Huge loss leaves GM almost out of cash
money.cnn.com
money.cnn.com
Or we could let GM fail, and invest that same money in energy and biotech. Many would lose their jobs, but many more would get new jobs. These would be higher paying jobs, but also higher skilled jobs.
Lets not act like these loans are free. We should keep in mind that every dollar we loan to GM is a dollar we don't loan or invest in something else.
This seems obvious, but it makes the most sense to give money to groups that produce good results. I'm not sure what the logic is behind giving money to companies that fail to produce good results. I understand the emotion, but not the logic.
That being said, I'm not in favor of any government bailouts. Removing risk from the market is a big part of what got us to this point.
Even in years when the economy gains jobs on net, millions of jobs are destroyed and created. That's how progress happens. This used to be a country where over 90% of the population worked in agriculture, after all.
Also, it should be noted that this is not the first bailout for US automakers. It is unlikely to be the last. We will have our own automakers that are wards of the state, producing cars that nobody wants to buy, just like Soviet Russia and Socialist India before us.
Don't pretend this is true, because it isn't, and to say otherwise is to be complicit in covering up a problem that's way bigger than whether or not we throw a couple bucks at GM.
The fact is that GM will never be profitable in the future because its labor costs are so much higher. Does anyone think GM can become 3x as efficient as Honda, Toyota, etc.? It's a credit to American ingenuity that they've held on for this long.
Many people like the idea of institutionalizing things. Like, I've done this and I work hard, therefore I should be set. That happens a lot in Europe (although it's lessening as EU laws become more competition-friendly). It sounds great and works for a while, but then this happens and you're left with two options: the poor-house or convincing people actually producing value to support you in a welfare-with-pride sense.
The problem is that life changes. GM agreed to contracts with provisions like offering x% of salary for the rest of an employee's life as well as covering their healthcare. Well, that was fine until Americans started living longer and that became a ton more money. On top of that, we have decided that it is inhumane to deny someone even the most cutting edge health care. That's fine, except that it means health care providers can charge anything they want since it's a violation of rights to deny it. No matter how marginally effective, no matter what the cost, people should get it. I'm not saying this is bad. I'm saying that it's ridiculously expensive and that it used to be more acceptable for people not to have access to the most cutting edge health care. In fact, it's the mark of a successful society that people want to continue living so much!
So, GM has agreed to those and it's way more than they budgeted and put away for. Not only that, it's likely to raise way faster than inflation as people shift spending to things like health (from consumer items which haven't spiked as much in price) and live longer. No one in their right mind would buy into that.
What will most likely happen: GM will file for bankruptcy. A lot of its labor contracts will be nullified. Someone will buy GM sans the labor contracts.
Time to start producing the kind and amount of cars the market demands, not the kind and amount agreed to in the last union contract renegotiation.
I kind of hope the bailout doesn't happen and the "big 3" are split up and sold off into many smaller, more innovative car companies like the early days of car manufacture.
General Motors, like all US car companies, has been content to survive off of government subsidy, and has been so intransigent that they successfully fought back all attempts to force them to create modern products, improve fuel efficiency, or otherwise invest in research and development. Now that the market has shifted from beneath them, the management is whining that they can't create new products fast enough to meet the "unanticipated" change in demand. They think they deserve new subsidies to rescue them from the consequences of their own bad decisions.
The UAW can be greedy, and has certainly played a role in this, but I'm not eager to blame the auto workers for wanting to be paid a living wage when the management team has been systematically destroying the company around them.
The rest of the 'loss' was simply a change in the accounting rules regarding how they valued pension and healthcare liabilities. So if you consider that $40-billion-or-so accounting change to be a loss, it was actually an accrued loss over a long period of time that was simply reported all at once.
On the more general topic: I'm not a fan of bailing out companies either, but one has to be pragmatic and consider whether letting such a huge part of the nation's workforce become unemployed in an already-bad economy is wise.
I think the better solution would be to let the companies go bankrupt, then create a massive program to retrain and re-employ the workers elsewhere (with unemployment pay contingent on showing up at training). The companies would eventually emerge from bankruptcy much smaller and healthier. This would allow them to focus on their electric car initiatives, and it would also allow them to fail without such dire consequences should they do so in the future.
A lot of "foreign" cars are already built here anyway, let Toyota snap up the GM factories, reemploy their workers, and lets move on.
The downside is that there are a lot of GM pensions out there, but if the government won't let GM fail because of the pensions, maybe the government should just take over the pensions and let this dinosaur die. How much more money would we have to spend to prop up this failing company again and again when all we really want to do is make sure a bunch of retirees don't go bankrupt?
Why would Toyota buy GM's factories? Retooling them for a completely different line of cars probably doesn't make sense, and I doubt Toyota would be interested in selling most of what GM has today.
