BailOuts

[Roamy]

Well this could be a good subject. Fuchem I say especially after i heard GM was coming out with a new hummer. But I guess the interesting question would be. Would Germany bail out Mercedes or BMW would Japan bail out Honda.

It is a complex issue many say let them go bk because a worker doesn't deserve 40 buck per hour. Well seeing how the Rebubs doubled the price or real estate just what to the workers deserve. In Euro people get holiday - over here they want to treat you like a diamond mine worker until you have 20 years tenure. Where is the realistic medium if you don't want unions??

Oh is that pendulum swinging or what!~!~

[Tazio]

Well this could be a good subject. Fuchem I say especially after i heard GM was coming out with a new hummer. agreed! Also the people who took on mortgages that they couldn't afford!
The whole lot can give me a humm-job!!!

[donKey jote]

"Privatise the profits, socialize the losses" :dozey:

[Jag_Warrior]

I've got really mixed feelings on this. A friend of mine and I argued this one back & forth today, and we both took opposing views at various times.

From a pure free market standoint, the government should not be funding the Big 3... or the financial firms that got themselves into trouble. But considering that some supported the bailout of the finacial industry (so that these firms could buy each other, instead of lending to the public), how do you justify one and not the other? Self interest aside, it's hard for me to make a solid case that I can stick to.

Part of GM's issues stem from problems in the credit markets as well. But the biggest issue that GM has had for many years is legacy costs: primarily retiree healthcare and pension costs. As for the workers, do I begrudge a high school graduate, who makes $50K a year installing door panels at a GM facility anymore than I begrudge a high school graduate, who lucked into a job with an AIG affiliated firm and makes $125K a year hawking insurance and investment schemes?

The last time I looked, AIG was up to about $152 billion in public bailout funds. Some say it was too big to fail. No one seems to be able to prove that now, but the politicians (Republicans and Democrats alike) did their best to convince us of that. Many estimates have a Big 3 failure costing the U.S. three million+ jobs and billions in lost tax revenue. Also of concern is the certain shock that the failure of an American icon would place on consumers in the U.S. and investors around the world. As for unions, most of the affected workers and business owners are not union members. Of the suppliers located in right to work states, virtually none are union shops. Since the Japanese don't (in practice) allow a great deal of crossover with domestics in their supplier base, the shops dedicated to the Big 3 would pretty much be wiped out. A lot of people. A lot of people...

As for which employee I begrudge (UAW Guy or AIG Guy), well, neither. Though if I had to be one or the other, I'd rather be the kid with the slicked back hair, duping people into insurance products they probably don't need. The money is better. The treatment is better. And since AIG is set to pay out $500 million in deferred payments and bonuses: you don't have to feel guilty about any amount of money that you stick in your pocket with that bunch of scoundrels.

[Jag_Warrior]

"Privatise the profits, socialize the losses" :dozey:

Yep, we seemed to have had two distinct options in the last election: socialism... or national socialism.

A shot of Congress in action:
http://www.interviewchatter.com/wp-content/uploads/2007/11/feeding-hogs.jpg
Dems on the left.
Repubs on the right.

[Lousada]

The problems I have with the bailouts are:
1. They don't solve the problems, they just drag them out.
2. Unequal competition. Especially critical in the financial world. Nationalizing bad banks means they go from a very poor credit rating to 100% guarantee on credit. Good banks see their advantage disappear, suddenly they have a relatively poor rating compared to the other banks.
3. If you give one bailout, everybody wants a bailout.

In my opinion bailouts reward bad behaviour and punish good behaviour.

[Lousada]

Many estimates have a Big 3 failure costing the U.S. three million+ jobs and billions in lost tax revenue. Also of concern is the certain shock that the failure of an American icon would place on consumers in the U.S. and investors around the world. As for unions, most of the affected workers and business owners are not union members. Of the suppliers located in right to work states, virtually none are union shops. Since the Japanese don't (in practice) allow a great deal of crossover with domestics in their supplier base, the shops dedicated to the Big 3 would pretty much be wiped out. A lot of people. A lot of people...


