No bailout for Detroit!?

[Harlan Huckleby]

The U.S. taxpayer will never see those funds again.

The second-hand theory that I posted a week ago is that it is worth the cost to delay the bankruptcy by a year because the economy will be better able to absorb the shock then. I can't analayse the economics, but it sounds plausible.

[Partial]

It really makes me mad that these 60+ year old senators, etc are passing bills that they will never have to pay a dime for. They're quite content sacrificing my children's futures to improve their present.

That is shitty.

[bobblehead]

It really makes me mad that these 60+ year old senators, etc are passing bills that they will never have to pay a dime for. They're quite content sacrificing my children's futures to improve their present.

That is shitty.

YOu have children?? Ok, I'll leave all the other things I thought of saying out of it.

[Kiwon]

The U.S. taxpayer will never see those funds again.

The second-hand theory that I posted a week ago is that it is worth the cost to delay the bankruptcy by a year because the economy will be better able to absorb the shock then. I can't analayse the economics, but it sounds plausible.

What your brother said makes sense in a lot of ways. However, human beings typically don't make the hard decisions/changes until they are literally forced to.

I don't think a consensus of politicians, auto execs, and labor unions can be built and maintained that would actually stick with an ordered bankruptcy plan for one year, especially with Democrats controlling the White House and Congress. Less painful alternatives by special interests, dissenters, not to mention legal challenges would swamp the process.

On another level, "bankruptcy" to many people means extinction. That's inaccurate but that's what many people believe and that thought is tough to swallow when it comes to cars.

Americans have a deep, emotional, almost romantic attachment to cars and the freedom of driving. We grew up in a car culture, proud of our auto companies. And, practically speaking, our nation is huge and you have to have a car to travel.

The longer people have to ponder the doom and gloom of bankruptcy, the more the opposition will grow towards it.

Bush really punted on this one. I think all the criticism of the past years finally caught up with him. He regrets aspects of the Iraq war and, on the domestic side, he also did not want to go down as the President on whose watch the American automobile industry failed.

Detroit has seen the headlights of this train coming for decades. The government too. But the Big 3 couldn't get their act together between themselves and the labor unions and produce vehicles that turned a profit for them in competition with foreign manufacturers.

And the government couldn't stop meddling with mileage standards, pollution regulations, etc.

Fine. You see what happens.

Everyone knew for decades that a cat 4 or cat 5 hurricane would overwhelm the levee system in New Orleans with a direct hit, but did they really prepare for it? No.

That's human nature. The hard changes take place after disaster strikes.

A free market solution is the tough medicine that Detroit needs, not a government bailout that will probably serve as a bridge loan to yet another government-backed, long-term restructuring plan. Government, government, government. There’s always the government to come to the rescue.

Just when will the hard, really hard, decisions to lower costs, including cutting wages and benefits for current and retired workers thereby creating economic hardship for them, be made internally by the auto industry? Not in the foreseeable future given the current climate in Washington.

[texaspackerbacker]

It really makes me mad that these 60+ year old senators, etc are passing bills that they will never have to pay a dime for. They're quite content sacrificing my children's futures to improve their present.

That is shitty.

Partial, you and I are on the same side more often than not. I opposed the TARP bailout and was lukewarm about the automakers bailout.

However, your premise in this post is flawed. Injecting money into the economy--even in the massive amounts seen lately--is absolutely NOT something that has to be "paid for" by future generations or whoever. The money accelerates and multiplies and stimulates, resulting in economic growth and ultimately, more tax revenue to the government even with lower rates.

The potential problem for the future is if enough wrongheaded politicians actually do try to "pay for" deficit spending with tax increases--thus killing the golden goose. With the combined forces of damn tax and spend liberals and misguided "fiscally responsible" conservatives, there is a distinct possibility of some bad Carter-esque consequences in the future, as you seem to be worried about. It would NOT be the massive spending that would do the harm, though, but the bogus need perceived by some to "pay for" that spending with higher taxes.

