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Comments
Also, was there no better alternative, or just satisfied with the original?
The tires coming w/the S5 are rated 40K, but being performance tires I'm guessing half that.
I read recently that GM buys more than a million dollars a year of Viagra for their retirees. Everyone who is buying a GM product is subsidizing these guys idea of the good life. And they couldn't each jump on a tread mill and lose the 50 pounds?
And, yes I do think that this entire event has shaken the domestic auto industry by the roots, and I do expect that we will see some good come out of it.
I love this country so much. I'd hate to watch our goverment and fat cats on Wall Street, who created this financial disaster to begin with, take down our Big 3. They owe them a chance to recover. Besides, it's a loan, not a gift, and there will be some oversight. It's better than letting all those innocent millions of people go down the drain.
I will personally be financially crushed if the Big 3 are left to die, as many of my company's clients are directly related to the domestic auto industry. I have worked hard my entire life, since I was old enough to deliver newspapers, and I always played by the rules. I didn't cause this financial disaster, and millions of others like me don't deserve to be victims.
A bunch of those government officials and Wall Street bastards deserve to go to jail for what they've done.
They bailed out the banks, and they don't manufacture anything. They kept the money for themselves. Our country is being destroyed from the inside out.
TM
They are going to get the money. What I want to see is some g-d oversight, and if a Bush appointed "car czar" is the best that can be done, that's still better then Paulson yelling "come and get it! ding ding ding!". The big banks have taken the tax payers money, and they are still paying dividends, going on merging sprees, and partying. What they are not doing is loaning anybody anything. Compared to that, 15 billion with a watchdog really isn't that big of deal. It is interesting though that Ford decided maybe they didn't need government help after all.
Chrysler is going down, there's just no way around that. The only question is when. For GM to survive they need to cut their dealers, products, and unfortunately, workforce, in half. Wagoner has got to go. Why the board and Lutz keep sticking up for him I have no idea. He makes Nasser and Schremp look competent.
For performance, 20K would be about it.
Regards,
OW
Tag, I agree with you wholeheartedly. Even though the Big 3 made some terrible decisions over the years, they did not bring about this historic financial crisis. I don't think there is any other good choice but to try and help them right now. I believe that if we let them file for Chapter 11, our extremely fragile economy will go over the edge. I'm with you buddy!
Nope, the D3 are to blame for their own financial crisis.
Wagoner has got to go. Why the board and Lutz keep sticking up for him I have no idea.
What are you talking about? Wagoner is a genius.... at destroying his own workplace and still get paid for it :P :P
OW, what tires are you using? 30k for a set of all-seasons are, umm, shortlived imo. I use Pilot AS and usually get about 40-45k out of a set (constant raining discourage me from getting performance sets).
If it turns out, as I think it will, that GM & Chrysler can't repay the loan, then what started out as a loan will turn out to be an outright gift from us taxpayers, for which we'll get nothing in return. That's not my greatest fear, though. I worry more that they'll come back after they've burned through the 1st installment & tell us that we'll have to "lend" them more money if we hope to ever recover what we "lent" them previously. It will be the domestic equivalent of Vietnam, when we were told again & again that another 50,000 troops would turn everything around.
The best thing that could happen to the Big 2 (I assume, perhaps wrongly, that Ford could survive without aid) is reorganization under the bankruptcy laws. Potentially profitable brands, like Cadillac & Chevrolet, might just thrive if they could be separated from the brands with no future.
As you know there are many different factors with a tire--and what the tire place suggested was that I stick with the original brand which had more than ten thousand miles left to go, and had thirty thousand miles on them.....I wanted to try the Michelin , but there was some question about the load, and they didn`t want to take a chance, as another person had previously changed and then questioned the load stuff....I found the original tires to be fine and just wanted a little quieter ride if possible, and also wanted to stick with` all season`.....When you get right down to it there are just too many selections out there---tires----cars----tv--etc Tony
I don't believe it's a loan, they can't pay that money back anymore that I can sprout wings and fly to the moon.
For the record, I don't believe in any bail outs. They can all go die off. If the unions go down, they have only their union bosses to blame for not keeping their jobs.
