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The Coming Auto Bailout

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gags

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That's a ridiculous plan. Nothing is going to be different in 3 months, and they certainly won't be able to pay the money back at that time. The only vehicle (no pun intended) legally available that would allow them to cut their costs sufficiently is Chapter 11 bankruptcy. They need to radically reduce their dealer networks, cut current pay and benefits, and reduce their retiree obligations. All of these are contractual relationships and I just don't see how anything short of bankruptcy enables them to do these things.

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leading Democrats want the money paid back in weeks. If they can actually pay it back in weeks, I wonder why they need the loan of billions in the first place?
They dont expect the auto makers to pay back the money in weeks. The democrats are taking the money from the $25 billion fund set aside to build the eco-friendly cars that no one will buy. They expect to replenish the fund in a couple of weeks when they put together a stimulus package that will be sitting on Obama's desk Jan 20. Included in the $500 billion to $1 trillion stimulus package will be $15 billion to replenish the fund. The automakers have sold their souls. They are about to be nationalized. The Ministry of Transportation will soon be reviewing plans for the 2010 'people's car.'
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I may have misunderstood who was going to pay back the billions in a matter of weeks, but the usual news sources I use (Fox News and Newsmax) were not clear on that issue. However, it now looks like we are going to have a car czar to oversee the bailout to automakers. In other words, it looks like Washington DC is just going to be running everything, which will not be good for the economy. And on that note, all these proposed jobs creations Obama is going to do in the public sector just takes away the possibility of new job creations in the private sector. And given the less efficiency of government run programs, I wonder what the ratio is between government jobs versus private jobs. For every government provided job, there could probably have been two or more in the private sector. Governmental interference in the economy is going to get much worse before it gets better, since the philosophy of free enterprise is being attacked on all levels and we need a turn-around on this philosophy before it improves.

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Now they seem to be favoring a "board" that oversees the companies:

"The proposal, which could be put to a vote in Congress as soon as tomorrow, would establish a seven-member "auto board" of Cabinet officials and a chairman to be appointed by President Bush to oversee both the short-term loans and a long-term effort to restore the faltering industry to profitability. If the companies take the cash, they would be accountable to the government for nearly every move, and for every transaction of $25 million or more."

http://www.washingtonpost.com/wp-dyn/conte...8120701446.html

I also see that Chris Dodd is calling for Rick Wagoner to be canned as head of GM. It really is too bad that the American people don't hold their politicians similarly accountable for the mistakes that they make so frequently.

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So I'm watching this on ABC news with Charlie Gibson and on the opening of the news he says something like "Automakers get the money and they are not happy, it's not the deal they want... they get less money and more government oversight"

I had a thought "Well, what did you guys expect?"

Another funny thing is that part of the deal said they couldn't have corporate jets and had to have government approval for purchases over 25 million. Okay, Nancy Pelosi has a private jet if I'm not mistaken, right? Is it just me or does this look like parents punishing their children.

"I'm taking your jet away and you have to have my permission to spend money!"

;)

In all seriousness I think this is bad, but I don't feel bad for the Little Three. They asked for it after all.

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http://www.nytimes.com/2008/12/09/business...&ei=5087%0A

WASHINGTON — When President-elect Barack Obama talked on Sunday about realigning the American automobile industry he was quick to offer a caution, lest he sound more like the incoming leader of France, or perhaps Japan.

“We don’t want government to run companies,” Mr. Obama told Tom Brokaw on “Meet the Press.” “Generally, government historically hasn’t done that very well.”

But what Mr. Obama went on to describe was a long-term bailout that would be conditioned on federal oversight. It could mean that the government would mandate, or at least heavily influence, what kind of cars companies make, what mileage and environmental standards they must meet and what large investments they are permitted to make — to recreate an industry that Mr. Obama said “actually works, that actually functions.”

It all sounds perilously close to a word that no one in Mr. Obama’s camp wants to be caught uttering: nationalization.

Not since Harry Truman seized America’s steel mills in 1952 rather than allow a strike to imperil the conduct of the Korean War has Washington toyed with nationalization, or its functional equivalent, on this kind of scale. Mr. Obama may be thinking what Mr. Truman told his staff: “The president has the power to keep the country from going to hell.” (The Supreme Court thought differently and forced Mr. Truman to relinquish control.)

