Should the USA Auto Industry be bailout?

that 25 billion is in addition to the 25 they already received.

The US economy is underwater.

well let me correct the record:

they were already allocated 25 bil last year but have not received the $$$.
now they want another $25 bil.

They tried to grab some of the $700 bil but the sec of treasury said no.

The heads of the three leading U.S. automakers will meet with House Speaker Nancy Pelosi Thursday afternoon to discuss a possible bailout — one day before General Motors and Ford Motor are expected to report sizable third-quarter losses and reveal painful new cost-cutting measures.

Executives with knowledge of the meeting said it will focus on preliminary discussions about what was at stake if one or more automakers were to fail. They said specific details of a bailout are not expected to be discussed. The meeting was also set to include Ron Gettelfinger, president of the United Auto Workers union.

“The industry needs time and it needs money and it has neither at this point. That’s the purpose of meeting with the Speaker,” said one executive.

Senate Majority Leader Harry Reid (D-Nev.) is not scheduled to be at the meeting. In a statement, Reid said he is open to considering additional measures to help the industry and would be discussing it in the days ahead with the automakers as well President-elect Obama’s transition team, Pelosi and other members of Congress.

One auto executive said it is not yet clear if the industry will seek help during an expected “lame duck” session of the outgoing Congress later this year or if it will wait for the new Congress and Obama to take office in January.

Sources also said the automakers are pushing back product development plans in an attempt to save cash. The move is a desperate one, as it hurts their plans to roll out the more fuel efficient models they need to reignite sales. But they say they have no choice in the current environment.

“Everyone’s having to do it,” said another executive at a U.S. automaker, who spoke on the condition his name not be used. “[Sales have] fallen off a cliff. These are far from normal slow times. We need to do what we’re doing in the short-term to address that.”

Both GM and Ford Motor are likely to discuss product development plans Friday when they report their financial results, according to sources.

Analysts surveyed by earnings tracker Thomson Reuters forecast that GM lost $3.51 a share in the quarter, or about $1.9 billion. Ford is expected to report a loss of 93 cents a share, or $2.2 billion.

These losses exclude special items. And with the companies looking at possible further cuts in production and payroll, there could be other charges that send losses even higher.

The situation is clearly dire for Detroit’s Big Three — GM, Ford and privately held Chrysler. Their Asian rivals have been struggling as well.

Toyota slashed its annual earnings forecast Thursday, saying profits will fall to less than a third of what they were the previous fiscal year. The Japanese auto giant will also post its first annual decline in U.S. sales since it became a major player here. The U.S. is now Toyota’s largest market.

Automakers reported the worst month of auto sales in 25 years in October and sales are expected to remain weak into next year due to tight credit for consumers and dealers, rising job losses nationwide and battered consumer confidence.

The crisis in the auto sector has prompted talk about a possible GM-Chrysler merger, one which would lead to the loss of tens of thousands of jobs and further factory closings. Those talks appear to be on hold at the moment, though.

There had been talk that GM and Chrysler would need federal loans if they were to try to complete a deal. But one of the auto executives said the possibility of a merger was not likely to be a topic at Thursday’s meeting.

Shares of GM (GM, Fortune 500) were down 10% in afternoon trading Thursday while Ford (F, Fortune 500) shares fell nearly 4%. Toyota’s (TM) stock plunged more than 17%.

Source

@GamTrak 185182 wrote:

What about shipping jobs overseas and other decisions that they need to make in order to be successful?

I’m from Ohio and have friends that worked for GM and Ford (one guy drives over 2 hours ONE WAY to Michigan to keep his job, if he still has it) so I do understand the importance of saving them and how crucial they are to that area which has been hit very hard over the past 20 years, but if they come to us then we need to be sure that they are doing their part to save themselves as well.

The question is:
Does he drive a GM, a Ford or a non-US manufactured car?

@AmCan 185185 wrote:

1990 when the market dropped in response to the first gulf war they pushed for nafta and moved lots of production to mexico and canada to reduce costs.

