GM Proves There Is an Alternative to Bailouts 30 comments
December 23, 2008
| about: GMGMQ.PK
-
Font Size:
-
Print
- TweetThis
One of the top U.S. business stories Monday involved a Credit Suisse analyst predicting that GM could go to zero in its restructuring process. Which would mean that over $2bn of equity value could be wiped out as debt restructuring could lead to current equity holders being diluted to oblivion. Of course in return for equity stakes, creditors would agree to haircuts on their principal.
Which would reduce the debt burden and help restructure GM's business for survival... at the expense of current shareholders and creditors. Wait a second. So there is a non-government method to save the automakers. And taxpayers don't need to foot the bill? Creditors and shareholders foot the bill and provide the concessions in order to salvage the remaining value of the company? Amazing this system we have.
Wonder why our system's basic functioning eludes most who argue for a government auto bailout as if it's the only choice.
Shareholders get wiped out, as they deserve to be if indeed GM is worth less than its debt, creditors convert their debt to new equity, and there you have it - GM can reduce its onerous debt burden. So where's the problem?
Ah yes, the UAW. They refused to have pay rates competitive with other U.S. autoworkers in 2009. A bankruptcy and associated restructuring as described above would force them to negotiate contracts on similar terms to most workers in the USA. Thus their fear of bankruptcy and the widespread promotion of the nonsensical idea that "bankruptcy is not an option". Not an option for whom?
Bankruptcy doesn't usually mean the death of a company, nor the firing of all its workers. Somehow these basic points, plus the point that UAW members have benefits well above the average American, have been obscured in order to persuade Americans that a government bailout is needed. Hopefully understanding why GM shares could go to zero can help illuminate the fact that we already have a system for restructuring distressed companies and making them viable again - bankruptcy.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 30 comments:
GM was well on its way in its re-structuring, with historic concessions given by the U.A.W. in the 2007 contract, agreeing to new hires being paid $14.00 per hour..well BELOW not only the "transplant" auto companies but what you can get at any factory, union or non-union, and taking over retiree health care.
Basically the union has already been busted!, They were busted in the 2007 contract., and the fruits of that would have started to been realized in 2010. GM has reduced its work force by 60,000 in the last few years as the old "dinosaurs" leave or retire. By 2010 most all of those with 25+ years would have been gone.
I agree, GM has a lot of "legacy" costs. But that can be expected, GM has been building vehicles in this country for 100 years, and have a lot of retirees. The "transplants" have only been building in this country for 15 years and thus have no retirees yet.
Would you just take the pensions and health care away from all the retirees? The "new" autoworkers will not have pensions and will have reduced health care.
Give the 2007 contract a chance to work its way into full implementation and you will see that the union has already been busted, and that the Big 3 will have a huge Advantage over the "transplants".
Answer: Yes, but it would have happened a lot sooner. The price of the Big 3 vehicles would be a lot more expensive than foreign made vehicles that have cheaper labor costs. Material costs should be similar, but the almost $20 per hour more that Americans get paid to make these similar quality products would have to add to the price of these vehicles. Not to mention the great benefits that these employees receive while working for the Big 3 and after retireing from the Big 3.
The way the Big 3 has been able to keep prices competitive with foreign made cars is not by reducing labor costs, but by reducing material costs. Thus creating cars that are built to last 100,000 miles while foreign made cars are built to last 300,000 miles.
I say throw away the labor unions and hire those looking for jobs to do the same work for probably half the cost.
Bankruptcy- Great to restructure the BIG 3, remove their debt burdens (I have to laugh here....their debt is so huge and stupid people keep lending them $ !) renegotiate their contracts with the UAW and emerge leaner by allowing them to make the changes they need to survive as a company for the long term. SOUNDS EXCELLENT ! The only problem is that it would wipe out the SUPPLY BASE ! I feel like using explatives here because of the stupidity demonstrated by educated people ! When I say supply base I am not speaking about Delphi and Visteon either. We aer talking about the small to mid size suppliers that specailize in a process the while they are nothing in the grand scheme of things, your car must have their part to function. Oh and by the way, when this type of supplier goes under they also stop shipping to Toyota and Honda and VW as well. They Supply Base in the automotive industry diversified over a decade ago from companies that did it all to an honest to goodness supply chain. Where are the economists who should be saying that you are only as good as your weakest link and why isn't anyone saying that ALL automotive OEM's would be affected by the loss of just one midsize supplier? I guarantee you that if you see a company with annual sales of about 4 billion + go under, with hardly any vehicle sales in the economy, who is going to fill the vacuum? Normally a competitor funded by a lendor but right now no one will invest $ and certainly no one will give more $ to anyone until some clarity returns to the industry. I short: Kill one OEM and you kill the supply base which affects all of the OEM's.
