By on November 2, 2010

Today is election day, the time when good Americans process all the negative advertising they’ve seen over the previous months and decide on the lesser of several evils. But the best thing about election day isn’t the sense of civic pride or even the knowledge that you’ll be able to avoid political ads for at least a few months afterwords. The greatest thing about elections is that, for one moment, the nation gets a snapshot of itself, a picture of what really matters to us as citizens. So this seems as good a time as any to ask you, TTAC’s Best And Brightest, how you feel about the potency of the Auto Bailout as an issue. After all, the bailout is currently caught in limbo; impossible to undo, at yet still far from resolution, good or bad. If anything, the latest indicators show that the GM bailout was fairly compromised, in the sense that the new company will be worth about what the taxpayers put into it (in the $50b range).

But does it matter at all how much taxpayers get out of GM’s (and eventually Chrysler’s) IPO? And if so, is it important that GM repay the taxpayers completely, or do the bailed-out firms need only to be sustainable for a certain period to make the bailout a success? As I see it, the question isn’t so much one of politics. After all, the rescue is hardly the definitive political issue for any citizen not directly affected by it (a relatively small group compared to the American electorate). The real issue seems to be whether political opposition to the bailout will affect sales at GM and Chrysler, and whether achieving certain financial or taxpayer payback goals will eliminate any such political impacts on sales. Do the bailouts affect your relationship with GM and Chrysler, and if so, what do you need to see in order to leave the bailout in the past?

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109 Comments on “Ask The Best And Brightest: Does The Auto Bailout Still Matter?...”


  • avatar
    stryker1

    Super-Partisan-Internet-Echo-Chamber-Left-Right-Hate-Machine GO!

  • avatar
    mikey

    Yeah. I was going to point out that “Sam” is not my uncle so it not really my place to comment.

    However, this is going to make some interesting reading. Fire away!

    • 0 avatar
      CamaroKid

      Correct All of this Left V Right Hate and it was President BUSH who first signed the loans that saved GM and then President Obama followed his plan (and the advice of this blog) and executed a managed Ch11.

      Yes Left and Right Haters… this was a Republican plan, executed by a Democrat, and it is WORKING!

  • avatar

    It will only matter to people who want to make it matter. Meaning it won’t matter, because these people decided where they stand before the bailout happened.

    • 0 avatar
      Dukeboy01

      Well crap. That didn’t last long. Three posts in and Karesh for the win. At this point it really doesn’t matter. The auto bailout just… is.

    • 0 avatar
      stryker1

      +1

    • 0 avatar
      TrailerTrash

      It matters because it was criminal.
      Michael, it doesn’t matter if this was my position earlier and still is.
      The fact of the matter is throughout history people and governments committed acts that at the moment could not be stopped or repealed. Their impact was forever branded upon history and others.
       
      What does matter is that responsibility is accepted and those responsible face the consequences of their actions.
      This is no Holocaust or Killing fields, not even remotely.
      But regardless, people did things.
      Unfair things.
      In my opinion, and many, illegal acts were allowed to occur and basic laws of our country were brushed aside.
      People responsible for these acts should stand and be judged.
       

    • 0 avatar

      TRAILER TRASH
       
      We are still using the term “bailout”…this was actually a BRIDGE LOAN.  It has to be paid back no?

    • 0 avatar

      The problem is that if GM pays off all the loans, the tax payers will still have a $17.5 billion hole in their pockets for 20 more years as The Wall Street Journal reported today. It looks like the GM story will not end as soon as we hope.

  • avatar
    ash78

    To me, had they not taken the bailout, I’m willing to give a domestic company a 10% handicap. IOW, I’ll accept a vehicle that’s “90% as good as the foreign competition” for the same price. Historically, I feel that most of GM’s non-truck lineup has been 50%-70%, and Chrysler maybe a wee bit higher.
     
    The bailout raises that to 110%. They have to offer something really damned compelling for me to lift my wallet. Diesel Liberty. Journey with sliding doors. Malibu wagon with 6MT. Etc. You got our money, now reward us with something solid and unique.

    • 0 avatar
      Runfromcheney

      Lest we forget, Chrysler was making 110% products before Daimler barged in, which is why I was willing to swallow the bailout for them. GM was harder to swallow, since they got themselves into their own mess.

  • avatar
    Darkhorse

    The bailouts of GM and Chrysler will have negative effects for a long time.  Obama and his commissars have meddled with the primal forces of nature.  Bad businesses must be allowed to die so new businesses and ideas can take their place.  That’s how capitalism works.  The strong survive and the weak die.  The bailouts were politics pure and simple.  Obama/Emanuel wanted the electorial votes in Michigan and the other UAW plant states.  They may be the only votes they get in 2012.

    • 0 avatar
      stryker1

      preach it, Nietzsche.

    • 0 avatar
      psarhjinian

      Bad businesses must be allowed to die so new businesses and ideas can take their place.  That’s how capitalism works.  The strong survive and the weak die

      And all sorts of people get caught up in the mess and trodden on.

      The bailout was about putting off the pain until such time as it could be afforded.  Pure capitalism sounds all well and good in theory, but in the real world where we have millions of real people and a real economy and real socio-political structure you need to have mechanisms in place to ensure people aren’t put, en masse, through the ringer.

      But never mind, simple solutions that totally disregard how the real world works are always the best.  Ask the Soviet Union.

    • 0 avatar
      petero1k

      Why can’t we refer to him as President Obama?  He is the President of the United States of America.   I think he deserves some respect.  Despite all the horrors of other presidents, we continued to refer to them as President.  Heck, people still say “President Bush”

    • 0 avatar
      bill h.

      And unless the history I’ve read is incorrect, it was under President Bush’s watch that the initial loans for the bailout were approved.

    • 0 avatar
      Steven02

      petero1k,
      People often referred to President Bush as Bush or W.  I don’t see a problem with calling him Obama.

      But, bill h. is right, this started under Bush and continued under Obama.  Right or wrong, both parties had their hands in it.

