The Coming Auto Bailout

[Thomas M. Miovas Jr.]

Ford has managed to deal with the UAW getting potential wages down to $55 per hour and saving the company $550 per year, so they still claim they don't need a bailout, even though they had record loses in 2008. $55 per hour is great wages, from my perspective, but if it is coming down from $75 per hour I guess the UAW is finally realizing that if something isn't done soon they lose everything.

"Ford said the agreement would trim its average wages for the 42,000 workers covered under the contract, including the value of benefits, to about $55 per hour this year, while the U.S. operations of foreign-based automakers -- or what auto executives call "transplants" -- pay workers on average $48 to $49 per hour."

Added on Edit: Sorry for the multiple replies in one post. My computer locked up trying to upload my reply.

Edited March 11, 2009 by Thomas M. Miovas Jr.

[AllMenAreIslands]

Here's the thing - there ARE automakers who have managed to turn a profit. Nevermind the ludicrous wages, the many regulations etc (all of which do play their part, but that's not my point here.)

I've been re-reading the books about marketing, called "Positioning" by Al Ries and Jack Trout. GM gets a lot of bad mentions in these books, on account of their terrible marketing strategies wherein they try to appeal to everyone. Ford and Chrysler aren't better, either.

The American automakers have been told by these Positioning guys for decades now about the problems with their marketing and continued to ignore the warnings and the advice. Selling the product you make at the price you need to charge takes focus, something that appears to be missing everywhere, actually.

Just makes it even more galling that these companies are going to Washington with their hands out, begging to be saved from their own stupid decisions. Just fold up those tents already.

[RussK]

Although I'm not a fan of their cars--the same goes for GM and Chrysler--I have to give a little respect to Ford for withdrawing itself from the bailout money, so far. I'm not sure why they did this, maybe they were in better condition than the other two, but they fought for the bailout and then bailed on it, all the while their competition got an unfair advantage with government money.

[gags]

Now the supplier base is in line to get $5 billion. Unfortunately, once you head down this bailout road, there is no end in sight.

http://biz.yahoo.com/ap/090319/auto_bailou...D&ccode=TBD

[MichaelH]

Although I'm not a fan of their cars--the same goes for GM and Chrysler--I have to give a little respect to Ford for withdrawing itself from the bailout money, so far. I'm not sure why they did this, maybe they were in better condition than the other two, but they fought for the bailout and then bailed on it, all the while their competition got an unfair advantage with government money.

I don't think Ford set this up intentionally. However, I think Ford's upper management realized the bailout funds would come with a great deal of government control and interference. (AIG is just now discovering this. You gave us money, now you expect to tell us how to spend it?!) It will be interesting to watch how the bailed-out companies fare when politicians are running things.

[RussK]

Now the supplier base is in line to get $5 billion. Unfortunately, once you head down this bailout road, there is no end in sight.

http://biz.yahoo.com/ap/090319/auto_bailou...D&ccode=TBD

This is a good way for them to give another influx of bailout funds to the automakers, by allowing them to essentially get $5 billion worth of free auto parts, while the politicians can say that they've helped keep another important industry, albeit a sub-sector, from going bankrupt. Once again, for whatever reason, Ford says it will not participate in this program. I guess auto-parts manufactures, and their employees, that produce for automakers other than GM and Chrysler are not of concern and not worthy of being 'saved'. Given that GM and Chrysler will have the authority to select which auto parts manufacturers get subsidized, there's probably going to be a lot of merging and companies going out of business. I can't wait to wait to see how much GM's baby, bankrupt Delphi gets from this bailout.

[Space Patroller]

There is a kind of justice to the taxpayers having to bail out the car companies. Do you know the war that the eco's have waged against the car over the last 38 years? So no pity on them.

On the larger scale where was the precious taxparyer during that thirty years while we fought the oppressive flood of regulations: CAFE, "safty" and environmental? If the public said anything at all it was that we were shills for the industry and wanted to see people killed thus siding in with the tyrannists, or, at best, standing around playing pocket pool.

Well We TOLD you this was gonna happen. Now take your medicine and learn.

[gags]

There is a kind of justice to the taxpayers having to bail out the car companies. Do you know the war that the eco's have waged against the car over the last 38 years? So no pity on them.

On the larger scale where was the precious taxparyer during that thirty years while we fought the oppressive flood of regulations: CAFE, "safty" and environmental? If the public said anything at all it was that we were shills for the industry and wanted to see people killed thus siding in with the tyrannists, or, at best, standing around playing pocket pool.

There is no doubt that Federal regulations have added to the auto industry's problems and have forced the car cos. to deal with the unions. The Feds raised the CAFE standards this week. Of course, that will just cause further harm to the domestic auto industry. The US manufacturers make plent of small cars, but people don't want to buy them and the companies don't make a profit selling them.

I just heard on the news that GM CEO, Rick Wagoner resigned today. It seems that what really happened is the government canned him so they can put one of their chosen stooges in place. This is going to end badly.

http://www.nytimes.com/2009/03/30/business/30auto.html

[gags]

It appears that the government is floating a plan to split GM into two companies, a "good GM" and a "bad GM". The "good" one would consist of Cadillac, Chevrolet, GMC and Buick. The "bad" one would include Hummer, Saturn and Pontiac. The idea would be to stick the bad company with most of the retiree healthcare and legacy obligations and leave the good company relatively free of debt and able to get out of Chapter 11 rather quickly. It sounds like something that would be very hard to get people to agree on.

This morning I also heard that Chairman Maobama has appointed a "Director of Recovery for Auto Communities and Workers". Sound a little like a position that someone would have held in the former Soviet Union?

[Space Patroller]

This morning I also heard that Chairman Maobama has appointed a "Director of Recovery for Auto Communities and Workers". Sound a little like a position that someone would have held in the former Soviet Union?

