Should GM Get A Bailout Deal?

http://news.yahoo.com/s/ap/20081108/ap_on_bi_ge/earns_autos
Jon Banquer San Diego, CA http://jonbanquer.blogspot.com /

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On Fri, 7 Nov 2008 20:23:31 -0800 (PST), jon_banquer

============================Re: Should GM Get A Bailout Deal?
The question is not "IF" Detroit will go bankrupt, but "WHEN," and how many other people/firms/governments it will take down with it when it goes. The destruction of Detroit automotive manufacturing has taken about 50 years, beginning in the early 1960s, and cannot now be reversed by simple money injections, even in huge amounts.
Note that the federal government has already injected billions into the car companies through other programs such TARP and the FDIC, as the car companies have very significant financial operations, and the tax payers have already absorbed billions in retiree medical costs via medicare. Huge amounts have also been injected at the state and local level through Economic Development bonds, tax increment financing, tax abatement, etc. THERE IS NOTHING TO SHOW FOR THIS MONEY.
The only thing that being accomplished by the continual existence and operation of these zombies is the dissipation of what little capital remains. Their stockholders and unsecured creditors are screwed. Their collateralized bond holders *MAY* get a few cents back on the dollar. The US taxpayer and their retirees will take it in the shorts big time because of the pension shortfalls.
While the taxpayers will have to make up much of the pension shortfalls, either directly, or through loss of dividends because of assessments by the PBGC on the remaining solvent companies, the employees/retirees will also take a considerable hit, as the PBGC has upper limits on the amount of pensions it will pay, and does not cover medical. Medicare will cover *SOME* of the retiree medical costs, but again this is at taxpayer expense.
FWIW -- I forecast that because of the highly intertwined networks of suppliers, credit, etc. when the first domestic car company files for bankruptcy [voluntary or involuntary] the other two will file within days or possibly hours. Many of the Detroit "spin-offs" such as Delco/Delphi and Vestion as well as the major Detroit suppliers [e.g. Eton, Dana] will also declare bankruptcy within days of the first Detroit BX filings. The web of credit cross connections because of the proliferation of CDS and other derivatives is also likely to result in the collapse of companies in totally different locations and sectors.
While your intention to avoid what will be a very serious situation is laudable, The question "Should GM get a bailout deal?" appears to make two "assumption of facts not in evidence" as Matlock used to say.
(1) By pouring additional billions down these particular rat holes, the problem will magically be "solved." The facts appear to indicate that these companies are bankrupt in far more ways than just money, and the current management is disconnected from the business of making cars and in total denial of the actual situation. If we pump 25 or 50 billion of the taxpayers money in today, they will be back tomorrow or the day after for another 25 or 50 billion. We went through this before in the 1970s with Chrysler. Why would anyone expect a different outcome with the same management?
(2) If 1, 2, or all of the "Detroit" car companies go bust, there will be a shortage of cars available for purchase in the United States, and the existing employees and vendors will be unable to find other work. In fact, what will occur is that we will still have large numbers of domestically produced automobiles and trucks [made at the transplant fatalities], many of the "big three" employees will find work with the transplant companies, and many of the "big three" vendors will produce components for these transplant companies. [With the market contraction, even with the production of the domestic companies eliminated, it appears there is still excess manufacturing capacity [can make 5 for every 4 that can be sold] among the transplants (with more companies e.g. Volkswagen on the way).]
The unfortunate part of this is that much of the working capital of the Detroit vendors is now tied up in Detroit accounts receivable, and the employees will have to relocate to the newer automotive plants in other states ==> but again they are screwed no matter how much taxpayer money is pumped in. < Unka' George [George McDuffee] ------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
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wrote:

That is correct George and GM isn't offering anything new, they are just asking for money. They are going to have to bring something to the table.
They can't afford, on their own, to do what Henry Ford did 90 or so years ago but they need to propose something similar if they want federal funding. So far, GM is not interested. They remind me of businesses that aren't able to come to grips with the reality that they don't need an incrimental injection of cash to prevent their demise. They are dead already. Another rock won't solve anyting beyond their immediate jones.
The only viable course of action, and about all I'd be willing to support tax dollars to fund, is transformational. Incrimental change won't be useful either for GM or the American tax payer.
What GM ought to do is go to the government and say that they need X number of dollars so that they can shut dowm completely for the 18 months it will take to train their work force, get their plant and equipment retooled so that on June 1st 2010 they have completely eliminated gas only vehicles from their product offering of automitive personal tranportation vehicles.
A white board road map or Power Point presentation sketching out their plan in general terms would be enough to get the ball rolling.
They could begin - in concrete terms - the revolutoin that is coming either with them or without them and in doing so would demonstrate their ability to lead both their industry and America into the future.
It's what Ford did when he ground up Ford's entire vehicle inventory to roll out a new product and eight million bucks was a lot of moolah to chow down on in those days.
JC
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On Sat, 8 Nov 2008 12:19:38 -0800, "John R. Carroll"

