Big Three Bailout?

[noee]

I'd bet that if it ends up being one of the Fed shareholders, then it will backstopped by Treasury, though there has been no talk of any of them willing to step up. Frankly, why would you pay more now if all you have to do is wait around and pay less later (ie. JPM/Chase -> BS). These crooks aren't stupid.

LOL, this Fri LEH, next Fri WaMu? If it wasn't so potentially damaging, this would just be laughable, especially in light of the quotes from our so-called leaders not even a year ago. They must be panicking. Our children are fucked.

 

[SGaynor]

A little more on WaMu. How will this bank survive?

NYT is reporting that WaMu is for sale through an auction (has been going on for a while).

And that Morgan Stanley is in talks with Wachovia to merge.

 

[SGaynor]

I'm torn on this one.

I'm normally of the let'em fail persuasion. However, the US auto industry is pretty darn big (about 5% of GDP). Bankruptcy of GM, Ford and/or Chrysler would be bad. First off is the lost jobs that would occur, then the ripple effects (suppliers, transportation, etc.) of secondary companies going under. Then there is the pensions. Once in bankruptcy, these companies would shed their liabilities to the pensions, and would be transfered to the Pension Guarantee Corp (a federal entity) and the tax payer would pick up the tab (see the steel, airline industries).

...

Personally, if loans are given, I'd like to see the gvt get preferred shares in these companies (to sell at a later date - presuming the stock prices rise). and that the senior management have significant pay cuts for the next X years. That's probably the best outcome. Maybe...

Well, I decided...let the suckers fail. GM trying to merge with Chrysler? What is that going to solve? It's like to drunks pooling their $ to buy more booze. Then the gov't helping? WTF?

Good article in WaPo about how a bankruptcy would be best:
http://www.washingtonpost.com/wp-dyn/content/article/2008/10/28/AR2008102803264.html

 

[noee]

GM announced today they are halting funding of certain "development" projects, which, most likely, will affect the new efficient vehicles they are planning for 2010 and beyond. You see, they're cash-strapped, so they have no choice. Isn't that special?

 

[D90DC]

Fund it but with a Tax/Terif on all Asian / European Imports... Similar to what Harley Davidson needed back in the 80s.... Got to close this trade imbalance some how

 

[D90DC]

That was his response to gold-backed paper money, imagine how pissed he would be if he were around for the Roosevelt Gold Confiscation order of April 3, 1933 which robbed a whole nation's worth of individual wealth with the stroke of a pen.

Fed chairman Allan Greenspan later said:

"under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth... The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit... In the absence of the gold standard, there is no way to protect savings from confiscation through inflation."

The rabbit hole goes deeper than that my friend, are you sure you want to go down that road?

Well it seems we have another Demonrat wanting to take us further down that path

 

[D90DC]

Just doesn't seem right, does it? My wife & I both have low, fixed, 30-year interest rates on our modest homes. If I didn't know better, I'd be tempted to get in line for all the free shit the government seems to be promising to hand out.

All you have to do is vote Democrat and we will give you 40 Acres and a Mule

 

[SGaynor]

GM Shares valued at $0. :rofl:
------------------------------------------------------------------
Deutsche Bank sees GM shares as likely worthless

Automotive giant may have trouble funding past December, broker warns

By Simon Kennedy & Christopher Hinton, MarketWatch
Last update: 1:10 p.m. EST Nov. 10, 2008

NEW YORK (MarketWatch) -- A Deutsche Bank analyst downgraded Monday shares of General Motors Corp. to sell from hold, saying the automaker was on the path to bankruptcy before the end of the year unless the U.S. government agrees to a bailout.

In a note to investors, Deutsche Bank said Detroit-based GM's cash position will likely fall below $5 billion by late December, leaving its operations underfunded for payables due in early January. To keep operations going and assist in restructuring, the U.S. would have to provide as much as $25 billion and at least $10 billion in loans to keep the company afloat through next year.

"Even if GM succeeds in averting a bankruptcy, we believe that the company's future path is likely to be bankruptcy-like," analyst Rod Lache said in a research note, essentially calling the company's shares worthless with a price target of $0, reduced from $4.

 

[p m]

Well, I decided...let the suckers fail. GM trying to merge with Chrysler? What is that going to solve? It's like to drunks pooling their $ to buy more booze. Then the gov't helping? WTF?

Scott, you live closer to Motor City than the most of us, so you should know the scoop better.
GM, for example, supports two retirees for each worker. If/when GM fails, these retirees, with medical insurance and whatnot, join already swollen ranks of welfare recipients in Midwest. So, in some sense, the Fed Gov't is going to pay it out, one way or another.
Now, another question is, is GM a sucker completely incapable of building an attractive vehicle? It can be rephrased like - would a Chevy Malibu all of a sudden look better to you if it cost under $9k? And that, I believe, is what could have been its sticker if GM didn't continiously bail out the City of Detroit and Wayne County for the last 40 years.
The damn city built that gorgeous Renaissance Center on the riverfront in 1977 - and could not find tenants for two-thirds of it. GM stepped in once again, and bailed the city out - now look what happened to the old GM headquarters and the area surrounding it. There's not a single business left on Woodward within a mile North of Wayne State.

