See, this is reporting that I can use. I wasn't really aware of the steps that the domestic auto industry had been taking to put themselves on a not-stupid footing. Of course, I can't really say for sure one way or the other based on a second-hand blog report, but it seems like there's a real question as to if the US auto industry is worth saving; previously, I would have been deeply skeptical that bailing it out was doing anything but putting off the inevitable. If the US auto industry really is trying to turn themselves into a real industry rather than a gigantic jobs-and-welfare front, that's something I can support helping through this lousy economy until it can stand on its own two feet.

On one level the idea of a bailout chafes; I live in Pittsburgh and grew up watching the area devolve in the wake of the steel industry collapse. Why no bailout back then?

On the other hand I've seen first hand the kind of misery that an industry collapse can have. Its pretty brutal and ramifications last for decades. A shuttered mill or factory has a psychological effect. There are externalities to an auto industry collapse that are impossible to see right now.

First, I don't see why GM couldn't enter Chapter 11 in a pre-packaged bankruptcy (Bill Ackman is a proponent of this.)

Second, Ford has improved a lot, might conceivably come through this on its own, and probably would have if we hadn't had this rather severe downturn now. Giving them money might make sense. GM has improved almost not at all and has an almost inconceivably incompetent management and impossible-to-manage brands. Giving them money is tossing it into a bonfire. Chrysler is in the process of disappearing no matter what; I see no reason to give any money to Cerberus.

Any GM bailout should include bankruptcy as part of the process.

but also asking them to hit benchmarks on quality and maybe even ratcheting up the mileage standards.

I'm not entirely against that, but it is the smaller cars on which GM has trouble making a profit. If you put restrictions on them that you are not putting on their competitors, you are mandating a risk to their future business.

I'd also clean house at GM's upper levels, starting with that idiot who thinks global warming is a hoax. At the same time, Obama should use this as an opening into bigger debates about health care and climate change.

It may be good to have that debate. GM has the health care cost problem in large part because it offers its union retirees *better* than government-provided health benefits. The retirees would be eligible for Medicare, but don't take it. GM finds itself upside-down now because there aren't enough new workers to support the older ones.
It is the problem many countries with low birth rates and lots of social programs are finding themselves in.

"Much work remains, but they're on the right track."

Uh huh.

Unfortunately, the global-warming denier, Bob Lutz, is also the only person at GM who seems to be able to envision good cars and get them produced. So throwing him out may be counterproductive.

I think the way to handle him is not to impose restrictions on GM specifically, but to impose restrictions on the entire industry. Make it cripplingly expensive to produce 15-mpg personal vehicles, while directing bailout subsidies at higher-economy platforms.

World-wide, and particularly in the US, there is substantial overcapacity in production - too many companies, brands, and models - and with the death of 'anybody breathing' credit, the market won't be as large as it was 2-3 years ago for a very long time. Cars now can easily last 6-10 years, and a 3 year replacement cycle just doesn't make sense.

I'd support the ideas of two and only two (maybe with an option for one, only one) US domestic manufacturers, and I'd provide the capital post-bankruptcy /post consolidation /post management overhaul with some hard-to-digest reforms. Let's concentrate on the next gen of cars, not the last generations. Back to the Model T/A, except you get a choice of colors. Cheap, efficient, reliable, and patriotic (logo on rear: Designed and Manufactured in the USA).

If that medicine is too harsh, then let them FAIL and convert the factories into other alt-energy production: streetcars, light rail, supertrains, solar power plants, etc.

The one thing we should not do is let the same clueless, short-term oriented management get a cash influsion to piss away before the economy even recovers (whenever that is, probably 5-10 years down the road).

My basic thought on restructuring is that you might see everything that's decent in GM's global business get sold off, but it's those things -- particularly the foreign ops -- that need to be drawn upon to push the American-based business forward.

Back to the Model T/A, except you get a choice of colors. Cheap, efficient, reliable, and patriotic (logo on rear: Designed and Manufactured in the USA).

Well, the One Ford project is headed in that direction, though you'll have to deal with 'designed abroad, tested abroad, built in Mexico until it's possible to make them competitive in the US market'.

GM isn't as far forward in that refactoring process, in part because it rolled along with multiple marques on old, CAFE-dodging platforms with high margins.

Take a look at what Ford and GM sell abroad, and the reputation of those vehicles. Compare it to what they make and sell for Americans.

I still say we really just ought to buy them out, then bail them out.

This afternoon's combined market cap of Ford and GM is about $6.4 billion. Buy 'em, and then you don't have to negotiate with them. You just tell them what the CAFE standards will be. You just shut down their lobbying operations, and dictate their lack of opposition to climate change legislation.

Aside from that? You raid Honda and Toyota for new management, and let the new team do its thing.

I really don't see that Ford, GM, and Chrysler have been taking the steps that so called "people" say they should be until very very recently. The argument almost seems to be that GM should get a bailout because hey, they have 20/20 hindsight! I myself think that too little too late is a pretty shoddy business model.

