Detroit's Big 3 request totals $34 billion

I know the initial meeting with the Big 3 leaders turned out to be a disaster b/c they assumed officials in DC actually understood the auto industry. The truth is the politicians care more about the financial industry (where their money is) b/c most of them don't see how the auto industry has grown to shape many communities in the US. If you didn't make $500k or above, most-likely your voice isn't a concern as the financial industry tanks the global economy.

Once the DC politicians consider the real voices on "Main St", they'll begin to understand the importance of the auto companies, their suppliers, and the people that keep the factories productive.

Now, I won't say that GM, Ford, & Chrysler aren't partially responsible for many of their sources of debt they carry today. And maybe, just maybe, there needs to be one or two mergers in the future to better compete GLOBALLY. But when they admit that they do need help and they have a strategy, why not lend them a hand to keep the economy rolling.

— dumpsty (View Profile)

Posted on 12/3/2008 10:03:17 AM | | Votes: 0   

I live in Michigan and this state with about 7 other states depend on the Big 3 as a way of life, it seams that the rest of the country do not grasp the situation at hand, and realize that much of the America still depends on manufacturing and farming to make a living.

— 1UAW (View Profile)

Posted on 12/3/2008 10:43:59 AM | | Votes: -2   

1UAW, it is not the American taxpayer's fault that the United Autoworkers in Michigan (and surrounding states) priced themselves out of job by demanding such outrageous benefits. Those jobs will never return.

On the other hand, autoworker jobs in the South for BMW, Toyota, Nissan, Mercedes, etc. are doing very well and are non-unionized.

— HSCenterconsole (View Profile)

Posted on 12/3/2008 11:16:44 AM | | Votes: 9   

They are? Then why is the entire industry in shambles? Layoffs are abound , and double diggit drops in sales is the norm. You call this doing well.

— 1UAW (View Profile)

Posted on 12/3/2008 1:27:50 PM | | Votes: -1   

HSCenterConsole,

The reason why the Japanese/Korean/European plants dont have UAW in their plants, is because they pay their workers enough so that they resist UAW.

If there was no UAW, the transplants would pay their workers peanuts, why wouldn't they.. its the "american" way.

The big difference is, UAW plants have all sort of goofy rules that breed inefficiency. The transplants dont have that problem... Problem is that if workers' organizations go away, we will have autoworkers with poor healthcare/401K/wages.. which means everyone and I will end up paying more in taxes for Medicare/Medicaid/S.S./welfare.

Its complex.

— neutral (View Profile)

Posted on 12/3/2008 11:20:31 PM | | Votes: 0   

That or merge.

— DexDiamonds (View Profile)

Posted on 12/3/2008 10:21:39 AM | | Votes: -4   

DexDiamonds, merging is a possibility. However, one of the reasons the Big Three are in this bind is because they have too many overlapping products. For example, GM has numerous mid-sized sedans to compete with the imports (Accord, Camry, and Altima to a lesser extent) including the Chevy Impala, Chevy Malibu, Saturn Aura, Pontiac G6, etc.) They really need only one sedan to compete. Merging would just multiply this problem.

— HSCenterconsole (View Profile)

Posted on 12/3/2008 10:27:40 AM | | Votes: 4   

Hmmm.... So what happens to the people working at one of these other companies that the Big 3 owes money to? How do they pay their employee's? If the Big 3 were to go bankrupt.

— 1UAW (View Profile)

Posted on 12/3/2008 10:37:02 AM | | Votes: -5   

bankrupt doesn't mean go away...just allows them to restructure contracts that are losing them money,...so sorry 1UAW, the union contracts go away...then they start to be more competitive with Honda/Toyota/Nissan...maybe the Unions can give a refund to the Big 3 for stealing the money for so many years, then they can use that money to pay suppliers...

— GodfatherSHM (View Profile)

Posted on 12/3/2008 10:50:27 AM | | Votes: 7   

GodfatherSHM:

I agree on the definition of bankruptcy protection. But it doesn't guarantee positive public perception. We are enthusiasts and know what's going on. Most other consumers won't be as informed and will only hear BANKRUPT and panic. Would-be customers will stay away or wait years to bring their business in the door while purchasing a competitor's product in the meantime.

Look at the "corporate jet" fiasco...bankruptcy would be 1000x worse. The probability of a healthy recovery in 2-3 years would be almost impossible and GM would have to close or be sold in portions.

— dumpsty (View Profile)

Posted on 12/3/2008 11:00:59 AM | | Votes: -2   

1UAW, under Chapter 11 GM, F or and Chrysler can keep operating -- their factories will not be shuttered. K-Mart filed for Chapter 11 and emerged a stronger company. And thousands of passengers have flown on airlines daily that were undergoing Chapter 11 reorganization.

— HSCenterconsole (View Profile)

Posted on 12/3/2008 11:18:07 AM | | Votes: 3   

HSCenterConsole,

Kmart and GM/Ford are two COMPLETELY different businesses. Kmart is a service provider, they don't produce anything. Also, if Kmart did one day go under, who cares (besides the immediate job losses, etc). They don't have R&D, they don't have any heavy industry... they are wealth creators like domestic industry is.

