Gov to GM: Merger, huh? How about 'No'? Wanna try 'No'?

[irishmick79]

A few of my friends and relatives in Michigan are already telling me that several rounds of layoffs are planned for GM and chrysler suppliers. One in particular (they wouldn't name which one) is planning on dropping around 25% of its staff.

Ford is already axing 2,600 jobs.

Here's a CNN article describing the auto industry job market in a bit more detail. Basically, if the Big three reduce their force by 50%, 2.5 million jobs could be gone in 2009. If it's a full reduction, we're looking at 3 million jobs gone in the first year alone.

If the big 3 do in fact go down, we're looking at unemployment levels in the US rivaling the Great Depression.

[Ma Deuce]

If the government bails out Detroit, why not fund it by imposing steep taxes on every foreign branded new car (import and transplant alike, without exception) to say, 15%-25% of their MSRPs? You could get billions a month out of Toyota alone. Not only would it instantly bolster Detroit's sales at the expense of the invad...sorry, imports, but it would also vastly reduce the amount of money the government must dig out of it's pockets to keep a vital strategic industry from collapsing. Call it corporate wealth re-distribution .

[KrauserKrauser]

Kidding right? Please be kidding.

If the Great Depression taught us nothing, going isolationist or hyper protectionist is only going to lengthen the down times.

GM will get bailed out, Obama simply will not be able to let the Unions down that hard. With rumors of Government ownership of GM stock for bailout money, I hope that he and Congress are smart enough not to get ideas of a Nationalized Auto Industry running around in their heads.

For now I will give them the benefit of the doubt but reserve the right for an "I told you so" in the future.

[Admiral Valdemar]

Problem is, people aren't buying cars, American or otherwise. The global economy is such now that even China is seeing problems in selling vehicles. If the taxpayer bails out GM and Ford, they'd better get in the habit of propping up those corpses.

[Ekiqa]

The last thing the government needs to do is bail out the Big Three. They've received huge handouts before, and in many cases they're in the hole due to their production of huge and expensive cars and trucks, which no one can afford now.

In nearly every case, the plants being idled or shut down produce nothing but trucks and SUV's.

In the Canadian auto market, Toyota's sales increased 9.4% from last October, and the only declines were GM and Ford, which both focus in pick-up trucks.

Maybe they should be left to die, to teach the industry a lesson?

Otherwise, you'll just have people making vehicles on the government dollar, that never get sold.

Those left unemployed wouldn't stay unemployed for long, due to another vehicle company eventually entering the void.

[KrauserKrauser]

I'm admittedly rather anti-union and one of the main reasons I don't want the Goverment to take on ownership of GM is to avoid the Unions being able to argue that since the Treasury is now a shareholder, the Treasury now has accepted responsibility for the pensions and healthcare of the Unions.

Far fetched, possibly, I don't know what they would be capable of especially with the 2010 agreement already on the books.

If you wanted to use it as a step towards socialized healthcare, I could see how that would be attractive to Liberals, but my experiences with the current state of Unions have left an extremely sour taste in my mouth.

Ideally, I would want to see them funded with a loan given to them so they can survive until 2010 with the new agreement that will improve their cash flows. I would also like for them to be required to pay back every penny, but know that might last a few years until they cry foul and the debt is forgiven.

Such is life.

[Uraniun235]

I'm admittedly rather anti-union and one of the main reasons I don't want the Goverment to take on ownership of GM is to avoid the Unions being able to argue that since the Treasury is now a shareholder, the Treasury now has accepted responsibility for the pensions and healthcare of the Unions.

Far fetched, possibly, I don't know what they would be capable of especially with the 2010 agreement already on the books.

The unions can't hope to strong-arm the federal government - what are they going to do, strike? In this economy, with millions looking for work? Sounds like perfect conditions for breaking the union to me.

If they tried to sue, Congress could just pass a bill saying that the government shall bear no burdens from labor agreements negotiated with corporations it buys, or something like that.

[Count Chocula]

If that were implemented, Ma Deuce, you'd just shift the job losses to Kentucky. Net-net, it's still a loss.

