Should the government bail-out include domestic automakers?
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jfelbab
New member
More of the same. I do not believe for a minute a prepackaged bankruptcy will work, and there never has been one attempted for a business as complicated as the auto industry.jfelbab said:
There are several problems with this idea of a prepackaged bankruptcy.
One) The pension funds are fully funded, and as the side article to the above article noted, the PBGB has been forcing companies to keep their pension plans. The biggest reason the transplants have lower labor costs than the domestics is the retiree medical costs, which shift to a union run trust fund, and as of 2010, the domestic labor costs drop down to the transplants levels. That trust fund is over 75% funded, as of the testimony this week. Unlikely a bankruptcy judge is going to let the creditors stick it to the retirees when the situation is almost resolved.
Two) Too many vendors that the auto companies owe money to on an on-going basis. I don't know if you're aware of this, but cars and light trucks have any where from 9000 to 16,000 separate parts (by the time you break down everything, engines and transmissions included). Those are currently supplied by about 1400 suppliers. Those are called production suppliers, and include steel, glass, and tire companies. The non production suppliers, supplying everything from the tooling for the plants (hand tools all the way to machine tools and robots) to janitorial services, to contractors running various departments in the plants like shipping and receiving and material handling, to office supplies, to the lunch room contractors to landscaping services, to the phone company, to the trucking companies shipping cars to the dealers, to the rail companies, etc.
All of the "big" ones have to be negotiated with ahead of a bankruptcy filing in a prepackaged filing. Several of my neighbors and family here in Detroit work in management for some of these suppliers - having negotiations forced on them in advance of a "prepackaged bankruptcy" will be met with a lot of resistance, because the money the Big Three owe on a monthly basis for parts shipped to the plants, that money is the basis for the suppliers lines of credit. The banks that issued those lines of credit can, and basis on previous bankruptcies will, call the loans in if the receivables of the suppliers (the car companies payables) get tied up in court. No lines of credits for some suppliers means no raw materials to keep making parts. Shut down.
Three) Dealers are protected by the fifty states franchise laws. They have no incentive to participate in a prepackaged bankruptcy, and most state statutes of limitations run five years, where as the new bankruptcy law calls for a definite exit date, which I think can't be more than three years after the filing. That leaves two years after the end of the bankruptcy, assuming they don't liquidate, to screw the auto company in state court.
Four) A lot of state and local government pension funds have investments in GM, ford, and Chrysler bonds, which a C11 filing would likely render worthless. It's unlikely that these investors are going to walk quietly into a prepackaged or conventional bankruptcy negotiation and just roll over. In fact, they have to meet their fiduciary responsibility to the pensioners and fight like hell to get as much as they can get.
A bankruptcy filing by any of the Big Three would have repercussions that would extend into all of car manufacturing in North America, and there's another complication - all three companies have assembly, and some engine manufacturing, in Mexico and Canada, and those countries are not bound by our bankruptcy laws.
Various news on a short term deal:
White House, Democrats reach deal on $15 billion auto aid - Yahoo! News
Democrats Plan Short-Term Rescue for Automakers
Looks like losing 533,000 jobs in November scared everyone enough to do something short term, until the new administration and Congress take over in January.
White House, Democrats reach deal on $15 billion auto aid - Yahoo! News
Democrats Plan Short-Term Rescue for Automakers
Looks like losing 533,000 jobs in November scared everyone enough to do something short term, until the new administration and Congress take over in January.
Setec Astronomy
Well-known member
From the New Jersey section of tomorrow's NY Times, an article about the last two auto plants in the state (GM Linden, closed 2005, Ford Edison, closed 2004) which have now been bulldozed into 100 acre tracts of nothing. Money quote:
"We're all connected in this mess, not just the automotive industry," said Mr. Hall, 53, who spent 33 years with GM in Linden and whose late father, Eddie, spent 42 years there. "This country got great through industry, but we've gotten away from what made us great, and we're seeing the effect of it."
"We're all connected in this mess, not just the automotive industry," said Mr. Hall, 53, who spent 33 years with GM in Linden and whose late father, Eddie, spent 42 years there. "This country got great through industry, but we've gotten away from what made us great, and we're seeing the effect of it."
Len_A said:
Spoken like someone who didn't bother to take the time to read the article that I posted already... I'm sorry that you can't understand why recessions benefit not only the economy, but society as a whole, in the long run. Unchecked economic complacency leads to stagnated technology and inflated currency.
What the hell is the benefit of HALVING the actual value of your currency by simply printing more fiat money?
