A Solution for General Motors 25 comments
November 16, 2008
| about: GMGMQ.PK
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The automobile companies, or at least, initially, General Motors (GM), should be put in a prepackaged bankruptcy with preannounced debtor in possession financing from the US government. The following objectives would be achieved immediately through this prepackaged bankruptcy.
- All labor costs, both on worker and executive levels, would be restructured to assure that the company can operate with costs levels that are competitive with worldwide car manufacturing costs (i.e. Toyota (TM)).
- This means that unionized workers will end up with salaries that are significantly less than now, but at least they will have a future and a job which pays much more than McDonald's. Salaries will probably be arrived at by a model which creates an economically viable company and then backs into what can be reasonably paid to the workers. GM executives say they have a structure which by 2010 should make GM worldwide competitive; this should be determined by independent analysis.
- Likewise, executive pay must be reasonable compensation. No big bonuses or contractual payouts.
- The current debt holders must take major write-down on the value of their debt holdings. These might be 50% to 75% reduction of the current face value of the debt. The rest of the debt will be written off in the bankruptcy so that the company can reasonably become cash flow favorable. (Any plan which does not result in GM being cash flow positive is wasting money)
- Currently, equity holders will only receive a very small value of the residual company, say 10%, of the future equity. The rest will be held by the new investors, hopefully including private equity firms who know a good plan when they see it. For example, the new equity distribution could be 10% current shareholders, 20% current bond holders who take a 75% reduction in their debt holdings (this is an addition to the 25% of their original debt holding) and 70% for new equity investors including the US government and private investors willing to bet on the new restructuring.
- A plan will be created (and hopefully exists in the car companies) to make the investment necessary to make them competitive in future low-cost, fuel efficient models and the plant capacity necessary to do this. This plan must determine the monies necessary to implement it.
- The government must create or approve the plan to fund the company based on the above principles. While a significant part of the funding will come directly from the government, private bank financing should be available for a well thought out plan, especially if warrants or other kickers are provided to private equity financiers.
- This plan creates financial losses for almost everyone associated with GM. But it also does not destroy anyone associated with GM. It builds for the future and does not depend on favoring one sector over another (banker vs. employee vs. bond holder vs. equity holder). This writer believes all other plans will provide temporary relief for one sector or another, but ultimately these alternate plans will cost everyone much more.
How does this plan compare to the currently most discussed options in the press?
- Government bailout or stimulus package for auto companies. Without fixing the underlying problems, money put into the auto companies will simply be money down a rat hole. It will provide cash flow for a little bit and then the same problems will cause the bankruptcy. Money alone will not make GM viable. Only fundamental restructuring of labor and financial costs along with updated products can make GM viable.
- Normal bankruptcy. The worst fears of the car companies will be realized. Consumers will not buy cars from a bankrupt company. Parts suppliers will go broke, dragging down the other auto companies also. While the government avoids putting in new money in normal bankruptcy, it will lose much on the cost of social benefits and lost taxes coming from a viable company. Normal bankruptcy is not good for America in this case.
Three additional thoughts.
- Secretary Paulson’s plan to save financial companies is ill-conceived. Saving banks in Secretary Paulson’s terms means really saving the equity investors in the banks and will not produce more loans and jobs in the general economy. You cannot force a bank to lend when the bank believes they are unlikely to be repaid. In recent days, even Secretary Paulson has now publicly admitted this at least with respect to the original TARP proposal.
- President Roosevelt’s plan of building roads in the 1930s and the current Chinese government’s plan to do the same thing is correct economically. The money here goes directly to needy workers and you really get a road when the project is done. The above suggestions on fixing the car companies is much in this same context. Create viable jobs for American workers.
- The US government sector does not have enough money to bail out every problem in the private sector. For President-elect Obama to be successful, he must create bold but effective plans that really fix problems. America has effective leaders that can be enlisted if there are effective plans to fix a problem. But President Obama needs to truly confront underlying problems and not put simple band aids on much deeper problems as has happened in recent times. Dealing politically with the labor issue in the car companies will probably be the hardest part of the above mentioned plan. It will also be a test of whether President Obama is a real leader who truly fixes the problems.
Disclosure: no positions
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This article has 25 comments:
A worker for GM making $40+ per hour may not be a better worker than the person who work for hambergers for $7.90 an hour.
My father worked for min. wage all his life but he had his little cheap house, his cheap car, and never owe anyone anything. His life was a happy one.
