Why Not Let GM Go Bankrupt?

GM is mounting a massive PR campaign to convince Washington that a GM bankruptcy would be catastrophic to the national economy, resulting in the loss of millions of jobs, costing taxpayers over $100 billion, and plunging the economy into a depression (whatever that is). In addition to Nancy Pelosi and Harry Reed, Barack Obama has now called for an auto bailout.

I don’t want the US auto industry to go away. Yes, if GM and every one of its suppliers and dealers stopped operating tomorrow, that would cost hundreds of thousands or millions of jobs. But it’s not clear to me why bankruptcy would have the same effect. Ordinarily, when a company goes bankrupt – especially a big one – it goes right along doing whatever it was doing before, except now it doesn’t have to pay off all its creditors, and its operations are monitored by a court. The bankruptcy process is intended to find a reasonable outcome for all of the stakeholders that reflects the order of priority of their claims, but also (in the case of a company as big as GM) reflects the public interest. Airlines, for example, have been going in and out of bankruptcy for years in order to force their unions to negotiate long-term cost reductions, and even use the threat of bankruptcy as a negotiating tool.

If GM were to go bankrupt, one possibility is that it would emerge in a stronger form, perhaps with a lower cost structure and with some of its debt converted into equity. Another possibility is that it would be broken up and sold to other companies, both domestic and foreign, who would continue doing most of what GM does today. In any case, it is likely that shareholders would get nothing (but they’ve already lost most of what they put in), management would be fired, and workers would lose something (through job cuts or reduced pay or benefits), but the nightmare scenario that GM is trying to scare us with would not occur.

Now, I have heard vague claims from the auto industry that GM cannot operate in bankruptcy, but I fail to see why not. The only reason I can think of is that consumers might be hesitant to buy a car from a bankrupt company (warranty concerns?), but for years consumers have been buying cars from companies that are at serious risk of bankruptcy, so I don’t really buy that. What am I missing? I mean that seriously: if you know the answer, please let me know.

The other alternative would be a government bailout that has the same salutary effect as bankruptcy: wipe out the shareholders, replace the management, write down the debt, add new capital, lower the cost structure, preserve most though probably not all of the jobs, and ensure the new entity is profitable as a going concern. The government holds all the cards right now and should not be afraid to negotiate such a deal. Under this option and under bankruptcy ordinary shares will become worthless – which, arguably, they should – which is why Deutsche Bank just reduced its price target for GM to $0.

The one thing I would not understand is a no-strings-attached $25 billion loan to the automakers that does nothing to address their long-term problems. But help me out if you can explain what I am missing.

44 responses to “Why Not Let GM Go Bankrupt?

  1. “The one thing I would not understand is a no-strings-attached $25 billion loan to the automakers that does nothing to address their long-term problems.”

    That’s what concerns me. What happens next year and in the years ahead if GM an the like don’t improve their competitive position will we see more bailouts or a bankruptcy anyways.

  2. I’m with you on the foolishness of the $25 billion loan; it is not a structural fix at all, just another jolt of methadone to keep the heroin addict out of withdrawl for a period.

    The graphic in this post is telling:

    http://mjperry.blogspot.com/2008/11/lets-assume-that-powers-in-washington.html

    (Useful to see in conjunction with the Ingrassia piece in the WSJ the other day: http://online.wsj.com/article/SB122628230122212449.html)

    Give then 25b, and none of the above changes. They are still screwed by legacy costs, still have way too many brands spreading their development costs thin, and still have way too much plant capacity. 25b just allows you to keep covering your eyes and ears for a few more months.

    I say this as someone who is from Flint (and with a parent who retired from Delphi less than 2 weeks ago..). I’m not sure how they avoid C11.

  3. Pingback: Obama wants to Spread YOUR Wealth to GM’s Pockets | George Donnelly

  4. This is straight-up regulatory arbitrage from the UAW. Bankruptcy will nullify the union contracts. Unions have captured a significant portion of the Democratic Party and they rightly sense they can get a better deal from the Democrats in power than from a bankruptcy judge. On this one, I fully support a Republican filibuster.

