Whither the USA car industry?

Mango · Post by **Mango** » Tue Nov 11, 2008 2:40 am

I’m no expert on the American economy or its car industry but from recent newspaper reports things look bleak, especially for General Motors.

GM shares crashed yesterday to their lowest level in over 60 years after the company gave warning last Friday that it could run out of cash early next year. It made a loss of over $4 billion in Q3, and announced production cuts in North America that would leave 5,500 workers idle. Ford has reported Q3 losses that were worse than expected, some $3 billion in Q3 and announced further job cuts. GM also revealed that merger talks with Chrysler, seen as a lifeline for both businesses, had been called off. This apparently resulted from the US Government’s turning down a request from GM for $10 billion to support a merger with Chrysler.

It seems clear that without massive State aid (to use European terminology) the USA car industry - or at least a major segment of it - could be in dire straits fairly soon.

From various rather accounts, Obama appears more ready to provide large-scale support your ailing car industry than Bush.

I would especially like to know what CMG members think about this state of affairs, in whether it might suggest to them that it is not just the American banking industry that’s rotten and in need of massive State support following years of mismanagement but the car industry as well, albeit for different reasons.

It would also be especially interesting to hear Republican supporter views on the efficacy of large-scale State aid to prevent major collapse of your car industry. I'm hoping to bring these people back to speak up for their beliefs, as the concept of massive State aid to support ailing industries is usually anathema to such people, but in the present context I wonder how far their views might not be quite so rigid (i.e. when Uncle Sam's reputation is on the line).

BWV 1080 · Post by **BWV 1080** » Tue Nov 11, 2008 10:00 am

Some analyst came out yesterday and said GM won't survive the year and the equity is worthless

Any government funds at this point are simply a bailout of current stock and bond holders. Any gov $ should be ahead of this. The equity needs to be wiped out, existing debt swapped for new equity and gov funds would be the debt

GM's Best Option Is Bankruptcy Filing, Ackman Says (Update1)

By Christine Richard

Nov. 11 (Bloomberg) -- General Motors Corp., the biggest U.S. automaker, should file for bankruptcy rather than taking money from the government, hedge fund manager Bill Ackman said.

``It has been hamstrung for years because it has too much debt and it has contracts that are uneconomic,'' Ackman, manager of the Pershing Square Capital Management LP hedge fund in New York, said on the Charlie Rose show yesterday. ``The way to solve that problem is not to lend more money. They should do prepackaged bankruptcy.''

GM is petitioning the U.S. government for aid after saying last week that it may not have enough cash to operate this year. A bankruptcy would leave bondholders in control of the company in exchange for forgiving some debts, Ackman said.

The automaker dropped to its lowest level in 59 years yesterday after a Deutsche Bank AG analyst downgraded the shares and said they may be worthless in a year. The slump demonstrated mounting pessimism that a turnaround will succeed amid a global credit crisis and the worst sales market in at least 15 years.

GM fell $1, or 23 percent, to $3.36 in New York Stock Exchange composite trading yesterday, its lowest close since June 17, 1949, according to Global Financial Data in Los Angeles. The shares have lost 86 percent of their value this year and were down 3 cents to $3.30 at 8:45 a.m. today in early New York trading. Ford Motor Co. dropped 9 cents to $1.93 yesterday.

`Not an Option'

A bankruptcy filing ``would be a disaster far beyond General Motors and a sad chapter in American history,'' GM Chief Executive Officer Rick Wagoner said in a Bloomberg Television interview last week. GM said on Oct. 24 that bankruptcy ``is not an option.''

GM's 8.375 percent bonds due in July 2033 traded at 25.75 cents on the dollar yesterday, less than half their price two months ago, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The notes yielded 32.5 percent.

GM needs to reduce debt to a supportable level, Ackman said.

``The `bankruptcy' word scares people but it's simply a system,'' said Ackman, who said he doesn't have a position in GM securities. A Chapter 11 bankruptcy filing enables a company to seek protection from creditors while still continuing to operate.

Ackman, 42, profited as a short seller when MBIA Inc. and Ambac Financial Group Inc., the two largest bond insurers, plummeted this year over guarantees they issued on securities tied to subprime mortgages. In July Ackman said he had short positions in Fannie Mae and Freddie Mac, which were seized by U.S. regulators in September after $14.9 billion in net losses threatened to further disrupt the housing market. Last month Ackman said he bought a 9 percent stake in Wachovia Corp.

Federal Aid

GM, Ford and Chrysler LLC, owned by Cerberus Capital Management LP, may be moving closer to gaining federal aid. U.S. House Speaker Nancy Pelosi of California and Senate Majority Leader Harry Reid of Nevada wrote to Treasury Secretary Henry Paulson to urge that bank-bailout funds be opened up for loans to automakers.

Rahm Emanuel, chief of staff to President-elect Barack Obama , has said the U.S. auto industry is ``essential'' to the economy.

While Emanuel stopped short of endorsing such a plan, the White House yesterday signaled its opposition, saying aid to the industry wasn't discussed during the debate on the banking bailout. Congress may take up automaker assistance when it returns next week.

The government should ensure GM uses funds to retrain workers and shouldn't put money into the company if it will only be used to service existing debt, Ackman said.

``The welders at GM could help on the infrastructure of the country,'' Ackman said. ``That's a much better use of taxpayer money.''

To contact the reporter on this story: Christine Richard in New York at crichard5@bloomberg.net

JackC · Post by **JackC** » Tue Nov 11, 2008 10:43 am

The outlook is bleak, but the US Auto industry has only itself to blame.

The fact is that American cars stink. I remember when US cars were good, but relatively expensive, and the cars from Japan had the reputation for being cheap and gas efficient, but crappy. Now the situation is reversed. The US cars are bought because they are cheap, but we all know their quality stinks. Maybe that is a bit unfair, but that is a reputation that they certainly worked a long time to earn.

The whole US auto industry needs to reinvent itself, and it's going to take a while, if it happens at all. They need to build cars that are better, or at least as good as, the Japanese cars and that are cheaper. Good Luck, and no, I won't buy your GM stock from you.

Modernistfan · Post by **Modernistfan** » Tue Nov 11, 2008 11:04 am

Unfortunately, JackC is correct. I have not bought an American car since I started buying new cars in 1975; in that period, I have owned three Toyotas, an Acura, and three Hondas. If my current Honda (a 2008 top-of-the line Civic EX Coupe with leather and navigation system) were totaled, I would either get another Honda or possibly a Mazda 3. The American companies are just not competitive with small cars, the type I like. (I wouldn't buy an SUV if Osama bin Laden put a gun to my head.)

JackC · Post by **JackC** » Tue Nov 11, 2008 11:25 am

Modernistfan wrote:Unfortunately, JackC is correct. I have not bought an American car since I started buying new cars in 1975; in that period, I have owned three Toyotas, an Acura, and three Hondas. If my current Honda (a 2008 top-of-the line Civic EX Coupe with leather and navigation system) were totaled, I would either get another Honda or possibly a Mazda 3. The American companies are just not competitive with small cars, the type I like. (I wouldn't buy an SUV if Osama bin Laden put a gun to my head.)