The whole purpose of a (somewhat) free market is to ALLOW INSOLVENT/FAILING COMPANIES TO DIE! It's perfectly fine if it affects other sectors, even on a large scale.
Sure, I'll give you that it REALLY sucks for people who are affected by it. Heck, it's affecting my dad because enrollment is down and he's a part-time professor. Also, the sudden inflation of the US currency is causing his Navy retirement pay to mean less and less. I really feel for anyone who's in financial hard times. But that is simply part of life.
Also, why not give the money that the government would steal from the people BACK to the people for purchase of new cars? Sounds like a better idea to me...
I minored in economics, so I'm not completely daft on the principles (only partially). I said "BS" to your comment "The thing is, markets and businesses need to "implode" to maintain a healthy economy..."FlowRate said:
Theory is all well and good, but an imploded auto parts sector means every auto plant experiences parts disruption, shut downs of weeks to months, even those of the financially healthier transplants. Do you understand that? We're not talking only about shaking out the unhealthy companies. We're talking about all auto production going down, and the disruption in the supply chain taking years, not months, to iron out.
That's the industry system we have as the result of the Big Three emulating the Japanese model of outsourcing auto parts instead of making them in house, further risking production by using the "Just In Time" delivery system. 9-11 shut down the borders for a couple of days, remember? Dozens of plants shut down within three shifts - a day and a half - because some parts were coming from Canada and were stuck on the other side of the border. Now multiply that disruption by 1400 companies, and tie ups in bankruptcy court.
The kind of unemployment that would cause, stretching into steel, glass, and tire production, chemical and semiconductor production, plus all the trucking and rail used to ship parts in and finished cars out, we can not afford.
No, it is not fine to allow the free market to function like that. The damage to our heavy manufacturing sector would last beyond a few years. The damage would be almost incalculable. There is simply no other product made in the USA that has this effect on the economy.
And to make it worse, like rubbing salt in an open wound, a major reason for the insolvency is newer competition (the transplants), whose plants were heavily subsidized with our tax money. Each and every one got nine figure tax incentives - you read that correctly - nine figure tax incentives. Hundreds of millions of tax payer dollars. To create North American competition to older domestic manufacturing plants. There-by putting downward pressure on employment in those older plants, cutting jobs that the newer transplants only partially replaced (losing jobs by a factor of 3 lost Big Three jobs to 1 transplant job), there-by causing a decline in tax revenues.
Real smart economic policy. All to placate certain portions of the market who have a bug up their backside against Detroit brand cars. What sense is it to give money away (what the Detroit auto makers are asking for is a loan, not a give away), to create few jobs than you lose, and take in less tax dollars. Some investment. not.
imported_Detailing Technology
New member
Ladies please...
There are a lot of people to point fingers at, this is an unprecedented catastrophic event. As a graduate of Cornell with a degree in Labor Relations, I have a text book opinion as well as a GM dealership owner opinion.
Detroit is a dinosaur, period. The Volt is a turd, my 2007 Jeep is a engineering antique.
The bankers beat the 80's junk bond business, 1000 fold, with this sleazy credit business. 99.999% of them will never need to work again. Trust me. Credit default swaps and derivatives??????
Labor Unions are way out of control. By giving Detroit a few million in concession on labor is a total joke. Free or cheap labor inst going to make the product profitable.
The Japanese and Germans are in trouble also. Don't kid yourself.
We have a long road to go before there is light and we can make a decision on what to do to pull the US out of this hole.
There are a lot of people to point fingers at, this is an unprecedented catastrophic event. As a graduate of Cornell with a degree in Labor Relations, I have a text book opinion as well as a GM dealership owner opinion.
Detroit is a dinosaur, period. The Volt is a turd, my 2007 Jeep is a engineering antique.
The bankers beat the 80's junk bond business, 1000 fold, with this sleazy credit business. 99.999% of them will never need to work again. Trust me. Credit default swaps and derivatives??????
Labor Unions are way out of control. By giving Detroit a few million in concession on labor is a total joke. Free or cheap labor inst going to make the product profitable.
The Japanese and Germans are in trouble also. Don't kid yourself.
We have a long road to go before there is light and we can make a decision on what to do to pull the US out of this hole.
jsatek said:
Well, I don't agree with everything you wrote (Volt a turd? It's not out yet, LOL). I do not blame the labor unions, as I'm up close and personal with them and management, and the situation is not what it reads in a text book.
