Offer Ford a Bridge Loan to Buy GM Assets 11 comments
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The following recommendation (which I formally submitted on December 7) is intended to save the automotive industry in the United States, to protect the US taxpayer from potential losses, and to shelter the US economy from additional indebtedness and a Greater Depression.
A preliminary read should be made made by anyone who has not yet reviewed the Investment Rate. This is a proprietary long term Demand - Side analysis which has been able to accurately predict long term economic cycles in advance. It suggests that the economy is on the brink of a Greater Depression. If that's true, the US government cannot spend its way out of the current adverse conditions. I have already used the Investment Rate to identify the turn in the economy in October 2002.
This was done through a report titled "Will an Improving Economy be Enough?". The report identified the bottom ten months in advance. I used the same longer term analysis to identify the top of the market in 2007 as well. This leading indicator was provided in September 2006 and it was titled "Top of the Market to You!" Less than 12 months later, the market peaked. For readers who have not done so already, take the time to review the Investment Rate now: A Greater Depression My proposal for stabilizing and revitalizing the automotive industry adopts the same principal as my prior Proposal for "Improving Lending Between Banks". The premise is contemporary Darwinism. In September 2008, I developed a concise plan which would prevent the Banking idustry from collapsing, which would alleviate the risk associated with open market purchases to the US taxpayer, and which would help save the economy by reducing the risks of a Greater Depression. A summary of that proposal can be reviewed here: Alternative to TARP
Such action cannot be taken without a consideration towards those affected by the outcome however. Therefore compassion needs to be paid to employees too.
My formal proposal:
- Treat General Motors (GM), Ford (F) and Chrysler as separate entities.
- Recognize that Ford (F) is the most stable.
- Offer a bridge loan to Ford (F)
- Allow General Motors to fail, and wipe out all legacy costs.
- Facilitate the purchase of GM assets by Ford (F) using the bridge loan.
- The purchased assets should be lean and near profitable.
- Ford (F) should be able to repay the bridge loan with those revenues.
- Chrysler should be left idle until they decide to declare bankruptcy too.
- Once Chrysler declares bankruptcy a similar transaction should occur.
The end result will be a much more competitive US auto industry. Legacy issues will be dissolved. The strength of the resulting entity will be formidable. All competitive R&D projects will be retained, and the forward progress of the industry will continue, virtually unabated.
If the government instead bails out the industry by trying to spend its way out of the problem, not only will the monies probably be lost, but the US economy will inch further towards a Greater Depression.
We cannot afford to be emotional about the company General Motors once was, because that is no more. We cannot afford to throw money at a sieve of operation which is both GM and Chrysler, because that is an all but assured loss. And the US economy cannot afford to incur additional debt to fund these fragile companies because the government is fiscally unstable itself. Capitalism, and Contemporary Darwinism must prevail, otherwise our economy will weaken.
The government must be proactive.
This requires a prompt transaction. Ford (F) must be able to purchase the trimmed down General Motors (GM) assets immediately to prevent buyer apprehension, dealer attrition, and to allow the supply chain to remain alive. Timing, therefore, is critical.
Afterwards, reconciliation will need to be paid to legacy costs as they relate to retired employees, but that will not be an issue for Ford (F).
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This article has 11 comments:
Both Ford and GM are attemtping to get back to their core, by shedding Volvo, Saab, and Saturn.
P.S. GM aquiring Chrysler would also likely take them down faster. They need to solve their own issues first, and fast!
Regarding Kee’s “Formal Proposal”:
• “Treat General Motors, Ford and Chrysler as separate entities.” – That is already what is being done – Nothing new about this.
• “Recognize that Ford is the most stable.” – Everyone already knows this – however, Ford’s stability is dependent on the rest of the industry being stable as well. Supplier- base stability is critical.
• “Offer a bridge loan to Ford”– Ford has not asked for this. Why give taxpayer money to someone who is not requesting it right now?
• “Allow General Motors to fail, and wipe out all legacy costs.” – Dumb idea. Legacy costs get transferred to Federal Government: Pensions and Healthcare costs would then be owned by the taxpayer- a “Wipe In”. In addition, a national economic disruption of this magnitude would cause many more businesses to take big hits with thousands or millions of people no longer employed.