He never had or wanted a credit card . Only those who buy things they can't really afford will end up being foreclosed. GM is in such a mess created by the UAW is beyond repair. Loyalty counts, you know. You just can't squzze your employer to death. Now have to find another line of work. just like that.
Until you actually work there, you cannot make those ridiculous comments. 1. The people on the line do not make $40 per hour. 2. Not all auto employees owe for everything and I said nothing of the sort about auto workers being better than any other worker.
Lets say your employer came in and said okay today we are having a hard time and going to cut your salary in half. What would you do? Just say okay while the CEO gets billions in bonuses alone? How is that justified. How is it justified that the CEO has led us down the path that we are in with Hummer's etc.but the employee has to take the blunt.
Another shinning example. Foreign auto manufactures get huge tax breaks for building new and shinny plants here in the good old USA hire workers at lower wages without retirement options while the Big Three tote around big plants that were built back in the 40's and are paying for retirement, as they should, for people who have retired since the 60's when the foreign auto makers weren't even around.
Another point, taxes on imports. We do not tax cars coming into the United States from foreign competitors as foreign companies do ours. That is why GM started building factories in China. That way they could sell vehicles in other countries without the tax, however, that does not help the American worker. If the taxes were "fair" the American worker could have been producing those cars for foreign countries ie. more sales.
Now, I can go out and get another job. I do have a degree. My mother worked 30 years at GM so I could have an education. However, I work where I do because there is NO job out there that will pay me what I make where I am even with a college degree. If I must then I will
On Nov 16 09:43 AM XeroJ. wrote:
> speedster,
> A worker for GM making $40+ per hour may not be a better worker than
> the person who work for hambergers for $7.90 an hour.
> My father worked for min. wage all his life but he had his little
> cheap house, his cheap car, and never owe anyone anything. His life
> was a happy one.
> He never had or wanted a credit card . Only those who buy things
> they can't really afford will end up being foreclosed. GM is in
> such a mess created by the UAW is beyond repair. Loyalty counts,
> you know. You just can't squzze your employer to death. Now have
> to find another line of work. just like that.
To those of you who still expect business as usual over the past 30 years, I suggest you read a book called "Who Move My Cheese". It should help you understand that the cheese has been moved, permanently and its time to find another stash of cheese to feed on. This is not a slam, but a suggestion to help us move forward as people that have been fed off automotive.
Direct Big 3 employees and UAW workers are not the only ones hurting. Many suppliers have gone under and their previous employees have had to move on. Detroit is an economically depressed area for those of us who live here. It may be time for us to look for greener pastures in other states where the ecomony is not based so much on manufacturing...
Back in the late 70's my father, a union man, worked for an ice factory. The ice factory management said that they couldn't make it if the union pushed for higher pay. They said they'd rather close immediately then see themselves lose everything in six month's time. The union kept pushing. The company closed and my father, having only an 8th grade education and limited networking skills never worked a steady job again. We went from good pay to welfare overnight. And didn't climb back out. Unions are good for protecting worker safety and rights, but they gotta look at the big picture. GM could get big bailouts now from the government and still go bankrupt next year, which means zero dollars per hour instead of $12 to $15 per hour in concessions.
I feel for y'all. Been there. But the economy, the evaporation of credit, the drop in housing prices, the loss of other industry jobs all conspire to leave cars unbought. Something's gotta give. What I wish the union at my pop's factory had done is push for retraining instead of higher wages. He might have gone on to something positive.
If GM goes down, everyone there will be without a job, without health care, without pension, and sliding down to foreclosures, etc. If you had a crystal ball and saw that it will happen anyway, just a year later, what would you wish had been done differently? That's what needs to be done now. Protect yourself for the new future that is coming. Is GM Too Big to fail? No, its too big to stay afloat. Even stars in the heavens go super-nova and burn out.
On Nov 16 11:53 AM RetiredAmericanWorker wrote:
> A great plan! In fact, let's mandate that the salary of any American
> cannot exceed the amount paid for the same job in China. The Bush
> Administration along with the large multinational corporations have
> been working on this plan for the past 8 years and look where it
> has gotten us as a nation.....
GM wages are no more than Toyota, $28/hr for legacy workers and $14/hr for new hires. GM won't hire more union workers, prefers to issue O/T penalty time instead.
That's just BAD MANAGEMENT, nothing to do with labor rates. First, study total UAW wages, only 4% of GM total expenditures...even if UAW worked for free, GM would still lose billions.