BIG 3 Model Line ups: This is easy.....people are riding a bandwagon of perception that Japanese and German vehicles are better. While I can guarantee that Quality Standards are higher for both the G's and J's, the BIG 3 do have vehicles that consumers want. My first 2 cars were german, my third Japanese and now I drive a FORD ! Actually I've bougth 3 FORD vehicles and loved them just as much as all the others. This is just a marketing disaster on the part of the BIG 3. Instead of telling everyone how trucks are 'Built to last' & my favorite 'FORD tough' plus dropping them from cranes or putting them on top of mountains which we all know required helicopters to fly them up.... why didn't the Big 3 reinvent themselves perception wise while they were improving their line ups? In short: The BIG 3 have improved quality and their models but they didn't share this enough or in the right way with consumers.
UAW.... this subject is personally hard to be objective about. I both hate & admire the concept of a union. Hate it because it isn't necessary for what it was intended originally in this day and age....Love it because there is strength in numbers....the good that could be done by unions is on a grand scale. Unfortunately, the leadership over the years has created an its them vs us attitude and this mentality has permeated into the memberships personal lives as well instead of being a strictly business concept it is a way of life for many. I take my hat off to Mr Gettlefinger because I see that while he can't change things overnight, he is slowly remaking the UAW into something different. It should be more of an advocacy group than a negotiating team every 3 -5 years. You could hire 3rd party negotiators that are more ruthless & for much cheaper -when needed- rather than pay the union dues the mebers pay regularly. Anyways, I digress. The UAW is not to blame for the errors made by the BIG 3 management teams in actually agreeing to their absurd work contracts ! They should have dealt with them firmly decades ago instead of accepting them for future generations to deal with and repay.....oh, funny, I think we are that generation.
If you read it all up to here then thank you and Happy Holidays. May they be safe for you and yours and even though we might not have much to enjoy, enjoy the time with what we do have. Family and Friendship !
An article about the merits of bankruptcy in general within this ongoing financial system!
In 2010 those costs drop by $14.00 per hour automatically when the VEBA, Voluntary Employee Benefit Association is implemented. Those negotiations saved GM over $20 Billion dollars. The UAW has made major concessions since 2003. Even with retiree costs included the total labor costs involved in automobiles is around 10-14%. Let's focus on the 86%-90% of the costs first. We should also keep in mind, these are loans that will be paid back with interest.
All the union bashers think the retirees will get dumped. And they will. Right into a Gov't pension fund.
IT'S CHEAPER TO KEEP HER!
On Dec 23 11:14 AM william martin wrote:
> Will the government take over the pension plan? In BK they would.
> If the government is getting new shares of GM ,they should be part
> of the solution.
On Dec 23 11:25 AM Lazaris wrote:
> This is not about GM..it's about the deep economic recession (depression?)
> that the world is in. Even Toyota is posting a loss for the first
> time in decades. Every country in the world is helping their domestic
> auto industry. Seeking alpha, the southern Republicans and others
> just want to bust the union..plain and simple.
> GM was well on its way in its re-structuring, with historic concessions
> given by the U.A.W. in the 2007 contract, agreeing to new hires being
> paid $14.00 per hour..well BELOW not only the "transplant" auto companies
> but what you can get at any factory, union or non-union, and taking
> over retiree health care.
> Basically the union has already been busted!, They were busted in
> the 2007 contract., and the fruits of that would have started to
> been realized in 2010. GM has reduced its work force by 60,000 in
> the last few years as the old "dinosaurs" leave or retire. By 2010
> most all of those with 25+ years would have been gone.
> I agree, GM has a lot of "legacy" costs. But that can be expected,
> GM has been building vehicles in this country for 100 years, and
> have a lot of retirees. The "transplants"... have only been building
> in this country for 15 years and thus have no retirees yet.
> Would you just take the pensions and health care away from all the
> retirees? The "new" autoworkers will not have pensions and will have
> reduced health care.
