End of American Car Industry (and then the global economy)?

[**Spetsnaz**]

hi

i work in a major european bank, more precisely in a section where i (with my colleagues) are responsible for international payments system. As such, we always know first when a bank/country/company must be shut off from the international SWIFT network (internt'l system for intrabank payments)

i also hear a lot of things and stock courses are never far away.

yesterday, our department manager told me something really interesting about GM and the car industry in general. he says there have been several economical studies that have identified the car industry as the number 1 motor (literally) of economic developpement since WW2 - since it needs so many basic input materials from other industries (steel, aluminium, electronics, rubber tyres, glass etc etc)
sure, other indsutries matter, but car industry on such a scale that it really is a motor to global economics.

right now, with GM on the verge of bankrupcy, Ford & Chrysler in deep problems and even German car manufacturers like BMW & Mercedes announcing production cutbacks etc it seems demend for goods will even more decrease.

question: do you thing the US gouvernment will allow GM to go bankrupt, and if so, how large do you calculate the impact will be?

my opinion is very large. GM holds stakes in a large amount of car brands (Opel, hyundai, Saab etc)
and its 1 major employer & goods buyer that would disappear

any opinions? any other bank employees/economists here?

[Unknown Target]

I hope they don't let it go bankrupt, but I also don't hope they give away another blank check. They need to put strict limits and force the companies to go green for their own good.

[snrjefe]

No. GM builds a large portion of the US government's vehicle stable, I can't see the US government letting them go belly up. Won't someone please think of the Humvee? Ford should weather the storm as well due their prominence among rental fleets, company cars, etc.

The real problem is going to be all the people putting 1-2 year lease returns and repos back into circulation, making the market for new cars stall even harder. 5% interest on a 1 or 2 year used car is a lot more attractive than 0% on a brand new one.

[**Spetsnaz**]

imo, GM has been struggling for years. as far as i can remember, the company has made losses. it has only been able to survive those because of the huge profits it had in the past ánd because of its sheer size.

and off course, because since a long time, we have had no long-term recession on our hands.

now, this time, credit is a thing that's hard to come by. intra-bank loans are at an all-time high (more or less) and companies are finding it very hard nowadays to find loans, even healthy ones - leave alone companies with a chronic cash problem like GM.

so, basically, if they cannot get the $$ from the banks (who in their turn wont loan out of friendship either :err: ) they will have to turn to the State.

and then it becomes politics... usually, by the time politicians decided anything, it allready too late. usually.
even right now, if im informed correctly, there is a difference in attitudes between Republicans & Democrats on what course to follow. if nothing is done, i mean really nothing, GM will be bankrupt by the time Obama gets in to office (february?)

im no expert on US politics (im european) but GM is known to be in a bad state, even long before the credit crunch hit global economy.

[Vaarok]

The problem with the automakers is that the government has made them into a horribly controlled yet protected industry, while politicians have allowed the unions to choke them from the other direction. As a result, they're noncompetitive and need to die or radically readjust.

We cannot subsidize failure and have a free-market economy. Syndicalism is about the worst thing we could do to revitalize our economy and yet we keep stepping towards it. If the Big Three crash, all the little guys get to fight over the marketshare, leading to R&D, marketing, sales, and competition that's good for the consumer and good for the market.

[ZellFish]

I actually agree with Vaarok. Seeing the big three go down will lead to huge job losses, and massive unemployment. For a little bit. After that, you'll see smaller companies like Kia, and Suzuki, and more foreign companies, such as Volkswagen and BMW begin advertising aggresivly, and most likely importing many of their smaller, more fuel efficient vehicles in to the states, as well as large SUV's and, assuming the foreign branches of GM and Ford don't go tits up, Opel\Vauxhaull and Ute's to replace the huge damn trucks Americans are so fond of.

[Weavern]

They should not be bailed out.

I'm of the perspective that the government should secure loans when and if the company goes bankrupt. This would enable them to restructure and do whatever is necessary to become profitable. We should not be in the habit of funding companies which are quite frankly not economically viable. The other auto manufacturers are not even close to the shape detroit is. They have been babied by the american government for far too long and this is as much their fault as the thee of them.

The global economy will survive one of the three going down. In fact i've heard many reports that all this speculation about action and inaction is far worse for the economy then some certanity in what would occur. If you are going to let one of them go under then thats fine, but enough with this talk of bailing them out. Once they go bankrupt and if they cant secure money to restructure then open government coffers so they can restructure. But at the present time, their buisness model is so fundamentally broken in so many respects that they will just burn through whatever is thrown at them.

Hell if one of the three goes down, the other two might get stronger from picking up the pieces. Jobs will be lost, but thats the nature of things. I hear there is this place called china, and they want cars. Toyota, Honda, Kia, Volvo, etc, are not going 'where's our money?' because they have not been built and endorsed by the same level of madness that the US auto industry has been. Let one or all of them go under, and then sort out the mess. But when GM is quoted as losing 5billion dollars a month, why should you bail them out now? Have them declare, and then go into a massive restructure plan where everything's on the table. Hell, if going bankrupt cancels all the health and benefit packages. Have the government then pick them up for a fixed cost. It would be far cheaper then trying to bail them out every 4 months with another 25 billion.

There are any number of other industries who deserved as much if not more assistance then the auto industry. However they have yet to get a dime. I understand why the financial sector needed to be saved, because if they go under the ATMs dont work, your bank accounts vanish, and the entire world grinds to a halt. The airline industry wasnt bailed out, and its on the road to stability and recovery in some respects. If the US auto sector is unable to survive on its own, then perhaps its time. Hell, if your concerned about the jobs, find something else that those auto workers can be tasked to build. Maybe those new fangled windmills...

[**Spetsnaz**]

imo, the name of the problem in the car market is "overproduction" (at this moment) : more cars than buyers (otherwise all car companies would do fine).

best things to do would be let market regulation do its work. If one of the 3 Big Ones goes down, the other 2 have a better chance of surviving. Thats the logical decision.
however, will US politics let them go down?im afraid GM is a symbol in the States and will be kept alive with state help (as long as possible)

the immediate repercussions will be not beautiful though. dont know how many people GM employs, but its a lot for sure. if GM doesnt pay anymore, a lot of suppliers will also fail etc etc
and thats just in case only GM fails. if Ford (just sold participation in Mazda to get $$$, sold land Rover & Jaguar couple of months ago, and Volvo is also making worrying losses) should go under as well, i think US economy will be hit very hard. Car manufacturing has disproportionate influence on economy - that was the basis of my thread.

anyway, it seems to boil down to the fact that some car companies should fail in order to let the others survive. question is: who will go down?? (i hope its not Volkswagen :-)) )

edit: todays news: US inflation had its sharpest drop since 1947: 1% in 1 month (!!)
could we, not just US but all of us, be evolving towards a general deflation? remember Japan? they are still not fully recovered of their deflation spiral today and they are not exactly inefficient noobs...

[Bowkers]

No, the US will not let GM go down. As you mentioned it is a national, nay international symbol of the prosperity of the US. Not that the US is prosperous at the moment, but then again who is?

I did this in another thread so I will post some figures in this post.In terms of losses with regards to companies in the past 6 months:

GM: has gone down from a share value of $20 to a miserly $2.79
Ford: has gone down from $8.00 a share to $1.26
Volvo: has gone down from $17.50 to $3.71
Honda:$32.50 to $19.89

All of the big companies are being driven into a sharp decline. HOWEVER, this is in line with the market in general. We are in a recession. Companies go bust, trouble is which ones do you make bust. Having looked at recent reports in this field, I would say it probably was GM, but it would be very risky to do such a thing. Then again we need some spurt to move this sector of the economy along.

[Paladin]

It doesn't matter of GM, Ford, and Chevy all go bankrupt. Someone will start a new car manufacturer if they do. There is no way the American public will ever accept a decrease in new car production. Ever.

[Energizer Bunny]

GM and the rest of the Detroit ring will be bailed out. They'll have to be. There's no way they can keep going without government intervention. A broker gave GM a target price of $0 last week. As in, the company is now literally worthless. The problem all those companies have is that Toyota, which is pretty much an example of a perfect automotive company, is now making losses. If Toyota and its hyper efficiency cannot make money, what chance do the lumbering giants of Detroit have? Doomed.

[**Spetsnaz**]

bowkers, i honestly cant say i agree when you use stock shares to see if a company is healthy (they should, but more often than not, they don't. especially the last 4 months, stock course is completely seperated from health of company. stock prices are just gripped by global panick now)

a better means to verify health of company is the annual year account (? - not sure of name of that in english) or earning by trimester.

If Toyota and its hyper efficiency cannot make money, what chance do the lumbering giants of Detroit have? Doomed

now we are getting close to the (ugly) truth

[craNk]

Honestly... GM is dyeing since how many years? It was kinda clear that they would stear into huge problems when the next recession hits... And there is ever a next recession.

Letting it die? I don't know... There are arguments for it but there are also huge arguments against it.

[Bowkers]

bowkers, i honestly cant say i agree when you use stock shares to see if a company is healthy (they should, but more often than not, they don't. especially the last 4 months, stock course is completely seperated from health of company. stock prices are just gripped by global panick now)

Those quotes were over a half year period. I think it is important, because although yes stocks worldwide are plunging, on an individual company's level, it shows the lack of confidence shown in the company. As a result fewer people will buy products, resulting in a loss of profit. On a positive note from your quote I tried to find balance sheets for each quarter. If I find some I will post them.

[Retroboy]

When you want to *really* clean up a room in your house, the first step in that process is to kick everyone out of the room so you can make a bigger mess by moving everything including the big stuff around so you can clean behind and underneath it. The second step is to organize and clean everything you can reach. The final step is to impose rules of use that will keep that room clean.

If you just do the second one, you won't be cleaning the whole room, just the bits you can reach. And without the third step it'll be just as messy in a very short time.

-- Retro, hoping the metaphor doesn't require further explanation.

[Ash]

Even if GM, Chrysler, and Ford fall, (more likely they will just have to downsize) there are still two very large manufacturers of automobiles remaining in the United States: Toyota and Honda. Plus, a downsizing will give the Big 3 a chance to rid themselves of unions. Keep your fingers crossed for that one.

The sky isn't falling, folks.

[Starfisher]

I like Weavern's idea. Let them go bankrupt and then finance their bankruptcy reorganization if they can't do so themselves due to credit issues. The end result should be streamlined companies better able to compete. They've already secured huge concessions from the UAW that remove a lot of their competitive issues, now they just have to clean out management and focus on a whole portfolio approach rather than "hey let's sell ginormous hunks of steel for massive profits". Bankruptcy should allow them to do that, and the government can profit from the enterprise by selling its stake in the future.

[Retroboy]

Ash, I think you're not acknowledging the tremendous difference between GM, Ford and Chrysler "fall"-ing versus downsizing. If they dissolve, we're talking much worse than another Enron here.

They have to continue to exist (and Weavern/Starfisher's approach will allow them to do so) or the destabilization effect will be horrible.

------------

An example of the mindset that is in place within those companies: when the corporation heads went to Washington to plead their "omg we're poor help us pls!" case, they flew in their personal corporate jets.

-- Retro

[Energizer Bunny]

Letting them go bankrupt is not straightforward. In a breakup situation, liquidators get their hands on the assets, which get handed to creditors and you are left with a shell of a company. Everybody loses their jobs and the company gets stripped. The bankrupt entity you wind up financing may have very little to it.

[Weavern]

Energizer that isnt how it works. The liquidators only get their hands on the assets WHEN the company is unable to secure financiang or so I have been lead to believe in the american system. Just because they go bankrupt doesent mean they have to liquidate the company, they may liquidate assets in an effort to restructure but massive liquidation doesent happen unless they are unable to secure restructure cash, at which point you have to repay creditors. The arguement against bankrupcy is that apparently people wont buy cars from a bankrupt manufacturer so you would be killing any sales they may have had.

[Eboli]

Your last sentence is true Weavern, one of the Big Three bosses (or maybe the group) expressed concerns that filing for bankruptcy would destroy them industry no matter how good a job they did at restructuring. Because ultimately no one would buy a vehicle from a company that they weren't confident would be around 5, 10, 20 years down the line for warranty/maintenance issues. Does anyone think there's any merit in that?

Another argument is that will a bank give a loan to an individual to buy a car from a company that could potentially go under? Until the loan is paid off it's is owned by the bank and the bank would not want to invest in something that could potentially lose all it's value in a very short period of time (even though cars lose value tremendously anyways).

Here's a quote from a commenter on an NY Times article discussion page, which pretty much sums up the dilemna that going into bankruptcy protection would cause.

You'd have to be a out of your mind to buy a car from a bankrupt company. Why worry about future access to parts,warranty service and accelerated depreciation when you can buy a car from a solvent company? Would you really trust the "provisions" for warranty service that GM would make after it no longer exists?

[Starfisher]

That's why the government would need to certify that the company would still exist, continue to cover existing car lines, etc. Government intervention is required to keep the American car industry going, absolutely, but it doesn't have to be a bailout. You'd be letting them go bankrupt so that the legal mechanisms available in bankruptcy would kick in, not so that you could firesale things. The government would still end up bailing out the company and ensuring that operations continued, but it would gain the ability to kick out management and renegotiate contracts.

[Mokinokaro]

Chrysler were smart enough to bank a lot of reserve money away so they should be able to survive with a little downsizing.

GM's in trouble but filing for bankruptcy may actually help them as a company in the long run as it'll force them to trim the fat and care more about product quality. GM cars are popular enough that parts will still be made for years even if the company died out. I mean, you can still get Fiero parts.

Ford is the one I can't predict. Of the 3, they are suffering relatively less but they still are in bad shape.

[Energizer Bunny]

I'm not familiar with the financing of the companies Weavern, but in all likelihood the secured creditors have the right to appoint liquidators to break up the company in the event of default to get their money back. I think what you're referring to is the concept of chapter 11, which is where a business files for protection from its creditors to allow it to keep running and either trade its way out of difficulty or sell individual parts of the business off. That assumes however that either the business is able to trade out of trouble (in this case probably not) or that the assets can be sold for a reasonable value (again, probably not). If not, bankruptcy proceeds and the secured creditors take everything.

That's why I doubt the government will allow the companies to go under. Much more sensible to inject capital before it happens but with onerous clauses to force them to reduce debt as quickly as possible. I've been wrong before plenty of times though.

[Eboli]

I don't like the idea of a bailout either, don't get me wrong. I just don't know if allowing these companies to go bankrupt is realistic, even with Government "certification". The mere perception of a bankruptcy would probably be enough to doom the company.

If you had the choices of a buying a car from Toyota or Honda or any number of other 100% solvent companies, and one of the Big Three that's currently bankrupt but with government assurances it will still be around in 20 years. Even if the cars were exactly the same in every respect including cost, efficiency, reliability (even though these are all areas that the B3 suffer in comparison with) would you honestly buy one of the American cars? If yes why??? What would be the benefit to the consumer?

I also don't think that Government assurances would mean anything frankly. Governments and political will can change in a heartbeat, and policies along with them. I can't see the average American being reassured enough to start buying US cars from a bankrupt company, just because the Government says they'll back them. Beyond some abstract concept of patriotism, there'd be no compelling reason not to buy foreign.

[boolybooly]

Obama is the man to ask, he has stated a concerted effort will be made to upgrade US car manufacturing and vehicle technology (this mostly by licensing Japanese technology) and I think he regards it as something of a mission to get US manufacturing back in front.

He has the right idea and it includes a wise emphasis on shifting to renewable energy, which in sufficient quantity will enhance the medium and long term outlook for the US economy.

But as I expect you appreciate, I am sorry to say that US car industry is woefully behind the times and management response hasnt been helped by the attitudes of good ol' boys of the Republican persuasion who take the view they can blag their way through and who had undue influence during the incumbent's (GWB) tenure which delayed an intelligent response for motor manufacture and the US economy as a whole by 8 years which was a disastrously long time. AFAIK they are still not making the grade wrt product.

Manufacturing in Asia is cheap and that is taking revenue from EU and US manufacture, but manufacturers can compete with streamlined design and production.

I agree GM does need to be restructured and the complacency needs to be forgotten. The product they are making and the way they are making it needs to be revised for the current market, but they havent done the R&D and I get the impression many are still pushing out 70s tech with 2008 paintjob. This is why they need Japanese tech and will need some forceful persuasion to stop their backsliding protectionism (which is what got them here) and get on and make something worth buying.

The current oil production generosity of Saudi which is keeping the oil price low is probably not going to help alert the US manufacturers to the urgency of the need for efficient vehicles but once the recovery has begun globally I think that will change and oil prices will rise again. What GM &c need and haven't had is the foresight to preempt future strategy and be ready before it happens.

Obama would want to help them find that without a crisis IMHO as a sign of his effective leadership, so unless they go down before he gets in then I dont think they will as I think he will intervene to assist with mergers and acquisitions because the impact on the US economy would be painful. But I think any intervention will not be direct cash donation and will involve an armlock on the manfacturer forcing them to upgrade and innovate their designs whether they like it or not. If they won't play ball then his only recourse is to let them go to the wall, which is where they deserve to go, but they wont, but they may face buyouts from Japan or even India.

It will take two production generations before US models are competitive again IMHO ie about 10 years whereas if they started making Toyota models tomorrow the job would be done.

[**Spetsnaz**]

i may be hounded out of town as an idiot now, (dunno bout american bankrupcy rules) but in europe, when a company is bankrupt - the assets are placed under gouvernment curators - these will try to liquidate the companies assets in a certain order and that order always is the same: first creditor is the social security, second creditor is the banks.
IF anything is left over, it may be sold to private parties.

which i dont think will be the case with GM

seeing as they allready have difficulty in paying ordinary bills (like for shipping goods, i know this from a friend that works in a shipping company with has large dealings with GM) i dont think much will be left.

besides this, gouvernment intervention in a free (global) market is a BAD thing.

if US helps GM, then Europe will help VW and Japan will support Toyota, and in reaction US will support GM even more and... and ...

before you know it, were back to 18th century mercantillism! (=protectionism)

[crobato]

No automaker can file a Chapter 11. It will simply scare potential buyers off. Any buyer is concerned about warranty, and Chapter 11 isn't very convincing. If anyone files Chapter 11, expect those cars in the dealer lots not to be sold. At this point, the company is effectively dead.

Down the road, the Big Three will be Toyota, Nissan and Honda.

Its the end of the American Industrial Empire, but heck, we can still say proudly while waiting in the unemployment line, we stuck to our principles that this is America, and we don't tolerate failure. Then we go home to our families in a cold winter driving a foreign brand car, that so happens whose mother company is so often subsidized and partnered with their government.

Or there is an alternative... Those three big CEOs can fly their private jets to Beijing, learn Mandarin via Rosetta Stone, so they can speak (kowtow) to the bankers and automakers there.

http://www.agoracosmopolitan.com/home/Frontpage/2008/11/19/02867.html

Chinese Automakers may buy GM and Chrysler

by Bertel Schmitt
Chinese Automakers may buy GM and Chrysler


Chinese carmakers SAIC and Dongfeng have plans to acquire GM and Chrysler, China’s 21st Century Business Herald reports. LINK A National Enquirer the paper is not. It is one of China's leading business newspapers, with a daily readership over three million]. This newspaper cites a senior official of China’s Ministry of Industry and Information Technology– the state regulator of China’s auto industry– who dropped the hint that “the auto manufacturing giants in China, such as Shanghai Automotive Industry Corporation (SAIC) and Dongfeng Motor Corporation, have the capability and intention to buy some assets of the two crisis-plagued American automakers.” These hints are very often followed with quick action in the Middle Kingdom. The hints were dropped just a few days after the same Chinese government gave its auto makers the go-ahead to invest abroad. And why would they do that?

[No Surrender]

Hang on, if the uncompetitiveness of US automakers can be blamed by unions, how come the US branches of Toyota and Nissan are still making billions despite (presumably) employing the same unions? Am I missing something here?

[boolybooly]

Crobato, interesting, yes China does seem to have cash to spend these days. Its a real possibility that they would use the current situation to buy into the US market via GM &co. I think the US establishment would find that quite an uncomfortable idea but it may be a good thing. Crossholdings do tend to promote international cooperation.