    Some will argue that it’s management calling for the bailout, not the union. Well, the individual interests of management and the UAW are currently aligned perfectly. It may be management doing the lobbying, but it’s union muscle that’s opening doors and gaining audiences.

  5. Bankruptcy means liquidation in the present credit environment. It does not mean reorganization. That is the problem.

    In our last Depression, we learned to fear the collapse of banks. I worry that in our next one, we will learn to fear the collapse of firms and industrial sectors.

  6. The faster GM goes away, the better America will be.

  7. energy bill signed into law in 2007, tis is the reason
    google it

  8. GM can’t do Chapter 11 because no one would give it debtor-in possession financing. GM’s problem is that no longer has an operating profit. If a company has this, then giving shareholders, debtors, bondholders a haircut, leaves the DIP some gravy. GM is now producing stuff no one is buying.
    The only solution for workers is to shake down Japan- Korea. You sell here, you build here.
    Gov money should be reserved to ease the pain for Toyo as they open their Xmas stocking.( If ALL Palins cloths go on block, throw in a little something for CEO)

  9. I would agree that the unions have a most to lose from a GM bankruptcy. And when I see the desperate pleas from Pelosi, Reid, and Obama for a $25B bailout, I don’t necessarily see it coming from GM as much as the UAW…

    But this is a convenient tactic for the Democratic Party. I think even Pelosi, Reid, and Obama would agree that throwing $25B at GM would be like throwing it down the toilet, irregardless of stipulations that would require it to transition to “alternative” fuel cars. (I mean, come one, we really need the government to tell GM that NOW? If GM wasn’t on that track already, they’d need the ENTIRE $700B to avoid bankruptcy.)

    I think the pleas are lip-service designed to appease the union voters who are a key part of the Democratic voter base. By talking about it now, BEFORE Obama takes office, they can reasonably argue that they do not have control over the process. After January, however, they obviously have control over congress and the White House and the unions would be looking for some action.

    I would agree that GM could go into bankruptcy, re-structure itself, and come out stronger. Bankruptcy is not “liquidation”. It’s possible, but unlikely. In fact, GM’s case is EXACTLY what Chapter 11 bankruptcy was designed for – to give companies time to help make the changes required to become more competitive and stay alive in the long-run. So why not let it go bankrupt? Ask the UAW.

  10. It has nothing to do with democratic party, trust me Bush would give these jokers the money too.
    What happen just a year or so ago GM had record profit, where did that money go? F’em.
    Where is all this money coming from? US!
    My GM dealer didn’t have a problem screwing me on my financing when I bought a new truck, so let them burn in hell…
    Learn how to build a car to go 200 miles on a gal of gas, and doesn’t fall apart.

  11. Let the Big 3 automakers go under. I’m tired of hearing people say we need to bail them out or the economy as we know it will fail. Other car companies will come in and take their place, it’s what makes America great. Why save those companies with tax payer money, when there are tons of small businesses going under everyday.

  12. The problem is the creditors (suppliers) who would be shafted are not that far from insolvency themselves (several are in bankruptcy and trying to get out). The risk is you kill several suppliers (which given the lack of DIP financing will wind up in ch 7) which in turn breaks another automaker which in turn hurts more suppliers, etc) setting off a chain reaction of failures that could disrupt even the transplants. Sort of like what happened when Lehman died only in the real economy. Isn’t one visit to the abyss enough?

    Oh, and don’t forget the impact on the PBGC.

  13. If I wanted to own any part of General Motors I would have bought one. They could have started producing better vehicles 10 years ago but didn’t. Now the consumers have essentially told GM they are tired of crappy cars and bought something else. That on top of bad management and overpaid union workers is the reason they are at this point.

  14. I am left to ponder the type of fuel-efficient/alternative energy vehicle that could be developed if $25 billion was invested into a venture led by leading technologist and professional managers from the valley, boston, seattle and other parts of the US.

