Obama wants $50 Billion for 'Big 3' Automakers

[Regis Philbin]

When will it stop? They are going to put the U.S. taxpayer on the hook for every mismanaged company out there.

Unions and unfunded government regulations did in "Big Auto". They made it impossible for them to compete.

http://www.bloomberg.com/apps/news?pid=washingtonstory&sid=aBlCucXR33Jw

Obama Pushes for $50 Billion for Automakers, Oversight Czar

By Matthew Benjamin and Julianna Goldman

Nov. 13 (Bloomberg) -- President-elect Barack Obama is pushing Congress this year to approve as much as $50 billion to save cash-starved U.S. automakers and appoint a czar or board to oversee the companies, a move that would require President George W. Bush's support, people familiar with the matter said.

Obama's economic advisers are now convinced that if General Motors Corp. doesn't get a financial lifeline soon, it will have to file for bankruptcy by the end of January. And if the companies don't get almost $50 billion, Obama will be dealing with the issue again by next summer.

Any czar or board would be patterned after the bailout of Chrysler in 1979 and New York City in 1975. Advisers such as former Federal Reserve Chairman Paul Volcker and former Treasury Secretary Lawrence Summers are said to be telling Obama that the cash is urgently needed now.

[Richard Tafoya]

No, a bone-headed reliance on low-MPG vehicles that sent American consumers en masse to Honda, Toyota, Hyundai and Nissan to get affordable, fuel-efficient, long-lasting alternatives created their problems.

[Annoyedlistner]

When will it stop? They are going to put the U.S. taxpayer on the hook for every mismanaged company out there.

Unions and unfunded government regulations did in "Big Auto". They made it impossible for them to compete.

http://www.bloomberg.com/apps/news?pid=washingtonstory&sid=aBlCucXR33Jw

And what happens when GM shuts its doors? Nearly 1 million people will be in the unemployment line when that happens.

I know you dont care about anyone but yourself, but this would drastically effect the US economy.

[tiger_rascal]

I dont know what to think about all this buy out stuff. On the one hand I see how it might help, but then again, I dont think its going to help like they say it will.

For example, Joey just mentioned if they shut their doors millions of people will be without a job. But, if they are bought out and taxpayers pay for it, how are we supposed to afford new cars and make this buyout worthwhile.

STOP the buyouts!!!

[Richard Tafoya]

The main issue at hand with US automakers is that a collapse there will have a downstream effect on millions of jobs that depend on the US auto industry. All the companies that supply parts to the US auto industry are in peril here.

So doing nothing could very likely put over a million Americans out of work, which is a critically bad situation that everyone wants to avoid.

[tiger_rascal]

And if the plan fails?

[Murrican]

Actually, a bankrupcty of Chrysler might be survivable, but a bankruptcy of Ford or GM would be devastating for entire US economy. The figure of 2.5 million jobs being lost is only the direct and indirect supplier jobs being counted. Every city with any plant would be hammered, steel plants would be hammered, railways, etc. Unemployment benefit costs would skyrocket and a depression would be fully triggered.

All three have massively re-organized over the past decade and produce amazing vehicles, of all sizes, and exactly what the public wanted until oil went through the roof in the first half of the year and then the credit markets collapsed in September and October. Millions fewer cars will be sold this year in the US market and those sales losses are killing the turnaround plans of the Big Three.

This is an important investment in America's future, and it's not protectionism. Loan them $50 billion against a special stock issue so there is government equity in their ownership. Sell that stock in 10 years and the government will have profit. In the meantime, jobs will be saved, America's industrial capabilities will be preserved, and likely GM and Chrysler will merge down the road.

This was really triggered by the oil jump, but the credit crunch delivered the coup de grace which stopped sales fast. Even Toyota, Nissan and Honda rae being hammered by this. And, remember, GM sells more high mpg cars, and offers more of them, than Toyota. Toyota has turned to selling more Lexus models and big trucks and SUVs to chase the same dollars which have kept GM and Ford alive as they re-organized their businesses.