But the downside of that IMHO is that China is like the US also not a tech leader in car manufacture. Most of China's manufacturing progress has been due to foreign manufacturing enterprises setting up within China to gain access to Chinese labour and markets. So far there has not been much evidence of cutting edge in China, mostly catch-up. Taiwanese electronics is the exception but that is really not like mainland China.

So if a Chinese firm take over a US firm it would be a case of the blind leading the blind. The Chinese need more advanced models unless they also have plans to invest heavily in R&D asap. The thing is the firms with good R&D are not available to buy because they are functioning well and are mostly found in Japan.

If the Chinese firms can finance cutting edge R&D and manufacture in the US then it could work for them otherwise it would be more of the same IMHO and frankly a waste of money.

[Infidelicious]

Yeah. It's all the unions. Not inferior products, and a complete and utter failure to innovate. Honestly the only thing keeping Ford/Chevy/GMC afloat was making giant SUVs and Trucks that people are finally realizing they don't actually need.

[**Spetsnaz**]

Crobato, interesting, yes China does seem to have cash to spend these days.

that's a large understatement. China has been having a HUGE surplus of $$ out of the trading with US (US imports a lot more Chinese goods then vice versa, so Chinese have a lot of $$).
irc, China is sitting on 800 billion $$ in its treasury. its what they call a strategic reserve.

i guess they could buy a lot of american (or european) companies if they wanted

Honestly the only thing keeping Ford/Chevy/GMC afloat was making giant SUVs and Trucks

don't forget Ford is a large player on the European market as well, with totoally different models as in the US. models that are certainly not inferior to VW or Nissan in design or R & D invested in them. Chrysler gained a lot out of its partnership with Mercedes-Benz in Diesel-technology (or so can be expected). GM is really ugly duck in europe. until recently, you never saw a GM vehicle on the streets (changing now as they renamed all hyundai models to chevrolet brand)

[Saberdark]

Its the end of the American Industrial Empire, but heck, we can still say proudly while waiting in the unemployment line, we stuck to our principles that this is America, and we don't tolerate failure. Then we go home to our families in a cold winter driving a foreign brand car, that so happens whose mother company is so often subsidized and partnered with their government.We don't tolerate failure because that is how the free market systems works. Giving money away to a company that will just lose it is a bad idea.

I think it would be unwise to give the money to the Automakers. Their shoddy products, inferior business practices, and yes, the unions are all factors that add up to make them uncompetetive. They can't change these things overnight, so if money was given to them they would spent it, then ask for more in a couple months with no real change in their stability.

However, I think it likely that congress will be giving them the money, seeing as apparently Obama is pushing for it.

[Black]

American car companies are ailing because their cars have sucked for a while. If they are kept alive, they better get more competitive with their japanese counterparts.

[**Spetsnaz**]

offtopic: rumours in the market that Citibank is up for nationalisation....
(Citibank is the 7th lrgest bank globally, measured by market capitalization and the 15th biggest globally by assets in $ - in other words, they r not peanuts)

ontopic: if banks are scared to loan money to each other, being basically healhty companies, imagine how enthousiast they are to throwing a large sum of money in the black hole that is GM

[Paladin]

Actually the only thing keeping the car manufacturers afloat was basically the interest they were making on financing purchases. They weren't really making money on anyone who bought with cash, and therefore they are taking a bath now that default rates are so high.

[absauston]

Toyota is union resistant and the UAW gets a hell of alot more benefits than their Toyota counterparts. The U.S government allows this for some reason. My brother who is an engineer for GM says for every employee there are two retirees that they have to pay for. Here is a nice graph.

http://i239.photobucket.com/albums/ff108/TheRealKilgore/wages.jpg

[l337raceryo]

From a car fanatic viewpoint, all I can say is good riddance.

Though GM is slowly starting to turn around, but that's mostly because they're rebadging foreign cars into US market.

Ford can go fuck themselves. Outside of their precious F150 and Mustang, they really dont care about enthusiasts vehicles in the US.

Chrysler hasnt done anything exciting in awhile.

[Paladin]

Meh, I prefer chrysler cars to most foreigns. But other domestic manufacturers suck. Though the 2005+ mustangs are nice.

[crobato]

Crobato, interesting, yes China does seem to have cash to spend these days. Its a real possibility that they would use the current situation to buy into the US market via GM &co. I think the US establishment would find that quite an uncomfortable idea but it may be a good thing. Crossholdings do tend to promote international cooperation.

But the downside of that IMHO is that China is like the US also not a tech leader in car manufacture. Most of China's manufacturing progress has been due to foreign manufacturing enterprises setting up within China to gain access to Chinese labour and markets. So far there has not been much evidence of cutting edge in China, mostly catch-up. Taiwanese electronics is the exception but that is really not like mainland China.

So if a Chinese firm take over a US firm it would be a case of the blind leading the blind. The Chinese need more advanced models unless they also have plans to invest heavily in R&D asap. The thing is the firms with good R&D are not available to buy because they are functioning well and are mostly found in Japan.

If the Chinese firms can finance cutting edge R&D and manufacture in the US then it could work for them otherwise it would be more of the same IMHO and frankly a waste of money.

When it comes to cars, China is rapidly developing, looking at all the new models coming out from their auto shows yearly. They keep getting glitzier every year, moving out now to sports and luxury cars.

If GM stock goes under a dollar, its going to be ripe for a takeover. GM has a lot of technologies and manufacturing assets that Chinese automakers will be most interested.

On the other hand, I don't think the Chinese likes to deal with overpaid corporate executive and union workers, so that's the negative side of it.

We don't tolerate failure because that is how the free market systems works. Giving money away to a company that will just lose it is a bad idea.

I think it would be unwise to give the money to the Automakers. Their shoddy products, inferior business practices, and yes, the unions are all factors that add up to make them uncompetetive. They can't change these things overnight, so if money was given to them they would spent it, then ask for more in a couple months with no real change in their stability.

However, I think it likely that congress will be giving them the money, seeing as apparently Obama is pushing for it.

I can understand the reasons for it. If this comes in another time, or when the US has many other industries it can fall back on, maybe you can let them fail.

But this is a bad time to let them fail.

You do not want multiple economic crisis happening in succession.

Failure of automakers means no paying their employees. No paying to automaker suppliers and subcontractors means all the satellite companies cannot pay their employees either.

Which means these employees cannot pay their mortgages and loans. That's a hell of a lot of employees, considering this is one of the biggest industries in the United States.

Which means the mortgage, bank and credit crisis will only get deeper---and a lot more worst.

Believe me, what you see here is just the top of the iceberg. Down the road, we can expect a few other things to happen, including a crisis involving T-bills and bonds and another crisis involving strong inflationary pressures on the US dollar.

Seriously this is a bad bad time to be concerned with ideology.

[Saberdark]

Nobody is concerned about ideology. If you bail one sector out, you might as well bail all of them out, providing no incentive for companies to not take unacceptable risks. No, you do not want mulitiple economic crises happening.

But fine, we give them the money, they spend it for no appreciable benefit and we get no return on the investment. What now?

[crobato]

Good. At least you get past this Christmas with your economy alive for the time being.

Realize this. Your economy is in a deep do do and whatever you do, won't help in any either way. If you want inaction, I will tell you what will happen if you don't bail out the automakers. More banks holding your money will turn red. The banking crisis will deepen. The money crisis will deepen. Other industries will be directly affected. There is no such thing as isolated sectors. All are interrelated. Even if you don't bail out the auto industry, you will soon be bailing out the other industries as a direct result. Soon, you just don't have the money to bail everyone out. Sorry---it should be you never have the money to bail anyone out in the first place.

[Lomax]

Yes, it's almost too good to be an accident.

[**Spetsnaz**]

Believe me, what you see here is just the top of the iceberg. Down the road, we can expect a few other things to happen, including a crisis involving T-bills and bonds and another crisis involving strong inflationary pressures on the US dollar.

the US $ is being saved only by the large amounts of dollars that are countries are keeping in reserve (China, Russia, Saudi-Arabia, etc). the cost of the inflation is equally spread on every existing dollar. thus these countries are actually supporting the US economy by just having dollars.

When they dollar will start to depreciate, and it will, these countries could start changing massive amounts of $ for € (or yen or gold or what not) and then we will see a very worrying scenario.

crobato is also correct though. letting car manufacturers fail now would cause disproportionate damage on a allready crippled economy (this was my original question: how do you asses the possible damage caused by a failing US car industry)

the point is that these companies are so big, that if they go down, they will take a lot of sattelites with them (just count up all subsidairy companies that produce exclusively for GM or Ford)

if they go down now, in full credit crunch, it sure wont be pretty.

[Saberdark]

Yes, but my point is that giving them the money won't save them anyway, they will still do down, they will just do it in 2 months instead of now. How much money are you all proposing we give them then? And how would giving money to a car maker that nobody will buy cars from save the car maker?

Realize this. Your economy is in a deep do do and whatever you do, won't help in any either way. If you want inaction, I will tell you what will happen if you don't bail out the automakers. More banks holding your money will turn red. The banking crisis will deepen. The money crisis will deepen. Other industries will be directly affected. There is no such thing as isolated sectors. All are interrelated. Even if you don't bail out the auto industry, you will soon be bailing out the other industries as a direct result. Soon, you just don't have the money to bail everyone out. Sorry---it should be you never have the money to bail anyone out in the first place.If all these other industries would go under if the big 3 went down, why then are all the economists arguing against the bailout?

[crobato]

The other alternative, is to save up a massive fund in order to pay for the large population of unemployed once these companies, and the satellite companies and contractors working for them, go under. Even though, the money will probably keep these newly unemployed from going hungry and getting cold past the winter, but this money isn't going to give them new jobs beyond that.

Regardless, you will still spend a large amount of money tending to the avalanche of the unemployed.

Then you will need lots of money due to the collapse of both the stock and mortgage markets simultaneously.

If money is used to bail out the auto companies, the government has to directly intervene with the management of these companies, e.g. kick out the current management, put caps on the executive entitlements, plan programs of future generations of efficient, green cars that can enable them to compete against Toyota, Honda and Nissan. It sounds like socialism, and yes it is. After all, this is the failure of capitalism at least in the US auto industry.

[**Spetsnaz**]

according to the Wall Street Journal , there is a internal discussion going on as to whether or not the GM management should demand a chapter 11. Wagoner (CEO) is opposed to it, but it seems a good deal of the board is in favor...

doesnt look good at all for GM

[Saberdark]

I understand where you are coming from Crobato, but I have two points here. First, Why would the government be better at running a company than anybody else, they can't even run themselves very well. Second, what you are suggesting will never happen as the most likely outcome if they are given the money is that there will be no oversight, and so the company goes down in January instead of now. That will be difficult for the government to explain how they didn't waste the money.

Personally I would be in favor of a Chapter 11. They can restructure, and perhaps become competitive again. Now, I know the point has been brought up earlier that nobody will buy a car from a company in bankruptcy, but nobody is buying cars from them now anyway. And if they give good enough deals, I find it likely that people will buy a car from them.

[**Spetsnaz**]

if i understand correctly, a chapter 11 for GM means they dont need to pay their debts anymore (for a while)

get ready to see a large number of companies fail then. chapter 11 is bankrupcy.
it also usually means the End of a Company....

(feel free to correct my interpretation of chapter 11)

[Saberdark]

From Wikipedia:
In chapter 11, in most instances the debtor remains in control of its business operations as a "debtor in possession", and is subject to the oversight and jurisdiction of the court. The court can grant complete or partial relief from most of the company's debts and its contracts. Sometimes, if the business's debts exceed its assets, then at the completion of bankruptcy the company's owners all end up without anything; all their rights and interests are ended and the company's creditors are left with ownership of the newly reorganized company.

Chapter 11 allows the business to stay open, and allows restructuring of the company. It is a very mild form of bankruptcy. Declaring chapter 11 would allow them to renegotiate all of their contracts, debts and so on, allowing them to attempt to become profitable again. Companies have declared bankruptcy before and then have come out of it. So it is not necessarily the end of the company.

[Snake1311]

I am currently a second year university student, and looking for jobs for my third year (year in industry/job placement/whatever you want to call it).

Judging from the amount of jobs GM are offering to students from my university, I woudn't say they're going bankrupt :P making cuts and employing/exploiting cheap student force - yes; but completely bankrupt - no.

[crobato]

I understand where you are coming from Crobato, but I have two points here. First, Why would the government be better at running a company than anybody else, they can't even run themselves very well. Second, what you are suggesting will never happen as the most likely outcome if they are given the money is that there will be no oversight, and so the company goes down in January instead of now. That will be difficult for the government to explain how they didn't waste the money.

That's true. There is the bozos in GM and there is the bozos in the US government? Who's better or smarter?

This might be a horrible idea under a Bush government, but under an Obama government, it might be different. Hopefully.


In all other countries, there has always been some form of national government assistance, regulation and intervention with their domestic automobile industry. German, France, and Japan included. One country failed to support is automobile industry, and that was Britain, although they were also building horrendous cars---if you're still old enough to remember all the original British brands running under British management and ownership.

Every other nation has some sort of government assistance and collusion with the automobile industry, Japan included. Remember this too, this also has a vital national security issue too, GM, Ford and Chrysler has DOD contracts. There is a lot of dependency between the automobile and truck industry to lets say, the ability to make tanks, trucks, and Humvees to the US military.

Manufacturing know how is like Humpty Dumpy. Once it's lost, it can never be put back again.


Personally I would be in favor of a Chapter 11. They can restructure, and perhaps become competitive again. Now, I know the point has been brought up earlier that nobody will buy a car from a company in bankruptcy, but nobody is buying cars from them now anyway. And if they give good enough deals, I find it likely that people will buy a car from them.

Chapter 11 to the American public still means dead duck. You cannot gamble that the American or the consumer public is smart enough to differentiate between Chapter 7 and Chapter 11. You are taking an awful big chance here.

[**Spetsnaz**]

if chapter 11, im betting Opel is bought by the German gouvernment, Saab by Sweden and Hyundai by South Korea.

besides that, nobody in Europe/Asia or wherever (except the US) else buys GM cars.

[crobato]

Actually in the UK, there is Vauxhall and Holden in Australia. GM also has interests in Isuzu and Suzuki in Japan. People still buy their cars.

What they don't buy are American made GM cars. Ironically, the only other place where people buy cars like Buicks are in China, where Buicks are also made.

Likewise with Ford and Chrysler. The cars they sold in other countries aren't made in the US but made with local subsidiaries. Ford of Germany cars are very different animals from Ford in America cars. Many of the GM and Ford economy cars are often made from components and platforms designed by their foreign subsidiaries. A good example is Saturn, in relation to Opel of Germany. In fact, I should say that pretty much GM's face and platforms outside of the US are defined by Opel designs, including Holden and Vauxhall.

[Starfisher]

Hiring is deceptive. They have to replace people going out and no company can assume that they're going to die tomorrow, even if they're going to die tomorrow. I know many companies right now are going to colleges and arranging interviews knowing that there's no jobs available. They just want to keep their face time at the college/job fair/whatever and have a file of people if they can or need to hire for some unforeseen reason.

[craNk]

My father has a chevrolet impala ss, i have a Camaro ss... And were rather lonely here ^^ (Switzerland). I really like my car and I have no problems with it so far, the one of my father is over 200'000 km and still doing wonderfull... But the cars are not practical (and we both knew this before buying one, but well, sometimes doing something stupid just for the fun of it is worth it :p):

1: Our *smaller* roads tend to be fucking small for these cars... To be comfortable they should be around 1m wider. In French cities the cars are probably not able to get where you want ^^... But French cities are horrible and finding a car whiteout damage in theme is pretty hard :p.

2: Our parking spaces are TO small... You can't drive in between two other cars... You just can't get out of your car if you do.

3. Our fuel prices are much higher than the US ones (currently about ~1.20$ per litre (1.60 swiss francs)... and that’s rather cheap for Europe).

4. Snow? They don't like driving on it.. 1-2 weeks a year you can forget my father's Impala (automatic) and be VERY careful with my Camaro (manual gears). It does not even compare to the standard European or Asian car on snow...


The only American Cars you see often in Europe are Ford-SUV's... Made smaller for Europe ^^. Chrysler and Chevrolet are nearly nonexistent. It's like GM thought... Fuck the rest of the world and then began to fail even on the US-Marked.



Since Daewoo (?) became Chevrolet (what a shame!) we actually see such bastardisations of chevys a lot: http://automobil-blog.de/wp-content/uploads/Autos/Chevrolet/Chevrolet%20Matiz_1.jpg .. Ouch.

[CommodoreKitty]

Honestly I don't think the government should be making a habit out of bailing out businesses who have bad buisness practices. Yes, American auto makers had a lot of red tape around them, but they also made some really stupid decisions (how long did it take them to get on the "fuel efficient" bandwagon compared to other companies?) and relatively shitty cars. Could you expect anything different to happen from all of that? I really, really hate the idea of the American car industry dying out, but it seems like that is just the way it is going, and I'm jumping on the "why support them when they are just going to die out anyway" bandwagon. I say the best thing the government should do for them is deregulate the crap out of them and see if they make it from their. Like I said, the government bailing out every buisness that is doing poorly is just not an efficient use of tax money.

Not to underestimate that damage that would be caused by a whole industry going under to the American economy, though (I don't think these companies dying out are going to hurt other countries that hard relatively speaking. Indirectly through the repercussions in the US economy, sure, but not much other than that. Or so I would imagen.) but it seems the Government is getting very spendhappy with supporting really stupid buisness decisions. Which is a bad thing. Risk is there for a reason.

[crobato]

The automobile industry is the largest manufacturing industry in the United States. It is also the most visible.

Letting them go requires that you must also accept that the economic landscape of the United States will change. Permanently.

Not my problem. Its your problem. Your children's problem.

If you believe it must be so, then it must be so. Be willing to accept the consequences because the consequences will be huge. Bigger than 9/11. Bigger than the Great Depression. This is the last great American manufacturing industry, well second to the last anyway, the other one being Aviation. Japan, S. Korea and China now manufacture the great majority of commercial shipping.

The consequences will be profound, American machine tool manufacturers will lose a major segment of their market. To stay alive, they will need to increase their sales to another country with much more manufacturing and that usually means China. They are already selling a lot of high tech tools to China, which turns out to be dual use since the Chinese can also use these tools to build systems for their military. But the trend will further accelerate. As more American factories goes under, they are bought, lock stock and barrel, equipment and everything to China.

The loss of the Big Three will mean a market vacuum that the Japanese, Koreans, and eventually the Chinese will fill. In the long run, every car you buy, even with mandated American made content which may grow less and less in the years to come, is money that goes out the door through trade deficit.

I will hope, in decade from now, you will enjoy your new Chery, not Chevy, car.

[Radical]

Consequences will be profound either way. If I understood it correctly, the Big Three are failing due to competition from car manufacturers who produce better, cheaper and more economic cars.

Hence, bailing them out wouldn't serve a purpose as the problem would still be there, just covered for a time. Breaking them up would cause ripples that would negatively affect many people.

For what it's worth, I think it's better to break them up then to continue supporting something that obviously isn't working. Instead, more focus should be placed on fields that generate money which fund said bailouts.

[crobato]

Instead, more focus should be placed on fields that generate money which fund said bailouts.

And which one is that?

Yup, there is none. The American car industry are among the last industries to fall, to what already has been a seriously hollowed out service oriented, fast food economy.

The American economy has been for years, being subsidized out either by foreign credit, foreign purchases, or through Wall Street's financial "innovations" that are in effect, a pyramid scheme. The first leg has crumbled; a global crisis means don't expect a lot of foreign credit, though the Chinese have recently raised their Treasury holdings from $515 billion to $593 billion.

Next year, we can expect a drop in tax revenues. Without raising taxes, without new buyers of US debt, the only way you can finance the bail outs is to print money. That is going to result in accelerating inflation as the dollar devalues. We're in a point we can have several financial crisis interdependently acting on each other. If you want to raise credit through Treasuries, the prime rate has to rise, which will increase the cost of credit to the consumer, already fast rising as it is.