The fact that there is so little protest in the air now — certainly less than Mr. Truman heard — reflects the desperation of the moment. But it is a strategy fraught with risks.

The first, of course, is the one the president-elect himself highlighted. Government’s record as a corporate manager is miserable, which is why the world has been on a three-decade-long privatization kick, turning national railroads, national airlines and national defense industries into private companies.

The second risk is that if the effort fails, and the American car companies collapse or are auctioned off in pieces to foreign competitors, taxpayers may lose the billions about to be spent.

And the third risk — one barely discussed so far — is that in trying to save the nation’s carmakers, the United States is violating at least the spirit of what it has preached around the world for two decades. The United States has demanded that nations treat American companies on their soil the same way they treat their home-grown industries, a concept called “national treatment.”

Yet so far, there is no talk of offering aid to Toyota, Honda, BMW or the other foreign automakers that have built factories on American soil, employed American workers and managed to make a profit doing so.

“If Japan was doing this, we’d be threatening billions of dollars in retaliation,” said Jeffrey Garten, a professor at the Yale School of Management, who as under secretary of commerce in the 1990s was one of many government officials who tried in vain to get Detroit prepared for a world of international competition. “In fact, when they did something a lot more subtle, we threatened exactly that,” referring to calls for import restrictions.

Mr. Garten said he was stunned by the scope of the intervention that Washington was now considering. “I don’t know that we’ve seen anything like this since the government told the automakers what kind of tanks to make during World War II,” he said. “And that was just for the duration of the war — this could be for much, much longer.”

It is hard to measure just what kind of chances Mr. Obama may be taking with this plan, in part because so many parts of it are still in motion.

In the short term, Democrats are floating the idea of linking $15 billion in immediate loans to the designation of a “car czar” who, in doling out the money, could require or veto big transactions or investments — essentially a one-man board of directors. The White House indicates that President Bush, who has spent his entire presidency proclaiming that the government’s role is to create an environment that spurs free enterprise and minimizes government regulation, would very likely sign the rescue plan.

The first $15 billion and the car czar who oversees it, however, are only the beginning. “After that, we’re in uncharted water,” said Malcolm S. Salter, a professor emeritus at Harvard Business School who has studied the auto industry for two decades and, until a few years ago, was an adviser to General Motors and Ford. “Think about this: Who in the federal government would have the tremendous insight needed to fix this industry?”

Depending on how the longer-term revamping of the industry proceeds, Washington could become a major shareholder in the Big Three, it could provide loans, or, in one course that Mr. Obama seemed to hint at on Sunday, it could organize what amounts to a “structured bankruptcy.” In that case, the government would convene the creditors, the unions, the shareholders and the company’s management, and apportion a share of the hit to each of them. If that “consensus building” sounds a lot like the role of the Japanese Ministry of International Trade and Industry in the 1970s and the 1980s, well, it is.

To promote the Japanese car industry on the way up, the trade ministry nudged companies toward consolidation, and even tried to mandate which parts of the market each could go into. (Soichiro Honda, the founder of the company, rebelled when bureaucrats told him he was supposed to limit himself to making motorcycles.) By the 1980s, Congress was denouncing this as “industrial policy,” and arguing that it put American makers at a competitive disadvantage — and polluted free enterprise.

Now, it is Congress doing exactly that, but this time as emergency surgery. Other nations will doubtless complain, or begin doing the same for their own companies. “We’re at this moment in history, in which the Chinese are touting that their system is better than ours” with their mix of capitalism and state control, said Mr. Garten, who has long experience in Asia. “And our response, it looks like, is to begin replicating what they’ve been doing.”

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I bought Ford stock recently. Let the gold rush begin, baby.

I guess if you are ready to invest in politically correct cars, that might be the way to go, considering the Feds are talking about taking over 20% of the carmakers in the newest version of the auto industry bail out. In essence, this will lead to government mandated cars, rather than economically mandated cars, which means who knows what kind of cars we are going to be getting? And existing shareholders will not be taken into account.

Under terms of the draft legislation, which continued to evolve Monday evening, the government would receive warrants for stock equivalent to at least 20% of the loans any company receives. The company also would have to agree to limits on executive compensation and dividend payments, much like those contained in the government's $700 billion rescue of the financial industry.