Outside of the US, GM is on a roll. First company to sell a million cars in China. Big action and a new plant in Russia. New cars and plants in India. Loan the money and let the Big Three survive at home...

The other advantage of these bail-outs is they lower the value of the US dollar and that raises costs of imported products, makes US exports cheaper, and keeps jobs here. Bush has lowered the dollar intentionally over the past few years to stem the outflow of jobs and inflow of imports, and it has worked.

[Murrican]

http://money.cnn.com/2008/11/14/autos/auto_failure_ripple_effect/index.htm?postversion=2008111412

GM failure: The shockwave

If General Motors declares bankruptcy, industry watchers say, the entire domestic auto industry could be badly hurt.

By Peter Valdes-Dapena, CNNMoney.com senior writer
Last Updated: November 14, 2008: 12:36 PM ET

NEW YORK (CNNMoney.com) -- If General Motors really does run out of money by the end of the year, as it predicted was possible, the impact would be felt far and wide - to hundreds of suppliers, rival automakers and ultimately dealers across the nation.

"Once the first domino falls, it rapidly takes out all the other dominoes," said Dennis Virag, president of the Automotive Consulting Group.

Suppliers would be among the first to feel those effects since GM only manufactures the body, the engine and the transmission used in its cars.

In the United States alone, GM spends $31 billion on parts from 2,100 different suppliers. These include the "direct suppliers" involved in producing a vehicle - those that provide everything from steering wheels and seatbelts to brakes and airbags - as well as "indirect suppliers" - those that make things such as gloves, protective eyewear, shop rags and lightbulbs.

Although lawmakers appear to be souring on providing a $25 billion bailout to automakers, the impact of a GM failure on the industry as a whole - and therefore the economy as a whole - is weighing heavily in their decisions.

So far this year, 23 major auto-related companies, most of them parts suppliers, have filed for bankruptcy, according to consulting firm Grant Thornton. They are struggling since car makers have cut back as sales have slowed and raw-material prices have risen.

"I would argue that in today's environment, with the stress that's already on the supply base, they can't take another hit," said Kimberly Rodriguez, a principal at Grant Thornton's automotive practice. "The ripple effect would be huge," she added.

[Murrican]

http://gmfactsandfiction.com/

This GM public relations website does a great deal to help address the fictions we see repeated above by uninformed people who think they know something about the car industry.

Let Congress know you support the auto industry.

From GM:

What happens to the U.S. auto industry matters on Main Street.

From plants to parks. From dealerships to driveways. From gas stations to grocery stores. What happens in the automotive industry affects each and every one of us. In fact, the collapse of the U.S.-based auto industry wouldn't just impact the more than 239,000 Americans directly employed by the Big Three. One out of every 10 people in America is employed in a service that is related to the U.S. auto industry. If a plant closes, so does its suppliers, the local stores, the hot dog vendors, and the local restaurants.

The effect would be devastating in ways of which you never have thought:


Nearly 3 million jobs would be lost in the first year alone – with another 2.5 million to follow over the next two years
Personal income in the United States would drop by more than $150.7 billion in the first year
The cost to local, state, and federal governments could reach $156.4 billion over three years in lost taxes, and unemployment and health care assistance
Domestic automobile production would more than likely fall to zero – even by international producers, due to supplier bankruptcies

The credit crisis that is affecting us all is wounding the U.S. auto industry in many different ways. Carmakers can’t get loans to restructure and to produce new advanced technology vehicles. Suppliers and dealers can’t get loans for routine business, and customers can’t get loans for new cars.

Myth: GM doesn’t make cars that people want to buy

Fact: GM cars and trucks have improved significantly over the past decade. Critics are taking note, and customers are responding.

In 2007, the Saturn Aura and Chevy Silverado won North American Car and Truck of the year.

In 2008, the Chevy Malibu was named North American Car of the Year, The Cadillac CTS was Motor Trend’s 2008 Car of the Year.