Brace for a few bad years, but I do believe we'll come out of it in the end IF, we stop cutting checks we can't back up for everyone and their mother.
End of rant, back to our scheduled debate: I love my 335, I just hate the tickets.
The Detroit 3 are like drug addicts now, the only way of recovery is to cut them off completely in order to force them to restructure. It'll be a painful process no doubt but the country as a whole will benefit in the long run.
Actually, this is the first look at the next B-Class... with hydrogen and electric variants. Often concepts are better than the real deal, but even if it's the other way around here... this thing is simply horrible.
Here's the scoop... link title
TM
I realize you can get more miles but 36K is it for me I never run tires more than 3 years and 36K. They are real tired by then. If you look close at the end of 3 years you can see little cracks in the rubber. Inside the treads are tired and invisible damage can not be detected.
Sure you can get more miles but my philosophy is 3/36...then junk.
Tire age degradation hit the radar of safety advocates, regulators and members of Congress following the Firestone ATX / Wilderness recalls in 2000 and 2001 when experts concluded that age degradation played a role in the catastrophic failure of these tires. Since the recalls Safety Research & Strategies (SRS) began examining what was known about the issue worldwide and found startling evidence that both tire and vehicle manufacturers have known tires, whether or not they are actually used, can experience tread separations due to internal oxidative aging, a process that is largely invisible. Following SRS’ docket submissions to NHTSA about their findings and an active campaign to alert the public of the danger through the media, some manufacturers have quietly started to address the issue. Bridgestone-Firestone’s release of a “Technical Bulletin” to its dealers in late 2005 alerting them that 10 year-old tires should not be used, regardless of tread wear, is the latest indication that the industry is changing its tack.
Regards,
OW
If not for the credit money fabricated by the Wall Street during the bubbles, the Big-3 would have reached this point half a decade ago, if not one decade or one and a half decades ago. GM has been losing money on domestic car manufacturing for much of the last two decades. GMAC accounted for almost all of the profitable years at GM in the last decade plus. GMAC made its money from credit cards and home mortgages. Arguably, until late-2007, GM was the best run company of the three in financial terms on paper . . . once again thanks to the real estate and credit bubble.
Here are some thoughts perhaps to help cheering you up:
1. A bankruptcy will wipe out the high interest corporate bonds that the Big-3 are carrying. The offers that kept coming my way a few years ago from the Big-3 and their subsidiary financial arms were in the 8-12% range. Yes, those bozos were borrowing at 8-12% while lending out at 1-3% for car loans and leases in order to move iron; any wonder why the auctions failed to match lease residuals? Luckily I kept turning those offers away, 'cuz I kept thinking this day was coming. In a Chapter-11 re-org, the carmakers will be relieved of the bond obligations. That means more money to pay suppliers and advertisers.
2. If the UAW can be made to get paid less in Chapter-11, that also means more money for suppliers and advertisers.
3. If any of the Big-3 go through Chapter-7 liquidation, their suppliers will be switching to more efficient carmakers that end up getting the market share of the liquidated company. That also means more advertisement money as the whole supply chain will be better run . . . not to mention a potential market share battle, which means more advertisement.
I do have a question, however. In the scenario you describe, wouldn't shareholders be wiped out and lose everything? That's how I understand it, and in addition a massive number of dealerships would fold at a time when there is already too much blood being spilled in this sick economy.
When the automotive pie is divided into a smaller number of larger pieces, there is consolidation in advertising dollars spent. This has certain benefits, yet is ultimately still much less ad revenue being spread, which concerns me and would certainly have a negative impact on businesses at my level of involvement, which are better served with a greater number of dealerships.
I see a huge contraction coming GM's way if they fail. Massive unemployment to innocent non-union workers at the dealer-closure levels and all those interrelated businesses with non-union workers.
Sure, I agree with everyone that GM has shot itself in the foot for years. I hate GM to a large extent. It has been a messed up company selling many sub-standard products over the years. I am only concerned with the economic impact of the result of their failure at this time during the financial crisis. If the economy were healthier, and GM folded, there would be a better opportunity for a healthier economy to re-absorb the damage and victims resulting from a failed GM.