[MJZiggy]

I've decided I'm all for bailing out Detroit, I mean the Lions are bringing down the whole division. It's just embarrassing...

[swede]

I believe that giving money to a company that has proven itself to be uncompetitive in the open market is counter intuitive to anyone with a lick of common sense.

I would rather they give toyota and honda $14B and those companies buy up the assets of the failing businesses since they have proven more able to compete. As a matter of fact I OWN Honda stock and if you give the big 3 an unfair competitive advantage you are effectively STEALING from me and everyone who relies on any auto business NOT involved with the big 3.

That's funny. And it has me half wondering if it's possible to force the Big Three Automakers to sell themselves off to profitable companies who haven't strapped themselves to untenable union contracts and stupid executives; it is a heck of a lot more like free enterprise than simply throwing taxpayer money at three failing businesses.

In the old Lee Iacoca days he came out and humbly asked for a chance to set things right. He needed government loans to change Chrysler's business model and do things differently. If I recall, he got union concessions to help him out. I was about 17 at the time and didn't read the WSJ much.

B3AM CEO's jetted themselves in and said, "Here's our argument: We're too integrated into the national economy to be allowed to fail even though, as businesses, we can't do a f*cking thing right. Where do we pick up our checks?"

Bush just kicked the can down the road with his plan.

I've got a feeling the Obama administration will try to save the union contracts--which would simply set a race in motion. Who will go bankrupt first? America or the US auto manufacturers?

[Harlan Huckleby]

see below and above

[Harlan Huckleby]

lot more like free enterprise than simply throwing taxpayer money at three failing businesses.

Free enterprise is ultimately going to rule the day. The money to buttress the car companies will not keep them afloat for long. There isn't NEARLY enough money or political will to subsidize the car companies beyond the next 6 months to a year.

This is not the time to be debating economic philosophy, that's just irrelevant. The government is not going to manage the auto industry, that "Car Czar" talk will not materialize into anything important. The loans to the auto industry are merely a turnaqet to help the overall economy from sliding into a depression NOW, at a time of danger.

If anybody is still reading this post, I have a technical quesiton: what the hell is the problem with GM declaring bankruptcy? They still stay in business, and it provides a mechanism to dump unreasonable obligations, like payment of dividends to preferred stock holders. I fail to see any downside whatsoever for going through with a bankruptcy. What am I missing?

[Bossman641]

lot more like free enterprise than simply throwing taxpayer money at three failing businesses.

If anybody is still reading this post, I have a technical quesiton: what the hell is the problem with GM declaring bankruptcy? They still stay in business, and it provides a mechanism to dump unreasonable obligations, like payment of dividends to preferred stock holders. I fail to see any downside whatsoever for going through with a bankruptcy. What am I missing?

My take: but for many people bankruptcy means death. I think it is more of the stigma attached with bankruptcy then anything else.

[Harlan Huckleby]

I think it is more of the stigma attached with bankruptcy then anything else.

You might be right, a bankruptcy would be bad pub. But Chrysler already successfully navigated a bankruptcy once before. And begging the gov for money ain't exactly a proud moment.

I think there may be some more tangible reason why GM wants to avoid bankruptcy, perhaps it is the loss of control. Or maybe they WANT to pay their stockholders dividends.

[Bossman641]

I think it is more of the stigma attached with bankruptcy then anything else.

You might be right, a bankruptcy would be bad pub. But Chrysler already successfully navigated a bankruptcy once before. And begging the gov for money ain't exactly a proud moment.

I think there may be some more tangible reason why GM wants to avoid bankruptcy, perhaps it is the loss of control. Or maybe they WANT to pay their stockholders dividends.

Honestly, I really don't know. I looked around a little bit and all I saw was reference after reference to the lost jobs, warranties, and the fact that bankruptcy would be difficult for such a large operation. Doesn't really cut it for me.

What would follow bankruptcy?
Even if one or more of the Big Three were to file for bankruptcy, it would likely to be under Chapter 11, which allows companies to continue operations as it tries to shed costs, rather than Chapter 7 liquidation.

