what worse for economy: rewarding inefficiency or the loss of 2 million jobs?

Ding ding ding.


Now there we'll disagree, as I strongly oppose nationalization. In the absence of significant changes (such as getting labor cost under control, which won't happen on the government's watch) the industry won't be viable regardless of whose name is on the door. And we've got enough sinkholes on the taxpayers tab already.

in the long run i would guess rewarding inefficiency.

I work for the company that handles media for GM. We've had about 100 (out of a staff of about 350) laid off from the Detroit office in the last couple months. There likely will be more where that came from in 2009. Scary time for anybody working in advertising in Detroit.

Part of our differences in opinion on this undoubtably come from our upbringings - mine has seen successful nationalisation in the UK (British Steel, Rolls Royce amongst others) actually make money for the goverment and equally importantly save jobs, whereas I know nationalisation is almost a dirty world in America.

(ignoring economic arguments towards certain industries being nationalised which aren't applicable in this case)

I see it simply as an alternative to them going through the bankruptcy process and restructuring that way - it should ONLY be done if the goverment has the confidence and ability to be ruthless enough* to turn it into a profitable industry.

It can be done obviously, there are car manufacturers which are profitable today - its just that the three in trouble aren't.

*Amongst other things that means breaking the unions involved and ensuring that the companies are truly competitive.

What he said.

We want short term gain for long term pain?

I think thats a fallacy to be honest - how many people here have negative connotations about the following companies:

Rolls Royce (Bankrupt 1971)
Jaguar (its owner MG Rover went bankrupt in April 2005)
..

The list is fairly huge, they're all UK companies which went down but which have been revived and continue to function and be percieved by customers as worth purchasing.

People WILL still buy from a bankrupt company if they believe they can get support and parts, there are enough in circulation that wouldn't be a problem and heck even if the plants involved closed down today there is enough of an on-going market that third-party companies would produce them for a fair while imho.

Its indeed what the media are pressing for and that short term attitude which has gotten the worlds economies into this state - its about time countries (and companies) took fiscal responsibility properly imho and planned for the countries future not just their 'next election' or their next bonus check ....

I believe the media is a large part of the problem, they rally public opinion towards the most ludicrous things by putting forward very shallow surface arguements and agressively attacking anyone who disagrees with them.

Bad times right now for anybody working in advertising, on either side of the equation, just about everywhere.

Anecdotally, we talked to a broadcast station in Detroit last week that admitted to being at 4% sold for January (came up because we're currently working on a per inquiry program for a client). I know Q1 is always slow but that's the lowest number I've ever heard I think. I'm also hearing a lot of 12% or 15% comments too, that's bad enough but that single digit thing kind of blew my mind.

Ayup. We're down now to a whopping 8 employees. Agencies ain't doing so hot.

Silliness! People flew bankrupt airlines. How can you ask people to fly in tin cans 30,000 feet above the air if you aren't sure whether or not they can afford upkeep and gas.

Bankruptcy will actually force them to restructure and lay out a new plan, and give them plenty of protections that bailout will not. It will not force them to close down shop, fire every one of their employees, or anything else the sky-is-falling people say.

Interestingly enough, Ford has actually increased their production at the manufacturing plant here in the KC area. They make Ford F-150's there and they're selling so well that they've got to produce more. So I guess it depends on what part of these auto companies you are in. I'm guessing that's also part of the reason that Ford likes their outlook a bit better than the other two companies.

UAW is already playing the blame game. It's evidently the GOP's fault. I get the feeling that the UAW may know the cush gig might be done........

United Auto Workers Lash Out at GOP Senators Over Bailout Collapse - FOXNews.com Transition Tracker

Sen. DeMint blamed the failure on the UAW last night.

Apples to oranges comparison.

At his moment? Yes. You can't just look at this in a vacuum. The economy sucks right now. Big time. Job loses and unemployment are reaching record highs. I don't think the economy can sustain such a massive blow at this moment. It's too fragile. We need to keep these companies afloat for now, keeping their employees in jobs. We can reasses the situation once our economy is stronger.

At that point, then, perhaps bankruptcy will be the best option for everyone. That point is not now.

Largely it is. This is mainly politics, not principles.

Well, of course, you're in Michigan and my wife works for an airline. An automaker going bankrupt is apparently the worst thing for the country. Plenty of companies have emerged from bankruptcy without their "brand" or whatever being destroyed. If the price is right and the reviews are good, people will buy.

