Why Gm Doesn't Deserve A Bailout

[JMHX]

The doomsayers have long been prattling on that refusing a multi-billion dollar bailout to General Motors would send the American economy into a tailspin not seen since the Great Depression. This is likely true. I have resigned myself to that fact and so should you. Be under no illusions: Times will get tougher before they get better. But could this whole situation have been avoided? I believe so. Let me show you why.

Since at least the 1980s and possibly as early as the 1970s, the American automotive industry has been losing ground to foreign competition. The response of the American government, bending to ill-informed populist will, has been year after year of subsidy to the auto industry. Taxpayers prop up a GM health plan for union workers that the company cannot support on its own. Taxpayers prop up cars that cannot compete through tacit acceptance of tariffs that make better cars more expensive. Taxpayers prop up a company with a rusty and shaky business plan instead of demanding the company reform its business model, sell off troubled assets, consolidate, and post performance.

Taxpayers prop up a company that is no longer competitive because Americans are afraid of "what comes next." But America's industrial supremacy was built on the back of these companies! Populist politicians and Union leaders shout. This is true, but this is also the past. Keeping alive through artificial means when they can no longer compete is as pointless and costly as keeping a brain-dead relative alive for years when all hope of recovery is gone. But there is a key difference: We are paying for life support for GM when the hope of recovery is still alive and well.

Why do we do this? Nostalgia. No one wants to see our automotive industry shrink. Gosh, we made awesome cars with fins in the 50s, and everyone knows the song Pink Cadillac. Therein lies the problem: When is the last time an American auto-maker produced anything genre-defining? When is the last time a consumer was persuaded to purchase an American brand over a foreign competitor? Our nostalgia for preserving GM at all costs has led to a coddling of the company that has stifled innovation and competitiveness. After all, why compete when someone will cushion your failures? Why work hard when the bottom line will be there anyway, thanks to American taxpayers?

It now seems GM will be denied its bailout by Congressional Democrats, in a rare show of libertarian spine. This may well lead to a collapse. It did not have to be this way. Had government from the beginning denied bailouts that softened the competitiveness of GM, the company may well have adapted and remained successful - even if that means breaking away from the "old ways" and nostalgia for how things once were. Now, babied and bloated from government subsidy, any attempt to deny GM the drug of subsidy it has used for so long to sustain its addiction will result in the death of the patient. The fall could have been so much less painful had we adopted this policy from the start.

American taxpayers let GM dig its own grave through their unwillingness to elect politicians who do not believe in the permanent bailout philosophy. Now we stand to suffer for our nostalgia. The pain will be intense, but it is necessary to correct artificially strong markets. Whatever happens to GM, much harm will come to the American taxpayer. The only redeeming hope in this morass is that, from the wreckage, other automotive manufacturers - and future automotive manufacturers - will learn from the mistakes of GM and focus more effort on competition than on the reckless pursuit of endless subsidizing of failure.

[JoS]

Well said.

[Imperator]

If GM does fall down, I will be the first to dance on their graves.

However, I doubt they will crumble.

Why?

For every plant they close in Michigan, they seem to open a new one in Mexico. We put our faith in them to save the state's economy, they slip out the back door before the farce is revealed.

Meanwhile every GM employee will yell at me for driving my Honda, which they view as "unamerican".

Little do they know my Accord was made in Ohio.

So let's see:
Buy a Chevy made in Mexico because it's American.
Don't buy Honda made in Ohio because it's foreign.

Eureaka, my state is filled with idiots.

[JoS]

You think its bad for you? In Canada people urge you to buy domestic cars (ie Ford, GM, Chevy) rather than imports like Honda. I then proceed to inform them that GM is actually also a foreign car as it is American owned, not Canadian.

[Luxury-Yacht]

At 11/14/08 04:20 PM, JoS wrote: You think its bad for you? In Canada people urge you to buy domestic cars (ie Ford, GM, Chevy) rather than imports like Honda. I then proceed to inform them that GM is actually also a foreign car as it is American owned, not Canadian.

That's absolutely God damned ridiculous.

Anyway, yeah, the right thing to do here is to leave GM to its own devices. The U.S. government has been handing out subsidies to industry for ages, but each time, they crawl back for more handouts made up of taxpayers' money. If GM honestly can't survive without a fucking government-funded IV in its arm, then maybe it's time GM just took it like a man, addressed the issue, and made the tough choices instead of relying on the government. Last time I checked, we were a capitalist nation (for the most part). Why are we paying out the ass to bail out huge companies when they're shifting wages to foreign workers to dodge pay raises and taxes at the same time while the consumer can get similar or better products from elsewhere?

Besides, if GM does crumble, then a considerable portion of the competition in the car industry will open up. Those loyal to the "American Made" shtick will probably shift their dollars over to the remaining American-run auto makers, giving them a boost by giving them a bigger market share.

[adrshepard]

At 11/14/08 12:50 AM, JoS wrote: Well said.

Except for the parts about years of government subsidies. I'm having trouble finding information about US government subsidies to the auto-industry on the internet. Now there are some supporting research and developement for advanced-fuel or hybrid cars, but nothing that seems to be industry-supporting.

I also can't find much about US tariff rates on Japanese automobiles over the past 10 years. Most of the search results concern tariffs in the early to mid-90s, and the government site about tariffs is impossible to navigate. In addition, is it possible that existing tariffs more or less compensate for the possible manipulation of the yen to keep exports high, just like China does?