    • 0 avatar
      CamaroKid

      Correct All of this Left V Right Hate and it was President BUSH who first signed the loans that saved GM and then President Obama followed his plan (and the advice of this blog) and executed a managed Ch11.
      Yes Left and Right Haters… this was a Republican plan, executed by a Democrat, and it is WORKING!

    • 0 avatar
      Telegraph Road

      Bad businesses must be allowed to die so new businesses and ideas can take their place. Not so. Market fundamentalism works as well as in economics as biblical fundamentalism works in biology.   If GM and Chrysler had died, the tsunami would have killed Ford too.  The industrial Midwest would be sucking up unemployment payouts like a Hoover vacuum. Taxpayers, what would remain of them, would be funding these payouts as well as having the underfunded pension plans of GM and Chrysler dumped on them.

    • 0 avatar
      TrailerTrash

      psarhjinian
       
       
      It’s the rule of law.
      This, regardless of anything else, must stand.
       
      Without this, we have chaos. This is coming from a great rebel who hates authority and rules.
      But I understand the simplicity of a red light and why it is.
       
      So it is with our laws, be they here or in Canada or the Soviet Union.
      How ell these laws passed by the people or society are abided and followed will demonstrate how free and fair that society is.
       
      This is a sad time in America.
      Fat cats and groups are being allowed to bust foundations upon which we all rely…and get nothing more than scolded, fined a small fraction of their bounty and sent off to their plantations to drink adult beverages on their back porches.
       
      It’s the rule of law that counts.
       

  • avatar
    bucksnort

    Prior to the current unpleasantness, there was approximately 40% excess car manufacturing capacity worldwide.  After all the bailouts, subsidies, loans, grants, and pay offs, there is still about 40% excess manufacturing capacity worldwide.  Billions have been spent; nothing has been accomplished.
    Every major developed country has to have their own auto manufacturer, needed or not.  The developing countries must enter auto manufacturing to show they have arrived.  It will only be a matter of time before pressure from the more efficient Koreans, Chinese, Indians, Malaysians force the issue once again.  Get ready for the Death Watch II series.
    The auto industry bailout fiasco is no different than any other Federal Government fiasco…the Postal Service, Health Care, various wars, welfare, farm subsidies,…….
    It is all politics.  There is no rational economic thought in any of this.
    For my own small part, I won’t even set foot in an Obama Motors dealership.

    • 0 avatar
      random1

      The rational economic thought was that having large manufacturers which employ some 400,000 workers, and indirectly a few hundred thousand more, go under during an economic crisis would’ve resulted in a severe depression.

    • 0 avatar
      Mr Carpenter

      +1

    • 0 avatar
      Bancho

      “Every major developed country has to have their own auto manufacturer, needed or not.  The developing countries must enter auto manufacturing to show they have arrived.  It will only be a matter of time before pressure from the more efficient Koreans, Chinese, Indians, Malaysians force the issue once again.”

      Seriously. I wish these countries would just let it go. All a country really needs to prove itself to the world is a good domestic Beer, and maybe an airline.

    • 0 avatar
      Educator(of teachers)Dan

      @bucksnort, that’s my real beef with the bailouts too.  We still have the ability to build far too many cars and the bailouts did nothing to solve that.  I honestly believe a Ch 7 bankruptcy with the pieces sold off to the highest bidders would have done more.  Yeah the Chinese would be cranking out Pontiacs but they sure wouldn’t have hired workforces the size of the one’s that are employed in auto manufacturing now and they sure wouldn’t have kept quite so many factories open.

    • 0 avatar
      ihatetrees

      Meh. Maybe it’s 30% overcapacity now – with the few shutdowns and the rise of India and China.
      North American capacity is still suffers serious bloat – and there are storm clouds on the horizon for the domestics. A recovering economy may be a blessing – until UAW contract time comes around and (possibly) $4+ gas…

    • 0 avatar
      psarhjinian

      Yeah the Chinese would be cranking out Pontiacs but they sure wouldn’t have hired workforces the size of the one’s that are employed in auto manufacturing now and they sure wouldn’t have kept quite so many factories open

      And this is the problem.

      There’s been a steady erosion in the quality of jobs over the past several decades, especially for the “blue collar” areas.  It used to be fairly easy to get a decent job and support a family; it’s much harder now.  Many jobs don’t come with benefits and/or the hours are kept just below what’s needed to qualify.

      Nuke the auto sector, and worse, allow it it to go wholesale to China, and one of the last bastions of decent pay for the middle class is gone.  If you think the angst felt by Tea Partiers over economic insecurity and displacement is a problem now, it’ll only get worse as more people are knocked off the train.

      There are a lot of people who owe their current station to their parents or grandparents being enabled, by virtue of a well-paying trade, to pay their way.  Much of our progress in western society is due to the dramatic improvements in the middle class’ lot in life.

      And yet the very people who would benefit the most from a little bit of economic progressivism and are the most anxious about the problems we are facing are being encouraged to happily cheer on the race to the bottom instead.

      So yeah, why not pump a little money into the sector?  Why not float it and nuture it and help keep it competitive, rather than stand back while several hundred Chinese or South-Asian competitors to steamroll right over it?  At least the former option would keep us gainfully employed, while the latter would only further the Walmartization of the middle class for the benefit of a few people who can leverage trans-national wealth.

    • 0 avatar
      Educator(of teachers)Dan

      Oh and to answer Ed’s question about whether the bailouts matter.  I voted a fairly split ticket today.  I voted for the candidate, not his party.  I know both parties took part in the bailout and I don’t really see how we could go back and change things now.  As one of my favorite country singers said; “That’s just whiskey under the bridge.”

    • 0 avatar
      bikegoesbaa

      There’s been a steady erosion in the quality of jobs over the past several decades, especially for the “blue collar” areas.  It used to be fairly easy to get a decent job and support a family; it’s much harder now.  Many jobs don’t come with benefits and/or the hours are kept just below what’s needed to qualify.