> Give the 2007 contract a chance to work its way into full implementation
> and you will see that the union has already been busted, and that
> the Big 3 will have a huge Advantage over the "transplants"...<br...
The big difference is unfunded pension liabilities. GM having been in business in the US longer that Toyota has more retirees.
On Dec 23 11:50 AM magnusma wrote:
> "If the Big Three had built truly competitive cars (in terms of quality,
> MPG, design, and resale value) for the last 20 years, and sold them
> for the same (higher) prices Toyota and Honda get for their vehicles,
> instead of relying more and more on trucks and steep discounts, do
> you think they would be in this situation?"
>
> Answer: Yes, but it would have happened a lot sooner. The price of
> the Big 3 vehicles would be a lot more expensive than foreign made
> vehicles that have cheaper labor costs. Material costs should be
> similar, but the almost $20 per hour more that Americans get paid
> to make these similar quality products would have to add to the price
> of these vehicles. Not to mention the great benefits that these employees
> receive while working for the Big 3 and after retireing from the
> Big 3.
>
> The way the Big 3 has been able to keep prices competitive with foreign
> made cars is not by reducing labor costs, but by reducing material
> costs. Thus creating cars that are built to last 100,000 miles while
> foreign made cars are built to last 300,000 miles.
>
> I say throw away the labor unions and hire those looking for jobs
> to do the same work for probably half the cost.
As far as the comment that neither GM or the UAW can change retiree retirment benefits, the gentleman is right. Only a bankruptcy judge could do that.
As far as the comment that big3 cars were made cheaper so that they could pay UAW benefits. Duh, pretty obvious actually.
Bank CEO: Our models show that our (subprime) CDOs are still AAA! This "mark-to-market" rule is destroying American companies!
UAW: Our studies (sic) show that we get paid the same as Toyota workers already. If we get paid market wages, there will be no more middle class in America!
P.S. A factory worker is a "working poor", is not a middle class. Middle Class in 2000 == college degree.
the difference is health care and pensions…are you guys suggesting that the American workers be without health care and pensions? just to satisfy wall street big profits? We are the only country in the world with out government health care and pensions..and since my government things that it’s better to throw 120 billion dollars in Iraq to protect those that don’t like us, my company has to take care of my benefits…
Toyota does not have pensions and limited health care.
what most of you Toyota republicans don’t understand is that this current and past administrations have sold the American workers to the lowest bidder in the name of big profits..they have shipped our good paying jobs to slave labor countries…they have lowered our wages in the name of compepition…they have taken away our buying power and replacing with easy credit to keep us buying.
now we’re left with a ton of credit cards and wallmart wages..and we wonder what went wrong…are we that stupid? yes we are!
Thing about it..WHAT ARE WE FIGHTING OVER? wages…we want workers to earn less?
compete with china,s wages? .33/hr, Mexico $1.50/hr? India .99/hr?…
WAKE UP AMERICA..THE TOYOTAS OF THIS COUNTRY SHOULD COMPETE WITH OUR WAGES.. THIS IS USA…INSTEAD OF US HAVING TO COMPETE WITH THEM!
When sales of any product drops substantially, then production is adjusted downward. Duh ... so why do the autoworkers of our Big 3 seem to think they are 'entitled' to their jobs, when the products they make are clearly not selling? According to sales trends, then a quarter of the UAW (and management, and executives, and dealerships, and salespeople at the dealerships) are not needed.
This isn't about unions, imports, or politics. It is all about supply-and-demand in a capitalistic economy. Throughout our great nation, most people in general do care about the lives and livelihoods of the UAW autoworkers.
We simply don't care enough to whip out our wallets and give them the salaries they somehow believe they are 'entitled' to. Let the house of cards in Detroit fall.
Seriously, the transplants are here at all because a Republican president (Reagan) understood that our industries needed protection. The word went out that we would inspect the Japanese cars like they do ours and we would only have 2 guys available to do it, and suddenly they were building plants everywhere. He understood that American jobs should come first to an American.
The FACT is, as it is there are many reluctant to buy cars from these companies now becasue of fears of bankrupcy. Everyone remembers the owners of the Yugos, cars one year old and no parts.
Now I know that if it ever came to pass and the millions of GM cars and trucks out there, someone would step in and make parts, but what about warranties? What if your car was a "low runner"?