If someone could post a few links answering these things...

[Achilles2]

Wouldn't it be better for the government to sustain GM through a bailout AND through tougher taxes for imported cars? You can't just let such a large company collapse because it's competition is more powerful. Too many jobs will be lost. It has nothing to do with culture, but rather with jobs and thus the economy as a whole.

The government should bail out GM. After doing so, they should implement tougher taxes on foreign import cars, and increase pressure on GM to have more and more of its factories in the United States as opposed to other nations, by any means necessary. This would create more jobs and help the economy.

Yes, it didn't have to be this way. No, we should not let it be this way. No company deserves a bailout, but most should get one - GM included.

[aviewaskewed]

I think the problem with the bailout structures for most (and certainly it's a problem for me) is while I don't think anybody is opposed to them in principal, it's the practice that stinks.

Look, does anybody really object to the idea of saying "listen, we have this big company that employs thousands and thousands of people. They have fucked up and those people could lose their immediate income plus future pensions and shit. So we're going to give them the money to keep going". That part I think is fine with people, the problem becomes when you get to the part that the money never gets paid back, and there seems to be little to no oversight on how it's used, or pressure to make sure they don't get into the same hole again. Bailouts in theory are good, but if the company can't or won't turn it around, yeah, it just seems like your doing to a company what people do to a brain damaged patient who will never recover and is only alive because of outside intervention.

[Brick-top]

I have a solution.

Make better cars.

Or murder the competition.

[Garthredbunlove]

And... Japanese tax payers prop up Toyota, too.

If you don't do the bail out, or help out, or do something, you take Detroit from a 2nd world nation, into a 3rd world nation. You get millions, yes millions, of people unemployed. The saying around here goes, "every job in the auto-industry supports 11 jobs outside."

So, the bottom line is: if one of them goes under, you're left with millions of people unemployed. You're left with a void in the car market, which causes prices to rise for all Americans (aka: inflation).

Perhaps that's not enough to sway you, but consider that 9/11 was a loss of 3 thousand people. 1,800 in Katrina. An estimated total of 2068 soldiers in the Iraq war. 300,000 in WW ll. 117,000 in WW l. And roughly 620,000 in the civil war, and finally we're at one million.

The number of people employed at Chrysler in 2006 was 360,385. Times that by 11 (from the saying earlier) and you get close to 4 million. Even if the saying is wrong, even if the auto industry only provided 3 jobs for every person working at the plant, that's still a million.

Losing the one of the big three would be equal to 9/11, Katrina, Iraq, WWl, WWll and the civil war, combined, maybe worse.In fact, all of those people died. If we had that many people unemployeed, who do you think is going to feel obligated to help them? The fucking government, that's who. If you want to shun the auto industry (while foolishly giving 700 billion to the bankers), fine, but you're not saving any money.

An ounce of prevention is worth a pound of cure.

[JMHX]

At 11/15/08 01:51 AM, Garthredbunlove wrote:

If you don't do the bail out, or help out, or do something, you take Detroit from a 2nd world nation, into a 3rd world nation. You get millions, yes millions, of people unemployed. The saying around here goes, "every job in the auto-industry supports 11 jobs outside."

And perhaps the best thing to do is sustain the blow we have been postponing for too long and allow the market to correct itself. Involving the government will surely result in a more cumbersome organization, and if previous government controlled organizations are any measure of their effectiveness, it'll cause even more problems down the road while suffering huge cost overruns. One need only look at the postal service, which recently posted a $2.8 billion loss, to see how government keeps organizations alive that would be much more cost effective and competitive under private control.

[Garthredbunlove]

At 11/15/08 02:42 AM, JMHX wrote:
And perhaps the best thing to do is sustain the blow we have been postponing for too long and allow the market to correct itself. Involving the government will surely result in a more cumbersome organization, and if previous government controlled organizations are any measure of their effectiveness, it'll cause even more problems down the road while suffering huge cost overruns. One need only look at the postal service, which recently posted a $2.8 billion loss, to see how government keeps organizations alive that would be much more cost effective and competitive under private control.

You completely skipped over the core of what I said. You're not even willing to acknowledge my argument. That's denial. That's ignorance. That's sheer disregard for human life. Perhaps you don't know what and why socialist revolutions took place. It was unstable and drastic shifts in the economy that favored several, while crippling the masses, that pissed off the people to cause what was known as the CCCP.

If you simply ignore those millions of people, you will have a catastrophe.

And look, I know that the market will balance. I, personally, would like there to be no subsidiaries (with the exception of healthcare and education). But riddle me this: when countries lose their industry, what happens? It's unlike losing a chain of book stores. It's unlike losing a bank. What happens? Sure, jobs are lost, but what else happens? Doesn't the dollar also take a hit? Doesn't our influence on the world also go down?

Saving the American auto industry is good for America because it supports American dominance. With out it, we lose influence, we lose jobs, and our exports are cut. The world is a big place, and yes the market will balance, but people will be hurt in the process (many people which of whom would rather embrace socialism than listen to your economic idealism), and over all we will lose influence.

Now, you can sit there and tell me that the American people shouldn't pay the bill for them, but did you ever consider another option, other than letting them go under? Maybe... iunno some regulation? Or maybe make Michigan a right to work state. The politics in Michigan are rotten to the core. Pure democratic liberals run by unions. There are many other options, and sadly none of them are going to be addressed properly by Obama, or the Michiganders that live here (I'm one of them), but, lucky for me, you've got no authority in the matter, just a poorly designed, insensitive, econ 101, style opinion, and that is why you're where you are, sitting in front of a computer, arguing with someone you don't even know about something you have no control over.

