It's been a frenetic couple of few news days, and most of it's been bad. Especially for GM. Thirty-two GM plants are off-line, high-profit truck and SUV U.S. sales are in the tank, production's been cut, GMAC is in the the crapper and… CEO Rick Wagoner got a 64 percent pay raise! Having GM DW'ed this saga since April 2005, I'm just about ready to pronounce the company R.I.P. (New Death Watch on its way). Let's assume for a moment that I'm right: GM files for C11. It seems perfectly obvious to me that if either Democratic presidential candidate makes it to the White House, a bailout– perhaps in the Chrysler-esque form of federal loan guarantees– is a dead cert. McCain, on the other hand, went to Iowa, stood in front of the corn farmers and told them he would NOT continue federal subsidies. To use the venacular, that is some serious shit. I'm not so sure John would cut the check for GM. But should he? One way or another, GM employs millions of people. What kind of deal should the U.S. gov'mint cut with GM? Or… not?
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The first opion in the article, loan-guarantees that kept Chrysler in business (and were paid back to the government) would be appropriate for GM.
The government should not bail out GM. The best thing for GM would be to declare CH11 and restructure the business. What the government could and likely would do is bail out the bystanders. Perhaps loans to shuttered franchises, suppliers, and of course the banks. I’m not sure they should do that either, but there is no doubt the economy will suffer if GM goes down.
No. At this point would GM even want a bailout?
The real plan could be to go BK, break the unions, screw your creditors, shutter excess capacity, break your franchise agreements and begin anew. If business picks up, build new plant capacity deep in the heart of non-union country and let the midwest rot once and for all.
Without all of the dead weight retiree bennys and crippling dealer agreements to weigh them down (forced rebadging etc), GM could be profitable in spite of the inferior product and gross mismanagement.
I’ll take my $14MM bonus now.
[Bear with me, this is relevant]
I was watching a documentary on Russia’s Vladimir Putin, titled “The Putin System”.
It describes what was taking place in Russia in the years following the collapse of the Soviet Union. As you may or may not know, a handful of individuals from that period became massively wealthy, overnight billionnaires. They called them the Oligarchs.
How did they do it? One line from the documentary sums it up most eloquently:
“They [Yeltsin and the Oligarchs] were nationalizing the expenses and privatizing the profits.”
The bailing out of GM by the feds would amount to the same thing: Billions in profit? It’s “free enterprise” and “market forces”. Billions in expenses? It’s a “national problem”. Have the people bail ‘em out.
You either go with a market economy, or you don’t.
I’ll support the bailout of huge corporation by the public, when I hear that corporations that are doing massively well are bailing out the public Social Security fund (for example).
A loan guarantee accompanied by some form of nationally funded health insurance for all our citizens who lack health insurance might be appropriate. If we are going to bend the rules of laissez faire for GM, which among other things would enable their top execs to continue to make millions and be covered by health insurance, we can bend the rules for other folks too.
In a word – No. The free market game is one of profit and loss, risk and gain. In good times you make profit and when you make bad decisions or take an irresponsible risk then you lose money or go out of business. That is the regulating mechanism of the free market.
If we decide that large companies such as GM and Bear Stearns are too big to go broke then we sent the wrong message to other large companies. What we are signaling is that they can take on any amount of irresponsible risk without fear of the consequences as the government (via tax payer’s money) will be there to bail them out.
It is essential that let the free market decide if GM thrives or goes out of business.
NO, but they will.
McCain turns on a dime. With my own ears I heard him say a few weeks ago that we needed a much bigger military, an increase in the ‘defense’ budget because it’s a bad old world out there. As of a couple of days ago he’s for cutting the ‘defense’ budget.
I think any of them will bail out GM. Well, I mean dump money on them. Unless there’s a change at the top, including the former marine fighter pilot, GM is a bottomless pit. So ‘bailing out’ GM with the current crew in place is like bailing out a bottomless boat.