I don't think there is an obvious solution.
What gives me pause is how much damage a GM bankruptcy will inflict. The auto industry represents about a third of the US manufacturing industry. If GM (or Chrysler) goes down, it may take everyone else with them. The job losses would be unbelievable. I don't really want to contemplate what the economy will look like after construction, finance, and manufacturing have all been wiped out.
Fixing any one of those problems leaves all the rest. GM is facing downward pressure on production costs (among everything else) and the unions stand in the way. You can't blame the unions for trying, but as a disinterested bystander you have to wonder why GM wasn't firmer in their bargaining -- everybody's losing now.
When you sell nearly ten million of your products each year, and each one costs maybe $20,000, you definitively do not have a sales problem. You have some other problem instead.
Wow.
The Chevrolet Volt, first unveiled in 2007 and probably under development since 05-06, isn't expected to start selling until 2011.
By then, it'll probably be too late.
It's hard. Battery technology has not been cooperating. If electric cars are your last-ditch hope to survive, you're just dead.
Imagine the quality of electric cars they would be making today if they had kept the EV1 project going.
But that is what a good part of corporate America. While Toyota was developing the Prius to be able to comply with the California 0 emissions mandate. GM had their lobbyists trying to change the law.
Lobbyists succeeded, GM failed.
The Volt (and cars like it from other companies) is possible now because battery technology is finally hitting that tipping point... the question is whether GM can survive long enough to get it out the door and to paying customers.
Really, GM's US-based product lineup is pretty good at the moment (and don't forget, they still make the top-selling car in Europe). I'd be happy with an Astra, a Malibu, a Cadillac CTS, a Camaro, a G8 or a Corvette, and the cars I mentioned would be near the top of my list if I were actually car shopping in any of those market segments at the moment. How many other car companies have competitive entries in so many market segments? Even Toyota doesn't have a decent sports car any more.
Product is no longer the problem (though it was ten or even five years ago). The problem is idiotic liabilities.
It's obvious that we don't want millions of people driving their children around in dirty, unsafe cars, but there was a lower testing / R&D burden for small companies (consider companies like http://www.arielmotor.co.uk/ in the UK), there would be a lot more opportunities for the fresh design the US industry needs, along with the manufacturing to support it.
If the manufacturing industry that would support low volumes was built, it would be possible for the larger automakers to leverage those lines for JIT production of vehicles people want -- one of the big things Toyota has over the US domestics.
Unfortunately I think this solution sits in the land of car-fan fairy tale -- the left wouldn't want it because it would relax eco concerns, and the right wouldn't want it because it would possibly restrict how much the larger automakers could take advantage of (low volumes, again).
http://en.wikipedia.org/wiki/Hummer#Criticisms
Why are you going to bail them out and not the good tech startups? Or the sane VC, you know, the guys who risk money on new ideas that benefit the whole world economy.
Judging how it is going with banks, this won't work for workers. The interest rates are not passed down to mortgages and I bet the GM bailout won't save that many jobs. Also remember what happened with the airlines bailout on 2001/2, they fired a lot of employees anyway.
It's not just the US - the EU's bank bailout was about 3x as large.
The loan problem was a US govt idea - encourage banks to make loans to folks who didn't qualify under normal standards (including punishing banks that didn't do so) and have two huge govt sponsored enterprises (Fannie Mae and Freddie Mac) buy many of them and "create a market".
Which is where the EU got involved - EU banks and govts bought those loans too.
Pension obligations are more brutal than most workers realize; the city of San Diego has had massive financial problems because of that too. It's usually dismissed by young employees (rationally), but it shows up on the supporting organization's balance sheet in a big way.
And as far as future earnings go: gas prices shot up for enough consecutive summers that consumers finally adapted; the demand curve shifted. Gas prices have dropped recently, but consumer preferences have already changed, and economic concerns still aren't making SUVs and big trucks any more financially attractive.
In short, investors are saying that GM should be stripped and sold for parts.
this is why software companies which have very low capital expenditures have very high market value, since software companies are most of the time very profitable (Microsoft)
Instead of pissing away billions on a crappy Chrysler brand that has been passed like a hot potato from one brand to the next, invest that money into getting the Volt out to the public sooner. Invest that money into expanding the line up to a whole line of Volt vehicles, Volt Sedan, Volt Convertible, Volt Pickup, Volt small SUV. Then spend some more cash to update the current models the new Camaro/Volt front/rear end.
So to summarize, they are doing exactly what you said.
Part of my problem is that I actually believe the Volt would be great thing for them, so I look at their current problems and think: "if they can just last until the Volt comes out, they will make it".
I realize that makes me a bit of a Pollyanna.