[Luxury-Yacht]

At 11/15/08 03:12 AM, Garthredbunlove wrote: You completely skipped over the core of what I said. You're not even willing to acknowledge my argument. That's denial. That's ignorance. That's sheer disregard for human life. Perhaps you don't know what and why socialist revolutions took place. It was unstable and drastic shifts in the economy that favored several, while crippling the masses, that pissed off the people to cause what was known as the CCCP.

If you simply ignore those millions of people, you will have a catastrophe.

It's a catastrophe either way. As it stands, GM can't face the modern market. They're too deep in financial shit. It's not the government's job to babysit the huge corporations. GM had every opportunity in the past to keep up the pace, but they fucked up. They made poor decisions, they misjudged the market, they invested poorly, etc. They're fucked.

What he's saying is that the longer that the government takes to address the issue properly, the larger the negative impact on the American economy will be. Bailing out GM would only be delaying the inevitable and only adding to the problem further down the road. It's time to man up and take the fucking hit like we should have done a long time ago.

You know what's supposed to happen when a business goes bankrupt? It's supposed to declare bankruptcy. So many huge parts of American industry have gone begging for handouts. Look at the airlines. How many millions of tax dollars went to bail out the airlines who still haven't improved, or fallen out altogether? Which airlines are doing the best now? The ones that didn't receive any bailouts, because by the time they need bail, they're already beyond saving unless Americans want to sacrifice the national Education budget for Delta Airlines.

And look, I know that the market will balance. I, personally, would like there to be no subsidiaries (with the exception of healthcare and education). But riddle me this: when countries lose their industry, what happens? It's unlike losing a chain of book stores. It's unlike losing a bank. What happens? Sure, jobs are lost, but what else happens? Doesn't the dollar also take a hit? Doesn't our influence on the world also go down?

America is no longer an industry-based economy. All we fucking do nowadays is import. We're a service based economy now. No one buys American goods because the companies have moved most of the manufacturing and production plants outside the country for lower labor costs and taxes, and this includes the American Auto companies. How many people working for Ford and GM have already lost their jobs due to layoffs, only to be replaced as plants are moved from middle America to Mexico? And even after the companies have switched to cheap labor, they still can't make a fucking buck. Meanwhile, the foreign auto industries are flourishing in America. They're becoming a more significant share of the market by not only increasing American based sales, but also American based production. They've been building plants in the U.S. while the American companies have been moving out.

Saving the American auto industry is good for America because it supports American dominance. With out it, we lose influence, we lose jobs, and our exports are cut. The world is a big place, and yes the market will balance, but people will be hurt in the process (many people which of whom would rather embrace socialism than listen to your economic idealism), and over all we will lose influence.

The socialistic thing to do now would be for the government to financially back the industries. The real capitalist thing to do would be to let the business cycle take its course and eliminate the businesses that can't keep up with the market.

Will we lose jobs? At first, yes. But those jobs will eventually be regained, what with foreign auto makers expanding production within the U.S. Once GM goes down, the other American auto makers will have that much larger of a market share, and will have another opportunity to fix themselves and fill the gap that GM left.

Now, you can sit there and tell me that the American people shouldn't pay the bill for them, but did you ever consider another option, other than letting them go under? Maybe... iunno some regulation? Or maybe make Michigan a right to work state. The politics in Michigan are rotten to the core. Pure democratic liberals run by unions. There are many other options, and sadly none of them are going to be addressed properly by Obama, or the Michiganders that live here (I'm one of them), but, lucky for me, you've got no authority in the matter, just a poorly designed, insensitive, econ 101, style opinion, and that is why you're where you are, sitting in front of a computer, arguing with someone you don't even know about something you have no control over.

For all you fucking know, I'm a GM CEO. This is the internet, of course you don't know who you're arguing with. You're doing the same fucking thing. I don't give a shit if you're from Michigan, I don't give a shit if you're from the fucking Moon. Don't put this shit on the democrats. The republicans had 8 long years in the executive office, and when this shit first started flaring up years back, I didn't
see many Republicans offering solutions other than "we'll fix it with money".

[Garthredbunlove]

At 11/15/08 03:33 AM, Luxury-Yacht wrote: What he's saying is that the longer that the government takes to address the issue properly, the larger the negative impact on the American economy will be. Bailing out GM would only be delaying the inevitable and only adding to the problem further down the road. It's time to man up and take the fucking hit like we should have done a long time ago.

Really? We should do this right now? We're in a recession. We're pushing 7% unemployment.

And do you have any proof that the American auto companies wont start to turn a profit?

America is no longer an industry-based economy. All we fucking do nowadays is import. We're a service based economy now.

And the economy is doing great now, isn't it?

No one buys American goods because the companies have moved most of the manufacturing and production plants outside the country for lower labor costs and taxes, and this includes the American Auto companies.

Really? That's the reason no one buys American goods? Or is it because our GDP is already 4 times everyone else's?

How many people working for Ford and GM have already lost their jobs due to layoffs, only to be replaced as plants are moved from middle America to Mexico? And even after the companies have switched to cheap labor, they still can't make a fucking buck. Meanwhile, the foreign auto industries are flourishing in America. They're becoming a more significant share of the market by not only increasing American based sales, but also American based production. They've been building plants in the U.S. while the American companies have been moving out.