But if you wanted an SUV, all the best ones are Japanese or European too. The fact is that people who want the best in any catergory, don't buy American cars. It's a shame.

piston · Post by **piston** » Tue Nov 11, 2008 12:13 pm

Yeah, people used to have a good laugh at this and other Japanese models:

But the same story could repeat itself for Japan, even Korea, if China, India, etc., develop their own superior automobile engineering skills over time.

Brendan · Post by **Brendan** » Tue Nov 11, 2008 5:14 pm

And as for the Australian car industry . . .

From http://www.theaustralian.news.com.au/st ... 83,00.html

THE nature of the Rudd Government is being formed by crisis as it becomes a champion of economic intervention, financial and job security, a crusade that boosts its political standing.

The forces driving this new era are immense: financial crisis, economic downturn, climate change mitigation, corporate failure and 2007 election pledges. It is a combination of extreme global pressure and domestic forces. Such pressures, however, merely reinforce the Government's instincts for control and intervention.

The favourite word Kevin Rudd now uses to brand his Government is "decisive". The policy virtues and sins of being "decisive" are lost in the political crusade.

In this context "decisive" means spending money, fighting unemployment, offering government deposit guarantees, underwriting industry, saving manufacturing, dictating energy sources, creating new green-based projects, re-regulating industrial relations and picking government-mandated infrastructure projects. This is Rudd's modern agenda for a social democratic party confronting a world crisis.

Rudd boasts he is not an old-fashioned interventionist. He believes in markets; witness his support for a cap and trade scheme to manage pricing carbon and support for ongoing tariff cuts. But Rudd is really a modern interventionist fashioned by the moment. He expects that Barack Obama will be a fellow traveller. With the British Government taking stakes in banks and the US Government sponsoring the biggest bailout packages in history, Rudd's interventions are modest by comparison.

Yet they are landmarks in Australian public policy. It would be folly to believe they will all disappear courtesy of sunset clauses. Rudd seems a natural fit for the new age of intervention flowing from financial and climate challenges. And he is proud of such credentials. Indeed, this evolving interventionism will probably define his Government.

It is noteworthy that the most pro-market cabinet minister, Lindsay Tanner, justified this week's taxpayer-funded $6.2 billion car package by saying it was an issue of survival. Pointing to the industry's global crisis, Tanner said the test was whether Australia's foreign-dominated car sector would be transformed "or whether it's (going to) effectively disappear".

With the US car makers on their knees and the entire market value of General Motors reduced to a mocking $US2.5 billion ($3.7 billion), survival is the literal description as the US Government ponders its response.

Survival has become the new imperative for intervention: survival for depositors, jobs, industries and regions. Invoking survival eliminates scope for political opposition. Opposition becomes an act of disloyalty.

Rudd's justification for the car package is timeless. He says our first car, a steam-driven horseless carriage, took to the road in 1897, suggesting the industry belongs to our way oflife.

His Government, Rudd insists, wants Australia to have a strong manufacturing industry and a strong car industry. The decisions are that elemental. Rudd argues that "being able to build cars means being able to build lots of other things as well". Yes, he said it.

The car decision, given the crisis, now assumes more weight and funding. Industry Minister Kim Carr says the package is about "shielding Australia from the worst effects of the storm outside" and it constitutes a plan "to beat the global financial crisis" and protect Australian families given the total number of jobs tied to car-making is more than 200,000. The reality, however, is that the industry's future will be decided far from Australia's shores.

In the interim, Rudd's "decisive" car package is sure to be popular. In effect, he is training the public to see his Government as an aggressive interventionist defender of Australia from the global recession.

In electoral terms the tactic is working. The Government has rekindled those old-fashioned Australian instincts for state power and government paternalism. Witness this week's Newspoll showing Rudd heading Malcolm Turnbull as "better PM" by a huge 62 per cent to 22 per cent and Labor heading the Coalition by 55 per cent to 45 per cent, far ahead of Rudd's 2007 election win.

The fundamental point is that the distinction between good and bad policy gets lost in this political momentum. The cause of "decisive" action is now a political crusade that offers its own justification.

It is true that strong fiscal stimulus and sharp interest rates cuts are essential policy and applauded by business. As revenues collapse the budget will pass into deficit and the economics profession says this is a natural and sensible event.

But not all such interventions are sound policy. How valid is the $1.3billion Green Car Innovation Fund? The Productivity Commission said earlier such schemes were "unlikely to lead either to innovation spillovers or lower greenhouse emissions". It sounds like a dog.

Yet it is a political dream, a tactic to invoke green virtue to disguise the special deal.

What of Rudd's claim that the car industry overall delivers innovation spillovers? The Productivity Commission does not reject the case outright but it says a convincing case has not been made.

Productivity Commission chairman Gary Banks has said that sound economic policy "should not be to promote any particular industry or sector as an end in itself". For Rudd, this is market-based nonsense that he repeatedly repudiates.

Rudd's deposit guarantee has created a litany of unintended consequences; witness the Reserve Bank's warning. But Rudd concedes none of them. Rudd never talks about government failure, just market failures, and he has picked perfectly the temper of the new age.

Ross Garnaut once warned about the folly of having both a market-based cap and trade scheme and a government dictated Mandatory Renewable Energy Target since they contradict each other. Rudd is determined to have both.

It is an insight into how he operates. Whenever he accepts a market policy (lower car tariffs and emissions trading), he matches this with more intervention (bigger car subsidies and an MRET scheme).

Rudd's re-election strategy is anchored in the Chifley-Whitlam dream of a nation-building government. His tactic is to discredit the Coalition for its weakness on infrastructure when in office. The untested issue remains the soundness of Rudd's own infrastructure agenda and whether it is driven by productivity or politics.

The conclusion is unmistakable: Rudd wants to invest his Government with such a reputation for decisive intervention that this political brand outlives the damage done by the downturn when it arrives.

Mango · Post by **Mango** » Wed Nov 12, 2008 7:58 am

What I'm interested in hearing are views about the desirability/feasibility of massive dollops of State aid to rescue the big USA car manufacturers from what otherwise looks like a very bleak future, if not outright imminent collapse in one or two cases. This looks like it could be the biggest single economic headache for Obama, leaving aside the still highly uncertain recovery from the banking crisis. Is the industry worth saving? Why couldn't the void, if the 3 big USA firms went out of business, be filled by more efficient manufacturers setting up shop in the USA or existing ones expanding existing operations? Should State aid be witheld completely or should it be limited or made conditional or take certain forms? Are there are any WTO considerations? It's a matter of such major importance that I thought there might be clear views, at least in principle, among some member here. The thing is, I suspect, that such a calamitous scenario has never been considered before and it comes as a bit of a shock for hard core free marketeers to contemplate complete inaction with the consequence of a huge rise in unemployment localised in a few geographical areas. I bet Bush will glad to get out of it so that he can be spared making the final decisions on any rescue deals.

slofstra · Post by **slofstra** » Wed Nov 12, 2008 1:26 pm

Mango wrote:What I'm interested in hearing are views about the desirability/feasibility of massive dollops of State aid to rescue the big USA car manufacturers from what otherwise looks like a very bleak future, if not outright imminent collapse in one or two cases. This looks like it could be the biggest single economic headache for Obama, leaving aside the still highly uncertain recovery from the banking crisis. Is the industry worth saving? Why couldn't the void, if the 3 big USA firms went out of business, be filled by more efficient manufacturers setting up shop in the USA or existing ones expanding existing operations? Should State aid be witheld completely or should it be limited or made conditional or take certain forms? Are there are any WTO considerations? It's a matter of such major importance that I thought there might be clear views, at least in principle, among some member here. The thing is, I suspect, that such a calamitous scenario has never been considered before and it comes as a bit of a shock for hard core free marketeers to contemplate complete inaction with the consequence of a huge rise in unemployment localised in a few geographical areas. I bet Bush will glad to get out of it so that he can be spared making the final decisions on any rescue deals.