[irishmick79]

I'm admittedly rather anti-union and one of the main reasons I don't want the Goverment to take on ownership of GM is to avoid the Unions being able to argue that since the Treasury is now a shareholder, the Treasury now has accepted responsibility for the pensions and healthcare of the Unions.

Far fetched, possibly, I don't know what they would be capable of especially with the 2010 agreement already on the books.

The unions can't hope to strong-arm the federal government - what are they going to do, strike? In this economy, with millions looking for work? Sounds like perfect conditions for breaking the union to me.

If they tried to sue, Congress could just pass a bill saying that the government shall bear no burdens from labor agreements negotiated with corporations it buys, or something like that.

I disagree. The unions are actually in a pretty strong position to mount a challenge if they wanted to. With a new democrat president coming into office, the unions can afford to take a chance and test him. The government damn well knows that they can't afford to have the Big 3 implode, and Obama would have a hard time telling the unions to fuck off since he's so new. The unions would have to overplay their hand and press for too much (like what krauserkrauser suggests) before Obama would have an opportunity to break with them. I think the unions would probably be complacent with the Obama administration's economic packages as long as Obama pledged to address health care seriously during his first term. Overall the unions will have a fairly strong negotiating hand, but they are tempered by the reality of the crashing auto market and the simple necessity to make a deal with the government.

[Ma Deuce]

Kidding right? Please be kidding.

No, I'm dead serious, and having thought this out I've come to the conclusion this is the only way. It's pretty obvious that Detroit will need to be bailed out to survive, and doing nothing is also unacceptable. So where does that leave us? If we simply bail them out, even with strict conditions on how the money is spent, yadayadayada, they will inevitably have to be bailed out again. Their fixed structural cost competitive disadvantage will see to that, and they will be permanently dependent on government handouts. We don't want that either. The leads to the next option, Chapter 11 bankruptcy, which will erase their union, supplier, and pension contracts, eliminating their structural cost gap. Trouble is, even Chapter 11 would be fatal or near fatal to an automaker, because unlike, say airlines, an automaker has to maintain and repair the vehicles it sells years after they drive off the lot. An automaker in bankruptcy protection is going to be seen by most car buyers as a huge risk, as they'll wonder if the company will be around to honor the warranty or sell repair parts, so their market share will implode, and will still either be dependent on handouts, or be forced to dismiss most of their workforce anyway. That leaves the last option: hobble or eliminate the competition.

Maybe they should be left to die, to teach the industry a lesson?

Right, because Detroit's fortunes happen in a vacuum. What about the workers? What about economic sovereignty? 1 in 14 North American jobs are directly or indirectly tied to the auto industry. If it goes under on top of the credit crunch, the economic damage will make what's happening now look like a picnic.

Those left unemployed wouldn't stay unemployed for long, due to another vehicle company eventually entering the void.

No, they'll be condemned to stocking shelves at Walmart, and our manufacturing economy will be one big step closer to extinction. Those other vehicle companies will be foreign, and they'll simply import all their shit, now that they no longer have any political reason to build vehicles here (Toyota basically admitted last year that's the only reason they build cars here: from a pure efficiency standpoint, it makes more sense for them to build everything in Japan).

If that were implemented, Ma Deuce, you'd just shift the job losses to Kentucky. Net-net, it's still a loss.

Less than if Detroit goes under: GM still employs more Americans than all the transplants combined, IIRC. The needs of the many outweigh the needs of the few. Still, it would be logical to apply a lower tax rate to transplants than imports.

[Patrick Degan]

No, I'm dead serious, and having thought this out I've come to the conclusion this is the only way. It's pretty obvious that Detroit will need to be bailed out to survive, and doing nothing is also unacceptable. So where does that leave us? If we simply bail them out, even with strict conditions on how the money is spent, yadayadayada, they will inevitably have to be bailed out again. Their fixed structural cost competitive disadvantage will see to that, and they will be permanently dependent on government handouts. We don't want that either. The leads to the next option, Chapter 11 bankruptcy, which will erase their union, supplier, and pension contracts, eliminating their structural cost gap. Trouble is, even Chapter 11 would be fatal or near fatal to an automaker, because unlike, say airlines, an automaker has to maintain and repair the vehicles it sells years after they drive off the lot. An automaker in bankruptcy protection is going to be seen by most car buyers as a huge risk, as they'll wonder if the company will be around to honor the warranty or sell repair parts, so their market share will implode, and will still either be dependent on handouts, or be forced to dismiss most of their workforce anyway. That leaves the last option: hobble or eliminate the competition.