This proves what exactly? That... auto companies CAN turn a profit? So... that means... your logic is... shut down American auto companies because, even though it is very possible to make a profit, we would rather put a few million of our own people out of work and give Japan less competition.

Well, tbh, I like anime. So this sounds like a great idea.

The socialistic thing to do now would be for the government to financially back the industries. The real capitalist thing to do would be to let the business cycle take its course and eliminate the businesses that can't keep up with the market.

Read up on why Russian went communist.

Will we lose jobs? At first, yes. But those jobs will eventually be regained, what with foreign auto makers expanding production within the U.S. Once GM goes down, the other American auto makers will have that much larger of a market share, and will have another opportunity to fix themselves and fill the gap that GM left.

Sure, and in 20 years time there will be green fuel, but Americans wont be the first to buy it. Nor will they be the ones who invented it. Nor will be able to afford it.

You're forgetting one of the key elements to capitalism: entrepreneurs. Entrepreneurs are the ones who make the money, not the workers who played it safe. They are the ones who took out the loan and took the risk, not the workers.

For all you fucking know, I'm a GM CEO. This is the internet, of course you don't know who you're arguing with. You're doing the same fucking thing. I don't give a shit if you're from Michigan, I don't give a shit if you're from the fucking Moon. Don't put this shit on the democrats. The republicans had 8 long years in the executive office, and when this shit first started flaring up years back, I didn't
see many Republicans offering solutions other than "we'll fix it with money".

I can't believe I wasted my time on a person like you. I must be bored. Do you even read a fucking news paper? Are you even in college, or have you even started high school? You've got such elementary views of economics, it's silly.

You remind me of the bush tax cuts. Yes, you've achieved more revenue than ever before, but you also started a war and spent more than anyone in history at the same time causing a deficit like the world has never known.

[adrshepard]

At 11/15/08 04:13 AM, Garthredbunlove wrote: This proves what exactly? That... auto companies CAN turn a profit? So... that means... your logic is... shut down American auto companies because, even though it is very possible to make a profit, we would rather put a few million of our own people out of work and give Japan less competition.

Not all auto plants produce the entire car themselves. There are thousands of components to be manufactured, and some are more capital-intensive than others. Plants in China and Mexico benefit from low labor costs, and they make basic parts. Plants in the US have the benefit of high-tech production capabilities and very productive workers, so we manufacture the more advanced components like electronics and computer systems.

Unless your goal is to keep Japanese auto sales depressed no matter what the cost to society, it doesn't make sense to prop up companies who can't compete in the marketplace. It doesn't matter how many people they employ. The entire business is unprofitable and the work of those millions wasted. It's time for their labor to be redirected elsewhere. If they don't have the skills to get similar jobs then that's the way it is. Capitalism and free markets promise efficiency and growth, but the means aren't always pleasant or "fair."

At 11/15/08 04:13 AM, Garthredbunlove wrote: You're forgetting one of the key elements to capitalism: entrepreneurs. Entrepreneurs are the ones who make the money, not the workers who played it safe. They are the ones who took out the loan and took the risk, not the workers.

That view is inherently socialist, and JMHX is right to point to outlandish union benefits and demands as one of the major reasons why the auto companies are in such trouble. Too much has been given to the "proletariat" already.

[Garthredbunlove]

At 11/15/08 12:15 PM, adrshepard wrote: The entire business is unprofitable and the work of those millions wasted.

That's not true. Look at Toyota. Look a GM a few years ago. They were turning a profit. You're grossly exaggerating the truth. Car companies can turn a profit, in fact, it's very profitable. There are problems right now, but that doesn't mean there will always be problems. Maybe you haven't notice, but everyone is having problems right now, but nobody has such a cynical outlook.

At 11/15/08 04:13 AM, Garthredbunlove wrote: You're forgetting one of the key elements to capitalism: entrepreneurs. Entrepreneurs are the ones who make the money, not the workers who played it safe. They are the ones who took out the loan and took the risk, not the workers.

That view is inherently socialist, and JMHX is right to point to outlandish union benefits and demands as one of the major reasons why the auto companies are in such trouble. Too much has been given to the "proletariat" already.

O.o that view is socialistic? How? I don't see what entrepreneurs have to do with socialism.

As far as the unions go, I agree. I don't particularly like unions - they're too powerful - but unions have nothing to do with what I was trying to say. In my analogy of the entrepreneur, I said that entrepreneurs need to take risks and make investments in order to turn a profit. In order to make something, first one must take out a loan and gather all the required materials.

If the government hopes to make money, they must invest - like the entrepreneur.

Your simplistic views on economics aren't realistic. Suppose the government lets them go under, what is to gain? Nothing. They likely lose money because a few million people and a major cooperation are no longer paying taxes, and instead they are seeking hand outs for the next 20 years. However, if they did give them money, they might allow them to slowly die off (and possibly recover), all the while people are still employed, and slowly laid off, which is better and allows them to slowly move out of the state, rather than making such a drastic shift, especially during such a fragile time in the economy.

The company is just too important to fail. Notice how no one cares about circuit city filing bankruptcy? That's because retailers don't mean a thing to economy. Manufacturing is different.