One point of clarification, Mango. Bankruptcy does not mean "going out of business" these days. It means wiping out the stock holders and bond holders and continuing operations with a clean financial slate.

(BWV, one point that bothers me is that it seems to me that the right thing to do is liquidate the company's assets and then pay off the bondholders first, and if anything is left, the preferred shareholders and then the common shareholders. That's what the text book says. But it strikes me that in these situations, the government comes in, wipes everybody out and then takes the assets. That doesn't sound right to me.)

Here are some further complications to the whole mess. G/M is also losing billions on GMAC, the leasing arm, and they were also into residential (toxic) mortgages. The residential mortgage company is separate from GM but owes GM billions in loans. If it goes down that will be another hit on GM. The leasing arm is no longer owned by G/M and you'd think they would be okay there, but if GM goes down, the resale price on G/M cars will go down even further, and this will hit GMAC. GMAC is owned by Cerebus who also own Chrysler. See how things interlink. My guess is that philosophical free market protests aside, GM will not be allowed to go bankrupt. The common shares will become worthless though; don't buy any.

JackC · Post by **JackC** » Fri Nov 14, 2008 1:43 pm

http://www.dw-world.de/dw/article/0,214 ... 99,00.html

So Obama wants to bail out the US car industry, but the Europeans want to stop it. I'm sure he'll be able to charm them.

I guess so much for all the "one-world" stuff.

slofstra · Post by **slofstra** » Fri Nov 14, 2008 2:42 pm

JackC wrote:http://www.dw-world.de/dw/article/0,214 ... 99,00.html

So Obama wants to bail out the US car industry, but the Europeans want to stop it. I'm sure he'll be able to charm them.

I guess so much for all the "one-world" stuff.

Look for more protectionist measures from Obama. The big rumour floating now is a carbon tariff on imports into the U.S. What a great idea. Saves the environment AND U.S. jobs in one fell swoop.

I hope we in Canada stay on your good side; our economies are inter-linked in the extreme.

JackC · Post by **JackC** » Fri Nov 14, 2008 2:49 pm

slofstra wrote:
JackC wrote:http://www.dw-world.de/dw/article/0,214 ... 99,00.html

So Obama wants to bail out the US car industry, but the Europeans want to stop it. I'm sure he'll be able to charm them.

I guess so much for all the "one-world" stuff.
Look for more protectionist measures from Obama. The big rumour floating now is a carbon tariff on imports into the U.S. What a great idea. Saves the environment AND U.S. jobs in one fell swoop.

I hope we in Canada stay on your good side; our economies are inter-linked in the extreme.

The last time the economy was this bad, we needed a War in Europe to bring us out of it. Hey, it worked before, why not again? I'm all for it.

Mango · Post by **Mango** » Fri Nov 14, 2008 3:03 pm

JackC wrote:http://www.dw-world.de/dw/article/0,214 ... 99,00.html

So Obama wants to bail out the US car industry, but the Europeans want to stop it. I'm sure he'll be able to charm them.

I guess so much for all the "one-world" stuff.

I mentioned possible WTO issues in an earlier post so I'm not surprised to read this. State Aid on the scale required to make any significant change to the fortunes of the big 3 USA car manufacturers could well have trade distorting effects, in violation of WTO rules. Remember too that the USA has been, quite rightly, a strong supporter of steps to free up world trade since the end of WWII through GATT and latterly the WTO, so it can't very well complain in principle about the EU's concern in this looming situation.

Steinway · Post by **Steinway** » Fri Nov 14, 2008 3:16 pm

Help me with this, please.

If the big three go bankrupt, does that mean that by re-organizing all bets are off re union contacts and benefits? I know that the costs of labor and the related benefits like health care, pensions and other expenses are killing the opportunity for them to compete with the foreign producers, so would all that be wiped out?

It goes without saying that the American carmakers would have to build cars that can compete in quality as well as price, but isn't that their only chance for survival?
There are millions of Americans employed either directly or indirectly by the auto industry whose future depends on the resolving of this nightmare.

Would they not be willing to re-do their contracts in order to stay employed?

slofstra · Post by **slofstra** » Fri Nov 14, 2008 3:20 pm

JackC wrote:
slofstra wrote:
JackC wrote:http://www.dw-world.de/dw/article/0,214 ... 99,00.html

So Obama wants to bail out the US car industry, but the Europeans want to stop it. I'm sure he'll be able to charm them.

I guess so much for all the "one-world" stuff.
Look for more protectionist measures from Obama. The big rumour floating now is a carbon tariff on imports into the U.S. What a great idea. Saves the environment AND U.S. jobs in one fell swoop.

I hope we in Canada stay on your good side; our economies are inter-linked in the extreme.
The last time the economy was this bad, we needed a War in Europe to bring us out of it. Hey, it worked before, why not again? I'm all for it.

Mmmm. I know you're joking, Jack, but the stakes are higher this time with the kind of weaponry that exists today. Not that it wasn't hell on earth last time.

slofstra · Post by **slofstra** » Fri Nov 14, 2008 3:28 pm

Cliftwood wrote:Help me with this, please.

If the big three go bankrupt, does that mean that by re-organizing all bets are off re union contacts and benefits? I know that the costs of labor and the related benefits like health care, pensions and other expenses are killing the opportunity for them to compete with the foreign producers, so would all that be wiped out?

It goes without saying that the American carmakers would have to build cars that can compete in quality as well as price, but isn't that their only chance for survival?
There are millions of Americans employed either directly or indirectly by the auto industry whose future depends on the resolving of this nightmare.

Would they not be willing to re-do their contracts in order to stay employed?

Just guessing, but I think 'renegotiation' is the key word. Since the potential in bankruptcy is adverse for so many stakeholders from retirees to investors, my guess is that the government will knock everyone's heads together to prevent outright bankruptcy but we'll end up with something that's very much like it in effect. So unions will have to make further pension concessions, plants will close, models cut back, before any taxpayer money is put on the table. Likely common shareholders will be wiped out, and bondholders will get something, since banks and pension funds can't take the shock of more and more bonds being wiped out.
But I could see where the UAW brings the whole industry down through their intractability. They're used to strongarm tactics, and those do not work in this situation.