Just talk of GM going under, and lies about "poor qualtiy" and "gas guzzling SUVs" have seriously hindered sales. You really think middle-class people are going to spend their hard earned dollars on a car whose OEM may go under?

Ch 11 isnt the way out, its the weasel's excuse to not give a simple LOAN.

Why didn't we let AIG/Citigroup/FannieMay/FreddieMac/etc go bankrupt? Couldn't they just restructure and still offer their services? Truth be told, those companies are really useless. They don't create wealth like industries/technology companies do... they just shuffle money around, get congress to pass loopholes for them, and steal hundreds of billions.

Thing is, somehow they call it "wealth management" and get away with it.

— neutral (View Profile)

Posted on 12/3/2008 11:34:25 AM | | Votes: -2   

dumpsty -

I couldnt have said it better myself.

Thank You

— neutral (View Profile)

Posted on 12/3/2008 11:39:14 AM | | Votes: -2   

Neutral, thanks for the response, but I think your thoughts are slightly misguided. I just finished an accounting term paper for my MBA program on GM and F (meaning I've spent way too much of my free time out of work reviewing their cash flows, balance statements, income statements are other related research).

Chapter 11 wouldn't be the perfect solution, but it would be the only way for GM and F to be unchained from billions of dollars in pension obligations, healthcare obligations, and dealership obligations that are driving their cost of goods sold through the roof (GM averages between 95% and 103% of their net sales in CGS). They have no ability to make a profit in this situation. For example, GM has approxiametly 7,000 dealers nationwide while Toyota maintains 1,500 and Honda has 1,000. They need to close over 5,000 dealers. Without Chapter 11, it would cost them billions of dollars to get out of these contracts. This is money they don't have. Chapter 11 would be ugly and many people would lose their jobs under the reorganziation, but it is a far better alternative than having the entire companies go under.

There is a risk that consumers would not purchase cars from F or GM if they were undergoing bankrupcy. However, the meaning of this word has changed. Automakers could establish a seperate fund to guarantee warranties. Kmart or the airlines might be in different industries, but they are examples of emerging from Chapter 11 both succesfully and stronger. Consumers would have more confidence in a GM consistening only of Chevrolet, GMC, and Cadillac than they do now of a lumbering giant with too many brands.

Sadly, there is no simple solution to the Big Three's problems. However, throwing taxpayer money (now $34 billion) without fixing the entrenched problems of these companies is reckless. With their outrageous rate of cash burn ($6.9 billion in Q3 for GM and $7.7 billion in Q3 for F), both firms will be back begging before Congress in a matter of months for more money.

The bailout of Wall Street is far more complex. First, Fannie and Freddie have been always been government sponsored enterprises. Second, I work for Citigroup in their wealth management unit and I hate the fact we were bailed out (especially the second time when it wasn't needed). It kills us as stockholders in our own firm. However, it was not the "wealth management" side of the financial industry that needed bailing out. Without TARP, the credit markets would have completely dried up and there most likely would have been a run on the banks. Most businesses run on short-term credit. That means you wouldn't be getting your paycheck since banks would have stopped loaning to businesses. It would have been ugly and the financial and credit markets would have frozen up.

— HSCenterconsole (View Profile)

Posted on 12/3/2008 12:07:50 PM | | Votes: 2   

Let me rephrase my question it isnt very hard. I they go bankrupt what happens to the already struggling supoliers that are already in danger failing?

— 1UAW (View Profile)

Posted on 12/3/2008 1:31:23 PM | | Votes: 0   

Yes but here's the big picture...

People don't care about guarantees, etc. We live in crazy times. A neighbor of mine, a longtime domestic buyer recently bought a Camry. When asked, his response was "I wanted to buy domestic, but I'm afraid of them going under" He didn't care about governement guarantees, etc. All he cared about was protecting his investment.

You said that Citigroup got loans it didn't need eh? I've actually heard this same story from a relative who works in the financial industry. Funny how Citi got $20 billion of money it doesnt really want, yet real industry can't get the loans it needs.

If congress wanted to help GM (for example), theres a ton of better things it can do than let GM go into bankruptcy.

1) Regulate oil... no more wanton speculation
2) Infrastructure projects - people building things = truck sales
3) Lock down on green-treehuggers from California, delay 2010 diesel emission standards until 2015.
4) Relax fuel economy to something reasonable
5) GIVE SIMPLE BRIDGE LOANS
6) You get the idea

If congress really wanted to fix the dealership problem, they would pass legislation to do so. Right now, many dealerships are protected by state laws that forbid the automakers from shutting them down.

Not to be demeaning to your studies, but Ive noticed that many times, what is written in a book doesnt nearly cover all of the realities that are a business.

— neutral (View Profile)

Posted on 12/3/2008 1:43:19 PM | | Votes: 1   

Neutral, in response:

First, your neighbor's car isn't an investment, it is a depreciable asset. Cars, other than the most rare, exotics (see original Ferrari California), should never be considered investments since they depreciate.