"They may not be running the business well. But they're still selling a lot of cars," said Lombard. "It's not buggy whips, it's a real business. I don't think any of them are going away."

Instead, most industry experts say that a bankrupt Big Three automaker might shed some of their weaker brands. To that end, GM is already looking to sell its Hummer brand, for example.

However, filing for bankruptcy protection would be a mixed blessing for the Big Three. On the one hand, a bankrupt automaker would have an advantage over its U.S. rivals since it would be able to shed some burdensome costs

However, most auto experts believe a significant percentage of buyers would shy away from an automaker in bankruptcy due to concerns about getting warranty work done on their vehicle.

White House 'very close' to plan for restructuring automakers
By Jim Puzzanghera and Martin Zimmerman | Tribune Washington Bureau
December 19, 2008
WASHINGTON - The White House said yesterday that, instead of a financial bailout, it is considering a so-called prepackaged bankruptcy plan for General Motors and Chrysler, a move that many congressional Republicans favor but the automakers and some analysts say could lead to the companies' collapse.

Bush administration officials, while still weighing their final set of options, were "very close" to a decision, White House spokeswoman Dana Perino said.

The White House, hoping to shield the U.S. economy from more damage, pledged this month to help Detroit stay afloat after Congress deadlocked on a bailout.

But it was clear that time was growing short. Already, GM, Chrysler and Ford have announced drastic steps to cut costs, including idling plants and slowing production - steps that add to the country's immediate economic woes even though they might be necessary to the companies' ultimate survival. Chrysler said Wednesday that it was closing its 30 factories in the U.S. and Canada for at least a month.



In an ordinary prepackaged Chapter 11 bankruptcy, companies meet with creditors and other stakeholders and work out how to restructure debt and make other changes to enable the company to survive. Only then do they go to bankruptcy court, where a judge oversees the execution of the agreed plan.

How that would work on the enormous scale of the domestic auto industry - or whether it would work at all - is not clear. And the arguments have been tinged with politics, ideology and opportunities to advance agendas not directly related to the auto industry, such as weakening or preserving unions.

Each of the big automakers has billions in liabilities, hundreds of creditors and thousands of retirees. Getting all of these parties to agree on a restructuring plan for GM might be impossible without the oversight of a bankruptcy judge, according to Craig Litherland, a bankruptcy specialist with the law firm Gilbert Oshinsky in Austin, Texas.

"I don't see how you can do that in a prepackaged bankruptcy," Litherland said. "With their legacy costs, you have tens of thousands of people who would be affected. Outside of bankruptcy court, how do you negotiate with all of those people? Who speaks for them?"

He also noted that "prepacks" tend to be a better option when the company's prospects are beginning to improve and creditors have a higher degree of confidence that restructuring will succeed.

That's not the case with GM and Chrysler. The U.S. economy is in deep recession, auto sales in November hit their lowest monthly level since 1982, and many analysts expect sales to continue to fall next year.

Supporters said a prepackaged bankruptcy would force restructuring of union contracts and other debt because the judge can void existing agreements.

"Absent such restructuring, we do not believe any amount of money will succeed in saving these companies," seven Republican senators wrote to President George W. Bush this week.

But a prepackaged bankruptcy has risks, as well as costs, for taxpayers.

If the federal government steps in with money to keep the companies operating through the bankruptcy proceedings - and GM and Chrysler say they are nearly out of operating cash now - taxpayers could be spending more than the $14 billion in short-term emergency loans GM and Chrysler are seeking.

Bush said yesterday that he had not decided how to help the automakers, although he has vowed not to let them fail. Many Republicans have been pressuring Bush not to extend loans from the $700 billion financial rescue fund for fear it would set a precedent for helping other troubled industries.

[texaspackerbacker]

The most obvious effect of an automaker bankruptcy would be to terminate union agreements in force that are killing the companies. Having been raised in a UAW/GM household, and living very well that way, I will withhold judgment on whether that's a good thing or bad.