Sound like what Freddie and Fannie did to the housing market! LOL When we have no jobs left here in the US then they want to come to us for money.

I heard that an option to us NOT being “hostages to oil” is natural gas so do you know anything or plans for that? The smaller cars can work on electric batteries, but the 18 wheelers can’t.

Since the mid 1970s the big 3 has been cutting both union and white collar jobs.

from 2005
The Big Three have shed about 600,000 U.S. jobs since 1980, while about one-quarter of Americans employed in automotive manufacturing (nearly 300,000) work for foreign-owned companies — and that excludes Chrysler, which was acquired by Daimler Benz of Germany in 1998. http://ncseonline.org/NLE/CRSreports/05apr/RL32883.pdf

1990 when the market dropped in response to the first gulf war they pushed for nafta and moved lots of production to mexico and canada to reduce costs.

in late 1990’s ford and GM spun off their parts companies: Visteon and Delco, reduce their costs, raise cash. They’ve increasingly outsourced design and manufacturing to their vendors. So johnson controls might design the seat and manufacture it, instead of ford doing design, picking subcontractors, etc then sending it all to JC to build. By the 1990’s ford and GM were already outsourcing most engineering jobs and focusing on having white collar employees manage the vendors rather than operated departements in house.

The unions (the american UAW has, the CAW in canada, much less) have made concessions to reduce work rules, allow more outsourcing etc. All this culminated last year when the agreed to the health care fund that will leave them with the liability of their own retiree’s health care.

So, they are doing a number normal business move to reduce costs and lead times. On the other hand all the money they pissed away on fuel cells and hydrogen that was at least 20 years away was about image and not actually changing the current situation.

My understanding is that they’re seeking loans to cover the payments they owe into the new healthcare “trust”. They agreed with UAW to transfer the retirement medical liabilities to this “trust” to get the liability off the books before costs increase and/or the companies fail.

This will free up the cash to be used to run the company. Living in the 2 auto capitals of north america, I certainly have a vested interest. But if the auto companies fail to meet their pension obligations will be left to the US government to cover and the benificiaries would lose a majority of their retirement income. What is the better risk, the loan or the possibile results of bankrupcies.

So, once GM goes bankrupt, then all the GM cars that are out there suddenly lose value, because nobody wants a car that might have no support/parts available. The GMAC auto portfolio contains about $500 billion of loans. How many will default? What will happen to all the “asset backed securities” (yes, just like mortgages were packaged) and the banks that hold, them? The fear is the results of these failures will be similar to the mortgage equivalents that brought down the mortgage industry (rather than the Mortgage CDO bets that sank the banks summer/fall).

Same arguments as before, what’s the best bet, trying to save it or letting it die?

I guess the last argument is that foreign competitors have received money from their governments, such as mazda(bailout) in Japan, Renault when failing before Goshn took over and VW (tax breaks) in eastern europe, brasil and mexico, Tata in india.

1 idea i was thinking of is to give the car companies a tax credit/payment, when the sell vehicles that use natural gas, are rechargable or maybe have high mileage ratings (twice the national average? or whatever seems like good policy). This way they have to both win a buyer in the market place, but also sell technology that reduces either dependence on foreign oil and/or reduces CO2 output to get the cash.

Finally, the US government made money when they bailed out Chrysler in 79/80. That was the argument for taking risk with financial industry. Well the Chrysler example matches the current situation quite well.

My vote is Maybe. If they get anymore money, I know that we need to have some rules first!

One of the MUST be no more sending jobs oversees to make cars! We need to keep every single job in the USA of any company that wants us tax payers to bail them out.

The $700 billion dollar bailout that went to wallstreet was wasted on trips to resorts and other crap as well as paying shareholders their dividens and bonuses! Any company expecting our help will have to forgo all of the frills and thrills and suck it up like everyone else that is struggling!

What about shipping jobs overseas and other decisions that they need to make in order to be successful?