[Bowkers]

As pessimists in the UK over the market right now (so basically everyone) A 'few' of the large companies have to fail. Whether that means a car company, a high street company, anything, some are bound to go under. Which we have to prepare for, in some ways or another. Woolworths, for example, an equally well known brand in the UK, ok not worldwide like GM, has had its shares suspended today, and are in the process of selling its 800 branches nationwide for a pound each. That is the result, as I keep blathering on about, the recession we are in. The big fish are struggling, but unfortunately the minnows are as well, we are just going to have to ride this storm, and see, reluctantly, our beloved brands go down.

P.S I mention the Woolworths example, purely because it is a huge brand here in the UK, and there had been no bad news that it was failing. Until this morning at 8am. Shows how quickly the economic crisis takes over a company.

[Radical]

And which one is that?

Whichever industry allowed the government to pump 700 billion in bailouts into the economy. Apparently, somebody is making a profit and paying taxes and said billions should be pumped in that.

I mean, there's got to be at least something?

[**Spetsnaz**]

todays the rating agency Fitch lowered the rating for Toyota motor from AAA to AA.
this means they will have to pay more for future loans. toyota took a 5% fall on the Nikkei.

slightly off-topic: its noteworthy that most of these rating agencies are american. and that when they lower their rating for a company, it usually has some dire consequencies. not lets see, they lowered their rating for a whole bunch of institutes, about which we can argue. however, i have NOT heared a single rating agency lower the rating for lets say, GM, CitiGroup or even Lehmann Brothers (b4 the fall).
protectionism?

i think, in the current climate, allt hese rating agencies can do, is further damage. imo, they should be strongly advised to keep their mouth shut at this moment, and do wht they are supposed to do - give warnings only for companies that are totally risky.
they are playing a not unimportant part in blowing this crisis even further up.

[crobato]

Whichever industry allowed the government to pump 700 billion in bailouts into the economy. Apparently, somebody is making a profit and paying taxes and said billions should be pumped in that.

I mean, there's got to be at least something?

No. No industry ever produced that 700 billion. That money is coming out of thin air. The old fashioned way governments produced money out of thin air. Issue notes. Issue Treasury bills. Printing more money. Leverage your future and your children's future with a big IOU. Borrow that money from someone and from your future and leave you with debt.

Oh and don't worry about Toyota. They're not heading to their government to beg for money while flying corporate jets. Japan has $1 trillion in national reserves, not $73 billion which is what US has (CIA Fact Book). Japan's debt are financed by their institutions, not by China. They don't have officials like Paulson who calls up Beijing every day.

[CommodoreKitty]

crobato, I see the point you coming from, but it simply seems like a temporary solution to an inevitable problem. These companies need to be competitive, and simply bailing them out will not make them so. GM has the right idea with restructuring, but each of the companies needs a major overhaul if they even have a chance of existing for the next ten years. As is stands now, the feds would simply be artificially floating an industry with taxpayer money they don't have, only to see said industry die soon after they stop supporting it monetarily. I think the only way these companies have a chance is to be deregulated and to more or less do whatever they have to do to be competitive. Just giving them money is worse than just letting them die, because the end is the same.

Again, that is not to say that this would not have a disastrous effect on the economy, but what would helping them out now do in the long run? Would it *really* keep them from collapsing?

[crobato]

You don't have to hand over money for free. The money can be -lent- with interest to the automakers, which means in return, the government actually makes money out of it. Or it can be used to -purchase new equity- in the company, the government puts someone in the board of directors to implement changes on the company. Once the company has turned around, the government can in fact turn around and sell the stock at a profit.

If the companies survive, there is at least a chance that they can be competitive via restructuring. If they go belly over, that chance is gone at all. No domestic auto industry other than making Camrys and Accords via Japanese owned plants. A company like GM is built over a hundred years. It can never be built overnight.

Remember the bailout of the savings and loans industry such as Lincoln Memorial over a decade ago, which had guys like John McCain in the cookie jar? In the long run, the US government actually made a profit out of it. The bailout consisted of buying back the undervalued mortgages. Later when the going became good again, the value of the mortgage rose, and the government sold the mortgages, and they actually made money out of it.

The alternative is to pay social welfare for massive unemployment. That would be a true handout where you have no way to make money out of it, not to mention the jobs are already lost.

[CommodoreKitty]

But there is a fundamental difference between the financial and automotive sector. While a loan company can go down the tube and indeed put a hurt on the economy, there will always be other companies to take up the slack and continue the sector as a whole. Bailing them out would serve to soften the immediate economic problems it would cause, but in the long run it wouldn't matter if they bailed them out or not because the sector would survive regardless. This is not true in the automotive industry, if these companies go, the whole sector goes, never to come back. You would think that this would be even more incentive to pump money into them to try to save them, but if you take the assumption that the sector as a whole will not survive, irrespective of what the government does, then all the money oured into it is wasted, all of it.

I don't think you can just appoint someone to restructure a company to be competitive in a market like the car market. If it were that simple, we wouldn't be having this discussion right now. They have to improve their whole industry, R&D, factory work, wages, marketing (I believe it was a Ford add that said something like "now rated equal to Toyata in overall quality." You have some very, very serious problems with you name and your cars when you need to put in a national add that you were recently called equal to another company.) and so on. Granted, a bailout would give them more time to get their shit together, but I doubt it would be enough, by at this rate GM will be bankrupt by next year, and the others some time afterwards. These companies are utterly lost, and helping them at this time is akin to throwing money on a fire in trying to put it out. If anything, this should have been discussed five years ago, where these companies were not literally on the cusp of ruin. Now its too little too late.

[crobato]

Letting the auto companies go bankrupt is better said than done.

Capitalism isn't the real issue here. Every other car company in the world has collusions with their own government one way or another. There was never an even playing field in the first place, nor was that intended to be. I doubt that Volkswagen or Peugeot or FIAT is any more competitive than GM; they're not actually but they will survive and no doubt about that because their respective governments will make sure of that, and these people don't have any ideological problems or distractions to the main focus at hand. And if Japan is in the same situation, they will also do the same, and the collusion between government and mega corporation here is even stronger. So will China and Korea. Look around there is more, Lada in Russia, Tatra in India who now owns Jaguar, and Proton in Malaysia. Renault was at one time, in a much worst situation than GM; now it owns a major Japanese car company. I would probably say European car companies have never been truly competitive against the Japanese since the eighties. Upstarts from Korea and China were not competitive either when they started; now Hyundai is seriously going after Toyota, while Chinese car companies are taking back market share from what is now among the biggest car markets in the world.

Automobiles is the last great American manufacturing industry. The last remaining manufacturing sectors, aviation, locomotives, trucks and construction equipment simply don't employ as much people or has as big a network of connected suppliers and industries. Everything else has been shipped out from everything to computers to ships. You are just one big consumer-service society. Sheer capitalism or the way you believe it is, never brought back or returned these industries in the US.

Manufacturing is a perishable skill. Once the continuity is cut, its cut. There are all sorts of national security implications as well; Detroit was one fundamental reason why the WWII is won for the Allies. The rot, the tsunami will spread to others. It will affect our ability to make tanks, trucks and humvees for our troops.

The parts manufacturers will no longer find sufficient production volume to operate and they will go as well. The consequences for that is that they will affect other companies that need them, in related industries, such as Caterpillar, Peterbilt and Mack. That means companies that were competitive will no longer be. They will end up importing components, which can make them less competitive. Sooner or later, they will die too.

Once the rot spreads to the component manufacturing substrate, that will affect the competitiveness of Toyota, Honda, Nissan, BMW, Mercedes, Subaru, etc,. plants that are operating within the country vs. importing the same cars directly. In other words, it can force a situation where making the same car in the US will cost more than importing them. Therefore, more plants close, more unemployment and probably sealing the fate of the entire industry altogether.

The line has to be drawn in the sand. Somewhere.

This Republican concept of Capitalism has to be shucked down the drain. Capitalism works but its not the kind of capitalism you understand. This is Global Capitalism at work, where enterprises are not just enterprises, but a collusion of enterprise and government to create unparalleled competitiveness in national levels. The Asians have become masters of this, because they understand the eventual contexts that tie every industry together and these with the government, and the result is the massive shift of wealth to the East. Toyota and the rest of the Japanese car makers are competitive and produce the cars that they do and that ability cannot be separated or isolated from the social and national context they are in. Things like, better education for their population and work force.

[Radical]

I don't think China, Japan or Korea are so competitive because of government - company interactions but rather, because of the incredible work ethic among their populace.

I personally see that as a much, much larger threat than governments supporting important industries.

[crobato]

The work ethic is there, but the government does micromanage fiscal and economic policy.

For instance, infrastructure is vitally needed for any business operation to be efficient. Infrastructure is something businesses can't make. We're talking of better roads, housing, railways, electrical power, education---interesting since we have seriously discussed that last topic to death. China is spending nearly $600 billion in all that; while the comparative amount in the US is being used to bail out companies, nothing for job generation and infrastructure development. China will come out of the crisis even more competitive than ever. (Unless they choke on their own pollution).

Korea and Japan are controlled by super large conglomerates, chaebols and kiehedren, that have close ties to their respective government. You can't be in power without their backing.

China hasn't reach the stage, but their government is in effect, acts like one giant corporation. This is one government where its top leaders will wine and dine with the top business leaders of the world like Bill Gates and treat them with equal footing.

The EU (not the UK which no longer has a domestic owned auto operation) supports their car industries in the national level, including outright ownership. Not the most efficient either in terms of financial allocations, but they have not made cars that are bad either. As a matter of fact, despite government regulation, intervention and subsidy of their auto firms, in general I would say their automobiles are more efficient than US cars and dynamically more fun to drive.

[Surrealitycheck]

Bowkers, just for reference, woolworths has been failing for the past 10 years. Having its trade credit strangled was the death knell, but it was not healthy.

[Radical]

@crobato

I apologize if I seem a bit skeptic of the idea - we have a shipbuilding industry that has been in a similar situation for years and now it's finally coming on sale - for $0.25 per shipyard. And while I agree that important industries should be saved, I'm losing faith in governments to deal with said issue properly.

As for infrastructure, well, China is a lot less developed than the US AFAIK, so it makes sense that they are spending more money on infrastructure.

I think that there are two significant problems the West has - a deficiency of good leaders and a lack of good work ethics - the second is particularly notable in Europe where people have in general become quite a bit decadent and expect to be spoon fed, nursed and given their social benefits in regular intervals or otherwise they'll protest over such important issues as a 36 hour workweek or not having a universally free college education.

The deficiency of good leaders, however, is a much, much worser issue IMHO. Apart from some optimism with regards to Obama, I can't name a single notable politician, a person who could lead his country through this storm and bring it out ahead.

[crobato]

Infrastructure in the US is decaying in an increasing rate. I'm not talking about political or social infrastructure, I'm talking about roads, bridges, water, power. The US has a lot of developed infrastructure, but this infrastructure is getting old and gradually contributes to the country being uncompetitive. This is really one aspect of Keynesian spending that has to be done.

I think we are about to spend $20 billion to bail out Citigroup, compared to $25 billion to lend to the Big Three. The AIG bailout has gone over 180 billion.

Leadership is indeed a problem. The best word to describe our politicians is being populist. They spend too much of their time and effort to be popular rather than the right thing to do.

Last guy that tried to do something right that was exceedingly unpopular was George Bush Senior. To pay for Reagan's deficit, he had to sign the largest tax increase in US history. Bush Snr got voted out of office as a result. In the meantime, because of that act, the budget got balanced, there was a surplus, and Bill Clinton took the credit for it.

The lesson will forever be in the minds of professional politicians.

[Cortlendt]

West has 36 hour workweek?

[No Surrender]

I believe France has a 35 hour work week. The funny thing is, the average French worker is more productive in terms of GDP per labour hour than the average American worker. So much for the stereotype that French people are lazy.

[Radical]

@crobato

That problem won't go away as long as you have democracy. The majority will always vote based on their immediate interests even if it means driving the country into the ground and lo and behold, politicians adapt. Now of course, there is a solution to this but it'd require the majority to bite the bullet and the majority just isn't willing to do that.

@No Surrender

Are they more productive than Chinese sweatshops or Japanese salarymen that die from overwork?

[**Spetsnaz**]

lets not generalize. i work in Belgium, 40h/week (officially), and like 3 out of 4 saturdays.
and be suspicious of French statistics :-)

btw, the point is valid about work ethics. demanding universities being accessible by anyone, and not just those with a lot of cash, is a very valid argument imo.

[No Surrender]

Are they more productive than Chinese sweatshops or Japanese salarymen that die from overwork?
Most likely. Remember that economic productivity is a function of a number of factors including education level of the workers, natural resources, information, technology and of course work ethic. A European worker assembling widgets by machine is going to be far more productive per-hour than a Chinese worker assembling the same widget by hand. The competitiveness of a place like China comes from the fact that standards of living are lower and therefore workers expect to be paid less. To continue with the example, a European worker may make twice as many widgets per hour than a Chinese worker but you can hire three Chinese workers for the price of one European worker.

The best way to compete with developing markets like China is to emphasise quality and innovation over price. For example, a lot of people will be willing to spend more on a BMW (even second hand) than a Cherry or a DongFeng. China may produce a great many cars, but I'd hate to actually own one. Hell, I've been in a rather bad accident while in a Chinese car, it wasn't pleasant. The West has an advantage in R&D, quality assurance and brand power. European car firms are still competitive, why aren't American ones?

PS: I know you love to blame all of society's ills on welfare but I'd like to point out that Japan has had a social welfare system in place since 1920 and, as you pointed out, the Japanese are still some of the hardest working people around.

[Bowkers]

Not linked to the American car industry, but linked with the worldwide crisis that is the car industry, here in the UK we have a large company called Jaguar, and they recently announced plans to cut 800 jobs by January, which is a cause for concern.

[Radical]

@No Surrender

Most likely or "here's the evidence?"
I really doubt that a Japanese who dies of overwork is less productive than a Frenchman who works only 35 hours a week.

As for widget production, I think they've moved beyond that. For one, I highly doubt they'd be becoming a world super power if they still depended on manual manufacturing. Or maybe I'm wrong and they're still using pre-Industrial Revolution methods of production?

European car firms are definitely better off than American ones, but I doubt their position is rosy either. The recession has hit European car makers as well and there's been some talk of bailout.

It's pretty clear that the biggest seller for Chinese merchandise is price, not quality. And while you may advocate spending money on a used BMW I'd rather take the middle road and buy a Japanese made car.


PS: I know you love to blame all of society's ills on welfare but I'd like to point out that Japan has had a social welfare system in place since 1920 and, as you pointed out, the Japanese are still some of the hardest working people around.

Welfare? No, not welfare. The outrageous taxes that are needed to fund it.

[**Spetsnaz**]

here in the UK we have a large company called Jaguar

that should be: here in the UK we had a large company called Jaguar...

it was sold to Ford, who then sold it to Tatra Motor Company. and seems go be going uphill now with their new models, but Jaguar has been a problem child for a long time
idem dito for Land Rover.

and 800 *possible* redundancies are minimal compared to the global consequences of the US car industry failing....

[crobato]

I really doubt that a Japanese who dies of overwork is less productive than a Frenchman who works only 35 hours a week.

Probably the most famous case of a Japanese who literally died from overwork was the lead engineer for Toyota's Camry Hybrid, which I would say is the current benchmark for any hybrid car now. I can't say if any Frenchman is more productive than this guy and the value of his work will live on and on future Toyota hybrids.


The best way to compete with developing markets like China is to emphasise quality and innovation over price. For example, a lot of people will be willing to spend more on a BMW (even second hand) than a Cherry or a DongFeng. China may produce a great many cars, but I'd hate to actually own one. Hell, I've been in a rather bad accident while in a Chinese car, it wasn't pleasant.

The result of a government of a country that should be renamed as the People's Republic of Capitalist China, that has been too lax with its industry for the sake of seeing it grow. Its a problem of not having enough regulation and not having enough enforcement. The auto industry, and so is the aviation industry, are examples where quality---like in safety and efficiency---has to be forcibly government mandated instead of letting the inmates run the house on their own.

[SRI-Sajuuk]

If you want my opinion on this whole thing. Something big is going to have to happen for us (the world) to get out of this mess. Either it be the fall of total capitalism, world market collapse, or all out breakdown of economic systems, something is bound to break the camels back.

[No Surrender]

I really doubt that a Japanese who dies of overwork is less productive than a Frenchman who works only 35 hours a week.
The numbers (http://stats.oecd.org/WBOS/Index.aspx?DatasetCode=LEVEL) beg to differ. The average Frenchman works 1,533 hours a year producing USD$52.9 per hour for a total of US$81,095. The average Japanese person works more hours, 1,786 per year but only produces US$37.2 per hour. This means that the Japanese person will only produce US$66,402 GDP per year. Therefore, the average Frenchman is more economically productive by US$14,693 per year. So no, the average Japanese worker is nowhere near as efficient or productive compared to the average Frenchman.

The thing about China is that there's a very wide range of technological development. Many factories in the coastal areas will be as advanced and automated as any Western factory while some inland factories are still making bricks by hand and kiln using illegal slave labour (they're trying to crack down on it). The average Chinese factory isn't going to be as productive as a Western factory on a worker-for-worker basis. I also wouldn't lump China and Japan in the same league. Japan, for all intents and purposes, is a fully developed economy with high income whereas China is a developing economy with middle income. Economically, they're not much alike.

[Radical]

@No Surrender

Cool, why hasn't everyone adopted the idea?

I doubt workers would protest against a shorter workweek, and it apparently makes them more productive as well.

[SubZero]

As far as I am aware the situation is as follows within the UK, and therefore likely the same in the USA:

Consumers have been taking out loans and debts that are way above what they can realistically payback. Therefore lending is on a massive high, but actually money is on a low.

One Rough Example:
Instead of a Car Dealership receiving £85000 for an Audi R8 that they sold, they instead receive £870 per month and an end deposit of £24,000 if taken on hire purchase.
This credit was given to a person who couldn't afford the car to begin with, therefore at the end of the monthly payments, he cannot pay that £24000 therefore returns the car. He has nothing for his money, the dealership lose £24000.

Presently, the loan companies have cottoned onto this, and have really cutback on the flexibility of their lending, and are lending to only consumers who have a history of successful repayments and have a job that can cover the payments with ease.
For the record here, most are even explicitly asking for a guarantor despite someone being married with kids, with a mortgage and plenty of spare cash floating around.

So less people are able to purchase cars because of this reason, but also through redundancies of businesses going into financial meltdown.
With no money being spent on large purchases the car dealerships and car manufacturers are being hit by a financial freighttrain where they may have once been able to commit to vehicle turnovers of at least 1000 p/w per westernised country they are now suffering sometimes zero vehicles sold p/w.

My uncle, manager of a Peugeot garage within the North East of England has reduced his staff by half. His salesmen and engineers are working twice as hard now to make up for the shortages.

What can turn the economy around IF what was keeping it afloat previously was greed and buying outside of budgets through obtain massive debts?
The car dealerships will never be selling the amounts they were previously, or if they do, they will need to cut down their prices considerably.

[FriendlyFire]

@Radical: While they may be more productive, I've heard some less-than-stellar stories on my last trip to France. Their whole economy seems to be drastically slowing down. In a small city in, if I remember right, the vallée de la Loire, we met up with a woman who was managing her bar there. She said the whole 35hr/week thing was making a lot of victims as the hourly salaries, while good for a 45-50hr week, were not enough for a 35hr. Therefore, people were slowly getting less and less money to live on. This leads to many people doing "illegal" overwork. I can see why other countries may not like the idea all that much.

As for the bailout of the US motor industry, I believe just shelling out billions for them would not give much in return. Sure, you can lend them money, but what guarantees you they'll actually be able to pay it back? As it stands, those companies would have to continually be funded by the government to live out a while longer. How could they find money to repay the gov when all their money comes from that same gov? They won't become profitable overnight. "Restructuring" would take more than a few months. Changing their focus won't be easy. They really need to wipe the table clean.

