Let GM fail
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I think General Motors needs a demotion. With all the talk about bailing out GM you have to wonder how they got into this mess to begin with. I’m sure many are quick to jump to blaming unions and I agree they have played a role in making the US auto industry less competitive but I think it goes even further than that. Start for example with the GM fleet of 127 vehicles. Upon further inspection it seems to me they cannibalize their own business by creating cars that compete with each other. The Pontiac Solstice vs. Saturn SKY or the Cadillac CTS vs. Buick Lucerne and on and on. The business owner in me says ditch the less popular models and migrate the customer base to the more popular ones.
Aside from creating so many different types of vehicles, GM has also demonstrated stupidity in how to market them. Classic example is the unleashing of the disgraceful H2 right after 9/11 whose fuel efficiency is so terrible it is not even listed on KBB.com. Maybe its just hard to market when you’re a regular on the 50 Worst Cars of All-Time list.
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The reasons for saving GM are long, among them:
1) GM actually builds something, our nation is quickly moving to a service economy - we need to have SOME manufacturing.
2) GM has tens of thousands of pensioners/ retirees dependent on GM for healthcare - if GM fails the pensions will become the responsibility of the federal government pension program and the healthcare that of medicaid or medicare - with some left without insurance after a lifetime of work.
3) The tens of billions of GM commercial paper moving throughout the banking and financial systems would suddenly become worthless - if you think you’ve seen a devastated Wall Street in the past year, just wait when those billions are suddenly worthless.
4) National security. We need a manufacturing base - it’s fine to talk about buying cars from Japan, Korea and China, but where will our nation’s military find tanks, APCs, trucks, etc in the future? Particularly if our allies/ trading partners - where presumably you would want our military hardware built - turns against us? Remember 1941? It was a good thing we could turn Detroit into the Arsenal of Democracy.
5) It’s the right thing to do. For 80 years GM, Ford and Chrysler have been employing tens of thousands of Americans in good, high paying jobs. Hundreds of thousands of other jobs were created as a consequence of the good work done by these companies. These companies paid to educate thousands of Americans. These companies WERE the Arsenal of Democracy - they and their employees have collectively paid hundreds of billions, if not trillions in state and federal tax dollars over their many years.
Moreover, these are the patriotic companies - they didn’t move their headquarters overseas to hide documents/ save a little on taxes (as did Tyco, KBR, Halliburton, and Blackwater - even though the last three receive billions in government contracts). They have tried to employee as many Americans as possible - and pay them as much as possible (which if you weren’t aware is great for the economy).
Have they screwed up? Absolutely. Should GM’s management be cleaned out, absolutely. (I would argue that Ford’s management is better positioned - although I have serious questions about what they have done as well). But, if our nation is willing to spend hundreds of billions to save a bunch of banks and financial insitutions which a) don’t make ANYTHING, b) do not serve the national defense, and perhaps most poignantly c) do not employee more than a handful, you need to ask yourself where your - and our nation’s priorities are.
1) We need to manufacture “something” at what cost? I attend the DC Auto Show every year and every year I am more disappointed by the American car companies. By subsidizing them, we continue to perpetuate their dismal behavior while Japanese car companies make continued progress in fuel efficiency. Having a bunch of factories in our country that produce junk isn’t a good way to position ourselves for a stable economy. And let’s not forget we are getting BMW and Toyota moving their factories here while “ours” are moving to Mexico.
2) The GM retirees are an important factor to consider and of course they are owed what they earned. I don’t think GM would go completely under and should focus on a good business model instead of creating 127 different vehicles that compete with each other. Regardless, we need to know the real cost of the retiree benefits which right now is vague and is used as a scare tactic. Besides, isn’t Obama going to take care of healthcare?
3) Again here I don’t expect GM to go completely under and therefore see the GM paper devalued (rightfully) but not worthless. Bargain hunters and entrepreneurs will buy up the pieces that are profitable and continue their operations.
4) The military side of the business will continued to be contracted by DoD. And in the terrible event that the US did engage in a war requiring millions of tanks and jeeps instead of planes and helicopters, I have no doubt we will figure out a way to make that happen.
