Editorial: The Battle At Midday. How America Can Win The War Against GM

Bertel Schmitt
by Bertel Schmitt
editorial the battle at midday how america can win the war against gm

Informa Global Markets (IGM) “is a world-class international supplier of real-time news and analysis to market professionals in the fields of foreign exchange, sovereign fixed income and corporate bonds.” It’s the stuff brokerage houses and investment bankers pay a lot of money for in order to look smart with their clients. Would definitely bust TTAC’s budget. Some of my friends in high finance still hold a job, and one of them (you know who you are) was nice enough to forward me yesterday’s IGM “Markets At Midday” issue. Reads like “Markets At Midway.” With the appropriate ending: The bad guys lose.

The issue deals with – you guessed it – our least favorite topic: GM. And what a blow it deals. The usually dryly written report starts with a headline that could have been typed by a tasteless scribe like yours truly: “Forget The TARP, Get A Body Bag”

The piece chronicles yesterday’s plummeting GM share price; it sank to a low not seen since the last Great Depression. It continued to fall to a penny off its all-time historical low: $1.69. That’s what a share of GM was worth on June 4, 1938 (a Hershey bar went for a nickel the same year.) The report further recounts yesterday’s rebound– to $3– on the news that a bipartisan group of Senators from states afflicted by the motor malaise reached a tentative deal on a bailout package. Three bucks a share would have bought 30 packs of Oreos in 1938; we’re talking major value here.

The analyst, and they are paying them big bucks for taking a contrarian view, doesn’t share the newfound optimism that rallied the share. The writer singles-out United Auto Workers boss Ron Gettelfinger. (We take a somehow broader approach, but hey, it’s still a free country.)

“Consider these ironies. According to Mr Gettelfinger, it takes 78 workers to produce 2,500 cars at GM, while at foreign manufacturer’s plant it only involves 33 workers. According to one auto analyst, last year when GM closed a plant in Linden,NJ, they were obligated to carry those idled workers on the payroll for an additional 40 days. It is estimated that every single car that rolls off the assembly line costs US automakers $1,500 to $2,000 in legacy costs.

“Why? Because of the same Mr. Gettelfinger who is figuratively blackmailing the government into expanding the parameters of TARP. The same Mr. Gettelfinger who, while wanting the taxpayers to save the Big Three, is unwilling to renegotiate terms of the union contracts. The same Mr. Gettelfinger who, over the years, has sucked the US auto industry dry to the point that you can no longer get blood from a stone.”

Gettelfinger doesn’t appear to be on the analyst’s Christmas list. And v.v. As bad as it is, all is not lost. Apparently.

“But while there is strong opposition on Capitol Hill to dip into the already-approved loan to jump-start the green, fuel efficient initiative, there are certainly others ways that, if absolutely necessary as Mr Gettelfinger maintains, to, not bail out, but lend aid to the auto industry mired in 20 years worth of mistakes.”

Unlike three private-jet-friendly CEOs we could name, the analyst has a plan to save the industry while appeasing those who are against “lending a helping hand to an industry that has literally driven itself into the ground.” He lays down five “suggestions and requirements for the automakers to receive $25b in aid.”

1) “Let them declare bankruptcy before handing over a dime.” It would keep GM alive, and allow them to reorganize, renegotiate contracts and raise capital. The latter would be a bit tricky, given the dire straits of the credit market. Hence the government loan.

2) “Let, or force, GM and Chrysler, or better yet, all three, to merge.” Cut costs, workforce and eliminate a glut of non-selling models.

3) “Replace top management at all three automakers with turnaround specialists.” Specialists with a proven track record. A track record which the analyst says the current executives don’t have. In other words: Fire them.

4) “Trim the workforce to the level of their foreign competitors (33 versus 78 per vehicle).” This in a last ditch effort to “save most of the 3m jobs that Mr. Gettelfinger says would be lost.”

