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Why do they even need to move? If GM were to go out of business, taking its union contracts with it, its factories would certainly have some value to Toyota, Honda, Mercedes, etc....

I'll add something that I'd like to see...If the government is going to assist GM and Ford, I'd much rather see that assistance come after a bankruptcy filing, so the taxpayers/gubmint bondholders would be first in line with the new company and the money could be used for something other than just paying off old debts and old union obligations.

If I'm not mistaken the National Institute of Health has provided free R$D to the pharma industry for some time. If that is true, size them up for uniforms.

I found this interesting, re. Detroit:

"President-elect Barack Obama wants a high-profile point person to oversee reforms in the ailing auto industry, according to members of Obama’s transition team.

Specifics about the proposal remain unclear. But the transition team says Obama suggested to President Bush on Monday that aid to the auto industry could be coupled with the appointment of “someone in charge of the auto issue who would have the authority” to push for reforms. The details came from a more extended readout of the White House meeting provided Tuesday.

The person would assist in efforts to create an “economically viable auto industry,” a transition aide said – a move that could alleviate concerns about protecting taxpayer interests if more money is directed to assist automakers."

Point person? Isn't that what a bankruptcy judge is?

I have been trying to get a grip on this situation. I found this report by the Department of Commerce: “The Road Ahead for the Automobile Industry” 2008, which contains lot of good information on the state of the industry. Also, “U.S. Automotive Industry Employment Trends” 2006.

First the totality of the industry (the OEMs). In 2001, 17.1 million new vehicles (cars & light trucks) were sold in the US, of which 11.7 million were manufactured in the US. In 2007, the numbers were 16.1 and 10.5. This year they will be less. In 2001 the industry employed about 280,000 people down from 290,000 a few years before. In 2007, it was about 225,000.

I looked at Honda, because they have new plants, no union contracts, and they just plain know what they are doing. They have published nice summaries of their North American operations.

Honda has the capacity to manufacture 1.8 million vehicles, from 12 Plants employing 25,000 workers. The plants cost almost $11 billion. On that basis, a 12 million vehicle per year industry (assuming that we eventually get back to 2001 like numbers) would consist of about 80 plants and employ about 170,000 people and have a total cost of about $72 billion. If the Big 3, were half of that (as they are now), they would have 40 plants, 85,000 employees and have a total investment of $36 billion. BTW, no matter how you do it. The auto companies will be a lot smaller than they are now, and numerous downstream (such as dealers) and upstream suppliers will also be smaller.

The $25 billion is clearly quite meaningful in that context — but, they cannot afford to spend that kind of money on legacy costs like pensions for people who worked there years ago and job banks for people who have nothing to do.

This is where Chapter 11, could provide them with a clean start.

Unfortunately, Chapter 11 cannot get them smart management.

Excellent suggestions. They make too much sense and reside too far outside the box for the dinosaurs in Congress to understand them, though.

Too bad, because some of those GM plants could be retooled - through foreign or oil company investment if necessary - to begin manufacturing parts for the miniature nuclear reactor power stations we ought to be looking at to replace our oil-and-coal power generation facilities. The rest could be retooled to begin making cars, SUVs and buses that make sense, i.e., which run on electricity generated by nuclear energy.

As I understand it, all this technology currently exists, and is in stages closer to things like safety approval, etc., not proof-of-concept.

It amazes me that the oil companies don't recognize this as a great investment for their billions in profits - one which seems necessary for their long-term survival. If they hang on to those profits long enough, and things get bad enough, the public eventually really WILL support Hillary when she once again suggests taking them for her own purposes.

Cutting the executives and bailing out the workers directly would be a good idea... but...

How do you transition workers to companies that are not hiring? Toyota, Honda, BMW, every car maker is suffering, and like any bubble, it is highly improbable that the automakers will be selling 17 million cars again, thereby making gains on GM's marketshare useless to toyota and honda.

