american car troubles

I was having a similar thought -- give Ford their line of credit and let the other two go. I can also see leaving Ford alone, since they may pull out without help. We can quibble over which to save and which to let die, but I think we've been thinking too much about it as an all or nothing deal. We can pick and choose among them.

 

If GM goes, Ford goes too. If they lose GM, the suppliers won't stay in business, which kills Ford. I'm not sure if losing Chrysler has similar snowball effects or not.

Ford's support of the bailout is essentially on that premise - they don't need any money right now. They just don't want GM to go under and suck them in.

 

I don't know if I believe that will happen, like a lot of the doomsday predictions coming from the auto industry.

 

Make GM stop the Camaro.

 

I heard from a good source, that the ford dood is working for 1$. That's the price of a whopper jr.

Jesus, can you confirm this?

 

thats just a huge publicity stunt.. i always think its pretty stupid when a millionaire/billionare ceo says that.. basically he just says he's gonan take a one dollar salary.. but these guys have stock options/shares.. etc. and whole bunch of inside trading.. thats how they make all their money... their salary is just a tiny portion of their income..

 

This. The head of AIG made a similar statement just for the purpose of making headlines. At the end of the day, their base pay is a small fraction compared to the bonuses that are awarded to them by the BOD.

 

That's certainly possible - the key here is whether GM declaring bankruptcy ultimately means liquidation for them. The underlying question is whether people will buy cars from a bankrupt company. If not, then Chap 7 restructuring bankruptcy will cause them to lose their revenue source, which will lead to a Chap 11 liquidation. If that were to happen, then the suppliers all go too - no supplier can survive if they lose 50% of their business. So that would screw Ford.

But the big question is whether a GM bankruptcy would eliminate GM or not. If people DO keep buying their cars, then the chain reaction doesn't happen and Ford is OK.

It's probably also worth noting that while the companies are all run pretty badly, I don't know that any company could be prepared for what's going on now. Sales dropped 40% in a year - in an industry that has a multi-year product cycle and the like, I don't know how to deal with that except having massive cash reserves. And the well-run foreign car companies are asking for gov't help too, so it's not exclusively a problem of being badly run (though that does need to be fixed).

 

No one who is quoting the GM line about bankruptcies and warranties has ever tried to get warranty work done on a GM product.

 

I think warranties are really a pretty minor piece of the puzzle. The bigger issue is resale value. If you buy a GM today, and they are gone next year, that car's resale value goes to crap.

 

Resale values on GM cars are already crap.

 

Doesn't matter - that's already factored in the buying decision. They would get worse, which is not yet factored into the buying decision. Whether that would change habits on a large scale is what's unclear at this point.

 

Right, my comment was made in jest. Remember what happened to Oldsmobile resale values when they got shut down? They completely went to hell.

 

1. Why would resale value go to crap?

2. Why would a supplier go bankrupt with the loss of GM? I'm not that familiar with these suppliers, so bear with me. Besides GM, they could be supplying Ford, Chrysler, and any or all of the German and Japanese manufacturers here. Maybe losing all 3 American companies would be a 50% drop in business. But, there would still be car assembly here from foreign companies. I can understand some suppliers would fail, but couldn't a smaller field still make a living supplying parts for the remaining manufacturers? Couldn't the suppliers increase their offering to make parts failed suppliers used to provide to the remaining car companies? Couldn't some of these companies manufacture parts for other kinds of products? Don't some of these guys export to overseas manufacturers? Couldn't they do their own belt-tightening, close some of their plants and save the businesses? I don't doubt that losing major customers can hurt the parts-supply business, but I'm not understanding why it would be a massive collapse.

3. And, if there is a massive collapse in the parts-supply industry, is that not perhaps the blood the market demands? If the Big 3 as they currently operate are not trully viable, then neither is the parts industry.

4. Why would suppliers collapse so completely that Ford would be without a vendor? If Ford still has demand, wouldn't someone be willing to make money supplying? Why can't Ford buy from the same people foreign car companies buy from? If suppliers are in distress, can Ford buy them and manufacture their own parts?

 

Resale values fall since people don't want to buy a brand that no longer exists.

Losing GM would cause parts suppliers' factory utilization levels to fall, causing COGS to skyrocket. With that kind of overhead, they would be crushed if they're not producing to at least 75% capacity.

 

People don't want models that don't exist anymore. Resale values tend to drop substantially when a model is redesigned and given a new look, or when a model is eliminated. As Baqui99 noted (sorry, my sarcasm meter is not working today), Oldsmobile values went to crap once they discontinued then. I imagine if the entire company goes away, it would be substantially worse.

I'm not too familiar with the industry either. But if you suddenly lose 30-40% of your business, you're going to go under. That probably applies to many manufacturing industries. I'd guess they have union agreements and the like too, so they can't just downsize overnight. The only real solution there might be to raise prices, which then adds to the costs of Ford or whatnot. But I'm not sure if different suppliers make different types of parts or if Ford can just switch suppliers or how that all works.

Certainly - and in the long-run, that's what will have to happen. But like the financial bailout, the idea is to create a soft landing. If you eliminate a bunch of jobs at once, it creates much more collateral damage than if you do it over a longer period of time. The parts industry as well as the auto manufacturers probably need to downsize over time regardless.

If Ford had extra money to spend to buy them, maybe. But if the parts manufacturers are losing money, then Ford buying them just means Ford is spending money to buy a business that's going to cost them more money. You could also certainly start new supplier companies, but I don't know the time frames you'd be looking at, the testing involved, etc.