After Bear-Stearns, how can they not throw money at everybody? The more interesting question is what changes would be required by our astute representatives in DC to make GM worthy of such an action? Can we realistically expect fuel prices to drop? If not, I can’t see trucks and bigger SUVs coming back as high volume sellers. A year ago, every guy in a small/medium town and for sure in a rural area wanted a truck and had one. It’s hard to feed a truck these days. And without the profit from trucks and SUVs, where is GM? Sunk it seems to me even if they start with a clean slate relative to debt. They just don’t compete with Toyota/Honda other than the stuff that few people want to put gas in anymore. Sad.
My heart says yes; my head says oh hell no.
NO NO NO NO ad nauseum infinitum.
GM did not share a penny more than was required to the United States Treasury or the public of the United States from their massive profits for almost 10 decades. They ruthlessly (”business is business”) caused directly or indirectly the ruination of many companies in competition with them or suppliers to their competitors.
Why on earth would anyone in their right mind now say “oh, yeah, what’s a few hundred billion? We’ll bail them out”.
Oh yeah, I forgot, we’re talking about the ibeciles in Washington….. so I guess it’s going to happen.
Capitalism for the little guy (”out on the street with you!”) and socialism for the rich (”here’s a handout of taxpayer money”).
American taxpayers should alert all Washington politicians that a bail out is going to do no more than delay the inevitable.
Look at British Leyland in the UK. Billions upon billions of pounds of taxpayer monies essentially P!SSED away over a decade or more, and all it did was delay the inevitable.
No way. If GM’s issues were not of it’s own making, maybe. If the Feds bail out GM, it will give them an excuse to maintain the status quo. GM needs CH11 to re-structure it’s business and they need to do it now. If they wait too long it will be CH7 and an almighty crash.
I’ll bet that GM is similar to Bear Stearns, Too Big To Fail (I think the phrase came from a New Yorker or econ blog recently. Companies whose tentacles are so deep into the country – and possibly the world – that they are above “the market”.)
The fact that Chrysler was helped out sets a precedent for it happening again.
Should it happen, the whole enchilada would be easier to stomach if the failures who ran GM were forced to work “turn lay” at some fast food joint, or better yet, at a homeless shelter for the equivalent time that it would take them to earn, in their new minimum wage, what they earned killing GM.
There must be some specialized firm out there in the world whose sole service is removing mirrors from the homes of incompetent executives. How the hell do these buffoons stand to look at themselves?
But in my un-edumacated opinion: will they bail: sure. Should they: no.
Hell no. Free market, bitch, can you speak it? The competition didn’t screw them, they screwed themselves. I think the Yeltsin situation Kman mentioned is exactly what would happen. Interest on the loans is great, but on top of that, the execs should give up some of their exorbitant compensation, as they have failed their company.
If the government bails them out, then they should change the makeup of the board a bit. Or a lot. I don’t think the even our fiscally responsible (L), straigheforward (O), and well-run (L) government could do any worse than the current board.
Loan guaranties, coupled with a massive restructuring of GM’s current debt and a cramdown of the UAW, would effectively produce the same results as a Chapter 11 filing without the nasty court action.
I’d be all in favor of it, assuming that it is accompanied by some pink slips being mailed to the current upper management and the board of directors.
GM can be turned around and it should be turned around. But it is not going to happen with the current team of clowns running the circus.
I’m old enough to remember Kaiser-Fraser, Packard, Studebaker, DKW, NSU, SIMCA, and a host of British marques, all of which are gone. The workers got new jobs and consumers bought vehicles from other manufacturers. GM is a dinosaur and if it dies, there will be hardships for all the people involved, but all will survive and, let us hope, move on to better jobs. When GM, Ford, Chrysler and their unions enjoyed no foreign competition, they shed no tears for anyone, made junk, got huge tax breaks, reaped large profits and paid generous pensions. The party has been over for a long time, but General Motors doesn’t know it. I am tempted to buy a 2009 Cadillac CTS wagon or sedan, but I have no sympathy for the company nor should the federal government.