      To a large extent, this is because the real value of “blue collar” labor is much less than it was several decades ago.  This is due partially to competition from low cost regions, but even moreso due to increasing production efficiency as expressed in product output per unit worker.  This isn’t a result of a clever scheme by plutocrats (although they have managed to get richer off of it) but an inevitable result of improving technology and manufacturing practices.

      An example using made-up numbers:
      -40 years ago a manufacturer would require 1000 workers to make 100 cars a day.
      -Now they require only 100 workers to make 500 cars a day due to entirely technical factors such as better equipment, a higher degree of automation, and DFMA.

      If the available working population has remained the same or increased the practical result of this is that labor is worth a whole lot less than it was 40 years ago for the same reason that you could get great deals on cars this time last year.  Same or greater supply + lower demand = lower price.

      The UAW had sufficient power and influence that it was able to buck this trend for a long time, and as a result the “value” of assembly labor in unionized auto plants is much higher than that same labor is in virtually any other circumstances.  This cannot last indefinitely, and we’re already seeing it fall apart with the introduction of Tier 2 union membership and similar compromises.

      In the real world outside UAW plants, there are fewer “blue collar” manufacturing jobs available and those that exist pay less than they used to.  This is an unavoidable result of technical progress, and can’t really be stopped short of mandating less efficient design and assembly operations.

      The falling value of assembly labor is a real problem, and the solution will probably be one of those complex and expensive compromises that doesn’t make anybody completely happy.

      We could go back and forth for weeks discussing what form that compromise should take, but I’m pretty sure that using $50,000,000,000 to prop up an organization that is committed to preserving an artificially (unsustainably) high value for industrial labor isn’t it.

  • avatar
    PickupMan

    It matters to me, because in doing so the government is deciding who is Too Big To Fail.  Once you create the precedent it’s likely the standard for being TBTF gets moved lower and lower.
    Increasingly direct intervention in the marketplace isn’t something I want from my government.
     
     

    • 0 avatar
      psarhjinian

      It’s not “Too Big To Fail”, it’s “This is Not a Good Time to Fail”.
       
      Had GM done the honourable and sensible thing and declared bankruptcy in 2005 this wouldn’t have been an issue.  As it is, they went right to the wall, right to the point where collapse was inevitable, and then went crying to the government when no one else would backstop their idiocy.
       
      And you know what?  The government, no matter what you might think, is actually responsible to most people, rather than to the 2% of society that comprises the plutocrats who would get off scott-free should GM implode.  As with the banks, government had to show up, take names, arrange for rides and patch everyone up after industry drove into a tree.  Because leaving people to bleed wasn’t an option.
       
      The automotive sector has actually done reasonably well out of this.  GM got a much-needed managerial housecleaning; the changes that needed to happen but hadn’t under three or four decades finally did, and the US stands a chance at retaining a manufacturing industry, rather than becoming a “client state” like the UK or Canada.   All in all this isn’t too bad.
       
      Now, the financial sector…

    • 0 avatar
      ash78

      The Financial Sector is still struggling, and much like any other business, there are a handful of big, evil greedy ones, and thousands of much smaller, mostly successful ones.
       
      I work for the latter. Our hands are tied by the regulators so tightly, we can’t even make rational loans to solid companies if they’re in certain industries. If the Feds would loosen some of the reigns on a merit basis, banks could finally start funding more payroll and investment. As it stands, they basically have a 1-size-fits-all approach to the entire finance industry, and it’s really keeping our economy down.
       
      Forget “too big to fail” companies–I’m worried about the tens of thousands of companies that are collectively WAY too big to fail.

    • 0 avatar
      MikeAR

      GM management got a house cleaning? When they stop doing stupid things and lying then I’ll believe that but until then, no there was no housecleaning. The same mediocraties are there with a few new ones at the top.

      They can’t do something relatively simple like tell the truth about not paying back taxpayers’ money, they hurry the IPO at the behest of their masters to lessen the electoral impact of the bailout, they lie about the Volt’s mileage. GM will fail again not too long after the government casts them off and the next time there will be no saving them.

    • 0 avatar
      jkross22

      Psar, with all due respect, give me a break.  If you believe that $50B was thrown at GM to delay the inevitable, then you acknowledge it’s throwing good money after bad.  That $50B would likely have been better spent on retraining programs, business incentives for suppliers, and incentivizing another auto company to come in pick the few parts of GM that worked.
       
      As it stands now, GM is still demonstrating the tin eared, insulated, arrogant behavior they’ve exhibited for the last 30+ years.  I know that being Canadian likely means you believe it’s the government’s job to protect people from themselves, but anyone paying attention to GM from at least 2002 on could see the handwriting on the wall.  Reminds of the employees at Enron that put all of their 401k funds into company stock.  I felt bad for their poor decision making, but others were not held accountable for that decision.  Not true with GM.

    • 0 avatar
      psarhjinian

      If you believe that $50B was thrown at GM to delay the inevitable, then you acknowledge it’s throwing good money after bad

      I won’t necessarily dispute that.  GM isn’t out of the woods by a longshot, and neither is Chrysler (though they’re someone else’s problem, largely), but at least if they crater it’s likely not going to be at such an inopportune moment.

      Now, even that point becomes moot if we go into a worse recession and/or if the the government and the various financial institutions show that they haven’t learned anything and haven’t put plans and safety nets into place to handle a few million more people being thrown out of work.

    • 0 avatar
      random1

      You guys make it sound like $50bln vanished into thin air.  You can disagree with the bailout, or the reasoning of the bailout, but let’s keep the facts straight.  We(the taxpayers) are getting our money back, more or less. It’s not quite sure if it’ll be 90% or 110%, but it’s likely going to be around there somewhere.

    • 0 avatar
      Steven02

      jkross22,
      Psar is right here.  It isn’t just about throwing good money after bad, but taking 50B dollars on a new company to pick parts of GM sounds like a very risky proposition.  I would have LESS faith in that working.  How long would that have taken?  Who would still be working for this new company while they try to arrange new contracts with everyone, suppliers, dealers, employees etc.  Not as simple as it sounds.  Changing management at the top seems like a much easier solution with a better chance of success.

