Should Detroit receive a bailout?

[iNow]

A better question would be, why would we assume there would be long term cascading effects? Why wouldn't some other automobile firms buy them up to control the rich American markets?

 

Because nobody can get credit right now to do so, ecoli. That's the point. I appreciate your ideals very much, and I learn a lot from your posts, but your focus on idealism does not demonstrate a realistic perspective on the economic conditions we face right now, and your posts imply an absolute blindness to the context in which we're having this conversation.

 

As I stated in the OP... under normal conditions, sure, but these aren't normal conditions, and free market forces will be more detrimental than good (unless you take a long term view so distant that the benefits won't be seen for decades, and "to hell then" with what happens to all of us right now and our ability to feed and house ourselves).

 

Here's the thing I think you're missing. There is no credit available for other car companies to buy them, which means anyone who did would have to have a significant cash position on their balance sheet already existing, a cash position already weakened by the global economic downturn, and further be willing to risk letting go of that existing cash strength by taking on the problems of GM and/or Ford. None of those decisions are likely.

 

The thing here to remember is NOBODY can get credit right now, hence the abundance of news stories about "credit market freezes" we've all been seeing these past several weeks. That is why we cannot assume that anyone will just swoop in and buy them like they would under "ideal" or normal market conditions.

 

 

As for "assumptions about cascading effects," are you serious? I've demonstrated some very real ways that letting them fail will impact the rest of us. Do you think I am wrong, or are you just ignoring the interconnectedness of our markets to make some other point about idealism?

 

 

Lost jobs --> lost tax revenues --> lost spending in other sectors --> pensions need to be paid to retirees --> inability to pay mortgages lead to more foreclosures --> housing crisis worsens --> more companies fail --> more banks fail --> businesses continue to be denied credit, so can't innovate or move forward --> unemployment worsens since more companies fail due to the inability to get credit --> more terminated workers can't feed selves and can't feed children, they get sick --> healthcare related debts skyrocket, yet they can't even afford bread, so the healthcare system starts failing when people stop paying them --> more people get laid off, the cycle continues --> the economy just keeps getting worse because we thought there was a "principle to stand by" --> but hey, that free market can fix anything --> Screw all this interconnected global market nonsense and the real human suffering --> Yay idealism!

 

 

Or... we could step in with some temporary help, put strong oversight and regulatations in place, put a stop to the nose dive, and pull out of this thing before making it worse.

Edited November 18, 2008 by iNow

[jackson33]

Unions Captain P, in the US are subject to individual State Law. Right to work, or not join a Union are very different and subject to certain business. Here we also have very different standards of living from one State to another. Cost of living in Oklahoma may be half of California or NY, but Union Contracts are for the total workforce of a particular company. That is, the worker in NY may require a certain wage, just to maintain living in NY where in Oklahoma that same wage is four, five times what would attract any number of workers. Unions lost their cost/efficiency ratings to business productivity years ago.

 

As for your ingenuity argument; GM and Ford, have been working on or with Government for at least 10 years. GM on electric cars and Ford with bio fuels. Ford at one time planned to build an infrastructure along Interstates to handle and both have been working with Oil Companies to install Electric/Battery services. As for producing products the public will purchase; Yes, they made an error in predicting just when Gas would reach 5.00 per gallon or that States would annually add tax to that product. In Europe, taxes make up the majority of fuel cost and have for some time. For instance, TODAY, the cost per gallon (liter ?) is 1.20 per from the refinery. Our average today for all States about 2.30 or so, and you can determine what you pay, that is actually petrol cost.

 

Another factor; In most places in the US, the average drive time to and from anyplace can be hundreds of miles and vacations, especially for families, thousands of miles. Comfort an issue and always safety is important driving along next to 40 ton trucks with your car. Markets for big cars, still exist and especially small trucks where business is often an issue, farming and the like. Ford/GM, are selling good in developing countries and its these big cars being bought, as well.