I do have the same contempt you have for credit default swaps and derivatives, and thank you for pointing out that even the Japanese and the Germans are in trouble. May I point out that Toyota lost a third of a billion dollars in the third quarter, in North America, and my guess is that the fourth quarter is going to suck for everyone, including the transplants. Yesterday, Honda pulled out of Formula One racing to conserve cash, that's how bad it is.
imported_Detailing Technology
New member
Len_A said:
To this day. I question derivatives and default credit swaps to all of my clients. People I once looked up to as "genius millionaires", I now look at like dirt bags... I feel like a total d@ck for listening to these people. Now I ask whats going to happen with all of that real estate you are getting from foreclosures? The answer is, " we don't want it, we are losing money". Total BS. An amortization table is desinged to produce profit for the lender. 99.999% of your monthly payment is written down as interest for the first 8 or so years. My mortgages total 7,770 per month! that's good enough profit to lower the TCO of my 80% financed land!
Don't be married to the unions out of some political or social obligation, make your own internal call on that. I just built yet another trading floor in yet another union building. Work and people were great, but at 3x the cost and 10x the mental effort of any other method of construction i still hate it.
Insurance $18 per hour
B-Fund $12 per hour
Journeyman, Etc pay $29 per hour
I'm still paying $85 per man hour, where is the rest going, legal fees? Bordering on bad, no matter how you look at it.
I owned a GM store before the credit crunch
I contracted Local 3 IBEW labor in NYC on multi-million dollar contracts.
I don't have an opinion or stereotype, I speak from experience.
Unions were initiated to protect employees, not share in profits. Want to make profits, become a CEO. Want simply to stop cruel people from the unlawful use of human resources? Become a union delegate.
To quote Gordon Gekko, "Greed is good" is a total oxy-moron when looking out the window of your home!
Well, manufacturing unions and construction trade unions seem to be two different animals. When you hear that the Detroit Three's labor costs are $70 an hour, about $25 an hour is retiree health care. When that goes out in 2010 to a trust fund, and the rest of the two tiered wage structure kicks in, Detroit and the transplants will all be in the $40 to $42 an hour range, benefits included. To paraphrase what you said, want to stop cruel people from abusive treatment of human resources? Become a union delegate. I've seen more than my share as both a former auto worker from thirty years ago, and more recently as an industrial sales rep calling on these auto plants Unfortunately, d*ckhead supervisors still exist.jsatek said:
The financial rocket scientists that came up with credit swaps and derivatives - guys like you and I should get to have a crack at them. With a traditional Louisville Slugger. Nothing like the sound of hickory coming off some well deserving b*stard's skull. Someone called them financial weapons of mass destruction. Turns out to be very accurate.
imported_Detailing Technology
New member
Len_A said:
Guys like me?
My family owned a GM dealership for 26 years and I owned a computer contracting business for 7? Want a piece of me???
jfelbab
New member
I strongly, but respectfully, disagree with your position Len. I don't dislike Detroit cars as I've owned no less than a dozen of them so don't think I have a thing up my backside about Detroit brands.
My thoughts on this is that the Big 3 have largely already failed. They have been failing for 20 years or more. They have not built their brand into something many Americans want to buy and own. Many of their dealerships still treat us like crap. Many would argue that despite huge quality improvements, their vehicles are not any better than, and many would suggest, not quite as good as, the Asian owned, American built vehicles. Their market has already imploded. Their suppliers are already shrinking and laying off their people.
Giving money to the Big 3 to build more cars that too few want to own, and they therefore can't sell at a profit, is foolhardy and it is just not worthy of taking money from our children to waste it like this. It will only delay the Big 3's ultimate fate anyway. The Big 3 are losing money on every vehicle they build. This is a fact. The most significant reason given for this is their labor cost. Pushing their medical coverage (VEBA) to the Union to manage doesn't take away the fact that the Manufacturers need to fund this plan with $56 billion dollars they clearly don't have.
I applaud the fact that the UAW agreed to suspend the Jobs Bank program and postpone VEBA contributions.
VEBA has not been too successful either. Auto Makers Push VEBA Solution for Industry Crisis | Labor Notes
Claiming that the cost of labor will be on a par with the Asian transplant workers doesn't take into account the fact that this massive VEBA debt must be paid for by the manufacturers. Also pointing to the opinion that this disparity will be fixed in 2010 belies the fact that unless they fix things in the next few months they likely won't be here in 2010. This is a long term problem that can't be fixed by a short term fix. Unless we buyers want to buy a Big 3 product, a bailout will be a failure.
The best plan I've seen put forth to date is the Corker Plan.