      Incentives for suppliers might not do enough.  If GM and Chrysler go down, you are going to have to float the suppliers for awhile for other companies to come in and expand production.  That might take years.  Extra capacity from around the world might be utilized instead making domestic suppliers in a bind.

      Training programs are great, but if there aren’t jobs to be had, what good does it do you?

    • 0 avatar
      gslippy

      @psar:
      Because leaving people to bleed wasn’t an option.
       
      Yes, it is.  My father lost his job in 1982 when Big Steel died in western PA, and I lost my job in 2003 when the tech bubble burst.  We both got back on our feet.  For him it took 5 years of ratty jobs to finally get a good one again; for me it took 8 months.
       
      I know what it means to be unemployed, and it hurts.  Instead, GM & C and the government conspired to make the whole country bleed, which I see as an unfair tradeoff and only delays the inevitable collapse of both companies.

  • avatar
    jj99

    I know how that worked.  UAW and other unions gave many millions to Democrats.  Democrats responded with many billions to the big 3.  Much of this money went to paying 6 figure checks to UAW members who quit, and to UAW pension funds, and to UAW health care funds.  This was treason to the American taxpayer.

  • avatar

    I guess it doesn’t matter–when you’re as far in debt as the federal government is today, what’s a few billion down the crapper?

    John

  • avatar
    210delray

    I don’t think it makes that much difference now.  So much more was given to the banks and other financial institutions, and my understanding is that much of this has been (or will be) paid back.  What was given to GM and Chrysler was comparative chicken feed.

    I didn’t like the idea of the auto bailouts at the time, but I grudgingly think they were needed to prevent an economic implosion.

  • avatar
    Lorenzo

    The effects of the bailout will linger, because so much financial violence was done to the established bankruptcy procedure.  Under the legal bankruptcy regimen, creditors and bondholders probably would have taken over GM and radically downsized it, while Chrysler would have been liquidated. Instead we still have “old” GM and “old” Chrysler in existence, holding old closed plants and other assets, and the creditors and bondholders, having been forced to reduce their claims, now waiting for liquidation of those assets to get pennies on fewer dollars than was owed. Chapter 11 may never be the same.
     
    On the other hand, I’m one who believes that at the time, the last thing the economy needed was the massive job losses that would have resulted not only from the auto companies themselves, but from parts suppliers and materials suppliers going under, possbly taking Ford down, and even damaging foreign manufacturers’ US production. The majority of those voting today didn’t like the auto bailout any more than the bank bailout and Wall Street investment house bailout, but action on autos and banks were necessary, at least.
     
    If judgement of the auto bailout can be separated from TARP, AIG, and the trading houses, it can be seen as a pretty good deal, buying economic stability for less than 5% of one year’s federal budget. But it may remain tied to the other bailouts in the public’s mind forever, unless the GM/Chrysler bailout is paid back in full.

    • 0 avatar
      psarhjinian

      The effects of the bailout will linger, because so much financial violence was done to the established bankruptcy procedure

      Wrong, and for details I noted here.  But hey, what’s a dead horse for if not for beating?
       
      The governments of Canada and the US were secured creditors of GM and Chrysler.  They were, possibly, the largest secured creditor, and the UAW wasn’t far behind, thanks to VEBA.  After the various banks and funds to whom GM and Chrysler had an obligation were paid off there would have been nothing for the bondholders.
       
      So bankruptcy actually went fairly normally.  The creditors (the government) got equity which they disposed of as they saw fit, and the bondholders did better than they had any right to expect given how broken the automakers’ finances were.

    • 0 avatar
      jj99

      Bull.  A real bankruptcy would have resulted in no golden UAW deals, and the UAW contracts would have been thrown out.  What happened here is the Democrats paid back their special interest group named the UAW.

    • 0 avatar
      psarhjinian

      So what?  The government was the creditor and the UAW the only agency willing to accept equity instead of cash.  What, did you expect the government to just say “Aw shucks, forget about status as a secured creditor?”
       
      If you do a crappy job running a business it’s a little bit thin to be upset about what your creditors do with their share of your company. Would all of you “The bankruptcy was illegal” folks have been so upset if the government had sold it’s stake to some fine, upstanding hedge fund instead of the UAW? You know, had there been a hedge fund willing and able to buy it, that is…

    • 0 avatar
      jj99

      In normal bankruptcy, the UAW would have got food stamps, and GM/Chrysler would have purged those UAW contracts that ruined them.  Then, the UAW workforce would have been replaced by people willing to work for a fair wage and benifits, which would have been 1/2 of the UAW deal.  GM/Chrysler would have been in a position to hire more engineers and fix their cars ( Ford too ), to compete with the Asians.

      Instead, what we got is GM/Ford/Chrysler still building cars that are inferior to Toyota and Honda, and an overpaid UAW workforce.  Detroit will never be back now.

    • 0 avatar
      psarhjinian

      In normal bankruptcy, the UAW would have got food stamps, and GM/Chrysler would have purged those UAW contracts that ruined them

      Again, who do you think the major creditors were?  The government and the union.

      Who would have bought the remainder of GM?  Who knows, but in the middle of a credit crunch, the answer was probably “Nobody”.

      And, lest we forget, the union wasn’t the one who decided to design and engineer below-par cars, nor sell those below-par cars for well below what they cost to build.

      Oh, and did you know that GM actually had lower operating costs than Toyota, or that Chrysler was the “most profitable car company” before Daimler wrecked them?  The “UAW done killed the domestics” isn’t entirely false, but it’s much further from “true”.

    • 0 avatar
      Steven02

      Again, psar is right here.  The bankruptcy went pretty normally.  Contracts through bankruptcy do not have to be voided.  This actually saves headaches on many sides.  GM getting a new set of employees to build cars wouldn’t be easily.  The current employees could also decide that they still want to be union and then UAW comes back into play.  Now, instead of working with a UAW plan that is actually better than what has been in years past, GM would be negotiating, no cars being build while everyone is on strike.
      Does this sound like a good idea?