They should not be bailed out unless the following are removed from the company:
All of upper management, a change on the board, and the elimination of the UAW contracts across GM and its suppliers. That’s the only way GM has a hope of surviving. Times have changed not only in the US, but around the world – GM’s management and the UAW have refused to see the change and adapt therefore it’s time they move on. Keep the workers, but remove the UAW noose from their necks.
If the US Government does a bail out GM then they should be required to bring back Packard, Duesenburg, Piece Arrow, Studebaker, Cord and Auburn. Welcome to the socialist US of A.
I say the feds shouldn’t bailout GM. It’s a company, like any other. If it fails, it fails. That’s capitalism, a principle which the United States is trying to promoted all over the world. They can’t change the rules when it suits them!
Also, if the feds bail out GM, what message does that send to other corporations? Plunder the company you run and let the feds bail you out?
If a CEO is underperforming it’s up to the shareholders and/or the board of directors to oust him/her and find someone who CAN do the job, just like Ford did.
For the record, I’d feel sorry for all the blue collar workers who did nothing wrong, losing their jobs. No-one deserves that.
It’ll be interesting, if 10 years down the line, after GM collapses, someone will read the deathwatches, the articles about GM’s mutli billion dollar losses and Rick’s MAJOR efforts in saving his career (i.e fending off Kirk Kerkorian’s alliance with Renault-Nissan, because Kirk was the only one who stood to LOSE money if GM failed!) and Rick’s MINOR efforts at saving GM and will write a book on the downfall of GM. The people who read the book will all ask the same thing:
“Why wasn’t the management ousted sooner?”
Mismanagement in all aspect of departments, giving to much power to unions, poor planning and many other, that’s why GM is where they are today. Then to top it off Wagoner just got a 64% rise. What makes GM so special that the government would bail them out……
NO.
“Let them burn…”
The problem is, GM is waiting for the bailout money, while not fixing the problems right now. They certainly wouldn’t fix the problem if they were to be bailed out. The only way to fix GM is to restructure it from the ground up. And that would only be possible after a chapter 11. Whatever is remaining after the fire will be a leaner, better and more profitable company.
Also, if the feds bail out GM, what message does that send to other corporations? Plunder the company you run and let the feds bail you out?
That message was already sent when the feds bailed out Bear Stearns.
I see no reason to roll up the welcome mat now.
McCain, on the other hand, went to Iowa, stood in front of the corn farmers and told them he would NOT continue federal subsidies.
And how well did that work out for him? After making that statement, he was less popular in Iowa than rugburn and chlamydia.
I think McCain would do it. There’s a big difference between pissing off a couple hundred shit-shovelers and making sure that the Republican party never gets another vote in the midwest so long as they live.
What is the cost of assuming responsibility for GM’s health care obligations? There’s zero chance that won’t happen in a BK scenario; too many voting oldsters are affected.
If you lean towards voting for McCain, then you must be a war supporter. If you’re a war supporter, then you favor spending $720 Million/day on the war, much of which finds it’s way into the coffers of Haliburton, Brown and Root, etc. If you don’t mind subsidizing those companies, why would you object to a loan guarantee for GM? Additionally, if you want to help the Iraqis restore their country, why would you object to helping the midwest avoid complete economic collapse? We are your countrymen for God’s sake! Aren’t we as deserving of help as the Iraqis?
A loan guarantee doesn’t cost anything if the loan is paid off. In GM’s case, that may be a big if. It will cost the taxpayers only in the event of default. But again, it’s peanuts compared to the cost of the war.
I’d favor the loan guarantees but only if new management is appointed. States often take over the administration of failing school districts, so why not have GM taken over in the same fashion? We know the people currently running it don’t know what they’re doing, so we need a new management team and some federal oversight.
