Journal tomhudson's Journal: Why a GM bankruptcy is a good thing ... 38
GM and Chrysler are both facing bankruptcy. GM lists nearly $60 more in debts than assets - and those assets are worth even less now. Nobody wants to buy what they (GM and Chrysler) have to sell.
Chrysler - buy one, get one free.
Fords' balance sheet is the healthiest - they're only out of the money by a billion or so - and if GM were to go bankrupt, they would capture enough former GM clients to get back on their feet.
But back to GM
There's too much overcapacity for larger cars, trucks, minivans, SUVs, and pickups. Someone has to go. And it looks like that someone is GM. Either GM goes bust, or all three go bust within a year.
"What about the employee pension plans?" They're toast either way.
"What about the share-holders?" The stock is realistically rated as being worthless
"What about the suppliers?" The car market is contracting - they would be dealing with one less customer, and a healthier market overall
Ron Wagoner says that "A GM bankruptcy is out of the question." He has to say that - otherwise, he's out of a job, and his shares are worthless. Oops - his shares are pretty much worthless now anyway. They've already lost more than 90% of their value this year. GM's market cap is now less than their monthly burn rate. Ford now has a market cap more than twice GMs'.
"What about the Volt? That will save GM!" Even if the Volt were available today, there isn't enough electrical infrastructure to support a large enough market to save GM - with each vehicle sucking 16 kw/hrs of electricity each night. This would increase electrical consumption from an average of 8900 wkh/annum to over 14,000 kwh/annum. And the Volt would have to have a large enough mark-up to make a difference to GM's fortunes, and it's too darned expensive compared to gas-sipping econoboxes from the Asians. $40k a pop? AND still losing money? So much for being a "paradigm changer."
To put the Volt in perspective, it is an expensive, low-volume automobile that will have no visible impact on GM's market share, CAFÉ average or profitability. One cynic calls it "a Viper for tree huggers."
Start with the sales numbers. The best available estimates are that the Volt will sell for around $40,000 and that production volume will be in the "tens of thousands." That gives it more in common with a Cadillac sedan than a Chevy Cobalt. Nor will the Volt make any money. GM (GM, Fortune 500) executives concede that, given the cost of development, the first generation of Volt vehicles will not be profitable. This project isn't going to turn GM into a money spinner.
...
... the price difference between a $40,000 Volt and a $25,000 Prius will cover a lot of operating expenses.
Time for triage, so at least one domestic car-maker can survive. Anything else is stupid.
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Who's getting laid off? (Score:2)
Please explain the automotive exceptionalism.
The godforsaken UAW needs a stake in the heart.
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Exactly. Ron Wagoner likes to go around saying "Cars are different. People won't buy a car if the manufacturer is bankrupt." Hey, Earth to Wagoner - THEY'RE NOT BUYING YOUR PIECE OF SHIT CARS NOW, SO WHAT'S THE DIFF?
I'll probably be in the market for a new car next year ... but I wouldn't buy GM unless they were having a half-price sale, and even then, I would have to think about it. Why? Maybe it's because I'm CHEAP - and GM cars give crap value for the money. A Camry with leather and a moonroof goes f
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hey now.... my fav brand, Buicks, are still good cars. I've been shopping around to replace my 88 LeSabre which finally died and I cannot find late 90s LeSabres anywhere. They just sell too fast.
Of course, GB gutted the Buick line and went into SUVs and Hybrid vehicles, instead of sticking to making good full size sedans. idiots sank themseves on that one.
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No, you're fucked either way. So, given a choice of getting fucked AND paying $25 billion for the privilege, with more requests in the future, or taking that $25 billion and saying "fuck you back - we're investing it where it will create jobs that will last past the next corporate welfare check", I think the obvious choice is "fuck you GM""
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OTOH, if the US taxpayer is forced to buy a fleet of cars they'll never drive, then I shall consider Detroit a pack of thieves and never buy another steamer-on-wheels from them again.
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GM does not emply "in the high 100,000s". Sure, if you add indirect jobs - but the slumping demand for GM's vehicles will not be reversed by bailout money. Better that GM go broke, and Ford pick up the slack - they'd have to hire a lot of people to add another shift, since they'd quickly become the #1 car manufacturer (They're 10% below GM, but they're financially in a lot better shape).
So you have two choices - pay people to produce even more cars that nobody wants, while crippling your only viable lar
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Consider the airlines. They seem to go bankrupt and reorganize and planes still fly.
*ahem [cnn.com]*
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What if we set responsibility, transparency, and accountabilty precedents instead? "You may say I'm a dreamer / But I'm not the only one..."--Lennon
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That won't solve the main problem - too many cars are being produced. There's too much production capacity, which means that, even with a bail-out, there are going to be MASSIVE layoffs anyway.
A bailout of GM will make the situation worse, as we'll all be subsidizing excess production capacity - never mind that they make an inferior product, to boot.