    • 0 avatar
      geeber

      How, exactly, was the union a creditor of GM? When did it loan GM money?

      Please note that pensions do not give the UAW status as a creditor. Pension plans are terminated in a bankruptcy. The UAW was basically a creditor because the government said that it was.

  • avatar
    jkross22

    Question to those that supported the bailout:  Would you support another bailout?  Chrysler has 2.  GM has 1, and Ford zero, although they all have credits from the gov’t, essentially free money or low interest loans from the gov’t.  In practice, they’re not all that different from agribusiness and the lard that’s thrown at that industry.
     
    Had GM gone through a real “de-GM-inization”, where whole parts of the company were replaced with coherent leadership, those of us against it from the start wouldn’t have as much ground to stand on.

    • 0 avatar
      petero1k

      +1

    • 0 avatar
      jpcavanaugh

      jkross, to clarify, the previous Chrysler “bailout” of 1979-80 involved no cash from the government.  This one was only $2.2 billion (IIRC) in loan guarantees.  Had Chrysler gone under, then and only then would the government have lost money.  As it was, the government profited handsomely because Chrysler had to promise warrants for stock purchases at a low price, which turned out quite well for uncle sam, thank you.

    • 0 avatar
      Steven02

      jkross22,
      To me, this depends on the timing.  If the economy is doing well, then no, I wouldn’t support one.  If the economy is in the crapper, I think it should be looked as a potential way to save jobs and not further a recession.  IMHO, that is the ONLY reason why this bailout took place.

  • avatar
    tparkit

    Here’s why the bailouts matter:

    — GM and Chrysler were stolen from their rightful owners by Washington and its partner the UAW. This sent a signal to investors around the world that the rule of law does not prevail in America, doing serious damage to the long-term outlook for economic growth and prosperity. Compounding the impact was Administration’s contemplation of legislation which would force mortgage lenders to pass defaulted mortgages through a court-ordered restructuring process in which the court would be able to strip away parts of the lender’s claims as the court saw fit. Obamacare will wipe out the private medical insurance industry, except as zombie outlets for government coverage. The messages are clear: Only political power matters, and there are no reliable rights and obligations. This end of this banana republic-style slippery slope is not in sight.

    — The auto bailouts are an important part of Bailout Culture. Losers, the profligate, public & quasi-public employees, and buccaneers prosper, at the expense of everyone else. There will be hell to pay for this mentality of entitlement and robbery.

    The exact amount brought in by GM’s IPO does not overly concern me, because I expect buyers will over-bid the true value in anticipation of being handsomly rewarded (via other, backdoor means) by Washington for helping politicians save face. The process will be a fraud and a shell game.

    By the way, Edward, do I detect a distinctly pro-GM drift in your writing, disguised as “moderation”, and “raising key questions”? Are you perhaps sacrificing objectivity in an effort to secure future access for your blog? If so you will have to change the name, because Truth will be in short supply around here.

     

    • 0 avatar
      psarhjinian

      GM and Chrysler were stolen from their rightful owners by Washington and its partner the UAW.

      Third time’s a charm.

      GM and Chrysler didn’t have to ask for a bailout.  GM and Chrysler didn’t have to offer secured collateral.  GM and Chrysler didn’t have to wait until the last possible moment to declare bankruptcy.  GM and Chrysler didn’t have to run their business so badly as to have to beg at the door of the only lender who would say yes.

      The rule of law was followed, in as much as a democratically-elected government invested in a domestic company at that company’s behest. If you don’t like that they did this, vote them out, but recall that it was the companies themselves who went asking for money, and who declared bankruptcy knowing full well who their largest creditors now were.

    • 0 avatar

      The more I read, the less it appears that any “theft” occurred. Bondholders knew the government wanted to save the companies, and assumed the government would do just about anything to avoid banktuptcy filing, so they held out for top dollar, more than they would have received in an outright liquidation. The government called their bluff. Once in banktuptcy, priority was given to the future viability of the companies.

    • 0 avatar
      Steven02

      Funny how you complain about not enough truth in the article by EN, but that your post is full of inaccuracies.

    • 0 avatar
      ihatetrees

      The more I read, the less it appears that any “theft” occurred. Bondholders knew the government wanted to save the companies, and assumed the government would do just about anything to avoid banktuptcy filing, so they held out for top dollar, more than they would have received in an outright liquidation.
      @ Mr Karesh:
      I could quibble with the above, but that’s a reasonable take.
      The bailout may hurt is the ability of unionized and politically connected firms (hello Airlines?) to access future bond markets.

    • 0 avatar
      MikeAR

      Karesh, you have an agenda and no valid point. In fact you are grasping at straws to prove a point. What you said about bondholders was almost completelly crap. Speculators moved in and bought bonds cheaply, sure it happened, but most of the bonds were in the hands of non-speculators. Individual investors, pension funds, mutual funds and the like. They bought and held on the assumption that bankruptcy law would be followed. If you think they were buying low and selling high, then you are wrong. I don’t think you really understand or else your bias blinds you to facts.

    • 0 avatar
      psarhjinian

      They bought and held on the assumption that bankruptcy law would be followed.

      It was followed.  No matter how often and how loudly you shout that it wasn’t doesn’t change that it was actually followed.

    • 0 avatar
      geeber

      Bankruptcy law was NOT followed. The government definitely picked winners and losers.

      The bondholders did not get stiffed – they did get more than they would have under a normal bankruptcy.

      The UAW, however, made out like a bandit. Its contracts were left essentially intact, and it received a huge chunk of equity in the newly formed companies.

      Indeed, when the government tried to get the Delphi workers to make major sacrifices because the company had already gone into bankruptcy, the union told the government to pound sand, the government backed down. Note the different treatment for bondholders and stockholders versus the UAW.

      The simple fact is that the government picked the winners and losers in this process, and the same parties would not have “won” or “lost” if normal bankruptcy process had been followed.