The same applies to Ford and Chrysler. All good there is in SE Michigan - of which there is a tremendous lot - is entirely paid for by the Big Three.
In contrast, Toyota and Honda could care less for the U.S., and continue their march in our economy unhindered by the long-standing social obligations.

So... in some sense, I think the Michigan state and the federal governments owe the Big Three for decades of experiment with socialism and unions.

 

[MarkP]

Well realistically I don't think the consumer can support the manufacturing capacity that is available today. When credit was free and housing was the ATM there were a lot of buyers. Anyone with a pulse could get financing. Once we get through the economic cycle some buyers will return but credit conditions of the 90's/00's will not.

There needs to be some capacity destruction so those who are left can realize a profit needed to sustain a business model driven by product cycles and government safety and environmental regulation.

 

[SGaynor]

Scott, you live closer to Motor City than the most of us, so you should know the scoop better.
....

Boy, this is going to be long...

Yes, the big three are a main component of MI's economy, esp SE/Eastern MI. MI has been in a recession for about the last five years because the big three and their suppliers (Delphi) have been trying to adjust to changes in the market share they hold, as well as overseas competition (both cars and parts).

They do make good cars. Some are lemons, but by and large they are OK. Honda/Toyota are supposed to be the bomb, but have you seen a Rav4? Talk about chinzy. Chrysler is probably in the worst position WRT to new models; when they were owned by Damler, they weren't allowed to invest/improve the car lines - the Germans really F*&^ked them over.

Their biggest problem, IMO, is structural. The labor unions have had the big three by the balls for a long time. No cost (to the employee) health care (and now every union (teachers, whatever) in MI thinks this is a birthright), the jobs bank (you get paid even if you aren't working), no cross training on jobs. The list goes on. Oh, and an average salary/benefits on the order of $75/hr for a HS educated worker. Something is seriously wrong when a forklift operator makes ($100K+/yr incl overtime) as much or more than a PhD (starting salaries ~$70K)

Earlier this year, however, a lot of that changed with the new labor agreements. Short version is that new hires come in at a much lower pay scale, but more significant is the change in the pension/retiree benefits. The automotive companies are giving the UAW a multi-billion $ check, and now it will be up to the UAW to manage the $ for retiree pensions and benefits. Basically, it is now up to the union to meet the obligations that have been promised. Eventually, they won't be able to do it and will have to trim them; but that is down the road, and someone else can break that bad news...

So really, the labor part is mostly under control (although they prob still have too many workers). The big problem, esp for GM is that they have too much "stuff" for their market size. Too many brands (what really is the difference between Chevy and GMC? Dodge vs Chrysler?), too many dealers (GM has ~7500; Toyota ~1500), too many factories (and old to boot), and too many models.

All of this has to get cut, and they didn't do it during the 90s when they were making $ off of SUVs/trucks, because the parties involved really wouldn't let them. Labor wouldn't let people get fired, dealerships wouldn't (won't) close becuase of state laws that protect them from the manufacturers.

Really, the only way that i see them getting these structural things fixed is bankruptcy. Loans, bailouts, etc. will just paper over these issues, and not fix them.

It will be very painful for MI, and SE MI in particular. But the rest of the state esp the western half, and where I live, are getting tired of the automotive industry having such a outsized influence on the state. There are parts of the state that are doing well, but all efforts are on trying to keep the status quo on a shinking industry. It's pissing in the wind.

Detroit, well, that place is just completely disfunctional. Corruption is rampant, half the city is now reverting back to grasslands, the leadership is just flat out incompetent (the school board got back control of their finances about 3 years ago, and promptly lied about where the money was going and is now in danger of being insolvent), and there is constant racial firebombs thrown when the city (mostly black) wants the richer suburbs (mostly white) to help fund things like the zoo, mass transit, arts centers, etc. Since the suburbs are being asked to pony up the $, they want seats on the boards of these organizations; the city "leaders" then cry that the whites are trying to dictate how the blacks should live, and that only the city should decide how the $ is spent - which usually means going to friends of the mayor/city council/etc. It is the epitome of bad government.

To top it all off, we have a governor who is completely devoid of any kind of leadership skills. Last year the government essentially shut down for about a month because they couldn't get a budget deal (Dem Gov, House; Rep Senate). She was nowhere to be found. The final deal (negotiated between House and Senate lawmakers, with no input from the Gov) was that taxes would be raised ($1.4 Bln), and then structural cuts would be worked on to cure long-term issues. She never followed through. Now the state is projected to have a budget shortfall next year.

