Bailout the Big 3 or No?

[Steve85]

So playing a devil's advocate (and it isn't easy) I have to challenge some of the points you made in your original post. Some of which Pete also challenged.

The writing has been on the wall for ages. Standard & Poors cut GM bond ratings to 'Junk' in 2005, and you don't get there overnight, for starters. All three have compounded years of model lineups that nobody wants

GM was the global sales leader as late as 2007 and since then has been except for maybe a quarter or two. A junk rating had nothing to do with the ability to move product. I know that's not what you're arguing but my point is GM's problem is not product>sales>revenue, it's profit. There is one thing between revenue and profit.

product quality that can only muster competition for fresh Chinese upstart

Historically, not much to argue there. However, they have made great strides in quality since then and the motoring press that loves to hate American cars have even seen the light.

they haven't done anything to fix the incredible resource drains that are nothing less than pervasive in their books

They have renegotiated the UAW contract to considerably reduce the fully burdened hourly cost per employee. As a comparison GM is ~$75/hr with foreign car makers US operations in the mid $40's per hour. GM will be able to hire new employees at a fully burdened cost of ~$25/hr. GM is buying out long timers to get them off the books and with the VEBA program is shifting the healthcare burden to the unions but with a huge outlay of cash upfront.

A rising chorus of business gurus is singing the praises of a new solution to the U.S. auto industryÔÇÖs ongoing crisis: one big health care trust for all the Big 3ÔÇÖs workers. According to the proposalÔÇÖs cheerleaders, by making giant one-time pay-ins the Big 3 auto makers can slice off an estimated $116 billion worth of retiree health obligations from their balance sheets in one swoop and restore profitability.

So I cannot argue that they have not made mistakes but I believe the biggest is not breaking the union (that thing between revenue and profit) like Caterpillar did and not focusing on quality (no excuses there).
But to claim they have not addressed the issues I believe is simply wrong.

The effects of the new contract will not take effect untill 2010. Dismissing the media sensationalistic definition of "bailout", using the term bridge loan (from here to 2010), and considering the costs associated with doing nothing, I will find a way to accept the fate of tax dollars at risk provided they can demonstrate some REAL cost cutting measures to take place immediately.

I do agree that the CAFE standards definitely need to be changed, at least modified to be class based, not fleet based.

-flame suit on-

[Ginger]

I was going to kind of sit out and not invest a lot of time in this one.. but since I seem to have threaded myself in, I'll take some time tomorrow and try to write a half decent rebuttal of sorts. But I'm about two minutes from company showing up right now.

I will say, though, that they have made great advances... though, if you ask me, it's too little, too late.

[Ryan T]

Bail them out, increases my salary.

[NTIman]

Screw them.

People have to buy cars somewhere, and if they just happen to have to start buying Toyotas, more business for me 8)

[NTIman]

I believe this sums everything up: <!-- m --><a class="postlink" href="http://www.streetinsider.com/Insiders+Blog/SNL+Skit+Rips+Big+Three+Automakers+(GM,+F,+Chrysler">http://www.streetinsider.com/Insiders+B ... ,+Chrysler</a><!-- m -->)/4190135.html

[Ginger]

Okay, I've been putting this off a few days.

I'm not going to argue that the big three have made some strides in overall product quality lately (yes, they're making better stuff, more reliable stuff, etc.). If I gave the impression that I feel otherwise then I apologize for being unclear. Kudos to them.

I'll quickly address what Steve wanted me to:


* When referring to the writing being on the wall for ages: I meant the 80s and 90s. The bond market, in my mind, is icing on the cake. It says, in small text: fix this yourself.

*Product quality: again, 80's, 90's stuff.

*UAW: I'm glad to see some kind of progress (can I please just say "finally"?), but I've got to hold my breath for the day when they literally not a problem, not just on paper.

Product and plans aside, howver, they're still not getting the job done. I suppose we could go back and forth about where they're selling well, where they're not, and why, but it will all boil down to one fact: they need capital. They need capital that they can't raise in credit markets (-all- the credit markets are not frozen, but risky bets won't gain any ground right now), and that they weren't able to raise in the bond markets (and certainly not now). You can call the money that the government wants to give them a loan or a bailout... it doens't really matter. When did we get into the business of helping out failing big companies (ironically, this is the same government that has engineered monopoly markets to their suitings)?

Government lending is a very risky business. Default rates are always higher than private lending... and in this case, I'd love to know where they're going to get the money to pay the loans back (it will have be seriously long term). Additionally, it's simply a burden shift: you won't lose the jobs, but you're forcing the cost of employment on the entire nation. It's silly to believe that the costs are somehow lessened in that case, as you're playing a national shell game. We've played the government spending game before (the great depression is a massive case study on government spending). It's not pretty.