Richard Mullany · Post by **Richard Mullany** » Fri Nov 14, 2008 4:30 pm

ia there is GM Holden in Australia, and GM China. As an aside the most popular car in China today is the Buick Regal. There is GM in Malaysia, South Africa, and in Europe there is Opel in Germany and Vauxhall in England. The latest newbie is in Russia, bigger than the Toyota plant across the street.
What happens to these plants affects more thousands of families and local governments than just Detroit.
The government will do what it will do no matter how I feel about it
but I hope someone thinks about the guy like me who gave so much of his life to a company that treated him well and whose pension and SS are the sole income of this household. GM and its workers have payed billions into the state over the hundred years of its existence. From my admitttedly biased position a loan over a crisis caused more by rigging oil prices than any defect in product is not far fetched.
Just as a closer, my job was at GM Proving Ground in Milford, MI.
I was a test cordinator which meant I was responsible for the testing,record keeping, maintenanceand integrity of all aspects of the tests. If you wish to know about a durability test of a certain
German import; a very large luxuriously appointed budget buster that we; in order to make certain all was kosher, had this machine hauled to the dealer for any work needed, finally had to end the test because the fleet of test vehicles (52) had racked up their 50000 miles and were ready for teardown and display. The only other vehicle causing so much time down was a very popular car from Japan, although it did manage, finally to complete the test protocols. Again, if you are curious send me an e mail.
It is an axiom that there are two sides to every story and the story of the domestic car crisis is pretty one sided. As one final note the sales figure for the last quarter for Toyota were down 37%. People are not buying GM. They are not buying anything.

Richard Mullany · Post by **Richard Mullany** » Fri Nov 14, 2008 4:38 pm

The post above was truncated; the first half dealt with the fact that I had spent 37 years working at GM Proving Grounds in Milford Michigan' I was a test cordinator responsible for the testing,, repair, maintenance and test integrity. I had gotten into the fact that GM is worldwide in every sense of the word was listing where GM did business. That is roughhly what came before in the post.

Mango · Post by **Mango** » Fri Nov 14, 2008 4:40 pm

Cliftwood wrote:Help me with this, please.

If the big three go bankrupt, does that mean that by re-organizing all bets are off re union contacts and benefits? I know that the costs of labor and the related benefits like health care, pensions and other expenses are killing the opportunity for them to compete with the foreign producers, so would all that be wiped out?

It goes without saying that the American carmakers would have to build cars that can compete in quality as well as price, but isn't that their only chance for survival?
There are millions of Americans employed either directly or indirectly by the auto industry whose future depends on the resolving of this nightmare.

Would they not be willing to re-do their contracts in order to stay employed?

I gather that if the the big 3 USA car firms ceased operations entirely it would cause about 3 million job losses fairly quickly, and the effects would probably spread further afield due to the reduction in spending power of those directly affected.

I don't know anything about USA company pension schemes but in the UK if a company goes bust the company pension fund (if there is one) is ring-fenced and hence protected. (We once had a major scandal many years ago where a big company pension had been plundered by the company prior to its demise, but that was a rare occurrence.) Any private health benefits that employees may have been receiving as part of their remuneration package would cease if the employee lost his job. Here in the UK, of course, we have a National Health Service to fall back on, and it's completely free and comprehensive (I'm not making any claims about its quality, but speaking personally I think it's pretty good on the whole, although that's another matter).

The problem with lame duck industries is that it is very easy to think of reasons both to start and to continue supporting them with State aid of one form or another (grants, debt write-offs etc). In the UK we had a couple of decades of this during the 1960s/70s, with the trade union barons getting more and more bolshy and financially demanding. The only result was that several of our major industries, including in particular car manufacturing, became more and more uncompetitive as time went by, producing the wrong goods in lousy quality that nobody really wanted. All this had to stop, and stop it did thankfully under Mrs Thatcher (late 70's et seq).

At that time all the previous economic arguments for supporting these clapped out industries were exposed for the nonsense they often were. This corresponded with the growth of Chicago School thinking in the economics area. The previous arguments often depended on a type of "cost-benefit" studies in which the "opportunity cost" of labour and other resources was taken to be well below its market price, which supposedly justified a State subvention to bridge the difference provided this magnitude was in excess of the opportunity cost of the public finance needed to support the aid package. All this, in fact, was highly dubious economics because it failed to factor in the opportunity cost of unemployment, which was always implicitly assumed to be zero. On the contrary, this assumption ignored the likelihood that temporary unemployment does have an economic benefit, namely in reducing real wages (strictly "own product" real wages) and hence providing a stimulus to re-employ the displaced labour in other forms of employment which are inherently more profitable.

Of course, in the immediate aftermath of these new policies there was a lot of unemployment which was made worse by the onset of a world recession. I don't doubt that there was a lot of suffering by those affected, and the UK's socialists made very heavy weather of this, and still do. However, at the end of that major adjustment process the UK economy emerged very much stronger than it was before, and the reforms provided the bedrock of unprecedented continuous growth until the next world recession in the early 90's. After that, UK growth continued unabated until very recently.

What this might entail for your car industry I'm most sure. I would hazard a guess that outright rescue of the status quo is unlikely as cooler heads will show it to be too expensive, likely to be unsuccessful long term, and could well run into serious competition issues if attempted. A big scale down and some kind of temporary support for the more profitable parts might seem more likely. It's going to be a tough time ahead, I guess. It is increasingly becoming a focal point.

slofstra · Post by **slofstra** » Sat Nov 15, 2008 12:19 pm

A big scale down and some kind of temporary support for the more profitable parts might seem more likely.

.. and certainly the most rational approach. Let's hope that's how it works out.

Cosima__J · Post by **Cosima__J** » Tue Nov 18, 2008 3:57 pm

No amount of fancy financial footwork can save the Big Three if they don't do the following:

1) seriously reduce the number of brands and models
2) then they can close a bunch of dealerships, they've got way too many now
3) Oh yeah, and make BETTER CARS for heavens sake.

These three points are absolutely essential and have been mentioned many times before. They are not original with me.

Must the government prop up failing industries, no matter how many UAW workers will lose their jobs? There will be no end to it (the government bailouts) until the Big Three face the facts.

JackC · Post by **JackC** » Tue Nov 18, 2008 4:18 pm

Cosima__J wrote:No amount of fancy financial footwork can save the Big Three if they don't do the following:

1) seriously reduce the number of brands and models
2) then they can close a bunch of dealerships, they've got way too many now
3) Oh yeah, and make BETTER CARS for heavens sake.

These three points are absolutely essential and have been mentioned many times before. They are not original with me.

Must the government prop up failing industries, no matter how many UAW workers will lose their jobs? There will be no end to it (the government bailouts) until the Big Three face the facts.

They also have labor contracts that are uncompetitve. Without a LOT of reform, just sinking $75 billion into these companies is just delaying the inevitable and is a total waste. They are terribly run companies that have been making lousy cars for a long time.

Chapter 11 reorganization has been pretty good at focusing people's attention on coming up with a plans that work. There are reasons why it might not be as effective or desirable in the case of the big three. They sell a product for which people really want to know that a company will be there to stand behind it, and upon which many other companies depend.