Customers have responded just as enthusiastically as the critics. Although total U.S. vehicle sales are down almost 13% so far this year, a number of GM cars and crossovers have enjoyed significant sales increases:

Saturn Vue +5%
Chevy Cobalt +6%
Pontiac G6 + 8%
GMC Acadia +8%
Saturn Aura +10%
Cadillac CTS +25%
Chevy Malibu +36%
Pontiac Vibe +39%
Buick Enclave +124%

[Richard Tafoya]

NY Times:
http://www.nytimes.com/2008/10/26/business/26jane.html?_r=1&oref=slogin
GENERAL MOTORS lived off its S.U.V.’s and pickup trucks since they were introduced, and made one last, huge investment in new models that hit the market two years ago.

In fact, the company accelerated development of those vehicles to offset otherwise shrinking revenue.

But in retrospect, G.M. made one bet too many on the market for S.U.V.’s., whose sales have tumbled more than 30 percent this year and have been in decline since 2004. All of the Big Three have had to close plants, lay off thousands of workers and take substantial charges to cover the declining value of S.U.V.’s coming back to dealers from expired leases.

...

“They told us it would never end, that it was a recession-proof vehicle and we’d never be able to build enough of them,” said Daryl Klemp, who was hired in 1995, when sales of S.U.V.’s were booming. He has been laid off since August, and he spends his days on his farm wondering how it all went wrong.

...

More important, G.M. was earning an estimated $10,000 to $15,000 on every big S.U.V. it sold. In contrast, G.M. admittedly lost money on most of its passenger cars. But even as its share of the car market continued to decline, the profits from big sport utilities flooded in.

...

“In the 1990s, G.M.’s North American operations were very profitable only because of those big vehicles,” Mr. Casesa, the auto analyst, said. “That was how they stayed alive.”

Yet by focusing so heavily on bigger products for so many years, G.M. put off investing in cars that consumers want now. The company is also struggling to dismantle the truck-making infrastructure it had so diligently erected.

[Murrican]

As usual, the NY Times article is very misleading.

It's also out-of-date, printed on October 25th. That's an eon, in this economy. Since then, the drop in gas prices has revitalized truck and SUV sales. see: http://wheels.blogs.nytimes.com/2008/11/12/with-lower-gas-prices-truck-sales-rebound-but-its-complicated/?hp So the credibility of this single-focus article is losing its stinger, while it missed the full story.

It doesn't mention that GM's pension and health costs are enormous and on paper that means they "lose" money on some US models that sell well.

It doesn't mention that GM has done much to deal structurally with these costs and has turned the corner. New employees will start at $14 or $15 an hour rather than $25 or $30. Employee buy-outs negotiated months ago are starting to kick in, but not immediately. These will save money that will help save other jobs.

It doesn't mention that the demand for SUVs was so high that Toyota and Nissan and BMW and Mercedes all opened SUV factories in the US -- but their costs are less due to being non-union and paying less per hour and not paying for health benefits.

It doesn't mention that GM sells more "cars" than any other manufacturer in the world and has since the 1920s, until 2008 when gas prices and credit crunches crushed sales. In 2008, Toyota will sell more cars than GM, the first car company to surppass GM since GM passed Ford in the 1920s.

Meanwhile, Toyota is faring little better in sales...

Toyota Motor Q2 profit down 69%; trims FY09 forecast

Thu. November 06, 2008; Posted: 04:42 AM

(RTTNews) - Thursday, Japanese automaker Toyota Motor Corp. reported a sharp decline in second-quarter profit, hurt by lower vehicle production and sales, mainly in North America and Europe. Further, the company slashed its fiscal 2009 forecast for profit and revenues, citing continued deterioration in market conditions.

Recently, General Motors, Ford Motor and Toyota had reported 45%, 30.2% and 23% drop in October U.S. sales, respectively, reflecting weakening economy, tight credit conditions and cautious consumer response that weighed heavily on the sector.