  15. Don makes a solid point. Failure of GM results in train wreck with output and personal income and tax losses far exceeding the subsidy cost of a loan the auto sector.

    No one here seems to recognize the effect of US vehicle sales being down alomst 40% 2008 YTD. Every major firm has seen sales decline by double digits. Toyota just issued guidance lowering estimates by 68%. These macro factors matter, no? Enough to push already troubled firms to the edge.

    There is pretty wide agreement amoung industry and analyst community that BK results in severe and lasting loss of market share. Successful reorg with a much lowered top line is a long shot.

  16. This thread started off with a question. Don gave one good answer to the question: GM’s suppliers would be hurt in a bankruptcy, which could trigger a domino effect, given the length of the auto supply chain. The New York Times also has an article on the topic, with opinions on both sides.

    There seems to be some evidence that a bankruptcy could be risky, because the judge could have his hands tied by the law and thereby might not be able to protect GM’s suppliers. That still leaves open the possibility of a government-brokered reorganization that could have a similar outcome to a bankruptcy. Bill Ackman (whom I took high school calculus with, but that’s another story) recommended a prepackaged bankruptcy, where GM submits a reorganization plan for approval, which could have a similar effect.

    One way or another, GM needs to become a healthy company, or at some point it should cease existing. Yes, auto sales are down, but that just makes it more important that the company be fixed. I still think a simple loan with no strings attached won’t solve anything.

  17. Why is it that no one can explain to me how this bailout of GM and Ford is not extortion? “We are too big, you can’t let us fail…” So does this mean that in twenty years, we will have the same old, tired debate? My kids will have to poney-up money to bailout the automakers again? Why didn’t the anti-trust laws prevent the creation of companies that we to big to fail? I thought that was the primary focus of the anti-trust laws. If it isn’t then that law needs to be amended. We are supposedly a capitalist country who believes in the free market economy.

  18. It is exactly a form of extortion. Unfortunately, it is plausible (I’m not wholly convinced, but I can see the argument) that it is better for the country as a whole to help GM in one form or another than to let them fail. My opinion is that if an entity is too big to fail, then it needs to be regulated to minimize the chance of it getting into this kind of situation. We let these institutions (most notably the core investment banks) become too big to fail without doing anything to keep them from failing. You can debate what form the regulation should take, but I think that’s the basic principle.

  19. At least we have a consensus that a loan to carmakers without strings attached would be a complete waste of taxpayer money. Of course, it would be difficult for the government to attach any “strings” that would have any meaning…
    Could it change the CEO? A lot of good that did at AIG.
    Could it extract a higher interest rate? How does that save GM/Ford?
    Could the government require GM to make MORE fuel efficient cars? Then why don’t we require the taxpayers themselves to take a shift on the assembly line?

    I would MUCH rather see assistance to auto workers affected by a GM bankruptcy than a bailout loan of any kind to GM regardless of the stipulations. And I read that $25B in workers assistance comes out to nearly $100K per auto industry worker. That’s got to be enough to re-train them to make Priuses, use computers, or make something run by somebody who knows how to make money.

  20. John Fernstrom

    I noticed that GM sales are close to 60% foreign. I also noticed last week in Sao Paulo that there are plenty of GM and Ford cars on the road, and that these cars are small, attractive, and held their own pretty well against other cars on the road. This leads me to a few questions: How are GM and Ford doing in their foreign divisions? Is all of this outside-US business any part of what we are talking about with GM and Ford in the US? Are these activities and assets tied to a GM or Ford that would fail? I ask this, only because my minimal understanding is that US multinationals have complex arrangements outside the US to minimize tax exposure. Further, if GM and Ford make very acceptable cars for foreign markets, that indeed, look a lot like the small Toyotas and Hondas on the roads in the US that many love, why did GM and Ford not insert such vehicles into the US market when they noticed (I noticed – how could they not?) that demand for such small cars was really picking up? Finally, we have watched this process develop inexorably over the past two generations. Have these manufacturers (and their unions) not also been watching? I am not advocating these companies cash out. In fact, I don’t know what the answer is. I have too few data to make an informed decision. Does anyone have enough information to do so?

