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Does the U.S. government allow GM to go bankrupt?

Discussion in 'BBS Hangout: Debate & Discussion' started by robbie380, Nov 7, 2008.

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Select 2...Will the U.S. allow GM to go bankrupt? and should they allow it?

  1. Yes, they will ALLOW a GM bankruptcy

    24 vote(s)
    17.1%
  2. No, they will NOT ALLOW a GM bankruptcy

    74 vote(s)
    52.9%
  3. Yes, they should ALLOW a GM bankruptcy

    83 vote(s)
    59.3%
  4. Yes, they should NOT ALLOW a GM bankruptcy

    12 vote(s)
    8.6%
Multiple votes are allowed.
  1. DaDakota

    DaDakota Balance wins
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    Glynch,

    Giving them money or a bridge loan will not help them get rid of inventory that no one wants anymore, or allow them to quickly develop new technology cars that they should have been making on their own.

    Bankruptcy does not mean they go out of business, it means they re-org their debt.

    DD
     
  2. rrj_gamz

    rrj_gamz Member

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    Agreed...
    The Govt. won't let it happen...keeping people employed is the reason the govt. will step in...
     
  3. BetterThanEver

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    Glynch, GM burned up $7.7 billion in cash in the last quarter. If the losses accelerate with the worsening economy, then $25 billion would keep GM operating for 8-9 months.

    Won't GM still be in the same situation? How will they survive after those 9 months? Won't they still fail anyway? What would be different?
     
  4. fmullegun

    fmullegun Contributing Member

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    conservative thinking led to them paying their employees so much and the UAW having so much power?
     
  5. fmullegun

    fmullegun Contributing Member

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    who sells the most cars in the USA?
     
  6. BetterThanEver

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  7. glynch

    glynch Member

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    How will bankruptcy allow them to quickly develop new technology? How will bankruptcy assure that they have a great new management team? I don't believe the bankruptcy judge can essentially appoint new management. It is not the union preventing them from developing new technology.

    As far as inventory I guess a bankruptcy judge, trustee, whatever can have them sell the cars cheap. It will really have to be cheap if they go bankrupt. I really don't think people want to have 4-6 year notes from a bankrupt company. If they really want to just dump the cars they can cut the price now till they sell.


    Regardless, as we saw with Lehman brothers now is not the time to do an experiment as to what will happen if GM shuts down or goes bankrupt.
     
  8. Dr of Dunk

    Dr of Dunk Clutch Crew

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    Wagoner said it best ... to paraphrase... there will be a stigma in the public of "I'm not buying a vehicle from a company going bankrupt". I can't remember the stats he quoted, but I think it was something like 85% of those surveyed said this.
     
  9. Invisible Fan

    Invisible Fan Member

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    They probably want the big 3 around because the big 3 is weak and woefully stupid in the market and in their leadership.

    http://www.businessweek.com/globalb...chan=top+news_top+news+index+-+temp_top+story
    Surprise: Japanese, Korean Carmakers Want a Detroit Bailout
    For Toyota, Honda, and Hyundai, a collapse of GM, Ford, or Chrysler would create more problems than opportunities

    By Ian Rowley and Moon Ihlwan

    Considering the home states of some of the Republican Senators opposed to a $25 billion bailout of Detroit, a cynic might concede that they are doing Asian automakers' work for them. After all, Republicans who have criticized the planned aid package for (GM), Ford (F) and Chrysler include those from states where Japanese and Korean automakers have factories. For instance, Republican Senators Richard Shelby and Jeff Sessions represent Alabama, home to Honda (HMC), Toyota (TM), and Hyundai plants. John Cornyn represents Texas, which has a 200,000-capacity Toyota Tundra plant in San Antonio. And Bob Corker, who is "very skeptical" of the package, is a GOP Senator from Tennessee, which has two Nissan (NSANY) plants—in Smyrna and Dechard—and the company's U.S. headquarters in Nashville.

    Yet the senators opposing a bailout bill also may be in disagreement with those same Japanese and Korean automakers. For Asia's leading automakers, the prospect of one or all of the Big Three failing is arguably of greater concern than rivals receiving government aid. Indeed, since executives worry the collapse of GM, Ford, or Chrysler would have a negative impact on car sales, hurt the financial health of suppliers, and trigger a possible backlash against import brands, the problems of Detroit are problems for foreign rivals, too.