As for the "nobody will buy from a bankrupt company", I'm asking if many people will buy from a company living on government funding. It's not hard to add up 1+1 and see that they SHOULD be bankrupt but are basically living because of those funds. On top of that, here in Canada, all I'm seeing are "energy economy" ads. All car companies are doing those. However... American car companies really don't fare as well. One GM advert basically only shows one car: the Volt. 2010 predicted release. Now that's showing how healthy an image they give us. They have no car worthy of showing, so they resort on a concept car which is just about 2 years from coming out!? Ford still likes to release pickup and SUV ads, despite the fact this market is dying. And Chrysler, well I haven't seen any ad from them in months.

[Orao]

I believe France has a 35 hour work week. The funny thing is, the average French worker is more productive in terms of GDP per labour hour than the average American worker. So much for the stereotype that French people are lazy.

Hehe not all are working 35h per week. Only manual workers and up to technician are concerned by this law. Engineers, middle and senior management have not fixed working hours which means that they can work for as much as 52h per week or even more if situation demands it. They can "reclaim" that time by gaining 1 day off work per month and they can ask it only if the project or the job doesn't suffer. At the end of the fiscal year if they don't take them, those days are lost for ever and they are not paid.


Back on topic. I find it amazing why every time that the US economy is in trouble ppl think that whole world economy will simply collapse.

Since Clinton the USA isn't major industrial producer any longer it rather transformed itself into global consumer. But even then it buys more goods from China than from the EU. The EU industry sells more to its internal market than to the world market. But yes the EU is flooded with cheap China goods too.

Now one way on balancing the things is that everybody plays by same rules. It is simple yet many will cry that it is protectionism and will ask for market to "auto regulate".

I'm an engineer and I have yet to see the system which is unconditionally stable while functioning in open loop. The guy who invents that will have not only the Nobel prize but it will make obsolete a very large portion of the today technology.

What I mean to say by this is that the today system has shown its limits. Politicians are elected not to be on the payroll of citizens but to guarantee stable economical situation while trying not to start another war. They all failed because of sacred rule : "we will let system to auto regulate" while in same time ppl who are in charge of system can't see much further that 7 days ahead.

However this is an unique chance we have today to rebuild the system not only for sake of changing but for a sake of making it more fair. Every work should be paid at its just price.

Market traders and speculators are as far as I'm concerned the parasites of modern society just like aristocracy back in old days. They produce nothing yet they earn millions.

[No Surrender]

GroundZero: I've never really approved of the rampant use of credit in Western societies. A lot of people are living at standards unsupportable by their level of income. Now that we're finally seeing the effects of such abuse of consumer credit, most governments are responding by trying to shore up the credit companies with more capital so they resume lending. To me, this is a bit like solving a heroin addicts withdrawal symptoms by giving him a hit of heroin. I might stave off the effects now but will just worsen things in the long run. People need to start spending what they earn, whether its on cars, houses or anything else.

[SubZero]

Very true NS.

The problem is that society has credit and debt engrained in it's very fibre. So much lending has occurred, that it has almost falsified actual financial situations for companies and this is what is happening now.

The Governments are intravenously putting cash into these companies to keep them afloat, yet they will merely do the same again. So every few years a recession will occur, more cutbacks, more redundancies and so forth.

What actually can they do aside from putting a freeze on lending agencies? People are too selfish to cease borrowing - plus most people actually *need* to borrow (Mortgages, private hospital care, putting people in care homes etc).

[Radical]

Whatever the solution to the credit problem, it will be painful. The longer we stave it off, the more painful it will be.

In the past, people were frugal because they expected to one day enjoy a better life because of it. In the future, people will have to be frugal and there won't be a bright future to look forward to, just a life without debts.

Ironically, since these debts are tied with a higher standard of living, people will have no reward for being frugal. Hence, the much more likely outcome is that people will self destruct themselves with credit rather than take steps to fix their situation.

[Orao]

The credit isn't issue here. Don't be mistaken. Without credit you can't afford to buy a house or the car. Well actually you can but after saving for 25 years for house or after saving for 3 years for the car. Anyway the problem is the speculation once again.

Many loan companies were lending money without checking if people can pay it back. They speculated that in case of no payment the good (in this case the house ) will be sold for 3 times its buying price and therefor the company will make more money than it invested in the beginning.

They speculated that the house prices will continue to increase indefinitely which is a non sense. At certain point you had more offer on the market than demand and the situation blew up.

After that it was a chain reaction. Loan company was unable to sell the house, being unable to sell it the company was unable to payback its own credit etc etc....

So the problem isn't the credit the problem is a complete lack of regulations and safe guards being short cut. Once againg it is all because ppl willing to have an easy money in other terms financial markets speculators

[Radical]

@Orao

So what's wrong with saving for 25 years to buy a house? Is having your own house somehow an inalienable human right now and every person absolutely must have his own house upon employment, even when he can't pay for it?

[No Surrender]

Radical: Holy crap, I just had to go outside and check that the seas hadn't turned to blood and the moon wasn't burning. For once, I completely agree with you :D.

Orao: The problem isn't the existence of credit itself. Without mortgages, only a tiny segment of the population would be able to afford to own housing. However, the problem occurs when people borrow more than they could possibly pay off. The loan companies wouldn't be in this mess if the people they had loaned money to were able to make their payments. The assumption that house prices will always rise isn't a bad one, at least in the long term. The amount of land on Earth is more or less constant while the population of the Earth grows. Therefore, it would stand to reason that demand, and therefore value, of land will continue to go up in the long run.

Back on the topic of cars, the downfall or drastic downsizing of American firms may be a good thing for the US in the long run. Without local brands, Americans would have to buy Japanese or European cars. This should increase the expectations of the American consumer in terms of fuel efficiency and general safety and design features so that when US entrepreneurs try to break back into the industry, they'll have to sell much higher quality cars to be competitive. On the other hand, the dual hammerblows of the credit crisis and this collapse could depose it as the leading economic superpower.

[**Spetsnaz**]

Many loan companies were lending money without checking if people can pay it back. They speculated that in case of no payment the good (in this case the house ) will be sold for 3 times its buying price and therefor the company will make more money than it invested in the beginning.

thats not true at all. i work at bank. Banks give you loans for a house, based on a estimate of a specialized "real estate taxer" (he says: this property is worth so much)
and banks always calculate the income, in case of a forced sale, of this property at 80%

So in any case, not 300% - most definitley not.

So what's wrong with saving for 25 years to buy a house? Is having your own house somehow an inalienable human right now and every person absolutely must have his own house upon employment, even when he can't pay for it?

because it isnt possible anymore for the majority of the population to buy a house anymore then, thats why. if you are paying 800€ in rent every month, in no way most families could save, lets say 200.000€ in 25 years to buy a home. (kids, illness, school bills, electricity & gas, you know it)
and that would result in a major hit for one of the biggest industries we have here: the construction industry..

[Radical]

because it isnt possible anymore for the majority of the population to buy a house anymore then, thats why. if you are paying 800€ in rent every month, in no way most families could save, lets say 200.000€ in 25 years to buy a home. (kids, illness, school bills, electricity & gas, you know it)
and that would result in a major hit for one of the biggest industries we have here: the construction industry..

So the obvious solution is to give credit to people who might not be able to pay it off?

Even if they wouldn't be able to do it in 25 years, what about in 40 years?

[Mr Carrot]

Just to cap the whole French productivity thing off from a recent Stiglitz lecture yes they are the most productive workers in the world, but this is less to do with work ethic and more to do with incredably restrictive employment legislation brought in over a prolonged period of time.

Because it is so difficult to shed excess employees, or fire poor ones the level of capital investment per worker is much higher than the global average - this dramatically increases productivity per worker (usually because it has nothing to do with the worker but the quality of the tools/foreign contracted services). This is a good and a bad thing, in creates an indefinite rural and urban peasantry in France because workers are locked out of even the most basic job types owing to the cost of their employment in the end leading to a black economy (not as in black but as in black market) fueled by illegal immigration. It also massively reduces macro economic responsiveness again the prevelance of automotive engineering and agriculture in the French economy is a factor of employment law and other protectionist policies not a testament to the success of either.

A more recent example would be the French finance industry, trading houses and brokers are going out of business left and right because they cant shed workers (in particular graduates) at a fast enough rate. The larger firms and banks are safe because the French government and ECB have been proping them up for far longer than this financial crisis has been around.

[CmdKewin]

"Owning an house" has a strong value in europe, with a few differences in percentage/owners/age, but it's something pretty much everyone around here wants to achieve in their life.

My grandparents built their own house over the course of several decades (VERY common, still today, in Italy).
My parents saved for about 10 years, just to have the minimun "5% cash", in order to be able to get a mortage. They then spent the next 40 years to pay the rest (they are still paying). I'm not planning to buy an house in the next 10 years, but I'm putting money in a separate pension fund (aside from the ones required by law), which will also serve that purpose, when time arises.

Saving money still is at a moral height-point on this side of the pond. From whichever side you look at it. And no bank in Switzerland will give you credit without proof that you're able to repay it. Same goes for Credit Cards.
And that was also BEFORE this whole "subprime" thing.

[Orao]

Just to cap the whole French productivity thing off from a recent Stiglitz lecture yes they are the most productive workers in the world, but this is less to do with work ethic and more to do with incredably restrictive employment legislation brought in over a prolonged period of time.

Because it is so difficult to shed excess employees, or fire poor ones the level of capital investment per worker is much higher than the global average - this dramatically increases productivity per worker (usually because it has nothing to do with the worker but the quality of the tools/foreign contracted services). This is a good and a bad thing, in creates an indefinite rural and urban peasantry in France because workers are locked out of even the most basic job types owing to the cost of their employment in the end leading to a black economy (not as in black but as in black market) fueled by illegal immigration. It also massively reduces macro economic responsiveness again the prevelance of automotive engineering and agriculture in the French economy is a factor of employment law and other protectionist policies not a testament to the success of either.

A more recent example would be the French finance industry, trading houses and brokers are going out of business left and right because they cant shed workers (in particular graduates) at a fast enough rate. The larger firms and banks are safe because the French government and ECB have been proping them up for far longer than this financial crisis has been around.


Ehh excuse me but do you live and work in France or this is some second hand experience ???

If they want to fire you in France they can do it really easy. No problem at all. Check Renault SA : 4000 employees will be laid off during 2009 to witch you have to add 5000 already laid off during 2008. Same goes with Peugeot.

As far as protectionism policies are concerned once again I would like you to give me straight proof of what you are talking about. The only protectionism in this country (France) is done by politicians for politicians in other terms we are suffering from same shitty anglo-saxon narrow views in what the progress should be as the rest of the world.

As far as finance industry is concerned it isn't sinking but it isn't making huge profits neither. And if I follow your idea ppl should be fired because the financial industry isn't making enough profit even though they are making it but not as much as market would like. Isn't this a stupid view in which you serve the economy instead the economy serving you ???? I don't want such world for my kids. Maybe it is ok with you but not with me.

@Spetznatz
What I wrote is true. In Europe banks are controlled by authorities and laws are there but in the USA from where the financial crisis came after September 11th. The interest rates were very low and many contracted housing credits with variable rate even though they knew that they will not be able to pay them should the interest rate increase heavily. Banks which granted them those credits didn't properly check their backgrounds. You don't give a 250 000 € credit to someone who is making 15 000€ per year. And this is what happened with subprime mortgage crisis.

[Mr Carrot]

I dont quite get your point, the French have persued protectionist policies for their industrial and agricultural sectors at a political level (driven by unions and lobbyists) whether through direct government intervention, purchasing fleets of cars from said manufacturers or the crippling insistance on not altering the CAP enough. As others have pointed out in this thread GM, Ford etc. should really not still be around as firms in their current guises but are there nonetheless thanks to congressional wrangling. To the same extent France really does not have the market or the orders for three large automotive firms.

No where did I say that they were the only ones nor did I say that they were wrong to chose the form of welfare state they had (they have a higher standard of living). I was simply pointing out the HUGE problems it has caused all sectors of the economy in terms of the black labour market and flexability and the fallacy that greater productivity means aa a rule a better workforce (in total) or economy. As for the finance industry, French finance firms NEED to cut costs they are having particular difficulty severing contracts signed in the last one/two years, yes many are making profits but others operating costs are so high that they will quite literarily go to the wall before they can shed excess staff to keep things afloat.

I have first hand experience of the French finance system (a brokerage I was an intern for found had to close its Parisian offices in the late 90s because it simply cost too much in terms of staff to keep it running) , I have studied in detail the employment system and the economic competetivness of the French manufacturing industry in detail.

Have you not wondered why unemployment in france is so far above the EU average?

"France’s unemployment rate is 9.9%, but this average figure hides enormous levels for 55-64 year-olds (63%) - one of the worst figures among OECD countries – and 18-25 year-olds (more than 25%). The numbers too exclude those involved in different schemes: pre-pension, RMI (income support)."

http://www.opendemocracy.net/globalization-institutions_government/france_2949.jsp

It is incredably expensive to hire someone (or train them if they are young) in France for the main reason that it is incredably expensive to get rid of them (or it they are too old an need to retire). France is touted (by Chirac) to have the highest legal enforced job security out of any European nation. Losing 9 thousand employees in an automotive sector that has been doing badly for 60 years is not a rousing triumph of the free market forcing efficiencies during recession its a barely a blip. Again France arguably has the highest job security in Europe, this is backed by a powerful and active protest lobby, a million turned out to protest the last attempts to make it easier to higher and fire young workers with the CPE. But this has just created a climate where workers are recycled through groups of firms for short term contracts because no one wants or can afford to take them on with a full contract which offers the substantive benefits and near total job security.

[**Spetsnaz**]

@Spetznatz
What I wrote is true. In Europe banks are controlled by authorities and laws are there but in the USA from where the financial crisis came after September 11th. The interest rates were very low and many contracted housing credits with variable rate even though they knew that they will not be able to pay them should the interest rate increase heavily. Banks which granted them those credits didn't properly check their backgrounds. You don't give a 250 000 € credit to someone who is making 15 000€ per year. And this is what happened with subprime mortgage crisis.

i know. i work in a bank. i work in one of the worlds largest banks, compared by assets.
i also know this whole GLOBAL problem is brought on to us by AMERICAN credit habits.
and it isnt finished yet.

no offense to american guys, all americans i met in my life were love-able people, but their politics are really one of the worst in the world.

[l337raceryo]

Spetsnaz is a Communistic, Polygamist, Muslim, North Korean, Terrorist!


Oh yeah, fit Pakistan in there somewhere, Pakistan is now the new hate word in American news media.

[Pooey_Mess]

American politics are horrible because everything is right-of-center. As soon as someone mentions the word "regulation", people scream Commie or socialist. A major part of the problem is that people still buy into the idea of Reaganomics over here, which has only decreased the middle-class and has made the rich even wealthier. I can only hope that this economic crisis becomes so bad that the Democratic Party finally becomes a truly leftist party, or a leftist party arises to take the place of the Democrats.

[Radical]

@Pooey_Mess

Because that's pretty much what it boils down to. I fully support the idea of reasonable regulation - but if you make a mistake and screw up the economy because of it, it is only fair that they put you before a wall and shoot you, not go "it's okay, everyone makes mistakes".

Next thing you know, people are going to advocate socialism as a way out of the crisis.

Oh yes, I'm also hopeful that the crisis will worsen here as well - maybe once there's no more money to pay for public pensions, free healthcare and free education people will realize that it costs, you know, money and finally get off the government tit and start working.

[Orao]

So according to radical ppl are just lazy and they don't want to work despite the fact that the market is crying for workers.

Well I suggest you to step out of your home take a walk in the rest of the world and see it for your self.

People are willing to work but there is either no job available or the one they get are paid such misery that they are loosing more money than making it.

Good example is an industry.

Production costs are too high we are not competitive any more. No problem we will move out our production to China instead cutting dividend down or reducing what is a single chairman paid for taking shitty decisions.

Good we will close our production lines and we will lay off our workers and then we will sell them the product for a price 3 times its production and shipment cost.

Yep nice thinking but those rocket scientists didn't figure it out if people are not getting good jobs then they will have less money to spend and even will have to cut their expenses.

Only a handful will benefit from such policies and this is where the free market without rules by which everyone should obey is touching its limits.

So Radical unless you and you alike not wake up you are doomed to disappear just as dinosaurs.

It is a second time that the world is getting screwed by such dogma which says the market will auto regulate it self. The first time it ended in the World War 2 the second well we shall see how this thing will end but you can only be sure that in times like this people are steering more toward radical positions and not necessary toward your views.

[Pooey_Mess]

I'm not advocating socialism. I'm advocating the increased use of leftist politics. Because there is no major party in America that identifies itself as THE leftist party, American politics will always be right-of-center, which means even reasonable regulation will be hotly debated. Without a liberal political platform to combat the Limbaughs and Palins of the Republican Party, the economy will follow a never ending death spiral. As soon as things go bad, people call for regulation. As soon as things get good, people call for mass deregulation and then the economy tanks again shortly after. The cycle repeats itself for eternity.

Having a leftist party to counter the Republicans means we could get closer to a Keynesian economic model, and thus a more stable economy that doesn't go through periods of erratic regulation/deregulation. A nation's economy should look to, and plan for, the future, rather than reacting to events day-by-day.

Oh, and btw Radical, if you think social programs like pensions, healthcare, and education drain the economy, then what about the half-trillion dollar blank check that Congress hands to the Pentagon each year? Maybe we would all have more money if we invested in educating our work force rather than bombing the Middle-East.

[No Surrender]

Oh yes, I'm also hopeful that the crisis will worsen here as well - maybe once there's no more money to pay for public pensions, free healthcare and free education people will realize that it costs, you know, money and finally get off the government tit and start working.
Which is great for you, except for the tiny detail that the US doesn't have free education, healthcare or pensions (so far as I know). If anything, this collapse is a damning condemnation of unrestrained free market capitalism than it is against social services.

[CommodoreKitty]

I'm advocating the increased use of leftist politics. Because there is no major party in America that identifies itself as THE leftist party, American politics will always be right-of-center, which means even reasonable regulation will be hotly debated.

Well, you think that the lack of a "leftist" party and a general trend for right-of-center politics just possibly might be due to Americans as a whole being a little more conservative than the rest of the west? I know its a startling idea, but, I've heard crazier shit...

America is not Europe is not East Asia or anywhere else in the world, you are going to see the cultural differences reflecting in the political system. I bring up the comparison thing because something has to act as the gauge for "center" when saying that America is right of it, and the only way to do that is to compare it to other countries/cultures.

Creating a genuine leftist party at this time, on top of going against what many Americans would feel as natural, isn't all that good an idea as it isn't going to balance squat. Again, just because a policy works for one area doesn't mean it will work in all of them.

And the education is free up to the twelfth year hear. Not that that makes much of a difference, but, yeah.

[Radical]

@Orao
I'm sorry, last I checked people opened companies to get rich, not create jobs. Hence, criticizing stockholders for making decisions they believe are in their best interest is silly and hypocritical.

How does producing in China increase production costs? I thought the basic premise was that it reduces expenses, hence why people open companies there.

As for loss of purchasing power, there are alternatives, such as changing your target market or adjusting prices.

Also, the idea that poor auto-regulation of the market was the cause of the Great Depression is only one of the theories - there are at least two others that are blaming the Fed for it, one of which the Fed admitted to.

@Pooey_Mess
Where's your proof that regulation - deregulation cycles causes recessions?
Because, you know, I have a publication here that says that the main cause for the crisis is bad economic policies by the government.

And yes, military spending is possibly the only thing on my list of pointless expenditures above social services.

@No Surrender
Or maybe the reason is the lack of responsibility in government, particularly in Fed?

[No Surrender]

That's my point Radical. The role of the government is to temper the greed inherent in free market capitalism with the common good of the society. To me, this crisis shows us what happens when companies are allowed to do whatever they want.

[Radical]

@No Surrender
I wouldn't say that free market capitalism is going against society. Rather, it's about managing costs and benefits - something governments have a lot of problem handling as they tend to go from one extreme to the other.

Also, I wouldn't go and condemn this greed because then I'd also be condemning everything said greed spawned, which is, in short, the entirety of modern civilization. If it wasn't for our greed, we'd still be living in caves because there'd be nothing to push us forward.