GM already took my money in the way of parts for a failing vehicle. If they get a penny more, I will be livid, and go out of my way to convince people not to buy GM product.
GM fails: people lose their jobs…temporarily. someone’s got to pick up the slack to provide america with the vehicles it needs. and who will that be? the transplants, that’s who. toyota and honda will increase production, build additional american factories and hire more workers.
problem solved.
the gov’t + GM + taxpayer money is like two retarded foxes who can’t get into the hen house they’re supposed to be guarding
No. If the Feds can come in and bail you out, where’s the motivation (for someone else, if not the existing management) to learn? It would only mean yet more misery down the road.
Mel;
McCain was a NAVAL fighter pilot.
carguy:
It is essential that let the free market decide if GM thrives or goes out of business.
Why is it essential? Is it essential that millions of people suffer the economic consequences of GM’s failure? Do we allow the market to dictate the winners and losers? If so, do we have an effective social safety net that can absorb the collateral damage and keep people from losing their houses and going hungry? I suspect that the whole idea of a “social safety net” is anathema to those most vociferously advocating the “free market” determination of GM’s fate. So let’s say there is no social safety net…what happens then? Starvation? Crime? Political upheaval? Or maybe they all become entrepreneurs or get jobs at Wal-Mart.
In an ideal free market test tube, letting “the market decide” would be the logical choice. But in the real world where large numbers of real people are adversely affected it’s not such a simple decision.
From my “Original Intent” leanings, I’d say Uncle Sucker has no business in the affair.
In light of Lido/Chrylser, they probably will.
In light of my job, coworkers & pensions they maybe… probably… mostly… well… should.
But the real question is: if they (read: the Feds) figure they can return that (read: OUR) money (like our so-called Economic Stimulus Checks) to the private sector, why did the sobs take it from us in the first place!?!?!??!
Sure…why not? Historically, it’s been done before (and I’ve been craving a K-car lately). Plus, they’re bailing out the mortgage industry, not to mention sending us our IRS welfare checks. Just print some more money…it’s all good in paradise, right?
Seriously though, where do you draw the line once you bail one of them out? All of them? How about the airlines? Who’ll raise their hands after that? Would be really tricky…
If they do, there there needs to be some conditions. In a nutshell, they have to make changes for all car companies so that GM does not have an advantage over Ford.
(1) Release GM and all car manufacturers from state franchise agreements that prevent them from closing dealers.
(2) Cap pension medical care benefits to insured levels. Those who thought they had generous benefits will end up with less. Welcome to reality. Lots of people who are had pensions are finding out the hard way that they were promised more than they had the ability to deliver.
(3) Place government liens on all GM assets for collateral, especially for pension benefits that need to be funded.
I think that doing 1 and 2 with only changes in the law will do far more for Detroit than sending them cash.
I think it should happen, mostly for patriotic and nationalistic reasons, sorry cant help it.
But I think it should be post Chapter 11. Let GM rid itself of excess dealerships, the burden of the UAW then emerge with government backed loans. A government bailout should not mean a free lunch for the UAW and shareholders.
It should be about a new GM, not a guarantee for business as usual.
A bail out would be possible not so much because of the financial impact to the economy directly but because Like Chrysler its cheaper to prop them up than take on the huge pension liability. It would tube the PBGC , the fed agency that backstops most pensions.
Look at Chrysler since the bailout.
A company with an unhealthy corporate structure was enabled (no better word) to wobble on, get gobbled up, spit out and is still a mess.
When you reduce the pain of stupid behavior you remove the incentive to change.
I really think that the best, and honestly, most patriotic answer, is NO.
Having been through a year of lay off from a falling company I know that it will hurt many and I can obviously empathise.
But new companies will rise, heck Ford may be ready to rise, companies that know how to makre money and buld a real foundation for an improved economy.
If we set a bad precedent here more large corps will start thinking “safety net”.
Where do we think all this money will come from?
