The Washington Post
November 17, 2008

"So it's come to this: General Motors, once the world's mightiest industrial enterprise, is now flirting with bankruptcy. Ford and Chrysler may not be far behind. Car and truck sales have collapsed. With cash reserves rapidly falling, GM may soon be unable to pay its bills. Here's the dilemma: GM and other U.S. automakers ought to be rescued to minimize damage to the economy, but the rescue should require tough conditions that neither the Democratic Congress nor the incoming Obama administration yet supports.

In a booming economy, a GM bankruptcy might be tolerable and useful. It would remind everyone of the social costs of mediocre management and overpriced ized labor. But far from booming, the economy is declining at an apparently accelerating rate. By one survey, confidence among small businesses is at a 28-year low; in October, retail sales dropped a stunning 2.8 percent.
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No one knows what further havoc a GM bankruptcy might inflict. The Center for Automotive Research (CAR) estimates an initial job loss of 2.5 million. The logic: If any of the "Big Three" went bankrupt, many suppliers would also fail; because car companies share suppliers, all U.S.-based manufacturers would suffer parts shortages. American production would virtually stop until new supplier arrangements emerged. "It takes 6,000 to 14,000 parts to make a vehicle," says Sean McAlinden, CAR's chief economist. "If you don't have one, you can't make it."

This may be too pessimistic. In a Chapter 11 bankruptcy, GM would "reorganize." It would suspend many existing debt payments and continue normal operations. Perhaps. The snag is that even in "reorganization," GM would require new loans that might be unavailable. "Historically, when companies go bankrupt, there's 'debtor in possession' financing investors lend you money, but they get repaid first. That market has evaporated because of the credit crunch," says auto analyst Rod Lache of Deutsche Bank.

Why run these risks when the 6.5 percent unemployment rate seems headed toward 8 percent? Just to satisfy a purist "free market" ideal? It doesn't make sense. But neither does it make sense simply to heave taxpayers' money at automakers. The goal is not to rescue the companies or workers; it's to shore up the economy and improve the U.S. industry's competitiveness. A bailout won't succeed unless other things also happen.

First, auto companies' existing creditors need to write down their debts. Even with federal aid, companies will shrink. McAlinden estimates that the country has surplus assembly capacity of about 4 million vehicles, much of it owned by the Big Three and destined to be shut. GM will need a $25 billion government loan to get through the recession and cover closing costs, says Lache. But GM already has $48 billion of debt. Unless the old debt is sharply written down, GM would be overburdened, and its rendezvous with bankruptcy would merely be delayed.

Second, labor costs need to be cut. By Lache's estimates, GM's hourly compensation wage plus fringe benefits totaled $71 in 2007, compared with $47 for Toyota's U.S. plants. Health benefits for retirees (many in their 50s, having retired after 30 years) are expensive. But the United Auto Workers opposes concessions. Government aid, says UAW President Ron Gettelfinger, is needed "so that auto companies can meet their health-care obligations to more than 780,000 retirees and dependents." The bailout should be more than welfare.

Finally, automakers need a consistent energy policy. Congress demands that companies produce more fuel-efficient vehicles (35 miles per gallon by 2020, up from 25 mpg now). But politicians also want low gas prices. These goals are contradictory. To encourage consumers to buy fuel-efficient vehicles, Congress should mandate higher gas prices. Gasoline taxes could be raised gradually (say, a penny a month for four years, possibly offset by other tax cuts). Wild swings between low and high fuel prices have crippled the U.S. industry by erratically shifting buyer preferences to and from SUVs.

In bankruptcy, a judge can modify a firm's labor contracts and debts. GM needs the benefits of bankruptcy without the uncertainties, but the political process so far disdains that desirable bargain. The conditions that Democrats mention are mostly rhetorical gestures against high executive compensation and in favor of more fuel efficiency. The Bush administration resists additional assistance without saying why.

We are seeing the fallout of the open-ended $700 billion rescue of financial institutions. Boundaries need to be established. Who deserves support and why? Imposing tough conditions on automakers not only improves the odds of success but also by the sacrifices required makes the process sufficiently unpleasant to deter a stampede of other industries seeking handouts. In 1979, when the Carter administration rescued Chrysler from bankruptcy, the price was concessions from management, investors and labor. We should do as much." *

* Robert Samuelson - Op-ed Writer

 

I like the idea of having the oil companies bail these guys out, get some of that money back in the economy.

 

Interesting ideas. I hope that something CAN happen. I am going to be really depressed if US automakers go belly up. I can't fit in most Japanese cars!! LOL!! At least, not the ones I actually like, anyway.

 

Anybody else get one of these? It just showed up in my email...




Dear Jason Mclean,

You made the right choice when you put your confidence in General Motors, and we appreciate your past support. I want to assure you that we are making our best vehicles ever, and we have exciting plans for the future. But we need your help now. Simply put, we need you to join us to let Congress know that a bridge loan to help U.S. automakers also helps strengthen the U.S. economy and preserve millions of American jobs.

Despite what you may be hearing, we are not asking Congress for a bailout but rather a loan that will be repaid.

The U.S. economy is at a crossroads due to the worldwide credit crisis, and all Americans are feeling the effects of the worst economic downturn in 75 years. Despite our successful efforts to restructure, reduce costs and enhance liquidity, U.S. auto sales rely on access to credit, which is all but frozen through traditional channels.

The consequences of the domestic auto industry collapsing would far exceed the $25 billion loan needed to bridge the current crisis. According to a recent study by the Center for Automotive Research:

• One in 10 American jobs depends on U.S. automakers
• Nearly 3 million jobs are at immediate risk
• U.S. personal income could be reduced by $150 billion
• The tax revenue lost over 3 years would be more than $156 billion

Discussions are now underway in Washington, D.C., concerning loans to support U.S. carmakers. I am asking for your support in this vital effort by contacting your state representatives.

Please take a few minutes to go to www.gmfactsandfiction.com, where we have made it easy for you to contact your U.S. senators and representatives. Just click on the "I'm a Concerned American" link under the "Mobilize Now" section, and enter your name and ZIP code to send a personalized e-mail stating your support for the U.S. automotive industry.

Let me assure you that General Motors has made dramatic improvements over the last 10 years. In fact, we are leading the industry with award-winning vehicles like the Chevrolet Malibu, Cadillac CTS, Buick Enclave, Pontiac G8, GMC Acadia, Chevy Tahoe Hybrid, Saturn AURA and more. We offer 18 models with an EPA estimated 30 MPG highway or better — more than Toyota or Honda. GM has 6 hybrids in market and 3 more by mid-2009. GM has closed the quality gap with the imports, and today we are putting our best quality vehicles on the road.

Please share this information with friends and family using the link on the site.

Thank you for helping keep our economy viable.

Sincerely,



Troy Clarke








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Interesting video.

If the big three do go under I hope that I can atleast get my Camaro outta Chevy first, and then hope atleast two new large scale American companies are formed.

Here's a question that I've yet to see the answer to, if the big three do go down, will it only be the US side of things, or will it be on the worldwide scale? Like what'll happen to the Euro versions? What about other branches like Holden?