  21. If the $25 billion auto bailout loan goes to retooling to build almost fuel-free cars like the Volt, the savings on foreign oil purchases alone could pay back many multiples of the principle — ever year! — leaving T. Boone Pickens’ program for freedom from foreign oil dependence in GM’s dust.

    Free upgrade to plug-in hybrid?

    Reported by Tom Krishner, AP Auto Writer Monday, July 21, 2008: …”lithium-ion battery packs needed to power even a small car now cost in excess of $10,000…”

    A couple of years ago, I came up with the fun dollar-savings equation that: if America needed only half as much imported oil (meaning 5 million bbl/day then) and if we needed to pay only half the price ($30/bbl then) due to said lowered demand, then, we could save $165 billion a year (by spending only 5,000,000 bbl/day X 365 days X $30 instead of 10,000,000 bbl/day X 365 days X $60 = a saving of $164,250,000,000/year)…

    …or, exactly enough to subsidize buidling the 16.5 million cars and trucks we manufacture every year as LITHIUM, PLUG-IN hybrids — at $10,000 per vehicle!

    Now, with oil recently approaching the $150/bbl range, we could be shipping $500 billion more a year overseas; potentially justifying any form of subisidy for the manufacture of lithium plug-in hybrids.

    http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2008/07/21/financial/f184312D31.DTL&type=autos

    ******************

    For 30 years it has been known that building lithium ion batteries with silicon wires (instead of carbon wires) could yield ten times the power holding ability but, because silicon wires expanded and contracted too much as they cycled, they quickly destroyed themselves. The development of silicon nano wires – about a thousandth of the width of a sheet of paper — has solved that drawback — while potentially making lithium ion batteries more stable (safer) at the same time!

    Near term, only the anode side of the batteries will be manufactured with nano wires, yielding the quadruple jump (up powering GM’s Volt to go 160 miles on one charge instead of 40?). Long term, manufacturing the cathode side with silicon nano wires is expected to reach the ten multiple target (introducing hybrid, long distant trucks?).

    http://news-service.stanford.edu/news/2008/january9/nanowire-010908.html

  22. “The one thing I would not understand is a no-strings-attached $25 billion loan to the automakers that does nothing to address their long-term problems. But help me out if you can explain what I am missing.”

    Well, we’ve seen $250 billion in, um, giveaways to Wall St, with Bushian oversight – that we know of (how many secret contracts has Paulson signed?). Unless, of course, you think that a Wall St Republican CEO was acting in the public interest.

  23. US automakers are in their current financial condition due to poor planning and management ineffectiveness coupled with horrid union contracts. giving these firms additional capital in any form appears long term foolish. the most logical solution for the gov’t is placing the companies in recievorship, as opposed to a formal filing in bankruptcy courts. if these automakers are truly “too big” to fail, the certainly they must be federally restructured to make certain they survive. ditch the union contracts, ditch the management, restructure the supplier contracts(who will grumble, but survive) … just my 2C’s

  24. The one thing I would not understand is a no-strings-attached $25 billion loan to the automakers that does nothing to address their long-term problems. But help me out if you can explain what I am missing.–

    You’re probably missing the social implications. I say that because you keep referring to the to the $25 billion as a loan and not a bailout. You get a loan from the bank on the banks terms, you get a bailout from the American taxpayer and they aren’t bankers. They also have interests that are much broader than bankers. They have social interests.

    One of the long term problems is that auto makers have been too concerned with their interests and not enough with social interest. Once we provide them with a bailout we should insist that a majority of seats on the boards directing their companies be made up of people representing the interest of society. I don’t expect these board members to run the companies. It’s doubtful that they would have the knowledge. What I want from these directors is for them to see that car companies interests are subordinated to social interests.

    Green interests have been legitimized by the voters and the campaign promises of both presidential candidates. The government has every right to see that the automobile industry doesn’t lobby against social interests.

