GM Failure

Well, I guess most folks don't really care to much if the US auto companies fold, judging by the internet postings. If one or more does
fold, who has the capital in the US right now buy up any of the assets? The cost of admission for new vehicle design is very high.
Consider the crash, emission control and fuel economy regs that have to be met. Some US auto startups have made it for a few years, but none have ever been sustainable. Will Tesla Motors break the mold? It would seem that perhaps a Chinese or other foreign company may want some of the assets, but maybe not. Meanwhile a huge loss of jobs in the US, for steel, semiconductor, plastics, software etc etc. I doubt many US consumers realize how many of their own jobs could be affected by supply chain fallout.
One last consideration, during WII, many auto plants and suppliers were leaned on to mass produce items needed for the war effort. With one of our last major manufacturing industries potentially going belly up, what does that say about our emergency manufacturing capabilities in the USA?
Seems like a $35Bn loan to the car companies would be a better investment than AIG etc, especially if the unions provide some concessions to help. We don't have much history to go on other than Chrysler's loan in the K car era, which they paid back with interest. Will the Banks pay back their $700Bn in loans any time soon?
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Toyota Honda Nissan ect.....
The cost of admission for new vehicle design is very high.

The remaining manufacturers will pick up the slack. They will all be hiring.

Ok but they want 60Bn not 35. A month ago the wanted 25Bn. Did they really not know what it would take? Are they that stupid? And they want money? LMAO Good riddance.............
JC
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Wow, we are on the same page for a change. GM needs to root hog or die. Their choice.
Wes
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wrote:

They wouldn't be begging for money if they had a choice Wes and you and I have always been on the same page. We just disagree on which one we ought to turn to next. LOL
JC
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ROTFLMAO. Have a good night John, I'm going to. Morning comes too early for me.
Wes
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<snip>

<snip> They should be so lucky.
GM is gone by any rational standard. The currently have *NEGATIVE* 58 billion stockholder equity. http://www.businessweek.com/lifestyle/content/nov2008/bw20081111_141573_page_3.htm
A major "plank" in the GM "recovery" plan is getting their unsecured bond holders to swap 32 billion in debt for equity [stock]. see page 11 http://banking.senate.gov/public/_files/GMCongressionalSubmissionFinal.pdf
The current market cap for the GMC is 2.5 billion, so the proposed debt for equity swap is about 13X current market cap. [Dream on -- I am surprised they didn't ask Wagner to pee in a bottle to see what he is on -- must be some really bad stuff] http://finance.yahoo.com/q?s=gm
Ford appears to have a real chance of survival, possibly with taxpayer loan guarantees, and Chrysler *MAY* have a chance as a niche player [minivans] and contract producer for VW, *IF* they can pick up some of the GM business, and with considerable help from the taxpayers.
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:

Make sure you aren't sawing off the limb you're sitting on.
-- Ed Huntress
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I'm being pragmatic. I can divorce what is personally good for me from what is good for the country.
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Wes wrote:

It's too bad the CEOs of the auto co. can't or WONT. :-( ...lew...
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Everyone that GM/Ford/Chrysler hands a check to, better get real if they want to salvage something out of this. That means White collar, Blue Collar, and Retired.
I'm wondering what the PBGC is going to pay if Detroit goes down? That is the starting point for legacy costs on retired employees.
If I understand it correctly, new hires have a totally different deal than those that have senority. Seniority needs to give some more up. Top level management needs to give up something also. Lower level likely has. I don't know what the deal is with the huge number of contract engineers. (AKA Temps)
Wes
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Are you sure? A sell off of the Big Three would result in so much displacement that car sales for the whole country are likely to tank, IMO. The multiplier effect throughout the economy will cause many more to be laid off or fired. And then there will be no reason to hire most of the fired workers, because nobody's buying.
Welcome to the new equilibrium. Would you like to buy one of my apples?

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On Fri, 5 Dec 2008 00:01:02 -0500, "Ed Huntress"
<snip>

<snip> ------------- The problem is that no one knows, even if we turn the taxpayer money tap full on, if "Detroit" *CAN* survive as a commercially viable operation.
Of course with enough taxpayer subsidy per car, say 20 or 30 thousand $US per vehicle, Detroit can "survive," but then the question becomes "can the US economy survive?"
We would do well to remember that the US taxpayers are *ALREADY* supplying considerable subsidies for Detroit by picking up their retiree medical costs through Medicare, and at the state level, very considerable tax abatements on real estate, buildings, machinery, inventory, etc. and even direct funding through Economic Development Grants, OJ training, etc.
The automotive transplants, because they are making a profit, are paying a reasonable share of the cost of running the government at various levels through their *INCOME* taxes, while "Detroit," because they are producing cars at a loss, are not paying any income tax, and indeed are generating large carry forward tax losses which will offset future income tax payments (assuming they ever earn any income).
Given that any business operated at a loss is a drain on the macro/aggregate economy, just how long should major, for-profit corporation be allowed to operate at a loss before they are forced into chapter 11 or even chapter 7? The only thing that GM appears to have accomplished over the last 10 years is to dig the hole deeper, deeper, deeper, deeper which the US taxpayers are now being asked to back-fill with 100$ bills.
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:

I don't think that's the key question. The question, IMO, is whether our economy can take a hit that large right now, amidst all the other economic problems, without sinking into a full-blown depression. It's a question with two possible answers, one of which is a risk we can't afford to take.