Anyway, thanks again for your excellent post, and whatever happens, stick around here and post about cars now and then. What are some of your favorites to own or drive or just drool over?
TM
Of course, the future senate may think differently...
Even if we are left with only Ford... which might be a possibility, it would be better than nothing. Besides, I believe Ford is headed in the right direction anyway and we will see more improvements there in the upcoming years. Incredibly, I am now the owner of two Ford products within the last 2 months... an excellent hybrid, and America's most cherished vehicle... the Ford F-150. Frankly, between my 135i and F-150, I am quite satisfied.
I have been hard at work revising my company's business model. Failure is not an option.
TM
Those against the auto makers bailout say that they should file for Chapter 11 and go through re-organization. Give me a break. The car sales are already way, way down. How many people will be buying from U.S. auto makers if they file for bankruptcy? My answer is hardly anyone.
Please don't misconstrue my statements here to mean that the U.S. auto makers are not to blame. They obviously made lots of mistakes over the years. But, we now have no choice, in my opinion but to help them.
Well, regardless of what happens with a "bridge loan" which I'm sure will go through eventually, there's still that other $25B for re-tooling old factories and such. GM should only get anything if Wagoner is forced out. Chrysler deserves absolutely nothing. There's still no answer from Nardelli or anybody else as to why Cerberus isn't paying to keep Chrysler afloat.
Amen.
TM
The stock market and all commodities which were under severe pressure early this morning have rallied rather nicely on this news.
Shareholder equity is the total asset minus total liability. For the Big-3, it has been negative for many years. That's why MB gave money to the private equity fund to take Chrysler off their hands. The stocks of GM and F are trading like Options on potential bailouts and/or concessions from unions and banks. Equity in the accounting sense and stock prices are two different things (otherwise, there wouldn't be daily fluctuations of stock prices).
Cyclone, it's often repeated that people wouldn't buy car from bankrupt car companies; repetition doesn't make it true. People fly bankrupt airlines; that's literally putting their lives in the hands of bankrupt companies. People buy used cars that are past mfr warranty period. There are also third-party warranty underwriters. Think of it this way: now there are hundreds of thousands of new cars piling up in the lots all over the country. Would you take a new car for free? of course. Would you take one home for $100? I would. How about $1000? I still would. How about $10,000? I still would, for most new cars bigger than a subcompact. Used high end luxury cars routinely fetch $30k or more, even after warranty expiration. The reason why the cars are piling up is because the prices are too high. If the price is low enough, the car, any new car or decently serviceable car, can find buyer and clear through the market. It's the automaker's job to make sure that their production cost is lower than what their cars can sell for. Otherwise they are doing no better than taking a car that people do want, beating it up with a baseball bat, and then insist on charging more for it because they have added labor to the original perfectly good car. The material and labor going into making cars unprofitably could be used for making something else that people want more than the input material and labor (hence would be willing to pay more than the input material and labor).
TM, it's past time for the car retailing business model to catch up with the information technology. The current dealership model was built at a time when cars were luxury items custom built like tailored suits. With standardization and the internet, people are buying cars like they buy suits and shirts off the racks nowadays. The one-on-one dealership experience boils down to fighting over the money the manufacturer has left on the table (vs. MSRP). In many cases, the customer has just as much informaiton as the dealer, if not more than the salesman, thanks to sites like Edmunds. The solution is not to roll back information sites like Edmunds, but to truely leverage the informaiton technology, and transform most dealerships into test-drive, pickup and maintenance/repair centers. After the manufacturers go through a Chapter-11 reorganization, they will be able to sell cars directly to the consumers, then the dealerships will be able to charge people for test driving, with pricing done between the customer and the manufacturer directly over the internet. People can use manufacturer sites for pricing and spec, third party sites like Edmunds for reviews, then go to the dealership for paid test drives. Dealerships can charge straight forward fees for test drives because other dealership can't hide the cost of sale in the sale price either. Then the dealerships can truely focus on the customer experience and after-sale service, instead of struggling on pricing something that is 95+% out of their control.