[Buffalow]

These "foreign companies", for the most part, assemble their products in the continental United States. GM only has to blame itself for, not only claiming that they are the only car company in the United States that assembles their cars in the United States, even though they manufacture their cars in Ontario, Mexico, and South America, but for also not realizing that Toyota, Mitsubishi, Honda and Suzuki make their cars over in places such as Ohio, Western New York, Pennsylvania, and all over the former "Rust Belt" cities. Another company like this is the Ford company. They are going to rape the Northeast's economy for a good ten years before they go under. Plus their owner doesn't know how to run a football franchise.

[Dromedary]

GM is not deserving of a bailout, yet a bullet instead.

[JMHX]

The bottom line is, a bail-out of GM is unnecessary, and I'll put some meat on the original ideas in hopes of answering some of the criticism.

1. GM needs a bailout to protect the economy - Not true. In fact, this is precisely why Chapter 11 Bankruptcy Protection was created. It allows companies protection from creditors while they sell off unprofitable or redundant sections of their business, build a new, profitable business plan, and trim whatever excess needs to be removed. GM asking for a bailout simply shows a lack of creativity and the belief endemic in the auto industry that Uncle Sam will foot the bill for a lack of original thought.

2. GM's failure would send a shockwave through the economy - Not nearly as much as we think. The United States of 2008 is not the United States of 1955. We are no longer dependent on an industrial economy, and haven't been for some time. The same doomsayers warned of a collapsing American economy when U.S. Steel, Bethlehem Steel, and a dozen smaller steel companies went under several decades ago. What did the U.S. economy do? It adapted. We are now a primarily service-based economy that produces high-value-added consumer items. This is why the GM case stands out: It's so odd. Losing GM would be more a loss of nostalgia than anything. This leads me into my next point:

3. WE WON'T HAVE A DOMESTIC AUTO INDUSTRY!!! - Wrong. Instead of spending $50 billion on a bailout of an unprofitable and lazy auto maker, why not let GM make money by selling off its underperforming assets? The Big 3 Auto makers control 16 car brands. Many of these overlap (Lincoln and Mercury, anyone?) It would be better for the market and for the companies to have these brands spun off into independent companies that would be small and nimble enough to pursue rapid changes in marketing and development while becoming more responsive to consumer sentiment. Sure, a few may fall, but the majority will adapt due to their name recognition and newly svelte payrolls.

4. We'll lose a lot of American jobs - Not that many. Union rolls have been shrinking year after year for most of this decade, and it's strange to most the outsize influence that unions hold even as they represent a decreasing percentage of people. Auto employees get better benefits than almost every other profession, and their unwillingness to compromise is a testament to putting self interest before company interest, even if doing this means neither company nor self end up any better. The announcement today that the unions would not compromise on pay or benefit cuts shows their intransigence on the matter. It's not making things any easier.

[Garthredbunlove]

At 11/15/08 09:34 PM, JMHX wrote: The bottom line is, a bail-out of GM is unnecessary, and I'll put some meat on the original ideas in hopes of answering some of the criticism.

1. GM needs a bailout to protect the economy - Not true. In fact, this is precisely why Chapter 11 Bankruptcy Protection was created. It allows companies protection from creditors while they sell off unprofitable or redundant sections of their business, build a new, profitable business plan, and trim whatever excess needs to be removed. GM asking for a bailout simply shows a lack of creativity and the belief endemic in the auto industry that Uncle Sam will foot the bill for a lack of original thought.

Probably the smartest thing you've said, however, filing bankruptcy wont solve their problems. They're not a ban, and shuffling some papers around and firing some people doesn't solve their problem. For roughly 30 years they've needed better quality cars, and now they have it. Recently, they've taken a real hit because of gas prices. GM's big ticket items have been large SUV type cars. Lucky for them, gas prices have gone back to normal, and they ought to come back strong once the economy picks up. Yes, they could use some better internal management, but they don't need bankruptcy.

2. GM's failure would send a shockwave through the economy - Not nearly as much as we think. The United States of 2008 is not the United States of 1955. We are no longer dependent on an industrial economy, and haven't been for some time. The same doomsayers warned of a collapsing American economy when U.S. Steel, Bethlehem Steel, and a dozen smaller steel companies went under several decades ago. What did the U.S. economy do? It adapted. We are now a primarily service-based economy that produces high-value-added consumer items. This is why the GM case stands out: It's so odd. Losing GM would be more a loss of nostalgia than anything. This leads me into my next point:

You're dead wrong about this. America needs to stay some what industrial. You can't export goods from service jobs, and therefore you cannot be very successful as a service industry. The fact that we are doesn't change that fact - notice the current state of the economy.

3. WE WON'T HAVE A DOMESTIC AUTO INDUSTRY!!! - Wrong. Instead of spending $50 billion on a bailout of an unprofitable and lazy auto maker, why not let GM make money by selling off its underperforming assets? The Big 3 Auto makers control 16 car brands. Many of these overlap (Lincoln and Mercury, anyone?) It would be better for the market and for the companies to have these brands spun off into independent companies that would be small and nimble enough to pursue rapid changes in marketing and development while becoming more responsive to consumer sentiment. Sure, a few may fall, but the majority will adapt due to their name recognition and newly svelte payrolls.

This has never been anyone's argument, and at this point I think you're starting to reach.

4. We'll lose a lot of American jobs - Not that many. Union rolls have been shrinking year after year for most of this decade, and it's strange to most the outsize influence that unions hold even as they represent a decreasing percentage of people. Auto employees get better benefits than almost every other profession, and their unwillingness to compromise is a testament to putting self interest before company interest, even if doing this means neither company nor self end up any better. The announcement today that the unions would not compromise on pay or benefit cuts shows their intransigence on the matter. It's not making things any easier.