What GM needs is GOOD CARS TO SELL, such as the EV1 all-electric car. No body is excited over stupid GM moves like the revival of the gas-guzzling Camaro; just more BAD MANAGEMENT.
Anything less would ruin future opportunities for otherwise viable companies to raise capital via the debt market. Remember, day-to-day financing generally provided by banks won't and cannot occur unless the entity is able to raise capital from both equity (stock) and debt (bonds) sources.
While the auto industry may employ 1 out of every 10, don't forget the survival of the other 9 out of 10 who need to provide a secure and viable debt financing mechanism, the same bond holders the author is suggesting end up with 25%. The goose gets killed here.
On Nov 16 04:35 PM TURI wrote:
> MR WOOD:...LETS CUT WAGES LET'S ELIMINATE BENEFITS LET'S COMPETE
> WITH TOYOTA!!!!!!OH WAIT A MINUTE TOYOTA WORKERS MAKE $25AN HOUR
> PLUS $6000 TO$8000 IN BONUSES A YEAR, WICH COMES TO ABOUT $30 AN
> HOUR...YOU MUST BE TALKING ABOUT THE 30% OF THE TOYOTA WORKERS THAT
> MAKE $10 AN HOUR AND NO BENEFITS..THAT MUST BE IT....OR MAYBE THE
> MEXICANS OR THE CHINESE...THIS IS OUR LAND, THIS IS USA TOYOTA AND
> THE OTHER TRANPLANTS SHOULD BE COMPITING WITH US, OUR WAGES OUR BENEFITS.
>
The coming Chevy Volt will use more efficient lithium ion batteries, like those in a cell phone, and is far more practical for the long term.
Lastly, GM sells 6 of the top 20 selling US vehicles. That's 30%. Obviously, someone is excited about their offerings.
By voting to close GM, you vote against your investment in your own community and to allow foriegn interests to entrench deeper in your back yards. I agree that GM needs to redo their business plan because there are lots of mixed signals and this is why congress is taking their time to sort all this out. But to destroy any community in this country as a lesson to unions and poor management would be like cutting off your nose to spite your face. I don't look at this so much a bailout, but as a loan to help out a nieghbor who's fallen to an unfreindly economy. Hell, we're pumping 10 billion into Iraq every month. Just helping a nieghbor out right? Let's help our own with 2 just months of Iraq compensation.
But demand a business plan, that emphasizes that our communities come before retention bonuses, golden parachutes, foriegn investment and global aspirations. Demand union accountability - stem absenteeism, tighten work restrictions, better review family medical leave abuse, throw out appointed position slackers and eliminate job entitlement attitudes.
In turn we should expect work coming back to our communities, which should energize our economy, which hopefully will return the big three to profitability, and in a year or two create a robust return for the taxpayer.
If we don't start to come together soon, we will surely fall apart.
We just have to put politics aside and demand accountability. Please
save the U.S.A.. Don't ask for it, Don't argue about it. Demand it!
Reply |Report abuse
> You are a complete
> idiot, and the government itself is partially responsible for the
> financial ills, the fact they didn't keep an eye on things.
This exemplifies the puerile, sophomoric belief that the government should be actively pursuing policies which guarantee that no one is hurt by their own avarice, incompetence, ignorance, weakness, hubris, malfeasance, laziness... (You pick the descriptor).
It is this type of protectionist, bailout mentality, along with the notion that everyone is entitled to own a home, an SUV, a profligate lifestyle... (again, you pick), that has brought our economy to the perilous point on which it currently balances.
The liberal politicians are prospering with this largesse by promising entitlement to the undeserving and unrepentent. A paternalistic government engenders a weaker and less productive populace.
Yes, I believe in a social contract which protects the truly weak and unfortunate. But that does not include the people who would rather game the system than produce value. We have unfortunately tolerated and politically empowered the lazy, whining slugs who eschew the moral values and pioneer mentality which built this country.
Only homage to free markets and to individual autonomy and responsibility can make this country prosper again. Bailouts will just prolong the agony.
I'm a fool too. I actually believe that getting a reduced wage is more than getting the delayed nothing that you offer.
David
On Nov 16 09:09 AM David Runyon wrote:
> And I think the writer of this articles should take the same pay
> cut that the auto workers should have to take. You are a complete
> idiot, and the government itself is partially responsible for the
> financial ills, the fact they didn't keep an eye on things. If Wall
> Street is bailed out so should the Bib Three. If they go under you
> might as well put a Japanese flag over the White House. james Wood,
> you are a fool.