5) Benjamin Franklin was a patriotic man who personally profited greatly by becoming the Post Master General and making the Post Office very efficient. If however at the end of his life he betrayed the US somehow his legacy would be one of a traitor. So yes, the Big 3 have employed many people and done great things for our country but all the time they profited as well so they didn’t do it out of the kindness of their hearts. I don’t care how many US Flags, “I Support the Troops” magnets and September 11th license plates you have on a H2, it is not patriotic or good for America. If Hummers make a profit for GM then fine, but don’t make me subsidize your gas too.
And I do not believe for a second that the major car companies have not moved their headquarters out of the US for patriotic reasons. Even they are smart enough to know the American consumer would crucify and boycott them.
So we’re both pissed about the current situation and you know quite well I was/am vehemently against the banking bailout. So is the solution training wheels or tough love? I prefer tough love.
ps. Let me know if you want to bailout my bar tab at Eleventh Lounge this Thursday
Just curious, can you justify the $150,000,000,000 we’ve spent to bail out AIG?
I don’t justify it. I was against the bailout of AIG. why do you think I was in favor of it?
Mark, Amit just suggested what is more commonly known as a “toxic asset purchase”. You’re free to spread the wealth, but personally, I’d avoid it.
MB - Brilliant!
Whats also missing in thsi discussion is that most “foreign” cars that are sold in the US are actually built in the US. Toyota, Honda, and Nissan are all building factories in the US and car production has grown at double didgit rates in recent years. This isnt an auto industry problem, this is a GM, Ford, Crysler problem.
The reality of the car companies is that they are large multi national firms where their supply chains are global. The Toyota Corrola has more domestic content in it then the Ford Escort. The Crown Victoria that the cops use, is assembled in Canada.
Bailing out these firms in order to protect these jobs means that the money has to be taken from the capital markets that would have been used to create jobs in other industries producing things that are actually demanded by the public at a profitable price. There is an opportunity cost not being mentioned here.
Furthermore, even if GM goes into bankruptcy, this doesnt meen they disapere. This means they go into chapter 11 just like the airlines did a few years ago and it gets to reorganize, downsize and change to become more profitable. Unprofitable product lines will be discontinued. Areas of the company that have value will either remain or be sold off to another company that wants it. This is the natural process of capitalism, that being creative distruction. Maybe we should have bailed out the ice man who was losing his high paying job to the refrigerator? Progress and change requires that we stop trying to protect the status quo because we have some type of emotional attachment to jobs and companies that used to be productive but are not longer. Remember, believe in change - maybe you can even hope for it
The problem with Chapter 11 is that your argument presumes that a financial institution will loan the automakers the money to survive while in bankruptcy. That is doubtful under the current financial situation.
Consequently, if GM and Ford do go bankrupt you will see millions of Americans lose their jobs immediately - and the cost in unemployment insurance along (not to mention the other costs in the financial sector) will easily exceed the cost of the loans. Your picture of a GM Chapter 11 is far too rosy.
PS - EJ, there is no Ford Escort anymore, and Japanese cars especially still import the vast majority of their parts - that’s where the majority of the jobs are, in parts supplying.
I honestly do not think any of you truly understand just how much of our economy is dependent upon the auto industry, or how devastating it will be for our economy to completely lose this sector - nor how much money you will lose if they go belly up. Forget AIG, losing GM will be far more damaging.
GM is kind of screwed with its plethora of once-popular brands. They all have tons of dealerships that have invested big money buying franchises, advertising, etc, and will sue GM if the brand is squashed. So GM can’t just easily say “umm, yeah we’re gonna simplify our lineup and not make Pontiacs and Buicks any more”.
It was apparently a big pain when they got rid of the Oldsmobile brand: http://money.cnn.com/2008/10/29/autos/brands_hard_to_kill/
But yeah, GM cars generally suck. They deserve to go under or experience massive restructuring.
Why do they suck? They are generally as reliable as the Japanese manufacturers, and more reliable than the S. Koreans and others…? And, when you buy one you support more American workers than if you buy a foreign model.
Wow, this Amit Singh guy knows a thing or two about the free market.
Mr. Singh, you should totally run for office. You’d be a heck of a lot better than the candidates we usually support here in Arlington.
