Should the government bail-out include domestic automakers?

[David Fermani]

Originally Posted by jfelbab

You all seem to assume that they will go down for the count if not bailed out. More likely they would file for Chapter 11 protection and continue operating. This would give them the ability to renegotiate all their supplier and employee contracts as well as restructure their debt. This most likely would result in a reduced size but they would continue in a restructured and quite possibly a more economical manner. This doesn't mean that they would not be in business at all. It means smaller, leaner and hopefully on a competitive basis with the imports. I'm against this bailout.

The parts I highlighted will have a major effect on the economy because everything you mentioned equates to significant job losses. They've been trying to lean out for years. I've lost count of the number of Tier suppliers that have gone out of business because their contracts were cancelled(or "renegotiated") without pay. Over the last few years I've already experienced countless instances where the parts that were manufacturered through suppliers were no longer available because that supplier went out of business. Try buying a frame for a Chevy SSR. You can't. The supplier that produced them went out of business. If you own one of these vehicles and need a part, you're screwed. Not to mention all the contract people in place at both the OEM and suppliers that took the knife 1st. Reduced size also means 100's of dealerships closing too. Ford is planning on discontinuing the Mercury brand and merging Ford & Lincoln together at 1 dealership just to be smaller. That's going to affect people in many ways as well. Sorry to sound all gloom and doom, but the auto industry is a vital part of the country, if not the world as a whole.

[David Fermani]

Originally Posted by DaGonz

The fat cats who run the companies should bite the bullet and take a salary no more than the average worker. Someone who makes $16.5 million a year can afford it... when Lee Iacocca went to the feds for loan to save Chrysler in the mid 70's he took a salary of $1 a year.

I totally agree. Lee Iacocca saved Chrysler from bankruptcy by bringing over the Caravan concept he created at Ford. That man deserved every penny he got after that. I wish every CEO's salary could be dependent only on their company's success after properly caring for their employee 1st.

[Setec Astronomy]

Originally Posted by Yal

These companies were/are run by the same people that were there when oil went scarce in the 70's but less than two decades later they did the same thing all over again...

That's just not true...the 70's were 30 years ago, man...GM has been thru, what, 4 CEO's since the 70's? The guys today didn't do the same thing all over again...they did it MUCH WORSE. GM's initial response to the '73 oil embargo was excellent, they downsized the full-sized cars in '77 (The New Chevrolet) and the A-Bodies in '78. New Riv/Toro/Eldo in '79, X-car in '80...they had their whole fleet trimmed down and switched over to FWD by '86-'86 and those were good cars, decently sized inside and out, ran good by that time (off of the MCC carbs)...then gas stopped going up and it all went to crap, until the cars are just as big and thirsty as 30 years ago.

[Setec Astronomy]

Originally Posted by David Fermani

Sorry to sound all gloom and doom, but the auto industry is a vital part of the country, if not the world as a whole.

"As goes General Motors, so goes the nation"

[MotorCity]

Originally Posted by jfelbab

You all seem to assume that they will go down for the count if not bailed out. More likely they would file for Chapter 11 protection and continue operating. This would give them the ability to renegotiate all their supplier and employee contracts as well as restructure their debt. This most likely would result in a reduced size but they would continue in a restructured and quite possibly a more economical manner. This doesn't mean that they would not be in business at all. It means smaller, leaner and hopefully on a competitive basis with the imports. I'm against this bailout.

If they (OEM's) renegotiate our contracts (Suppliers) many suppliers will pass on the unprofitable business (especially at the reduced volumes)

If any of the big three fold, MANY companies in their supply base will fold as well.. Here's the kicker, those suppliers also supply to other OEM's (foriegn OEM's included) so this will not only hurt the OEM that folds but all others they supply to..

OE's and Suppliers are VERY lean right now. As David eluded to the OE's used to be fat Currently, janitorial positions and other "non production" jobs are no longer done by Union employee's but contracted out. The low hanging friut and fat has been trimmed.. Very few plant closures (if any) are even possible at this point.. The acceptable amount of lay-off's and closures have already been done or soon to be done

You used to be able to walk around an OE assembly plant and see people screwing off NOT ANYMORE, OEM assy plants are like ghost towns compared to what they used to be like.. QUite honestly everyone is doing "more with less" and if you are not on the line you are not there with the union.

As for if the OEM's declare Chapt 11 meaning they are not out of business, this is true BUT how many people will buy a sizeable depreciating investment, which for most is the 2nd largest expense they undertake from a company that is in Chapt 11.. NOT MANY... This is not like an airline declaring chapter 11 when you are just buying a ticket.. This is more like buying the airplane!

When the fed's previously bailed out Chrysler they did so very smart and asked for things such as a 3 year business plan, concessions, stock etc and in the end MADE a SIZEABLE amount of money in return (I think $500M).