  • avatar
    FleetofWheel

    Any business failure results in innocent workers being displaced, so why not stave off that harm by bailing out every failing business?
    Lot’s of business fail every year with a large number of aggregate workers displaced.
     
    GM was on a long term downward path to an actual bankruptcy and now that process has been lengthened at greater total expense.
     
    It’s not too late to restore the shoe mfg jobs to the US. With the right govt investment, new shoe factories can be up and running before the next election, that would mean good shoe jobs paying good wages, right in your district.

    • 0 avatar
      jkross22

      Fleet,
       
      Why stop with shoes?  Let’s bring back the cotton gin, because those guys got killed when that process got automated.  Plus, it would be a new business the UAW could get into to ensure above market wages and extravagant benefit packages all while retiring at 60.
       
       

    • 0 avatar
      Steven02

      Fleet,
      It was about timing and size.  GM and Chrysler have several suppliers that would have gone down.  The amount of jobs lost when we are already in a recession would have been huge.

    • 0 avatar
      GarbageMotorsCo.

      Those suppliers should take 50% of the blame then for not being diversified and putting all their eggs in one basket.

      The bailouts of Government Motors and Chrysler gave an unfair advantage to those two (moreso GM than Chryco) over Ford who actually was making an honest attempt at rebuilding. To me, giving 50 billion to Government Motors was a reward for failure. Chrysler was given a proper option.

      Partner up or close your doors.

      To me, Government Motors should have had the same offer. Why the special treatment?

  • avatar
    dswilly

    I blame Palin and her freaky friends…..

  • avatar
    jj99

    I know many people who will never buy anything associated with the UAW ever again.  Ever.

    • 0 avatar

      How much did they buy from the UAW in recent years?

    • 0 avatar
      Jimal

      Bingo. Comments like this remind me of my annual New Year’s resolution to quit smoking. I never smoked to begin with so my statement actually carries little to no weight.

    • 0 avatar
      jkross22

      Michael,
      I was quite close to buying a G8 GT… decided against it because I realized spending $30k on a GM product was supporting the type of corporate and labor union short sightedness that we continue to see play out.

    • 0 avatar
      ajla

      Unless I’m misinformed, none of this was the Aussie’s fault.

      Why not reward the Holden folks for making a good car while they were stuck under GM’s crumbling umbrella?

    • 0 avatar
      mikey

      @jj99……Really? I know people that would never buy a Japanese car ever.

    • 0 avatar
      bikegoesbaa

      Really? I know people that would never buy a Japanese car ever.

      Yeah, me too.  The problem is they’re all either employed by a US automaker or old enough to still be upset about Pearl Harbor.  Either way, these are both rapidly declining populations and not something I’d want my business to rely on.

      I try to avoid union made products whenever possible, but if there was something UAW built that was particularly appealing I’d definitely buy it.  Lightly used, of course, and not from a dealer.  I have no problem driving their iron, but I have no interest in giving them my money.

  • avatar
    stryker1

    IIRC, the choice at the time was “Bail out the most over-bloated, poorly managed boondoggle-that-limps-like-a-car-company in history to the tune of $50 billion” or “allow this colossus to fail, rendering large, broad concentrations of employees unemployed at the same time, killing their local economies and creating a Louisiana purchased sized sink hole for the rest of the already reeling economy to slide into.”
    Glad it wasn’t my job to pick. That said, it was probably the pragmatic thing to do. Ideologies are nice, and oh-so-easy to remember, but in the end all they do is relieve you from having to think.

    • 0 avatar
      psarhjinian

      Glad it wasn’t my job to pick. That said, it was probably the pragmatic thing to do.

      There’s four real “quadrants” of what is commonly misinterpreted as the political spectrum: anarcho-syndicalists, authoritarian socialists, authoritarian capitalists and libertarians.

      Members of the first (of which I’m one, though not so extreme as many) held our noses and said yes, this is a necessary evil and possibly a chance for useful change**.  The big money in #2 and #3 were certainly going to go for the status quo.  Only the lattermost really kicked and screamed much.

      When thinkers in three out of four are saying it’s a wise thing, it probably was.

      ** we didn’t, generally, about the bank bailouts.

  • avatar

    I blame the cold hand of fate.

    GM is dead, but we can make it better…. it can be improved. It will be Steve Austin II smaller, lighter, able to carry a family of four for for for forty miles.  Sticker price less than 6 billion per Senatorial Vote.

    Edit: Billion for Million but hey! It’s all good. amIrite?

  • avatar
    Steven02

    Honestly, I would say that the GM and Chrysler bailout has been ok on the results.  GM is turning a profit and market share of core brands isn’t bad.  Chrysler is still struggling some, but they have the “best vehicle ever?” going for them.
     
    In reality, it appears that people are still buying from both companies.  I am guessing that in a few years, the bailout hate will lessen.  People who will remember this as an excuse not to buy from one of these companies probably wouldn’t have bought from them in the first place.  I am willing to bet most of the people who regularly comment on this site fit into this group.  Other people are already buying the vehicles.  I think this is more political fodder than anything else to do with the actual cars and companies for the general population today.

  • avatar
    Conslaw

    I think the free market people commenting here slept through half their economics class.  With perfect competition, rational decision-making, perfect information and zero information costs, you don’t have market panics (like we had before the bailouts).  We had rampant market failures.   To rely on a free market solution during market failures is imprudent.  If it costs less to keep Humpty Dumpty from falling off the wall than it does to put him back together again after he falls off.  In this case, Humpty Dumpty is the entire supply chain of the US auto industry and all the communities that depend on it.
    I’ll be candid.  I owe my job to the bailout. Without it, my mortgage wouldn’t have gotten paid, and all the businesses I patronize would have been worse off.
    For the people who say GM was stolen from its rightful owners, that’s simply not true.  GM had a negative net worth for years if you really looked at its books.  GM was bankrupt.  The stockholders had no value.  The bonds had no value.  If not for the government money coming in, the company wouldn’t have existed so the US and Canadian government deserved the ownership.  It was a political compromise that resulted in the employee pensions owning a big chunk of the company.   Those pensions had to be supported in some way.
    If you want to attack government spending, attack the trillion dollars plus (and counting) that we are spending on two foreign wars.  One (Iraq) was the product of lies to Congress.  The other (Afghanistan) was initially justified but should be re-evaluated before Afghanistan sinks our economy like it contributed to the sinking of the Soviet economy.   Most of the dollars sunk in these wars are not recirculated through the American economy. To put this in perspective, for the cost of the Iraq war alone, we could have paid off all the outstanding student loans in the United States.