 

Phi for All; The average family bread winner, will change jobs seven (7) times in their working lifetime. Teamster members, plumbers, teachers and the many professions represented by some Union are no exception and their retirement packages are handled by the Unions. This to me shows no interest in the Company/Employee relationship which should be in the interest of the Union.

 

Japanese or German Auto makers in the US are not settling into Union States. They are here to avoid the same problems in their home country and the NEW cost of transportation with most all parts being shipped around and where the markets are.

Today, parts to produce component are shipped into an area, those components then shipped to manufacturers and the final products shipped again. Back with 10-20.00 per barrel crude and where the factories produced their own components, the final cost to get into the markets was simple more cost efficient.

 

I have added all this to clarify my opinion, the US two largest auto makers, can pull through this and IMO will. How then the question and have addressed. If the 'bailout' really only a 25B LOAN and probably only lasting 6-12 months before a result must be seen, the cost to the over all economy, would be money well spent, if they can be reorganized. I have no idea how much that 25B will mean for those 3 million families or for the communities they live in or the return to Federal, via taxes, but it would seem to me it should dwarf that 25B figure...

[Pangloss]

Mod Note: The posts focusing on Labor Unions have been moved to a new thread (see the link below). A couple of the posts (numbers 25 & 27 above) were copied rather than moved since they pertain to both discussions.

 

http://www.scienceforums.net/forum/showthread.php?t=36527

[iNow]

What a bailout should include (more detail at link for each category):

 

http://www.cnbc.com//id/27773776

US auto executives will take their case for a $25 billion industry bailout to Congress later today, hoping to overcome political opposition from influential congressional Republicans and the White House. CNBC.com will stream the hearings live, starting at 3 pm EST.

 

But even if the industry gets the money, it will come with considerable strings attached, an approach favored by president-elect Barack Obama.

 

A collapse of the US car industry would be “a disaster in this kind of environment” Obama told CBS' 60 Minutes on Sunday, but assistance “can not be a blank check.”

 

Here's a look at some of the major changes facing the auto makers.

 

• Shedding Costs
  
  
• Modernize Operations
  
  
• Fewer Brands and Models
  
  
• Reduce Dealer Networks
  
  
• Improve Image
  
  
• Make Better Cars
  
  

[Mr Skeptic]

Here's a look at some of the major changes facing the auto makers.

 

• Shedding Costs
  
  
• Modernize Operations
  
  
• Fewer Brands and Models
  
  
• Reduce Dealer Networks
  
  
• Improve Image
  
  
• Make Better Cars
  
  

 

Is it just me, or are those things that they should have already been doing (other than the fewer models)? And if they weren't, then there really is no need for any of those jokers in management. I think that whoever wrote up that list did it with the idea to give people the impression that some changes would be required of the companies, when in reality these are things the company would do anyways.

[Pangloss]

• Shedding Costs
  
• Modernize Operations
  
• Fewer Brands and Models
  
• Reduce Dealer Networks
  
• Improve Image
  
• Make Better Cars
  

 

Right. Watch for unions to oppose a lot of that, by the way, and they're going to do that through their paid representatives in Congress. They'll want those labor agreements left in place and the focus for change placed squarely on the shoulders of top executives. We're going to need to remember that high wages and benefits are part of the problem here.

 

Not that I think high wages are inherently unfair, mind you. If Detroit was making a superior product then it could command higher wages for its employees. But until it can do that, employees are going to have to settle for less.

 

Is it just me, or are those things that they should have already been doing (other than the fewer models)?

 

Insufficiently.

[iNow]

Here's the thing I think you're missing. There is no credit available for other car companies to buy them, which means anyone who did would have to have a significant cash position on their balance sheet already existing, a cash position already weakened by the global economic downturn, and further be willing to risk letting go of that existing cash strength by taking on the problems of GM and/or Ford. None of those decisions are likely.

 

The thing here to remember is NOBODY can get credit right now, hence the abundance of news stories about "credit market freezes" we've all been seeing these past several weeks. That is why we cannot assume that anyone will just swoop in and buy them like they would under "ideal" or normal market conditions.

