rh13

GM Shares Just Won't Quit

There are many subtle errors in the reporting of the GM matter that have led to the impression that the shares might be worth something some day and there are apparently enough people who don't read carefully and have a dollar a share or so to spend on shares to give them some value at present. We read of the "emergence" of General Motors and of the "survival" of GM. A headline within eyesight as I write this refers to GM as "ready for a rebound." These words are serious misconceptions. The "new" General Motors has no relationship to the old General Motors, in terms of ownership or investment results. The "new" General Motors is just a collection of the assets of the old General Motors. It is owned by different people, not the stockholders of the old GM. The "new GM" owners are not offering stock for sale at present. The old GM has a new name; most of its assets have been sold, creditors are waiting for payments, and stockholders will receive something only if the creditors are paid in full. That appears unlikely, and more unlikely with each passing day. Buying the stock, when it appears fairly sure that it will be worthless soon, seems very strange to me. The old GM does not even own the brands any more, which were the only things that might have had enough value to make the stock worth anything at all.

The Big Three Crisis: Stocks Plunge as Politicians Moralize

German cars are great? I'm glad you think that. Will you buy my Volkswagen Passat? I need to get rid of it. Too many multithousand dollar service visits. That engine sludge thing is mean.

Cramer's Picks - Is GM Lehman's Twin? (11/14/08)

Does anybody take Cramer seriously? He's an entertainer.

Nationalize the Automakers? On Tom Friedman's Op-Ed

I hate to say this because I do have a soft spot for the American Three. But if we are to subsidize the auto industry, the investment would be better made in the upstarts and interlopers. The American Three are behind in delivering quality cars at low cost. Toyota, Honda, Nissan, Mazda, and Subaru all manufacture cars in the U.S. and make a profit. Why subsidize the unsuccessful at the expense of the successful? That will increase the cost of automobiles.
There is also the basic question of fairness. The American Three pay salaries and benefits that are outside the limits of the market. Why should the government, that is, the rest of us, subsidize companies that overpay the favored few?
Finally, there is just no way the government can put up enough money to pay all the people in comparable jobs wages comparable to what the American Three make. Our economy does not produce that much money.
I think there is a fair chance one or two of the American Three will survive in some form without government subsidies. They have done a remarkable job of producing vehicles over the last hundred years and recently they are showing signs of adapting to current conditions.

Nationalize the Automakers? On Tom Friedman's Op-Ed

paulk8756 invites us to look at how well the government has managed other things including social security, the post office, and energy policy. On those matters, the government has performed extremely well. Energy costs in the U.S. are low and have been since John D. Rockefeller was young. Social Security provides an annuity and insurance service at a cost so low it makes the whole medical industry look sick. The Postal Service allows anybody in the U.S. to send a message to anybody else for 42 cents or less, which is far less than it costs in other developed countries. There are other things the government does quite well, too. They include military functions, tax collection, and federal roads.

DHL, GM: Does Failure Have Consequences?

Actually, I think GM is too big to save. It is about the most bloated, insular, self-centered to the point of self-defined, company on earth. Throwing money at it will do what? It will help preserve GM in its present form. Do we need that? I certainly do not.
The phrase, "Too big to fail," was properly applied to financial institutions. Even there, the concept is arguable, but the idea was that, since people depend so heavily on a functioning financial system, the sudden, outright failure of a company big enough to be a critical part of the financial system might deprive people of services that allow the economy to hum.
That reasoning may be right or it may be wrong. (We'd have to guess it's wrong, since the decision was made by and for the financial industry.) Anyway, it does not apply to automobile manufacturers of any description. In Cuba, people are making do with cars manufactured in the 1950's. In New York and London, people get around by train. Even if I do need a car, I can get by with a Honda made in Tennessee, a Subaru made in Indiana, a Mazda made in Michigan, or perhaps a Tesla made in California.
Despite its failures, GM has done pretty well considering that its cost of employing people in union jobs is about twice what other auto makers experience. "Saving" GM without changing that doesn't fix anything, it just delays the day of reckoning.

Living Within Our Means: Automotive Edition

The sad part of it is that the government bailout does not help anything. You still have a great many job losses and the combined companies will still be weak. You have also taken $10 billion from people who would have used it to buy cars or other things that would have helped the economy. Furthermore, these are industry-defining companies, especially GM. While GM has made many public relation announcements about changing, we have not seen it yet. We have to expect, given the record, that the $10 billion would go to preserve the current state. Given the rate at which GM uses cash, $10 billion probably would not last long.

Political Energy Policy Just for Laughs

There is a lot more potential in conservation than people think. I could easily cut my family's use of energy, in our vehicles and our home, in half. That is without reducing our standard of living. Why have I not done it? The time has not been right, and still is not right. Energy is too cheap. Energy has been so cheap for so long that we are presumably wasting 3/4 of what we use. This fall I will probably do a little of the conservation I have in mind.

Are Some Companies Too Big to Let Fail?

The writer was right to admit the limitations of his analysis. I am afraid, though, that the limitations are even more serious than he appreciated.
Certainly when a big company fails there is some pain. The impact on the government is not the worst of it. The impact on the lives of the employees is far greater and more personal.
Nevertheless, failure of companies (and contraction of companies) plays such an important part in the welfare of us all that we cannot afford to prevent it. When companies face failure, there are reasons for it. It happens because they are inefficient or ineffective. They are not getting the goods and services to people at prices people want to pay. Preventing their failure preserves inefficiency and ineffectiveness.
If we had done enough to prevent failure of stagecoach companies, we would never have had trains and planes.
What if Chrysler had failed? What would have happened? Chrysler customers would have bought cars and trucks from other companies. Displaced Chrysler workers would have found work in other companies, not necessarily car companies. Other companies would have bought the usable assets of Chrysler and put them to use. That is what happens when companies fail.
There have been more than a thousand car manufacturers in the U.S. All but a few failed, and the cars today are much better.

A Tale of Two Industries

Mr. Murdoch, down 15% for the month does not mean down 15% in one month, far from it. Watch those pesky prepositions. They matter. Also, what does "exogenously" mean in this context? In my dictionary, the only definitions for the word relate to biology and medicine. Avoid big words, especially if you don't understand them yourself.

Is One Automaker Default Almost a Sure Thing?

Actually, the probability of default cannot be determined by the cost of insuring debt, as Mr. Shedlock assumes. Also, he apparently doesn't know how to do the math. According to his numbers, the probability of default of either GM or Ford is over 95%. What it would be with Chrysler included is unknown.