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Thanks. Personally, I have no axe to grind against GM, but it's obvious that the only way to deal with over-capacity is to make fewer vehicles, which means massive layoffs at GM and their suppliers, even if they were to be bailed out temporarily. They'd be back at the trough by next summer, and - worse yet - during congressional questioning on what they were going to DO with the bailout money, they didn't have any real answer.
They don't have a plan, which isn't surprising, since they haven't had a clue
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After the pain of a bankruptcy, new growth will appear. The demand is still there. Millions of jobs will not be eliminated for all time.
There is simply little calm, rational argument for bailout.
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If there's ever a good time, it's now - not next summer and $25 billion later.
First, the "3 to 5 million jobs at risk" is a bad joke - that's for the WHOLE auto industry, including the on-shore operations of companies like Toyota and Honda. They, along with Ford, would take up the slack. This would benefit the average worker, who:
Second, the G
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No, what I'm saying is that another $25 billion in bailouts is $25 billion too late. That money has to be paid back, with interest.
Both GM and Chrysler are already dead. Get over it. Let them die, and Ford will not only have a chance, it will have to RAMP UP PRODUCTION to to take up
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This was written three years ago.
Not only are they building cars that won't sell, they're paying 12,000 people a year not to work under a fucked-up agreement with the union. I mean, holy fuck. I'd sure love to get paid $31 an hour to play crossword puzzles!
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frickn unions and idiot management are what drove the US auto industry to where it is today.
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How about use the money to train the soon to be unemployed to do something else?
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Exactly. Many of those assembly-line jobs are gone for good anyway. Even after the recession, you can be sure that cost-cutting means more automation, not more Joes and Janes with impact wrenches on assembly lines. What are you going to do - give them "bail-out welfare" fish, or teach them to fish in a sustainable manner?
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You want to know something? Sometimes you end up with a recession, no matter what you do, and trying to postpone it makes it worse. That's what we're seeing now.
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Half that 20 billion will be lost anyway even with a bail-out. GM needs to lay off half their staff NOW, since they can't sell more than half their production. However, selling only half, with their fixed costs now being rolled into half the vehicles, means they can't sell anything anywhere near competitively priced. Do you really want to pay $15,000 more for a Malibu (not counting the bailout $$$) than a better-equipped, better-made Camry?
GM needs to go Chapter 11 and reorganize ASAP, while they still
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Why not calm down. take a deep breath, and realize that bailouts usually don't work, and that we can't afford to bail out a dinosaur - and that the US economy isn't going to collapse if GM fails - it'll collapse because of the housing bubble and Wall Streets' crap. GM is just a side show.
Bailing out GM will not be "creating wealth" - it will be destroying wealth. It will be rewarding a business that, for several decades, ignored all the warning signs and did pretty much everything wrong. Too many brands
Bankrupt then nationalize (Score:2)
My understanding is one of the reasons GM can't do a Ch. 11 bankruptcy is due to the credit crisis nobody is around to do the debtor in posession financing that would be required for continuing operations during bankruptcy.
Nonetheless there are some options here. The US Government could backstop any necessary financing during bankruptcy for the usual terms given. Furthermore other stakeholders such as the workers, suppliers, dealers, and states could be brought in at some point (ideally with a equity stake
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GM had enough cash on hand at the beginning of the year to do a successful chapter 11 reorg. They decided not to, and then got a brick in the face. They got greedy - figured they'd be able to unload the Hummer for $5 billion and change, then continue to rob peter to pay paul, etc. Any sane CEO would have seen that Chapter 11 would have given them the time and the legal leverage to fix at least some of their problems. Instead, they gambled - and lost.
Why would anyone want an equity stake in a business
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Why would anyone want an equity stake in a business with a net negative worth of $60 billion? Why not put the same time, energy, resources, and money, where it can actually make a profit and create real jobs, instead of "bailout welfare jobs."
Well in a Ch. 11 bankruptcy the company would have an opportunity to unload some of these liabilities. There are likely bits of GM that are worth something and a downsized and restructured GM with new management might very well be a viable concern going forward. At the very least an orderly unwinding over time of GM is probably a better idea than having it suddenly go "poof" with immediate impacts all down the line.
As for who would want equity in a re-organized GM, I suspect the UAW and CAW have a rather la
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Without a chapter 11 filing, there's no reason to go for an equity swap.
The problem with the whole "equity" thing is that the same amount of capital and resources could be invested elsewhere at a higher rate of return. An example from todays' real estate market should help put it into perspective - you have 2 houses for sale. One owner says "just take over the payments" - but he's underwater by 50%. The other one is priced to market. The second one is obviously the better deal.
The only way to make th
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All good points, however there are some problems with just standing aside:
1) GM would go ch. 7 instead of ch. 11 if the chips are allowed to fall where they may. Some sort of intervention is likely needed in order to have a more orderly wind down.
2) A sudden failure of GM and Chrysler would take out a fair number of suppliers and likely drag Ford under in the process. Furthermore the ripple effects could take out truck and heavy equipment makers. Also the European and Japanese plants in North America might