 

I could have said this all much more simply. It's as if we're in a crashing plane. It's going down, it's going down fast, and there are a bunch of people inside (and it's projected to crash into a nuclear power plant near a population of millions, ta boot). Instead of focussing on ways to pull out of the nose dive, or to generate lift, maybe tweak the wings or increase thrust in the jets, you're arguing that we are humans and should never have started flying in the first place. We're yelling, "Hey, we're all in this plane about to crash, we need to stop that from happening" and your approach is, "yeah, we should never have stopped riding horses. Let me explain why I think riding horses is better."

 

To be fair, I am not honestly sure if I'm for a bailout to Detroit automakers. That's part of what caused me to open this thread. However, I'll tell you I'm entirely unconvinced by this "free market" answer you seem to give in every economic discussion which ever takes place (for the reasons implied in my analogy). We are a "market," not a "free market." Most agree that government regulation is needed (and, in fact, good) on some things, and that free market ideals are good on others, but we need both.

[ParanoiA]

Ok, so your point is that you don't agree with hard medicine. Cool. You seem to think that collapsing auto makers is really horrible. I don't. The same argument could be made for any business. Most have employees, with little kids, home mortgages, that depend on that business for survival.

 

The obvious point should be: How does big business learn its lesson if you bail them out? Think a little further than the first obvious answer to that. You don't agree with the kinds of cars they're marketing. You don't agree with their business plan. You don't agree with some of the union behvaior ( I think anyway ). Yet, if you bail them out, how do the other companies get the motivation to change their business plan, to market cars you like, to stand up to the union enough to negotiate a fairer wage and competitive formulas?

 

Over and over, we're meddling here and there, over managing this economy. I don't think we're on a plane about to hit the ground, our economy will weather all of this fine if we concentrate on shoring up the fundamentals. It's starts with ending the excuses to print more money. There's always a good reason to save someone's ass. But that doesn't equate to actually helping anything. Bad investment needs to be punished. That's fundamental. Next, we are going to be arguing about the cruel notion of natural selection. It has to happen. Why are we so intent on cheating well known systems?

 

Watching a major auto maker fall, get bought out, or whatever, is going to re-establish and remind the business sector about the true cost of risk and the importance of pandering to market demand as opposed to guiding market demand - which is what they've been doing for years.

[jackson33]

Please remind yourselves, when foreign competition, came into this country (not opposed to), Ford and GM stepped up production of what are classified trucks (Pick ups to all SUV Models) which were at the time less regulated to government requirements (M/G). These models also were in high demand and produced the greatest profits (by far). Both reached their largest Company values during this time and many of the Union Contracts formed during this period. Also remember they were building and selling smaller cars and to compete even then, were selling at near the cost to produce. Also remind yourself, GMAC part of GM, developed into one of the largest 'Financial' in the Nation, supplementing and financing the differential 'labor cost' from that competition. Regulation and government insistence on 'Oil Independence' opposed to actually supplying oil based products from our resources (for what ever reason) and virtually every environmental and protectionist movement has create an anti-American atmosphere where anything opposing their movements an object for criticism. The financial crisis, deepening regulations, some in effect, others proposed, recent high oil prices are contributors to the current dilemma.

 

No business I have ever heard of can Modernize and reduce cost simultaneously, certainly on the level GM is in the process of doing. Retooling to produce a majority of Electric/Battery cars, scheduled for 2010 and 10 plus models with higher M/G (more than any other auto maker) are not inexpensive, especially when the overall economy is trending down. Reducing models is a simple supply/demand equation, where one model (say Olds) has been already deleted and every auto maker thinks they have the best product, or they would not produce them in the first place.

 

Back to the 'bailout' and again note it is a LOAN. Many companies, if not every one in existence, from time to time issues additional stock, issue bonds or has borrowed from Banks or investors to operate during slow periods. These outlets not currently available for a series of reasons, have caused the Big Three and hundreds of other business to request from an only remaining viable source...The Government. Its been my belief, government (all of them, City to State to Federal) that has caused the problem and when practical (3 Million households) its up to them to supply that source. Where I get off the boat and fast, is when government then tries to dictate, what and how that money is used, by added regulation, added mandates and in short telling business what to produce and perform daily business.

