How Bankruptcy Would Benefit GM

Is the Midwest about to tumble into Lake Erie?

Sure sounds that way. With General Motors teetering at the edge of insolvency, the company's backers argue that a bankruptcy filing would basically wipe out the entire U.S. auto industry. All of GM's 125,000 employees would supposedly lose their jobs, along with many times that number at suppliers, dealerships, and other companies. A congressional analysis suggests that nearly 4.9 million jobs could be at stake. I guess we should start hoarding food and fuel, because the entire U.S. economy might implode.

At least that's the dreadful scenario that auto executives, union leaders, and the Michigan congressional delegation say justifies a government bailout that would start with $25 billion and surely go up from there--with dubious provisions meant to ensure that the sprawling automaker somehow gets religion and becomes a competitive car company.

Read the whole story here.

Comments

[SirLance]

The fix is simple. Get rid of the UAW. Gone are the days of going to a job for 30 plus years and getting a pension to support the rest of your life. We now live in a global world were high-tech makes manufacturing easier. If the UAW wants something they should take all the money they have stashed and buy the stock of the Big 3 so that they have a majority stake. They always want more money when the Big 3 do well but when they are not doing so well they do not give the money back.

[memphispaul]

Yep. Bankruptcy will benefit GM by putting it out of its misery. chapter 7 is the only answer for that company as well as Chrysler.
At least when they fail the insurance companies can get another 200 billion to cover their Credit Default Swap exposure and teh banks can get an additional 300 billion to cover their exposure to Chrysler LDO debt and both companies failed bonds. then there will be the massive failure in the auto loan securities made from these companies products as folks send in the keys because they can no longer get parts and their resale value falls to zero. more deflation in national M3. Hooray for bankruptcy!
ya. Better to spend 500 billion just on the basic finance then 25-50 billion keeping them afloat.

[thegreatgiginthesky]

Comming 2010 the mini hummer - seats 2 and gets a whopping 20mpg on hwy. Yep its here folks GM's gas efficient hummer.

[KillTheMessenger]

Does it come with a mini-gun mount? Hummer drivers love to atomize deer in the morning.

[cmeans29]

To compare the potential "auto industry bankruptcy" to an airline bankruptcy is a huge mistake.

[iambusto]

how so? this is the PERFECT time to bust auto unions. if we cant get rid of unions now, cost structure of GM would never change..

[PhilipTaylor]

Millions have lost the pensions they worked for 30 to 40 years to build. Millions of others have gone bankrupt because of health problems and inadequate health coverage.

Most of what I hear from Finance People is that those are "OLD TIME" ways of doing business and the "NEW WAY" of "LEAN and MEAN" with no worker benefits is the FUTURE!

Millions of others took the bait on "TRICKY" Mortgages and have had their home payments double or triple so they lost their homes.

Could it be that all these PERSONAL CRISES are adding up to Consumers who are TAPED OUT? So the Precious and Worshiped Banks are now failing!

So WE just ignored personal suffering for 8 years and now even WALL STREET is PAYING the PRICE!

We had better keep our manufacturing sector healthy as the juggling of Bank paper can not carry our economy!

[iambusto]

the best businesses are businesses that have low fixed cost structure...thats why companies hire temp workers !!

[ejazzed1059]

First start with the CEO'S (Your'e Fired).....

[brettjay]

give me an attractive stylish/edgy car

give me something that doesn't break down in 2 years

then i will start to look back at american

the big 3 got lazy just like us citizens

[vladp]

drive down the interstate and look at the cars that are broken down on the side of the road. it seems like 99.9% of the time, they are a gm, ford, chrylser product.

[ilrslr3]

Amen: Sneathlane

[iambusto]

Can ANYONE convince me of a reason why would any sane consumer buy a GM/F/Chrysler sedan between 15000-30000 dollar range ? ANYONE?

Look at the Japanese product line between that range.
Honda Civic/Accord
Toyota Corolla/Camry
Nissan Altima/Maxima

Now tell me which sane person would buy anything other than these lines.

I dont know anything about minivans/suv/coupes. I am talking only about sedans here.

ok go ..

[SneathLane]

If they are allowed to go bankrupt, they will immediately cut back on the pensions that were part of their retired workers' compensation, they will cancel union contracts and hire workers back at greatly reduced wages, and will, essentially, pay for their own years of bad practices by taking away the livelihoods of the workers who have made their companies possible.

Most Republicans are offended by the sight of factory workers making middle-class wages. Factory workers should be poor. Conservatives will go to any lengths, including sending the economy into true depression, to root out decent pay for auto workers.

What they ignore is the fact that each of those workers spend their money, and their wages support a huge sector of the economy. Since they're union workers, they spend a bigger portion of it on American made goods and services.

Henry Ford's decision to pay his auto workers well was the beginning of the broad, prosperous American middle class. The Republicans have never liked the American middle class, it's too "common", too broad for their taste. That's why they're yelling "Let them go under!" now.

The companies will survive and recover, but the workers will end up poor. Which is the Republican idea of Paradise.

[LCRover001]

Nail on the head.

[FightingTheRight]

Henry Ford knew that he would have his employees as part of his customer base.

Employees and their families are very loyal.