A reasonable guess is that a delayed unraveling would be a lot better than a quick dip in a bath of acid. A cost of $100 billion, which is on the order of 1% of our GDP, would look like a missed bargain if the alternative turned out to be a large, persistent, and intractable level of unemployment.
And there's always a chance that the Big Three, or the Big Two, could recover. I don't give that much probability but, again, the alternative is a lot uglier than sinking one or two percent of GDP into giving it a try.

Right now, it doesn't matter. Detroit's long-term viability is a question for some leisure time when the recession is over.

You can argue management decisions when we can put our feet up. Right now, we're trying to keep our feet out of wet concrete.
George, we already know we're about to sink hundreds of billions into infrastructure projects, which will be inefficient because there's no market discipline to control them, but which most agree is a hell of a lot more productive than having people sit on their butts and collect unemployment while we wait for the cycle to bottom out and recover. Providing make-work for Detroit by having people build cars, even if the car makers can't restore competitiveness and profitability, is better than ripping the heart out of the upper Midwest and counting the bodies that bleed out and die.
-- Ed Huntress
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Ed Huntress wrote:

But Ed it's like the old leaky roof problem. When it's raining we can't fix it and when it's not raining it dosen't need fixing. ...lew...
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We can fix it even when it's raining. Whether a democratic government will ever be good at fixing roofs when it isn't raining is the real dilemma of democratic government itself.
-- Ed Huntress
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On Fri, 5 Dec 2008 02:41:01 -0500, "Ed Huntress"
<snip>

<snip> -------- Most likely Ford can make it, especially with some additional credit and if GM goes. Chrysler with additional credit and if GM goes should also make it as a niche player [mini vans] and contract assembler/manufacturer for other car companies [AFAIK they are currently assembling VWs vans in the US]
With the current management GM is doomed, and even if the management is replaced their financial structure is so bad that it is a "zombie" corporation.
e.g. *NEGATIVE* 58 billion in stockholder equity http://www.businessweek.com/lifestyle/content/nov2008/bw20081111_141573_page_3.htm ] and total book equity of *NEGATIVE* 65.1 billion with a total market cap of about 2.5 billion, or a ratio of -26:1 This appears to be an example of infinite leverage as there are huge liabilities/debts with no assets, and division by zero results in infinity.
http://finance.yahoo.com/q?s=gm http://banking.senate.gov/public/_files/GMCongressionalSubmissionFinal.pdf {page 11}
Chapter 11 does not appear a viable solution for GM, but rather Chapter 7, possibly with one or two select niche brands purchased by another company. Corvette by Tata anyone?
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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VW vans? all 15 sold per year?
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On Fri, 5 Dec 2008 02:41:01 -0500, "Ed Huntress"
<snip>

<snip> ------------ You may be right on this.
After watching the two congressional hearings, [see other posting on urls to watch on your computer] it now appears the smartest move will be to provide 8-10 billion from TARP funds to get GM and Chrysler through the next 2 months until the new administration takes over, ==>with the understanding that the GAO/IRS/SEC goes over their books to determine the actual situation using FASB/GAAS accounting, and if possibly a quick law enforcement/IRS check to see if there has been any gross kickbacks<== [for our UK posters "hidden commissions"] and/or other flim-flam deals bleeding the companies by senior management.
Then, based on the GAO/IRS/SEC report, a firm data-based decision can be made to "rescue," or to place under "conservatorship" and orderly liquidate, one or more of the companies.
FWIW -- this is begriming to smell more and more like a classic long-con "bust-out scam."
In any event the Directors of these corporations have considerable civil and quite likely criminal liability for their gross negligence [and possible acquiescence] in allowing the situation to develop to this extent. Win, lose or draw on the bail-out, a criminal investigation of the corporate governance seems fully justified here.
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 Fri, 5 Dec 2008 02:58:29 -0500, "Ed Huntress"

Transfer Pricing. Common not only internationally but also interstate in the US for multistate corporations. "Profit" flows to lowest tax area. Internationally there are "divisions" established in tax haven countries such as Aruba, that take legal title but not physical possession of goods in international transit. Buy low, sell high and any "profit" winds-up in the tax haven, possibly with tax "losses" on each end.

Like Leona Helmsley said "We don't pay taxes. Only the little people pay taxes ..." http://en.wikipedia.org/wiki/Leona_Helmsley also see http://www.money-rx.com/blog/2008/05/ubs-tax-evasion-probe-nets-american.html http://www.nytimes.com/2008/06/20/business/20tax.html Note the use of international credit cards. If the execs have international company credit cards billed to a tax haven account, they get "tax free" money to spend in the US.

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:

Ah, right. Thank you. Honda was so blatant about it in China that the Chinese almost sent them home. d8-)

The magic of high finance...
-- Ed Huntress
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