Union labor contracts have been renegotiated and will really start benefiting the OE's here within a couple years so, many of the legacy costs associated with poor OEM contracts with the union will be a thing of the past (for the most part, excluding job banks but thats another story)

I do not agree with the greed of the leaders of these organizations and I think accountability should be held to at that level BUT to let the industry crumble will have effects that I think MANY have no idea.. Bite off your nose to spite your face

[wytstang]

Originally Posted by salty

Does anyone have a list of the companies that have asked or did receive a bailout recently.

Paul Harvey on the radio yesterday said AIG is asking or received? another 40 billion, to make it 100 billion total, while all the big wigs were caught at a fancy resort, lying about who they worked for.

So far that 700 billion is now 5 Trillion
AIG-150 billion
Big 3-75 billion
GE-100 billion (I think I can't remember there exact # but was shocked they "need" help)
BTW Congress passed a bill banning incandescent light bulbs by the yr 2014. CFL lights will be the only ones sold in the U.S...........there are now U.S made CFL and all come from China. Thank you Congress
YouTube - IMPORTANT INFORMATION ABOUT ENERGY SAVER LIGHT BULBS!

[Setec Astronomy]

Originally Posted by wytstang

So far that 700 billion is now 5 Trillion
AIG-150 billion
Big 3-75 billion
GE-100 billion

I may be rusty at addition, but even my calculator says 700+150+75+100= 1.025 trillion, not 5 trillion.

[wytstang]

No the wall street bail out WAS 700 billion it is now 5 Trillion.
YouTube - BAILOUT: 850 Billion? Try FIVE TRILLION!

[Setec Astronomy]

Originally Posted by wytstang

No the wall street bail out WAS 700 billion it is now 5 Trillion.

When did that happen?

[wytstang]

Post updated, I heard it last night on the way home I darn near cried.

[soccerjunky]

Remember in 2005 when GM had a 35 billion surplus

This will come across as rocket science. But I will give it a try. Say you have a $200B/yr revenue company. With a average return on sales of 1-1.5%. What happens if sales drop 20-30% with no decrease in operating costs. Big losses, right?

The auto industry has been a very low return on sales industry. That is why it is risky business. Huge capital costs. Huge revenue and huge operating costs. All with little return on investment or revenue. Changes in the range of 1-2% are huge. The last 6 months with 20-30% sales reductions is unprecedented in history. The 1970's or depression era do not come close. Do not underestimate how significant it is in an industry that needs to operate above 90% of capacity to make a return on investment, when the industry as a whole is operating below 70% of capacity (12M/yr vs 18-19M/yr capacity in the US). The only way to recover is to increase sales dramatically or shed capacity. And with an average of a 4 year product development cycle a quick change in products to meet a rapidly changing market cannot happen.

So why the sudden change. You may think the fuel cost increase. Yes, that accounts for some 5-10%, mostly toward the US industry which had tooled for the higher rate of return SUV and truck market. But the other 20% drop is due directly to the lack of credit in a credit intensive business. Everyone needs credit. The dealers to purchase cars for their inventory, customers to lease or buy cars and the auto industry itself to provide ongoing captal for future products.

You can attack the US auto industry for pursuing the higher rate of return SUV and trucks. But that is what the market was demanding. Remember, demand is from the customers. Four years ago, when the 2009 product line was just in the concept stage fuel prices were low and customer demand was for big vehicles. Chrysler stopped the Neon line because of low demand and profit for a small car. And it was not just the US industry. Toyota moved into the full sized truck market and a plethora of SUV's came onto the market. From each area of the globe. The big difference is that the foreign companies have major market shares in countries where smaller sized cars remained the norm. That allowed them to keep in the small car market even though the US market demand was not there, and made a product mix change possible. Note it takes half as long to retool for different cars than to come out with a new design.

I do not expect many outside of the industry to understand what really occurs. But the protection other countries provide, either trade protection like China, Japan and Brazil, or tax based protection like Europe and Japan, shields them from market changes here in the US moreso than local industry. Our tax differences are on the order of 10-20% more than other industrial countries when you include social security, unemployment and health care expenses on top the the average 39.5% tax that is paid in the US (I include those on top of the tax as in most industrial countries those are paid out of the general fund and not from the employers after tax). Note also the 50% duty in China on average and 40% in Brazil on average. Pretty big barriers to exportation to those countries.

So sorry to try to bring some facts to the auto industry bashing party. But given that the US auto industry provides about 5% of the GNP directly, and significantly more indirectly, the loss of the industry will be felt by everyone, everywhere. And that is without a major war where the auto industry manufacturing war production was a decisive difference in WWII. Next time it will be the other guys with that advantage.

[Inzane]

Originally Posted by soccerjunky

The only way to recover is to increase sales dramatically or shed capacity.

The only way to dramatically increase domestic auto sales is for them to start making better and more desirable cars. You can deep-discount junk all you want and some people still wouldn't buy. (eg. I don't care how cheap you make a cavalier to buy... I'd still never want to own one).