    If Bush wasn’t leaving the White House, I could never be convinced that those government directors would do their job, or that social interests wouldn’t be conflated with individual interests. Obama at the front door, makes me more amiable to a bailout.

    As an example of how I want those social directors to direct the auto companies, I’ll give as an example one of my pet peeves. Every time I see that “Let’s do in again” commercial for Jeep, I wonder how many teenage deaths that commercial will have an implication in. Car’s aren’t toys. Jeeps are notoriously unstable which makes what those teens are doing in the commercial doubly dangerous. Jeep should be directed to a better way to sell cars than encourage teens to use it’s product in a dangerous manner.

    That should indicate just how involved I want the social directors to be. Will this mean that individuals won’t get what they want? Probably. I’m more interested that society gets what it needs.

  25. Clearly there are political as well as economic issues here. Providing subsidies to GM is no different than a direct government capital injection into the local economy of michigan – although possibly less efficient than giving money directly to the state. Clearly no medium term solution is possible without fixing the basic problem of both poor management and union contracts. The temptation for the new administration will be to kick the can down the road on both these problems as it’s less painful than forcing a fix through bankruptcy. The government could, after all, provide DIP financing.
    Why is bankruptcy such a “popular” solution in cases such as airlines and now autos? Because labor inflexibility in unionized industries makes it the only effective process of restructuring costs to market levels. Logically, the stock market should discount unionized industries significantly to reflect the lack of business flexibility. This would put non-unionized firms at an advantage and ultimately the unionized firms will fail and exit. Political circumstances make this exit less likely in the short term but the medium term prognosis remains the same. Politically, wouldn’t it be amazing if Obama actually forced a restructuring of union agreements alongside shareholder wipeout? Unlikely, but it would send a real signal that partisan politics takes second place to real solutions. The inverse would also be true….

  26. As a Michigan resident, I’m a bit disappointed that no one has saw fit to note that allowing any of the big Three to go bankrupt would inflict huge and highly concentrated pain on the 10 million citizens of Michigan. Although I would agree that in theory an industrial restructuring is desirable and necessary, in practice you’re talking about perhaps decades of suffering while the restructuring takes place and Michigan adjusts to a mix of light industry and tourism. It’s no wonder that political leaders are looking for alternatives.

    It’s also difficult for people in Michigan to understand why we should be able to find $700B to bail out Wall Street, NY, NY and not $25b/year to bail out the auto industry. What, exactly, is the principled reason why the financial sector is more important to defend?

    The arguments advanced above about consumer dissatisfaction with the auto industry’s products won’t really bear up if applied to the financial industry–are we all supposed to be satisfied with Wall Street’s “product”? It seems more accurate to say that there is a better wall of obfuscation between Wall Street and its responsibility for its products than there is between Detroit and its products.

  27. James’ (and similar) thinking is right on the money. This is an industry that has failed, by and large, to consistently make profitable, competitive products for over 30 years. Management, labor (and Congressional mandates) can share the credit. An industry with this track record has not earned a bailout out by the American taxpayer. But the economic multiplier effect of shutting it down would wreak havoc on employment and the economy, especially today.

    So, how about this as a broad gameplan. We preserve the industry’s existence, but only in a manner to ensure its long term viability. Meaning: management, shareholders, labor contracts are wiped out, debt is crammed down, pension liabilities are transferred to PBGC as needed, all uneconomical factories are closed. We start over, with market-sensitive management, re-trained/re-incentivized workers in efficient factories, out-sourced supply lines if more cost-effective than domestic suppliers, and freedom from the long term liabilities that have crippled the industry’s competitive position for years. THAT is the industry model that gets taxpayer bailout funding in the form of DIP financing. Whether this re-structuring is initiated via standard Chapter 11, government- brokered reorganization, or receivership is up to the lawyers. We wind up with a “new” auto industry, a competitive, self-sustaining source of jobs and tax revenues. And we do it in a way that demonstrates to the other industries lining up at TARP’s trough that they will pay a steep price for asking taxpayers to save them from their own mismanagement.

  28. Wow, I am disturbed by the hate and ill wishes.

    There is also a total lack of understanding Econ 101.

