40,000 Jobs Lost as GM Becomes Biggest Ever U.S. Company Failure 31 comments
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Around 40,000 jobs will go as an immediate consequence of the bankruptcy of General Motors (GM) due to be announced by President Obama tomorrow: 30,000 across the United States and another 10,000 in the connected sale of GM’s European operations.
This will be the largest company failure in the history of the US, and it shows much for the incorrigible optimism of Americans that they are trying to portray such a historic failure as the opening of a new chapter for US capitalism. This is, of course, complete and utter nonsense. The 40,000 job losses are just the opening shot of the consequences of the GM insolvency. There will be secondary rounds as suppliers and subcontractors fail. Nothing can make up for the consequences of the massive collapse in GM auto sales this year. Now President Obama will doubtless dazzle the crowd tomorrow with a promise of a new GM. But what is this reshaped, debt-free giant going to look like? Has it any more chance of succeeding than the old GM? The strategy that appears to have emerged from the huge committee meetings in the run-up to bankruptcy is to emphasize production of small cars as the future of GM. Never mind that the US consumer has showed a manifest dislike for small cars and will return to larger vehicles the moment gas prices permit. Never mind that profit margins on smaller cars are, appropriately enough, smaller. And does the Spark look a winner? You see that does not fit the political mood of the moment which is reacting to the hikes in gas prices seen at the pump since last summer. Nobody has thought anyway too hard about throwing in $50 billion of public money to keep a giant company afloat producing cars that the consumer does not really want. Why would small GM cars prove any more popular than their ugly big ones? This is what happens when democratic governments go into business: they always get it wrong. They think about the workers, the environment, conserving energy and reckon the consumer will play along with the whole thing. Now is it not equally possible that oil prices will come down as the global recession proves to be longer and deeper than recovery optimists believe right now? That would keep overall GM sales down and undermine its small car strategy, and send the company back to the tax payer for another bailout further down the road. Rotten companies should be allowed to die, or at least stripped bare and sold to the highest bidder. This is how capitalism distributes capital to the most productive companies. Disclosure: No positions
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The US government, however, may be disappointed since it is unlikely that either consumers(who still have great and in fact growing choice, thanks to the globalization of brands and the New Auto industry in the South) or real, investor owned auto companies will cooperate with this model.
The Model the US govt wants to impose has been tried repeatedly and unsuccessfully by nations across the world and abandoned. By its very actions, the Govt is hastening what it wants to avoid: the demise of a competitive manufacturing base in the US Midwest and Northeast that is a safe haven for politically favored and well compensated jobs.
Now it seems that Toyata is a more genuinely American company than GM or Chrysler. The foreigners have become us, while we seek to ape the model of collectivst, socially engineered, centrally mandated industrial policy that foreigners, all over the world, are rejecting. The US government, looking, around the world for solutions seems to have settled on imitating its soul brothers in Venezuela rather than those suspiciously neo-capitalist economies of Asia .
Once foreigners looked at the best of what America had to offer for inspiration on how to compete, innovate and create prosperity. Now, the US seems to be looking at the worst of what foreigners have to offer.
The structural over-capacity issues will be with us for a very long time to come.
So if the recession proves longer and deeper, it seems that auto demand would be skewed toward cheaper (smaller) cars for the, perhaps, several year duration of the recession . But then after the recession, what happens to oil/gas prices? Up, up, and away? Probably another demand skew toward more fuel efficient (smaller) cars.
Only breakthroughs in fuel efficiency have the potential to resuscitate large cars/suvs. Remember, these became popular when gas was $2 and under - most experts now see $4/gallon or more in our long term future. Do the math: 15,000 miles per year, 15 miles per gallon = 1,000 gallons per year x $4 per gallon = $4,000 per year for gas. Next to mortgage/rent that would be the biggest monthly expense for most families. At 30mpg, the bill drops to $2,000 per year and 45mpg it drops to $1,333.
High salary people may continue to want dinosaurs, but average workers who are presently taking pay cuts and worrying about losing their jobs can't afford the luxury even with the 'lease' affordability deception. Personally, I would bet on a long term (10 or more years) demand shift toward smaller cars.
On Jun 01 03:42 AM CAEL wrote:
> Car demand must be pretty low right now but does the remaining auto
> players (TM, NSANY) benefit? Apparently GM should take at least 6
> months to re-emerge.
On Jun 01 08:55 AM frosty wrote:
> Cooper wrote, "Now is it not equally possible that oil prices will
> come down as the global recession proves to be longer and deeper
> than recovery optimists believe right now?" We may end up back
> in Kansas but it won't be the same after the tornado.
>
> So if the recession proves longer and deeper, it seems that auto
> demand would be skewed toward cheaper (smaller) cars for the, perhaps,
> several year duration of the recession . But then after the recession,
> what happens to oil/gas prices? Up, up, and away? Probably another
> demand skew toward more fuel efficient (smaller) cars.
>
> Only breakthroughs in fuel efficiency have the potential to resuscitate
> large cars/suvs. Remember, these became popular when gas was $2
> and under - most experts now see $4/gallon or more in our long term
> future. Do the math: 15,000 miles per year, 15 miles per gallon
> = 1,000 gallons per year x $4 per gallon = $4,000 per year for gas.
> Next to mortgage/rent that would be the biggest monthly expense for
> most families. At 30mpg, the bill drops to $2,000 per year and 45mpg
> it drops to $1,333.
>
> High salary people may continue to want dinosaurs, but average workers
> who are presently taking pay cuts and worrying about losing their
> jobs can't afford the luxury even with the 'lease' affordability
> deception. Personally, I would bet on a long term (10 or more years)
> demand shift toward smaller cars.