When the car sale process is stream lined like that, there will be more advertisement dollar. New entry from even more efficient carmakers or carmakers leveraging technologies that we do not yet know today will do a far better job at keeping the car market vibrant than keeping old inefficient car companies in business. New entries will also generate more advertisement because they are new and need to get their names out.
The current problem is that cars are already produced with too much material and labor cost spent on their production . . . and they are deteriorating everyday as they sit on the lots, and eating up both rent and interest cost. The longer this goes on, the deeper the hole we will find ourselves in, and the less money there will be for related things, such as advertising.
A political bailout is actually bailing out the bond holders (often banks and junk bond portfolio mangers). The Big-3 will continue to pay existing bonds with interest rates close to 10%, in an environment hardly anyone can afford that kind of debt. That will leave less resources on the table for consumers, car companies, workers, and all suppliers to the car companies, including advertisers, in the long run.
Cyclone: stock market indices use the dollar as unit of count. Higher indices do not necessarily mean more wealth for shareholders. Zimbabwe has the best performing stock market in terms of the index. It went up thousands of per cent this year; the coutry's inflation rate is millions of per cent.
As far as the information technology goes, this is an evolving process that has been in its transition for a number of years now, and will continue to evolve. The evolution of the dealership to become one that is more connected to a sales process that involves the internet doesn't impact one manufacturer more than another. It's a totally different model that will evolve. Toyota and Honda and all the rest will have to adapt to that as well. So... that factor is not unique to the Big 3.
The Big 3's business models need to be reevaluated and I don't see anyone questioning that the nature of the ways they have conducted business is outdated. The question now is, do we give 'em a chance to make the changes and still exist, without unloading havoc on our economy and without creating millions of victims?
That's why I say give 'em a chance, but put serious conditions in place to make sure they update their business models and get up to speed. They are a big part of America, and wouldn't it be great to have at least two of them be strong healthy companies one day... American auto manufacturers that make some of the world's best cars?... right here in America? What's wrong with that idea?
Do you know what vehicle took the award for the most significantly improved vehicle for 2009... according to Kelley Blue Book? It's a FORD!! That's right. A Ford, 2009 F-150. So... yes, in some ways they are on the right path, but they need more time to get past the global financial crisis that they didn't create in the first place.
I say give it all a chance for a new success story.
TM
Absolutely. I've been making this argument for years. Buying new cars, much as one does a computer, with delivery in days, will eventually become the norm, I've claimed. The dealer becomes even more irrelevant, and is well into that process even now, as you described.
However, the "Sales Frontline" and similar boards, which include lots of car sales guys, has pointed out that many (the majority of?) people: 1) don't have anything beyond a vague notion of what car they want to buy & need someone to "sell" them something, 2) are upside-down and/or (usually and) have an abysmal credit score and need "creative" financing &/or 3) want to trade their existing car and can't be bothered to sell it themselves.
That said, I'm with you 100%. One or more of the primes is going to start selling direct sooner or later, though there's still a lot of state-specific (heavily lobbied by the dealers) legislation that currently makes such things illegal.
What might work is a two-tier system, where the ne'er do wells with trade-ins & crap credit have to deal with the existing system, while people who know what they want, with credit or cash, can order their car with the exact color/option combo they want and have it delivered two weeks later. The technology's there -- it could be done next week, and the inventory/flooring expenses go right out the window, along with the marble & plate glass palaces that front for the upscale car dealers these days (and many of the downscale ones as well).
How long will it take?
Probably very, given the strength of the lobbies involved, to say nothing of the UAW.
If the the F-150 is so great and so desirable in the market place, someone else will buy the F-150 production line even if Ford gets liquidated. That is not to say Ford will be liquidated if it files for bankruptcy or it will file for bankruptcy at all without government bailout. It has money. Bailout GM and Chrysler would be hurting Ford by "dumping" cars into the market (the definition of import "dumping," keep producing even when selling price is lower than production cost)
What a Chapter-11 Bankruptcy Court Protection filing does is suspending existing debt payment obligations. Currently existing GM and F corporate bonds are paying close to 10% of their original loan amount. Those were more or less junk bonds when they were issued, precisely due to the fear of bankruptcy. Now after collecting at such high rates for several years, the time for default is here. The government should not step in to bailout junk bond holders.