I wonder about this. Ford and GM actually have well performing car factories everywhere in the world except the US. I don't think these will fail.
In the US, I don't think the car factories themselves will completely disappear. People still need cars. Yes, demand goes down, but not to zero. If GM or Ford goes down Toyota, Honda and Hyundai will up their production. The best way to do this is to buy up the already existing factories + supply chains from GM and Ford.
Most job losses will come from the truck divisions, as demand shifts more to cars. And from consolidating dealerships. GM has something like 8 brands in the US, this is way too much.

[Jag_Warrior]

I wonder about this. Ford and GM actually have well performing car factories everywhere in the world except the US. I don't think these will fail.
In the US, I don't think the car factories themselves will completely disappear. People still need cars. Yes, demand goes down, but not to zero. If GM or Ford goes down Toyota, Honda and Hyundai will up their production. The best way to do this is to buy up the already existing factories + supply chains from GM and Ford.
Most job losses will come from the truck divisions, as demand shifts more to cars. And from consolidating dealerships. GM has something like 8 brands in the US, this is way too much.

GM's core problems are in North America. But there are problems in other regions as well. Opel has now approached the German government for $1 billion in assistance. Car registrations are down over 15% in western Europe from last year. And Peugeot, Mercedes, Renault and Toyota are all reporting poor results. There are rumors of sizeable job cuts at Daimler/Mercedes. GM might be able to sell off some foreign assets prior to declaring bankruptcy, but if GM goes down, the whole corporation goes down. And right now, no one is lining up to buy Saab, Opel or the Hummer brand.

I certainly don't pretend to know the answers to this. Even the most knowledgeable experts in automotive are disagreeing over the extent of the damage that might be done to the U.S. economy if GM (Ford or Chrysler) declares bankruptcy. But I agree with you that Toyota, Honda, Nissan, etc. would eventually pick up the slack. But the keyword is eventually. If estimates of 3 million job losses and $200 billion needed from taxpayers for increased unemployment benefits and lost tax revenue are at all accurate, the current recession could move closer to depression status. A lot depends on how much, and how deep, the ripple effect might be.

One thing to remember about the foreign transplants vs. the Big 3, while some might buy a shuttered GM factory, the operations would have to be totally retooled. An assembly line built for a GM Silverado, or even a Chevy Malibu, is not appropriate for a Toyota Camry or Honda Accord. And most of GM's operations are in areas of the U.S. that the transplants have sought to avoid for various reasons. Add to that, the suppliers that are making parts for Big 3 programs would also have to be retooled to make parts for foreign transplants. To do this right takes at least 3-6 months, assuming it's just a tooling transfer. If it's a new process, it's 6-12 months. And with many suppliers already on the brink of bankruptcy, most could not take the hit of not being paid by GM (Ford or Chrysler) during the initial phase of bankruptcy. That's why suppliers to the Big 3 recently lost the ability to be insured against credit losses by Atradius and Coface (they control 80% of the world's credit insurance market).

I think Wilbur Ross summed it up best a few days ago: "This would be a mess!" And Ross is famous for taking automotive related companies into bankruptcy to clean up their balance sheets.

All that I think is certain is that in ten years, the automotive landscape won't look anything like it does today. Everything else is :crazy: :s pin: :s pinhead: :uhoh: :arrows:

[Rollo]

Well this could be a good subject. Fuchem I say especially after i heard GM was coming out with a new hummer. But I guess the interesting question would be. Would Germany bail out Mercedes or BMW would Japan bail out Honda.


Germany probably would bail out Mercedes or BMW but Japan probably would not bail out Honda.

For nations like the UK or Germany, where they're far futher to the left than in either Japan or the USA, in principle the Government doesn't have a problem with owing stuff.
Railways, Electric Boards, Water Companies, Phone Companies, have at one time or another been privatised, corporatised, nationalised, economised, re-privatised etc etc etc.

