole here, no not at all. Cite a single American citizen whose domestic communication was monitored. OTOH, I’m rather certain you aren’t concerned over the thuggish behavior of the Obama campaign and its supporters. It wasn’t Republican government officials who violated Joe The Plumber’s privacy by rummaging through his gov’t records.
The blurring of the line between the police and military the cameras on every street corner, the war on drugs and on Terror,
Police departments and their unions support Democrats. It’s not conservatives/libertarians who install red light and speeding cameras.
the millions spent on pointless weaponry
My daughter just enlisted in the US Navy. I kinda like the idea of better weapons that keep her and all of us safer. Russia just announced they are deploying missiles to the borders of our [now] allies in eastern Europe. Missile defense systems are pointless how?
Blindfaith
“When somebody looks over and says your over paid for what you are doing. The over paid is everybody in the US. Everybody in the world wants to live our lifestyle. They would work 18 hours a day for their entire life to support their children for our lifestyle.”
I was watching something on young people in Dubai. Out of college they’re expected to make somewhere around $180,000 U.S. So there are some countries a bit better off than us in terms of income. In fact per capita income the U.S. is 12th behind Luxemberg, Norway, Qatar,Iceland, Ireland, Switzerland Sweden and others.
Gary Numan-
correction if I may
GM “The Mark of Excrement”
Has been for a long time.
Cicero und Hippo
Thanks for some grins.
Bunter
I’d rather see a bailout than see one of them go under, see hundreds of thousands of people out of work, and a potential new Great Depression on our hands.
I think if the government does anything it should be to help broker a C11 filing for GM (or whichever) that would allow a reorganization while somehow underwriting warranty protection so that consumers can have some confidence in buying the products.
I’m no expert, so I don’t know how they would manage this, but RF is absolutely correct that without C11 the ship is sunk.
On the other hand, Obama has 4 years before he needs the unions again- if you’re going to screw them, best to do it early and hope for a short memory. They just need enough votes to let Dems from rust-belt states cover their asses.
I think one of the most important items a CH11 will do is finally put management accountable and get rid of the idiots running these companies into the ground. I’m also hoping that if Ford goes CH11 it will finally sever the unfair voting rights the silver spooners have had control over. Ford is a public company and needs to be run as such – not a pseudo family owned company with one of the most checkered safety recall problems in history.
Gentle?!?!?!
By American standards. I think they’re jack-booted thugs, but most people here think I’m a scythe-tatooed pinko, so fair’s fair.
I know it’s hard to believe, but Bush did drift leftwards as his administration progressed. The Bush administration of 2002 would never, ever have made the kind of compromises to reality that the current version (2007/8) did. Now, a left-leaning Bush administration is still a good deal to the right, but relativity is important to consider.
A country without manufacturing is nothing – somehow we managed to delude ourselves into thinking that the services industries were a viable substitute.
James Dyson (of the Dyson vacuum) has been screaming himself hoarse for years pointing this out. He takes no pleasure in being proven right.
A scythe will now cut through western job markets, and it will be ugly to beyond belief.
I beg to differ. If you found a (insert dream car of choice) on the side of the road for nothing money you’d think you have a bargain. So why is so bad for companies to build stuff in China (Or anywhere else for that matter) if they can build it better or more reliably or whatever.
If a company is in Laredo why shouldn’t be able hire Mexicans from Neovo Larado instead of Detroit.
In free market economics, the Consumer is king and demands a better, cheaper, reliable, easier to use product. Yes this will shrink western pay scales because over time, the price of everything drops. An Indian accountant, the Hungarian Dentist or the Brazilian lawyers disadvantage in the past was access to markets, capital and Information. Now that has all changed thanks to the Internet, amongst other things so why should an American get a higher fee for doing the same job.
And as for Mr Dyson I would rather have dust bunnies than pay a thousand bucks for a mere Vacuum Cleaner.
To reiterate what’s already been said, a bailout would not prevent the loss of numerous jobs anyway.
psarhjinian
I see your point however left or right, you’re still left facing the State.
On the other hand, Obama has 4 years before he needs the unions again- if you’re going to screw them, best to do it early and hope for a short memory. They just need enough votes to let Dems from rust-belt states cover their asses.
This is an important point. People fail to understand that, in a two-party state, you can gleefully move to the centre of the spectrum without risk of driving your extreme wing to the other side.
