Why GM doesn’t want to go bankrupt
Senator Shelby, who refers to American automakers as dinosaurs making cars nobody wants (ignoring the domestics’ current market share and critically acclaimed vehicles such as the Chevy Malibu and Dodge Challenger), has suggested that the automakers should simply go bankrupt. Numerous other analysts have suggested this path, mainly as a way to avoid paying pensions and health benefits to retirees.
One has to wonder about the morals of these people. Would they take away their own father’s pension? How about their parents’ health insurance? One can only suppose they would. One famous family-values-totin’ lawmaker has, after all, divorced his wife while she was on her deathbed in the hospital. Cases of family hatred seem to abound among the “my morals are better than yours” crowd. But that’s another story.
The problem with bankruptcy is that we’re not talking about a pleasant Chapter 11 dream, and even if we were, it’s more expensive than it sounds.
Look at Delphi. They’ve ended up blowing huge sums of cash, both to retain their executives and to pay $1,000-an-hour (or more) bankruptcy lawyers. Yes, they did get to break the union. It was a Pyrrhic victory. Every day it seems less likely that Delphi will make it through; Rick Wagoner must be kicking himself now for not either buying Delphi out completely, or for not moving as fast as he could to line up other suppliers. But of course Chrysler and others – probably even Toyota – also depend on Delphi.
To survive in Chapter 11, GM would need “debtor-in-possession” financing. They are very unlikely to get that. What’s more, few customers would want to buy from a company in Chapter 11, and few would supply them with materials without cash in hand. GM would quickly move from Chapter 11 to Chapter 7, total liquidation.
GM employs, directly, 100,000 Americans. But that’s not all. Think of the thousands of dealers across the country, and the people they employ. Think of the 1,300 suppliers. Many would close up shop – and without the parts to build their cars, Ford and Chrysler could go under, too. Toyota and Honda would be badly hurt, but they could survive.
In the end, America would have no domestic auto industry. The Japanese transplant factories would mainly be closed, without a supplier base. It would make no economic sense to import all parts and components.
The United States, leveraged to the hilt, would enter into a Depression that would make 1929 look like a party. Back then, we had serious assets and industry – and very little debt. Now, EACH American owes over $35,000 – our share of the national debt, thanks to spendthrift presidents and lazy or corrupt congressmen, along with their mass-media apologists.
The health care industry depends on Americans who have health insurance. The latest prediction is that around a million Americans could lose their health care if Big Auto goes down. That great bastion of American profit, pharmaceuticals, could quickly decline.
The government just approved $350 billion to rescue banks. Nowhere in that package did I see bans on million-dollar salaries or million-dollar bonuses. As far as I know, nobody in Congress demanded that the leaders of the banks step down before accepting Federal funds. As far as I know, nobody in Congress demanded that banks eliminate their unions or slash the pay of their employees – from tellers to presidents – before taking “a handout.” Indeed, it wasn’t even called a handout, was it?
Hypocrites.
Some people are yelling about how this would be socialism, especially if government gets a role. So what? They could say the same thing about the Chrysler bailout nearly three decades ago. That worked well until a greedy, lazy coward sold the company from under our noses. Government had a major role in Chrysler’s decisions then – but only for a few years. Then it was over and done. So much for the domino theory. Like “family values,” socialism, in practice, is just a word used by politicians to entice, scare, and coerce. (Besides, I could just as easily say that city-paved roads amounts to socialism, and it does. True libertarians I’ve known usually argue that private enterprise can build and maintain roads without taxes.)
The reason GM, Ford, and Chrysler are facing the problems they are is because of the bankers and their enablers in government. The ones who said “Government should never regulate industry. We can control ourselves.”
When the controls put in place during the Depression were lifted, when the bankers were allowed to self-regulate and write their own rules, they took advantage of the situation to leverage themselves silly and to rely on instruments they did not understand.
The Congress and the President did NOT call for them to resign.
If auto loans and industry credit were not so hard to get and so expensive because of the banks’ dual failure – their economic failure and then their failure to use the Federal bailout money to make loans and extend credit (instead using it to merge and acquire) – the automakers would NOT be talking about running out of cash. They would be as far from begging for handouts as ever.