I don't have any objection to providing $75 billion to the big three without a bankrupty - so long as real reform is REQUIRED, and the labot contracts are restructed etc. This is politicians counting votes time, however, so result will not be drivin by what is best economically.

Ted · Post by **Ted** » Tue Nov 18, 2008 4:20 pm

The money that would go to Detroit (let's say 25 Billion) would be better spent on the employees who will lose their jobs, health care etc rather than throw it into the hands of corporations who are still making Hummer Hybrids that get 20 mpg and plain old junk boxes.
I've driven a Honda or Acura since 1977,GM, Ford and Chrysler are the worst examples of American ingenuity and don't deserve to exist any longer--not by virtue of my tax dollar

slofstra · Post by **slofstra** » Tue Nov 18, 2008 4:20 pm

Cosima__J wrote:No amount of fancy financial footwork can save the Big Three if they don't do the following:

1) seriously reduce the number of brands and models
2) then they can close a bunch of dealerships, they've got way too many now
3) Oh yeah, and make BETTER CARS for heavens sake.

These three points are absolutely essential and have been mentioned many times before. They are not original with me.

Must the government prop up failing industries, no matter how many UAW workers will lose their jobs? There will be no end to it (the government bailouts) until the Big Three face the facts.

I don't completely agree.
1) The quality is much better than 20 or 30 years ago, since the days of the Vega and the Citation.
2) There are far fewer models also; Oldsmobile is gone, and many of the model variations do share drive train, engine and other common parts to a greater extent.

A few observations:
1) Over-capacity, too many plants, has been a known problem for quite a few years.
2) Pension obligations and medical costs for retirees are out of sight. GM has made moves to stabilize these costs.
3) GM and Ford were caught with their pants down with the recent oil price bubble. Don't blame the manufacturers entirely though. The American public has demanded these honkin' fuel-guzzlin' SUVs.
4) Car leasing has blown up in the manufacturers' faces. Lease buyouts are set too high, costing the manufacturers' leasing subsidiary thousands for each car turned in. And with the high default rates, investors will not buy the bonds that back the leases.
5) Sales level have fallen suddenly and drastically, in part because cheap leases are not available, and in part because of the economy. Thus the manufacturers are burning through cash like there is no tomorrow.

There's no inherent reason why manufacturing something that everyone needs should be so unprofitable. Basically, the ship is floundering on its side, but it's still a good ship. They just need to right it again. The worst thing the govt can do is just give the manufacturers the money.

There are too many stakeholders lined up at the trough right now, and they can't and shouldn't all benefit from a govt handout.

slofstra · Post by **slofstra** » Tue Nov 18, 2008 4:22 pm

Ted wrote:The money that would go to Detroit (let's say 25 Billion) would be better spent on the employees who will lose their jobs, health care etc rather than throw it into the hands of corporations who are still making Hummer Hybrids that get 20 mpg and plain old junk boxes.
I've driven a Honda or Acura since 1977,GM, Ford and Chrysler are the worst examples of American ingenuity and don't deserve to exist any longer--not by virtue of my tax dollar

There might be good reasons to spend the money in this way, but saving the industry isn't one of them. Money spent purely to save jobs and provide health care does not do a thing to sustain the auto industry.

piston · Post by **piston** » Tue Nov 18, 2008 4:38 pm

But where's the guarantee that it will go to Detroit? Is there a requirement in the bailout that taxpayers' money is to be spent on domestic industries in distinction to salvaging multinational corporations who, in the case of GM, are doing a profitable business in Russia?

See, that's the critical difference with 75 years ago! Bailout money today is used to restore the viability of corporations, not necessarily domestic industries. If it's much more profitable to manufacture automobiles in Russia, China, India then wouldn't it not be the rational thing to do, from a business point of view, to seek revitalization outside of this country? of this continent?

The deal between the government and Chrysler in 1979 was quite specific in its provisions, as I recall, and the corporation had only three years to turn things around and show a healthy profit. The US government itself made money out of this bailout deal, something like half a billion dollars, and the domestic economic benefitted because we were not engaged in this global system of scattering manufacturing activities around the planet. How is this early precedent in the history of government bailouts informing the current negotiations?

Ted · Post by **Ted** » Tue Nov 18, 2008 4:41 pm

Henry
Let's pay for the US Automakers to go to Japan and learn how to build a car and develop alternate means of powering a vehicle. That's money well spent.

BWV 1080 · Post by **BWV 1080** » Tue Nov 18, 2008 4:45 pm

piston wrote:But where's the guarantee that it will go to Detroit? ...
See, that's the critical difference with 75 years ago! Bailout money today is used to restore the viability of corporations, not necessarily domestic industries. If it's much more profitable to manufacture automobiles in Russia, China, India then wouldn't it not be the rational thing to do, from a business point of view, to seek revitalization outside of this country? of this continent?

The deal between the government and Chrysler in 1979 was quite specific in its provisions, as I recall, and the corporation had only three years to turn things around and show a healthy profit. The US government itself made money out of this bailout deal, something like half a billion dollars, and the domestic economic benefitted because we were not engaged in this global system of scattering manufacturing activities around the planet. How is this early precedent in the history of government bailouts informing the current negotiations?

Its totally unfair that Detriot is the beneficiary of all this taxpayer largess. Clearly the government should use the money to create car companies in every state. All this moving manufacturing around the country disrupts local industries. What about the North Dakota car industry? Why should people be excluded from good high-paying union autoworking jobs just because they live in Maui?

JackC · Post by **JackC** » Tue Nov 18, 2008 4:47 pm

Ted wrote:The money that would go to Detroit (let's say 25 Billion) would be better spent on the employees who will lose their jobs, health care etc rather than throw it into the hands of corporations who are still making Hummer Hybrids that get 20 mpg and plain old junk boxes.
I've driven a Honda or Acura since 1977,GM, Ford and Chrysler are the worst examples of American ingenuity and don't deserve to exist any longer--not by virtue of my tax dollar

That's the absolute worst solution. Those people will take the money, and do what??? They will spend it and then it will be gone, they will still be out of their jobs and and not one new job will have been created.

The real solution is to do something that causes the auto industry and as many jobs as possible to survive, in some new restructed way.

piston · Post by **piston** » Tue Nov 18, 2008 4:49 pm

BWV 1080 wrote:
piston wrote:But where's the guarantee that it will go to Detroit? ...
See, that's the critical difference with 75 years ago! Bailout money today is used to restore the viability of corporations, not necessarily domestic industries. If it's much more profitable to manufacture automobiles in Russia, China, India then wouldn't it not be the rational thing to do, from a business point of view, to seek revitalization outside of this country? of this continent?

The deal between the government and Chrysler in 1979 was quite specific in its provisions, as I recall, and the corporation had only three years to turn things around and show a healthy profit. The US government itself made money out of this bailout deal, something like half a billion dollars, and the domestic economic benefitted because we were not engaged in this global system of scattering manufacturing activities around the planet. How is this early precedent in the history of government bailouts informing the current negotiations?
Its totally unfair that Detriot is the beneficiary of all this taxpayer largess. Clearly the government should use the money to create car companies in every state. All this moving manufacturing around the country disrupts local industries. What about the North Dakota car industry? Why should people be excluded from good high-paying union autoworking jobs just because they live in Maui?