    How can you wish 3 Million Americans unemployment?

    How can you wish to buy all products from the far east?

    When no more Americans have a good job, who will buy anything in America????

    You so called greens are the worst!
    GM made the cars and trucks that Americans wanted -
    until $4.00 gas, that is!

    I challenge the so called greens – do you have electricity?

    Do you have heat or AC?

    Do you buy consumer products?

    Do you have a car?

    If you you were really green, you would not have any of this!

    ps – you do not need a computer or the internet!

    If you read the articles on this site you should understand we are all connected in the economy!

    Jim Williams!

  29. The evolution of the arguments throughout these posts speaks volumes with regard to the original question. ‘Why provide automakers with a $25B no strings attached bailout’ We are now using the old adage “you did it for them so why not for me” as justification. This is a slippery slope that every parent has experienced in dealing with siblings. It is why I come to the conclusion that the best policy is to let the consequences fall where they may. I would rather be harmed by the inefficiencies and randomness of the free market than the fickleness and cronyism of a government. Are there no consequences anymore?

  30. The big GM spinoff, Delphi Automotive, went Chapter 11 in order to survive. The unions had no choice but to accept the reorganization plan, and salary and benefit cuts of 50% or more.
    The only way that GM can survive is to LOWER ITS COSTS, PERIOD. And no doubt there is still some fat in the management ranks as well.
    They also need to cut the number of brands and permutations to improve efficiency. It is so basic, and all they seem to do is talk about it. It is time to DO SOMETHING.
    Retirees? Pensions? The automakers can’t afford it.
    THEY ARE BROKE. It is time they acted like it!
    Not one dime of taxpayer money for these clowns. They’d probably blow it all on advertising and “incentives” to move the metal piled up on lots all over the country.
    Then, with any money left over, they’d introduce ‘new’ models that look just like the old models and start the annual cycle of “make them and they will buy” all over again. When nobody buys, they’d spend even more money all over again next year.
    If it’s broke, fix it. No handouts! I agree with the guy who used the drug junkie analogy. No drugs to enable more bad behavior. Detroit has to go cold turkey.
    Give a starving person a fish and he’ll live another day…. and then starve. TEACH a person to fish, and he may live a whole life, and even feed others.
    Detroit forgot how to fish. Giving 25 billion fishes will only postpone the inevitable starvation. Total waste of OUR money.
    Here’s an idea: starting with GM, padlock every factory. Auction off the ASSETS. Let 3, 5, or 10 new entities buy the factories and start making cars, or move the equipment to new plants in right to work states, many of which will gladly provide industrial revenue bond financing to get the factories and jobs.

    GM and Ford together can be bought on the open market for about $5 billion. Heck, let’s have the feds pay $10 billion just to help the widows and orphans who held onto the stock. A federally-backed Auto Reconstruction Corp. can take over and redeploy the assets in an orderly manner. Let entrepreneurs prepare business plans and let the better plan get a mix of public and private financing to rebuild from the ashes. Meanwhile, we’ll all take much better care of our cars for a couple of years, breathlessly awaiting some REALLY NEW IDEAS in fuel efficient, reliable, and reasonably priced U.S.-made cars.

    If this is not “practical”, then I say the MOST impractical thing to do is to just write checks to the big three. It’s hard to imagine anything worse than that.

  31. There are some interesting ideas floating here. And the rancor is much reduced from what I feel on other blogs.
    There are two issues where I would like to add my 2 cents.
    $25bn tax dollars. Wjd123 is thinking in the right direction (although I like playing in my Jeep Wrangler…but that is a side issue). If we as Americans are asked to stump up public money for companies that have been in and out of trouble for decades, I think we have a right to enforce some serious “strings”. The UAW, current shareholders and most of the top brass should be forced to stay on and sweat through serious concessions. And these non-innocents should take a place well behind the US taxpayer if this project succeeds and viable car companies come out the other end. No big payola for one good year in 2011 from some clever accounting tricks.
    On the $700bn for Wall Street, I agree it was a disgrace. However, when the Treasury Secretary, Head of the Federal Reserve, the President and senior members of congress “yell ‘fire’ in a crowded theater”, what should we expect? The panic these “worthies” induced has exaggerated and intensified the global panic. That $700bn…think of it as a first installment. We’ll be bailing out the big financial institutions for several years.