Under Chapter-11, any new lender will get first priority in repayment, so there actually will be an incentive to lend to the Big-3. Almost all of the major airlines went through the Chapter-11 process, some multiple times. It's a bankruptcy court Protection process, giving surviving companies a more sustainable business future.
Government doesn't have the money. Any money it puts up to pay bond holders to keep the Big-3 out of Bankruptcy Protection Court is money taken from taxpayers, including other carmakers, suppliers and people who buy or never buy domestic brand cars. That literally is throwing good money after bad. That's what made soviet economy eventually grinding to a hault, after decades of not allowing any badly run enterprises to fail.
The fundamental problem with the Big-3 is the same as the Soviet Lada factory had: the cars are fetching less on the market than the cost of the material and labor that go into them. The only cure is stop producing, giving the material and workers to someone else who can make better use of them. As Einstein said, insanity is keep doing the samething and expect the outcome to be different the next time. If one of the 3 can be liquidated, the market condition would be better for the other two (as well as all other companies making cars in the US, as there will be less cars and more input material and workers available for making cars.
BTW, most cars sold in the US nowdays are not Big-3 branded. The "transplants" make more cars and better cars with less workers. That's productivity! Not sure why they should be punished (taxed) to pay for the sustenance of failed companies that keep competing against them.
Very well said! If we had learned anything from the Cold War, which ended less than 20 years ago, we wouldn't even consider a bailout. We'd let the free market sort this out.
The ones with abysmal credit and need creative financing should never have been buying brand new cars. Their presence at the dealership was a byproduct of the credit bubble. They have disappeared. The used car dealers are more than happy to have them. With today's auto reliability, lower payments on used cars will also serve them better in the long run . . . that also in turn solves the trade-in problem: the used car lots. There are no franchise exclusive laws for used cars; with the proliferation of knowledge via internet, I have been hearing for quite a few years now that dealers have been saying that their money mostly come from the used lot and repair shop anyway. Wonder how true that is . . . or was that because I was visiting the new car showrooms only. LOL. I take a big grain of salt with what I hear from anyone who is trying to sell me something.
The big incentive for dealers to jump on board the more efficient distribution system that both of us are thinking of is the paid test drive. If price comes direct from mfrs to consumer for new cars (dealers are not making much now, anyway, so we are told), they don't have to fear another dealership taking the sale if they charge for test drive. With paid test drive, the consumer will be able to spend more time with the car, instead of so many horror stories of salesmen selling them something inapproriate. The manufacturers may even be able to sell some neat gadgets that the consumer never tried before and may find indispensable after living with the car for an overnight or two.
Of course, there will be used car lots, and special lots for hot cars. Then the lot owners are on their own. Heck, the dealer will be perfectly free to charge more for overnight test drives on hot cars, generating even more money for the whole automobile supply chain while smoothing out the model cycle: hourly rentals will put more people into the first model year of hot models, making much more money for the manufacturer and the dealer/rental/test-drive companies, without having to ramp up production to a level that is unsustainable in subsequent model years.
One hopes this is the opportunity to streamline things, though the UAW & the new Democrat administration will beg to differ, I'm thinking.
You've pointed out that most dealers make more from used than new cars (or so you've been told), and I've heard the same thing. Plus which, the service bays bring in way more money than new car sales, (once again) or so I've been told. Maybe they wouldn't mind turning new car sales over to the primes. Certainly makes sense to me.
This could be a big win-win for all concerned, but I doubt that that's what we'll see.
Time will tell.
I don't mind seeing the Big 3 commit suicide, but I don't want to see bad and corrupt government policies and fat cats on Wall Street pull the trigger... and that is what is happening. Yes, the Big 3 were already in trouble largely due to their own screwed up business models, but the Wall Street corruption never seems to stop. As recent as today, there is yet another revelation of another 50,000,000,000 Wall Street scandal.