12/4/2008 - ‘Corker Plan’ Outlined In Hearing With Detroit 3 And UAW - Breaking News - Chattanoogan.com
Corker's middle-ground plan for Big 3 : Editorials : Memphis Commercial Appeal
Loss of the Big 3 would be a serious problem. Loss of millions of jobs and tax revenues is tragic and would be extremely painful. Even if the bailout was huge and keeps some number of the workers employed, it doesn't solve the one large problem facing the Big 3. Clearly, history shows us that too few Americans seem to want to buy the products being made by the Big 3. Even if the bail-out is approved and the Big 3 stay in business they will likely continue to lose market share at a pace that will cause many to become unemployed. Plants will need to close and suppliers will be cut back.
Unless the Big 3 can turn their brand image around and it becomes something people want to own, their future is very dim.
My thoughts on this is that the Big 3 have largely already failed. They have been failing for 20 years or more. They have not built their brand into something many Americans want to buy and own. Many of their dealerships still treat us like crap. Many would argue that despite huge quality improvements, their vehicles are not any better than, and many would suggest, not quite as good as, the Asian owned, American built vehicles. Their market has already imploded. Their suppliers are already shrinking and laying off their people.
Giving money to the Big 3 to build more cars that too few want to own, and they therefore can't sell at a profit, is foolhardy and it is just not worthy of taking money from our children to waste it like this. It will only delay the Big 3's ultimate fate anyway. The Big 3 are losing money on every vehicle they build. This is a fact. The most significant reason given for this is their labor cost. Pushing their medical coverage (VEBA) to the Union to manage doesn't take away the fact that the Manufacturers need to fund this plan with $56 billion dollars they clearly don't have.
I applaud the fact that the UAW agreed to suspend the Jobs Bank program and postpone VEBA contributions.
VEBA has not been too successful either. Auto Makers Push VEBA Solution for Industry Crisis | Labor Notes
Claiming that the cost of labor will be on a par with the Asian transplant workers doesn't take into account the fact that this massive VEBA debt must be paid for by the manufacturers. Also pointing to the opinion that this disparity will be fixed in 2010 belies the fact that unless they fix things in the next few months they likely won't be here in 2010. This is a long term problem that can't be fixed by a short term fix. Unless we buyers want to buy a Big 3 product, a bailout will be a failure.
The best plan I've seen put forth to date is the Corker Plan.
12/4/2008 - ‘Corker Plan’ Outlined In Hearing With Detroit 3 And UAW - Breaking News - Chattanoogan.com
Corker's middle-ground plan for Big 3 : Editorials : Memphis Commercial Appeal
Loss of the Big 3 would be a serious problem. Loss of millions of jobs and tax revenues is tragic and would be extremely painful. Even if the bailout was huge and keeps some number of the workers employed, it doesn't solve the one large problem facing the Big 3. Clearly, history shows us that too few Americans seem to want to buy the products being made by the Big 3. Even if the bail-out is approved and the Big 3 stay in business they will likely continue to lose market share at a pace that will cause many to become unemployed. Plants will need to close and suppliers will be cut back.
Unless the Big 3 can turn their brand image around and it becomes something people want to own, their future is very dim.
imported_Detailing Technology
New member
I've fought the US labor battle with union mechanic labor and finally the IT labor going to places like Mumbai, Dubai, Shang Hai, and Good Bye. Hence my waste 0f my parents $150k on a labor relations degree with no legal studies...Im doing nothing with it!!!
Luckily I "stacked the chips" and retired at 37 this year.
Dont get mad, work with it. We are about to be the land of opportunity once again. think if the gold rush in CA, but without a commodity.
Luckily I "stacked the chips" and retired at 37 this year.
Dont get mad, work with it. We are about to be the land of opportunity once again. think if the gold rush in CA, but without a commodity.
OK. First, The Detroit auto makers have been reducing their manufacturing capacity, so I don't believe their going to be building cars in excess of demand. Where do you get the idea they're going to be building more cars than they have demand for? Even Toyota resorted to zero percent financing.jfelbab said:
A lot of their dealers outside of the Detroit market suck - I can't speak to how bad they are. no argument from me.
How do you figure that the Detroit automakers lose money on every vehicle they build? I'm sorry, but that statement needs to be justified. If you're going to point to their current loses, don't bother - I know that right now they're losing money, but that as much a function of what product mix is selling as anything else. If current loses are the criteria, then Toyota lost money on every vehicle they built and imported last quarter. Toyota lost $336 million dollars last quarter in North America, and will probably lose money this quarter.