• “Facilitate the purchase of GM assets by Ford using the bridge loan.” What specific assets would Ford purchase and for how much money?
• “The purchased assets should be lean and near profitable.” How would you specifically analyze and quantify this?
• “Ford should be able to repay the bridge loan with those revenues.” Again, specifically what amount are we talking about?
• “Chrysler should be left idle until they decide to declare bankruptcy too.” How do you quantify the economic effect of an automotive financing company, Chrysler Finance, not being solvent and it’s economic ramifications on the rest of the automotive industry.
• “Once Chrysler declares bankruptcy a similar transaction should occur.” – Are you suggesting that Ford also acquire Chrysler assets and perform a similar transaction?
In summary, most of Kee’s proposal does not make much sense, unless one wants a fairly complete unraveling of the US economy.
Regarding Kee’s “Formal Proposal”:
• “Treat General Motors, Ford and Chrysler as separate entities.” – That is already what is being done – Nothing new about this.
• “Recognize that Ford is the most stable.” – Everyone already knows this – however, Ford’s stability is dependent on the rest of the industry being stable as well. Supplier- base stability is critical.
• “Offer a bridge loan to Ford”– Ford has not asked for this. Why give taxpayer money to someone who is not requesting it right now?
• “Allow General Motors to fail, and wipe out all legacy costs.” – Dumb idea. Legacy costs get transferred to Federal Government: Pensions and Healthcare costs would then be owned by the taxpayer- a “Wipe In”. In addition, a national economic disruption of this magnitude would cause many more businesses to take big hits with thousands or millions of people no longer employed.
• “Facilitate the purchase of GM assets by Ford using the bridge loan.” What specific assets would Ford purchase and for how much money?
• “The purchased assets should be lean and near profitable.” How would you specifically analyze and quantify this?
• “Ford should be able to repay the bridge loan with those revenues.” Again, specifically what amount are we talking about?
• “Chrysler should be left idle until they decide to declare bankruptcy too.” How do you quantify the economic effect of an automotive financing company, Chrysler Finance, not being solvent and it’s economic ramifications on the rest of the automotive industry.
• “Once Chrysler declares bankruptcy a similar transaction should occur.” – Are you suggesting that Ford also acquire Chrysler assets and perform a similar transaction?
In summary, most of Kee’s proposal does not make much sense, unless one wants a fairly complete unraveling of the US economy.
Regarding Kee’s “Formal Proposal”:
-“Treat General Motors, Ford and Chrysler as separate entities.” – That is already what is being done – Nothing new about this.
-“Recognize that Ford is the most stable.” – Everyone already knows this – however, Ford’s stability is dependent on the rest of the industry being stable as well. Supplier- base stability is critical.
- “Offer a bridge loan to Ford”– Ford has not asked for this. Why give taxpayer money to someone who is not requesting it right now?
- “Allow General Motors to fail, and wipe out all legacy costs.” – Dumb idea. Legacy costs get transferred to Federal Government: Pensions and Healthcare costs would then be owned by the taxpayer- a “Wipe In”. In addition, a national economic disruption of this magnitude would cause many more businesses to take big hits with thousands or millions of people no longer employed.
- “Facilitate the purchase of GM assets by Ford using the bridge loan.” What specific assets would Ford purchase and for how much money?
- “The purchased assets should be lean and near profitable.” How would you specifically analyze and quantify this?
- “Ford should be able to repay the bridge loan with those revenues.” Again, specifically what amount are we talking about?
- “Chrysler should be left idle until they decide to declare bankruptcy too.” How do you quantify the economic effect of an automotive financing company, Chrysler Finance, not being solvent and it’s economic ramifications on the rest of the automotive industry.
- “Once Chrysler declares bankruptcy a similar transaction should occur.” – Are you suggesting that Ford also acquire Chrysler assets and perform a similar transaction?
In summary, most of Kee’s proposal does not make much sense, unless one wants a fairly complete unraveling of the US economy.
Ford needs to keep Volvo. Ford would be good to buy the Grandcaravan asset of Chrysler only restoring a van choice to the their consumer. Jeep and Ram trucks need to just die. GM already has too many truck lines and Ford doesn't need them.
BTW the article is crazy. If you follow the logic how does Ford become lean? and shed their legacy costs? Guy's an idiot, like the other neo-cons we had running things the last 8 years!