I fail to detect anything rational in such a reply....

slofstra · Post by **slofstra** » Tue Nov 18, 2008 5:51 pm

Ted wrote:Henry
Let's pay for the US Automakers to go to Japan and learn how to build a car and develop alternate means of powering a vehicle. That's money well spent.

I was closely involved with Tier 1 and 2 parts suppliers in the 80s and GM and Ford did go to Japan to see how they did things there. The GM10 program (at that time) incorporated a number of practices borrowed from Japanese manufacturers. The quality of American cars did improve as a result of these programs but still not up to the level of the Japanese manufacturers.

Incidentally, I strongly believe that Japanese workers are no better than ours. When Toyota came into our area of Canada, their management practices were exponentially better than that of local auto parts manufacturers. One of the big differences: no adversarial union-management relationship. Workers and management actively worked to solve problems at Toyota. Japanese manufacturer's cars produced in America are still much better than those of domestic manufacturers.

Another irony, is that some of the successful Japanese practices, such as statistical process control (instead of finished part sampling), were developed by Americans and rejected here.

slofstra · Post by **slofstra** » Tue Nov 18, 2008 5:55 pm

BWV 1080 wrote:
piston wrote:But where's the guarantee that it will go to Detroit? ...
See, that's the critical difference with 75 years ago! Bailout money today is used to restore the viability of corporations, not necessarily domestic industries. If it's much more profitable to manufacture automobiles in Russia, China, India then wouldn't it not be the rational thing to do, from a business point of view, to seek revitalization outside of this country? of this continent?

The deal between the government and Chrysler in 1979 was quite specific in its provisions, as I recall, and the corporation had only three years to turn things around and show a healthy profit. The US government itself made money out of this bailout deal, something like half a billion dollars, and the domestic economic benefitted because we were not engaged in this global system of scattering manufacturing activities around the planet. How is this early precedent in the history of government bailouts informing the current negotiations?
Its totally unfair that Detriot is the beneficiary of all this taxpayer largess. Clearly the government should use the money to create car companies in every state. All this moving manufacturing around the country disrupts local industries. What about the North Dakota car industry? Why should people be excluded from good high-paying union autoworking jobs just because they live in Maui?

Interestingly, Opel (GM Germany) is today going cap in hand to the German government. Should the same logic apply?
Incidentally, about those Russian profits, do rubles count?

piston · Post by **piston** » Tue Nov 18, 2008 6:23 pm

slofstra wrote:
BWV 1080 wrote:
piston wrote:But where's the guarantee that it will go to Detroit? ...
See, that's the critical difference with 75 years ago! Bailout money today is used to restore the viability of corporations, not necessarily domestic industries. If it's much more profitable to manufacture automobiles in Russia, China, India then wouldn't it not be the rational thing to do, from a business point of view, to seek revitalization outside of this country? of this continent?

The deal between the government and Chrysler in 1979 was quite specific in its provisions, as I recall, and the corporation had only three years to turn things around and show a healthy profit. The US government itself made money out of this bailout deal, something like half a billion dollars, and the domestic economic benefitted because we were not engaged in this global system of scattering manufacturing activities around the planet. How is this early precedent in the history of government bailouts informing the current negotiations?
Its totally unfair that Detriot is the beneficiary of all this taxpayer largess. Clearly the government should use the money to create car companies in every state. All this moving manufacturing around the country disrupts local industries. What about the North Dakota car industry? Why should people be excluded from good high-paying union autoworking jobs just because they live in Maui?
Interestingly, Opel (GM Germany) is today going cap in hand to the German government. Should the same logic apply?
Incidentally, about those Russian profits, do rubles count?

What would be logical to me is an argument based on world governments bailing out GM and company. Why should American taxpayers bailout out companies that create new jobs outside of this country, I mean the kind of jobs Obama promised to create for people caught between a rock and a hard place? Who wants to use taxpayers' money to create or sustain corporate jobs and their generous golden parachutes? Now that's a waste of money!!!

slofstra · Post by **slofstra** » Tue Nov 18, 2008 7:19 pm

piston wrote:
slofstra wrote:
BWV 1080 wrote:
piston wrote:But where's the guarantee that it will go to Detroit? ...
See, that's the critical difference with 75 years ago! Bailout money today is used to restore the viability of corporations, not necessarily domestic industries. If it's much more profitable to manufacture automobiles in Russia, China, India then wouldn't it not be the rational thing to do, from a business point of view, to seek revitalization outside of this country? of this continent?

The deal between the government and Chrysler in 1979 was quite specific in its provisions, as I recall, and the corporation had only three years to turn things around and show a healthy profit. The US government itself made money out of this bailout deal, something like half a billion dollars, and the domestic economic benefitted because we were not engaged in this global system of scattering manufacturing activities around the planet. How is this early precedent in the history of government bailouts informing the current negotiations?
Its totally unfair that Detriot is the beneficiary of all this taxpayer largess. Clearly the government should use the money to create car companies in every state. All this moving manufacturing around the country disrupts local industries. What about the North Dakota car industry? Why should people be excluded from good high-paying union autoworking jobs just because they live in Maui?
Interestingly, Opel (GM Germany) is today going cap in hand to the German government. Should the same logic apply?
Incidentally, about those Russian profits, do rubles count?
What would be logical to me is an argument based on world governments bailing out GM and company. Why should American taxpayers bailout out companies that create new jobs outside of this country, I mean the kind of jobs Obama promised to create for people caught between a rock and a hard place? Who wants to use taxpayers' money to create or sustain corporate jobs and their generous golden parachutes? Now that's a waste of money!!!

Sounds good to me. We would benefit here in Canada, right?

Seriously, though, I think you're correct. There are already discussions along that line in the Great White North. What I could see is massive capital investments by government in the Volt and retooling for smaller cars. There have been hints along that line up here.

piston · Post by **piston** » Tue Nov 18, 2008 7:41 pm

Common sense will eventually prevail over economic dogma, as it should over any kind of dogma....

Ted · Post by **Ted** » Tue Nov 18, 2008 9:30 pm

If there ever was a case for “Survival of the Fittest” it is now.

What used to represent the embodiment of American R&D, manufacturing and economic superiority—the Big Three- are on the verge of collapse.

It just might be that after 232 years of growth our economic model is beginning to show dangerous signs of fallibility.

As in nature, the more species the more difficult it is to thrive and survive. Our competitors today are fierce and span the globe as opposed to a mere 50 years ago when they were few and far between.

Throwing money into the broken culture of US Auto manufacturing evinces neither "Change" or Enlightenment

piston · Post by **piston** » Tue Nov 18, 2008 9:44 pm

Throwing money into the broken culture of US Auto manufacturing evinces neither "Change" or Enlightenment

Are you saying that you don't support Obama on this question or political philosophy?! He was elected partly by people who hoped he, as the ultimate embodiment of government, would restore the "broken culture of US Auto manufacturing" and much more!!