Do supporters of this know where “government money” comes from?
I do. I get what’s left every week.
My thoughts.
Bunter
I’m slightly torn: I like the idea of a free market (in which we sometimes believe we have, but we really don’t), but I also somehow have a sweet spot in my heart for GM.
So, I’m going to go half-and-half. The government should help GM (primarily with loans that need to be paid back) and give GM a timeline for a turn around (i.e., if you’re not back to profitability in 5 years, you’re outta here).
The problem with a bailout is that it removes the incentive to make the massive, structural changes that the company must make in order to survive in the long term.
Will the federal government really order GM to shutter 2-3 divisions (thus angering the dealers), eliminate the jobs bank, fire most of top management and cancel any golden parachutes? GM certainly hasn’t shown any inclination to do any of this on its own, and it certainly won’t do so if it knows that Uncle Sugar Daddy is ready and waiting with a bailout.
Ironically, Ford would be a better candidate for help, because it IS making the structural changes necessary for long-term success. But it wouldn’t have made those changes without the threat of bankrutpcy looming over its corporate head.
Sure!
What’s any different that Japan using currency manipulation to ensure their manufacturers security?
Same thing in China with the requirement to have all foreign investment partner up with a national company!
It’s THE thing to do!!
OR
Tax the hell out of all foreign automotive products that originate from a manipulative country..
NO.
–chuck
No question about it. The “Fed” should not bailout any private company. That is Fascism. I hope you should are referring to the Fed as the Federal Government and not the Federal Reserve. The Federal Reserve is a private entity. And if they bailout anyone it on our backs…
Let the chips fall where they may. And why are we assuming GM is looking for a bailout? Based on DEATHWATCH series?
I don’t think McCain will offer a bailout. Unlike those railing against the war (those that do not support our troops), I do not try and compare these two entirely different stories.
No, and the US Government can’t afford to even if it was of a mind to. However, the government could in theory jack up taxes on imported vehicles to protect the domestic industry. China does just that, so why not the US?
Taxes on imported sugar are kept high to protect domestic producers, so why not on cars and trucks?
One more thought: Wouldn’t GM and Ford be healthier today if Chrysler had been allowed to fail ?
jthorner:
The hiked taxes would have to affect more than just imported vehicles because so many foreign automakers build many of their vehicles here and the US manufacturers are the ones importing.
No, that is stealing. Of course, that wouldn’t stop them. Cough… incentive checks… cough.
The problem is, GM is waiting for the bailout money, while not fixing the problems right now.
I could crash this server with my criticisms of General Motors, but I see absolutely no evidence that GM management is waiting around for a bailout.
Hell, I wish that was the problem, as that one could be easily fixed. GM’s problems are far worse than that — they seem absolutely convinced that they are always one step away from being turned around, when they aren’t even close to turning the corner. They’re running in a marathon, but they plan for it as if it’s the 100-yard dash.
Wouldn’t GM and Ford be healthier today if Chrysler had been allowed to fail ?
No. They are badly run businesses. They would be badly run, no matter what had happened to Chrysler. If Toyota wasn’t enough of a wake-up call for them, I doubt that Chrysler’s failure would have done anything but to convince them that everything in the universe is to blame for their failure (except for themselves, of course. At GM, it’s always someone else’s fault.)
losgatosCa:
I was referring to Lutz.
I think that this has been covered completly and I can’t add anything new so I will comment on some of the comments:
“The fact that Chrysler was helped out sets a precedent for it happening again.”
In the auto industry maybe, but the precedent for government assistance to businesses in trouble has been around for a looong time. This was one of Lido’s arguments to Congress during the hearings.
“I’d be all in favor of it, assuming that it is accompanied by some pink slips being mailed to the current upper management and the board of directors.”
That is a possibility, there were restrictions place on Chrysler in exchange for the loan guarantees, although no executives were told to leave.