The lose of one job is too many. The unions should go, and I agree with that.

My bottom line is:

The lose of GM will be a lose of more than just GM. Side industries will also suffer. The entire area of Detroit will suffer. We're looking at a huge rise in unemployment. When something like that happens to this many people in one area generally causes some type of backlash. The government will likely be roped into helping these people and it very well could cost more (with no hope of ever seeing that money back), which is something you consistently ignore.

The lose of GM is the lose of exports. It's true that we are now a service based economy, and I'll bet you can't find a economist in the whole world that will tell you that's a good thing. Service industries don't export, which is why we're still importing more than we're exporting. So long as that continues we will have added inflation to the dollar. GM is the back bone of American industry.

Not to mention, GM can be given loans. I don't see banks getting loans, they're getting bailouts. There is no logic to bailing out banks, while leaving GM to die, when GM creates far more jobs.

[JMHX]

At 11/16/08 12:44 AM, Garthredbunlove wrote:

At 11/15/08 09:34 PM, JMHX wrote:

The lose of GM will be a lose of more than just GM. Side industries will also suffer. The entire area of Detroit will suffer. We're looking at a huge rise in unemployment. When something like that happens to this many people in one area generally causes some type of backlash. The government will likely be roped into helping these people and it very well could cost more (with no hope of ever seeing that money back), which is something you consistently ignore.

In case you've had your eyes closed for the past twenty years, Detroit has already been dealing with sky-high unemployment and the crime that comes with it. Detroit has already been doling out government handouts to a large proportion of their population precisely because companies like Ford continue to lose money, close factories, and cut jobs. Now if one of my ideas is followed - breaking down the Big 3 into the Medium 16 - the new companies would be able to absorb most of the employees affected by the fall of the Big 3.

The lose of GM is the lose of exports. It's true that we are now a service based economy, and I'll bet you can't find a economist in the whole world that will tell you that's a good thing. Service industries don't export, which is why we're still importing more than we're exporting. So long as that continues we will have added inflation to the dollar. GM is the back bone of American industry.

GM is the backbone of American industry? If that's the case, we're in deep trouble, what with it struggling to even achieve basic solvency. We have plenty of multi-billion-dollar companies in this country that produce and export goods the rest of the world wants, and these are companies that don't have to hobble hat-in-hand to the Federal Government for assistance keeping their doors open. Failure is an essential component of capitalism. Without it you get precisely what we have here: A company that has obviously failed unwilling to accept that its business model is outmoded, its payouts unsustainable, and its era passed.

Not to mention, GM can be given loans. I don't see banks getting loans, they're getting bailouts. There is no logic to bailing out banks, while leaving GM to die, when GM creates far more jobs.

Absolutely untrue. The Economist had an excellent lead in this week's edition on the subject. Bailing out the banks is essential precisely because their fall would topple everything else. In this system nothing can exist without access to credit - companies cannot get venture capital, homeowners cannot bet mortgages, borrowers cannot take out loans. The financial structure of this country is so interlinked with the world that the collapse of the American financial sector would lead to worldwide financial collapse.

GM, in contrast, has limited scope, and it is a scope that has been decreasing for years. They put it best by saying, "Banks qualify for help because the entire economy depends upon their services. They are vulnerable to sudden collapses in confidence that can spread to other banks that are perfectly solvent. A good car company does not face the same threat. And althought Detroit employs a network of suppliers, which would suffer if production shuts down, nothing would sap a recovery and job-creating enterprise like locking up badly used resources in poorly performing companies."

[bombkangaroo]

In before Jeremy Clarkson.

[Brian]

JMHX has brought up an interesting point that I think is tangentially related to all of our problems here. Each american is spending 106% of their wages a year for stuff they can't afford. All of these bail outs and loans are in the same line. The government is giving out money it doesn't have and borrowing. I'm willing to go a little bit farther and claim that its not just GM that doesn't deserve a bail out. I'm willing to say the banks, the homeowners the people who want to be home owners the people who want to start businesses without the capital to do so, all of them don't deserve the money they are borrowing because they are being responsible. Clearly this doesn't work, but there's a truth here.

America is broken. It's entire economic system is broken. It's transportation system is broken. It's manufacturing system is broken. It's government is broken. Everything about our society is broken. We can keep stuffing cracks in the damn with silly putty, but it won't fix anything.

The next 3-5 years is likely going to be just that, us trying to fix a broken damn until the entire thing crashes.

We should be focusing on a couple things. First, our transportation system needs to completely move away from the car. We need to focus on connecting our major city centors with modern transportation technology like bullet trains. We need to redesign our country to work with public transportation and get over the individual private car system that is going to continue to fail. We need to stop transporting goods via trucks and start using the train again.

Second. we need to get off of the oil and gas standard. Coal is still viable at the moment and we can improve its environmental impact by catching the exaust. In the mean time, while relying on coal for most of our power we need to focus on hydroelectric power from our oceans, solar power from the south and west and wind power wherever possible, as well as geo thermal.

As far as these industries go, like GM. They shouldn't even be necessary to our country, but ultimately any plan to bail them out ought to put them on the track of energy independence and vehicles which make use of reusable power sources. And the bail out needs to be less of a give away and more of a loan.

