The Coming Auto Bailout

[gags]

Funny video, but this isn't nearly as humorous:

What began as an emergency batch of loans to GM, Chrysler and GMAC in December -- totaling just over $20 billion -- now looks likely to balloon well beyond $50 billion and could approach $100 billion by the end of the year.

http://online.wsj.com/article/SB124285476839840701.html

[Steve D'Ippolito]

Funny video, but this isn't nearly as humorous:

What began as an emergency batch of loans to GM, Chrysler and GMAC in December -- totaling just over $20 billion -- now looks likely to balloon well beyond $50 billion and could approach $100 billion by the end of the year.

http://online.wsj.com/article/SB124285476839840701.html

Not to worry. Since the government owns the car companies now it is simply lending the money to itself. No problem. Move along, nothing to see here.

[Thomas M. Miovas Jr.]

Not to worry. Since the government owns the car companies now it is simply lending the money to itself. No problem. Move along, nothing to see here.

Actually, there is quite a bit to see here, as our rights are eroded away and the government more and more tells us what to do by force.

Alex Epstein has written a great blog entry on Ayn Rand.org about this issue. The only problem I have with it is that The Declaration of Independence is not a pre-amble to The Constitution -- at least most legal authorities say it isn't -- though it is a historic document that stated the purpose of founding a new country.

[Thomas M. Miovas Jr.]

According to this article, the US Government will wind up owning up to 70% of GM, probably to stave off bankruptcy, since if bankruptcy is triggered, then the bond holders will get up to 40% of their investment, which the government doesn't want. I suspect this will lead to future bond holders of any company very hesitant to offer unsecured debt to major companies, further demoralizing the major markets for companies that need debt to continue operations.

However, I don't fully understand the issue of bonds and the normal market relationship between bond holders and companies they back.

[gags]

Well, today is the day that almost nobody here in Detroit imagined could or would ever happen. At 8:00 am this morning, GM filed for bankruptcy in New York. General Motors has been in business since 1908. It became a "blue-chip" stock on March 16, 1915 when it joined the list of the, then, 12 companies which made up the Dow Jones Industrial Average. At one point it was the largest industrial company in the world. When GM emerges from bankruptcy, it will apparently consist of Cadillac, Chevrolet, Buick and GMC trucks. Its other divisions, Pontiac, Hummer, Saab and Saturn will either be closed or sold off. GM has also sold off its Opel European division.

So far, the plan is for the federal government to take a 60 percent ownership stake in the new GM. The Canadian government would take 12.5 percent, with the United Auto Workers getting a 17.5 percent share and unsecured bondholders receiving 10 percent. Existing GM shareholders will lose whatever is left of their entire investment.

[softwareNerd]

.. federal government to take a 60 percent ownership stake in the new GM. The Canadian government would take 12.5 percent, with the United Auto Workers getting a 17.5 percent share and unsecured bondholders receiving 10 percent. ...

Doesn't sound like a formula for future efficiency and success.

[gags]

When a private business has a tough time figuring out how to build cars that the American people want to buy, I tend to doubt the geniuses in Washington will do a better job of solving that little problem.

[Thomas M. Miovas Jr.]

I heard on the Fox News Channel this morning that one of the projects GM didn't get involved in was producing small, underpowered cars, that had high gas mileage. After surveying the country, they found that the American people wouldn't buy that type of car. Well, guess what, that is the car that the White House is going to effectively order GM to make, now that they are in control.

In other words, "environmental cars" are going to be the new standard, not effective cars for driving according to human wants and needs for transportation.

[Maximus]

I heard on the Fox News Channel this morning that one of the projects GM didn't get involved in was producing small, underpowered cars, that had high gas mileage. After surveying the country, they found that the American people wouldn't buy that type of car. Well, guess what, that is the car that the White House is going to effectively order GM to make, now that they are in control.

In other words, "environmental cars" are going to be the new standard, not effective cars for driving according to human wants and needs for transportation.

Like I said, clown cars. This was only partially in jest.

[IchorFigure]

Well at least now they're calling it what it is:

Nationalization of GM to be Short Term

Obama said he recognizes that even the temporary nationalization of GM "may give some Americans pause." But he called it preferable to letting the company fail outright - or giving it more and more bailout loans, money it has gone through rapidly.

And, paraphrasing an oft-quoted line in 1953 by then GM chief Charles Wilson, Obama said: "And when that happens, we can truly say that what is good for General Motors and all who work there is good for the United States of America."

Do tell...

[softwareNerd]

For those interested in Facebook activism, there's a "Boycott GM and Chrysler" Facebook group.

[gags]

I've owned GM vehicles for years. My first car was a chevy. In the past I bought Buick's, GMC trucks, Cadillacs and a Pontiac. I won't buy another one...certainly not while they are Government Motors.

In Obama's announcement about the bankruptcy he assured everyone that the government won't be running GM. If you haven't noticed yet, our President is quite good at saying something very sincerely and then doing the exact opposite. Now it appears that Obama has told Detroit Mayor Dave Bing that GM won't be moving its headquarters from Downtown Detroit out to Warren, a nearby suburb, as the company was considering. Hmmmm... kinda sounds like he's running GM. Also, the US Senate is planning to hold hearings today on the closing of Chrysler and GM dealerships. If they don't intend to interfere, what's the point of holding such hearings?