[Mr Skeptic]

Back to the 'bailout' and again note it is a LOAN. Many companies, if not every one in existence, from time to time issues additional stock, issue bonds or has borrowed from Banks or investors to operate during slow periods. These outlets not currently available for a series of reasons, have caused the Big Three and hundreds of other business to request from an only remaining viable source...The Government.

 

Maybe the government should buy some of their stock, then. Maybe the autoworkers union should buy some of their stock. If this were a good loan, the government would not need to be involved. If it is a risky loan, then the government should ask for collateral or be able to ensure that the money gets used properly.

[iNow]

Ok, so your point is that you don't agree with hard medicine.

That is not an accurate summation of my position. There is to be noted a difference between "hard medicine" and a "country-wide, self-inflicted mortal wound." I'm all about hard medicine, but you seem to be missing the point about how giving them their hard medicine makes all of the rest of us innocent bystanders grotesquely sicker.

[ParanoiA]

That is not an accurate summation of my position. There is to be noted a difference between "hard medicine" and a "country-wide, self-inflicted mortal wound." I'm all about hard medicine, but you seem to be missing the point about how giving them their hard medicine makes all of the rest of us innocent bystanders grotesquely sicker.

 

Well that's just where we disagree. I simply don't believe it will be as bad as you think it will be. I don't believe it is a mortal wound by any stretch. I think it's a necessary wound, though, absolutely. But I appreciate your analogy, and would actually agree to some extent, just to limit the damage, if I believed it to be that bad. I guess we'll see.

[Mr Skeptic]

That is not an accurate summation of my position. There is to be noted a difference between "hard medicine" and a "country-wide, self-inflicted mortal wound." I'm all about hard medicine, but you seem to be missing the point about how giving them their hard medicine makes all of the rest of us innocent bystanders grotesquely sicker.

 

That comment has now convinced me that we need to tell them where to shove their bailout, so that people can see that it won't be the end of the world.

[iNow]

When exactly did this thread morph out of a "here are the numbers, we're screwed if we do, we're screwed if we don't... what are your thoughts?" discussion to "It's the end of the world" and "the sky is falling" or "I want to prove people saying those things wrong."

 

My point isn't that we won't survive. It's not that we are doomed forever. It's that there is a huge amount of collateral damage associated with this which ripples throughout the country to innocent people and families.

 

 

I don't like bailouts, but I also don't like how Fred down the street won't be able to feed his kids tomorrow night or pay for his daughters broken arm because he worked for a company that makes the hydraulic tubes which go into the air conditioners at GM and it went out of business and he lost his healthcare because everyone wanted GM to take some hard medicine and stand on principle.

 

It's as if your daughter broke a plate so you force your son and all of your neighbors to go without food to punish her.

 

 

http://money.cnn.com/2008/11/18/news/companies/detroit_faq/index.htm?postversion=2008111809

The Center for Automotive Research, a Michigan think tank that supports the bailout, estimates that between 1.4 million and 1.7 million jobs indirectly tied to the Big Three would be lost in the first year following widespread auto failure.

 

I'd be okay with that too if new jobs were being created... new niches for them to fill, but we're not even close to that. The downturn and loss of jobs is everywhere. Citibank just fired 75,000 people! Do you understand how many lives and how many other economic sectors that impacts? It's a marvelous position to be in if you're hiring right now, but there aren't many of those who are, let me tell you.

 

 

I hate bailouts, but I love my neighbors. What's a guy to do?

[Mr Skeptic]

I don't like bailouts, but I also don't like how Fred down the street won't be able to feed his kids tomorrow night or pay for his daughters broken arm because he worked for a company that makes the hydraulic tubes which go into the air conditioners at GM and it went out of business and he lost his healthcare because everyone wanted GM to take some hard medicine and stand on principle.

 

And yet, they still get food and receive medical care.

 

It's as if your daughter broke a plate so you force your son and all of your neighbors to go without food to punish her.