I’m from Ohio and have friends that worked for GM and Ford (one guy drives over 2 hours ONE WAY to Michigan to keep his job, if he still has it) so I do understand the importance of saving them and how crucial they are to that area which has been hit very hard over the past 20 years, but if they come to us then we need to be sure that they are doing their part to save themselves as well.

@GamTrak 185636 wrote:

I always figured that the banks would just keep the money (like they did) and not use it to ‘stimulate’ the economy. We got scammed on that deal! :flush:

In a nutshell ..

The derivatives market is a financial tool. It was used traditionally as insurance items, against physical goods, future prices etc, but used by industry that actually used, consumed or needed the real item. Oil, wheat, gold, dollar prices, pork bellies .. you know the sort of thing.

The derivatives market got so big, hundreds and thousands of time the size of the actual REAL market. This was due to speculation by investment funds, hedge funds, private equity, all the captains of industry.

While prices went up – all was good (like the stock market). Everyone makes money buying, selling, buying again. A financial roundabout where values are inflated – and monies are loaned using the potential value of the underlying asset as collateral.

But eventually, someone decided it was an unsustainable bubble.

Selling occured, and then more selling, and more selling. It became apparent that the reason why the derivatives market was so big was that some companies had sold contracts that was in excess of their ability to ever repay or redeem … if the prices suddenly crashed.

Bascially the big firms had acted as insurers for these commodities, but they’d sold so many contracts that they couldn’t possibly pay a fraction of them if they all came due … and with the drop in oil, wheat, gold, the dollar … they were all coming due.

As redemptions of contracts slowed, and then were frozen it became apparent that these companies wouldn’t pay, couldn’t pay, and the underlying value of the asset was never really as high as speculators had driven it.

The value of the assets were slashed. Balance sheets were altered. And that meant that companies that had loaned money on margins for this speculative buying were in trouble.

The “banks” needed much of the bailout monies to pay the increased cost of lending because their loan ratios and newly stated balance sheets pushed them into different risk categories once junk bond were no longer categorised as assets at 100% of their paper value.

It wasn’t to buy stuff, it wasn’t to stimulate the economy, it was to pay margin calls on the loans of over-leveraged businesses. There was little choice. Pay the margin call or the loan is defaulted and the bank goes into receivership.

The hard call would have been to let the institutions fail. That is technically what a pure capitalist system would have done – but the medicine was considered too tough – as the size and scale of the banking failures would have brought down tens of thousands of businesses across the US as well.

The US (and therefore the world business envirnoment) was starring right in the face of a major downturn of economic system that would surely have started the GREATEST depression.

It may still come to pass, as much of the junk bonds are still in the system, and eventually major financial organisations are going to have to admit how much of these “assets” they’re writing off.

So where has he money gone?

The crazy money spent BEFORE the bailout on acquisitions of other companies who were also doing the same thing was money poorly spent, was the source of much wealth destruction. (pay $1 billion for a debt ridden company is simplywasting $1 billion).

THe US spending more on imports than it exports each and every day is also pmping money offshore – and destroying the wealth of domestic taxpayers.

The bailout was dumb … but I think that not doing it would have been even dumber … and it still may not save the global economy … in the next 12-18 months we will see.

I understand you’re peed off Gamtrak but as far as I gathered those “AIG executive meetings” are the equivalent of CAP Europe AIG style (i.e. AIG Phoenix ).

Those are top “affiliates”, i.e. independent AIG agents who push their products. Of course you will always have a few top level corporate types liasing with these people at the resort jumping at the opportunity to gulp down free booze, raid the buffet and slouch around but that’s the nature of the beast. The pictures it creates and the message it sends in these times is terrible but at the end of the day if they want to stay competitive it seems prudent for them to continue these affiliate outings because their affiliates drive new business.

As for the auto industry. I am 100% certain that since O clean sweeped the rust belt he will support them wether it makes a great deal of economic sense or not. I fear US auto makers have missed out on most of the major developments in this industry for years and if it wasn’t for US governement intervention they would all be doomed – and rightly so.