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While the moral argument for capitalism hasn't been made yet, at least some Republicans are arguing against the bail out of the auto industry calling for deregulation instead. Some of it sounds like it is right out of the Ayn Rand Center's op-eds.

But despite general optimism that a swift agreement can be reached on the rescue bill, some conservatives on and off Capitol Hill are holding fast to the principle that the U.S. government shouldn't be in the business of nationalizing private industry.

and:

Gattuso believes that, instead of a bailout, the government should provide the auto industry with regulatory relief (such as abandoning the imposition of fuel efficiency standards), tax provisions and possibly accelerate the purchases of vehicles it makes each year.

"None of that would solve the problem, but it would be helpful," he said.

Daniel Mitchell, a senior fellow at the libertarian Cato Institute, said the government should have no role in helping the industry, except to provide positive economic conditions -- "a lower corporate tax rate, less red tape and things like that," he said.

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I guess if you are ready to invest in politically correct cars, that might be the way to go, considering the Feds are talking about taking over 20% of the carmakers in the newest version of the auto industry bail out. In essence, this will lead to government mandated cars, rather than economically mandated cars, which means who knows what kind of cars we are going to be getting? And existing shareholders will not be taken into account.

Under terms of the draft legislation, which continued to evolve Monday evening, the government would receive warrants for stock equivalent to at least 20% of the loans any company receives. The company also would have to agree to limits on executive compensation and dividend payments, much like those contained in the government's $700 billion rescue of the financial industry.

That's not the point. The point is when the bailout passes and the price spikes I'm dumping it at a profit.

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That's not the point. The point is when the bailout passes and the price spikes I'm dumping it at a profit.

Ford has decided not to accept the government bail out. However, as good as this is in context, they are not entirely clear of anti-capitalist policies, stating that the government ought to keep gas prices stable (at $4 a gallon?!) so they can plan ahead, and that the government ought to be working on new infrastructure so that hybrid and electric cars can get on the road. They stated that the market alone couldn't handle the transition, though I don't remember the need for the government to get gas stations everywhere, unless I'm wrong about that.

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That's not the point. The point is when the bailout passes and the price spikes I'm dumping it at a profit.

I'm shocked to see such a blatantly selfish display of profiteering at the expense of other investors and their children. Think about the children! :)

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Surprised nobody posted this before me. It looks like it collapsed in the Senate:

Senate Minority Leader Mitch McConnell, R-Ky., said the sticking point was the United Auto Workers' refusal to set a "date certain" to put employees at U.S. auto manufacturers at "parity pay" with U.S. employees at foreign automakers in the United States.
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The UAW killed this last night, because if they had agreed to the three things the GOP senators were asking for, the deal would probably have gone through:

  • Immediate pay cut to bring UAW pay down to the level of the U.S. Jap companies
  • Ending the job-bank that pays people for staying home
  • Cutting some retirement health benefits

These are really minimal conditions. Indeed, any reasonable politician should ask for pay to go below the Jap-owned factories, not simply for par.

Right now, it is tough to say which side is serious about sticking to its negotiating position, and which side will give. For the GOP hold-outs, the danger is that they reject the bail-out, something temporary is put in place, and the new Senate allows something worse to pass.

Edited to add: I forgot one other important condition some GOP senators were asking for: that existing bond-holders of these companies take a haircut.

Edited by softwareNerd
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Cross posted... http://uncommonsensecanada.blogspot.com/20...2-fear-and.html

Let Them Fail Part 2 - Fear and Opportunity

The abject fear that is being spread by the Auto sector and the UAW is palpable. "You don't realize what this is going to do to our economy!" they scream. "If one of the big three fails then it affects hundreds of thousands!!" they clamor. "You have to bail us out! We're VITAL!!!"

Well, the confluence of union greed, poor management and substandard products has brought us to this point. Right where we should be, and we didn't get here in a private jet or even in a hybrid.

Back to the fear though, lets take a logical look at the claims of the fear-mongers, industry, political and Union alike...