 

um... As I said, maybe letting them fail will give people some perspective.

 

It's a marvelous position to be in if you're hiring right now, but there aren't many of those who are, let me tell you.

 

That magical invisible arm of the free market. Not perfect, but still effective for some things. My guess is that when the price of hiring people falls, more people will be hired.

[ParanoiA]

The problem is, iNow, you're argument applies to all business that goes out of business - all of it. You're making an argument that all of us are connected enough in our economy that none of us have the right to fail. If you allow that thought to ferment, how long until you restrict my right to take business risk? After all, why should you and everybody else suffer from my auto manufacturing business going under just because I, the owner, took an unfortunate risk to make cars than run on old cheese?

 

It's dangerous to freedom in the pursuit of property to make such a strong principle out of our interconnected nature. I realize we all will suffer to some extent, our finances mingle on several levels, but that doesn't justify the horrible precedence of bailing out big business - seriously, you're not going to like the consequences of corporate america realizing that they're too big for risk.

 

For business to work for the people, as designed, they need to be mortal.

 

It's as if your daughter broke a plate so you force your son and all of your neighbors to go without food to punish her.

 

No, not to punish her. To demonstrate plates are required for eating food. Big difference. We don't want everyone dropping their plates, thinking they'll get fed anyway, while they enjoy walking around with their arms free - in the face of the rest of us responsible enough to be careful with our plates. (...er, something like that...)

 

When exactly did this thread morph out of a "here are the numbers, we're screwed if we do, we're screwed if we don't... what are your thoughts?" discussion to "It's the end of the world" and "the sky is falling" or "I want to prove people saying those things wrong."

 

Well...you did liken this to a plane taking a nose dive...sounds fatal enough to me.

Edited November 19, 2008 by ParanoiA

[iNow]

So, do I sound illogical? Am I am letting my compassion cloud my better judgment?

 

I feel how much I'm struggling right now personally, and I make a good income. I can't even fathom what all this "standing on principle" and discussion about the "magic arm of free markets" is going to do to people who were struggling to get by before this all even started.

 

 

Stupid having a conscience. I wish my caring for humanity would shut it's hippy mouth. Too much "hey man, $25 billion dollars is a lot less than the over $175 billion it's going to cost if we stand on principle instead, ma'an..." Dumb tree huggers who understand math.

[jackson33]

Maybe the government should buy some of their stock, then. Maybe the autoworkers union should buy some of their stock. If this were a good loan, the government would not need to be involved. If it is a risky loan, then the government should ask for collateral or be able to ensure that the money gets used properly.

 

The total value of GM/F Stock, this morning is valued (market cap) at about

4B...2.1B F-1.6B GM. What is held by family or the Company I really don't know. If Government started buying common stock, it would create a false value. Whats called preferred Stocks are in fact loans, which as explained have dried up and Government will probably ask for a certain interest rate, which both company's have been paying around 8%. Since preferred investment are loans (creditors), under bankruptcy would be equal in status to all creditors, and paid back as assets are sold, whether under restructuring or going out of business, would happen.

 

"Used properly" under whose opinion. I have heard 50 from members of Congress almost entirely making no sense, or having some political agenda.

I understand the idea of giving lavish parties with borrowed money seems a bit strange, but sometimes business as usual is a better strategy then folding the tent, to perception.

 

On you last post; No the world won't end if GM is forced into restructuring by chapter 11. Normally I would agree, but these are not now and for some time to come going to be normal times. The probable end results are very different to any company in good times verses bad. For starters, real estate buyers, investors and those capable or willing to pay market values for assets are limited if exist at all. This includes the Federal as they insure the retirement pools of money to someplace between 60-80%, while expecting a massive decrease in normal tax collections which WILL be effected. On the other side, other Auto manufacturers would increase business, buy some of the dealerships, support to a degree the many suppliers, at worst even many of the GM/F brand names and infrastructures. GM and Ford, would no doubt still exist, possibly as foreign companies doing some business in the US. The best thing is allowing at least a year to complete their retooling, allow the economy to recover (even if somewhat) and allow time for all those that would be affected to seek alternatives.

