Bailing out the Detroit automakers

[Steve19]

The past week, Detroit automakers have testified in Washington, asking for the taxpayer to bail them out of trouble.

Should the US government provide them with financial assistance?

[PrincetonBuckeye]

NO more money!!...let them file bankrupty and reorganize under Chapter 11 protection.....

[NJ-Buckeye]

I got my MBA back in 1985... and at that time I am pretty sure that every MBA pgm on planet earth had case studies on Detroit & GM.. and I'm sure that every paper done on this said they were a disaster that bewildered all why in the heck they were still in business... and inevitably had to fall since they were irretrievably broken and out of touch

[NJ-Buckeye]

I also think the govt could help them MOST by letting them go bankrupt.. it's the only way to permit the companies to make the MASSIVE changes necessary... a bailout is merely life support

Bankruptcy lets them go back to the unions and start over... It gives them a position of power to say, if we can't make the radical changes, we're done.. With a bailout, the unions could still make demands and be in positions of strength...

Exact same is true of top managerial ranks and their inconceivable bonus programs... Lose money, still make bonus... This one could possibly be fixed both way.. bankruptcy and bail out... with govt mandates to stop the crap

[MaxBuck]

My greatest concern (and I voted "let them go bust") is with people who have purchased domestic autos and have current warranty status. If GM goes bankrupt, do those folks' warranties become worthless? Not sure how a bankruptcy court would view that obligation.

I'd rather see Toyota, Honda and Hyundai become the automakers of choice in the US. They seem to have figured out how to make a decent profit via the manufacture of motor vehicles. Maybe the absence of the UAW in their facilities is a contributing factor ...

[Jake]

Originally Posted by PrincetonBuckeye

NO more money!!...let them file bankrupty and reorganize under Chapter 11 protection.....

Exactly. There are plenty of automakers who don't need government bailouts. Why does Detroit need one? Because of bad labor contracts pricing their products out of the market. This falls on Management AND Labor.

Bankruptcy protection exists to prevent businesses from going belly up while restructuring their debt and expenses. Let them use it to work out a cost structure that makes them viable. First thing to go? The so called "jobs bank" where thousands of laid off employees collect full salary and benefits for doing absolutely nothing. No business can afford that long term.

Throwing money at a failed model won't solve a damn thing.

[MaxBuck]

I missed this one from a satirical blog linked on the DickRod thread, responding to his "get a life" advice to Michigan fans:

http://www.fannation.com/si_blogs/th...ot/posts/24783

Rather than working themselves into a lather for this week?s annual showdown game against archrival Ohio State, Wolverines fans across the state have instead planned a full day of family-themed events this Saturday. There?s the Family Fun Run in Ypsilanti, Jackson?s Apple Cider Festival, and Detroit?s highly anticipated Let?s Beg The Feds For a Bailout rally.

[BuckBackHome]

Let them go through a structured bankruptcy.

NJ - It is not only the unions. One of the biggest partners in all of this mess is the dealer network. They have contracts with the Big Three and on top of that they have convinced states to provide them extra protection. My point is there is plenty of blame to go around.

I want to hear from either congress or the big 3 why the auto industry should be bailed out instead of the airlines in the past or every other industry in the future watching this with possible hands out.

[BuckeyeMike80]

With a bailout, the unions could still make demands and be in positions of strength...

And as long as they are being choked by their own internal problems (Unions, etc), they won't be able to fix their other problems, namely, cars fewer and fewer people want to buy.

so long as their business model is this bad, a bailout will only continue to make the problem fester instead of actually solving anything.

[tibor75]

If the Big 3 suffer ----> Michigan suffers -----> funding of state universities suffer ----> scUM suffers

What am I missing?

[jimotis4heisman]

havent they already gotten a 35b bailout the weekend they worked on teh 700b fin bailout...

[Gatorubet]

Both. Let the Chapter 11 break the dealership and Union benefits contracts, and let the govt come in after with some $$ for a stock purschase, along with some hard ass regs for high mpg cars. Add a dollar to the gas tax to pay for it all, and to force consumers to buy the damn things.

There! That oughta [censored] off everybody on both sides.

[sandgk]

Originally Posted by Jake

Exactly. There are plenty of automakers who don't need government bailouts. Why does Detroit need one?

Mm - I'd be more sold on that argument if it weren't the case that those same exemplary players are the beneficiaries of Government largesse - from the States.