This so-called "plan" will not work. Curtailing or eliminating foreign competition will do nothing to ensure a more efficient, more profitable operation out of GM, which is already haemorraging cash at such a rate that profitability may never be recovered before the company financially collapses, which to put it simply makes shitty cars which people don't want to buy and don't make sense in the present and future energy equation, and which supports divisions which essentially make the same shitty cars people don't want to buy under different brand labels: a Pontibuick is still a Chevy but with a fancier front grille. GM's entire design and production plan ensures the continuance of the same practises which have helped lead it to the abyss, and does nothing to address the continuing drain of the company's health insurance and pension schemes which it can no longer afford in the current financial environment. You could drive Toyota, Nissan, Honda, Hyundai, Subaru, and Kia off the Continent tomorrow but if GM is still financially bleeding and still making the wrong kind of cars, it's still in the same spot it's in now. You may buy the company a year or so of life, but at the cost of eliminating the foreign automakers' North American manufacturing operations and the subsidiary economic concerns which service those operations from supply to transport to distribution —which worsens the overall economic picture, puts more people into unemployment, which means fewer disposable dollars which would go to buy cars, which doesn't help keep GM afloat. Which only hastens the company's eventual collapse after a brief interregnum.

Less than if Detroit goes under: GM still employs more Americans than all the transplants combined, IIRC. The needs of the many outweigh the needs of the few. Still, it would be logical to apply a lower tax rate to transplants than imports.

The problem with this theory is that, by creating a hostile climate to the foreign automakers' business operations, they have, as has been pointed out, less incentive to remain invested in this country. It's nice to say "GM employs more Americans than the transplants", but that argument goes only so far before it headbuts the reality of what a protectionist policy would inflict upon an already soft economy. In this case, it's not really possible to separate the needs of the few from the needs of the many; they are intertwined.

[The Duchess of Zeon]

If the government bails out Detroit, why not fund it by imposing steep taxes on every foreign branded new car (import and transplant alike, without exception) to say, 15%-25% of their MSRPs? You could get billions a month out of Toyota alone. Not only would it instantly bolster Detroit's sales at the expense of the invad...sorry, imports, but it would also vastly reduce the amount of money the government must dig out of it's pockets to keep a vital strategic industry from collapsing. Call it corporate wealth re-distribution .

Here's an idea, let's take over the Big Three and sell them to foreign companies instead for an infusion of capital into the US economy, which would actually make sense. Or tell the Sheikh of Dubai that if he wants to remain on good relations with the USA he'll buy Chrysler. Something like that. The country needs hard currency, not Smoot-Hawley.

[Patrick Degan]

If the government bails out Detroit, why not fund it by imposing steep taxes on every foreign branded new car (import and transplant alike, without exception) to say, 15%-25% of their MSRPs? You could get billions a month out of Toyota alone. Not only would it instantly bolster Detroit's sales at the expense of the invad...sorry, imports, but it would also vastly reduce the amount of money the government must dig out of it's pockets to keep a vital strategic industry from collapsing. Call it corporate wealth re-distribution .

Here's an idea, let's take over the Big Three and sell them to foreign companies instead for an infusion of capital into the US economy, which would actually make sense. Or tell the Sheikh of Dubai that if he wants to remain on good relations with the USA he'll buy Chrysler. Something like that. The country needs hard currency, not Smoot-Hawley.

The problem is, who would want them? Daimler recently extricated itself from it's merger with Chrysler. And you really can't strongarm an ally into buying a U.S. company for reasons which should be all too obvious.