EDIT:
In short, greed, by itself, should not be punished as it's not the problem - the methods are. If you're greedy for money and open a business that provides a service and new jobs, you should most definitely not be punished, even if your motive is greed. However, if your greed produces no benefit for society then indeed, it should be outlawed.

[TheDeadlyShoe]

Sometimes self interest leads individuals and groups to act in ways that are destructive to society as a whole. The tragedy of the commons is a prime example of this. Society has an interest in restricting and channeling self interest so that it remains productive. Regulation, criminal law and contract enforcement are all vital in ensuring progress continues.

[Radical]

@TheDeadlyShoe

Of course. The problems, however, arise when you enter the gray area - the place where personal interest and societal benefit are both present, but there is also damage to society in a different sphere - a rather recent example was a rock wool factory that planned on opening jobs but was stopped due to the perceived damage it would do to the environment.

The critical problem here is that there are no strict guidelines by which the damage/benefit ratio can be measured - decisions are essentially made with lacking information.

[**Spetsnaz**]

Next thing you know, people are going to advocate socialism as a way out of the crisis.

there is so much hate in that sentence;
dont ever forget that, as a human species, what we need to evolve is GLOBAL thinking. the economy is allready at that global level. politics, healthcare etc are not yet.

the economy is there to serve mankind. not vice versa.

in europe,w e pay a lot of taxes for "social benefits": Hospitals, police, reduced medical costs, free schools etc
this worked until our retard politicians looked on the US of A and dicovered liberalism: now, we are still paying all those taxes, but schools have become paying, ending up in a hospital will cost you dearly, and all other things that are supposed to be payed by community taxes are now also charging the population in direct.

thats no good.

i find it very normal that my children would have a fair chance of going to a good university without me being able to pay lots of cash for it. the opposite would be very unfair, and i think most europeans will agree to this idea.
Hospitals and healthcare should be free and accessible for everyone.

why? because we are humans, not cash machines. we dont exist to become rich at the cost of everything, we exist to make progress & try to be happy - not to be skinned by some combination of ruthless politicians & false leaders

get a grip. capitalism is a means to an end. not an ideal.

man, there you done it, i got carried away. i can get irritated by such neo-con short-sighted people.

i guess you also think that the environment is a problem for the next generation? :-/

Oh, and btw Radical, if you think social programs like pensions, healthcare, and education drain the economy, then what about the half-trillion dollar blank check that Congress hands to the Pentagon each year? Maybe we would all have more money if we invested in educating our work force rather than bombing the Middle-East.

quotes FTW! nice one Pooey ;-)

Where's your proof that regulation - deregulation cycles causes recessions?
Because, you know, I have a publication here that says that the main cause for the crisis is bad economic policies by the government.

lol. the greed of the banks hasnt got anything to do with it then?
the fact that loaning cheap fed money to gamble with on the stock exchange got them in to trouble?
having 50$ of debt for every owned $?
handing out mortgages to people on social-benefit?

the one & only thing that caused this crisis is GREED. "we had ONLY 800 million profit this year" - OMG !! sell you stocks!! they have 0.5% lss profit than last year!

because of that everlasting pressure on the stock market, banks tried new ways to gain even more and their last experiment has now resulted in global economical doom

gouvernments fault in this is that they werent looking hard enough (they r all corrupt anyway, some exceptions exist off course)

the guilty party is GREED.

and Radical, GREED does not equal PROGRESS

caveman evolved because he was hungry. not because he wanted to catch more deer than he could possibly eat (=greed)

[Radical]

@**Spetsnaz**

No, no hate - just bitterness mixed with amazement. I had an opportunity to briefly live in a socialist country. No, not the basic human rights trudging type, but a socialist country that might have actually been called a success. Even then, it was still a hellhole compared to the "evil capitalistic" countries of the West and people were emigrating at full speed into places like the US or Australia.

Don't get me wrong - I fully support your human right; if you want free healthcare or free education, by all means, go for it - just not out of my pocket. I fully support the idea of social services, under one critical condition - that it's voluntary. Anything else and it's institutionalized theft covered with layers of moralistic ("the better off should support the worse off") BS and nothing more than a way for one segment of society to get what it wants at the expense of another.

While I agree that capitalism is not the end of it all, some of the presumptions it makes are correct - a competitive market is better than a non-competitive one, prices are best decided by the buyer and seller and lastly but most importantly - acknowledgment of personal interest as the main motivator. Capitalism doesn't sweep the fact that man is a greedy, egoistical monster under the rug. It adapts to it and uses said ambition to fuel the progress of society, which is, in itself - amazing.

GREED is what fuels PROGRESS. The desire to be better off than before.

Do you need cars to surive? No.
Do you need TVs to survive? No.
Do you need the internet to survive? No.

I tend to repeat the same suggestion to people who label greed as something bad - live what you preach. Deny all worldly possessions and live with only that which you need - food, water, clothing and shelter. Complaining about how other people are greedy but redefining your wants as something other than greed is hypocritical.

EDIT:

As for the recession related stuff - it's the duty of the government institutions to maintain order - if problems occur within the market then it's ultimately the regulator, in this case being the Congress/Fed, to blame for because its sole purpose is to maintain a functioning economy.

Blaming economic problems on banks who act in their own personal interest is silly - that's like blaming a prisoners for escaping rather than the guard that was supposed to watch over them.

[No Surrender]

Inordinate or insatiate longing, esp. for wealth; avaricious or covetous desire. Const. of.
Greed, by definition, is bad. Radical, what you are describing is called self interest which no one is objecting to. Greed is an excessive amount of self interest, generally pertaining to wealth in this context. When people talk about greed, they're talking about an undesirable amount of self interest. For example, say that you own a car and you and some friends from work decide to car pool. Self interest would be charging them $5 a person a week to help pay for gas or to compensate you slightly for the time you spent going out of your way to pick them up. Greed would be charging them $50 a week simply because you see an opportunity and exploit it at the expense of others. There's nothing wrong in acting in a way that benefits yourself, there is only something wrong with benefiting yourself at the expense of others. So to reiterate, greed is inherently bad, self interest is not. It is best not to confuse the two.

Blaming economic problems on banks who act in their own personal interest is silly - that's like blaming a prisoners for escaping rather than the guard that was supposed to watch over them.
Wait, so by your logic we shouldn't blame Hitler for WWII but we should blame Britain and France for not having stopped him sooner? Should we blame the police for rapes because they weren't around to stop the rapist? This logic doesn't take into account the morality surrounding an act. Blame generally rests with the first party to act immorally or wrongly. Hitler is to blame for WWII because he invaded Poland. The rapist is responsible for rape because he was the one who violated a woman. The only circumstance I could see this argument applying is in the case of children or the mentally handicapped who don't know any better but that clearly doesn't apply here since a bank is run by neither.

PS: The internet was developed by the Department of Defense to survive in case of a nuclear attack. It has less to do with greed than it has to do with fear.

[Radical]

@No Surrender

Aye, I see what you mean. We can refer to it as self interest from now on.

It begs the question, however - is wanting to keep as much as possible of what you earn greed, or self interest?

EDIT:

Yes, the culprit is to be blamed for the act. But if you are a regulator and your duty is to regulate, and you fail at your duty, then indeed you are to blame for failing in your duties. And ultimately, it's not the fact that business entities try to cheat, but rather that the referee allows them to get away with it that causes all the problems.

[No Surrender]

It depends. But that really has nothing to do with the car industry. Let's all try to keep on topic shall we?

[**Spetsnaz**]

news got out yesterday what the american carmanufacturers are asking for:
* Chrysler only asks for 7 billion $
* Ford needs a bit more and wants 9 billion $
* GM doesnt is the least shy and wants more than the other 2 combined: 18 billion $

total: 34 billion $

not too shabby i'd say

[No Surrender]

I also saw on the news that the CEOs are willing to work for $1 a year until this thing blows over. I guess that stuff about the private jets actually had some sort of effect.

[Mind Strike]

Dont know if its been said already but it was on the news today that the big 4 US car companys need $34 Bllion or they will collapse.

[A176]

Chiming in to say "hell no" to the big three. They already went through massive restructuring not-too-long ago, and what do they have to show for it? GM was the only one to return atleast one profitable fiscal year (iirc), but now somehow they're back in the shithole? Please, lets give these idiots more money to waste. Oh hey, money mismanagement, didn't we just go through that?

[**Spetsnaz**]

i think they'll get their money.
if they don't, they'll have an even gretaer avalanche of bankrupcies on their hands

that's just the way it is

[TheDeadlyShoe]

http://www.washingtonmonthly.com/archives/individual/2008_12/015946.php
Jolted by news of the worst job losses in more than 30 years, congressional Democrats were near an agreement with the White House yesterday on a plan to speed at least $15 billion to the faltering Detroit automakers in hopes of averting the collapse of an industry that supports millions of U.S. jobs.

imo: let Chrysler bite it, focus on saving GM and Ford.

[**Spetsnaz**]

it said in the paper this morning that they'll get 17 billion $ for now, until Obama gets into office and then they can see what needs to be done...

unbelievable. those 17 billion is just until february then (i think thats when Obama comes, right)

[TheDeadlyShoe]

Jan. 20.

Don't extrapolate anything based off the time frame. They arn't losing $17 billion a month. :)

[Saberdark]

Can't say I didn't see this coming, but hopefully Bush will veto it.

[TheDeadlyShoe]

Why would you want a veto?

[Saberdark]

Cause I don't think its a good idea. I don't expect to be seeing that money again, they will most likely have to go into bankruptcy anyway. Plus once you start bailing out failed industries, where does it stop?

[TheDeadlyShoe]

Even if you are opposed to an automotive bailout on the merits, all a veto would accomplish is wasting time and money. If the Congressional votes are there *now*, it's going to happen in 2009 anyway. And the later it is the less effective it will be since we'll have had a month of confusion and bleeding wounds.

[Saberdark]

If they get the votes to pass the bill even with a veto, then I would say just go ahead with it. But I'm not sure that they will.

[TheDeadlyShoe]

They probably won't. But the veto magically goes away on Jan 20. All that's accomplished is wasting time.

Additionally it's considered bad form to sabotage the next President's agenda. GWB is focused on his 'legacy'; I doubt he will cast a veto. They don't call it the lame duck session for nothing.

[Starfisher]

The interesting thing about all this is the way it has all come full circle. Ford invents the assembly line and realizes that paying his workers more means that they'll buy his cars. He then fights unions for about twenty years, believing that they will destroy the productivity of the industry. Meanwhile, union gains and Ford's philosophy of paying good wages to good workers helps create the middle class. Eisenhower builds the highways and voila! Picket fences and two bedroom houses here we come.

Now we're watching the middle class decline as the industry that helped create it sinks under wage and benefit bloat as well as mismanagement. US manufacturing and other actual productive industries are all basically dead, with no sufficient replacements waiting in the wings. Bad management is back in style. Not quite back where we started, but getting there.

Read this in a book somewhere (can't remember exact words): First come the conquerors, who change the world. Then come the administrators, who bind what the conquerors made into an efficient machine. And finally come the squanderers, who fritter away the gains of the past with shortsightedness, ignorance and greed. I think we're living through the third stage right now, and hopefully stage one kicks in again sometime soon.

[Radical]

Are you forgetting that conquerors usually involve conquest as well and conquest, IMHO, is not something we should be looking forward to...

[Energizer Bunny]

I for one appreciate the irony that the funds are coming from the energy department fund for fuel efficient vehicles. I would not initially have looked to Detroit as a beacon for fuel efficient vehicles, but clearly I am mistaken.

[Starfisher]

Are you forgetting that conquerors usually involve conquest as well and conquest, IMHO, is not something we should be looking forward to...Better a new beginning to the cycle than it ending with a long slow decline into decrepitude. Creative destruction is necessary to keep things moving. Also, business conquest, while somtimes very stressful and life altering, does not usually result in people getting killed. So it's not exactly something to be THAT fearful of.

[**Spetsnaz**]

First come the conquerors, who change the world. Then come the administrators, who bind what the conquerors made into an efficient machine. And finally come the squanderers, who fritter away the gains of the past with shortsightedness, ignorance and greed. I think we're living through the third stage right now

1. very well put
2. im amazed you actually hold open the possibility that we are not in the third stage...

Creative destruction

let me guess, you have been reading Greenspan's memoirs also? :bump:

[Starfisher]

Actually, no. Creative destruction gets tossed around a lot when talking about long term economic cycles though, so it's possible I've read something he said about it.

I'd say we're between 2 and 3 now, or maybe in 3. Nothing in reality is ever so cut and dried, and hey, who knows, maybe bailing them out and changing the management will magically make the car industry competitive again someday. But those stages are the feel you get from a quick skim of the history involved.

[No Surrender]

The way I would handle a bailout is to inject money into the automakers by buying up newly issued special shares until the government gains a control majority (51%). Then, I would keep the current leadership but make sure that they report to a government commission set up for monitoring the progress of automakers. Dividends would be paid back to the government to compensate the taxpayer for the initial outlay and the controlling interesting will be sold off later when the companies are making profits again. This would ensure that the taxpayer gets their money back and that the companies are not blinded by the same greed and incompetence that got them into this mess in the first place.

[crobato]

I just got this from my email, seems to tell an accurate story.

An American Parable

A Japanese company (Toyota) and an American company (Ford Motors) decided to have a canoe race on the Missouri River. Both teams practiced long and hard to reach their peak performance before the race.

On the big day, the Japanese won by a mile.

The Americans, very discouraged and depressed, decided to investigate the reason for the crushing defeat. A management team made up of senior management was formed to investigate and recommend appropriate action.

Their conclusion was the Japanese had 8 people rowing and 1 person steering, while the American team had 7 people steering and 2 people rowing.

Feeling a deeper study was in order, American management hired a consulting company and paid them a large amount of money for a second opinion.

They advised, of course, that too many people were steering the boat, while not enough people were rowing.

Not sure of how to utilize that information, but wanting to prevent another loss to the Japanese, the rowing team's management structure was totally reorganized to 4 steering supervisors, 2 area steering superintendents and 1 assistant superintendent steering manager.

They also implemented a new performance system that would give the 2 people rowing the boat greater incentive to work harder. It was called the 'Rowing Team Quality First Program,' with meetings, dinners and free pens for the rowers. There was discussion of getting new paddles, canoes and other equipment, extra vacation days for practices and bonuses. The pension program was trimmed to 'equal the competition' and some of the resultant savings were channeled into morale-boosting programs and teamwork posters.

The next year the Japanese won by two miles.

Humiliated, the American management laid off one rower, halted development of a new canoe, sold all the paddles, and canceled all capital investments for new equipment. The money saved was distributed to the Senior Executives as bonuses.

The next year, try as he might, the lone designated rower was unable to even finish the race (havi ng no paddles,) so he was laid off for unacceptable performance, all canoe equipment was sold and the next year's racing team was out-sourced to India.

Sadly, the End.

[No Surrender]

Not quite the end since the Obama government just announced that there would indeed be a bailout to the auto industry.

[Energizer Bunny]

http://news.bbc.co.uk/1/hi/business/7778830.stm

Indeed. And it's failed. I don't particularly fancy going to work today. I suspect a lot of red screens.

[TheDeadlyShoe]

apparently the "dealbreaker" was that the democrats and UAW wanted the huge wage decrease to take 3 years, while the republicans wanted the huge wage decrease to take 1 year

in otherwords the republicans got everything they were asking for - the money came from a fund established to support green cars, they completely eliminated the union wages - but kept throwing up roadblocks anyway.

:rolleyes: what a stand of principle, republicans. assholes.

*edit*

NYT (http://www.nytimes.com/2008/12/12/business/12rescue.html?_r=1&hp=&pagewanted=all)

"With Congress failing to agree on a bailout for Detroit, the odds that General Motors and Chrysler will be insolvent by year's end are growing rapidly.


The companies have been warning that they would run out of money for some time, but crushing bills from their suppliers are coming due. It appeared unlikely that they could hold on until President-elect Barack Obama takes office next month, when he and a new Congress might be able to provide a lifeline, as a Congressional rescue this year looked increasingly unlikely. (...)

General Motors and Chrysler, for example, owe their suppliers a total of roughly $10 billion for parts that have been delivered. G.M. has held off paying them for weeks, and Chrysler is paying in small increments. But the cash shortages at G.M. and Chrysler are getting more severe, according to their top executives and other officials. (...)

Many of their suppliers are teetering on the verge of bankruptcy themselves, and do not have the luxury of extending credit much longer. (...)

When suppliers big and small start failing, the flow of parts to every automaker in the country will be disrupted because as suppliers typically sell their products to both American and foreign brands with plants in the United States."

"There's no question it will hit Toyota, Honda and Nissan too," said John Casesa, principal in the auto consulting firm Casesa Shapiro Group.

"Many of the small suppliers will simply liquidate because they don't have the resources to go reorganize in Chapter 11 bankruptcy," Mr. Casesa said. "They'll just go away."

gg

[Langy]

I don't blame the republicans - I blame the democrats for ignoring the huge labor cost gap between Japanese automakers and American ones. The UAW's killing the auto industry in America, probably more so than fuel costs.

[Saberdark]

This is why the Big 3 need to declare Chapter 11 now, not later.

Blame the Democrats for not making the concessions. If they actually wanted the bill passed, they would have made them.

What a stand of principle Democrats. :rolleyes:

[TheDeadlyShoe]

yes, it's clearly the democrats fault, since they're the ones voting against it. wait.


I don't blame the republicans - I blame the democrats for ignoring the huge labor cost gap between Japanese automakers and American ones. The UAW's killing the auto industry in America, probably more so than fuel costs.

regardless of your stance on unionized labor, the UAW already agreed to take massive wage reductions. thus my post. please read first.


Blame the Democrats for not making the concessions. If they actually wanted the bill passed, they would have made them.
they made concession after concession. but there's always another isn't there :rolleyes:

[Energizer Bunny]

I presume that an amended form of the bill will pass, just as an amended form of the tarp did. To let these businesses fall over would be unthinkably stupid.

[Saberdark]

Maybe if they had done what they wanted in the first place, instead of going at this piecemeal you would have a case. But they didn't, and you don't. Also, maybe if the concessions weren't, y'know, good ideas that should have been in there from the start. But seeing as it was a Democrat bill, you can't blame them for trying to get the unions something. The Democrats are just as guilty here for the bills failure.

[TheDeadlyShoe]

yeah lets see

democrats: voted for it

republicans: got sloppy BJs but couldn't be bothered

--> democrats fault

fuck, even the Busheviks are more on the ball than the GOP senators...


WASHINGTON (CNN) -- The proposal to loan $14 billion to Detroit's struggling automakers collapsed late Thursday night but the Big Three may get some money anyway.

Bush officials warned wavering GOP senators that if they didn't support the legislation, the White House will likely be forced to tap the Wall Street bailout to lend them money, two Republican congressional officials told CNN earlier.

This is a noteworthy change since the White House and Treasury Secretary Henry Paulson have previously refused to use bank bailout funds to help General Motors (GM, Fortune 500), Ford Motor (F, Fortune 500) and Chrysler LLC

maybe you misunderstand something

they arn't going to go bankrupt, reorganize, shed a few jobs, and be back in a few years

they're going to liquidate. All those jobs. Gone. Industries dependent on them. Gone.

http://www.princeton.edu/~pkrugman/lostdecade.png

see that line? even if you hate unions, even if you think the detroit 3 are terrible... just look at that. this isn't the time. this is the 'stand of principle' that republicans are taking... i'm not sure what principle, exactly. stupidity?

i recall after 9/11, the Democrats tried to have even a minor input on the DHS bill... tried to give DHS the same labor protections as the rest of the federal government. Busheviks, GOP threw a tantrum and called democrats traitors and america-haters and a fifth-column. Democrats got in line and basically voted in everything the Republicans asked them to. whenever they got anything in a bill, Tom & Friends stripped it out in committee. voted in... 95%? of bush administration judicial nominees, tried to block a couple of them and it's like they threatened to make abortions mandatory or something.