I will say this on the bail out. If you let an entire State crumble into disrepair, you'll get PA. Michigan will suffer heavily for a few decades, but it needs to get over the auto industry. It would have to be done in an intelligent fashion. Just letting the companies go under would be horrible for everyone involved in the United States.

There's no clear solution, but if you let them fall, the conditions for class upheavel and revolution in the U.S. will be prime. I couldn't see it three years ago when a friend said his greatest fear was a class based socialistic revolution, but we are going that direction if we aren't careful. I wouldn't say our current government or government elect is a step in that direction, but the conditions are certainly coming together for a violent redefinition of America at a level below the government.

[Garthredbunlove]

At 11/16/08 12:55 AM, JMHX wrote: In case you've had your eyes closed for the past twenty years, Detroit has already been dealing with sky-high unemployment and the crime that comes with it. Detroit has already been doling out government handouts to a large proportion of their population precisely because companies like Ford continue to lose money, close factories, and cut jobs.

So let's review your logic. You're saying that since Detroit has been deteriorating slowly, and that has resulted in government handouts. We should let the GM go under completely, which would obviously fix the problem because... unlike before... no one would ask for hand outs? Are you stupid? If they got hand outs before, when there was less people demanding them, they are certainly going to get them after, and in all likeliness (with Obama being president and congress tittering on the edge of a super majority) they will get FAR MORE THAN BEFORE.

So explain to me again how not bailing them out is smart. It seems like we're damned if we do, and we're damned if we don't, but at least if we do there is a chance it will get paid back.

Now if one of my ideas is followed - breaking down the Big 3 into the Medium 16 - the new companies would be able to absorb most of the employees affected by the fall of the Big 3.

If you're so confident in your idea, why don't you offer to buy one of the 16? In fact, why hasn't this already been done?

GM is the backbone of American industry? If that's the case, we're in deep trouble,

The stock market IS down 40%.

Not to mention, GM can be given loans. I don't see banks getting loans, they're getting bailouts. There is no logic to bailing out banks, while leaving GM to die, when GM creates far more jobs.

Absolutely untrue. The Economist had an excellent lead in this week's edition on the subject. Bailing out the banks is essential precisely because their fall would topple everything else. In this system nothing can exist without access to credit - companies cannot get venture capital, homeowners cannot bet mortgages, borrowers cannot take out loans. The financial structure of this country is so interlinked with the world that the collapse of the American financial sector would lead to worldwide financial collapse.

GM, in contrast, has limited scope, and it is a scope that has been decreasing for years. They put it best by saying, "Banks qualify for help because the entire economy depends upon their services. They are vulnerable to sudden collapses in confidence that can spread to other banks that are perfectly solvent. A good car company does not face the same threat. And althought Detroit employs a network of suppliers, which would suffer if production shuts down, nothing would sap a recovery and job-creating enterprise like locking up badly used resources in poorly performing companies."

Banks provide the capital to create jobs. They do not create jobs. With out risk takers, economies fail.

Regardless, what does this have to do with the fact that GM can be given loans?

[adrshepard]

At 11/15/08 06:24 PM, Garthredbunlove wrote:

The entire business is unprofitable and the work of those millions wasted.

That's not true. Look at Toyota. Look a GM a few years ago.

And it didn't occur to you that I was talking about American automakers exclusively? Must I be super-precise with everything so as not to lose you?

At 11/15/08 06:24 PM, Garthredbunlove wrote: O.o that view is socialistic? How? I don't see what entrepreneurs have to do with socialism.

The fact that you put the fate of workers above the economic consequences for everyone is socialist. You are unwilling to tolerate any job losses even though as JMHX has said they are absolutely necessary and unavoidable in a capitalist system. Giving a company money to operate at a loss for no other reason than because it employs people doesn't make any sense. It would be easier just to avoid the company altogether and just directly transfer funds from the government to these people.

At 11/15/08 06:24 PM, Garthredbunlove wrote: Your simplistic views on economics aren't realistic. Suppose the government lets them go under, what is to gain? Nothing. They likely lose money because a few million people and a major cooperation are no longer paying taxes, and instead they are seeking hand outs for the next 20 years.

Your thinking doesn't make any sense; the business doesn't make a profit, so all the workers' income would be from government bailouts anyway. It would cost the government (and taxpayers) more money to provide bailouts to the company, given it operates at a loss, because its payroll would be larger than the handouts the government would pay to the unemployed. And that's not even counting the portion of the money that would be wasted on other aspects of the business (like capital repairs, inventory controls, advertising).

The company is just too important to fail. Notice how no one cares about circuit city filing bankruptcy? That's because retailers don't mean a thing to economy. Manufacturing is different.

JMHX and the others covered this well enough.

But still I haven't seen any information about tariff rates and previous government subsidies that I requested earlier.

[Al6200]

This is what I think we should do:

1. Have the US government buy a majority stake in all of the failing US automakers.

2. Create a US Department of Industrial and Commercial Planning (we should do this whether or not we bail out GM), and have them appoint a group to oversee GM. The government should then either decide to eliminate the plants and companies that will never turn a profit, and pump money into the areas that have real potential.

3. Break up the United Auto Workers Union, so that each company has its own union. Unions are important because they give workers a say in how the company is run, but giving the union a monopoly on labor in an entire industry is incredibly destructive, because it means that there is no counterbalance to their power.

Breaking them up will force the unions to accept pay-cuts and factory relocations, so that the auto industry can bring its costs down to a reasonable level.

4. When the companies have been rebuilt and restructured, have the government sell back the stakes that it had in these companies.