Second, as someone else has already pointed out, there's no reason that the government couldn't arrange some DIP loans for GM, or even provide it themselves. I think there's some precedent for a little financial innovation on the part of the Treasury these days -- plus, I think they might own a bank or two...

Third, I don't find the argument that chapter 11 would push GM to sacrifice long-term benefits for short-term ones very compelling. It seems to me that some of that is bound to happen in either case. Also, chapter 11 is specifically a mechanism to allow companies to restructure, which, I think, does include doing things that are good for the company in the long-run. The article does a pretty poor job of explaining why he thinks a bailout would provide greater incentive for investment in long-term benefits.

Finally, I think Mr. Cohn needs to be a little more specific in his writing -- are we talking about GM's bailout or Ford's? The article seems to be advocating for a GM bailout, but conveniently conflates one or all of the Big Three when talking about what steps have been taken or what has been accomplished. If the quality at Ford improves, that's not an argument for bailing out GM.

Still, I really don't want to see the Volt fail. If GM doesn't deliver the Volt to us, I say the governments just forces it into chapter 7 and has done.

This afternoon's combined market cap of Ford and GM is about $6.4 billion. Buy 'em, and then you don't have to negotiate with them. You just tell them what the CAFE standards will be. You just shut down their lobbying operations, and dictate their lack of opposition to climate change legislation.

Hmm, combine civic responsibility and public good with corporate raiding??

I like the way you think!

I posted in the previous thread, but I'll reiterate here, while there are some interesting models in the GM pipeline, foreign makers are not doing better just because of their cash reserves, but because they have smaller and higher mpg cars in their lineup. They didn't gamble their whole business on dodging CAFE standards etc.

None of that is to say GM can't be fixed up, but we shouldn't be too kind to current management, it seems to me.

In the end, I say a government bailout makes sense, but it should come with strings attached -- not just the ones we saw for Wall Street, about compensation,

- because that worked out so well, you know

but also asking them to hit benchmarks on quality and maybe even ratcheting up the mileage standards.

if, like, they're not busy. and they don't mind. but no big.

the pony plans march on...

No company can ever get new money (debt or equity) from any serious investor (which may not include the US govt.) without presenting a business plan that shows success, complete with cash flow projections for several years, a strategy, and milestones. Rep. Boehner complains that GM, Ford, and Chrysler have presented no plans, and I have seen nothing in the media to contradict him.

If they have believable plans, many things could be considered, including DIP financing (which gets repayment priority over all existing debt), pre-pack Ch. 11, debt or equity infusion with commercial-strength covenants, assumption of certain liabilities (e.g., pensions), federal guarantees for private investment, etc. If they don't have serious plans, there is nothing that can or should be done except wave goodby.

If the results of their GM's reforms are so promising, why can't they just sell the whole company to Honda?

"Letting GM fail would have potentially catastrophic effects on the economy."

I'm frankly sick and tired of hearing this over and over. Shouldn't we have been paying attention to which companies had become "too big to fail" before they got that big? Isn't that the point of anti-trust law? If it isn't, shouldn't it be?

I mean, the whole freakin' point of market capitalism is to destroy stupid, perennially incompetent organizations like GM, and let smarter companies take their place. That's what it's for! If we let these companies get so big the government has to protect them from their own evolutionary unfitness, then we're just deluding ourselves, and we're just living under a state command economy practiced in reverse.

Link to comment
http://economistsview.typepad.com/economistsview/2008/11/the-case-for-fo.html#c139233188

An interesting reader's comment from Economist's View which to me supports the future viability of the big three for the ironic rationale that electric technology is simpler -- electricity design being sort of digital, you can do it on a blackboard, right; chemical tech being analog, more subject to nature's eccentricities, right?

That's why brand new entrants are popping up left and right in the auto manufacturing business, right?

I'll just reiterate what another commented said about Lutz. He's as much responsible for the good products coming out of GM as anybody. The fact that somebody would argue about why GM isn't in such bad shape, but then argues for the ouster of the architect of its recent success, may not actually have a good handle on what's going on at GM

Besides, if Lutz is such a denier, why are they making the Volt? And stopping production of the large SUVs? Fuel economy, while inextricably linked to emissions, is an automotive argument in its own right. Lutz knows what's up,and
seems committed to making cars that will sell.

This article sheds no light at all: the first assumption is that GM 'probably' couldn't file under Chapter 11.

And what is it can? Let's get all our ducks in order before leaping into the pool, folks.

Jon is right on. The assumption about filing chapter 11 is key. A earlier post suggests that a problem is that they won't be able to survive during bankruptcy since there are not enought Debtor-in-Possession (DIP) loans available. Seems like a perfect role for the government. We'll provide the loans for you to reorganize. This keeps people employed in the short term and ensures the company improves it's business model.