5)”Instead of trusting the automakers to make good use of the $25b, a government-appointed trustee should dole out the funds.” Some of the bailout bucks should go to dealerships to keep them afloat. Some should be used for a buyer incentive program (the discriminating, but non-discriminatory writer suggests $3k for a hybrid and $1k for a Tahoe.) Some should go into a government-guaranteed warranty program “to quell the fears of consumers buying a vehicle from a bankrupt company.” (Think FDIC for cars.) And, finally, “Take the liability of the pension and health care expenses of retirees off the hands of the automakers.”

[Unwritten, but obvious to the not so innocent bystander amongst IGM’s subscribers in the sovereign funds and private equity field:a company that underwent all five of the above would be a very juicy target for people with real money.]

“Don’t forget the toe tag,” the analyst’s piece ends.

Minutes later, the report was on the desks of market professionals in the fields of foreign exchange, sovereign fixed income and corporate bonds. But even as the analyst typed his last lines (remember, it was a mid-day report), the news broke that the bipartisan boondoggle was dead. GM’s stock promptly shed several Oreo packs (at 1938 prices) and closed at $2.88.

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  • Obbop Obbop on Nov 21, 2008

    If the recession continues, especially if a depression arises, and it lasts long enough, i expect more folks to lose their housing, even if they are renting. Watch van and pick-up sales rise, new and used. Also watch small travel trailer and camper shell/topper/whatever term used in thine area to increase. Gym memberships, the basic low-cost type, will increase so folks have a place to clean up. Dumpster diving will become a family activity. Long-term low-cost parking firms may also benefit as folks seek places to park and sleep where the jack-booted thugs will not roust them. Anything is better than being truly homeless... and living in a vehicle IS better than a homeless shelter or on the streets.

  • Eric_Stepans Eric_Stepans on Nov 22, 2008

    Can someone explain to me why it was OK for the government to essentially give away $500 billion to investment banks and insurance companies with no demands on management, employee, or shareholder compensation... http://www.bloomberg.com/apps/news?pid=20601087&sid=aVXfypExIZ9M ...but when the government is proposing to loan $25 billion to the Detroit 3 automakers, it is suddenly imperative that the union be smashed and the executives starved?

  • Lou_BC "Owners of affected Wrangles" Does a missing "r" cancel an extra stud?
  • Slavuta One can put a secret breaker that will disable the starter or spark plug supply. Even disabling headlights or all lights will bring more trouble to thieves than they wish for. With no brake lights, someone will hit from behind, they will leave fingerprints inside. Or if they steal at night, they will have to drive with no lights. Any of these things definitely will bring attention.I remember people removing rotor from under distributor cup.
  • Slavuta Government Motors + Government big tech + government + Federal police = fascist surveillance state. USSR surveillance pales...
  • Johnster Another quibble, this time about the contextualization of the Thunderbird and Cougar, and their relationship to the prestigious Continental Mark. (I know. It's confusing.) The Thunderbird/Mark IV platform introduced for the 1971 model year was apparently derived from the mid-sized Torino/Montego platform (also introduced for the 1971 model year), but should probably be considered different from it.As we all know, the Cougar shared its platform with the Ford Mustang up through the 1973 model year, moving to the mid-sized Torino/Montego platform for the 1974 model year. This platform was also shared with the failed Ford Gran Torino Elite, (introduced in February of 1974, the "Gran Torino" part of the name was dropped for the 1975 and 1976 model years).The Thunderbird/Mark series duo's separation occurred with the 1977 model year when the Thunderbird was downsized to share a platform with the LTD II/Cougar. The 1977 model year saw Mercury drop the "Montego" name and adopt the "Cougar" name for all of their mid-sized cars, including plain 2-doors, 4-doors and and 4-door station wagons. Meanwhile, the Cougar PLC was sold as the "Cougar XR-7." The Cougar wagon was dropped for the 1978 model year (arguably replaced by the new Zephyr wagon) while the (plain) 2-door and 4-door models remained in production for the 1978 and 1979 model years. It was a major prestige blow for the Thunderbird. Underneath, the Thunderbird and Cougar XR-7 for 1977 were warmed-over versions of the failed Ford Elite (1974-1976), while the Mark V was a warmed-over version of the previous Mark IV.
  • Stuart de Baker This is depressing, and I don't own one of these.