BWV 1080 · Post by **BWV 1080** » Wed Nov 19, 2008 12:45 am

slofstra wrote:
piston wrote:
slofstra wrote:
BWV 1080 wrote:
piston wrote:But where's the guarantee that it will go to Detroit? ...
See, that's the critical difference with 75 years ago! Bailout money today is used to restore the viability of corporations, not necessarily domestic industries. If it's much more profitable to manufacture automobiles in Russia, China, India then wouldn't it not be the rational thing to do, from a business point of view, to seek revitalization outside of this country? of this continent?

The deal between the government and Chrysler in 1979 was quite specific in its provisions, as I recall, and the corporation had only three years to turn things around and show a healthy profit. The US government itself made money out of this bailout deal, something like half a billion dollars, and the domestic economic benefitted because we were not engaged in this global system of scattering manufacturing activities around the planet. How is this early precedent in the history of government bailouts informing the current negotiations?
Its totally unfair that Detriot is the beneficiary of all this taxpayer largess. Clearly the government should use the money to create car companies in every state. All this moving manufacturing around the country disrupts local industries. What about the North Dakota car industry? Why should people be excluded from good high-paying union autoworking jobs just because they live in Maui?
Interestingly, Opel (GM Germany) is today going cap in hand to the German government. Should the same logic apply?
Incidentally, about those Russian profits, do rubles count?
What would be logical to me is an argument based on world governments bailing out GM and company. Why should American taxpayers bailout out companies that create new jobs outside of this country, I mean the kind of jobs Obama promised to create for people caught between a rock and a hard place? Who wants to use taxpayers' money to create or sustain corporate jobs and their generous golden parachutes? Now that's a waste of money!!!
Sounds good to me. We would benefit here in Canada, right?

Seriously, though, I think you're correct. There are already discussions along that line in the Great White North. What I could see is massive capital investments by government in the Volt and retooling for smaller cars. There have been hints along that line up here.

There would have to be stipulations on the aid to keep all the economic benefits for Americans - no additional producton in Canadian factories, no sourcing of parts to Canada, no Canadian bacon on any pizza purchased by the companies for employee meetings etc.

BWV 1080 · Post by **BWV 1080** » Wed Nov 19, 2008 12:58 am

Interesting bit in the WSJ:

In 1993, the legendary economist Michael Jensen gave his presidential address to the American Finance Association. Mr. Jensen's presentation included a ranking of which U.S. companies had made the most money-losing investments during the decade of the 1980s. The top two companies on his list were General Motors and Ford, which between them had destroyed $110 billion in capital between 1980 and 1990, according to Mr. Jensen's calculations.

I was a student in Mr. Jensen's business-school class around that time, and one day he put those rankings on the board and shouted "J'accuse!" He wanted his students to understand that when a company makes money-losing investments, the cost falls upon all of society. Investment capital represents our limited stock of national savings, and when companies spend it badly, our future well-being is compromised. Mr. Jensen made his presentation more than 15 years ago, and even then it seemed obvious that the right strategy for GM would be to exit the car business, because many other companies made better vehicles at lower cost.

Roger Smith, who retired as chairman in 1990, seemed to understand that all too well, and so did Chrysler's management, which happily sold their company to Daimler Benz for $30.5 billion in 1998. That deal, one of the savviest corporate divestitures ever, ended very badly for Daimler, which essentially paid Cerberus a few billion dollars (by agreeing to retain pension liabilities) to take Chrysler off its hands in 2007.

Over the past decade, the capital destruction by GM has been breathtaking, on a greater scale than documented by Mr. Jensen for the 1980s. GM has invested $310 billion in its business between 1998 and 2007. The total depreciation of GM's physical plant during this period was $128 billion, meaning that a net $182 billion of society's capital has been pumped into GM over the past decade -- a waste of about $1.5 billion per month of national savings. The story at Ford has not been as adverse but is still disheartening, as Ford has invested $155 billion and consumed $8 billion net of depreciation since 1998.

As a society, we have very little to show for this $465 billion. At the end of 1998, GM's market capitalization was $46 billion and Ford's was $71 billion. Today both firms have negligible value, with share prices in the low single digits. Both are facing imminent bankruptcy and delisting from the major stock exchanges. Along with management, the companies' unions and even their regulators in Washington may have their own culpability, a topic that merits its own separate discussion. Yet one can only imagine how the $465 billion could have been used better -- for instance, GM and Ford could have closed their own facilities and acquired all of the shares of Honda, Toyota, Nissan and Volkswagen.

http://online.wsj.com/article/SB122669746125629365.html

Ted · Post by **Ted** » Wed Nov 19, 2008 8:40 am

Ted Wrote:

Throwing money into the broken culture of US Auto manufacturing evinces neither "Change" or Enlightenment

Piston Writes:

Are you saying that you don't support Obama on this question or political philosophy?! He was elected partly by people who hoped he, as the ultimate embodiment of government, would restore the "broken culture of US Auto manufacturing" and much more!!

I never knew Obama had a degree in automobile engineering or corporate management for that matter.
No, I voted for Obama because I’m hoping he will stop repeating the same mistakes over and over again, hoping for different results.
Bailing out the US Auto industry in its present condition is tantamount to putting a band aid on a severed aorta.
Face the music, bite the bullet and retool from top to bottom. Then we can talk.

slofstra · Post by **slofstra** » Wed Nov 19, 2008 10:38 am

BWV 1080 wrote:
slofstra wrote:
piston wrote:
slofstra wrote:
BWV 1080 wrote:
piston wrote:But where's the guarantee that it will go to Detroit? ...
See, that's the critical difference with 75 years ago! Bailout money today is used to restore the viability of corporations, not necessarily domestic industries. If it's much more profitable to manufacture automobiles in Russia, China, India then wouldn't it not be the rational thing to do, from a business point of view, to seek revitalization outside of this country? of this continent?

The deal between the government and Chrysler in 1979 was quite specific in its provisions, as I recall, and the corporation had only three years to turn things around and show a healthy profit. The US government itself made money out of this bailout deal, something like half a billion dollars, and the domestic economic benefitted because we were not engaged in this global system of scattering manufacturing activities around the planet. How is this early precedent in the history of government bailouts informing the current negotiations?
Its totally unfair that Detriot is the beneficiary of all this taxpayer largess. Clearly the government should use the money to create car companies in every state. All this moving manufacturing around the country disrupts local industries. What about the North Dakota car industry? Why should people be excluded from good high-paying union autoworking jobs just because they live in Maui?
Interestingly, Opel (GM Germany) is today going cap in hand to the German government. Should the same logic apply?
Incidentally, about those Russian profits, do rubles count?
What would be logical to me is an argument based on world governments bailing out GM and company. Why should American taxpayers bailout out companies that create new jobs outside of this country, I mean the kind of jobs Obama promised to create for people caught between a rock and a hard place? Who wants to use taxpayers' money to create or sustain corporate jobs and their generous golden parachutes? Now that's a waste of money!!!
Sounds good to me. We would benefit here in Canada, right?