But in far-right America or Japan where governments choose to adopt a laissez-faire because business demands that the power remain with them, the idea of the government owning a public corporation is an anathema. Something like the BBC could never hope to exist in America because commercial interests would whinge their nuts off, whereas in slightly to the left Japan, the NHK works perfectly.

This is mainly a power issue, not an economic one.

[Lousada]

GM's core problems are in North America. But there are problems in other regions as well. Opel has now approached the German government for $1 billion in assistance.
I know what you are saying, although some critics say this assistance is actually a scam to collect money for the US branch. GM is asking for handouts at every goverment at the moment.


But I agree with you that Toyota, Honda, Nissan, etc. would eventually pick up the slack. But the keyword is eventually. If estimates of 3 million job losses and $200 billion needed from taxpayers for increased unemployment benefits and lost tax revenue are at all accurate, the current recession could move closer to depression status.
Of course, nobody knows until it happened. In my opinion it's better to bite through it, and do a reorganization to save everything viable. A bailout will drag everything out. It's not to far out of the box to think that the longer the big 3 go on like this, the more good departments get squeezed for the poor bottomline.
The goverment has the responsibility to look at the long term. This is difficult with elections every 2 or 4 years, especially in the US where an election is all or nothing for politicians. A bailout nor letting things run their course will help the long term. In my opinion, saving what is left, and assisting suppliers to 'reinvent' themselves is a better solution. The taxpayers will pick up the tab, but they also reap the benefits eventually.



All that I think is certain is that in ten years, the automotive landscape won't look anything like it does today. Everything else is :crazy: :s pin: :s pinhead: :uhoh: :arrows:

That is indeed certain. Just look at where we were 15 years ago, no mass-internet, no mass-mobilephones, no mp3players, no digital cameras, no dvd-players. We just had the information-revolution, it would not be crazy to believe we are at the verge of an energy-revolution. Interesting times ahead.

[Jag_Warrior]

Of course, nobody knows until it happened. In my opinion it's better to bite through it, and do a reorganization to save everything viable. A bailout will drag everything out. It's not to far out of the box to think that the longer the big 3 go on like this, the more good departments get squeezed for the poor bottomline.

The goverment has the responsibility to look at the long term. This is difficult with elections every 2 or 4 years, especially in the US where an election is all or nothing for politicians. A bailout nor letting things run their course will help the long term. In my opinion, saving what is left, and assisting suppliers to 'reinvent' themselves is a better solution. The taxpayers will pick up the tab, but they also reap the benefits eventually.

In the case of GM, I think even a Chapter 11 would be harder than it would have been this time last year. Right now, securing DIP financing for a bankrupt firm, especially a large one, would be very difficult.

I think you make a good point about the short term vs. the long term. I don't believe the government should issue a blank check to the automotive sector, as was done by Paulson to the financial industry (though I'm sure Ricky Wagoner could go for a taxpayer expensed "happy ending" massage from a couple of hookers at the Bellagio about now). A tight, well structured "take it or leave it" package could be presented though. For this to work, I think something has to be done to remove some of the UAW legacy (healthcare and pension) costs. Current Big 3 wages are not that far out of line with the market. And despite pop culture myths, the quality metrics for GM are comparable to the Japanese, Korean and German transplants. But those legacy costs make going forward, under current circumstances, nearly impossible.

Just thinking out loud here... in exchange for the government picking up a portion of the UAW healthcare costs (with higher copays, reduced coverage, etc.), would the UAW agree to share a bite of the #### sandwich, save some current jobs and allow (a smaller) GM and Ford (Chrysler may have to die after selling Jeep and the minivan division anyway) to survive? Or, would they prefer to stand firm, let GM declare bankruptcy, the government ends up picking up the unemployment and pension tab through the PBGC (with the UAW loosing some portion of their pensions that are unfunded, I believe) and the supplier base dies? Is something for a long time better than a lot for only a short time?

But no, don't just write them a blank check. We see what that's gotten us with AIG and the 40 Thieves: nothing! :mad:

I dunno, but I'd say there's going to be a boatload of PhD in Economics and MBA candidates who will write their papers on this one.