Without the auto industry, we are facing unemployment not seen since the Depression. We are seeing the bankruptcy of the Federal pension fund. We are seeing higher taxes and fewer people working to erase our national trade and fiscal deficits, the result of which will be less GNP to pay off our debts. We may, in fact, be seeing the end of the United States as a fully independent nation.
The government just put $80 billion more into AIG, and they’re still talking about GM going under to prevent spending $25 billion on the automakers.
This is insane.
It’s time for Congress and the White House to put country before ideology, and the good of the people before political posturing. It’s also time for the hack writers to do ten minutes of research instead of spinning pleasant theories from their armchairs.
You should have emphasized the fact that if the suppliers start filing chapter 11 or just completely shutting down, the assembly lines of Ford, Chrysler and all the foreign brands could stop for months or maybe over a year. It only takes one missing critical part out of the thousands of parts in a typical vehicle to stop the assembly line. And do you think those companies will continue to employ all those auto workers if they can’t build cars? No, there will be mass layoffs, even if they are only temporary, and they could be out of work for a lot of months.
Even if the car companies can find other suppliers for their parts (which could take weeks or months of getting bids and awarding contracts), it may cost the supplier a lot of money to build the necessary tooling, hire qualified people and ramp up production. That could end up hurting the supplier more financially than if they hadn’t taken the contract.
And do you think those companies will continue to buy parts at the normal rate (and stockpile them?) from the remaining suppliers if their assembly lines are down? Heck no. The auto companies will almost completely stop purchasing parts, which could send even more part suppliers into chapter 11 or complete shutdown. You could have an out of control death spiral resulting in the collapse of a huge number of suppliers.
QUOTE: (Dave) We are seeing the bankruptcy of the Federal pension fund. We are seeing higher taxes and fewer people working to erase our national trade and fiscal deficits, the result of which will be less GNP to pay off our debts. We may, in fact, be seeing the end of the United States as a fully independent nation.
Which I have said a number of times and no one seems to want to believe it or accept it, however, the avowed goal of the “new world order” which many, many people have been working to achieve over many years, is going to be at hand. There are forces larger than government that no one speaks about, and they won’t. To achieve this goal this country has to be taken down either militarily or monetarily, and right now, it could be advanced that we are on the cusp of seeing both happen. That is why I have said, over and over, that it does not matter which party is “in” because they both work to accomplish the same thing, and that is to remain in power, advance the scope of government, and make the taxpayers keep on sending in “their” money.
The way I see it, right now, is that bankruptcy is the legal, (thats why the laws are already there) means to protect a person or company. It does not mean that the person or company is going to be destroyed. It allows for a re-dedication, a leaning down, a stop to monetary losses, and to emerge better than it was. In cases of corporations, (largely) the company does not stop. It goes on (automobiles here) making cars, no one gets laid off or fired, no dealers close, contracts get rewritten, money keeps coming in, (such as it is, given the mood of the country) and a court oversees the entire thing. Giving a hand out is, at this point, largely only going to mean a stop gap measure in what appears to be inevitable.
I agree with Dave that Government as we now have it, has NOT served the citizens of this country well. The anger about the bank “bailout” has not been subsided by any means. Yet, it got rammed through, whether the people liked it or not, and now, there are NO controls, and only one person making the decisions where that money goes. Amazing, the guy that used to be head of Goldman-Sachs, now the Treasury Secretary, Paulson, made sure that his former company got 10 BILLION from the deal. Now if that doesn’t smack of corruption, what does?
And what makes AIG so singularly important over the 200 year old corporate Lehman Brothers? One not only got saved, but has come back and GOTTEN more slop from the troth while still sneaking off spending it upon lavish parties for their corrupt, lying, double dealing, way overpaid executive staff and sales. While the other, which did not pretend to have any real vices, was ignored, and allowed to die. So far, not one comment either way on anything. Where is the Congressional outrage? The investigative, deep probing committees, the Public Prosecutors? Even the former Presidential Candidate isn’t going to make a follow on about this all, in his aversion to “pork” because he voted for it, as well as the President elect, and the out going President who pushed it! Is this “good” government, “for the people” or what?