In the long runs, the shape of the US/World economy is far far more important than 9/11 ever could be. Republicans seem to get that when it comes to bailing out stockbrokers and banks, but when it's blue collar jobs at stake they just can't be bothered. ffs.

[Langy]

Republicans, breaking sharply with President George W. Bush as his term draws to a close, refused to back federal aid for Detroit's beleaguered Big Three without a guarantee that the United Auto Workers would agree by the end of next year to wage cuts to bring their pay into line with U.S. plants of Japanese carmakers. The UAW refused to do so before its current contract with the automakers expires in 2011.

I don't know the specifics of the bill, but this reads like the UAW trying to keep their high wages as long as possible, and hoping to not have to cut them again in 2011. Maybe they did agree to cut their wages in 2011, but not sooner - but, personally, I'd much prefer 'sooner', especially if the American taxpayer is going to be propping them up.

[Saberdark]

I'm not convinced that they will in fact disappear, but at this point I don't really care to argue that. Even if that was true, it is just as true that the Democrats are also using this bill to push through their agenda. Reasonable concessions that make sense and should have been in from the beginning are not stupidity, in fact are not even close. Whats stupid is passing a bill without the Unions lowering salaries quickly.

They aren't going to go bankrupt, reorganize, shed a few jobs, and be back in a few yearsThen they should die. If they can't do so by declaring Chapter 11, then it is time for them to leave the market. And don't bring up the jobs thing, the Foreign carmakers have factories here too, and somebody is going to need to fill the void they leave if the do die.

But this is all silly talk. Obviously this bill will pass once the concessions are made. And if the Democrats ever stonewall a bill for principles, you'd better be the first to call them on it.

[TheDeadlyShoe]

It's way cheaper to keep jobs you already have than it is to make new ones

losing 200,000 jobs (made up number) causes a death spiral of reduced demand and business bankruptcies in every sector, even if you get 100,000 jobs back in a couple years as competitors gear up.

stuff like that is why economies experience boom/bust cycles rather than closely tracking 'theoretical demand'.

a bankruptcy (rather than liquidation) is far preferable because you shed 100,000 jobs right off the bat rather than going through the down 200k up 100k cycle. there is still a lot of pain involved but everyone involved is better off.

***

Concessions HAVE been made. MANY concessions. Your (and the Republican Senators) definition of concessions seems to be 'we'll only vote for it if we write the bill'. The Democrats might go for the Republican bill anyways, because the principle of the thing is more important than your bullshit.

dragon, my entire point is - perhaps you missed it - there is no principle at stake here. what principle is served by requiring a 1 year drawdown rather than a 3 year drawdown? what principle is being served by this protracted fight? what is it about a $15 billion bailout that rends their hearts so, yet $700 billion isn't a problem?

[No Surrender]

And don't bring up the jobs thing, the Foreign carmakers have factories here too, and somebody is going to need to fill the void they leave if the do die.
Doesn't work that way. Even if we assume that foreign automakers are willing to pick up the slack, which is not really a given in today's economic climate, they still need to expand operations, build new plants, create new infrastructure. All of that requires capital, mostly in the form of loans and credit from banks. Given that even the likes of Toyota aren't turning the greatest profits and lenders are more jittery than ever, it's going to be difficult for foreign firms to expand operations rapidly enough to "fill the void" before the effects of the collapse ripple through the economy in the form of supplier firms closing down from lack of cashflow and inability to service loans. The US will probably be ok in the long run, but you'd still needlessly amplify the damage already being done to the economy, which really isn't something anyone wants at this point in time.

[Energizer Bunny]

I don't understand this prevailing notion of just 'let them die'. I saw the same thing posted numerous times when the banks were bailed out. Its like sitting in your bedroom while the livingroom is on fire and saying 'let it burn'. If you don't deal with the fire early it burns down the whole house.

[Bowkers]

From what I got from the BBC literally ten minutes ago, it would appear Senate has failed to pass financial aid to to the car industry. Which means Ford, Chrysler and GM may well go bankrupt. :/

Car Senate thingy (From what I got from the BBC literally ten minutes ago, it would appear Senate has failed to pass financial aid to to the car industry. Which means Ford, Chrysler and GM may well go bankrupt. :/)

[Saberdark]

dragon, my entire point is - perhaps you missed it - there is no principle at stake here. what principle is served by requiring a 1 year drawdown rather than a 3 year drawdown? what principle is being served by this protracted fight? what is it about a $15 billion bailout that rends their hearts so, yet $700 billion isn't a problem?
Personally I would prefer an immediate drawdown, seeing as either one isn't going to save anyone, but I doubt that a bill with that attached would get approved by the Democrats.

The 700 billion bailout was necessary. Without banks, nobody has money and we have a complete failure of the economy. It was also a government caused crisis. Bailing out the Automakers is not quite necessary. Yes, people will lose jobs, yes, bad things will happen, but it is not necessary.

I think we might be at an impasse here, cause I am talking about the long run, where job losses will smooth out.

I don't understand this prevailing notion of just 'let them die'. I saw the same thing posted numerous times when the banks were bailed out. Its like sitting in your bedroom while the livingroom is on fire and saying 'let it burn'. If you don't deal with the fire early it burns down the whole house.And if you throw a bucket of water on a forest fire it doesn't go out. A lot of people think that a bailout will not save the companies, but will instead simply prolong the inevitable.

................................................

By the way, did anybody hear that Ford doesn't want any money anymore? I'll see if I can find a link, but they seem to think they will be okay without it.

[Starfisher]

Ford has been saying all along that they don't need money. However, if GM and Chrysler go down, it won't matter that Ford is still solvent - GM and Chrysler's death would kill the supplier web anyway, leaving Ford with a solvent car business that can't buy parts. Also known as a worthless business. They've been lobbying Congress along with the other two, because they realize that without a bailout, there will be no productive economy in the US.

It is pretty stunning to watch. $700 billion bailout to banks who proceed to hoard the money and continue not lending money - complete and utter failure. $30 billion bridge loan? OH MY GOD A UNION FUCKING UNIONS BURN! Who cares that it's the last major manufacturing industry left in the US? Who cares that we'll get the money back with interest? There's a union involved and I'm a republican and fuck unions!

We'll bail out gamblers who burned themselves on derivatives bets while doing nothing productive at all, but we won't bail out the last major productive part of our economy. It's like we want to destroy ourselves.

[Saberdark]

OH MY GOD A UNION FUCKING UNIONS BURN! Who cares that it's the last major manufacturing industry left in the US? Who cares that we'll get the money back with interest? There's a union involved and I'm a republican and fuck unions!OH MY GOD A UNION! Who cares that it's the last major manufacturing industry left in the US? Who cares that we could have gotten that bill passed? There's a union involved and I'm a Democrat and save unions even if it means the industry failing!

You guys don't seem to be getting this. If the bill was truly important to the Democrats, they would have made every concession possible to get it passed. Apparently its not important enough to them either.

[Starfisher]

What part of "UAW wage difference will be eliminated" isn't getting through to you? The fact that it will take three years instead of one year is totally insignificant. Especially to someone like yourself who claims to be looking "long term".

[TheDeadlyShoe]

I'm not worried about the long run. There is a demand for cars and it will be filled.

But the devil is in the details. This isn't an argument about the long run, fer chrissakes, it's an argument over the next thirty days. And in the slightly longer run, the next couple years.

What I'm worried about is the short run, where we may see massive short-term losses to the economy, as well as economic upheavel and social dislocation. And a lot of it is preventable.

For the record, banks are a mechanism. They move excess capital from people who have it to people who need it for ventures. The rest (most of it?) is bullshit, get rich quick scams concocted by bored accountants. On that note: major investment firm revealed to have been nothing but giant ponzi scheme, $50 billion in losses estimated (http://www.balloon-juice.com/?p=14569).

In the long run the finance sector will even out as well, but applying that argument was just as problematical in practice as it is for the automakers.

Automakers are industry, that is to say part of the actual economy. If they go down there will be problems. LOTS of problems.

If the bill was truly important to the Democrats, they would have made every concession possible to get it passed. Apparently its not important enough to them either
it should be important to you too!!!

this is the fucking problem, the GOP leaders just arn't interested in governance. slogans are more important, and sticking it to democrats is more important, or so it seems.

[Langy]

What part of "UAW wage difference will be eliminated" isn't getting through to you?

The part where I can't find anything saying that was part of the bill. As far as I can tell, the reason it was rejected is because the UAW wage difference wasn't addressed by the bill at all, but that could just be weak research skills:/

[Energizer Bunny]

The bill will pass. All that is happening right now is what happened with the tarp. Political capital to those who appear tough on use of taxpayer funds, ergo first iteration of bill gets kicked to the kerb. I give it ten days at most to get an amended version through.

[Langy]

I was under the impression after reading one of the articles that Congress was on vacation until January - and that's the earliest a new bill could get through, unless they extend Congress's session by a bit.

[**Spetsnaz**]

@non-believers

my starting point of this topic was: -if- and we seem to be getting closer- the car industry in US fails, how do you assess the impact?

why such a topic? as an amateur economist, working in a bank, in a time of utter finacial dispair, i can assure you that from a financial point of view, the stock markets will not fall, but crash. and hard.

if just GM fails, and get this through you heads, thats about 100.000 jobs gone with GM alone (rough estimate) + all the small suppliers + another confidence crisis which means the others wont be getting any normal loans from any almost-bankrupt banks soon...

so, for me, the impact would be large. letting them fail is a big don't.
i never wanted to have a discussion on let or dont let them fail in the first place.

the question was more: how would the impact be? large, XL? XXXXXL?

PS energizer, if i understand correctly, you work in stock market. could you predict the effect of a bankrupt GM on your Bloomberg Terminal?

[Starfisher]

Langy: http://www.nytimes.com/2008/12/13/business/13uaw.html

Keys: In a statement Thursday night, the union said it was “prepared to agree that any restructuring plan should ensure that the wages and benefits of workers at the domestic automakers should be competitive with those paid by the foreign transplants. But we also recognized that this would take time to work out and implement” using programs like buyouts and early retirement offers to bring in new workers at lower rates.

“Unfortunately, Senate Republicans insisted that this had to be accomplished by an arbitrary deadline,” the statement said. “This arbitrary requirement was not imposed on any other stakeholder groups. Thus, the U.A.W. believed this was a blatant attempt to make workers shoulder the lion’s share of the costs of any restructuring plan.”

Mr. Corker said he proposed that wages and benefits of U.A.W. members be competitive with lower rates at American plants run by foreign rivals — Toyota, Honda, Nissan and B.M.W. — during 2009, and offered the union the opportunity to pick the date next year when the changes, which would be certified by the Labor Department, could be put in place.

Without that agreement, Mr. Corker said he could not sell a compromise to other Republicans.

“We just could not get a date,” Mr. Corker said of his discussions with the union. “It was an amazing thing to me.”

Summary:
Republicans: "Cut your wages and benefits by next year or else!"

UAW: "How about we cut them over a period of three years so we can adjust?"

Republicans: "FUCK YOU FUCK THE ECONOMY GG ^_^"

I don't know what version you were looking at but it's almost certainly not the one they're working on in Congress right now. That's still in progress.

edit: My guess here is that since Republican congressfolk got reamed over the bailout, they're going to do everything they can to look like they're fighting this one, even to the point of killing it, regardless of its necessity. The tragilarious result is that they gave a $350 billion blank check to Paulson with $350 billion more to come to save an industry which produces nothing, employs few people and which has essentially taken a giant shit on the government by hoarding their bailout money, but refuse to loan $14 billion to the lynchpin of the modern American productive economy and jobs market. :up:

[Langy]

Starfisher: They didn't suggest cutting their wages over three years. They suggested not cutting their wages at all until after their current contract ended, and it looks like they didn't even have a guarantee in it that they'd take a wage cut then, either.

This is a huge difference from what you're saying. Without a hard date for when they'd need to have lowered benefits, the union could draw it out as long as possible, putting further strain on the industry that it can't bear.

Sorry, but I'm siding with the republicans on this one - the union's at fault, not congress.

[TheDeadlyShoe]

yeah, why'd we ever give the UAW a vote in the senate anyway

.....

The Republicans blocked the bill. With a filibuster. 52for-35against. In their bizarro-world, they blame everyone else for 'forcing' them to filibuster. Schoolyard logic at best.

Note that defeating the bailout gains them nothing. It just causes needless confusion and wasted effort . As soon as the new session starts the bailout will pass anyway, except without most of the concessions.

[Starfisher]

This is a huge difference from what you're saying. Without a hard date for when they'd need to have lowered benefits, the union could draw it out as long as possible, putting further strain on the industry that it can't bear.

Sorry, but I'm siding with the republicans on this one - the union's at fault, not congress.Read the quote. They agreed they needed to be cost competitive with foreign automakers. It's right there. I'll quote it again:

prepared to agree that any restructuring plan should ensure that the wages and benefits of workers at the domestic automakers should be competitive with those paid by the foreign transplants.

What is so hard about this? Oh, that's right. They want to phase in cuts; Republicans demand that they happen immediately. The UAW isn't retarded. They know that without any gold egg laying goose they don't have anything. Republicans are hell bent on ensuring that they make up for voting in favor of the first bailout - this is just a convenient sticking point.

Whatever. At this point, it's totally irrelevant because the White House has announced it's going to dip into the TARP to help car companies. Brilliant manuever Republicans! Now you don't get ANY union concessions!

[Energizer Bunny]

PS energizer, if i understand correctly, you work in stock market. could you predict the effect of a bankrupt GM on your Bloomberg Terminal?

I'm a credit analyst rather than a trader, but any bankruptcy from any of the Detroit 3 will send anything connected to the US consumer through the floor. The manufacturers themselves wont fall much (they have no further to go - GM has had a target price of 0 for some weeks now) but the reprocussions would be huge. That's why the White House would never allow it to happen. A controlled wind down over a number of years is feasible and can be absorbed by the economy. A straight bankruptcy could not.

http://www.guardian.co.uk/business/2008/dec/13/automotive-industry-us-economy1

[Langy]

Read the quote. They agreed they needed to be cost competitive with foreign automakers.

Yeah, but they didn't say they wanted to phase in the cost-competitiveness. They wanted to debate and drag it out as long as bloody possible, milking their cash cow as much as they can. They wouldn't agree to any sort of time-table, which is the problem. It's just like the Republicans not wanting a time table for getting out of Iraq.

[Weavern]

The unions are going to get everything they want. Because they backed the winning horse with considerable assets. The Republicans wanted some deadline somewhere in 2009 for wage equality between the three and foreign manufacturers. The UAW flatly refused because they knew that they will get everything they wanted either from Obama or the whitehouse would cave as they dont want to be responsible for the industry going down.

I'm still a supporter of chapter 11 with the government giving the interem financing as that removes the whole problem of them being unable to get operating loans to continue with restructuring. Hell it means you fix the legacy costs and fix the three of them. Consumer confience in cars doesent matter, given no one can get a car loan or just about any other loan...

[TheDeadlyShoe]

I told myself I wasn't going to do this..sigh.

Detroit's problem isn't labor costs, it's that they make cars noone wants to buy.

[Retroboy]

I agree, TDS. My Camry is easily the absolute best and most rock-solid car I've ever owned, and I live in a country where winter will easily kill an inferior product. It was well worth the extra ten grand that I paid for it compared to a similarly sized and featured "domestic" American vehicle.

-- Retro

[l337raceryo]

Sadly, in Ford case, they do make cars people want to buy.

http://www.carblog.co.za/wp-content/uploads/2008/02/new-ford-fiesta.jpg

http://www.pistonheads.com/pics/news/11855/ford_focus_st_2005-L.jpg

http://www.dpccars.com/photos/10-08-07-01-Ford-FPV-Cobra.jpg

Just to name a few.

But guess where Ford doesnt sell those sweet ass cars. Yeah take a huge ass guess.

Instead we get crap like the lard ass Ford Fusion that weighs nearly 4,000lbs and barely have the HP to get out of its own way. Or the cheapen down Ford Focus.

I mean how the hell can they take the worlds best selling car that won so many awards and screw it up for its domestic release?

This is what Europe gets

http://image.automotive.com/f/auto-shows/2008-ford-focus-expands-in-european-market/7102670+w630+cr1+re0+ar1/2008-ford-focus-european-interior.jpg

This is what the US gets

http://image.motortrend.com/f/auto-news/re-styled-2009-ford-focus-coupe-to-star-on-american-idol/9855810+cr1+re0+ar1/2009-ford-focus-coupe-interior.jpg

Plus the added fact that the US Ford Focus is using a chassis that is nearly 10 years old, while the Europeans are enjoying an upgraded chassis is that is superior in every way. Plus they have a huge selection of engines to choose from, diesel, small i4, med i4, and the badass turbocharged i5.

Honestly Ford of America isnt stupid, look at how they turn around Mazda. It's just they keep forcing these piles of shits down out throats and expect us to buy it every 5 years, even though they are basically the same vehicles they been selling for the last 20 or so years.

http://www.waymotor.com/img/133-Ford-F-150-FX-2-Sport.jpg
shit

http://www.automedia.com/NewCarBuyersGuide2008/photos/2008/Ford/Explorer/SUV/2008_Ford_Explorer_ext_1.jpg

OMG a huge pile of shit

http://www.automedia.com/NewCarBuyersGuide2008/photos/2008/Ford/Expedition/SUV/2008_Ford_Expedition_ext_1.jpg

another POS

I'm not hating on SUV, but American SUVs are shit. They're built together like crap, their front ends falls apart after 5 years. The engines in these things are crap, they weigh enough to displace the water in a swimming pool and yet they're barely powerful enough to get these behemoth moving. Not to mention the fuel economy is horrendous. They handle like crap. The parts on these things cost way too much, and you need to replace them way too much. Tires on these suckers cost $100+ each (the cheap ones) and you have to replace them nearly every year because the alignments in the SUV is crap because the God damn front end is falling apart because THESE VEHICLES ARE HUGE PILES OF MOTHER FUCKING SHIT!

Then the customer gets made at me because they're the one driving the pile of shit that's going to cost thousands of dollars to fix.

Fuck them
Fuck ford
and fuck you too!

God Damn Domestic car makers.

[Saberdark]

Yeah, but they didn't say they wanted to phase in the cost-competitiveness. They wanted to debate and drag it out as long as bloody possible, milking their cash cow as much as they can. They wouldn't agree to any sort of time-table, which is the problem. It's just like the Republicans not wanting a time table for getting out of Iraq.Now, the unions aren't to blame for this bill sinking however. The Democrats in the Senate could easily have ignored any complaints from the Union and gone ahead and put a timetable in.

Detroit's problem isn't labor costs, it's that they make cars noone wants to buy.Or, shocking thought, it could be both. Why is it that whenever I talk to people about the bailout, they all seem convinced that there can only be one thing alone that is making the automakers unprofitable.

[Black]

Economic crises are binary. They're either caused by this, or that.

[Retroboy]

Well, you're either right or wrong about that. :)

-- Retro

[TheDeadlyShoe]

Or, shocking thought, it could be both. Why is it that whenever I talk to people about the bailout, they all seem convinced that there can only be one thing alone that is making the automakers unprofitable.

I didn't say it was making them unprofitable, just that it's their principle long-term problem. In fact I will be surprised if any automakers turn a profit this year.

It doesn't matter what you pay your workers if you are making an inferior product. The profit margins on SUVs were huge, but it was a dumb fucking strategy and they've taken a huge kick in the balls because of it.

The CEOs of the detroit companies make like.. 10 times what the CEO of Toyota makes. But they're incompetent. They've backed short-term, idiotic strategies and focused their efforts on penny pinching. They decided to help kill universal health care; it was a huge blow to the effort. Bnd now they're saying they can't keep up because of health plan payouts? Bitch, please. They have no idea whats in their own interest, they have no idea what they are doing, and they will never fix it because they can always just blame the union. Wall Street will never pressure them to fix it because Wall Street hates unions and blames the union. There is no accountability and the results are plain for all to see. Quite literally, in the side-by-sides raceryo posted...