The fundamentals of Citi's banking and investment units were relatively sound. Most believe it was short sellers that contributed to the precipitous drop of the stock two weeks ago. This second bail out was aimed more to allay investors' and bank customers than actually prop up the company further.

I am in complete agreement with you that Congress would help the most by reducing the CAFE standards. However, I think this Democratic Congress will saddle even more environmental weights to this "bail out." My favorite was Senator Bill Nelson (D-FL) saying that mpg standards should be raised to 50mpg (from 35mpg existing mandate) by 2020 in order for the Big Three to get the funding. Talk about shooting a person in the stomach and then offering a band-aid to help.

Most of my conclusions are not taken verbatim from a textbook. They are from looking at GM's and F's financial statements. Look at their statement of cash flows and you will see they are hemorrhaging cash from operations while issuing new loans trying to keep the company afloat. Or look at their historical CGS on their consolidated income statements. These companies is in dire financial straights and need drastic restructuring to survive.

Most of your arguments are pretty rational and from the heart, even if misguided and inaccurate. On the internet, its hard to know if you are talking to a Harvard PhD or Joe the Plumber (I'm leaning toward you being the latter from your comments). I would recommend at least picking up the WSJ daily to get some more understanding and insight into the financial and economic world.

— HSCenterconsole (View Profile)

Posted on 12/3/2008 2:38:13 PM | | Votes: 2   

Haha, i know I come off like Joe the plumber all too often. Call it nationalism, patriotism, whatever. I just don't want my country to loose its heavy industry for the millions of reasons I and others have stated before. Especially when they've worked so hard to make good cars that are fuel efficient, and at the same time, made massive strides in terms of their businesses.

Good too see theres someone out there who realizes how over-regulation hurts business.

We have to look long term, we need the benefits that the auto industry offers, bigtime. They were/are poised to gain market share, be competitive on a cost basis and be a revenue stream INTO the USA.

For the record, Im not a financial expert by most accounts.. I am an electrical engineer specializing in embedded electronics, controls and systems. It is astounding how under-appreciated mathematics, science, technology, industry, etc are pushed to the wayside in our country in favor of big profits, no matter who suffers. This is another reason why I support the Detroit3, they were just another monster of Wall St., focusing solely on investor profits for decades. Finally that mindset has shifted (as of a few years ago), and I see and have been seeing real potential to have the industrial might that we should have.

Sorry for the less than amicable statements, its a touchy subject.

— neutral (View Profile)

Posted on 12/3/2008 2:58:32 PM | | Votes: 1   

HSCenterConsole:

K-Mart went Chap 11 and was saved by Sears in a merger. If Sears didn't offer to help, it would've went under. To date, Sears Holdings (parent of both Sears & K-Mart) is in financial trouble again. They were trying to re-invigorate interest in their stores by doing renovations, but this plan came much later than when it was needed. As many Walmart stores started to pop up in the vicinity of existing K-Marts, their sales plummeted almost immediately.

K-Mart & Sears needed make-overs before Walmart started becoming the dominant general store throughout the US.

This same situation can be similarly applied to the Big 3 and their foreign competition. GM, Ford, & Chrysler were like K-Mart...thinking that new competition was temporary and the general public would keep shopping at the legacy shops just b/c they've always been there.

Oh, say it ain't so, Joe! Even with a billion-dollar bailout, recovery with take a few years. And if by that time, their financial books are healthy, then the stronger automaker needs to purchase the weaker firm and continue on.

— dumpsty (View Profile)

Posted on 12/3/2008 3:59:02 PM | | Votes: 1   

They're asking to BORROW more money... just like they'd ask a commercial bank if they all hadn't collapsed.

People seem to forget that. Take the choices...

A) Loan $25-$50 billion to Detroit (not like anyone REALLY cares about the money, most just blindly hate detroit)

B) Millions of jobs lost, hundreds of billions of GDP lost, tens- if not hundreds of billions of tax revenue lost, thousands of businesses destroyed, etc.

Even if you hate detroit (which most of America seems to do) and pretend that you're being frugal with your tax dollars, you'd be smarter to give a loan and force congress to put detroit on a level playing field.

Remember that Japan, Korea, and the EU have socialized healthcare... we don't. Time for health care taxes on imports if you ask me. America is the most wide open market in the world... why?!?!

— neutral (View Profile)

Posted on 12/3/2008 11:26:30 PM | | Votes: 0   

Neutral, there is a reason why the banks aren't loaning to them -- it's because they have a terrible business plan. Plus their bonds are rated as junk at B- level. Why should the government be forced to giving to bad borrowers? Don't you remember that whole subprime mortgage debacle?

— HSCenterconsole (View Profile)

Posted on 12/4/2008 7:57:35 AM | | Votes: 1   

...and, the Big 3 need to have a "plan" that outlines how they will achieve profitability over the next few years, not simply how they will cut costs. They need a solid business plan for their product developments, marketing initiatives, and labor relations before the government should give them any money.

— BSBB (View Profile)

Posted on 12/3/2008 1:21:24 PM | | Votes: 3