So, bail out the automobile companies? What is the motivation, other than trying to stave up the Union Contracts, to keep millions of members off unemployment? Little mentioned, but, when all the heads of the so called “big three” met with Congressional leaders, the head of the UAW was right there beside them. Why? Do not delude yourself, it really is not about the car companies. Washington DC has panned them, made ridiculous demands upon them, imposed regulations for technology that does not exist, dictated laws for designs that in actuality do not enhance the vehicles, as well as placed most of the blame for the global warming phenomenon upon SUV’s which compromise and contribute a very very small percentage to the overall green house gas emission debate. The mass media will ALWAYS point out when a SUV is involved in some accident, but not mention a Prious. Like guns, guns being the “problem”, not the idiot that uses it improperly or illegally, but both an SUV and guns need to be controlled by government. The Police Powers of government, used to further a government concept, such as tar brushing people who smoke as rather dumb, low lifes, and a kind of pox on everyone in general. So, other than saving the unions what makes a difference if the car companies do go bankrupt? Not much for Congress. Why you can just run out an buy a Toyota….. or a Honda…….. or a Nissan…. or a Mitsubishi. They build cars without problems… right?
“Which I have said a number of times and no one seems to want to believe it or accept it, however, the avowed goal of the “new world order” which many, many people have been working to achieve over many years, is going to be at hand. There are forces larger than government that no one speaks about, and they won’t.”
The reason “no one” speaks about this, is because it sounds like paranoid delusional conspiracy
theorist ranting to most sane people. I usually can judge how well a person has a handle on things
just by certain little things they reveal. When they start sounding like the NRA and the John Birch
Society, I usually downrate their credibility to “junk bond” status. I seriously doubt we would face
the end of the United States. However, persons of a more progressive bent could hope to see the end
of the arrogance and hubris that has characterized the US for most of the twentieth century. It’s
about time we recognize that we aren’t the only country in the world, and that other people and
other countries have the right to life and a fair share of the world’s resources. The US has less
less than 5-6 percent of the world’s population while consuming 24+ percent of its energy and other
resources. Maybe we will finally realize that the free ride we had courtesy of everyone else is
about over, and we need to start acting like world citizens rather than spoiled selfish children.
Former CIA analyst Bill Christison has recently suggested the creation of a World Parlaiment where
each country’s level of influence would be proprtional to its population. This would prevent a few
countries, like the US and Israel, from bullying and walking over the other 5+ billion humans we
share the planet with. It would give the poor, populous countries exploited by large corporations
a say in their own destiny (maybe. eternal vigilance will of course be needed to prevent corruption
of the system, like has already occured with the present system). Just as the “free market” folks
may have to accept some responsible government intervention and regulation to solve some problems,
nationalistic types may have to accept that some sort of worldwide regulation might be necessary to
reign in the more out-of-control problems the world now faces. I realize this post is not exactly
on-topic with regard to GM and Chrysler, but it does address the concerns being expressed over the
economic failures, which are after all global in scope.
Yes, I am crazy, delusional, support owning bazookas, tanks, and small atom bombs without oversight. I bay at the full moon, and see conspiracy under every rock, even small ones. Don’t trust anyone that isn’t a card carrying member of the NRA, John Birch Society, or have a life time membership to NATIONAL REVIEW. I believe in America first, last and always, and back an independent Israel, without any reservation. I wear combat camouflage underwear, socks, suits, and boots while a full life time member of the local militia. I believe we should bully and exploit anyone we want, never back the United Nations, (which ought to be moved to the Congo or maybe Nigeria) and certainly would never consider the so called World Parliament because it would usurp our exploitive ability.