And it's not really that apples to oranges. There were airlines stranding people, canceling paid-for reservations, etc. So it definitely was a thought in some people's minds that buying a ticket on a potentially bankrupt carrier was a big risk. But the big ones with good plans (Delta, United, USAir, etc) all weathered the storm (for now).

It is and here's why. When airlines like United, Delta, and Northwest declared bankruptcy, most fliers stuck with them. That's because it was clear those airlines would stay in business at least long enough to honor their tickets. But it wouldn't work that way for an automaker. Most people who buy airline tickets plan to use them within weeks. But consumers spend way more on a car than an airline ticket, and commit to the product for years. It's kind of important that the company selling the product be around to make good on a 60,000-mile warranty, service the car, and supply parts.

Edit:

Simply declaring bankruptcy would be a disaster for an automaker, even if the company seemed likely to ultimately survive. In a survey conducted by CNN 80 percent of people close to buying a new car said they would abandon an automaker if it were to file for bankruptcy. Not surprisingly, the numbers were higher for the Detroit 3, and lower for most foreign makes. An automaker could forestall the doom somewhat by offering fire sale prices—but selling cars at a loss would only perpetuate underlying profitability problems.

Another difference is that for airlines and other big companies that have successfully emerged from bankruptcy, Chapter 11 allowed them to cut costs and other expenses they were unable to address under normal operations. The airlines, for instance, were able to slash pensions and renegotiate rich labor contracts that were signed when the airlines were flush, but which they could no longer afford. That improved cash flow and helped them get back on their feet.

The automakers, by contrast, don't have a major problem funding their pensions. And they've already negotiated deep wage and job cuts with their unions, and cut billions in costs. They're not being crushed by wage and benefit costs. It's about revenue and products now. It's a business model issue."

Bankruptcy might allow Chrysler or GM to offload some debt—but it wouldn't do anything to increase revenue, speed the arrival of must-have new products like slick compact cars and family-oriented crossovers, or fund technology breakthroughs like GM hopes the Chevy Volt plug-in hybrid will be.

To sum, in today's marketplace, bankruptcy for General Motors (or any major automaker) is a death knell.

You don't do nothing with the auto companies, you restore the core parts of it (attack the assets and jobs). But all the rich folk surrounding them, time for them to perish. They have been skimming for the short term for years leaving the company in a giant financial mess (anyone bringing up the benefits holding them down thing, maybe if they set aside resources all along and intelligently planned their retirement load, they would not be having a problem... it takes 30 years of ignorance to have a pension problem, even though the symptoms occur over night).

If you ask me, give out loans at high interest, demand reforms in corporate governance, have some shareholders actually stand up for the company health for once (fat chance of that happening from the damn sheep), and reign in incentives for being a looter of your own company. End result, most of the company management will probably stay intact, but maybe some of the worst losers can be shaken out. The loans will generate money for the government (not a lousy freeby rate either although with hyper inflation it might not matter). But more importantly, keep jobs alive... maybe with interesting tax incentives like, I dunno, prorated credits for each employee up to 100K (scaled so higher paying jobs are worth more per dollar than min wage)... instead of dividend or capital gains cuts which actually increase the incentive for corporate looting in this environment (i could write a novel on corporate looting, and its helped guide my short selling policy fairly profitably).

LOL.

No political party made this mess, except on the periphery. The bulk of the blame lies on incompetent management and overpaid workers that the aforementioned management lacked the balls to stand up to properly. Combine that with getting their asses kicked in quality for decades & you end up with the mess we see today.

And a bail out will not do one damned thing to fix any of the causes.

If this is true then why historically has this never been the case - many European auto makers have gone bankrupt in the past, but of those who chose a course allowing restructuring they have generally performed very well (see previous comments about Rolls Royce, Jaguar etc.).

(in other news 81.2% of surveys found that their results might not be accurate ... ;) )

You already referenced earlier that there are different psychologies for U.S. residents/consumers (re:nationalization as an example).

Huh?

The vote against the bailout is largely political, not the mess the Big Three are in. I will make no apologies for the leadership of the Big Three. They have been horribly mismanaged and the UAW has has made it nearly impossible for them to compete on costs. A lot of their decisions have been Detroit Lionesque.

That said, the Big Three are in this dire situation in part because
Congress' failure to anticipate and head-off the collapse of the financial industry has frozen credit markets.