Toyota's total automotive production in the second quarter was 1.95 million units, lower than 2.00 million units recorded last year. Japanese production increased to 1.198 million units from prior year's 1.190 million units, while North American production fell to 236,766 units from prior year's 305,656 units.

http://www.tradingmarkets.com/.site/news/TOP%20STORY/1999625/

[SparkleHugs]

Reg, keep in mind that your President and your Republican members of Congress all voted for the bailout, just as much as the democrats did.

This was a bipartisian bailout. If anyone of those companies should get a bailout, it should be the automakers...provided they go along with certain rules on production (start making more economical cars people will buy).

if we give AIG another dollar however, i think everyone should be impeached! :blueek:

[Whoda Thunk?]

Chrysler is asking the government for a bailout. It's laying off employees and cutting salaries. It's a company in trouble.

Oh yeah, it's also paying $30 million in bonuses to dozens of top executives.

That's the end result of a poorly-timed plan to keep Chrysler together as it was being sold. The company didn't want top executives to leave during the transition, so it promised big money for people who stuck around. Now, Chrysler is asking the government for billions of dollars in aid while it writes million-dollar bonus checks out to A-list employees. How's that for awkward?

In Chrysler's defense, this bonus plan was created in April of 2007. The company had no idea that its industry was headed for collapse, or that the executives it was desperate to keep might have a hard time finding employment at a Jiffy Lube at this point.

http://blogs.moneycentral.msn.com/topstocks/archive/2008/11/14/chrysler-gives-bonuses-asks-for-bailout.aspx


This is my problem with the bailout if some SERIOUS restrictions aren't imposed. They are on the verge of losing their jobs- there aren't going to be any other jobs in this industry available. What is better? A scaled back lifestyle in return for the gov't bailing you out of where greed got you or no job at all?

It's time for American auto workers to snap back to reality and realize they need to suck it up like the rest of us have had to do. Take a pay cut, find a way to make cars we NEED and stop giving the people at the top even more money for running the companies into the ground.

[Murrican]

http://www.reportonbusiness.com/servlet/story/RTGAM.20081117.wrchrysler17/BNStory/Business/home

EDC's Chrysler action signals growing fears

Agency declines to take new requests from parts makers to insure receivables

GREG KEENAN

From Monday's Globe and Mail

November 17, 2008 at 1:26 AM EST

The federal government's Export Development Canada is refusing any new requests by auto parts makers to insure receivables due from Chrysler LLC, a sign that fears of a potential bankruptcy are growing.

“Obviously the risks are higher,” EDC spokesman Phil Taylor said, so the Crown corporation is no longer providing receivables insurance to new clients or increasing such insurance with existing Chrysler suppliers.

It's still business as usual with suppliers wanting to insure receivables with Ford Motor Co. and General Motors Corp., Mr. Taylor said.

The EDC's move is a sign that fears are growing even among groups that aren't directly involved in the auto industry.

It comes amid a growing cash crunch at the Detroit Three auto makers that has led the companies to seek at least $25-billion (U.S.) in emergency aid from the U.S. government and sparked fears of a bankruptcy filing by one or all of them that would also cause a cascading collapse among auto parts makers.

“This cascading effect is very real,” said Patrick Dreisig, a lawyer who leads the automotive practice at Butzel Long, a law firm in Bloomfield Hills, Mich.

When insurers “begin to lose confidence in the receivables that really are forming the basis for the credit lines, it can be considered maybe the first crack in the dike as to how this industry is going to be able to function.”

[Murrican]

It's worth noting more cars/trucks are currently built in Ontario (population: 12 million, immediately east of Michigan, and immediately north of Ohio, Pennsylvania and New York states) than in Michigan ( see: Ontario eclipses Michigan in auto production http://www.detnews.com/2005/autosinsider/0507/17/autos-249603.htm ), any other US state, or any other province or state-equivalent in world (e.g. Japan = prefecture). In Ontario, you'll find plants making Chryslers, Chevrolets/Pontiacs/Buicks, GMCs, Volkswagens, Suzukis, Hondas, Toyotas, Fords, etc. The Ontario auto industry goes back as far as the US auto industry, with early Canadian makers gobbled up by US companies. The auto industry in Ontario is highly integrated with US industry in Michigan, New York and Ohio, with parts and partially assembled components going back and forth across the borders duty-free since 1965 (US-Canada Auto Pact) and a strike in any of these jurisdictions hurting production in the others. These four taken together still dominate auto production in the world -- producing over 7 million vehicles last year, nearly half the world's production.

http://www.reportonbusiness.com/servlet/story/RTGAM.20081114.wclement1115/BNStory/Business

Canada considers joint auto bailout with U.S.