Is it a coincidence then, that as GM has moved jobs out of the US, their share of domestic auto sales have fallen?

[KillTheMessenger]

GM has 260,000 employees. If they each buy a car every five years, that's less than 30,000 cars per year. That's probably as many cars as GM used to sell every day to break even.

[DuganS1]

The Henry Ford analogy is not a good one. If a company increases wages for workers, it either reduces capital available for expansion (happens in Europe resulting in slower gdp growth) or for shareholders (won't work if company is not making record profits), or just results in higher prices; and higher prices means everyone that does not work in the factory, in effect, subsidizes the higher wages of those who do, which is counter-productive.

[sfasola]

Why can't congress demand that the oil companies, flush with record profits, bail out the auto industry? Seems to me like they would have a vested interest in their survival. I've never in my life even owned an American car, so I really can't see how I would be impacted if GM collapses..

[iambusto]

Lay off the oil industries. at least one industry knows how to profit even from 50$/barrell as well as 150$/barrell.

leave the mess of automakers and the airlines on the govt ok. :)

[cmeans29]

If you own stocks, have a pension, 401k you will feel the impact.

The auto industry is the largest purchaser of: Steel, electronics, computer chips, etc. That's right computer chips! There goes the tech stocks.

The U.S auto industry needs to be restructured. I don't believe $25 billions is enough for Big 3; pondering the credit markets are still frozen.

[TrooAmerican]

Apparently Fear sold just fine when it was coming from a bunch of money grubbing overpaid -by ridiculous amounts, Bankers. Who since getting their bailout were still planning to give out bonuses this year, till Goldman Sachs Top exec announced he'd forgo his own, and were caught taking multiple vacations in the past month. Who also happen to be at fault for the mortgage crisis and the subsequent lending crisis, which is the main cause of ALL automakers' sales dropping by over 30% in the past quarter.

[iambusto]

GM has been losing money way before credit crisis ever began. check your calendar and GM income statements :)

[windwalker1984]

Fool me twice.....

The head of the UAW stated they are not willing to give concessions. The retirees who's pensions and healthcare benefits were negotiated at a time the car companies were making a lot more money don't want their benefits touched. The CEO of GM stated in the past week that he should stay on because he's done nothing wrong. By the way, none of the CEOs of these 3 car companies actually have a background in building cars. Only one is from inside and he was in FINANCE (no pun intended).

NONE of the people involved in these auto companies want to take on any responsibility for the cuts that must be made for the companies to survive.

So why should the taxpayers dump a bunch of cash on them only to have the car companies come back in a few months begging for more money?

If we bail out Detroit, what do we do when the textile industry comes knocking on the door? Home builders? Sears? Krogers? Home Depot?

In my opinion, the big 3 auto companies need to re-negotiate their UAW contracts, pensions, benefits. They need to re-negotiate executive pay and end all bonuses. They need to re-negotiate all contracts with suppliers. Show us you are serious about saving your industry and your jobs!

[HowietheScreamer]

You are not quite correct, GM's CEO has been a GM guy since he graduated from his Grad School. His problem is... he's stupid. He deserves to be fired. He's the guy who made the decision to do more big suv's when the price of oil was going through the roof. GMs problems are HIS FAULT.

Ford's CEO is an Engineer, used to be a Boeing guy, he was brought on to shake things up because Bill Ford JR. couldn't do it alone. He's doing a pretty good job. He's making changes, but you can't change things overnight.

Chrysler is the one who is just plain hosed. Coming off a Date Rape by the Germans at Diamler Benz, they get saddled with Rick Nardelli... Mr. Posterchild for over paid CEOs. He got the boot from Home Despot for cause. He's worthless, but Cerberus is the owner and they are able to do whatever they want.

Bankruptcy is NOT an option. Nobody will buy a car from a Bankrupt company. That idea is a NON STARTER. It's the wet dream of people who want to break the union though. That's why it keeps getting brought up.

[Baltotoast]

There is a big difference between stabilizing the financial system and bailing out a couple of incompetent industry players. It is not like you can't buy a fine car if GM goes belly up.

[peterg76]

There's no difference. Both are using the same tactics to extort undeserved money.

[23000Days]

Given the current and projected state of car sales,GM will have plenty of time to retool for tomorrow's cars. All they need is direction and dollars.

Unfortunately, providing the dollars will not drive the direction, so bankruptcy seems like a very viable option, since it would provide the direction. The government could then guarantee the dollars, or urge bailout recipient banks to do so.

[slemay]

It takes money to go broke. GM doesn't have enough to file Chapter 11 unless they get a bailout of some kind. As it stands, they most likely won't make it past Christmas.

The unions won't help the companies, but they won't matter when the car plants all move to the Southeast and Southwest.

[suekzoo]

Anyone thinking that Chapter 11 Reorganization for any of the auto companies is really a viable option should sign a pledge to buy a brand new car once the bankruptcy is filed.

Truth is, no one is going to do that. There is no guarantee the company would be around to honor a warranty.

[KillTheMessenger]

I wasn't going to buy a GM car, anyway, so why would I care if they are around or not?

[Waubay]

Have the government back the warranties. We are already backing Circuit City gift cards. I'm not kidding - I wish I was though.