I disagree. You're buying into a lot of false myths about the status of Big Three today. They've been slow as hell to react, but they are slowly turning their massive boats around. It will take some time, but they're getting there.

If the companies fail, they will take with them 4 million jobs throughout the economy, and 4 percent of the nation's Gross Domestic Product will disappear. Lost revenue to the federal government will be roughly $50 billion a year. No amount of government manipulation will be able to keep the economy afloat.

I agree there are different psychologies - but in this case I haven't seen any historic examples which contradict my proviso and show this is one of the cases where different psychologies would have an effect.

I'd have believed that the airline comparison would be the most accurate available, I agree yes air tickets are used within a short space of time but the fact that (1) Its a potential risk to life and limb if they're cutting corners, (2) for most people its a big one off expense especially if its a family affair (I've often spent more on a holiday flight for my family than the cost of the family car*) - would give credence to the comparison.

*Yeah I hate buying new cars (my all time favourite car cost £500 and lasted for nearly 3 years with no repair bills, perfect :D), waste of money because of the depreciation imho ... that being said my current Chysler is my first ever new car and it rocks ...

Whoa, stop there. I'll apologize for misinterpreting what blame you were referring to earlier.

My disagreement with you the politics vs philosophy aspect of the vote last night is FAR more mild than my disagreement over what I thought you were saying, so much so that it's doubtful I would have even commented on it at all if I had read you right to begin with.

In addition to the economic reasons stated above, I think you additional reasons don't work either:

(1) There is a lot greater potential risk to life and limb if an automaker is "cutting corners" than if an airline is. That seems quite obvious, no?

(2) While I can't state this with any certainty, I would imagine the majority of airline's revenue comes from business travel, so the "family affair" expense doesn't work.

Gotcha.

Not sure there's a relevant historic example to point to, it's an unusual situation. But common sense says the U.S. consumer doesn't particularly trust these companies when they aren't going belly up -- which immediately sets them apart from RR & Jaguar -- why on earth would anyone think they'd be trusted during a bankruptcy?

This while true isn't something the consumer would think about in the same way generally imho ... the thing which would be thought of from a consumers perspective is simple one off danger management.

* If a car fails you're on the ground and chances are you'll be able to control things and avoid death.
* If a plane fails, well good luck (modern day aircraft don't 'glide' so there's none of this coasting down and landing malarky - you've either got engines or you don't).

Its for this short term reasoning that people makes people quite good about avoiding instant disasters they're visible and easy to see the consequences of - however long term problems (obesity for example) isn't something a lot of people can avoid easily because they 'sneak up' on you.

This is why I think PR'd right bankruptcy would work for the big car manufacturers, promote their restructuring as a positive - go on about how much more efficient they're being and how 'American' the companies are ... people would buy into it imho.

(its also one of the reasons unfortunately why the economies in this mess in the first place - too many people dealing with the immediate problem/risk without thinking about long term consequences)

Thats a reasonable proviso (not sure the exact percentages myself but it would likely be high) and something I hadn't considered.

Are we talking about the same Jaguar that was owned by Ford from 1989 until early this year? I notice you said it's owner went bankrupt in 2005, but that was MG Rover, who formed up from the parts of the Land Rover business that BMW didn't sell to Ford in 2000. The only connection they really have to Jaguar is that Ford sold the 'Rover' marque along with Jaguar and Land Rover to Tata Motors of India earlier this year.

Huh? The service parts are made by the same companies the production parts, same tools, same everything. I'm not sure how third-parties are going to make these parts, you can't just crap parts out.

I'll just sit back and listen to the rest of the conversation but I have to go against this.

If your brakes fail on a car, how are you going to be able to control things? It's the concept that I can blame someone else if there's a plane problem but I have "control" when something goes wrong in my car. It's the illusion of control, but it's not actual control. This is the type of reasoning that fear of flying people have that is based in no logic.

SI

I agree entirely - but its the perception of the difference that makes common feeling in many people of being slightly uneasy (or worse) when flying compared to a minute amount of people who are scared at the concept of being a passenger in a car.

(statistically speaking flying is the safest form of transport - BUT logic doesn't come into many peoples decision making when fear is involved ;) )

PS - With loss of brakes on a car you dump the car through lower gears to cause loss of deceleration and braking until it can be stopped, not pretty and can mess up your clutch pretty badly - but it works, I know because I've had to do it on a motorbike when the brakes failed coming up to a roundabout when I was younger.

