Sunday, November 16, 2008
Bailing out Detroit: The poll
Should we bail out the Detroit Three? Make your views known, and take the poll! I think by now you know how I voted.
13 Comments:
By 
, at
Sun Nov 16, 04:46:00 PM:
Don't institutional investors own most of the stock ? A lot of political influence for a bailout, wouldn't you say ?
Sam W
By 
Purple Avenger, at
Sun Nov 16, 05:30:00 PM:
Depends on the caveats. If its just money to continue screwing up as usual, then no.
By , at
Sun Nov 16, 07:14:00 PM:
Where's the HELL NO choice?
Dave
By , at
Sun Nov 16, 07:30:00 PM:
... after that flip remark, please refer to
http://iraqnow.blogspot.com/2008/11/bail-out-detroit.html
for some sound reasoning.
Dave
By , at
Sun Nov 16, 10:20:00 PM:
No. I'd rather let them go bankrupt, like lots of people who have lost their homes and savings. But: Letting them piss away another $25 Bill might be better than foregoing the $150 Billion we "lose" in taxes. How sound is the latter claim, you finance guys?
By , at
Mon Nov 17, 09:45:00 AM:
The auto bailout will be interesting ... with Barney Frank holding hearings this Wednesday. Barney may be the worst single contributor to the Fannie/Freddie-led subprime debacle, so now he gets the chance to help f*ck-up our biggest domestic industry. Only in government ...
Obama is setting himself up to be the "deux ex machina" ... but where's the business plan. If there is no downsizing, the Big Three will burn through any "bridge loan" in not very long. There needs to be downsizing ... that doesn't mean the industry goes under ... but the industry, both nationally and globally, has overcapacity. We had this issue before the recession ... it will become acute over the next 12 to 18 months. GM's sales in October were down over 40% from the prior October ... which is staggering. Where do these unsold cars go ... dealer inventory?
The UAW is trying to jam us. They're making a big point out of how their most recent deal gave the concession that new hires will be paid half what existing workers get, with fewer benefits, as if that's a good thing.
The inside game at the hearings will be how much Barney cuts off questions about GM's business plan, UAW concessions, and whether a pre-packaged bankruptcy is a viable option to force UAW concessions. My bet is he does what Biden did when Biden chaired the August 2002 hearings on Saddam's having WMD ... not let any legitimate dissident speakers get anywhere near a microphone.
Link
By Viking Kaj, at
Mon Nov 17, 10:23:00 AM:
The two biggest problems for Detroit are the costs of benefits and, as noted above, overcapacity.
The only conceivable road to solving the problem leads right through the UAW which, together with the MEA (teachers) basically control all democratic politics in the State of Michigan.
So what we have here is irresistable force meets immovable object, ie. what needs to be done in terms of getting rid of capacity (jobs) and reforming benefits (read less of them) runs straight into the unions.
With Madame Pelosi already behind this you can bet that a "bailout" is a given. I think it's also safe to say that any bailout sponsored by the democratic party will not solve the inherent structural problems of the US auto industry.
I guess the UAW is as good a beneficiary as the Chicago Outfit when push comes to shove, after all why shouldn't Detroit get a little gravy? Just hold on to your wallets...
By Cardinalpark, at
Mon Nov 17, 10:25:00 AM:
At most, the government should cobble together a DIP financing which is majority led by private participants as each of the car companies enter Chapter 11 and restructure all of their contracts and liabilities _ the equity gets wiped, the debt gets crammed down, and the absurd employee related liabilities get reduced. Everybody gets smoked. then Detroit can reduce its produciton maximizing capacity to profit maximizing levels, and we can stop waxing about how lousy our cars are, which they're not.
I am a proud owner of 2 Jeeps, a Ford 150 and a Ford Mustang. The cars are tremendous. The company's balance sheets are a freaking catastrophe.
The govt should not sustain those balance sheets. It's just kicking the can down the road.
By , at
Mon Nov 17, 07:03:00 PM:
Bill Nelson, in sterling service to his constituents, thinks Detroit should get a bailout, conditioned on three total laughers of conditions: the loans will have "to be repaid" (yeah sure,try to squeeze blood from a rock, Bill, it'll be easier), CAFE standards will go to 40 (hey! It's a definitional problem!) and every single company will need to get new management (who in their right mind would want those jobs?)