This is not a $200 airline ticket, this is the second largest purchase most people will ever make. Bankrupcy is an option, a hugely stupid option.
I know it is hugely fashionable to attack the management and the unions, I wonder though why all these "experts" in running auto companies are not getting in on those hugely lucrative jobs?
My favorite (not) columnist is a guy who brags that he has been writing about the auto industry for over 50 years. Never actually did anything, but wrote a lot. Throug the wonder of the internet I found a copy of a piece he did in 1997 attacking GM for not closing the car groups up completely and focussing on the truck market. He also lamented GM's lack of a V-12 for their trucks, even though the 454 could out pull the Ford and Dodge V-12's. I found an article more recently attacking GM for not restarting the electric car ($3 billion they could sure use now) and getting on board with hybrid cars sooner.
Apparently that advice is based on what is selling, because everyone knows that the best selling car in America is the Prius, right?
Sorry, no, the best selling car in America is the Ford Focus, followed by (drum roll please) the 21mpg Chevrolet Silverado. You know, that vehicle that GM is so stupid to produce.
I've never seen a dealer out in the road with a shotgun forcing people in to buy trucks, so they must be going in on their own. of course its because GM marketed them, their marketing prowess being responsible for their continued increase in market share.
One final thought. toyota and Honda have plants here, but they are no more US companies than GM is a Chinese company becasue they have plants there.
This holiday season, give a gift that will last forever to your friends, neighbors, and don't forget yourself. Go out to your local foriegn auto dealer, buy a car and help make Americans, those dirty, stupid, greedy pigs that they are (just like you) poor. That will teach them!
Your capitalistic society MANAGED TO SHIP MOST OF OUR GOOD PAYING JOBS TO SLAVE LABOR COUNTRIES IN THE NAME OF BIG PROFITS…TAKING AWAY OUR BUYING POWER AND REPLACING IT WITH EASY CREDIT.
So why again do they have their hats out, asking all Americans to ante-up so that they don't have to declare bankruptcy?
Yep ... they are the best. Sure they are. Of course they are.
I believe your anger is misplaced. Shouldn't you really be angry with all of our fellow Americans who have chosen to buy the products made by the more highly competitive companies?
The last time I checked, the Honda, Toyota, and Nissan assembly plants right here in America didn't employ 'slave labor'. They do seem to be making products that a significant number of us prefer to buy.
Light the torches! Grab the pitchforks! Let's git 'em!
THEIR PERMANENT WORKERS HAVE NO PENSIONS AND LIMITED HEALTH CARE...
WHAT I'M TRYING TO SAY IS THAT THE WORKING STIFFS OF THIS COUNTRY ARE ASKED TO WORK FOR LESS IN THE NAME OF COMPETITION...THEY, THE ASIANS SHOULD BE COMPETING WITH US...THIS IS USA....WOULD YOU INVITE SOME ONE FOR DINNER AND HAVE THAT SOME ONE TELL YOU WHAT YOU'RE GOING TO EAT?
BY LOWERING OUR WAGES AND BENEFITS WE DESTROY OUR PURCHASING POWER AND DESTROY OUR TAX BASE...
THE REASON WE ARE IN THIS MESS IS BECAUSE OUR PURCHASING POWER HAS BEEN REPLACED WITH CREDIT...
Yes; when I invite people over for dinner, I do attempt to serve something they will enjoy based upon their likings. That's called being a good host.
Your blogs underscore that you are also very sadly underinformed, about a wide variety of things. For instance, you clearly do not know the definition of 'slave' ... and it sounds like you could be overextending yourself, with regards to credit.
I'd be upset also. But I'd try to know what I'm talking about, before I post blogs here for the whole nation to see, if I were you.
A call center with 1000 workers moved to India, $.99/hr that's slave labor.
Delphi...3800 jobs...shipped to Mexico $1.50/hr that's slave labor.
2)Overextended with credit? no my friend I make $28/hr I don't need credit cards...my wish is for every one not needing credit cards...that would only happened if every one had a good job.
3)As far as dinner?...a good guest doesn't use its host... pay $12/hr and then throw him out!
4)If as you say people don't care what people earn...why is every one bad mouthing the unions? envy?
5)if you don't have health care coverage...I'm paying for yours.
6)you're the one that seems to be missinformed...I'm giving you facts