[Faceless]

IMHO, any company that is 'too big to fail' without dragging the rest of the country with it should be broken up under anti-trust laws. We shouldn't be held hostage to failing companies that demand bailout money 'or else the economy will bottem out'. Especially when those companies use their money to lobby (bribe) Congress to be at the top of the list for such bailouts. "Hey Senator, I'll 'contribute' $1M to your campaign if you can get me $10B from the public bailout trough." Businesses fail in a free market. Business that find it more efficient to bribe Congressmen than improve their bottem line are a distortion of the free market, just as government propping up failing businesses is also a distortion. Crisis isn't an opportunity to serve the American people anymore, its an opportunity for graft and expanding personal political empires. We need term limits in Congress. Clear them all out.

[crobato]

While in the PRC

:
Chinese and US automaker General Motors' officials kick off a new joint venture manufacturing plant in Shenyang, northwest China's Liaoning province on December 17, 2008, showcasing the compact Chevrolet Cruze. Beleaguered US automaker General Motors opened up a new joint venture manufacturing plant which will begin churning out up to 150,000 vehicles annually beginning 2009.

[**Spetsnaz**]

merger talks between GM & Chrysler have been initiated again.

is it just me, but does Ford look to be a whole lot more solid than these 2 combined? at least they dont give me the impression of such panic as these 2.

further more, i agree with that other idea: if Ford was to serisouly cut back in the number of models, ie have the same models for the US & EU etc, models which are arguablt better, more economic, cheaper and smthg which would seriously reduce costs, i bet they would come out of all this on top.

after all, Ford is a more than decent player in Europe. Chrysler is a handicapped dwarf and GM is an insect (in Europe)

so, my money is on Ford. id say, Support them and let the other 2 go....

[Starfisher]

Ford doesn't need the money, or at least claims not to need the money. They, like Toyota and Honda, are pushing the bailout to preserve the supplier network that all US automakers (as in, someone who constructs cars in the US) rely on.

A free-market bankruptcy means that GM and Chrysler just die. There's no way they'd be able to secure the credit to continue operations, so they'd just go belly up. The rest of the car industry would then have to try and survive the resulting destruction in the supplier network, which would have to raise prices (having lost significant volume) or also die. The result could easily be a car industry Lehman bankruptcy, where one guy going down kills everyone else.

I think a government sponsored bankruptcy would probably be the best way to do it. The government ensures that the companies continue operations and guarantees that they will come out of the bankruptcy as a brand. That keeps everyone else alive while also reaping the benefits of bankruptcy.

Heh, this might be the first sub-crises of this whole situation that I've actually kept a consistent position after a months reflection.

[Energizer Bunny]

Well they're bailed out

WASHINGTON, Dec 19 (Reuters) - The U.S. government will offer up to $17.4 billion in loans to the ailing U.S. automakers and expects General Motors (GM.N: Quote, Profile, Research, Stock Buzz) and Chrysler LLC to access the money immediately, a senior administration official said on Friday.

Some $13.4 billion will be made available in December and January from the $700 billion fund that was originally designed to rescue struggling financial institutions, but the loans would be called back if the automakers cannot prove they are viable by March 31, the official said.

Viability would be mean that the companies must have a positive net present value, which doesn't necessarily mean immediate profitability but would require them to reach that point relatively soon, the official said.

The three-year loans would require limits on executive compensation and other perks, and the automakers would also have to provide warrants for non-voting stocks.

The remaining $4 billion in aid is contingent on the administration seeking access to the second half of the $700 billion financial rescue plan, known as the Troubled Asset Relief Program, the official said. (Reporting by Jeremy Pelofsky and Tabassum Zakaria, editing by Eric Beech and Frances Kerry)

Apparently a swift deleveraging is also a requirement, which is what one would suspect. There's also some mention of a requirement for parity between wage costs with foreign manufacturers, which should be interesting if nothing else.

There's a slightly sad then and now style slideshow on the rise and fall of Detroit here

http://www.guardian.co.uk/business/gallery/2008/dec/03/automotive-usa?picture=340294225

[lsumd2011]

http://news.yahoo.com/s/ap/meltdown_autos

The US govt becoming stockholders is kinda interesting too. Nationalizing the car industry (even partially) isn't something I was expecting from a republican, then again the democrats do hold Congress, so that might be the reason.

Well let's hope the bail out works, kinda would suck if the 17.4 billion ends up being a waste of taxpayer dollars.

[Energizer Bunny]

Not much choice. You can't pile additional debt on companies that are already crushed under debt servicing requirements. Taking an equity stake is the next best thing.

[**Spetsnaz**]

toyota announced a 1.4 billion € loss over 03/08 <=> 03/09...
this is the best run company in the world

i wonder how big is the loss for Chrysler/GM then? must be a multitude of that imo...
anyone has numbers on that?

[A176]

bump.

General Motors is literally on the verge of bankruptcy. Since the time of this thread, a bailout package of $13 billion was approved for GM and Chrysler by former president bush. Chrysler has yet to 'tap' into this bailout package but GM has already burnt through its first installment, and is literally pleaing for more funds.

Approval of this bailout money was supposed to rely on the notion that these companies had a feasible way out of their financial problems, to find a way return to profitability and repay the loans. GM has failed completely on this and is teetering on ch11. The Obama administration, though keeping an ear to GM's pleas, have not yet forwarded any kind of motion on additional funding. In other words, GM is [at the moment] on its own.

This thread followed that with the downfall of GM, the domino effect for other companies would be catastrophic. Some things to go over again though (source: http://www.dailytech.com/GM+Posts+96B+Loss+Wants+More+Money+From+the+Feds/article14428.htm): GM lost $9.5 billion in Q4, $31 billion for 2008. GM currently has $62 billion in debt, with $12.5 resulting from salaries and pensions, to over $6 billion in supplier debts. GM needs a further $2-3 billion by the end of March or that's it.

The article listed doesn't the latest 2009 results. Take a gander: http://www.autoblog.com/2009/03/03/by-the-numbers-february-2009-wish-it-were-a-leap-year-edition/. GM moved 53% less new cars than they were doing in 2008. But more importantly, the entire spectrum of auto makers are down for the count. Save for the korean brands whom specialize in much more affordable - and profitable - vehicles.

GM will go bankrupt. This is inevitable. Approximately 250,000 more jobs will be lost at GM and its plants, but this number will pale in comparison to attached industries such GM's suppliers, the dealer network, financial and credit partners, and probably alot more than I can think of right now.

[Starfisher]

Again. Government secured bankruptcy. Cover their debts to suppliers, keep the machinery moving while you restructure and renegotiate contracts, and take healthy stake in the company to sell off in the future as things improve.

They will not secure the credit necessary to go through Chapter 11. Full stop. It does not exist in the private markets. That means Chapter 7 and, basically, a Lehman brothers for the American car industry.

They should stop just bailing them out, though. This crap with "submit a plan for profitability" is ridiculous at this point. They're not going to be profitable until they can go through a major restructuring. Give them an option that's not quite CH11, or let them go into CH11 and then lend them the credit necessary to survive without having to liquidate the entire, currently worthless, company. Dropping more money on their heads won't do much more than prolong this process.

[A176]

http://www.dailytech.com/GM+Says+It+Will+Pull+Bankruptcy+Trigger+Unless+It+Gets+More+Money/article14493.htm

More and more people are becoming aware of GM's substantial debt; this debt, from the impressions I'm getting anyways, seems to be the driving force for a liquidation-based solution. GM is urging creditors to slash some debt to reduce interest charges, but they're looking to eliminate anywhere from 20-30 billion dollars of this debt (which is completely ridiculous) in order to go through a ch11 but still liquidate most assets.

People aren't buying it though. There's growing favor to just let GM die. Liquidate, repay creditors, get money back into the economy to make way for someone to "restart" the american car industry - someone who isn't keen on burning through 10 billion dollars in a couple of months.

I think what's worse in this situation is the UAW. GM may owe alot to, well, the american public for supplies, but its the UAW that's been slowly drawing the blood from the big three for the past decade. To start, [iirc] the last report had unionized workers at about $75/h, benefits included. The UAW also forced job banks onto the big three, where you get paid even if you lose your job (wtf?), and a fully featured, high valued pension program. With the onset of the economic turndown and the big three's spiral into oblivion, it wasn't until the end of 2008 that the UAW even began to think about making concessions. They're currently in the process of eliminating the dreaded job bank, and have forwarded the motion to cut salaries by 2011.

2011? The automakers financial lookouts have been virtually reduced to surviving month-to-month, but the UAW thinks their salaries should be okay until 2011?

[Starfisher]

I guess they are retarded enough to kill the goose then. Once again, human nature defeats my idiotic faith in rational decision making in others.

I haven't seen any UAW negotiations of late. The last I heard was that both sides gave up because they couldn't agree on health benefit cuts for retirees.

[Eboli]

To start, [iirc] the last report had unionized workers at about $75/h, benefits included.

Just to be clear about this, that number is "Creative accounting" on the part of the auto industry. What they do is add up all wages for current employees but also pension costs for retired workers too.


http://www.portfolio.com/views/blogs/market-movers/2008/11/18/the-return-of-the-70-per-hour-meme

The average GM assembly-line worker makes about $28 per hour in wages, and I can assure you that GM is not paying $42 an hour in health insurance and pension plan contributions. Rather, the $70 per hour figure (or $73 an hour, or whatever) is a ridiculous number obtained by adding up GM's total labor, health, and pension costs, and then dividing by the total number of hours worked. In other words, it includes all the healthcare and retirement costs of retired workers.


The US auto industry has been employing people for a long time and thus has a lot of retirees to support. And yes they do have to bear these costs with their current employees. However it is being 100% completely deceptive to tell people that current employees who are working are making $70/hr just to make the Unions look bad. That employee is not getting paid anywhere near that.

Parroting the figure of $70/hr just contributes to the image that Auto-workers in the US are overpaid and greedy. Which is exactly the image the Auto Companies want to promote when they're currying public favour.

[Malarky]

The US auto industry has been employing people for a long time and thus has a lot of retirees to support. And yes they do have to bear these costs with their current employees. However it is being 100% completely deceptive to tell people that current employees who are working are making $70/hr just to make the Unions look bad. That employee is not getting paid anywhere near that.

Republicans don't care, republicans want us all working for 4 cents a day, 18 hours a day, 7 days a week, year round. That makes for competitive business type thingys... and PROFIT.

I know a lot of people who are now bashing unions for the state of the economy, not just the failing automakers. I am left wondering... what would Hoffa do?

[A176]

However it is being 100% completely deceptive to tell people that current employees who are working are making $70/hr just to make the Unions look bad. That employee is not getting paid anywhere near that.

This is why I mentioned, "benefits included". To contrast, reports had the average Toyota worker at $45/h with benefits as well, but Toyota has no union agreement, no pension program (socialized pension ala canada), no overtime pay, no job bank system, etc.

I agree that people shouldn't immediately read "75/hour", but you also can't leave out the other luxuries such as pension or the job bank.

For lurkers, much more info from a trustworthy source can be read here: http://www.nytimes.com/2008/12/10/business/economy/10leonhardt.html

[Eboli]

This is why I mentioned, "benefits included". To contrast, reports had the average Toyota worker at $45/h with benefits as well, but Toyota has no union agreement, no pension program (socialized pension ala canada), no overtime pay, no job bank system, etc.

The problem is that it's not just including the benefits of the worker but the benefits of someone else entirely. If I get a pension and are paid out at $50,000 and you work 2000 hours a year and get paid $80,000 (including all benefits, vac time, OT etc). And someone asks how much you get paid, are you going to tell them $65/hr or $40? You know what you would say, so why is it okay for the car companies to say otherwise? They're just using the bigger number to sway public opinion.

As the article you linked (thanks for providing a good one I was looking for that one) said a US car company employee is paid more but only about $10 more. So why do they have to lie and use the $70 figure instead of the real $55? figure. It just obfuscates the debate.

And for the record part of "benefits" for the current employee accounts acounts for their pension contribution. Contributions that are supposed to be saved and invested by the pension plan for future retirement. So it's also not fair to use the pension figure for retired employees because this cost was already "paid", back when they were contributing to the pension when they were working.

[Starfisher]

GM has serious cashflow issues. That's why the $75/hr is significant - if they don't make enough to cover that amount, then they're in the red and burning money. While I agree that it's misleading to claim that a UAW employee makes $75/hour, ultimately that's the cost to the company, which right now is all that matters. GM can't continue existing in this climate with their product line and their cost structure. End of story.

The UAW is starving the golden egg laying goose and gambling that someone else will come along to feed it in time to keep it alive. There is nothing else GM can do at this point but totally restructure, and that means the UAW is going to have to make huge concessions.

It's worth noting that the deal autoworkers achieved was and is completely unsustainable. It only came about due to the historical glitch of American manufacturing power peaking when it did, and now that said power is declining the fundamentals of their deal are dead and gone. They have to adapt or die. They're currently choosing death, gambling that the rest of us are too afraid of the corpses to let them die. We'll see who blinks, but no matter the outcome this has reached a point that is just disgusting.

[SubZero]

It's worth noting that several UK car companies are getting £2,000,000,000 to help them through this bleak period. [source (http://new.edp24.co.uk/content/news/story.aspx?brand=EDPOnline&category=News&tBrand=edponline&tCategory=news&itemid=NOED01%20Mar%202009%2015:06:38:990)]

Unfortunately Lotus aren't one of them, despite being one of the final true only British Car firm still owned by the British (Aston Martin and Jaguar are owned by Arabic businessmen and Indian businessmen respectively).
I find this a true shame, since Lotus are providing some amazing breakthroughs in affordable technological modifications to cars to reduce emissions and increase efficiency across the entire car market. Tri-fuel, Bio-ethanol, Tesla, safe-yet-super-lightweight cars to name but a few of their persevered and demonstrable car improvements.

[TheDeadlyShoe]

Pay for the workers only accounts for something like 10% of the cost of your average automobile. The principle reason we're talking about that 10% is because of anti-union animus, particularly on the part of Wall Street.

I should note that Toyota and the other Japanese automakers are reportedly seeking billions of dollars from the Japanese government, though they argue that it isn't a bailout but a loan instead. It's not clear what the terms of this loan will be or even whether Japan will require it to be repaid. Will be keeping an eye on that.

[SubZero]

TDS: That £2billion that the British Government are giving to (supposedly) British car manufacturers is actually going to Jaguar (Indian owned), Land Rover (http://en.wikipedia.org/wiki/Tata_Motors) and Toyota (Japanese) majoritively. So through some very strange way, Toyota are receiving funds from Britain as well as potentially Japan too.
Funnily enough as highlighted, none of these companies are actually British anymore and the only arguable one that benefits Britain is Toyota due to the sheer volume of production cars that are used by people here. Jaguar and Land Rover are realistically too specialist.

[Starfisher]

Pay for the workers only accounts for something like 10% of the cost of your average automobile. The principle reason we're talking about that 10% is because of anti-union animus, particularly on the part of Wall Street.... no.

We're talking about unions because GM is hugely cash-flow negative. That means that they have to hugely restructure their cost structure. Employees make up the largest cost in just about any business, and the car industry is no exception, except that with the car industry, you can't actually do anything about your huge fixed costs. Not even now, when the company is functionally insolvent. That's absurdity, and suicidal to boot.

Every responsible private company has cut pay and/or cut payroll. I think the new buzzword is "right-sizing" (heh). GM must respond similarly, except they have to make much larger cost cuts... except they can't, because their largest expense refuses to allow itself to be cut, even if there's no work to do.

[TheDeadlyShoe]

Did you not read what I said? Employees are not the biggest cost in their business.

Of course there have to be adjustments if/when demand goes down, but why is 99% of this conversation about the UAW and not the other 90% of costs? Granted, parts manufacturers have their own labor costs and face their own squeeze, but the focus on the union is troublesome.

[Starfisher]

Have you ever... thought about this? Seriously this is a little weird.

"Employees are not the biggest cost in their business because they only represent 10% of the cost of a car"

That's true on a per unit basis when only considering active, current employees. It ignores retirees and retiree health benefits, but more importantly, it's a red herring when you talk about cutting costs.

If they want to build a car and make money on it, they have to spend/markup that 90%. That much is a given. There is no way to shrink that on a per unit built basis, at least not significantly and not in any short timeframe. This is a company losing $10 billion a quarter. Tiny savings per unit based on shaving materials costs or streamlining factories or whatever will do nothing to save the company, which is already on the verge of default. The only thing they can do is massively cut costs, which means three things:

1) Stop building as many cars.
2) Fire all the people you no longer need to build those cars and/or cut pay commensurately
3) Cut all costs unrelated to the immediate core health of the company. (This means pensions, job pools, etc)

So let's say they just saw demand fall 50% year over year. That means they're moving 50% less cars. How do you not die as a company?

Doing #1 will prevent them from ever spending the 9/10 per unit. But what do you with the unionized worker who's out of a job but can't get fired? What do you do about the retiree who pulls a pension no matter what your business looks like? Your maximum possible revenue just fell 50%. You cut materials costs 50%. But your employee base stayed the same. Your retiree base stayed the same. According to this (http://www.uaw.org/barg/07fact/fact02.php), UAW retirees outnumber UAW workers at GM 3.5 to 1, and now, in our 'fictional' scenario, half of your active employees have no productive work to do, but are still drawing a paycheck as of this moment.

(Incidentally, it shows how they arrived at the 10% figure, which was by ignoring white collar labor and retiree costs. Guess what - engineers draw paychecks too! Marketing has people in it! What's the word for someone who works for you and gets paid for working...? Starts with an e?)

There is no way in hell any company ever can support 250,000+ retirees with a corresponding labor force of 35,000 + unproductive labor of 35,000 while demand for their main product has plummeted.

To conclude: the UAW secured an unsustainable deal for its workers and pensioners. They are now pulling money out of a corpse. There is no getting around the fact that GM is no longer a viable company. The UAW is going to have to accept that and work to significantly cut costs for GM, or else GM is dead and gone and all those pensioners I'm supposed to feel sorry for are completely screwed instead of 50% screwed. It's not as if the union is the only element at GM which will be drastically cut, which is somehow how this argument always seems to be portrayed. It's all getting slashed, and if that doesn't include the union then GM is done.

[Mr Carrot]

This is beginning to follow the pattern of the 1970s crash where unions continued to demand higher pay/pensions over employment - which led to Reganist and Thatcherism hack and slash on them. They might have regained much of their powerbase but the same shortsighted (cant really blame them you have to be a. a blue collar worker and b. self serving to get far in the union so they really cant know what they are doing) trends are fucking it up for everyone (including their members) again.

It is the fear of mass unemployment over corporate survival and the failure to apply any form of Chandelerian theory to manufacturing that is effectively driving firms with solid competetive fixed capital (for instance in efficient productive assets, vertical intergration and r&d) to the wall. Something that labour should not really do.

[TheDeadlyShoe]

...do math on your numbers.

you assert they are losing $10 billion a quarter. 10 billion a quarter means they are losing $40,000 per worker (re: employee #s on the wiki) per quarter, or $160,000 per worker per year. even if they are 'overpaying' every worker by $60,000 a year (silly high imo), there's still $100,000 in losses that have nothing to do with labor. why arn't we talking about that?

To conclude: the UAW secured an unsustainable deal for its workers and pensioners. They are now pulling money out of a corpse. There is no getting around the fact that GM is no longer a viable company. The UAW is going to have to accept that and work to significantly cut costs for GM,
but they have and are.

you guys act like union jobs are totally protected from layoffs, but they arn't.

[SubZero]

Disregard my last link, the Government came to it's senses (http://new.edp24.co.uk/content/news/story.aspx?brand=EDPOnline&category=NewsSplash&tBrand=EDPOnline&tCategory=News&itemid=NOED06%20Mar%202009%2018:51:20:127)!

[Starfisher]

you assert they are losing $10 billion a quarter. 10 billion a quarter means they are losing $40,000 per worker (re: employee #s on the wiki) per quarter, or $160,000 per worker per year. even if they are 'overpaying' every worker by $60,000 a year (silly high imo), there's still $100,000 in losses that have nothing to do with labor. why arn't we talking about that?Read my post again. It's not just the immediate labor costs, which are mostly in line with their competitors. It's side benefits and pensions. It's having 3.5 retirees per worker that you have to pay pensions and health care to. Very few if any other private industry has that sort of legacy cost structure to deal with because none of them would survive if they even looked at it as a possibility.