The latest example was $577 Million from Tennessee put into VW's pocket.

That amounts to a Government hand-out to buy 2,000 auto plant jobs, at about $285,000 per job. There's also the hoped for multiplier effect to generate another 10,000 in TN.

Tennessee was in heavy competition with Sen. Shelby's state (Alabama) to buy those 2,000 jobs. Probably Shelby was still upset about his state losing out on the last big plant offer - the one that went to Toyota, despite a better than $360 Million package around 2005, two primary reasons given by Toyota for their preferred placement of new factory?

A - Better educated workforce (it was rumored Toyota was shocked that they would have to use Cartoons to tell the 'Bama workers what to do).

B - The lower health-care costs in their chosen location.

The location was -- Canada.

Originally Posted by Jake

Because of bad labor contracts pricing their products out of the market. This falls on Management AND Labor.

No argument - Labor and Management have made poor, short-sighted decisions.

Bankruptcy per se isn't a solution to such idiocy - in fact I'm not sold that Bankruptcy will do anything but put a bullet into the heads of the Big 3.

Originally Posted by Jake

Bankruptcy protection exists to prevent businesses from going belly up while restructuring their debt and expenses. Let them use it to work out a cost structure that makes them viable.

What about a Bankruptcy in all but name? (Which is the deal I suspect they are trying to broker) - They being all the parties, with the Unions last to get on board.

The reason why I ask that question is because I can see considerable leeriness arising if someone has to think about buying a vehicle, and it's warranty, and service agreement from a company that is in Bankruptcy.

Yeah - I know the airlines went through Bankruptcy, inspiring and all, but it isn't the same thing. I fly, say both ways from here to LA on TWA - when it was still alive. No problem if their bankruptcy eventually leads to TWA being belly up. My flight is done.

A Bankrupt GM leaves me holding a potentially worthless warrant on a service or lease agreement. Which likely has me having second thoughts about buying their product in the first place.

Originally Posted by Jake

First thing to go? The so called "jobs bank" where thousands of laid off employees collect full salary and benefits for doing absolutely nothing. No business can afford that long term.

As I understand it there is barely more than one thousand such GM workers, 3,500 total left in that job bank. Moreover, It seems that some of those "job bank" workers aren't exactly sitting on their asses, nor is such idleness now promoted.

workerbee :
November 21st, 2008 at 7:29 pm

I am currently employed by one of the ?Big? 3. The one that starts with a G. Anyway, I am in the job bank. I am still at my plant, I?m not on layoff status. And I haven?t sat a single minute since being placed in the bank. I am on the floor, working, either covering vacations, sick leaves or absences. Once you are placed in the bank you basically have to do what they tell you to. Many do not realize that we were understaffed going into this, so extra bodies are just that. We are there to free up ?more important people? ie: UAW reps, or people with knowledge of the entire line. Those people are presently called CI?s or continous improvement. They were previously referred to as AR?s or absentee replacements. New contracts, new names. But, they, obviously, have more knowledge regarding jobs, therefore more ?valuable? than me. Any other questions?

Seems as the earlier Forbes article indicates, that hte Union has made some significant moves to help GM - new workers coming in are at a rate significantly below the ~$30 base pay enjoyed by past auto workers - $14 is typical.

Originally Posted by Jake

Throwing money at a failed model won't solve a damn thing.

I agree with this, and would only be happy with a deal that spends our tax dollars in the best, most effective and economical fashion.

The Democrats have asked for a good plan out of Detroit. If they cnanot bring one forth then I suspect Bankruptcy is in the next round - but let's not kid ourselves, the cost for that process is likely more than some blithe spirits of the free market like Rep. Zach Wamp (TN) would have us believe.

[Gatorubet]

Sandgk, while I share lots of your concerns, I know of no way absent the use of a Chapter 11 to break the contractual relationships that are choking the Big 3. Absent bankruptcy, I do not see how your have the flexability to do what has to be done (read: cancel what needs to be cancelled) without spending the next ten years in court being sued and fighting injunctions for doing what they need to do to survive.

[Tresselbeliever]

If there was any debate about who really protects the workers, I really hope that this sad lesson will resolve it. Unfair restrictions in the labor market has undeniably led to the road of death for Detroit and other cities and towns in the steel belt. The best way for Detroit to revitalize itself is to scrap all laws concerning taxes, the minimum wage and other workers' entitlements. The transition would be tough but necessary for its future vitality.