Seriously, though, I think you're correct. There are already discussions along that line in the Great White North. What I could see is massive capital investments by government in the Volt and retooling for smaller cars. There have been hints along that line up here.

There would have to be stipulations on the aid to keep all the economic benefits for Americans - no additional producton in Canadian factories, no sourcing of parts to Canada, no Canadian bacon on any pizza purchased by the companies for employee meetings etc.

The two countries will work in concert, you can bet on it. None of your aid will need to come up here.

Febnyc · Post by **Febnyc** » Wed Nov 19, 2008 10:49 am

I watched a lot of the televised Senate committee hearings yesterday. The three CEOs were unimpressive and, I must say, ultimately disappointing in their grasp of the situation and their industry in particular.

Each of them threw out the buzz words - technology, design, competition, product quality - while essentially begging us, the taxpayers, for money to maintain their companies which have done little in each of these areas and, I'll bet, will do no more with the billions, if they receive them. These three have lost the race to the foreign manufacturers and should be refigured, trimmed down, divested of their union-contract baggage if they are to be competitive - they cannot do it otherwise, no matter how many dollars are pumped in. Ford, Chrysler and GM simply will fall further and further behind the, for example, Japanese, who already are years ahead technologically.

This former Home Depot guy who now is "running" Chrysler was 'way out of his league and evidenced an embarrassingly transparent inability to engender any confidence in his leadership of that company.

The Ford CEO spoke about improving fuel efficiency and building hybrids, etc. This from the company which was not satisfied to build a large SUV called Explorer, but had to come up with something even more gargantuan - the Expedition.

I wonder how much of their multi-millions (Chrysler's CEO reportedly got $200 million) they will forego if they are able to mooch the $25 billion from the American public?

I hope the Congress turns down these abject failures and forces them to face the consequences of their terrible management, their faulty and unreliable vehicles and their horrific product planning. Just like any other business which was poorly run and couldn't compete.

It's the old story coming around again - if you're a big enough fiasco you have a safety net in Uncle Sam. If you're an average-sized flop, you're on your own!

slofstra · Post by **slofstra** » Wed Nov 19, 2008 10:52 am

I read that WSJ article, and I agree with its point, but disagree with how he gets there. A little over the top to look at book value then and now and look at net capital investment. One should also consider return over that time. And I would argue that the issue isn't investment burn, but the lack of profits in the equation to create a fair return. That is the issue. This doesn't argue for destroying the auto industry; it argues for making auto manufacturing more profitable: by reducing wages and benefits, simpler cars, fewer financial deals and so on.

Some US politician, sorry, did not get the name, indicated that we need to cut back to two manufacturers. That is absolutely correct and what should happen. The existing three have been playing a game of chicken now for a few years, hoping one of them would fold. Now all three are in severe jeopardy. One way would be a taxpayer assisted takeover of Chrysler by GM. Then cut all the redundant Chrysler cars, which should increase demand on the remaining GM and Ford models.

slofstra · Post by **slofstra** » Wed Nov 19, 2008 10:54 am

Febnyc wrote:I watched a lot of the televised Senate committee hearings yesterday. The three CEOs were unimpressive and, I must say, ultimately disappointing in their grasp of the situation and their industry in particular.

Each of them threw out the buzz words - technology, design, competition, product quality - while essentially begging us, the taxpayers, for money to maintain their companies which have done little in each of these areas and, I'll bet, will do no more with the billions, if they receive them. These three have lost the race to the foreign manufacturers and should be refigured, trimmed down, divested of their union-contract baggage if they are to be competitive - they cannot do it otherwise, no matter how many dollars are pumped in. Ford, Chrysler and GM simply will fall further and further behind the, for example, Japanese, who already are years ahead technologically.

This former Home Depot guy who now is "running" Chrysler was 'way out of his league and evidenced an embarrassingly transparent inability to engender any confidence in his leadership of that company.

The Ford CEO spoke about improving fuel efficiency and building hybrids, etc. This from the company which was not satisfied to build a large SUV called Explorer, but had to come up with something even more gargantuan - the Expedition.

I wonder how much of their multi-millions (Chrysler's CEO reportedly got $200 million) they will forego if they are able to mooch the $25 billion from the American public?

I hope the Congress turns down these abject failures and forces them to face the consequences of their terrible management, their faulty and unreliable vehicles and their horrific product planning. Just like any other business which was poorly run and couldn't compete.

It's the old story coming around again - if you're a big enough fiasco you have a safety net in Uncle Sam. If you're an average-sized flop, you're on your own!

I like that last statement, Frank. How does it feel to live in a socialist country?

slofstra · Post by **slofstra** » Wed Nov 19, 2008 10:57 am

Ted wrote:Ted Wrote:
Throwing money into the broken culture of US Auto manufacturing evinces neither "Change" or Enlightenment
Piston Writes:
Are you saying that you don't support Obama on this question or political philosophy?! He was elected partly by people who hoped he, as the ultimate embodiment of government, would restore the "broken culture of US Auto manufacturing" and much more!!
I never knew Obama had a degree in automobile engineering or corporate management for that matter.
No, I voted for Obama because I’m hoping he will stop repeating the same mistakes over and over again, hoping for different results.
Bailing out the US Auto industry in its present condition is tantamount to putting a band aid on a severed aorta.
Face the music, bite the bullet and retool from top to bottom. Then we can talk.

Obama's number one priority will be keeping America working. He has already said so. That is his bias. And so it should be in my view.

Febnyc · Post by **Febnyc** » Wed Nov 19, 2008 11:05 am

slofstra wrote: I like that last statement, Frank. How does it feel to live in a socialist country?

I know you're posing this with tongue in cheek - but I'll bet that before too long you'll be able to ask it with a straight face. My answer in either case: It feels like there is an IV tube from my wallet to Washington and then on to every mega-business mess in the country. In short, I don't like it one bit.

slofstra · Post by **slofstra** » Wed Nov 19, 2008 5:34 pm

Febnyc wrote:
slofstra wrote: I like that last statement, Frank. How does it feel to live in a socialist country?
I know you're posing this with tongue in cheek - but I'll bet that before too long you'll be able to ask it with a straight face. My answer in either case: It feels like there is an IV tube from my wallet to Washington and then on to every mega-business mess in the country. In short, I don't like it one bit.

http://blogs.wsj.com/deals/2008/11/19/m ... -hates-gm/
I won't copy the entire article, but here's a link another review of those hearings. The only discrepancy to your review might be which auto industry leader put on the worst show.

Febnyc · Post by **Febnyc** » Wed Nov 19, 2008 5:45 pm

Thanks - I hadn't seen that review. It does a better job of describing what I saw and heard, of course, than I could - even using more words than I did. Overall I was not surprised at the distance between the Motown Troika and reality. As for who was the least impressive (or, most unimpressive) I think it was a three-way tie for first place. However, the whole thing is little less than a sham and a show and if they get the dough they'll burn (to use Detroit's familiar term) it fast and be back with hands out before you can say Cadillac Escalade.

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