  32. John Crossman: Thanks for your comment. I worry about the level of rancor; I guess it could be worse.

  33. It seems like most of the sentiment here is the same with a few exceptions. Most notably to Jim Williams in regards to 3 million jobs lost: this isn’t an all or nothing situation. Bankruptcy does not equal 100% job loss. No matter what the outcome is here there will be hundreds of thousands of jobs lost because GM is not profitable. So it really comes down to letting GM (and by extension the UAW) decide how to reorganize or let someone else do it (whether that is a bankruptcy court or some government board similar to what the airlines used). Do you think GM can effectively reorganize without help? If you do, then I agree that a one time loan (stressing one time) will suffice. In my opinion I don’t think they can do it alone. GM and F have been working for the last few years to try and adjust their business models, but we are still at this point. Did the current worldwide situation exacerbate their problem? Yes. However, I would say they were headed to this no matter what outside factors may have accelerated the situation. I think a forced reconstruction is the best chance to save as many jobs as possible. Here’s a simple analogy that I think makes the point. If you have $1000 for payroll, would you rather have 10 employees at $100 or 100 employees at $10? Granted the disparity in the salary range is very large, but it makes the point that you can save jobs if you can adjust compensation. This is why I don’t think GM can do it on their own, they don’t have the ability (desire is irrelevant) to make the changes needed to become a successful company.

  34. GM is a pension fund which makes cars as a hobby. Dump all of the money you want to into it, and it won’t do any good. Can you say AMTRACK? Now, it would appear that Congress wants a new hobby too.

    Healthy new car companies may come out of Tesla and its competitors. They’re run by entrepreneurs and mean and lean, oh, and full of gearheads. Eventually, they could even give Toyota a run for their money.

  35. Well said wGraves….I’ll leave it at that…well done!

  36. Pingback: Brian’s Thoughts About Airplanes » Blog Archive » Flying Cars, Obama Problem, Dumars

  37. No one bailed out the steel industry when foreign competition unseated the US steel industry. I seem to recall massive layoffs, supply chain failures, etc. Instead of bailout the focus was on retraining workers, etc. So the regional issue doesn’t play – I am from Pittsburgh and it was pretty ugly but the lesson learned was that the union and the companies had equal responsibility for the situation. The city learned not to be reliant on one industry.

  38. My small company has been hurt over the past several years by sevaral of its customers going through Chapter 11 – such as Worldcom and Winn-Dixie. So I agree that there could and would be a ripple effect of GM’s suppliers being left out and getting pennies on the dollar for what could be 90 days worthe orders they have filled.

    For the hundreds of auto parts suplliers in the chain, some of the $25B should be set aside to help THEM re-tool, etc.

    All of GM and Ford management should be tossed out on their heads. Five years ago I had never in 25 years owned a non-Big-3 car. Now I have 2 Toyotas and a low-end Infiniti and am completely satisfied. The Big 3 waste a ton of money copying each others’ crappy designs. Ever compare a PT Cruiser with a Chevy HHR?

  39. The government should buy shares in GM at a firesong fire the management, and redesign the company from the bottom up. There are plenty of people both within and external to GM who might want to turn it into an alternative energy company. When it is fixed sell it to the workers (best, they are not responsible for there own benefits) or if necessary to investors. Socialism in a country likes ours works well short term i.e. ww ii but the soviets show not for ever.

  40. So many comments that tie together….Its about overall competitiveness. What does it mean to “win” today in the Auto Industry?

    It means building something people want without having to convince them they want it through gimmicks like “employee pricing” or “0%” etc etc. It means getting realistic about what matters in the product. Honestly, do we really need vehicles that have the most towing capacity in our driveways of suburbia?

