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Automotive News & Views Do You Favor A Government Loan To The Detroit 3?
3958 messages, Last post on Oct 02, 2009 at 4:52 PM
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| While every reasonable person wishes to protect Rustbelt jobs, the issue at hand is whether and how to rescue the domestic auto makers. If they can become profitable again, many Rustbelt jobs will be saved. If not... | |
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"They made BAD AWFUL TERRIBLE business decisions, and they should be allowed to suffer the consequences of their own actions." You make a valid point if you oppose the loan (or other the other forms of help mentioned in recent messages) on ideological grounds. I understand your position if it's based on a strict interpretation of capitalism, that weak firms must be permitted to fail. If your response is due to anger towards the auto makers, however, then it's not based on rational thought. Even though the outcome of denying help is the same, deciding based on economic ideology is more acceptable to me than deciding based on anger. Unfortunately, this is a very complicated and mufti-dimensional issue. I've got mixed feelings regarding loans, but favor adopting European safety and emissions standards as a TEMPORARY expedient. After all, loans are temporary too. If necessary, I'd probably favor loans too, as a last resort, and without much enthusiasm, because I believe that one, two or all three domestic firms could survive, with additional time. I'll readily acknowledge that as a life-long auto enthusiast, the demise of the domestic auto makers would sadden me. The rational side of me also questions whether America and Americans would really be better off, over the long haul, with only imported brands from which to choose. I tend to think that it would be better to continue having foreign and domestic brands competing in the market. One consideration in my reasoning of going along with loans, is that our government added to the confluence of hurdles by passing stricter CAFE standards when the domestic manufacturers were in a weakened state. Now as it happens, the advent of higher fuel costs overtook the new CAFE standards, at least in '08, and the marketplace quickly responded by assigning a higher priority to fuel economy. Nevertheless, since the latest CAFE standards may require the auto makers to invest more money over the long run, there's some justification for offsetting this with loans.
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Replying to: hpmctorque (Sep 11, 2008 7:40 am) It seems to me that the only question really is how much the economy will suffer if we "let" the domestic automakers fail, vs how much it will cost now to bail them out with "loans" they probably won't be able to repay. We are in for tens of billions in costs with the Fannie/Freddie bailout, if the NY Times is to be believed. And if they are estimating that much cost now, it will probably rise to the order of $100 billion before we are all done with it. I don't think we can afford to bail out the automakers as well, and what's more I don't believe the economic costs of NOT bailing them out will outweigh the costs of going ahead. I wish we could somehow just reward the best-performing of the three with the loans, and give them a leg up. My vote would be for GM to be the recipient. In that case, I think we would see Chrysler as we know it disappear in short order, maybe providing enough breathing room for GM and Ford to survive.... The Ford family should take the company private again and hack off all the unprofitable bits, start with a clean slate. |
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Don't forget this: The Big 3 took every opportunity to move their factories (and our jobs) to foreign countries. They didn't want us to build their cars, but they sure liked when we bought them. It was the "free market" at work in a "global marketplace" ..... capitalism at its best. Now we're not buying their cars, they're stock prices are at mult-generation lows, and they want OUR tax money. Suddenly, socialism is the answer. I don't think so. Let these corporations go beg Mexico for some cash. If the government won't give 'em some money, maybe the drug cartels will. |
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Isn't the whole purpose of a corporation issuing stock to raise capital? Why wouldn't we insist on the Big 3 doing this first? because no one will buy the stock at a decent price? So if private investors and bankers aren't willing to put their own $ into the corp., what does that tell you about the prospects of those investments? Why would I want tax money to then be invested? Since people will still need vehicles, would it be so horrible if some of the Big 3 went under as corporations, and other manufacturers bought those plants and employed some of the same engineers and workers?