    • 0 avatar
      MikeAR

      Do you really think that we should care whether or not you have a job? The money to save your job will come from my taxes for the rest of my life and believe me I would rather have lower taxes than for you to have a job to which you feel entitled. Don’t you think you could have found another job or are you some sort of union leech who can’t do anything else?

    • 0 avatar
      geeber

      People need to realize that just because the free market doesn’t work in your favor doesn’t mean it has failed.

      The simple fact is that GM and Chrysler produced subpar products for decades. Customers increasingly turned to superior products. GM and Chrysler went broke. Sounds like the free market worked to me…

    • 0 avatar
      stryker1

      “Don’t you think you could have found another job or are you some sort of union leech who can’t do anything else?”
      Unless I’ve been living in some holo-deck nightmare world for the past few years, jobs aren’t exactly easy to come by right now.

  • avatar
    DenverMike

    If I wanted an economic bailout from a bank, uncle or whoever, someone is going to demand to see the new business plan and what I’m going to do different so my business doesn’t continue to fail. If I’d said “Got none, just continuing with the same dull products with the same ugly ass grill across the entire line up…”…

  • avatar
    TrailerTrash

    To Big To Fail is a Big Lie.

    How do you, anybody, know what to big to fail even means.
    Nobody does.  It’s all crap.

    On top of the big lie is lack of punishment.

  • avatar
    Z71_Silvy

    Ask The Best And Brightest: Does The Auto Bailout Still Matter?
     
    Only on pesky blog sites who are overly critical of some manufactures and give others who put out utter garbage a free pass….

  • avatar
    LALoser

    It was for confidence. The world hit a rough patch not seen since the Great Depression. Overnight paper froze and the bottom fell out of manufacturing, housing and infastructure. The people in charge did what they could in an amazing hurry. GM, Chrysler was rescued, as was Citi and other large money center banks. Lehman fell, and several are complaining about that yet. In short, the large companies could not fall, it would take us so low that recovery would take decades and cost generations in education, infastructure and productivity. We center on GM here because of the auto theme, but in truth we are trying to focus on one singular brick in the wall. They are all needed in the multi-strada economy we are.

  • avatar
    forraymond

    Good grief.  The car bailout/loan was a fraction of the bank bailout.  That was criminal!!!
     
    How many of you are underwater in your home mortgage?  Thank the banks and the Republican party for allowing the banking industry to gamble on with your mortgage.
     
    The two bankruptcies were coming years ago, but the bank and Wall Street collapses rushed the bankruptcies forward by years.
     
    BLAME THE BANKERS AND THOSE THEY PAID TO GET ELECTED!!!

    • 0 avatar
      psarhjinian

      Now, to be fair, the banks et al paid for both groups to be elected at different points in history.  In any election, they always bankroll the front-runner, regardless of who the winner’s party actually is.  No one backs a loser.
       
      If you want to see who big money fears take a look at who they never give a cent to.  No, not Libertarians or autocratic socialists—they can use them—but libertarian <i>socialists</i>.

  • avatar
    bumpy ii

    Does the bailout matter? Not so much. I had a low opinion of GM and its products before the bailout, and I have a low opinion of GM and its products now. Taking refuge in audacity doesn’t hurt much when you’re already in the doghouse.

  • avatar
    AaronH

    The retarded public school parasites will always “think” this is a good idea…What else are they really capable of besides believing they are entitled to other people’s lives and earnings. They are really just psychopaths no different than a common rapist and thief.

  • avatar
    ihatetrees

    Godwin time in < 6 hours. I’m surprised it took so long…

  • avatar
    AaronH

    Democracy is just stealing from people who don’t vote for you and handing the loot over to those who do.

    Democracy is violence and that’s why it will always fail.

    • 0 avatar
      psarhjinian

      Not that I don’t disagree on the nuance, but can you perhaps name a better system?  Because all the others simply take democracy’s virtues and strip them out.

  • avatar
    Daanii2

    The problem with bailouts is that in the desire to do good, you reward bad behavior.
     
    GM and Chrysler made poor decisions. They failed as companies. They did not suffer the punishment that they deserved. Instead, they were rescued. So nothing fundamental has changed in those companies.
     
    It’s always tempting to do that. Japan did that 20 years ago with its banks when the real estate and stock market bubbles burst. They rescued troubled banks that should have failed. They spent money on bailouts and stimuluses that will burden their people for generations. All that bought nothing but decades of stagnation.
     
    The carmaking industry needs to change. There needs to be some creative destruction. Failed companies need to fail. Otherwise, they are zombies dragging down successful companies to failure as well.
     
    The carmaker bailout prevented needed change. So either something else causes that change, or we see stagnation instead of growth. That’s why the bailout matters, whether we taxpayers get paid back or not.

  • avatar
    jaxtalonturbo

    I don’t understand why people can’t just look through all the BS and see this for what it really is: the bailing out of the UAW.
    How many years has the UAW demanded unreasonable benefits and wages to do the same work that Americans working and foreign auto plants do? Maybe if over all the years, instead of paying Johnny on the assembly line at GM such a considerable amount more than Bob at Honda, GM could afford to use better quality materials in their cars, instead of using plastics that look like they came from melted down GI Joes. Maybe if the UAW wouldn’t have to worry about their plant closing if they werent so greedy and understood that the company actually has to make a PROFIT to survive.

