Moosetang

As a taxpayer, you should want your money spent on measures to ensure the recession is short and recovery strong. Eliminating tens of thousands of Auto Industry employees and their spending from the economy will do the recovery no favors, and the burden of their unemployment will fall on the state governments which are exponentially worse off fiscally than the National government. So rather than "wasting" a few billion in taxpayer dollars to keep Detroit on life support long enough to figure a way out, we'd save that money but then have to live with a still worse Recession and the possibility of a few States ending up needing massive US Government cash infusions to keep operating, lest they need to shut down and FURTHER exacerbate the economy.

If you think the Big Three should reap what they've sewn and die, fine. Wait out the recession and THEN kill them. MAYBE the shockwaves could be absorbed during an up-swing, we hope. Maybe by then they've found a way back into the black and this is all moot. But letting them go down in flames right now would be of no benefit to anyone.

Hollywood_North GT

Well said.

Ford and GM need to survive. Ford is already WELL into it's turnaround, and it would be sad to see all the hard work Alan Mulally has done in the past two years go to waste. GM is a bigger problem, to be sure, but even they are building much better cars than they were five years ago, and have taken steps towards the green economy with the Volt (which also holds value in terms of the engineering braintrust that went into it). I do agree that stipulations should be put into effect, however, to ensure that these companies are forced to operate more efficiently.

Chrysler, however...well, I think that dog has had its day. I don't think the economy can afford three US automakers anymore; Chrysler is pretty far gone already from what we're hearing; it's unlikely the Congress would fund a privately-owned company; and the Pentastar has little left in its lineup (Jeep excepted) that favorably competes with other manufacturer's models. The only appealing car is the Challenger...and we all know how important a halo car like that is at ANY point in time, never mind during economic and environmental crises like the ones we're currently facing.

And again, don't discount NATIONAL SECURITY. The US cannot continue to be a superpower and have NO vehicular manufacturers left.

max2000jp

Look at the signs, the recession is going to be long. All you have to do is read the news and you will see that the economy is in very bad shape.

Given that point, an initial “bailout” will only prolong the situation in my opinion. Car sales are way down and the Big 3 have huge expense burdens. What about in another year when GM needs another bailout to? How much are they going to need then? GM has had years to try to fix their operations and have failed to do so. Why should the US taxpayer have to be a crutch for bad management and labor decisions?

I have yet to see how the Big 3 are going to address UAW costs. They need to look long and hard at making the UAW members fund their own pension and healthcare benefits like anyone else working in corporate America. If you’ve read a few articles out there, the UAW says that they are adverse to further cuts. I am beginning to think that Chapter 11 is the best case for GM, while trying to fight for government backed DIP loans.

Hollywood_North GT

Chapter 11 is quite possibly untenable. GM would never re-emerge as a solvent company. GM can't build cars without parts, and it can't get parts without credit. Yes, Chapter 11 companies typically get that sort of credit from Debtor-in-Possession (DIP) loans. But the same Wall Street meltdown that has dragged down the economy and GM sales has also dried up the DIP money GM would need to operate. That's why many analysts and scholars believe GM would likely end up in Chapter 7 bankruptcy, which would entail total liquidation. Those are among the reasons most analysts and economists, however reluctantly, have concluded that a better solution would be another government bailout.

Moreover, the danger for parts makers is that if a customer goes into bankruptcy protection under Chapter 11 of the U.S. bankruptcy code or the Companies' Creditors Arrangement Act in Canada, their receivables turn them into unsecured creditors.

max2000jp

Good points. I am not entirely against a "bail out", but right now we don't have the right conditions. GM must make huge concessions and so must the UAW. Here is a pretty good article I saw today...