============And this is the crux of the problem.
It appears that the current Detroit management are unable to offer anything new (or even import existing products/designs from Europe and Asia) and are also unwilling to step aside.
Thus in Margret Thatcher's words "there is no alternative."
Time to turn off the "life support," and save what/who we can.
Unka' George [George McDuffee] ------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
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F George McDuffee wrote:

We're working on some components of a hydrogen fuel system project for one of the American auto makers who shall remain un-named. The first one to figure out how to mass produce hydrogen fuel systems economically will have much to 'bring to the table'.
--
Black Dragon

Masturbation! The amazing availability of it!
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Where will a consumer fill up their hydrogen car?
Who will pay to put the distribution system for hydrogen in place?
Jon Banquer San Diego, CA http://jonbanquer.blogspot.com /
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wrote:

They aren't unable George. They are unwilling. I'm not going to be specific but they have seen 100 pages of planning that identifies both existing resources in the private and public sector. An estimate of the resources that will have to be added, how, when - you know - a brief and informed plan is what this document is. A place to start.
"Premature" was the gist of GM's response to the incoming team. That's what I heard from Chicago/Michigan. I think Granholm was travelling but she might have returned by then. One of her staff called a guy who called me. He was the guy that had some goof in California who grew up in the auto industry send along the document in the first place. "Premature" I wonder what, exactly, "Mature" will look like? Probably about like "Victory" in Iraq if my gut check is on the beam.
JC
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On Fri, 7 Nov 2008 20:23:31 -0800 (PST), jon_banquer

----------------
as the sands of time continue to run [out] .....
===========GM Says It May Run Out of Operating Cash This Year (Update4)
By Jeff Green and Mike Ramsey
Nov. 7 (Bloomberg) -- General Motors Corp., seeking federal aid to avoid collapse, said it may not have enough cash to keep operating this year and will fall ``significantly short'' of the amount needed by the end of June unless the auto market improves or it raises more capital. <snip>
GM's $3 billion of 8.375 percent bonds due in July 2033 fell 4.3 cents to 24 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt yields 34.83 percent.
NB==>Credit-default swaps protecting against a GM default for one year rose to a level that implies the market has priced in a more than 66 percent chance of default, according to CMA Datavision.<== {emphasis added}
One-year credit-default swaps were quoted at a mid-price of 51 percentage points upfront, compared with 50 percentage points yesterday, CMA data show. That means it would cost $5.1 million initially in addition to $500,000 over one year to protect $10 million of GM bonds. The contracts reached as high as 52 percentage points upfront on Oct. 16. <snip> ==============for complete article click on http://www.bloomberg.com/apps/news?pid 601087&sid=arH5wzu.dpEE&refer=worldwide
Unka' George [George McDuffee] ------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
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On Nov 8, 11:49am, F. George McDuffee <gmcduf...@mcduffee- associates.us> wrote:

my wife asked me a question this morning that I would like to pass on. We recienctly watched "who killed the electric car" about saturns electric car that gm killed in the early 90s; gm chief wagoneer has said that killing that model was the worst decision he made. would it not be possible to put the dies back in and retool some assembly lines to put it back into production ? because although the rechnology is older now, and gas prices going down (for the momonet) there would still be a demand for a short range urban electric and sales should help the bottom line. Anyone ?
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Possible? Yes. Practical or cost effective? No.
JC
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I wonder how much all this is effecting Anthony and his company?
--
Remove "nospam" to get to me.

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On Sat, 8 Nov 2008 10:17:39 -0800 (PST), snipped-for-privacy@gmail.com wrote:

==========While I don't have direct knowledge, the normal corporate practice is to liquidate all unnecessary tooling and special equipment ASAP, as this provides needed cash and avoids property taxes on "dead" tooling. So more than likely, the tooling, jigs, dies, fixtures, and more importantly the design staff and organizational memory [at the blue and first level supervision levels] no longer exists. This is even more pronounced in a "bean counter" run organization such as GM.
Once you shut a product line down, out-source or offshore, it tends to be a "one way street."
Unka' George [George McDuffee] ------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
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On Nov 8, 3:40pm, F. George McDuffee <gmcduf...@mcduffee- associates.us> wrote:

thanx; my old shop had stacks of dies sitting around, and on the road I go by a number of shop with stacks piled high outdoors in lots- I had "assumed" that at least the cad and prehaps some evolved part designs that could be adapted to make a resurrected electric saturn a viable possibility. gm needs a home-run on the lot right now and it doesn't look like they have anything now or tomorrow- I thought that maybe if they could pull something out of their back-pocket they might have a chance.
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jon_banquer wrote:

No.
--
ah

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Only if decertifying the unions is part of the deal. I notice it is the salary workforce that is taking most of the grief as they loose matching on 401K and other items.
GM's total labor force needs to get real with reality or it is another waste of money.
My opinion is against my personal and employers interests. (Supplier)
Wes
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On Fri, 7 Nov 2008 20:23:31 -0800 (PST), jon_banquer