All that aside: lots of people end up financing the checks that aren't OK with the costs. I think it's about time we strap in for the ride and hold on really fucking tight. It's going to be bumpy, but there's absolutely no reason to believe that only the government holds the key to the solution.

(for the record, I vehemently opposed the Wall Street bailouts, as well)

[ScottyB]

interesting article:

<!-- m --><a class="postlink" href="http://www.autoextremist.com/current/">http://www.autoextremist.com/current/</a><!-- m -->

[stevegula]

they need to wait for me to get my bonus and thus some Ford and GM stock before they bail them out.

[Apoc]

[BLINGMW]

awesome. :lol:

not. :?

[Goodspeed]

Yeah, they F'ed up. But I support bailing them out infinity+one times more than Wall Street.

[John]

I LOL'd pretty hard this morning when I saw this article: What Makes an American Car Anyways?

Very ironic, and yet another reason to allow for the collapse of failed enterprises.

[JustinG]

i think i figured out why the big three are failing...

Im currently working out of a Chevy dealership, so ive been checkin out the new cars.

Silverado Crew Cab, 4x4 w/ Leather $43k
Avalanche 4x4 w/ leather/nav/tranny cooler, $53k


WTF?????

Even the moderately equipped trucks are like $39-40k

now when you drive em off the lot they drop to the price they should be charging for them.

When my dad bought his F150 XLT Crewcab in like 01/02 it was $28k brand new off the truck. So......$10-15k over 6 years??? something isn't adding up IMO

[Jeff]

I LOL'd pretty hard this morning when I saw this article: What Makes an American Car Anyways?

Very ironic, and yet another reason to allow for the collapse of failed enterprises.

I think its important to consider the UAW's impact on this. If US-Based auto makers had the same labor costs as Import auto makers for their US operations there is a good possibility they too would do more in this country. Obviously the Japanese found an economic benefit to building cars here... the big three would do the same if they could see this same benefit. However, this is not the case. So to be competitive with the Imports on price they must lower their production costs by taking the jobs elsewhere. Its a cycle that could be prevented if the UAW would make greater concessions to allow the US automakers to lower costs and still keep the jobs here at home. Obviously design and quality are issues. Few Asian import cars in my opinion are much better looking then American makes. But the quality of materials and the layout of the interiors often amazes me. How can Americans get this stuff so wrong? I mean, I'm not going to go so far as most of you all and say they are total bullshit and not worth a dime...but I will say that for the most part the import stuff is better as long as you are comparing price points. I hope the American companies are given a chance to become competitive and make a product people want to buy. I know they can, there is no matter of fact reason why the Japanese have to be better. "They" have no magic that "we" don't.

[JustinG]

But the quality of materials and the layout of the interiors often amazes me. How can Americans get this stuff so wrong?

I completely agree, i like the way most American cars look, just the interiors are such shit. if I could sit on the roof and drive it would be different. I wanna give the American automakers a chance, if they in fact have a plan and try.

[Ginger]

They pretty much rested on their laurels, and those entrenched in the buy American culture, for 20 years. You'd get it all wrong if you were out of the game for most of a generation, too

[Evan]

FWIW, I havent driven a new import (Camry, Sentra, Kia all come to mind) that didnt have even shittier interiors than the new domestic cars.

the "Buy American Culture" is complete bullshit btw. For every "I only buy american" person, there are 100 "I will only buy imports and wont even look at an american car"

[NTIman]

I can vouch for the shitty new toyota interiors, they completely blow. Cheap materials and a bad fit and finish make it look pretty bad, as well as shitty designs.

On top of that, Toyota doesn't seem to appreciate being able to see out of the back of cars, the Venza, FJ, Matrix, and xB all have horrible visibility.

[Mike]

FWIW, I havent driven a new import (Camry, Sentra, Kia all come to mind) that didnt have even shittier interiors than the new domestic cars.

the "Buy American Culture" is complete bullshit btw. For every "I only buy american" person, there are 100 "I will only buy imports and wont even look at an american car"

oh puhlease. you do remember gw got reelected, don't you? this nation is a lot larger and different than the microcosm we live in.

[Dave]

I'm pretty sure that I read that the reason WHY the Senate discussions broke down is b/c the UAW wasn't cooperating enough. To me, that says that they are perfectly fine with the companies collapsing and losing all the jobs, rather than making concessions to keep the paychecks coming for most people.
Personally, I think the Treasury stepped out of bounds on this one being that negotiations were still in effect (albeit to be re-started next month b/c law-making is hard and Congress needs a break...) and prior to Friday morning they had never made any mention of coming into help. If that was an option, it should have been put on the table from the get-go, in my opinion. If the companies were so F'ed that they really are going to fail by the end of December, then they should have seen it coming sooner that a month ago... That tells me we are just postponing the inevitable anyways.