Just like we don’t need ice men anymore, because we have refrigerators, we no longer need failing auto giants that can no longer naturally sustain a profit. Half the bailout money is almost gone, without having provided any positive economic impact (immediate or long-term). Call me old fashioned, but I believe those that are worth bailing out, usually bailout themselves if left to their own demise. Maybe Google CEO Eric Schmidt is right in that what this country needs is an “Innovation Bailout” (Minus his slightly socialistic spin). However, while the government and our underlying infrastructure needs technological innovation and improvement, we can’t buy innovation or new business models that will work for failing the auto makers. They need to be innovative on their own.
ha ha. thanks Steve. maybe you could be my campaign manager
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write your senator right now to tell them to vote against the auto bailout. looks like Warner already has senioritis but Webb’s page is: http://webb.senate.gov/contact
only takes about a minute
Seriously - why is the right so opposed to saving 3,000,000 American jobs?
GM sold more cars worldwide last year than ANY other auto maker. Ford beats all except for Toyota and GM - these are GOOD companies with a GOOD product. If they go under you can kiss your stock portfolios good bye. Doesn’t matter what you own your stocks are SUNK. If they do go - it won’t matter what the government does - we are headed for a major depression. You’ll lose your job, you’ll bitch and moan about why didn’t Congress do something - and you’ll only have yourself to blame because you were playing chicken with our economy.
Y’all are simply slaves to an ideology you don’t understand. You truly do not understand what you are messing with. Why do you think Reagan was willing to bail out Chrysler and Harley Davidson in the 80s? Reagan understood. You don’t. Go turn on Jim Cramer. Cramer gets it, most MBAs get it, but I guess the Sarah Palin crowd knows better.
Mark, you cannot realistically believe that America will lose 3,000,000 jobs in a single day do you? it would be a controlled bankruptcy that will take time and allow GM to reorganize the company and give them an opportunity to make a profit.
besides, if GM sells more cars than any other auto maker then why are they losing so much money? perhaps due to the unions or that they actually sell fewer cars than Toyota? http://www.msnbc.msn.com/id/18286221
frankly the scare tactics don’t work for me. they [big govt advocates] did the same thing with the banking bailout and the Iraq war and I think its a terrible way to drive policy.
oh btw, there are 24 flights from Detroit to DC daily but the auto industry execs who are promising to change their ways decided to take their luxury private jets on their way to Congress. http://www.cnn.com/2008/US/11/19/autos.ceo.jets
I guess you can call that the “audacity of hope”
I do believe that a chapter 11 from one of the Detroit Three would likely result in a chapter 7 soon thereafter. Do you believe that an average consumer would make the major investent and time commitment that an auto purchase represents in a company that was in the midst of a bakruptcy filing? Most people hear bankruptcy and think gone tomorrow. Sure, parts and pieces may be picked up, and infrastructure re-utilized in the long term. But the shocks felt through out all the interconnected industries (dealers, part suppliers, tool and die, etc) would be severe and have a major downward drag on our already sickly economy.
I’m not saying a $25B bailot is the answer. But a “let the disease run its course” mindset seems foolish to me. Indeed, putting such unwavering faith in the sanctity of unchecked market forces may be the ultimate expression of “the audacity of hope”.
Besides, i’d really like to see a moonshot like the Volt become reality.
Fact is there will be no Chapter 11, if you think that you really do not understand economics 101. In order to reorganize a financial institution has to believe that you are worth lending $$ to - with the expectation that x financial institution will be the first creditor repaid once the company exits bankruptcy.
There simpy is no bank or financial institution that has the capital - and in this economic climate is willing to risk the amount of capital on the auto industry.
The result would be Chapter 7 liquidation - and I have no doubt that 3,000,000 jobs lost is only the beginning.
But, if you are looking at saving money - add this in to your calculation:
Amount of unemployment for those who lose their jobs
Cost of welfare
Amount it will cost the government to assume the pensions for retirees
Amount medicaid/ medicare will cost
Lost tax revenues
You basically have two choices, you can pay now - and possibly have a positive return, or you can pay later - including paying people welfare/ unemployment for not working - your choice.
I actually don’t believe in left or right politics and have never voted that way. Being a slave to that ideology is narrow-minded and is just quite assuming. I believe in an organically free market and just common sense in general. If you look at the answers that the Big 3 has provided on how they plan to pay back any money that is loaned to them as as result of a bailout, their answers are basically, “We’ll try to make a profit.” That answer just isn’t good enough. Harley is actually a great example of innovation, because during some of their hard times in the 90’s, they revamped their business model without government intervention.