    Sadly, the big three have attempted to generate their biggest cut of margin on the least likely to be sustainable products.

    Now we are standing on the precipice, looking over the edge, knowing that to retreat just means we have to walk to this place again in the future.
    The only way forward is to cross that valley.

    I am in the commodities business. I have felt the harsh radical swings of the market. I have been laid off, relocated, had benefits slashed. My colleagues and I have learned to be adaptable. We move to get the next job. We maintain our sharpeness in our industry to maintain a competitive edge. I have stimulated this economy through those changes by buying 5 new houses in new locations throughout the US over the last 15 years. I would not have bought 4 of them, if my first place of work hadn’t closed.

    The “bailout” as no stings attached makes me ill. It makes me feel like giving up as a capitalist. When does my bailout come? (I dont want one, I am too determined to succeed on my own.)

    I drive a company supplied vehicle on the job, that is American, and I hate it. Its a gluttonous pig with respect to efficiency. It has “gimmick technology” like an MP-3 player jack, Onstar (what the heck is the point of that??) and 3 power plugs….etc….wow GM…that must have really tapped the braintrust to come up with that….meanwhile, its just a dressed up 1960′s era v-8 under the hood slurping down the fuel. So innovative…Good thing Steve Job’s company invented something you could piggy back on. (by the way, when Apple was in the tank, what did they do? now look at them…..food for thought) Imagine if computer companies worked like this. We would have really fancy 5.25 floppy disk drives that would automatically put the disk in the drive for us. The end result is still the same. Its just a dressed up 5.25 disk drive.

    I want, as an American, to truly WANT TO BUY an American auto, made by Americans. What a wonderfully proud and patriotic thing to do, but before I can do that, I need to trust Detroit.

    As a consumer and a taxpayer, I need to believe that you are building something and employing people that aligns with societies needs and wants.

    For the company,
    Re work your business model. Determine the price point that consumers will come to market. Then look at your manufacturing engine and determine what you can build for that. You will likely have to make some fundamental changes in your systems, but you will ultimately emerge COMPETITIVE.

    For the workers,
    Attract talent. Provide COMPETITIVE wages and benefits. Provide good healthcare, but demand a healthy workplace. Provide jobs…..but not entitlements. Provide good wages for top brass that have to make agonizing decisions, but not excess.

    For consumers,
    Build something we want and need. make it efficient, make it fun, make it pratical, price it COMPETITIVELY. You can do it.

    America wasn’t built on unbridled greed without respect of the consequences when failure comes.

    This great nation is broke. We need to catch our breath and pay some bills. Detroit, you need to come with the rest of us on this. (so does the financial sector for that matter)
    You,us, me etc, must be accountable…..every single one of you that is in this industry. The taxpayers (all of us) demand it.

  41. Pingback: “Why bail out the car companies when they bailed out on us?” – Skirl | Dan Dickinson

  42. GM sued my employer over a frivolous lawsuit. They went after a small fish because they are a shark. Now I’m supposed to help bail them out? Ridiculous. They should file bankruptcy and figure out their out business to plan to restructure just like my employer had to.

  43. It seems like the unions and senior management are colluding. The executives loot from the top and the unions loot from the bottom. I could not support any bailout without both parties making significant concessions. Most of the incompetent management elite should be forced out without their golden parachutes. The UAW workers should be given a new contract on par with what the Asian carmakers pay their US employees. Any other proposition will only result in money getting poured down a rat hole and we’ll be back in the same place in a few years when this money is squandered and gone.

  44. These companies make no logical defense of their senior leadership. Ford recently decided not to sell a car they designed with 65 MPG in the US for two reasons: 1) according to Ford, Americans won’t buy diesel cars, and 2) the manufacturing plants were all in Britain, which made both the labor and logistics costs of selling such a car in the States expensive. GM CEO Wagoner says he should remain the CEO through these tough times, even though during his time sales have tanked and stock prices and debt rating have hit rock bottom. Chrysler has been in and out of financial trouble for the last thirty years. Bankruptcy might do some good.