[Thomas M. Miovas Jr.]

Also, the US Senate is planning to hold hearings today on the closing of Chrysler and GM dealerships. If they don't intend to interfere, what's the point of holding such hearings?

I certainly agree that the government will be running those businesses, just as they are trying to run the banks and trying to run the mortgage industry and trying to run the credit card industry. But regarding the investigation of the closing of car dealerships, they are trying to cover their political butts. The scuttlebutt is that the closing of those dealerships is hurting Republicans disproportionately to Democrats. Turns out that most independent dealerships are run by Republicans and are often in Republican districts. So the claim is that closing those dealerships is politically motivated, especially since at least some of those dealerships were highly profitable even in today's economic climate. Of course, since the foxes are running the hen house, they will claim that it wasn't politically motivated.

[utabintarbo]

... The scuttlebutt is that the closing of those dealerships is hurting Republicans disproportionately to Democrats. Turns out that most independent dealerships are run by Republicans and are often in Republican districts. So the claim is that closing those dealerships is politically motivated, especially since at least some of those dealerships were highly profitable even in today's economic climate. Of course, since the foxes are running the hen house, they will claim that it wasn't politically motivated.

This is interesting. Do you have some background on this?

[Thomas M. Miovas Jr.]

This is interesting. Do you have some background on this?

It's been discussed in news circles for the past two weeks. I did a Google search and found this article debunking the conspiracy theory.

http://www.campaignfreedom.org/blog/detail...an-auto-dealers

[K-Mac]

I heard a car dealership owner call into a talk radio show a few weeks back. He was saying that Asian automakers have been courting US car dealerships for years trying to get them to stock their full size pick-up trucks. Many refused because they were loyal to the US truck manufacturers; however, the caller suggested that these car dealerships are not just going to sit empty. He predicted they would soon be filled with Toyotas, Nissans, etc., particularly their full size trucks. That will only further hurt the US auto market (Ha ha! Chickens coming home to roost!) and push down their sales even further.

It will be interesting to see if that prediction comes true.

[softwareNerd]

Today, the last hurdle was crossed to Chrysler's bankruptcy not paying creditors according to the standard rule of law. The SCOTUS rejected the creditors appeal. I haven't seen details, so I don't know what excuses our GOP-majority SCOTUS came up with. Sotamayor would have ruled the same, so what good is a GOP judge?

Edited June 10, 2009 by softwareNerd

[gags]

I saw some stats the other day on political contributions by the UAW. Between 2000 and 2008, the union gave $23,676,000 to the Democratic Party and its candidates. During the same period, the Republicans received $194,000. In 2008 alone, the UAW gave $4,162,000 to the Democratic Party, including Obama. Now, the UAW has received 55 percent of Chrysler and 17.5 percent of GM. In the Chrysler proceeding, the secured creditors, who would have received priority in a non-political bankruptcy proceeding, were left with just 29 cents on the dollar. Now that the SCOTUS has given Obama the green light, something similar will happen in the GM bankruptcy. I guess the rule of law only matters when you make political contributions to the right people.

[dadmonson]

The avg. cash incentive offered by the car dealerships in Detroit was $2,500(Ford has gone as high as $5000). No wonder they were taking huge losses year after year.

[K-Mac]

When thousands and thousands of dollars per vehicle goes to unions in one way or the other (primarily health care), I doubt the cash back incentives are what killed GM and Chrysler.

Here's a good article from WSJ.

[dadmonson]

I doubt the cash back incentives are what killed GM and Chrysler.

It definitely added to the problem. Companies sometimes make the mistake of focusing on building market share, assuming that profits will follow. Those 3 companies have consistently sacrificed short-term profits to achieve market share by offering high-dollar incentives to increase sales of new cars.

[K-Mac]

That may have been a drop in the bucket, but that's not what put them out of business. (Or I should say, out of the free market and into the government's arms.)

Edited June 16, 2009 by K-Mac

[K-Mac]

http://www.dallasnews.com/sharedcontent/dw...n2.50fdeae.html

Ha ha ha ha ha! You mean, no one wants to buy the ugly, little, efficient cars that Government Motors (GM) will be making?! You mean, people want cars their families, groceries, kids, dogs, etc., will fit into?! No way!

[gags]

When Americans don't buy the cars that the bureaucrats want them to buy, look for a big increase in the federal gas tax. If they can't convince people to drive tiny vehicles, they'll force us to drive them.

[Thomas M. Miovas Jr.]

They may do that, but I think they will gradually or suddenly basically outlaw larger vehicles that can't meet the new CAFE gas mileage standards.

And with what they are doing with the economy, many people won't be able to afford the larger vehicles anyhow. They are moving to regulate the entire financial industry, which is the heart of innovative companies, making it more and more illegal to take financial risks if they deem those risks to be too risky for economic operations run from DC. So even if they don't outright make larger cars illegal, they have ways of manipulating you into having to support the government efforts to push Government Motor's vehicles.