“All of upper management, a change on the board, and the elimination of the UAW contracts across GM and its suppliers. That’s the only way GM has a hope of surviving. Times have changed not only in the US, but around the world – GM’s management and the UAW have refused to see the change and adapt therefore it’s time they move on. Keep the workers, but remove the UAW noose from their necks.”
I agree with you, but you can forget the part about the “removing of the UAW noose from their necks.” The Dems would never go for it, and the Republicans would be too afraid to try it (or they might not want it either). Not.gonnoa.happen.com
“The problem is, GM is waiting for the bailout money, while not fixing the problems right now.”
I don’t agree. The egos of these guys are too big. They would have to sit thru HOURS of congressional hearings and listen to one politician after another (who probably never ran a business themselves) excoriate them on what a bad job they did in running GM and in “serving” the American people. No executive wants to go thru that I can guarantee it. Lido didn’t but he had no choice.
“If you lean towards voting for McCain, then you must be a war supporter.”
So if you support the other guy (gal?) you must be a terrorist supporter? Too simplistic, besides the war is not the number 1 concern of the electorate, according to the polls it “the economy, stupid”.
“A loan guarantee doesn’t cost anything if the loan is paid off. In GM’s case, that may be a big if. It will cost the taxpayers only in the event of default. But again, it’s peanuts compared to the cost of the war.”
Very true, if the money is paid back then no tax payer is harmed, but if it’s not… Whether you agree with it or not at least war is a legitimate function of government. It can be argued that giving loan guarantees or outright bailing out companies is not.
“(3) Place government liens on all GM assets for collateral, especially for pension benefits that need to be funded.”
This would have a good chance of being done should somehting like loan guarantees be given.
“Look at Chrysler since the bailout.
A company with an unhealthy corporate structure was enabled (no better word) to wobble on, get gobbled up, spit out and is still a mess.”
Chrysler did not “wobble on” after the loan guarantees were given. It became immensly profitable, paid the loans back years early, and bought AMC/Jeep, Gulfstream, Thrifty rent-a-car, and Lamborghini with their profits. The stock price increased over 30 times its low price. Hardly wobling. In the late 80’s early 90’s they fell on hard times again (as did the rest of the industry) but when they bounced back in the 90’s they were one of the most profitable on the planet. They made billions, Forbes named them company of the year, MT said they were the hottest car company in the world. They could bring a vehicle to market faster than Ford, GM and some Japanese makes. My neighbor got a bonus check one year for $7,000+. And all he did for them was drive a forklift in the warehouse. No wobly there. Then came Daimler…
Lots of good arguments pro and con, but Gottleib provided the best idea by far: “bring back Packard, Duesenburg, Pierce Arrow, Studebaker, Cord and Auburn”! Those were the days! (Well, except for the Great Depression.)
What’s any different that Japan using currency manipulation to ensure their manufacturers security?
So how does that work? The Japanese government manipulate the currency to help Toyondsan, but hurt all of Japan? Clever hey? And the voters don’t complain? Dream on!
Anyway, if you want to talk about currency manipulation, perhaps you should start with 1600 Pennsylvania Ave, Washinton DC. In case you didn’t notice: The greenback is down close to 55% against the Euro, from a high of ~$0.85/Euro in October 2000.
So if you support the other guy (gal?) you must be a terrorist supporter? …
I neither said nor implied such a thing. What I was saying was that a war supporter must be comfortable with extreme deficit spending and taxpayer enrichment of American corporations. Therefore it’s hard to see how such a person could object to loan guarantees for GM.
Very true, if the money is paid back then no tax payer is harmed, but if it’s not… Whether you agree with it or not at least war is a legitimate function of government. It can be argued that giving loan guarantees or outright bailing out companies is not.
Actually anything that we the people decide we’d like government to do for us is a legitimate function. Show me where the Constitution prohibits loan guarantees.
The problem is the guarantees won’t come with management changes. As others have noted, Chrysler is having yet another near death experience, so what was it all for?