When the financial crisis is over, I don't mind letting the chips fall with regards to GM, Ford, and Chrysler. But, since this economic mess is due to corruption, I don't agree that there should be victims, even though we may not like some of the victims.
Also, I agree about the dealership evolution, as I already posted, but it is not a topic unique to the situation with the Big 3. It's a good topic of its own that relates to all manufacturers and the industry as a whole.
TM
I appreciate your perspective, too . . . and I'd venture to guess that your perspective is the mainstream one, at least the one that the mainstream media is trying to frame the debate.
The Big-3 are not victims in the credit bubble/collapse. They were beneficiaries. At least one or two of the three would have folded years ago if not for the credit bubble. Most of the people defaulting on car loans could not have afforded the cars to begin with if not for the bubble. Besides, GM's profit has been coming from GMAC for years, mostly from mortgage lending and credit cards. The credit malfeasance over the past decade was what kept the Big-3 alive this whole time.
A bailout would be even more corruption: it would be a bailout of junk bond portfolio managers. The companies are actually better off going through a Chapter-11 reorganization, so they can be freed from the current heavy interest payment burden. I have a sneaky suspicion that the whole exercise over the past week has been to use money from the $700 billion Wall Street bailout . . . as a way of showing that that money somehow saves jobs . . . whereas in reality the so-called bailout for the Big-3 is actually bailing junk bond mangers on Wall Street.
Ultimately, powertrain technology and weight reduction will deliver the goods, whereby fuel-efficient cars need not be pint-sized like the Smart vehicle, or a Mini Cooper or a Yaris, or a Honda Fit. The cars that will ultimately be the genuine winners one day will be comfortable-sized vehicles that still get amazing gas mileage.
But, in the meantime, the trend is towards smaller vehicles... for now. So, the trick is to put together a long-term game plan in spite of shifting consumer demand coupled with shifting advances in powertrain technology and vehicle structure technology.
TM
Even if we are left with only Ford... which might be a possibility, it would be better than nothing. Besides, I believe Ford is headed in the right direction anyway and we will see more improvements there in the upcoming years.
Whoa. Dont get me wrong. I said the D3 deserve no bailout money, but I do believe even without the bailout I can still see Ford surviving. Alas we should prepare to see Mercury and Lincoln in long hiatus if not 6ft under. Its enough with just Ford and Mazda imo.
Regards,
OW
Do you ever consider that this is like natural selection? When old GM and Chrysler go bye-bye, some other company will buy the good apples left, Chevy, Jeep and Cadillac most likely. When they restructure, reopen the plants, some workers will be recalled. Of course that means only competent workers will get their jobs back, but then again who cares about the useless ones? They're no good to begin with.
Now the Senate's finally being sensible and rejected the bailout proposal. Like mentioned several times before there's no evidence that the D3 have a plan that'll prevent them from going bankrupt. We cant just give them money from time to time, its like being FORCED to buy GM but get nothing in return. Yes it's a bit sad to see D2 falter, but hell at this point I seriously dont care of they all die. The trees are already rotten to the core, the only way to save it is to cut it down and burn it.
I vote for the path of the phoenix, burn and reborn from the ashes
Of course, like I always say even though I oppose the bailout I can still see the reason "why" if Senate chose to bailout the D3. Fear of uncertain future is a tough thing to ignore, indeed.
They might..... when hell freeze over :P :P :P
Then again why bother, Detroit has the awesome Northstar and Corvette's LS engines. Even Chrysler's Hemi should be included imo.
I agree U.S. auto needs this bomb to drop and I for one have been waiting patiently for this new opportunity to fix the bad business model inherent in Detroit. When you think your the toughest guy on the block or that unending profits are easy, it's time to get spanked.
I wish everyone one of the people who will (and have) lost their jobs the best in the next few years. I am ahead of them in that respect and firmly understand the fear and grief.
But this needs to happen. GM, F and C need to morph into a new domestic brand and make the best products in the world again. I know it can be done after the smoke clears.
Regards,
OW
A depression is quite possibly the outcome, and regardless of how the economy is defined, the economy will be slowed well beyond the recession we are already in... which has already existed over a year... and has caused massive numbers is business failures, many of which are nationally-recognized companies, and some of which were in business for a very long time.