If someone can prove to me that the Big 3 have strategic plans on how they’ll efficiently use the bailout money, or just a viable plan beyond the topical, I’m definitely willing to lend an ear. My question is though, why would you even ask for a bailout without having a solidified plan? Even if you would love to only buy American cars, I think we all need to ask, “Why is GM failing?” Is it because they’re best at what they do? If GM plans to revamp their business, they’ll have to cut jobs as well. A bankruptcy would serve GM better than a bailout, unless you want want to coddle mediocrity. The best American auto innovation will not come as result of a bailout, it will come as result of serving the customer, and we are all customers whether you are foreign or domestic.
GM NEEDS TO FAIL.
they have made bad decisions throughout the past. While gas was rising in cost, they were manufacturing heavier, less fuel efficient SUVs and trucks. They are a bottom line company with bad management.
they need to go under.
V - Harley DID recieve a large government loan under Reagan - AND Reagan raised import tariffs on imported motorcycles JUST to ensure Harley’s survival. Moreover, if you look at the crap Harley was producing, particularly during the Harley/ AMF years you can make all the same statements about the Big 3.
Which BTW, other than some simple talking points, I guess I’m waiting for someone to tell me what the errors really are?
B - if you believe in market forces then Ford and GM were selling to their market - oh and BTW all of the imports are in the same boat. They have all been making bigger and heavier SUVs b/c THAT is what the American consumer demanded until 8 months ago. Tell me how the Nissan “Armada” is a fuel efficient vehicle? Or the Toyota Land Cruiser? Then tell me how the Ford Focus or the GM Malibu Hybrid is a huge gas-guzzler?
Moreover, both Ford and GM made a profit in the first quarter this year - then the bottom fell out. (thank you President Bush and your wonderous de-regulation).
If you really want to see a return to the Great Depression, follow this path. I guarantee the devastation our economy will see is like nothing you can even imagine.
As a GM employee working in Seoul, Korea on GM’s next generation of global small cars, which btw is a very impressive lineup poised for the global market, they are well designed, competitive, fuel efficient vehicles.
Living here and observing the overt nationalism of the Korean people for Korean based products is unbelievable, whether it is beef, cars, rice, etc. Looking at the US from afar and watching how America seems to devour its own with little to no regard to nationalism sickens me. If this situaton where reversed here there would be thousands in the street protesting
the govt. if they weren’t supporting their own companies for foreign investment. In the US it seems to be a sport to watch America companies fail. Richard Shelby, Alabama senator, spoke so poorly and ignorantly of the Big , while scolding the 3 CEO’s on what they should be doing, I was appauled at his 70’s -80’s outdated ideology of what most people believe as the “old Detroit” mentality. We run into the same people in the west coast when we do clinics. American car companies aren’t even on their radar based off of some negative story a family member or friend had about a GM product 20 years ago, and they use that as a basis to not consider any American brand. Even though GM has competitive vehicles as good or better in the line-up these cars will never even be researched or looked at because of the bias. Unfortunate. Btw Richard Shelby has Hyundai, Mercedes, and Honda manufacturing plants in his own backyard which they have offerd millions in subsidies to lure them in, but he wants nothing to do with helping out an American industry. Pathetic! This mess has only strengthened the nationalism in GM and our small tech center group working here in Korea
get so tired of the whining auto makers and especially the union afraid of
losing there cushy jobs. But its the sign of the times. They are finished.
A bailout is not going to make people buy the detroit crap. Like many
say is good money after bad, just extending there demise. I wont buy
another Big 3 vehicle, priced too high for the quality.
TAX PAYERS should not have to pay to take care of the old auto workers.
let the unions take care of them. I have no sympathy for them
We as a country are throwing good money after bad by investing in things we don’t need - like a fleet of a million SUV’s that can only be sold at a loss. If we’re going to nationalize an industry (a horrible situation), it should be mobilized to produce something we need, like renewable energy, mass transit, health care, national security, technology, or education. It better be SOMETHING that actually pays off in the future or we are doomed as an empire.