One of the arguments in favor of assistance is that GM couldn't emerge out of Chapter 11 - companies that go into Chapter 11 usually need to take out a certain type of loan to help them emerge, and since credit markets are locked, 11 isn't a realistic option. They'd need to do Chapter 7 - liquidate assets.

This is the argument you'll hear. I suppose if I were living in Detroit I'd say that, if you sustained the organizations for two years (say), when credit markets will presumably have recovered, you could preserve good parts of the organization for acquisition by other car companies.

And who knows what the shock to the economy would be, etc. My answer is that it's just throwing good money after bad, and it's time to liquidate.

But the only thing that really matters is Michigan is a purple state with lots of electoral votes and this is what amounts to a single issue for them. Don't be surprised if assistance is given and EVERYONE is behind it, aside from a few representatives in safe seats far from Michigan.

Sorry if this is a repost. I got an error.

I came upon this blog calling for import certificates as a remedy to the mercantilist policies of China, which he claims caused this worldwide depression. I was hoping to get your opinion on his views.

He writes:
"The current worldwide depression is directly the result of the increased mercantilism in the world today. The loans from the mercantilist countries lowered U.S. interest rates so much that Americans stopped saving, instead buying ever increasing goods on credit from the mercantilist countries. Like all debtors going ever further into debt, American consumers eventually could no longer make the payments on their loans, causing the bankruptcies of many of the banks that had been lending to them. Now the world is suffering a depression because the mercantilist countries have bankrupted the buyers of their products.

Meanwhile, our government’s response to the depression has been to try out a combination of Keynesian and supply-side economics on a massive scale. Our government is passing increased stimulus packages with tax cuts every half year or so ($150 billion in February; $850 billion in October), borrowing ever increasing amounts of money from the mercantilist governments in an attempt to stimulate enough demand to pull the world out of the depression. At the same time, the Federal Reserve is starting to increase the U.S. money supply at a 20% clip.

The immediate result of these policies is to cause the dollar to climb in world currency markets, causing American industry to go bankrupt as they lose market share in the depressed world markets. The eventual result of this policy will be to cause the dollar to collapse in world currency markets when the payments on the U.S. government debt become too high for the government to handle."

He explains his remedy in this article calling for Warren Buffet's import certificates:

http://www.enterstageright.com/archive/articles/1008/1008buffet.htm

What do you think?

Chapter 11 would not necessarily mean that GM stops making cars. Their creditors would need to accept cents on the dollar and all contracts-- including the union labor contracts-- would be up for re-negotiation.

Correct?

Furthermore, they could sell assets such as the Cadillac or Chevy nameplate, etc. They don't need 8 brands anyway... Toyota sells just as many cars under only 3 brands.

Bankruptcy is not the end of the world... it would allow time to re-structure without a tax-sponsored bailout.

This seems like a textbook case for Chapter 11, no? (Although the park ranger uniforms would look cool... only we could call them "pork" rangers and color them pink.)

Robin:

The theory that the global financial problem is the result of a plot by mercantilitst countries is about as interesting to me as the flat earth theory.

I have great respect for Buffett, and I agree with a majority of what he says, but I don't agree with his opinion on the trade balance. China, Japan, and Great Britain have been purchasing T-bonds with some of their dollars; we've used those proceeds to strengthen our military, build highways, and keep the monetary system from collapsing (so far). As long as our economy grows at a sufficient long-run rate, so will our tax base, and in turn our tax receipts, and in turn our ability to pay the interest on the bonds they bought -- all without having to raise tax rates. In short, as long as China, Japan, and the UK would rather invest in US T-bonds, we have an inexpensive way to help finance our government purchases.

The signal that our ability to borrow is running out will be a plummeting dollar and rising interest rates. But today, the dollar is rising and interest rates have been plummeting.

I'm with Grodge on this. Sure, GM would have to be smaller and some assets sold off - I'd get rid of GMC, Pontiac and Hummer.

Their balance sheet is plenty ugly and are technically BK already. Why prolong the inevitable?

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