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Replying to: kernick (Sep 11, 2008 8:35 am) Nissan had become a basket case in late 90s, and there was talk in Japan about it being bailed out by the Government. Ultimately good sense prevailed, and Renault was allowed to take a 37% stake in the company (1999) - One big difference between Nissan (in 1999) and the B3 (today) was that even when running out of cash, Nissan continued to invest in its product line - With the result that Carlos Ghosn only had to do some obvious cost cutting (shutting down a couple of plants in Japan), and Nissan came back roaring, with a USD 3.3 Bn profit in 2001, just two years after the Renault investment - since it had a strong pipeline of products anyway. My point is - If the capital market is not investing, then there is something which is keeping them away. Government funding is unlikely to solve that problem, especially if it is debt (unless the capital market does not have any money left - that is certainly not the case right now). What would make sense is controlling equity stakes (considering the current market capitalisation of B2, this would cost a lot less than 50 Bn USD, and - if done well - provide a much bigger upside) in the two listed companies, and then perhaps forcing a merger to create a much stronger B1 from the US. And if the Government provides loans to Chrysler, then you will get to hear the champagne popping in Cerebrus headquarters, since they are the ones who will keep the upside. |
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| Be careful with the bailout money. The Ontario government gave GM a $275 million dollar grant with the written understanding that the Oshawa truck plant was to remain open until 2011 at the very least. Two months later, GM announced they were closing it and they will not return the grant money. The BIG 3 are not only financially bankrupt, they are morally bankrupt. They have continued to produce inferior cars (not all, but most) and have expected that because they are North American, that we have a duty to purchase them. Now that their total misunderstanding of the market has come home to roost, they want the governments to bail them out. Ford just accepted $80 million dollars to re-open an engine plant in Windsor (700 jobs) and three days later, announced the closing of a plant in Oakville (500 jobs lost). The bottom line is that while many profess to be "car guys", there are no car guys in charge at the Big 3. The bean counters are in charge and the product and treatment of employees and customers is reflected in that fact. Let the Big 3 stand on their own two feet. They created the mess, let them fight their way out of it. After all, in the good times, did they ever offer to give every taxpayer a 'bonus".??? Not on your life. When times are good, they pay huge bonuses to the executive ranks. Mark my word, they will continue to reward inferior performance by the executives with superior wages and benefits. | |
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Replying to: kernick (Sep 11, 2008 8:35 am) So if private investors and bankers aren't willing to put their own $ into the corp., what does that tell you about the prospects of those investments? Why would I want tax money to then be invested? Since people will still need vehicles, would it be so horrible if some of the Big 3 went under as corporations, and other manufacturers bought those plants and employed some of the same engineers and workers?" Right you are! Do you want to buy stock (or invest in the junk bonds) of GM or Ford? (Chrysler stock is not for sale: it's part of a private company). You might as well heat your house by burning Treasury notes: down the drain. I don't know if anybody has mentioned this: but the real issue may be the UAW. If the companies fail, does the government have to pick up the pensions? It may cost (the US taxpayers) as much or more to have them fail as to bail them out (provided they can right the ship. 
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Replying to: smithed (Sep 11, 2008 10:54 am) I'm sure that is a consideration, but please note that the government will be on the hook for both white-collar and blue-collar pensions in the event of a collapse of GM, Ford or Chrysler. The UAW angle comes into play because both McCain and Obama want to win Michigan, and can't do so by telling UAW members to take their chances in bankruptcy court. That is why Obama has supported the bailout from day one (and even referred to it in his convention acceptance speech), while McCain backpedaled after initially opposing it. |
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One thing I would favor would be a temporary relaxation of safety standards, and emissions standards on diesels, to enable Ford and GM to import some European spec models. That is an excellent idea. GM and Ford have great small PU trucks with diesel engines that get 40+ MPG. They are sold every where but here and maybe Japan. They are kept out by old tariff agreements and repressive regulations. <i/> Again I will ask why are the better GM & Ford vehicles over in europe and not in their home country, the USA? It's pretty sad that Ford has 40 mpg vehicles in Europe and have one vehicle that can achieve over 30 mpg in the US. This is at the heart of the problem. Forget the tariffs, why couldn't they simply develop a car int eh US that could achieve this type of gas mileage. I just don't understand. Let them fail. |
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