"
So it's come to this: General Motors, once the world's mightiest industrial enterprise, is now flirting with bankruptcy. Ford and Chrysler may not be far behind. Car and truck sales have collapsed. GM is rapidly exhausting its cash reserves and may soon be unable to pay its bills. Here's the dilemma: GM and other U.S. automakers ought to be rescued to minimize damage to the economy, but the rescue should require tough conditions that neither the Democratic Congress nor the incoming Obama administration seems willing to support.
In a booming economy, a GM bankruptcy might be tolerable and useful. It would remind everyone of the social costs of mediocre management and overpriced unionized labor. But far from booming, the economy is declining at an apparently accelerating rate. Confidence among small businesses has dropped to a 28-year low, according to a survey released last week by the National Federation of Independent Business.
No one knows what further havoc a GM bankruptcy might inflict. A study by the Center for Automotive Research (CAR) estimates that 2.5 million jobs would be lost in the first year. The logic: if any of the "Big Three" went bankrupt, many suppliers would also fail; because car companies share suppliers, all U.S.-based manufacturers would suffer crippling parts shortages. American production would virtually stop until new supplier arrangements emerged. "It takes 6,000 to 14,000 parts to make a vehicle," says Sean McAlinden, CAR's chief economist. "If you don't have one, you can't make it."
This may be too pessimistic. In a Chapter 11 bankruptcy, GM would "reorganize." It would suspend many existing debt payments and continue normal operations. Perhaps. The snag is that even in "reorganization," GM would require new loans and these might not be available. "Historically, when companies go bankrupt, there's 'debtor in possession' financing—investors lend you money, but they get repaid first. That market has evaporated because of the credit crunch," says auto analyst Rod Lache of Deutsche Bank. No loans, no production. Another possible pitfall: worried about warranties and service, customers might shun a bankrupt GM's vehicles.
Why run these risks when the 6.5 percent unemployment rate seems headed toward 8 percent and almost a quarter of the 10 million jobless have been out of work for six months or longer? Just to satisfy a purist "free market" ideal? It doesn't make sense. But neither does it make sense simply to heave taxpayers' money at automakers. The objective is not to rescue the companies or workers; it is to shore up the economy and improve the U.S. industry's competitiveness. A bailout won't succeed unless other things also happen.
First, auto companies' existing creditors need to write down their debts. Even with federal aid, companies will shrink. Economist McAlinden estimates that the country has surplus assembly capacity of about 4 million vehicles, much owned by the Big Three and destined to be shut. GM will need a $25 billion government loan to get through the recession and cover closing costs, says Lache. But GM already has $48 billion of debt. Unless the old debt is sharply written down, GM would be overburdened and its rendezvous with bankruptcy would merely be delayed. Already, shareholders are essentially wiped out.
Second, labor costs need to be cut. By Lache's estimates, GM's hourly compensation—wage plus fringe benefits—totaled $71 in 2007 compared with Toyota's $47. Health benefits for retirees (many in their 50s, having retired after 30 years) are expensive. These costs contributed to GM's massive cash drain, $31 billion since 2005. But the United Auto Workers opposes making concessions. Just the opposite. Government aid, says UAW president Ron Gettelfinger, is needed "so that auto companies can meet their health-care obligations to more than 780,000 retirees and dependents." The bailout should be more than union welfare.
Finally, automakers need a consistent energy policy. Congress demands that companies produce more fuel-efficient vehicles (35 miles per gallon by 2020, up from 25mpg now). But politicians also want low gas prices. These goals are contradictory. To encourage consumers to buy fuel-efficient vehicles, Congress should mandate higher gas prices. Gasoline taxes could be raised gradually (say a penny a month for four years, possibly offset by other tax cuts). Wild swings between low and high fuel prices have crippled the U.S. industry by erratically shifting buyer preferences—to and from SUVs.
In bankruptcy, a judge can modify a firm's labor contracts and debts. GM needs the benefits of bankruptcy without the uncertainties, but the political process—so far—resists that desirable bargain. The conditions that Democrats seem to be discussing are mostly rhetorical gestures against high executive compensation (already limited) and in favor of more fuel efficiency (already legislated). The lame-duck Bush administration hasn't helped the conversation. It rejects additional assistance without saying why; if aid is forthcoming, it doesn't suggest what might be useful conditions.
We are now seeing the first political side effects of the open-ended $700 billion rescue of financial institutions. With so much money going to so many recipients, boundaries and rationales need to be established. When is public intervention justified? Who deserves support and why? Otherwise, political firepower will increasingly rule. The reason for imposing tough conditions on the auto industry is not only to improve the odds of success, but also—by the sacrifices required—to make the process sufficiently unpleasant so that countless other companies and unions won't demand similar handouts. In 1979, when it rescued Chrysler from bankruptcy, the Carter administration insisted on concessions from management, investors and labor. We should do as much or more."

FordBlueHeart

The imports never saw into their crystal ball. They were never into trucks and SUVs until the last 10 years. They did continue to sell cars well, but saw The Big 3 making tons of money on the SUVs and trucks and decided to play too. They didnt abandon the car market despite what the domestics did. That is what has saved them to date. Not clairvoyance.

Hollywood_North GT

The imports had the clairvoyance to NOT abandon the car market or forsake it in favor of unnecessary gas pigosaurs.

Uh-huh.

Hollywood_North GT

Yeah. See, I believe that the bailout is critical, but I also agree with you that it cannot come without guaranteed restructuring that may requite either major sacrifices from - or the outright end - of the UAW.