[ParanoiA]

So, do I sound illogical? Am I am letting my compassion cloud my better judgment?

 

I feel how much I'm struggling right now personally, and I make a good income. I can't even fathom what all this "standing on principle" and discussion about the "magic arm of free markets" is going to do to people who were struggling to get by before this all even started.

 

 

Stupid having a conscience. I wish my caring for humanity would shut it's hippy mouth. Too much "hey man, $25 billion dollars is a lot less than the over $175 billion it's going to cost if we stand on principle instead, ma'an..." Dumb tree huggers who understand math.

 

I'm 37 and I've struggled paycheck to paycheck my whole damn life. Nothing has changed from one recession to another; from one "booming growth" to another. The perception of doom and gloom, in my experience, comes from media. Sensationalism, never forget, drives the media business. I'm not saying things aren't tough, not by a long shot. Rather I'm saying the media has a tendency to exaggerate, and I'm not sure how much stock you put into that or not.

 

Mostly I just don't play along with recessions and booms. I've never really cared what's going on. I buy a car when I need a car. I don't delay because the TV told me it's a recession and I could lose my job. I don't make any changes in my life at all whatsoever due to the economy. Maybe I'm lucky, I don't know, but I've never been burned by it. That bit of success is what leads me to believe too much of it is overblown. I put out a small fire in one room of my house and by the time the rumor gets around the corner my whole house burned down and my family is dead.

 

To answer your question, no I don't think you're being overly compassionate. And, in fact, I think your take is more mainstream than this board might suggest.

[Mr Skeptic]

So, do I sound illogical? Am I am letting my compassion cloud my better judgment?

 

I think that it is politicians who are trying to cloud your better judgment. No one is saying that the workers should be left out in the cold to starve.

 

I feel how much I'm struggling right now personally, and I make a good income. I can't even fathom what all this "standing on principle" and discussion about the "magic arm of free markets" is going to do to people who were struggling to get by before this all even started.

 

Why would those who worked for what is theirs want the government to take their hard earned money and give it to companies who aren't smart enough to turn a profit?

 

Stupid having a conscience. I wish my caring for humanity would shut it's hippy mouth. Too much "hey man, $25 billion dollars is a lot less than the over $175 billion it's going to cost if we stand on principle instead, ma'an..." Dumb tree huggers who understand math.

 

Because we are factoring the extra costs that the bailout will have, just as you are factoring in the cost to the economy if we don't. Imagine if this sort of bailout behavior gave our financial institutions the idea that they would be bailed out if they failed, and then it ended up costing us a trillion to bail them out. And then if some big car companies wanted to get bailed out, it might cost us 25 billion. And any big company might decide it needs a bailout, how much do we hand out before we say enough?

[Realitycheck]

Michael Moore is on Larry King right now. (His first film indicted GM of a bunch of issues way back when. Somehow, I missed that one.) Everywhere we look, big companies want to get saved from the effects of judgement and competition. OMG!!!!! This is just looking more and more absurd. GM should not be included in on the list, not by any means. Japan showed them how to build safer cars, more economical cars, more marketable cars. GM has not done anything lately to derserve such help, such as build a Volt (it's a little late), which has lots of competition.

Edited November 20, 2008 by agentchange

[iNow]

Yep. "Roger and Me."

 

 

I've been mentally going down the path of no bailout, and trying to pull apart the intricacies and cascades that will occur. I'm slowly coming around to the "no bailout is the best approach" option, but I'm still having a tough time with what to do with the "innocents."

[Realitycheck]

I think the big thing about the electric cars is that no one was trying to sell them earlier because they did not even compare, most notably on the range. But the key word is that none of the big players were even trying.

[iNow]

Not true. There was the EV-1. However, aligning with this idea of free markets, nobody wanted them. They couldn't see the value. There was no demand, nobody wanted them, so they stopped making them. That's the free market for ya.

[bascule]

Let's give the money to Tesla Motors instead