[The Duchess of Zeon]

The problem is, who would want them? Daimler recently extricated itself from it's merger with Chrysler. And you really can't strongarm an ally into buying a U.S. company for reasons which should be all too obvious.

Well, if they could completely restructure the company and introduce new designs, it might be worthwhile to them in the very long run.

Though more practically, as I understand it, what Obama is planning to do is offer the bailout contingent on every vehicle the Big Three make by 2015 being a plug-in hybrid. Which would be rather incredible. And at the same time requiring that every single vehicle sold by a foreign company in America is also a plug-in hybrid, which will drive up their costs (while they're not receiving any bailouts), thus somewhat provide more help to the Big Three without running into the blatant territory of tariffs that's being ridiculously proposed.

So Toyota, Volkswagen, etc, have to convert their entire US market production to plug-in hybrids with their own money, whereas GMC, Ford, and Chrysler do it with the government's money and get further bailouts as well.

That's probably the actual meaning of Obama's intention to make every vehicle sold in the USA by 2015 a plug-in hybrid, and at the same time supporting the Big Three bailout.

[Vendetta]

Well, if they could completely restructure the company and introduce new designs, it might be worthwhile to them in the very long run.

It would probably be cheaper for them just to buy up all the old factory lots when the companies have to liquidate and retool to produce their own vehicles with the local workforce than actually buy up the companies and have to deal with all their baggage and shit.

[Fingolfin_Noldor]

Here's an idea, let's take over the Big Three and sell them to foreign companies instead for an infusion of capital into the US economy, which would actually make sense. Or tell the Sheikh of Dubai that if he wants to remain on good relations with the USA he'll buy Chrysler. Something like that. The country needs hard currency, not Smoot-Hawley.

The Sovereign Funds are extremely cautious right now, no thanks to getting burnt. Unless they are willing to take on billions dollars risks (meaning, the potential to lose billions is bloody high), they won't take on the risk.

Now on to other issues, I am not sure if you want a strategic asset in the hands of a foreign owner.

[aerius]

The only way GM can survive in the long term is by getting rid of all their union contracts & obligations, and the only way that's going to happen is via bankruptcy or a forced cramdown. The government can come in and buyout their pension & healthcare plans but that still leaves their highly inflated salaries, the news yesterday was reporting that basic assembly line workers were making $30-40 an hour, that is some damn good coin for unskilled labour.

[J]

If we simply bail them out, even with strict conditions on how the money is spent, yadayadayada, they will inevitably have to be bailed out again. Their fixed structural cost competitive disadvantage will see to that, and they will be permanently dependent on government handouts. We don't want that either. The leads to the next option, Chapter 11 bankruptcy, which will erase their union, supplier, and pension contracts, eliminating their structural cost gap. Trouble is, even Chapter 11 would be fatal or near fatal to an automaker, because unlike, say airlines, an automaker has to maintain and repair the vehicles it sells years after they drive off the lot. An automaker in bankruptcy protection is going to be seen by most car buyers as a huge risk, as they'll wonder if the company will be around to honor the warranty or sell repair parts, so their market share will implode, and will still either be dependent on handouts, or be forced to dismiss most of their workforce anyway. That leaves the last option: hobble or eliminate the competition.

There's also the option of a forced cramdown which functions as a greatly accelerated Chapter 11 bankruptcy. Instead of having a BK case drag out for months to years as all the parties file their lawsuits and appeals while the company limps along and tries to reorganize, everything is smashed down & torn up immediately so that GM can begin operations the next week with a clean slate.

Go in with a team of judges, lawyers, and accountants, and whoever else that's needed, declare GM bankrupt and void all existing contracts, carry out a debt to equity swap, bailouts or whatever else is required to eliminate their debts and recapitalize the company, then reorganize the company, work out new contracts and get everything running again. GM doesn't end up in BK limbo for some indefinite period of time as with a traditional Chapter 11 filing, everything gets rammed though within a month at most and after that they're in the clear with a fresh start.

You end up with a brand new GM with no debts, money in the bank, and no boat anchor union obligations to drag it down, they're now on a level playing field with everyone else. Plus they have some time to clear out their inventory while the reorganization's taking place.