Or ATLAS SHRUGGED

[EC]

It appears that the government is floating a plan to split GM into two companies, a "good GM" and a "bad GM". The "good" one would consist of Cadillac, Chevrolet, GMC and Buick. The "bad" one would include Hummer, Saturn and Pontiac.

I'm surprised Hummer isn't thrown into the "good" division with Cadillac. Maybe it's a silly environmental thing?

[Space Patroller]

,,,silly environmental...

Ain't that kind of redundant?

[gags]

I'm surprised Hummer isn't thrown into the "good" division with Cadillac. Maybe it's a silly environmental thing?

I think it may have more to do with Hummer sales being in the dumps. Although, the new "green" GM certainly won't have any room for Hummers. I wonder if it will have room for cars that people actually want to buy?

[AllMenAreIslands]

Chairman Maobama?

[K-Mac]

The Hummer dealership by my house has about 4 vehicles on its lot. (And that includes customer parking.) I noticed the Ferrari dealership was damn near empty too. I thought it was closed at first, then saw a few cars there.

[Space Patroller]

Chairman Maobama?

Sure with his little red book; THE HAUGHTY ASS CITY OF DOPE

[gags]

There have been quite a few developments in recent days. It now looks as though Chrysler will likely avoid bankruptcy by screwing its bondholders and giving most of the company to the union and the government. Considering that the unions have declared profit to be evil and the government says that executives shouldn't be paid what they are worth, one wonders how this can ever become a viable business in the long run.

Government Motors (formerly known as GM) has another month to get its house in order before the Obama Admin pulls the plug on its loans. Of course that's a hollow threat from this group of union-loving politicians. From the restructuring plan put forth by GM it looks like the government will ultimately own about 50% of the equity, the union will own about 40% and the bondholders will get the remaining 10%. GM's existing shareholders will end up with nothing. The Pontiac brand is now gone and it looks like Hummer and Saturn will also bite the dust. The number of dealers is also going to be cut by 42%. As one might imagine, the mood here in Detroit makes your average funeral look like a Roman circus.

[Thomas M. Miovas Jr.]

There have been quite a few developments in recent days. It now looks as though Chrysler will likely avoid bankruptcy by screwing its bondholders and giving most of the company to the union and the government.

Chrysler is going into Chapter 11 bankruptcy, and the government is going to give them $8 billion to help in the re-structuring and the government will "help" chose the new board of directors. Government Motors it may become, which worries me because I have a Chrysler (Doge). Guess we'll find out what it all means later down the road, but I'm not hoping for the best.

[gags]

The whole thing is a shame because Chrysler's Chapter 11 filing should have been done 6 months ago. That would have saved billions of dollars of taxpayer money and probably would have saved quite a few jobs as well.

[softwareNerd]

For all the faults around this and leading up to this, the silver lining is: they could have done worse.

As you say, Gags, they ought to have let the bankruptcy happen a while ago. Also wrong is that they are throwing in more government money. I happened to be driving around the time Obama announced this, and he argued that the evil hedge funds precipitated this crisis, because they wanted their money and weren't willing to sacrifice as much as he decided they ought to... sigh! Then they wonder why lenders are wary of lending.

Still, now that they have allowed the bankruptcy process to go ahead, it's probably a good thing -- relative to the option of throwing more money at it, or -- worse still -- trying to bend the rule of law to their wishes. Perhaps it might even make concrete to the voters that bankruptcy isn't the end of the world.

Next up, GM?

[softwareNerd]

Oh yes, the other negative was that Obama took a protectionist stand in his speech, saying people ought to buy American cars. This guy can sure channel Hoover/Roosevelt!

I suppose the big test will be how the bankruptcy judge deals with the pressure of having the President and almost every politician wanting him to make decisions their way -- as opposed to the way he might have made them if it were just another bankruptcy that nobody external was watching. If government pressure can corrupt the judicial process in this case, it would be a serious negative.

[agrippa1]

Chairman Maobama?

I thought for sure Chairman Mao-Mao* would announce the GM plan today, May Day. GM owned by the Union, while the investors get the big screw...

Can we change GM's name to the 21st Century Motor Company?

*(The Messiah used Churchill as a spokesman against torture on Wednesday, after having sent the bust of Churchill back to the British Embassy a few weeks ago, apparently because Winnie was PM when Obama's Grandfather was supposedly tortured by the British during the Mau-Mau uprising.)

[softwareNerd]

I just learnt that the creditors who were holding out for a better deal were holding "senior" debt. This means that Chrysler had promised to pay them before holders of "junior" "unsecured" debt. I wonder how a judge could decide not to give these guys first dibs on the assets.

One possibility is that the lenders will be intimidated behind the scenes by the Whitehouse. The lawyers for the lenders claims that one of the lenders (Perella Weinberg) dropped opposition to the deal when the Whitehouse threatened "... that the full force of the White House press corps would destroy its reputation if it continued to fight." This sounds so much like Paulson's strong-arming. Interestingly, the same company (P.Weinberg) is said to have consulting business with the government (the FDIC in particular). If true, the government can use that leverage as well. I suppose it should be no surprise if we eventually hear that the remaining lenders have changed their minds as well.

[Maarten]

Another thing that I thought was really disgusting was how the President of the UAW was quoted as saying something like: "Everyone had to give up something, and we only got 60 cents on the dollar for our obligations." As if that is even remotely similar to how much the bondholders and shareholders are losing. Pretending their concessions are even remotely similar is just beyond disgusting, and highlights how horrible these unions can be when they get too much political power.

[K-Mac]

I just can't believe anyone was foolish enough to hold on to those bonds this long. What did they expect? That with the government involved all would go well? LOL!