It's relatively trivial to stop production on a car line if that's what needs to happen. The CEO basically just makes a phone call and some dude presses a button. The only sticking point is what happens to the union workers in that factory, and how you pay your legacy costs, which are now a larger percentage of their total overhead than they were before the factory shut down.

The reason no one talks about it is because everyone understands that there's nothing stopping it from happening. Literally no one is wondering how they'll handle cutting materials costs, because it's blatantly obvious. Literally no one is wondering what they'll do with factories that are now either idle or will be under their plan. Again, blatantly obvious. All their non-union workers are likely to face benefits and pay cuts, and if that becomes obviously necessary then it will happen without issue.

How they'll handle the union, and how the union will handle this situation, is the only real question mark left. Will they accept that the retiree burden is unsustainable? Will they accept that actual businesses sometimes have to cut pay in order to stay in the black? There's not much to talk about with GM except to see if they'll make the deep cuts necessary and if the union will let them. That's all there is too it.

[Orao]

Read my post again. It's not just the immediate labor costs, which are mostly in line with their competitors. It's side benefits and pensions. It's having 3.5 retirees per worker that you have to pay pensions and health care to. Very few if any other private industry has that sort of legacy cost structure to deal with because none of them would survive if they even looked at it as a possibility.

In such case why you don't change your system. As it is now it can't pay it self. Why not make contribution of entire society for your retirees ? After all they gave their lifetime for the country. Don't they deserve that a nation takes care of them now ? I mean what is a point of all this if you don't play solidarity. Isn't why we made societies and civilization in first place ?

Before you all jump on me from the other side of the Atlantic I just want you to know that I don't understand the US society at all. You are ready to sacrifice your own life for ideals such as liberty and die for other countries but when you need to help you own society there is no one there because socialism is scaring the shit out of you as someone from the gvt is going to come to your home and put you gun on the head requiring you to pay.
I can assure you that I pay less money per month and I can have an access to the universal health care in my country (if and when needed) than you with paying private companies for same and even less guarantees.

[TheDeadlyShoe]

It's not just the immediate labor costs, which are mostly in line with their competitors. It's side benefits and pensions. It's having 3.5 retirees per worker that you have to pay pensions and health care to.
They don't have that many retirees. I think the number is 95,000? In any case the # of retirees is irrelevant since the $70 figure is arrived at by tacking on retiree costs to the total cost of the current workforce. In other words its already accounted for in the comparison we are making.

If the union is the only question mark left then the companies are screwed. Let us say that the union makes $80,000/year in concessions and the union workforce is now paid less than Toyota workers. But according to your numbers there is still $80,000 of deficit to make up. So if noone is asking questions about that other $80,000 because it is blatantly obvious then the automaker CEOs are missing blatantly obvious problems. Thus either they are incompetent or the other problems are not so easy that we can just assume they are being fixed. Either way, it is something that questions should be asked about. And so we return to my question: why are we only talking about the union?

I don't expect an answer, but I do think it's something that people should think about.

[Starfisher]

They don't have that many retirees.
http://www.uaw.org/barg/07fact/fact02.php

From the UAW website, which I linked and you would have seen if you actually read my posts:
GM Active Members: 73,454
GM Retired Members: 269,614

269 / 73 = 3.6

Math.

This is not irrelevant. No private business anywhere would attempt to support a vast retiree population with less than one third that in productive labor force. It makes no sense for a private company to do this, and it's up there in the list of reasons GM will never be competitive with foreign carmakers. They foist their retirees on the state; GM acts like the state, and the result is that it starts out with a handicap. The long term sustainability of this system is nil.

But according to your numbers there is still $80,000 of deficit to make up. So if noone is asking questions about that other $80,000 because it is blatantly obvious then the automaker CEOs are missing blatantly obvious problems. Thus either they are incompetent or the other problems are not so easy that we can just assume they are being fixed. Either way, it is something that questions should be asked about. And so we return to my question: why are we only talking about the union? Go read my posts. The whole thing, not just whatever you want to read.

Here's a quiz that should be easy once you've done so and understand the principle:

1) How much does it cost to build a car? (Don't need exact number)
2) How much does it cost to not build a car?
3) What does not building a car do to your operating expenses?
4) What does paying someone to not build a car do to your opex?
5) What does firing someone AND not building a car to do your opex?


1) Let's say $X.
2) $0.
3) Not building the car removes $X from your opex. It also decreases your topline revenue potential by $X*profit.
4) Paying someone to not build a car adds in $Y to your opex. Adds nothing to your topline revenue potential.
5) Same as #3


To answer your question about the other $80,000 - they don't build those cars. Problem solved! Look at that! Just push a button, cancel some contracts and voila! I saved $80,000! It's that simple. The union is the only question mark, because it's the only variable not completely under the control of management and the only variable that's difficult and unpredictable to modify.

[A176]

For those of you wondering about the JP companies getting loans; with Toyota, this is the first and only time in its history where it was majorly in the red. Giving Toyota a loan to cushion its bottom line and not lay off workers is a much more sensible decision than giving a loan to, say, GM whom A) will likely not survive and be able to pay back that money and B) has such a history of company mismanagement and bad tidings.

Toyota also totally shut down it plants for 11 days in January to save that set amount of cash, in addition to a 3 day pay freeze. Choices and concessions like these versus the UAW who are saying "Oh, we'll maybe take some concessions in 20-fucking-11" - its a no brainer.

[TheDeadlyShoe]

Fisher once again the # of retirees is irrelevant. Only the cost is relevant, because the cost is measured per active employee. Not difficult.


To answer your question about the other $80,000 - they don't build those cars. Problem solved! Look at that! Just push a button, cancel some contracts and voila! I saved $80,000! It's that simple. The union is the only question mark, because it's the only variable not completely under the control of management and the only variable that's difficult and unpredictable to modify.
Then why haven't they done it already?

you have no idea what the other costs are and you are ignoring 90% of the costs of the car by fiat.

'overpaying' labor could not possibly under any circumstances cause the loss figures you cited.

and in fact if we just consider the union - not the other employees - GM would have to be paying $550,000 per active union member in excess labor costs to get to $10 billion/quarter.

it's blatantly obvious that the vast majority of red ink has nothing to do with labor costs.

****

A176: the very first result of googling "UAW plant shutdowns"

Chrysler is closing its 30 North American manufacturing plants until at least Jan. 19 due to slumping sales, Ford Motor Co. will shut down 10 North American assembly plants for an extra week in January and General Motors will temporarily close 20 factories across North America and make sweeping cuts to its vehicle production.

[Starfisher]

Are you trolling or just having a bad day? When did I ever say that the majority of red ink was labor costs? It's a contributing factor. Drop this idiotic strawman about labor costs being the entire reason for GM's cashflow problem and read my entire post.

I will reduce this to as simple a syllogism as I can:

1) GM has a certain amount of operating expense.
2) This expense can be divided into two parts: a, defined as labor costs, and b, defined as all other costs.
3) GM is reducing cost b in as predictable a fashion as can be expected.
4) Cost a is refusing to be reduced. No one knows what will happen. This draws attention.
5) We talk about that which draws attention.

That's why we're talking about the unions over plant shutdowns. Plant shutdowns happen easily. Union negotiations, especially those that have been mandated by the federal government with a deadline of twenty days from now, are almost always spectacular displays of intransigence. Hence they make the news.

You ask why they haven't stopped making cars and then quote a link showing that they've stopped making cars; you have your answer! They are doing shutdowns. Part of the thing with a shutdown, though, is that you have to stop paying the people who work there, or else you don't get the full benefit of said shutdown. This is remarkable because few other private industries would even blink at the idea of layoffs and shutdowns at a time when demand is down 50%, yet here we are with no clear idea of what the union is going to allow. It should be blatantly obvious that a company which still has to make huge cuts in order to return to profitability would need to make commensurate cuts to employee compensation and retiree benefits, but no, apparently not. For some reason, GM is magic and doesn't need to play by the same math as everyone else. You know, the system of arithmetic where 10% of something is still a real.

[TheDeadlyShoe]

3) GM is reducing cost b in as predictable a fashion as can be expected.
This is the problem. You have no evidence for this nor reason to assume it. In fact, given continuing cash flow difficulties far above and beyond labor costs, it seems quite evident that factor b refuses to be reduced. But noone is talking about that. We're talking about the union.

[Starfisher]

You just posted a quote about GM shutting down production. Are we reading the same thread?

[TheDeadlyShoe]

You ask why they haven't stopped making cars and then quote a link showing that they've stopped making cars; you have your answer! They are doing shutdowns. Part of the thing with a shutdown, though, is that you have to stop paying the people who work there, or else you don't get the full benefit of said shutdown.
ehm...no. I'm not sure where you are getting that from... maybe a176's post?

There are too many cars on the market. Every additional car produced leads to reduced revenues because the cars that DO sell go for lower prices. The point of plant shutdowns is to reduce supply, preventing excess inventory and thus downward pressure on prices.

Even if the plant workers are still paid at normal salaries (which they arn't IIRC, though the drop isn't large) the company still saves enormous amounts of cash...being as 90% of the cost of a car is parts not labor.

returning to the topic of the enormous losses being suffered, GM could stop paying every worker and still be deep deep deep in the red.

[A176]

There are too many cars on the market.

That 'first google link' on GM shutdowns was written last year - GM has not yet shut down any plants since making its financial pleas or since that newspost. GM has shut down truck and SUV related factories due an extremely sharp decrease in demand for these vehicles; these plants have been closing since 2006 with the last of them closing in late 2008, but cars are still being made and people are still being paid. In fact, contracts are still trying to be brokered: http://news.google.ca/news?um=1&ned=ca&hl=en&q=gm+plant .

Although some would like to believe that GM would be saving a lot through plant closures - as I've said, GM has been closing plants since 2006 and they're still pretty much on the way out.

Plant closures didn't help. Reducing car output didn't help. Laying off some workers isn't helping at all thanks to that god damned job bank, and labor concessions won't come soon enough. GM is bleeding money somewhere - labor, parts, pensions, who knows? Actually, GM does know, yet still insists on taking your tax dollars to fuel the downward spiral even more.

[Starfisher]

TDS:General Motors will temporarily close 20 factories across North America and make sweeping cuts to its vehicle production.

Even if the plant workers are still paid at normal salaries (which they arn't IIRC, though the drop isn't large) the company still saves enormous amounts of cash...being as 90% of the cost of a car is parts not labor.This is what I've been saying for three posts. I don't know why this was so hard. The last thing to acknowledge is that 10% of the cost of making a car is real and needs to be managed just like all other costs. After that, we at least have complete agreement on the definition of terms.

a176: GM, like all car manufacturers in the world basically, is bleeding money everywhere. They need to make much deeper production cuts to get back into the black, renegotiate their debt obligations (which total something like $60 billion at the moment, can't find the source for this unfortunately) and renegotiate their labor contracts. The Administration has set a deadline of the end of this month for all of this to happen, after which they've threatened to let bankruptcy occur. Hopefully that would be government backed and brokered, but realistically it probably wouldn't happen at all and this will drag on. Or at least that's what GM, the UAW and the bondholders are probably hoping for. High stakes chicken!

[A176]

http://www.cbc.ca/money/story/2009/03/11/gm-deal.html

The deal covers CAW members at GM's Ontario operations in Oshawa, St. Catharines, Woodstock and Windsor and includes concessions by the union that add up to an estimated $148 million.

The deal would extend the current collective agreement for an additional year to September 2012, with no reduction in average assembly-worker base pay of $34 an hour.

It would also eliminate a $1,700 annual "special bonus" and reduce paid time off to 40 hours a year from 80 hours. This time is in addition to vacation entitlements ranging up to five weeks annually for high-seniority workers, reduced last year from six weeks.

GM workers would also for the first time make payments toward their own health benefits — $30 a month per worker family.

[TheDeadlyShoe]

fisher. You were attacking the union and not even discussing the other costs. That's all they talk about on TV too. Wealthy establishment pundits blather on... they don't know a lot about making cars, but they do know it's the union's fault. blech


It's worth noting that the deal autoworkers achieved was and is completely unsustainable. It only came about due to the historical glitch of American manufacturing power peaking when it did, and now that said power is declining the fundamentals of their deal are dead and gone. They have to adapt or die. They're currently choosing death, gambling that the rest of us are too afraid of the corpses to let them die. We'll see who blinks, but no matter the outcome this has reached a point that is just disgusting.
I guess [the UAW] are retarded enough to kill the goose then. Once again, human nature defeats my idiotic faith in rational decision making in others.

[Starfisher]

It's not as if the union is the only element at GM which will be drastically cut, which is somehow how this argument always seems to be portrayed. It's all getting slashed, and if that doesn't include the union then GM is done.
It's relatively trivial to stop production on a car line if that's what needs to happen. The CEO basically just makes a phone call and some dude presses a button. The only sticking point is what happens to the union workers in that factory, and how you pay your legacy costs, which are now a larger percentage of their total overhead than they were before the factory shut down.

Actually, now that I go back and read my past few posts, every single one of them discusses costs other than labor.

The union is the only intransigent cost, really. Them and the creditors, but one would expect bondholders to be more willing to accept 30-50 cents on the dollar than guaranteed 0 in bankruptcy. There's also expenditures that have to happen to maintain a basic capacity for growth; cut too deep, and GM would take years to recover. This is why when you manage costs, you don't say, "Hey this cost is only 10% of the whole. Let's ignore it!" You break all costs down and take some survivable percentage off the top of all of them, big and small. You cut more in some places than others, but unless there's an incredibly good reason to keep one category of expenses at the old level, you cut everything.

It doesn't help that union antics look ridiculous to any private sector employee who recognizes the weight of the financial crises and recognizes that for a company to survive deep cuts must be made everywhere right away. Not at the end of a contract period or not at all. Unions are pundit food for a reason, and it's not devious wall street propaganda. It doesn't take much to look at the situation and wonder what they'll get if GM goes into bankruptcy, and to wonder why their thought process isn't "let's do everything we can right now to keep the company alive so we get paid at all", not, "Let's make sure we keep a good contract and protect our jobs!"

[A176]

http://www.nytimes.com/2009/03/30/business/30auto.html?_r=2&ref=global-home

The current US administration will be soon announcing its plan for restructuring the auto industry.

DETROIT — The chairman and chief executive of General Motors, Rick Wagoner, is resigning, just hours before President Obama was expected to unveil his rescue plans for G.M. and the ailing American auto industry, a person close to the decision said Sunday.

Something to note before the big announcement:

G.M. and Chrysler are on the verge of exhausting the $17.4 billion in federal loans given to them since December. G.M., which received $13.4 billion ... and Chrysler, which got $4 billion ...

Both G.M. and Chrysler are close to exhausting the loans they have already received. Without more aid soon, the companies could run out of cash to run their vast operations, which employ about 140,000 workers in the United States. The Bush administration imposed conditions on those loans, but so far, neither company has satisfied those agreements.

“They’re not there yet,” Mr. Obama said Sunday.

It seems the 'rescue' plans proposed by these companies have failed miserably. Judging by the resignation move, I'm guessing the government is moving in to take over these companies to recover the loan amounts somehow, instead of letting the public see it as wasted money. I'm going to keep this thread updated as much as I can; the moves that the US gov't make will have far reaching effects, as to what this thread was originally about.

[Retroboy]

Here's another interesting dimension of it.

Under the terms of a loan agreement reached during the last administration, GM and Chrysler are pushing the United Auto Workers to accept shares of stock in exchange for half of the payments into a union-run trust fund for retiree health care. They also want labour costs from the union to be competitive with Japanese auto makers with U.S. operations.

Little progress has been made between the companies and the union.Unions can be notoriously shortsighted with respect to necessary change. Apologies if it's already been posted somewhere in this lengthy thread, but I wonder how big that gap actually is. Sure sounds reasonable to me.

[A176]

All the recent posts have been about the unions retro :p

Continuing ...

http://news.yahoo.com/s/ap/20090330/ap_on_go_pr_wh/obama_autos

WASHINGTON – The White House says neither General Motors nor Chrysler submitted acceptable plans to receive more bailout money, setting the stage for a crisis in Detroit that would dramatically reshape the nation's auto industry.

This is it folks. One last cash infusion for GM and Chrysler, otherwise its kaput. The administration will be replacing the current management from both companies.

It seems that Obama is pushing for the Chrylser/Fiat partnership. Fiat showed its interested a couple months ago, and a deal was brokered to get european models into north american markets through the pentastar dealer network, however it wasn't exactly anything resembling a buyout.

Now it seems that Chrysler has a deadline of 30 days to forge a deal with Fiat. For a quick refresher, Fiat contains the following: Abarth, Alfa Romeo, Ferrari, Fiat, Lancia, Maserati, and other brands for niche markets.

GM will get 60 days, presumably because its production business is firmly rooted in the states, and thus will have a much more far reaching effect than chrysler, whom obtains parts worldwide.

And on the subject of the unions, it seems the UAW has nowhere to run to now. This change in management, or rather, the complete change in how these companies will be run, will most likely come with new union contracts. In this case, the UAW will have to deal with the government and the gov't isn't taking any prisoners. As it stands, they have no reseverations left for GM and Chrysler, they'll goto bankruptcy if need be. The UAW will have absolutely nothing left, obviously.

[Starfisher]

Wagoner is gone. Wonder if the Volt goes with him.

It's funny how they are still holding "structured bankruptcy" close to their vests. What they're doing now is essentially a bankruptcy reorganization without the judge by forcing everyone involved to follow their rules or... they'll go into bankruptcy and REALLY get screwed over. Kind of funny I guess.

[A176]

President Obama's press conference on the automotive restructuring:

http://www.youtube.com/watch?v=RbOEkNkdBOI

http://www.youtube.com/watch?v=PZN_BFfKw54

The US gov't is pushing alot of effort, not just money, into saving this industry. While his speech just sound like flag waiving, you cannot really argue against the history, culture, and contribution of the auto industry to the north american economy. There are quite literally millions of jobs on the line here, and this is one bailout I'd be happy to sign off on.

The gov't will be: backing warranties sold on GM/chrysler units, providing a program to reduce or eliminate sales tax on new car purchases, introducing what sounds like a car scrapping/clean car program that you see nowadays in many european countries in order to spur new car sales and new car technologies; and this is not just an American problem, Canada as well is getting with the restructuring.

I must say that I am somewhat dismayed by the negative comments against the administration and their choices with this situation. I can understand the notion that pumping money into failing companies is stupid, but aside from the fact that some americans have dumbfounded and ignorant fears against 'socialism' or other related aspects, the situation with the automotive industry goes much deeper than armchair politics. If these companies fail, its not just the office buildings that will be cleared out. Dealer network? Gone. Supplier network? Destroyed. Creditors? Out of luck. Shareholders? Screwed. The Union? Jobless. The general populace? With millions of cars on the road, it will become a battle with pricing on resale, parts, and repair. Everyone loses.

[A176]

RESTRUCTING PDFS: Please read to gain valuable insight into the current situation of these companies!

Determination of Viability Study; General Motors Corporation (http://www.thetruthaboutcars.com/wp-content/uploads/2009/03/gm_viability_assessment_final-_2_.pdf)
Determination of Viability Study; Chrysler, LLC (http://www.thetruthaboutcars.com/wp-content/uploads/2009/03/chrysler_viability_assessment_final-_2_.pdf)
Restructuring Fact Sheet (http://www.thetruthaboutcars.com/wp-content/uploads/2009/03/auto_restructuring_fact_sheet_final.pdf)

And whilst everyone focuses on these two, there's a certain someone missing from this gloomy picture - Ford. Ford did not request nor receive any loan money. They wanted to go it alone, and so far they're still on their heels!

[Liljagare]

How do you dig yourself out of a 15 trillion dollar hole? :)

Someone should just hit the button so we can start over allready, this time add a new thing to all religions discovered:

Thou shall not worship credit, thou shall not worship credit. If you do not have it, it doesn't exist, if you do not have it, it doesn't exist.