Dropping the "bomb" would be a mistake that is larger than many realize. This is America. We help the Big 3... we provide conditions and direction. They end up in a much better place... and they get there without an economic nightmare that would shred our economy.
As I said, the shockwave will hit housing, unemployment, family's needs for food and health care and medicine. crime, and business failures. Then the result of that shockwave creates what is referred to as a downward spiral, which can no longer be saved.
It is shortsighted to not see the devastation if the Big 3 are allowed to collapse.
Let's get them on track. The result will be great for America, and that's a better choice.
TM
In another Edmunds forum, someone posted a link to a paper by the Economic Policy Institue asserting that more than 3 million jobs will be lost if the Big 3 are allowed to go under. The paper went on to say that bankruptcy reorganization isn't an option. Do you think that EPI's close ties to organized labor (according to Wikipedia) have anything to do with this conclusion?
We all bring our political convictions & prejudices to this issue. Certainly, I do. I'm a small-government classical liberal (a libertarian, IOW) & I believe that the the potential job losses have been greatly overstated, just as I believe that if we have the courage not to shelter the domestic car companies, we'll wind up a stronger, more creative & more dynamic automobile industry.
The Lincoln brand has nowhere to go. They will only survive at this point by selling to people who don't know they are paying an extra $10K for a Fusion, or Taurus, or Edge.
Cadillac is in slightly better shape, but once again they are falling into the trap of rebadging a Chevy. They just never learn that lesson, and no doubt the SRX replacement will bomb just like all of the other Chevy based Cadillacs.
That kind of statistic shows the "unthinking" process in the establishment media. The Detroit-3 combined sell for less than 1/2 of the domestic car market (before counting imported imports). If they were all shut down and there is no pick up in sales at the other half of the market producers, then we really don't need that many cars, do we? The reality is that, to the extent that cars are needed, if the Detroit-3 production is reduced, the slack will be picked up by the other half of the industry, the healthy half of the domestic auto industry. On top of that, because there is car demand, the Detroit-3 won't all be shut down. Only the models that do not sell and lines that are unproductive will be shut down. The rest will have buyers even if any of the carmakers go into liquidation . . . and they are not going into liquidation, even in a Chapter-11 Bankruptcy Court Protection.
If you really believe that the US consumers will not buy any of the cars that the Detroit-3 are making at any price; that is, their production line has no value whatsoever, so that nobody will be buying any of the production lines to keep them running. Then why keep them running at all? Wasting material and causing pollution in the process? If you want the workers keep getting paid, why not just give each of them a shovel, half of them digging a hole in the ground, and the other half filling it back up? That would "pump" just as much money into the economy, and wouldn't generate pollution.
The reality of course is that families need food and healthcare, and a whole slew of other things. The more people we devote to digging holes and filling them back up, and other assortment of unproductive government created and maintained jobs, the less people we will have to produce food, render healthcare service, or bring forth anything else that people and families do need. When that happens, what we will end up is a predatory society with everyone fighting to get the last morsels at the expense of someone else. Money itself is meaningless. It's the stuff that people need for living that matters and decides the standard of living. That's why paying people money to mark time is a terrible idea, not only wasting the human resources for the person marking time, but also discourage the produtive people who have to be robbed through taxation and inflation whenever the government comes up with "money" for anything.
The propaganda machine is really out full force taking advantage of the public's ignorance on what the Bankruptcy Protection process is. The bankruptcy protection process is designed to remove the rent seekers from times of excess, those who were the enablers of the misallocation of capital that has happened . . . while letting the market to have another crack at better utilizing the productive capital that's left in the enterprise. The process separates wheat from chaff. Instead of causing doom, the bankruptcy protection process will actually reduce or remove debt payment burden from the Detroit-3, making them healthy again. In the latest quarterly filing for GM (ending 9-30-08):
http://finance.google.com/finance?fstype=bi&q=gm
Out of the $2.5 billion loss, nearly $1.7 billion is due to interest expense! Like I said before, a bailout of the Detroit-3 is a bailout of Wall Street junk bond managers.