I'll give you the 2005 bankruptcy as I know little about it apart from the date it occured (I'd kinda hoped it was somehow structured to its base but apparently not) - but I will raise you an earlier one by the companies history where it was nationalised and then re-privatised (only to be ****ed up as a private company once again):

Jaguar merged with the British Motor Corporation (BMC), the Austin-Morris combine, to form British Motor Holdings (BMH) in 1966. After merging with Leyland, which had already taken over Rover and Standard Triumph, the resultant company then became the British Leyland Motor Corporation (BLMC) in 1968. Financial difficulties and the publication of the Ryder Report led to effective nationalisation in 1975 and the company became British Leyland Ltd (later simply BL plc).

In the 1970s the Jaguar and Daimler marques formed part of BL's specialist car division or Jaguar Rover Triumph Ltd until a restructure in the early 1980s saw most of the BL volume car manufacturing side becoming the Austin Rover Group within which Jaguar was not included.

Privatisation
In 1984, Jaguar was floated off as a separate company on the stock market — one of the Thatcher government's many privatisations.
(taken from: Jaguar Cars - Wikipedia, the free encyclopedia)

If the companies involved truly went bankrupt do you not think private investors wouldn't see the potential for making 'generic' parts for the cars involved?

When English car companies went bankrupt this was exactly what occurred - either companies setting up their own factories to produce the parts or buying up the production plants at the now bankrupt companies (thus limiting job losses somewhat often by re-employing people who used to work in those areas).

.... but to reiterate I don't think that a bankruptcy situation would be more than a chance for the companies involved to restructure.

One final aside - don't worry about being 'harsh' when telling me if you think I'm wrong on any of this - I'm speaking my thoughts out loud and coming from a very different perspective to most people looking in on this situation (ie. my English upbringing), I'm using these sort of discussions to learn about how things stand in America as much as anything and very rarely take offence when people show me I'm wrong, somethings I think might be transferable from the UK to here may simply not be practical for various reasons and sometimes I may just be being flatout incorrect or stupid :D

With what capital? Or more accurately, with whose capital? Ain't exactly easy to come up with money to set up factories or buy up existing production facilities at the moment.

The problem is, other than nuts and bolts there isn't any generic parts on any cars. Its not as simple as everyone thinks it is to make a car. Every car has thousands of dedicated parts and very few common parts. It is an opportunity for a cost savings but its an opportunity that isn't realized by any auto maker, even Toyota, Honda, etc.


Are you sure about this? You can easily spend $100k (sometimes millions) to build a tool, I don't see many companies spending $100k to build a tool to manufacture a couple thousand parts. Maybe it happened then, but I don't see it happening now given this economy.

Setting up a factory isn't exactly a drop in the bucket either.

I'm really hoping for some kind of resolution, millions of people stand to lose their jobs.

Don't forget every other country is spending money to save their automotive companies. The trickle down effect is going to effect far more people than expected.

Again, I think most people have covered this, but there are several very major reasons this would be quite different than your examples:

1) One of the major reason people/companies buy new cars versus used cars are the warranties. If the company you buy the car goes under, warranties go bye-bye. So, would I buy an American car with the possibility of no warranty, or a foreign maker with one? Tough choice.

2) The places companies under bankruptcy borrow money to continue doing business are broke. There is no way that the borrowing budget the size GM would need to function under bankruptcy could be met. That is different than in Europe where the government nationalizes and the banks have greater guarantees.

3) The companies that are under bankruptcy would have to drop prices drastically to coax any buyers to purchase their products. That will continue to exacerbate the underlying problem.

Don't forget as late as Summer of 08 these guys were starting to make money until the economy just fell apart.

Shoot, I'm having a hard time spending $25 on my wife for Christmas let alone buying a car.

Here's an ignorant question: would warranties really go away if the companies declared bankrupcy or is this just mass hysteria generated by GM, Ford, and Chrysler?

I mean, if the company is still in business after they declare they're bankrupt they still have to honor the warranties, no?

Also, these four million jobs aren't going to disappear overnight are they? Television ads won't simply disappear one day, right? If the companies truly go out of business, then it's not like those people wouldn't have time to look for other jobs.

I'm sure we will start laying people off as early as next week, at least until the middle of February. We already had one wave the week of Thanksgiving, 10% were cut.

The problem is there are no other jobs out there, generally companies aren't hiring.