1. If one of the big three fails then the resulting job losses will cripple the economy.

Hmmm, Chrysler has 58,000 employees. Of those only 1,100 are Canadian. Sure that's a lot of lost jobs but cripple the economy? I don't think so. Regionally, sure it's going to hurt, but other regions such as Hamilton (steel), Sudbury (nickel), Sydney NS (steel), Ottawa (the tech sector), have seen similar failures, so what puts the auto sector at the head of the handout queue?

I'd say it's a combination of things, a highly political union being first and foremost in my mind, the tangible nature of their product being the next. It's a lot easier to identify with the loss of a brand name you see driving down the road than it is to attribute the same emotional connection to the loss of a natural resource producer like Inco.

By the way, those other sectors didn't get bailed out and their regions are rebuilding or have already rebuilt.

2. The failure of one of the Big 3 (isn't Toyota - who is not asking for money - one of the big three now?) will cause a corresponding crash in auto parts manufacturers.

Really? So these parts manufacturers only sell directly to the auto plants? No after market sales? No replacement parts? No revenue stream except for selling to the auto manufacturers? If that is the case then, like the Auto manufacturers themselves, they deserve to fail. Dumb should be painful, especially in business.

3. If one of the Big 3 fails then people who own that brand will be left out in the cold! The manufacturer won't even be able to sell it's current stock... Who is going to buy a car from a company under bankruptcy protection or worse!"

Garbage!!! Do you honestly believe that these people won't be able to get service for their vehicles if the company itself doesn't exist? If that is true I guess I missed the great Datsun breakdown of 1986...

Another thing, isn't it likely that some enterprising auto maker will recognize the opportunity a failure of that sort would represent for his company? I mean if I owned Ford, and Chrysler went belly up, I'd offer to provide servicing for their vehicles, using the new found glut of cheap aftermarket parts. Hell I'd even honour warranties for an additional though reasonable price. Crisis = opportunity, even this dumb-ass-never-taken-a-business-course-in-his-life knows that!

Hell if I was a {insert bankrupt car company name here} certified mechanic I'd offer a similar deal to continue to ensure my business and my profitability. Wouldn't you?

It is good to see that the US Senate has refused to bailout the Auto sector, though to contemplate it in the first place shows a criminal level of interference in the market, absolute ignorance in how the market works, and lastly, a blindness to what has brought us to this point in the first place (the mixed economy).

All the government needs to do is let the cards fall where they may. When one these companies is finally allowed to fail, there will be a flurry of rational reforms within the rest dictated by the need to produce quality products at reasonable prices. The deadwood of management will be figuratively hung, their dismembered heads stuck on pikes outside of the corporate headquarters as a warning to all of what happens when the market is ignored. The union gild masters and looters will be knocked off their soapbox, finding themselves, finally, in fear of not having an industry to work for, much less abuse, castrate and rape.

There are very few things that can immediately focus the mind. Some are negative lenses like fear and pain, and some are positive like opportunity, challenge and innovation. It's high time the North American auto sector felt a little of all of the above.

As my counterpart here has already said... LET THEM FAIL!

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Why do the politicians seemingly accept the idea that if GM or Ford or Chrysler goes bankrupt, that means they'll just shut down completely?

They accept what their loudest, shrillest, and most influential voting bloc (unions) tell them to.

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I found this and thought it was funny and true. :lol:

Actually, it's not true. Look around the next time you're on the road. Plenty of people buy American-made cars. The problem is, US auto companies squander their profits away on the damn unions and union retirees. I drive an 05 Ford Explorer and it's a wonderful vehicle. It has appropriate, comfortable features, handles better than any car I've owned and is very safe according to the Insurance Institute for Highway Safety. I also think it looks great and gets good gas mileage. Anyone that has been in my car, much less driven it, comments on what a nice, comfortable vehicle it is.

Surprised nobody posted this before me. It looks like it collapsed in the Senate:

Don't worry, it will pass soon enough. :(

Why do the politicians seemingly accept the idea that if GM or Ford or Chrysler goes bankrupt, that means they'll just shut down completely?

I don't get this either. :) Continental Airlines has filed for bankruptcy I-don't-know-how-many-times and they are still flying the friendly skies. And I'm sure they've come out a leaner, more efficient company each and every time. Now if they could just get the government off their backs, perhaps they could actually realize a profit. :P

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