What exists now can not continue to function and then expect evolution over 2 - 5 years. That will cost far more IMHO.
Regards,
OW
1. The high priests who spread myths to justify their own profiteering, and profiteering for their cronies, while expand their control over the whole society.
2. The masses of followers who do not have the inclination to took into the details and use their own critical thinking, and therefore getting caught up in mythology or even optunisticly hoping that they may benefit from those interventions.
The reality is that, unlike the few who are a directly related to the high officialdom, the average person can not possibly benefit from a government that is constantly robbing Peter to pay Paul . . . there are always enormous losses when those transfers take place; before we even get to the deadloss triangles on econ charts on displaced equilibrium, Paul never gets the full amount robbed from Peter, because the people doing the robbing have to get their own fill first.
The religion on the existence of perfectly morale officials with infinite wisdom, i.e. a projection onto Government what used to be projected onto God, has to be discarded.
No. Just as recent as yesterday, Toyota announced that they are concerned about a Big 3 collapse and they warned that they would be adversely affected if it were allowed to happen. The shockwave will be felt by ALL.
TM
So if we're going to bail out Wall Street, why shouldn't we bail out Detroit? There are two reasons, the lesser of which is that at some point the taxpayer cow is going to run out of milk.
The more important reason is because a bailout will only postpone bankruptcy, and raise its ultimate cost. We say we "can't allow" the auto companies to fail. But that's hubris. The truth is, we can't prevent it.
Soaring gasoline prices in the summer and the stock market crash in the fall have made their illness acute, but the "Big Three" have been losing money for years. The chief reason for this is their higher labor costs make their cars about $2,000 more expensive than comparable foreign models.
General Motors (19 percent) and Toyota (18 percent) have about the same share of the U.S. car market. But Toyota has enormous efficiency advantages. GM has eight product lines, Toyota three. GM has 7,000 dealers, Toyota, 1,500. Toyota pays its workers in the U.S. an average of $48 an hour. GM, Ford and Chrysler pay their employees an average of $73 an hour. For GM to have a chance to become competitive, it must cut its product line by at least 50 percent, its dealer network by at least 50 percent, and its labor costs by at least 30 percent.
But any bailout that's acceptable to the United Auto Workers -- and thus to the Democrats in Congress -- will be designed to avoid the pain such cutbacks would inflict.
The current environment for auto sales is toxic, and is likely to remain so for at least a year. This means that ever more and ever larger subsidies will be required to keep the doors of the Big Three open. Eventually taxpayers will run out of patience, or milk. To avoid discomfort now, we court catastrophe a short distance down the road.
If the Big Three sought Chapter 11 bankruptcy protection now, one strong company could emerge from the wreckage. Surely the United States would be better served by having one healthy car company instead of three terminally ill ones. But good sense, alas, rarely makes political sense.
Regards,
OW
I have already posted and agree that they need major restructuring. I posted that their business models are outdated. I also agree that there should be requirements. But, dropping the "bomb" and "reshaping" are not the same by any means.
I cannot agree with the "bomb" dropping at this fragile time in the global economic picture. The shock to the American economy would be too harsh and there would be way too many innocent victims.
Timing is everything. Now is not the time to allow the Big 3 to go under. Instead, oversee revised business models... demand the "reshaping". If it doesn't work, then so be it. But, if it does... there you go.
I don't think we need to kill the patient and the entire hospital to cure the disease. It makes more sense to get the patient healthy first, and then be in a better position to fight the disease head on.
TM
If one is to believe that the adverse effect on Toyota is due to shared parts suppliers, well then the whole myth about Detroit-3 being "domestic car industry" blows up in the face, doesn't it? They are all just parts assemblers, just like the "transplants." The transplants, like Honda, Toyota, BMW and MB, are making more than half the cars produced and sold in the US today, while they need less than half the workers that the Detroit-3 do while making and selling less cars. Productivity is the competitive advantage of the "transplants." After a Chapter-11 re-org process, the Detroit-3 may just become as productive as the likes of Toyota. That's what Toyota is afraid of.