I'm sure the next question is move and find a job somewhere else, but look at the housing market!

i truly beleive people will buy any car that is a fucking bargain. bankrupt or not. obviously you couldn't continue to sell cars from a bankrupt company at competitive prices - they'd be at a deep discount. shit, i'd buy a Big 3 truck right now if the price was right, bankrupt or not. services and warranty probably count for 30% in the decision making process, the rest is all price. if nothing else service/warranty isn't a factor for me - it's all price. i want the best car i can get for as little as possible. if i'm buying new then it isn't likely i'd need the warranty for at least the 1st 3 years. i bought a Hyundai Elantra in '02 and i have yet to have a reason to use the warranty. charge something cheap enough and you'll have a market for it. besides, the car makers themselves don't make the parts. its the 3rd parties, right? at least that's the line we've been given by the Big 3. "it's not just our companies that will suffer, it's all the mom and pop companies that make parts for us that will go out of business".

listen - we're humans. we manage. if a Big 3 company goes out of business, yeah, there might be some fallout from other companies that support the auto industry. but if there's enough of a demand for a product someone eventually starts a business or expands their current business and they make that product. you really think as soon as a Big 3 company goes under the same day a mom and pop parts supplier shuts off the lights? most (smartly) run companies have reserves they can tap, i'm sure it'd be a while before these smaller supportive companies start to have to tighten the belt. and who's to say they don't already lay people off during the normal course of business. people get laid off all the time, they get fired. why is now any different. at the worst they can always sell their business to some other parts company and the auto parts market consolidates. its not like this entire parts industry is going to get wiped out overnight. and if a Big 3 company goes under then these parts suppliers can try to find business with the other numerous car companies. or they get bought out. this really isn't armagedon. are we gonna bail out all the Seattle stores that suffered when the Sonics left for Oklahoma City? no one was concerned about all those stores that were dependent on having the Sonics in the vicinity. it happens. you build your store/company based soley on one attraction or one specific market you run the risk of your business being impacted by the loss of that one attraction/market.

it's called capitalism - you risk money to make money.

No, warranties go away when the companies shutter. It has nothing to do with mass hysteria, just common sense. Clark Howard has been warning people about this with Chrysler for the past year. They were close to closing their doors before all this happened.

Thanks. It is tough right now. I'm sure the easy answer is to move and find a job, but that's easier said than done sometimes. That being said, unless they go out of business entirely, all four million jobs aren't going to be lost either.
I know the warranties would go away if the company were to close, but aren't we making a huge leap to say that bankruptcy will definitely lead to companies closing?

and like i said, they aren't all going to be lost *at the same time*. it'd be staggered depending on the reserves the company has on hand. some may be able to last about a year, which hopefully would be enough time for a solution to be discovered. i don't quite think its a "here today, gone tomorrow" scenario we're being lead to believe it is.

The other thing is, why don't GM, Ford, and Chrysler (can't call them the Big 3...if they were, then they wouldn't be in this mess) offer greatly discounted cars without warranties? There are ways around the warranty mess and I agree with HA that people will still buy cars with good deals.

I think you can also buy a warranty through a third party, so why not do that if you can negotiate the price down to cover the cost of it?

I think for a number of states lemon laws would get in the way of eliminating warranties, but I'm not sure.

Huge leap? Not really. Not with experts saying they will not come out of bankruptcy. Instead of looking at this with your own personal view, you need to think about this as the average consumer. A new car is a major investment to the average person. Are they really going to gamble a good percentage of their income on buying a car from a company that might not exist next year?

Also, their seems to a fallacy thinking here that price is the chief motivating factor in car purchases. If that were the case, then the US brands would have been killing the foreign makers since every like American vehicle has been selling for thousands less than the foreign counterparts for years. It might be the only factor that has kept them alive, but it has not been a great strategy to stay alive in the future.

People buy new cars based on a number of factors. Price is far from the only concern. Warranty, dependability, ease of service, and resell value are very important. All of those are going to take major hits for a company in bankruptcy, and the American makers were already behind in all of those factors, save warranty and ease of service. But with warranties not being with anything if the companies gone (and no, lemon laws won't help if the company is out of business), and New car dealers going under rapidily (I read a trade paper yesterday that predicted new car dealerships for the big three will shrink next year regardless of bail-out to the tune of 30% or more), the ease of service goes out the window as well.

If you think a bankrupt car maker is not going to drop 50-70% in sales numbers, then you are kidding yourself.