    • 0 avatar
      psarhjinian

      How many years has the UAW demanded unreasonable benefits and wages to do the same work that Americans working and foreign auto plants do? Maybe if over all the years, instead of paying Johnny on the assembly line at GM such a considerable amount more than Bob at Honda, GM could afford to use better quality materials in their cars

      This has been proven, time and again, to not be the case.  GM, under the UAW, had a lower operating cost than Toyota.  Chrysler, pre-Daimler and yet still under the UAW, was a higher-profit company than anyone else.   This also discounts the complete unionization of plants in Japan and Europe.

      The reason they couldn’t make money wasn’t the costs, which were more or less in-line, but that they—and by they I mean management—designed and built second- and third-rate cars for years and were forced to put cash on the hood to the tune three to four times higher than the competition in order to sell product.

      GM and Chrysler chose to make crap.

      They weren’t forced to, not by any means.  Right up until fuel hit four bucks a gallon and the truck market collapsed they were still reaping profits that were most definitely not being reinvested into their mediocre car lineups.

      Just like the bondholders-got-screwed lie, the UAW/cost lie is a wonderful stick to beat the political drum with, but it’s not actually true.  Not that shouting loudly enough doesn’t work as a political tactic, as evidenced by the number of people who swallowed it, hook, line and sinker.

      The problem is, and always was, product and management.  Not since the 1970s has the union had any meaningful impact on the D3’s competitiveness.

    • 0 avatar
      MikeAR

      Actually Psar, you are right about this. They made crap and they sold it by incentives and zero percent financing. They became subprime banks rather than car companies. Instead of putting profits back into their vehicles they went to bonuses and richer and richer union contracts. I don’t like unions mainly because of their sense of entitlement but they built the cars that they were given to build. In the long run that is what did GM and Chrysler in.

    • 0 avatar
      geeber

      It has not been proven that higher labor costs were not a factor in GM and Chrysler’s troubles. The simple fact is that only recently did GM have a lower operating cost than Toyota. For decades, it was the reverse. GM had to employ far more workers than Toyota to produce the same number of vehicles, and its plants had a much higher rate of absenteeism than the transplant factories.

      GM operated under that handicap for decades. The cost disadvantage was only recently eliminated. One generation of vehicles cannot undo the damage that had been done from decades of lower quality vehicles designed, engineered and assembled under a serious cost handicapped. That is like expecting someone who recently lost 100 pounds of fat to successfully run a marathon tomorrow.

  • avatar
    FleetofWheel

    Under what circumstances would GM apologists not endorse another bailout in the future?
     
    You’ve painted yourselves into a corner believing GM has too many employees and related partner businesses.
     
    So it seems you would sustain GM as British Leyland into perpetuity unless the transplant car factories became unionized, then you would drop GM in favor of Hyundai/UAW in a heart beat.

  • avatar
    mattl

    I guess a basic question is what is a reasonable wage/compensation ? Is that “above suffering”or “thriving”? Is the UAW being “unreasonable”? Is wanting a real wage, retirement, benefits, etc “unreasonable”? How much do German or Japanese union workers make? Is being middle class “unreasonable”? In this debate, I’m confused about who is suppose to “win”. What on earth do you imagine a future (positive outcome) of america would be following your line of logic?

  • avatar
    GarbageMotorsCo.

    Bailouts were a reward for failure. Instead of letting the free market decide the fate of these two losers, they were given an unfair advantage over companies like Ford who were actually DOING SOMETHING about their predicament.

    Chrysler was given an ultimatum to stay alive and now they are owned by the Italians. Government Motors should have been given the same ultimatum.

    No special treatment.

  • avatar

    Should the bailout still matter? Absolutely, hell yes, a thousand times yes. GM, Fiasler and the feds only thwarted the very economic principles our country was founded on, all to save union jobs and precious little else.

    Yeah, the economy was in shambles and may (not for certain) have been even worse off with the loss of those two failed automakers. Too bad. Principles should not be situational, changed on a mere whim or for political gain. (I’m not so naive to think this will ever stop happening, but still.)

    Now, does the bailout still matter? Meh. Probably not.

    Regardless, I plan never to own another UAW-built vehicle again, as my own small form of protest… and if anyone asks why that is, I plan to tell them. That’s about all any of us can do.

  • avatar
    carguy

    Ed – if you’re looking for a hint if we’re tired of reading about it then the answer would be “yes”. It was two years ago – let’s move on.

  • avatar
    bomberpete

    The GM bailout caused me to vote FOR Harry Wilson, the Team Auto guy who re-organized GM’s finances and canned GM CFO Ray Young, who didn’t know his job. Wilson ran for NY State comptroller but unfortunately lost in a very close race to the less-qualified Democratic incumbent.
     
    I’m fine with the bailouts. At the time they happened, it needed to be done. Bitch and moan all you want about free-market, deserved-to-fail hardcore capitalism. What’s your answer when it will destroy 1 in 12 American jobs? And it’s not all about the UAW, you union-haters. That includes small to mid-sized businesses that are this country’s backbone.
     
    Chrysler will rise and fall with Fiat, and I’m OK with that. As for GM, either Team Auto didn’t go far enough with radical reform, or they still can’t manage themselves. Why am I convinced this IPO will be a premature disaster? After Wall Street, Carlyle Group, Akers and the rest get theirs, I’m worried that we’re looking at American Leyland within 3-5 years.
     

    • 0 avatar
      Daanii2

      What’s your answer when it will destroy 1 in 12 American jobs?

      My answer is to question your premise. To think that the bailout of GM and Chrysler saved 1 in 12 American jobs is the same as thinking that throwing a virgin in a volcano will keep it from erupting.

  • avatar
    bomberpete

    Wow, Danii2, the use of that particular imagery shows where your priorities lie.
     
    I don’t claim that the actions of Team Auto saved all those jobs. But isn’t is just remotely possible that the reverberations of a GM Chap. 7 plus Chrysler shutdown could have been that dire? Or would “the market” have taken care of that?
     

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