Oh, yeah. She (Jennifer Granholm) is now one of Obama's Sr. Economic Advisors.:banghead:

Told you this was going to be long...:rant:

 

[p m]

So I guess I'll hold off from buying myself a little house on Maple... even East of Woodward...

 

[SGaynor]

Wait a year or two. They'll be real cheap then. Hell, prime upstate land (waterfront, acreage), is already dropping in price real fast....

 

[jim-00-4.6]

Not quite right. You would see record revenue, sure, but there must be additional reasons for record profits.

Yes, there are "additional reasons"; it's called arithmetic.

Let's say you have a product you sell at a unit price of $50.
After your expenses, you have a profit MARGIN of 8%.
So, for each unit you sell, you have a PROFIT of $4.
Let's further suppose you sell 1000 of these units per month.
You have a MARGIN of 8%, and a PROFIT of $4000.

Now, let's say demand for you product increases by a factor of 10.
Your margin remains at 8%, but your PROFIT per month is now $40,000.

Let's now add in a supply that remains essentially flat, and that increased demand now drives the price up to $100 per unit.
You still make 8% MARGIN, but because the selling price is UP, your PROFIT is also up, now at $8 per unit.
With sales of 10,000 per month you now have a PROFIT of $80,000.

Comparing that $80,000 to the $4,000, that is clearly a "RECORD PROFIT".

You are making more money per unit because the selling price is UP.
Your profit PERCENTAGE hasn't changed.

Now that oil prices have dropped, is the gub'mint considering SUBSIDIES to the oil companies, since they aren't making huge money?
Their profits are DOWN (compared to last month).
I mean, really. If it's OK to raise their tax rates when they're flush, the tax rates should go down when they aren't, right?

 

[Welcome to Hell A]

I don't understand why any honest taxpaying American would want to bail out the US automakers while the union's hooks are still in them. Nothing good could come of it. Either fix the unions, get rid of them, or let the automakers fail. A bailout of the automakers, I mean automakers and unions, would only lead to another bailout later on or failed automakers. The union culture will not allow the automakers to succeed. I lived near Detroit for a short while, and just hearing locals talk about the situation there made it clear the sense of entitlement they got from being fought for by the unions for so long. It's a joke.

 

[dannyballs]

This is looking less like a bailout and more like a Chicago style payoff for a BO win. Now GE has there hand out to the FDIC. Wasn't Immelt a pro BO supporter personally as well as through his media arm NBC?

 

[noee]

Yes, GE now gets a $140B backstop. You can bet the "big 3" will get something too, it's just details now.

The "big 3"? What a joke. 3 big piles of shit if you ask me.

Quite simply, there is just too much capacity for this environment. The unsustainable free money days are over and now there is over-capacity in so many segments. Demand destruction will continue and it will become obvious to even those with their heads in the sand, that assets are deflating.

Let's see....crushing federal debt, rising unemployment, across the board asset deflation, increasing money supply (thank you Fed).....hmmmm......can you say "Weimar Republic".

 

[MarkP]

In other news GM, Ford and Chrysler were combined under a government holding company called . . . . . . .

American Leyland Ltd

 

[BDM]

For those that believe that letting the US automakers go belly up is a good thing...

The US has really only one manufacturing industry left, that is autos. Otherwise we are a service nation. That and real estate. Letting them go under has massive ramifications for every other industry tied to them, (ie tires, parts, the list is very very long).

In addition, has anyone noticed that people have actually bought SUV's in the last 5 years??? The automakers are making what the people want. Although the Big 3 weren't as well as prepared as others, even Toyota got caught with their pants down with their big investment in the new Tundra that sucks gas like a hog.

Also, the credit freeze has shocked the entire industry, which is not the fault of auto makers. If you can't get loans, you can't buy cars, you can't sell cars!!

Lastly, not many people know this, but Toyota is subsidized by the Japanese gov't. They don't play fair when it comes to "free trade", putting massive tariffs on our cars/trucks. They protect their industry b/c they know its importance. On the other hand, we let "free market" rule on home soil, when it's really not fair at all.

Summary: Others in the game don't play fair, we don't protect our auto industry, so of course our auto industry dies!!

If our auto's go under, we are all screwed. Wake the F up!!

 

[cptyarderho]

I disagree. We do not make TVs VCRs etc. life goes on.

LET THEM SINK.

The gap will be filled here in the US by Toyota, Honda and others who make cars herein the US for less. There are 2 retirees for every one employee now for the big three, avg. $1500 more a car. They put all their energy into SUVs, it was a poor gamble.

I have not abought anything American other than my Jeep since high school, never seemed like a good purchase.


Let Honda and Toyota buy them, they should be profitable in 90 days or so.