The "Giving money to the Big 3 to build more cars that too few want to own, and they therefore can't sell at a profit, is foolhardy and it is just not worthy of taking money from our children to waste it like this. " statement, I have to admit, irritates the hell out of me. Ford has so much demand already for their new F-150, they've had to add employees and production shifts to met demand. And small cars, including the much touted Asian brands, are down badly. last month: 17,690 Civics sold, down 67 percent from May. Toyota Corolla? Down 59 percent. Ford Focus, down 75 percent. Honda Accord, off 60 percent. Chevy Cobalt, 76 percent lower. Nissan Altima, off 69 percent.
"Their market has already imploded. Their suppliers are already shrinking and laying off their people." Another statement that exaggerates Detroit's problems and glosses over or ignores the transplants problems. First, Nissan's sales drop last month was as bad as GM's and Chrysler's. Toyota's and Honda's loses last month were so much worse than Ford's, that Ford picked up 1.5% market share last month. That is a big change in a month.
Furthermore, No one wants Toyota's, Honda's, Nissan's or Mercedes cars any more than they want Detroit's. Slamming Detroit is just more of the same. Mercedes in Alabama, and Nissan in Tennessee are both offering $100,000 buyouts. Despite a high-profile zero-percent financing offer, Toyota's U.S. sales dropped 34 percent in November, four percentage points more than Ford. Toyota had previously said it would shut down its U.S. assembly plants on 12-22 and 12-23 (oh, and pay their employees to not build cars...where have we heard that before). Now, with the exception of the San Antonio truck plant, they're idling its factories for additional days.
The Kentucky plant, which makes the Camry, Avalon and Solara, will be shut for nine additional days in December and January, Goss said.
Toyota's NUMMI plant in Fremont, which makes the Corolla, will be shut down for 10 more days in December and January.
The Indiana plant has two assembly lines. One, making the Sienna minivan, will be idled for six additional days in December and January. The other, making the Sequoia SUV, will be idled for one additional day this month.
Quality? JD Powers for initial Quality and Consumer Reports for long term ownership, rate Ford as equal to Toyota and Honda. Consumer reports also rates the Alabama built Mercedes SUV's and the South Carolina built BMW's are poor quality, and unreliable. So Detroit isn't completely hopeless on quality.
As far as Corker's plan:
· “One, give existing bondholders 30 cents on the dollar to help reduce their overall debt load. --- Existing bonds have already been devalued in marketplace, I thought.
· “Two, bring wages immediately in-line with companies like Nissan and Volkswagen. -- Last year, Toyota factory employees made MORE money than the Big Three factory employees.
· “Three, GM owes $23 billion to the United Auto Worker’s VEBA (voluntary employees’ beneficiary association) account. The union must agree to take half of that payment in GM stock. -- They already have taken GM stock, and Ford stock at Ford. That was already part of the initial contract language on the VEBA. Corker needs to get more up to date information before publicly making proposals.
· “Four, the union must agree to do away with payments to workers who are still receiving almost full compensation up to four years after their jobs have ended. -- One, the number of workers in the Jobs Bank is down quite a bit, and they've already agreed to suspend the program.
There's nothing in his proposal that hasn't already been addressed.
As far as "not worthy of taking money from our children to waste it like this", it's OK to take it from our children to waste it, to the tune of $125,000 per transplant job? That's the price tag for the tax incentive give-aways to the transplants. Half a billion dollars in incentives for every 4000 person plant. That's OK, but helping Detroit auto makers is a waste of money?
jfelbab
New member
Len_A said:
From the fact that they lose money on every vehicle they sell. This is not based on the current financial crisis but on prior full year performance data. One claim they make is that they are losing money because their volume has sunk to a low level, too low to make money.
Detroit loses money on each vehicle sold.
Source:
Detroit: Same Old, Same Old - Jim Manzi - The Corner on National Review Online
Japanese Automakers Lead in Per-Vehicle Profit - Car News/Car News/News/Car and Driver - Car And Driver
2007 profit/vehicle
This is not based on data of the past couple months but 2007 year and 2006 year data.
See my prior response. I'm much more concerned with long term growth or decline, not a good month for a specific model. That is not what will drive any long term rebound of the big 3.
You need to stop looking at the short term and look at the big picture. Lets look at their market share over the last couple years to see where they are headed.
Yes, we can all agree that the current financial crisis has made them all decline. Again, look at the long term.
I agree that the quality is up some at least with some manufacturers and models. Not necessarily the best but clearly better.
Ratings | J.D. Power
I don't dispute those numbers but I would like the source. But isn't this totally a state incentive. Was there a payback for the incentive? Didn't the state of Michigan have any incentives to offer to bring the transplant to MI?