Obama doesn’t need to pander to college Marxists, trade unionists or LGBT groups because there’s no way in hell these people would ever vote Republican. McCain doesn’t need to pander to NRA members, Libertarians or the religious right for the same reason: they’ll never vote Democrat. Both can (and did) spend their time wooing centrist votes, and Obama will continue to do so whilst in office.
Where Obama won out was dynamism: he mobilized more formerly-disaffected voters (people who stayed away from Gore and Kerry because they didn’t care enough to vote) than McCain did. WBush did the same in his election wins: he got more Republicans out to vote, largely by leveraging outrage at Clinton, then by playing the security card.
There’s a risk in that the kind of people who comprise the trade unionist or minority votes can be socially conservative, or that Libertarians can be awfully unreponsive to militarism, but by and large they stick to their respective camps. And this is why you won’t see Obama chase the extreme left at the expense of the centre.
HEATHROI ~
I would argue that a Dyson is the best vacuum ever made…If only GM made as good and reliable a product! Yes, it’s pricier – but not a thousand dollars…when was the last time you could say your car cost you approximately $0.20/day (have had my Dyson for five years and paid $400 for it) – and you were thrilled with its performance every time!? Just a little levity in these bleak times…
If we are going to be wasting tax dollars…
Force GM & Ford to file chapter 11. Let them emerge free of the Fords, Red-Ink Rick, and crippling debt to fight another day.
Roll the underfunded pensions under the PBGC. The union workers will get some benefits, but not as rich as they had hoped.
Use the tax dollars to fund the PBGC.
Assess a penalty tax on the new Ford/GM products to pay back the money we had to pay to cover their pension obligations. Maybe not… but at least consider it.
Paying GM/Ford to make money loosing cars no one wants just to keep people working is the dumbest idea ever.
For what it is worth here is my guess as to what will happen: all three go Ch. 11 (if any one does the others will be forced to do so as they will all need to junk the union contracts) and then the US Government (aka you and I) will act as DIP lender. That way contracts can be canceled and other costs addressed and the companies could perhaps have some chance of surviving long term. In the process the Government will end up with a substantial stake in all three and, by the way, the Ford family will no longer control Ford.
This makes me wonder what car companies will come rushing in to fill the void…Any ideas?
Either way you look at it, those jobs we worry about are going to be lost unless it is profitable for the jobs to exist at all. That’s the difference between a government job and a private-sector job. Only other way is perpetual tax-subsidization of a whole industry. Think Amtrak or the Post Office. There is no way to patch up those operations, especially given the quality of management entrenched there. Its like the old Soviet Union. The entrenched interests and their goal to maintain that status is what has to go. No amount of money can rectify that.
So without the fundamental shift in operations that would have to happen with these companies via bankruptcy re-orgs and so forth, the jobs are lost. Going into debt ever-more to maintain the fiction is pointless, you cannot stave off the day of reckoning forever. As far as American workers competitiveness is concerned, we are fine. Look at all the transplant factories and I don’t see problems like this.
Industries in this country that are not mired in the cultural straight-jacket of union vs. management, us vs. them, etc. – perverse social heirlooms of the early 20th century – are just fine in this country. Google works, so does Intel. Toyota runs a pretty tight ship here in the states for that matter. Look at any successful steel company in the States (there are actually quite a few) like Nova American or Geneva Steel and you see the same contradictions between them and old-school US Steel, for instance.
here’s what’s going to happen:
1) feds will come up with some sort of bailout for “retooling,” etc. of gm, ford, chrysler.
2) chrysler & gm will go c11. jeep, chevy, gmc and maybe a few other divisions will survive. stockholders & the unions get screwed.
3) a downsized ford will squeak through with bailout money, labor concessions and improved product lineup.
“OTOH, I’m rather certain you aren’t concerned over the thuggish behavior of the Obama campaign and its supporters. It wasn’t Republican government officials who violated Joe The Plumber’s privacy by rummaging through his gov’t records.”
No, but it was McCain supporters who screamed, “Kill him!” and, “Traitor!” when Obama was mentioned at McCain rallies last month.
Question for the B&B – if GM (and/or Ford) files for C11 – what happens to their overseas operations? (Ignore Chrysler – their overseas division is virtually non existent).
In Europe, GM is also not doing too well, but Ford seems to be holding it’s own at least in terms of market share (in a market dropping 20% Oct vs last Oct), and even made a profit in Q3.