I also understand that utilization of “progressive” is the coding of Liberal. Which means essentially that in some way it makes you elite, above all the rest, looking down your nose at those of us who want to have our own atom bombs. Like an ostrich, head buried with your rear exposed, you want to see everything with flowers, and light, held within a HUGE government. Oh……. did you say “World Parliament?” Just another name for the new world order, just coded in such a way as to make it palatable to you. And yes, of course, you can blame the United States, and Israel too for ALL the ills of the world, we are so exploitive, mean spirited, vindictive, and could care less about any other country. Besides such considerations would not hasten the rush to the new world order…….. or World Parliament. Because if you think you would have a word inside anything like that, with the clamoring of 153 dictators ahead of you, then I would suggest that the delusion isn’t mine. But, who is counting here?
Of course, I am not certain then what gives you right, interest and title on considerations of sanity.
Anyway, it was a comment in passing on a lesser concern about American Automobile Manufacturers. The content and comment are mine, and do not reflect anything about ALLPAR. That it is a WEBLOG after all, and gives you the opportunity to show your obvious progressive disdain, in the same boulevard as I have in expressing something that is and has been around for many years. It, like bankruptcy or bail out, is debatable. Even disdain.
Having owned a Nissan, I can testify that the quality of the car was fine. The only reason I replaced it when I did was because the car, a Sentra, was far too small, dangerous on the highway and I was sick of it. I replaced it with a ’95 Neon and was pleased with it for the life of the car and I put close to 200,000 miles on it over eight years. I have bought Chrysler products ever since.
Curtis: Many of us have problems with conspiracy theories. Conspiracies have a tendency to be awkward and unwieldy in the real world.
I never will understand the militia thing in an era of F22 fighter planes – it just doesn’t fit the reality of military power in the real world. Likewise the attempt to destroy the global reach and political will of the US has been tried before. If this economic breakdown being discussed here is a conspiracy, then it originates in the auto manufacturers, the halls of congress, the Pentagon and the Whitehouse itself. If this is true then there is nothing on this earth that will save us.
Are you saying that militias do not exist? Or that there are not conspiracy projects in the world? Ponderous military might was fought to an American loss in Viet Nam, and a Russian loss in Afghanistan. Both largely comprised of local militia units standing in the face of all the mighty “modern” forces America and Russia could muster over many years. I agree, an F-22 Fighter is a truly impressive and awesome combination of technology and war fighting. However, as improbable as it might seem, a single well placed bullet could bring it down. Fighting wars with spears is ancient history, however, even today, a single thrust of such a device will kill a person just as dead as a laser shot. I do not speak without facts. The New World Order has existed in one form or another for many, many years. Outrightly, President Woodrow Wilson referenced it, and other world leaders have also done so. Of of late, President Bush (41) made a speech encompassing the premise of it. President Clinton and this President as well. Not a conspiracy, but a plan, and if you read your history, you will see that slowly that plan has been and is coming into effect. Those that have the money make the controls. Governments do not control their own money and have subverted that control to central bankers, who exercise would wide reach and are not subject to the will of the people, not that we matter much anyway.
I agree about the Neon. It was just unfortunate that Eaton tried to save pennies on it by making cuts that engineering warned him not to make. It is also amazing how just lately, used Neon models have jumped very high in resale value. Their gasoline mileage was exemplary, and the power they had surprised a lot of people. But, I know I am just singing to the choir here. It has been said that the car itself cannot be brought back in such a way as to make effective profits for CLLC. A shame.
I never stated that militias do not exist. I stated that I do not understand why they do. My brother has lots of guns. I have five daughters and a son instead. My hobbies are expensive enough…
I do not doubt that this conspiracy appears to be upon us. I would tend to err on the side of caution and attribute these things to greed, stupidity and incompetence on the part of all of the actors that have played a role in this. Democracy is about more and less then compromise. This was seen by the imperfect men who are giants in comparison the those running the country now. Government is a dynamic environment of checks and balances and axe-grinding whack-jobs. The latter are drawn to the former to “make a difference” which usually means “screw it up”.
If there is a conspiracy then I think it runs something like this:
People of wealth and power tend to interbreed. Within several generations the gene pool is a lot shallower than the general population. They often run for office. The dumber ones end up Governor of some state. The worse of the bunch think they can “make a difference” as president. The only difference between these folks and the bunch in the local Full Care Day Centers is that they don’t drool too much and speak decent English.