STEVEN CHASE and KAREN HOWLETT AND GREG KEENAN

From Saturday's Globe and Mail

November 14, 2008 at 8:10 PM EST

WINNIPEG AND TORONTO — Federal Industry Minister Tony Clement said Friday he was investigating the feasibility of a joint Canada-U.S. bailout of the auto industry.

“That's the $64 question, or something slightly higher than $64,” he said during a Conservative Party policy convention in Winnipeg. His comments came amid brewing fears that U.S. president-elect Barack Obama will force the Detroit Three auto makers to repatriate jobs by pulling production out of Canada and Mexico in return for American financial aid.

Mr. Clement said he was looking at setting up “direct information-gathering meetings in both Detroit and Washington, D.C., in the upcoming few days” to probe whether a joint bailout would work. “One of the things I want to do in my information gathering is to see how viable that theory is because people talk about … the need to have an integrated solution,” Mr. Clement said. “From a theoretical point of view that makes sense, but how viable is it? When you drill down on that, what exactly does that mean?” he said.

The Harper government is coming under mounting pressure to provide financial support to the Canadian auto sector, because every other region that produces cars and trucks, including the United States, the European Union and Australia, is putting up billions of dollars to get the industry back on a sound footing.

Mr. Clement said there appears to be growing agreement on the conditions of assistance to the Detroit-based auto sector and its Canadian subsidiaries.
“There is certainly what I am observing is a consensus of views both in the government of Canada and in the Ontario government and also from what president-elect Obama has been stating … it has to be about long-term solutions, not short-term cash infusions,” he said.

The heads of the Canadian subsidiaries of the Detroit Three made their case for financing directly to Ontario Premier Dalton McGuinty Friday during a one-hour meeting at the provincial legislature.

The presidents of Honda Canada Inc. and Toyota Canada Inc. were also at the meeting. Mr. Bryant stressed that those companies are not facing a liquidity crisis but wanted to ensure that any aid provided to the Detroit Three does not leave Honda and Toyota at a competitive disadvantage. Mr. McGuinty said his government won't provide auto companies with any assistance unless they guarantee that they will maintain operations and jobs in the province.

[Murrican]

http://www.cnbc.com/id/27782376

Ford's Mullally: One Failure Could Imperil Industry
By Andrew Fisher |

18 Nov 2008 | 07:59 AM ET

Ford CEO Alan Mulally says the bankruptcy of even one of America's auto companies could bring down the entire industry.

"The industry is so interdependent," Mulally told CNBC. "We're nearly 10 percent of the U.S. GDP, and if one of the automobile manufacturers gets into serious trouble, it has tremendous implications for the entire industry."

He stressed the need for government assistance to the carmakers, a need he and other car-company CEOs were to voice before the Senate Banking Committee later in the day. (Click here to see his interview on CNBC)

"As an industry, we're there together to support having in place a mechanism, our bridge loan," he said. "We think we don't need it right now, but if things continue to deteriorate, we can access these bridge loans as part of our transformational plan."

Mulally said that if an auto company were to file for Chapter 11 bankruptcy protection, the situation might quickly move to Chapter 7, or liquidation.

"Going into that kind of a restructuring, where the consumer has great choices, sales would fall off so fast that you could never recover on the cost side and get out of it," he said.

Mulally defended his leadership of the nation's second-largest carmaker, saying Ford is moving in the right direction, and recalling the company's return to profitability in the first quarter.