By Steve Burri, at
Mon Nov 17, 10:38:00 PM:
The Detroit Big Three. Well, the Lions are beyond help; let them go under. The Pistons and Tigers can make a comeback by themselves; let them alone. (Yeah, yeah... the Redwings, but that makes four and ruins my whole schtick!)
By , at
Wed Nov 19, 09:44:00 AM:
CNBC had a very interesting panel discussion this morning on whether or not bankruptcy would be useful as a means of fixing the domestic auto industry's issues.
Mike Jackson, CEO of AutoNation made several good points: first, the businesses and the unions have made enormous progress is cost parity and are just two years away from cost parity with US transplants. In his estimation, the unions are not the issue with current work rules and costs. No mention of past healthcare costs and pensions. Still, though, that's very worthwhile remembering. Second, inventory management techniques have not penetrated to the supply chain, post-production. As noted elsewhere on this blog in another set of comments on this issue, inventory rules as they apply to dealer stock are archaic. In Jackson's estimation, attacking the cost of the dealer network model of product delivery will improve cost structures and consumer satisfaction. In this day and age, we should be able to get just-in-time delivery of specific product, not wait months for cars we have to special order or be forced to settle for a package and color combination the dealer ordered on spec. Third, liquidity is the issue at present, and the companies specific problems relate entirely to the absence of bank credit.
Jerry York, former CFO of IBM, Chrysler and Vice Chair of Tracinda also made several excellent points: first, these are consumer product companies and forcing them into bankruptcy will, in his estimation, destroy brand value irreparably. Next, he agrees generally with Jackson's points on the dealer network, but believes warranty obligations are being terribly manipulated by dealers, as was also noted elsewhere in a very good comment on this blog, and that system will need drastic reengineering. Lastly, he believes that Chrysler is very much in need of a foreign partner, specifically a company will huge exposure to developing markets needing a North American entrée. Chrysler is almost entirely a North Am. company in sales, a regional company in a world-wide market, and will forever be more at risk economically than fellow producers with worldwide distribution.
None of the three participants in the CNBC panel wanted standard bankruptcy treatment for these companies, nor believed that treatment would be of benefit to the public. Yet, all of them were calling for various benefits of bankruptcy as a means of fixing some legacy structural ills of this relatively elderly industry, one burdened with practices and cultures built up layer upon layer for one hundred years.
In some ways there is no greater lesson of the creative destruction concept inherent in capitalism, and in economic activity generally as progress marches on, than to examine the plight of these three companies. Larry Bossidy argued for a special "conservator ship" sort of concept, though he didn't articulate it exactly this way, that would essentially offer the auto companies the virtues of bankruptcy "washing away of sins", along with the disciplines of a private equity sort of relentless reexamination of business practices and plans. He thought a Board of Overseers composed of men like Jerry York and Roger Penske would be good stewards of such an approach. I respect Roger Penske, and in another life helped in financing several of his businesses, including his Detroit Diesel deal, so I can appreciate why Bossidy would suggest this sort of an approach. But Roger is retired, actively so, and Jerry York is elderly. The "conservator ship" concepts Bossidy was pushing sound very much to me like what Bill Ackerman's idea for Fannie and Freddie earlier in this crisis, eons ago in September. I'd suggest him in addition to Penske and York and others, if this concept gains any traction.
If the CNBC "auto industry panel" segment from earlier today becomes available on line I'll try to link it, because there was much in it that was thought provoking.
By , at
Wed Nov 19, 09:56:00 AM:
Another note to my already overly long comment just preceding: all of these men believe public financing of some sort is necessary. But my impression was that the financing part of the discussion is relatively secondary in long-term importance, though the very pressing immediate issue because of the dearth of private equity and bank financing. My personal bet would be that if a "bankruptcy-like" conservatorship bill could pass Congress that could be used as a vehicle for achieving the benefits of a filing without forcing these enormous companies into a court system wholly unprepared and unable to deal with such a mess, then private financing might actually emerge (though, in the spirit of the age, I'm sure everyone would clamor for some sort of government guarantee of some amount). No crisis such be wasted, quoting our new overlords from Chicago, and this could be a very salutary "Baptist" sort of process for this industry, i.e. a rebirth.
By , at
Wed Nov 19, 09:57:00 AM:
"No crisis such be wasted" is really "No crisis SHOULD be wasted". Sorry.