It is a classic USA Chapter 11 Bankruptcy scenario (the author is talking about USA Chapter 7). It is getting exceptional Government attention (USA & Canada) from Republicans & Democrats because of the huge workforce/voters involved. I agree that the USA needs to get OUT of the GM-ownership business as quickly as possible. I think that the President is impressed with the need to get GM privately-owned again.
On Jun 01 05:51 AM User 353732 wrote:
> The model of Government services is captive consumers(or clients),
> rising prices and falling quality(the Postal Service comes to mind....).
> This is the model the Government now wants to impose on growing segments
> on the US economy starting, of course, with Automotive manufacturing.
>
> The US government, however, may be disappointed since it is unlikely
> that either consumers(who still have great and in fact growing choice,
> thanks to the globalization of brands and the New Auto industry in
> the South) or real, investor owned auto companies will cooperate
> with this model.
> The Model the US govt wants to impose has been tried repeatedly and
> unsuccessfully by nations across the world and abandoned. By its
> very actions, the Govt is hastening what it wants to avoid: the demise
> of a competitive manufacturing base in the US Midwest and Northeast
> that is a safe haven for politically favored and well compensated
> jobs.
> Now it seems that Toyata is a more genuinely American company than
> GM or Chrysler. The foreigners have become us, while we seek to ape
> the model of collectivst, socially engineered, centrally mandated
> industrial policy that foreigners, all over the world, are rejecting.
> The US government, looking, around the world for solutions seems
> to have settled on imitating its soul brothers in Venezuela rather
> than those suspiciously neo-capitalist economies of Asia .
> Once foreigners looked at the best of what America had to offer for
> inspiration on how to compete, innovate and create prosperity. Now,
> the US seems to be looking at the worst of what foreigners have to
> offer.
People at McDonald's and Burger King are going to be working fewer hours now. Babysitters in middle America are going to earn less money as well.
As our industrial empire lives on a respirator, and seems destined to have even that small hope of survival removed quite soon, it behooves all of us to reflect back on what led up to this situation.
We've been sold out by our venal politicians. They stopped trying to succeed by improving our country, settling for raising enough campaign money to assure themselves of easy reelection. They've been bought and paid for by the lobbyists whose every intention was to further their own present and future profits.
We were able to afford a great deal of the inefficiency that lobbying produced, but in the end, autoworkers, teachers, bankers and defense contractors will all suffer the same fate that the rest of us now fear. Our jobs are gone or in danger of going, our children have, at best, a third rate education, and our economy is in a shambles. Well done influence peddlers and corrupt public servants!
On Jun 01 08:55 AM frosty wrote:
> Cooper wrote, "Now is it not equally possible that oil prices will
> come down as the global recession proves to be longer and deeper
> than recovery optimists believe right now?" We may end up back in
> Kansas but it won't be the same after the tornado.
>
> So if the recession proves longer and deeper, it seems that auto
> demand would be skewed toward cheaper (smaller) cars for the, perhaps,
> several year duration of the recession . But then after the recession,
> what happens to oil/gas prices? Up, up, and away? Probably another
> demand skew toward more fuel efficient (smaller) cars.
>
> Only breakthroughs in fuel efficiency have the potential to resuscitate
> large cars/suvs. Remember, these became popular when gas was $2 and
> under - most experts now see $4/gallon or more in our long term future.
> Do the math: 15,000 miles per year, 15 miles per gallon = 1,000 gallons
> per year x $4 per gallon = $4,000 per year for gas. Next to mortgage/rent
> that would be the biggest monthly expense for most families. At 30mpg,
> the bill drops to $2,000 per year and 45mpg it drops to $1,333.<br/>
>
> High salary people may continue to want dinosaurs, but average workers
> who are presently taking pay cuts and worrying about losing their
> jobs can't afford the luxury even with the 'lease' affordability
> deception. Personally, I would bet on a long term (10 or more years)
> demand shift toward smaller cars.
GM employed 250K+ people, turnover 150B+. Likely additional job losses 50K+. $15B sunk in the Govt. last few months gone, $50B more getting sunk now. When was this good? Irrational exuberance all over again.
Lehman – 691B
WaMu– 327B
WorldCom– 103B
GM– 82B - 4th ranked - not bad
Enron- 65B
On May 31 12:37 PM Mad Hedge Fund Trader wrote:
> The derivative effects will be huge. The imminent demise of General
> Motors (seekingalpha.com/symbo...) will be a nail in the
> coffin for the commercial real estate market, which I believe will
> be the financial crisis of 2009. Some 2,000 dealers are being axed,
> dumping hundreds of millions of square feet on to a market that least
> wants it. These were the guys who sponsored the local baseball team
> and Girl Scout cookie sales, and their absence will rip the hearts
> out of hundreds of American communities. Much of this is prime space,
> near dense populations, with great frontage, adjacent retail space,
> completed site work, mitigated environmental work, and already zoned
> for commercial use. Some might get turned into mini malls, but I’m
> afraid more will end up as indoor climbing walls and paintball battlefields.
> Commercial real estate sales are off 73% this year, while vacancies
> have catapulted to 16.7%. Banks have seized 464 properties so far
> in 2009, including $7 billion worth in March alone, and thousands
> more are on the brink.
We are globally over capacity by ~ 100%. Just count the number of Japanese and South Korean car makers next time when you are on the road.
There are just too many of them even to memorize off hand. What this means is some more makers will have to go away, and soon.
Like the Chinese say "The Monks are too many, and the available congee to feed them are few".
The old rule of supply and demand reigns.
Financial companies normally would show very large total asset balance sheet as much of those were held as fiduciary trusts such as deposits. So I think in fairly GM might (and I emphasize the might) more equitably rank #2 next to WorldCom.
Just my 2 cents from a layman.