------------------ The roaring is getting louder as the barrel GM is in gets closer to the waterfall. Note that Ford seems to be in the same barrel, and Chrysler is most likely in there too.
Rub-a-dub three men in a tub.....
----------- Euler Hermes Cancels Insur For GM, Ford Suppliers -Sources
FRANKFURT (Dow Jones)--Credit insurer Euler Hermes (425403.FR) has canceled insurance protection for suppliers of General Motors Corp. (GM) and Ford Co. (F), two people familiar with the matter told Dow Jones Newswires Monday.
According the sources, deliveries from the suppliers weren't covered by insurance in the last two weeks, as the risk of the car makers failing to pay them for deliveries is too high.
Today, up to two-thirds of auto parts aren't produced by the car maker itself, but by suppliers, who must take on considerable credits for that.
The cancellation of the insurance protection puts suppliers under additional pressure, making it more difficult for them to obtain loans. The suppliers might start demanding advance payment for their deliveries or set short-term payment deadlines.
General Motors and Ford both reported billions in losses Friday.
Web sites: www.ford.com
www.gm.com www.eulerhermes.de
-By Katharina Becker, Dow Jones Newswires, +49 (0)69 29725 500, snipped-for-privacy@dowjones.com --------------- from http://online.wsj.com/article/BT-CO-20081110-713507.html?mod=wsjcrmain
Good luck if you are, or work for, a Detroit "big" three supplier.
Unka' George [George McDuffee] ------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
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On Nov 10, 1:38 pm, F. George McDuffee <gmcduf...@mcduffee- associates.us> wrote:> The roaring is getting louder as the barrel GM is in gets closer

I agree. It seems like it's only a matter of time.
Circuit City going broke is no big deal to me. They were a very poorly run company and I won't miss them if they go out of business permanently.
Jon Banquer San Diego, CA http://jonbanquer.blogspot.com /
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On Fri, 7 Nov 2008 20:23:31 -0800 (PST), jon_banquer

===========Some numbers
------------ Investors may be concluding that GM will fail. The shares slid 44 cents, or 13 percent, to $2.92 at 4:15 p.m. in New York Stock Exchange composite trading, chopping their value almost in half in a week. It was the lowest closing price since 1943. ----------- for complete article see http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aWeLMeoGDMWY
The problem is that the prices are expressed in CY or "current year" dollars. When purchasing power is taken into consideration the current price is far below the value of 2.92 in 1943$, as this was several times the minimum wage of the day.
You can download the CPI data at ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
The average CPI-U for 1943 was 17.3 The latest CPI-U [ Sep 2008] is 218.8
Therefore 2.92 in 2008$ would be worth 0.23$ in 1943$ and 2.92 in 1943 dollars is equivalent to $36.93 in 2008$
The per share price data takes into account the splits that have occurred.
Note that if the inflation adjusted stock price was used, GM stock would be delisted for falling below 1.00$/share.
On an inflation adjusted basis, GM stock is now selling for much less than it did in the middle of the depression.
Does anyone know what the all time GM low was in current year dollars and the date?
Unka' George [George McDuffee] ------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
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On Nov 11, 6:47pm, F. George McDuffee <gmcduf...@mcduffee- associates.us> wrote:

I'm sorry but I don't want to deal with a non-existent GM. I love many of GM's products. This country will really suck without GM being around. I'm amazed when I look at new GM cars and trucks and see how good they look and how well they seem put together and how much progress GM has made.
GM needs to be saved.
Jon Banquer San Diego, CA http://jonbanquer.blogspot.com /
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On Tue, 11 Nov 2008 19:25:49 -0800 (PST), jon_banquer
<snip>

===========Two seperate questions:
(1) Should GM be saved?
(2) How?
I agree that there are many factors favoring a rescue of GM, and on the ballance these do indeed appear to outweigh the reason for letting it go. The problem is *HOW*, and perhaps just as important, if GM is "saved," just how do we prevent this disaster from recurring in anothe decade or generation, and just how much of the taxpayers' money is it going to take?
It is important to note that while GM has had problems in the past making cars [Vega, Citation, Fiero, and Cimmeron come into mind here, along with running Saturn division into the ground], it appears the bulk of their current problems have little to do with cars and manufacturing and everything to do with "banking."
The current huge losses are coming from financial sections/divisions such as General Motors Acceptance Corporation, and its divisions such as ResCap [Residential Capital] and Dia-Tech Funding ["lost another one to DiaTech" sound familiar?], and there appears to have been a huge amount of self-dealing [one step removed from check kiting] between the divisions and subsidiaries. Additionally, many of the "problems" GM "spun-off" when they divested operations such as Delphi are now coming home to roost, like the buzzards back to Hinckley. http://cleveland.about.com/od/clevelandareaparks/p/buzzards.htm
GM is not a just car company but rather a huge congolomerate that also produces cars. This is not the first time the corporation has collapsed. Review http://en.wikipedia.org/wiki/General_Motors to see how this occurred.
Unka' George [George McDuffee] ------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
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