With all of that said, I'll admit that I have some lack of knowledge about how bad off these companies are. If we gave them serious government money to build a modern fleet of cars and broke up the unions, could these companies become competitive? I'd imagine the answer is yes, but I'm not 100% sure.

[Garthredbunlove]

At 11/16/08 06:17 PM, adrshepard wrote:

You're right, my logic would make no sense, IF the company never turned a profit again. But they will if given the chance.

[Garthredbunlove]

At 11/16/08 06:54 PM, Al6200 wrote: This is what I think we should do:

1. Have the US government buy a majority stake in all of the failing US automakers.

2. Create a US Department of Industrial and Commercial Planning (we should do this whether or not we bail out GM), and have them appoint a group to oversee GM. The government should then either decide to eliminate the plants and companies that will never turn a profit, and pump money into the areas that have real potential.

3. Break up the United Auto Workers Union, so that each company has its own union. Unions are important because they give workers a say in how the company is run, but giving the union a monopoly on labor in an entire industry is incredibly destructive, because it means that there is no counterbalance to their power.

Breaking them up will force the unions to accept pay-cuts and factory relocations, so that the auto industry can bring its costs down to a reasonable level.

4. When the companies have been rebuilt and restructured, have the government sell back the stakes that it had in these companies.

With all of that said, I'll admit that I have some lack of knowledge about how bad off these companies are. If we gave them serious government money to build a modern fleet of cars and broke up the unions, could these companies become competitive? I'd imagine the answer is yes, but I'm not 100% sure.

I particularly think GM's problem is their management and their lack of concern for gas prices. In hindsight, they were right, gas prices did come down, and probably wont be going up to the levels they were at for decades.

You see, GM specializes in larger SUVs and trucks. They do this to, hypothetically, make more profit because the Japanese are far less competitive in those areas, and those types of vehicles also make more profit. However, due to GM's lazy past, they've gotten a reputation for having crappy cars, which is something that has significantly changed over the years. American cars are much higher quality now, and they certainly match up well with Japanese cars, which are smaller and liter (not always a good thing for cars).

The auto industry moves very slow. It takes roughly 20 years for business plans, such as GM's, to reap fruit from their labor. They have a great outlook going into 2010, as they've been working on it since the early 90's, but right now with the gas prices crippling their business plans, the world economy having major issues, which makes it increasingly harder to get loans, and since the consumer wont come out of their shell it's like they've been shot in the foot on the last mile of the marathon.

I'm not 100% that GM will recover. Perhaps you're all right, but the chances are they will succeed. The biggest concern I have is them going out of business right now, not them going out of business. If they go out of business right now, when things are at their worst, it will be far more devastating because if they go out of business now, when nobody can get loans, nobody will buy them.

[MortifiedPenguins]

General Motors is bleeding cash at an alarming rate and can no longer compete with the foreign market in automobile manufacturing. That simple phrase should dictate what happens to them.

If a company can no longer compete in a market, that company fails and the market will take it's due course. I can't stand how conservatives can prattle on about how thier fiscal conservatives and pro free market and then talk about bailing out a company that can no longer compete.

The market says they should fall, let them fall.

[Al6200]

At 11/16/08 07:33 PM, Garthredbunlove wrote:

I particularly think GM's problem is their management and their lack of concern for gas prices. In hindsight, they were right, gas prices did come down, and probably wont be going up to the levels they were at for decades.

Yes, I have sort of been wondering about that. Did the management have the mindset "Okay, let's just make a quick buck and then get out before our industry implodes", or did they just not have the power to actually change business strategies (i.e, the unions kept pushing for higher wages and the stockholders for more quick cash and the only way they could pay the higher wages and increase short term profit was to focus exclusively on huge expensive SUVs).

You see, GM specializes in larger SUVs and trucks. They do this to, hypothetically, make more profit because the Japanese are far less competitive in those areas, and those types of vehicles also make more profit. However, due to GM's lazy past, they've gotten a reputation for having crappy cars, which is something that has significantly changed over the years. American cars are much higher quality now, and they certainly match up well with Japanese cars, which are smaller and liter (not always a good thing for cars).

I wonder if the Japanese just didn't get into SUVs and trucks because they had better long term vision, or perhaps their management style differed from ours in such a way that they didn't have to focus on making quick cash... It would be interesting to look into that, and perhaps even try to see what Japanese strategies we could emulate.

The auto industry moves very slow. It takes roughly 20 years for business plans, such as GM's, to reap fruit from their labor. They have a great outlook going into 2010, as they've been working on it since the early 90's, but right now with the gas prices crippling their business plans, the world economy having major issues, which makes it increasingly harder to get loans, and since the consumer wont come out of their shell it's like they've been shot in the foot on the last mile of the marathon.

GM stock is at something like $4 (down from over $50). If there was any reason to believe that they had a real chance at turning things around and recovering, I'd imagine the stock would be a lot higher.

I'm not 100% that GM will recover. Perhaps you're all right, but the chances are they will succeed. The biggest concern I have is them going out of business right now, not them going out of business. If they go out of business right now, when things are at their worst, it will be far more devastating because if they go out of business now, when nobody can get loans, nobody will buy them.

My fear is that the shock of them going under will cause a chain reaction in the US that will hurt the entire economy.

My hope is that they will restructure themselves, the unions will get a kick in the seat of the pants, and they'll reemerge from bankruptcy a leaner and more competitive company.