    While a bankruptcy filing would likely boost Asian sales and shares eventually, in the short term it could make matters worse for Toyota, Hyundai, and the others. One problem, notes Andrew Phillips, an analyst at KBC Securities in Tokyo, is that one or more U.S. carmakers entering into Chapter 11 would do little to cut excess capacity and probably worsen consumer confidence. "It's in the Japanese and Korean carmakers' interest for the U.S. economy to stabilize and, if bailing out the Big Three means that, they are not going to be opposed to it," he says.
    In Their Interests to Help Detroit

    With no bailout plan yet agreed upon, Japanese and Korean automakers are mostly avoiding commenting on what the U.S. authorities should be doing. For one thing, it might look as if they're crowing when rivals are in need of emergency surgery. Those who have spoken have offered qualified support for U.S. government aid for their struggling rivals. Among them, Nissan Chief Executive Officer Carlos Ghosn and Honda CEO Takeo Fukui have indicated that they back bailouts in principle. Fukui, for instance, said on Nov. 6 that he isn't opposed to the U.S. government helping automakers as long as fair competition is maintained. The Honda boss, who would also like to see the Japanese government intervene to weaken the soaring yen, added that it's only natural for a government to support one of its country's key industries.

    In Korea, a bailout is also garnering support. President Lee Myung Bak told reporters in Washington on Nov. 16 that a bailout was vital because of links between the U.S. auto industry and the Korean economy. "I'm in favor of the efforts to rescue the U.S. auto industry," Korean newspapers reported Lee as saying. Hyundai, Korea's biggest carmaker, also wishes Detroit well. "We recognize there may be extraordinary situations [which] may require unprecedented actions to assure [the auto industry's] long-term viability and a healthy American economy," says Hyundai spokesman Oles Gadacz.
    Consumer Perceptions Matter

    Of course, self-interest is the motivating factor. Despite market share in the U.S. of a combined 44% in October, Japanese and Korean automakers are hurting. Toyota, for instance, projects it will only make around $200 million during the second half of its financial year which ends in March and has formed an Emergency Profit Improvement Committee, led by President Katsuaki Watanabe, to search for new ways to trim costs (BusinessWeek.com, 11/6/08) and reevaluate the size and timing of new projects.

    A Detroit bankruptcy might only make matters worse, if consumers perceive Asians' success as having unfairly contributed to the Big Three's decline. "A bankruptcy would have a tremendous impact on the U.S. economy and on demand for new cars," says Yasuhiro Matsumoto, an analyst at Shinsei Securities in Tokyo. "In no way should Japanese automakers let their U.S. counterparts fail."

    A U.S. car market without one or all of the Big Three might not be as attractive as it first appears. In Japan, Japanese automakers account for well over 90% of sales, but that means they have to compete almost completely with some of the toughest rivals in the industry—each other. Profits are low, but competing with less efficient Big Three rivals may make it easier to eke out bigger earnings. "Japanese carmakers would be wise to help ensure the U.S. market doesn't become like the Japanese market," Matsumoto adds.
    Plenty to Lose

    Just as important are the close ties between Japanese and Korean automakers and their U.S. rivals. On Nov. 18, Ford sold 20% (BusinessWeek.com, 11/18/08) of Mazda (7261.T), reducing its stake to 13%, but the fortunes of the two automakers remain closely aligned. For example, Mazda and Ford share production at several plants and work closely together on new vehicle development. In particular, Mazda plays a large role in the development of Ford's passenger cars.

    Similarly, Korea's Daewoo is responsible for GM's small-car output and would have plenty to lose if GM were to go under. South Korea is the home to GM's small-car design and production and GM Daewoo Auto and Technology made about a quarter of the 4 million cars built in Korea in 2007. "GM's collapse would not only be a disaster for the U.S. economy, but also a major blow to the Korean auto industry," says Kim Jun Kyu, research manager at Korea Automobile Manufacturers Assn. And hundreds of Korean parts makers depend on GM for their sales. "I have invested $16 million to make parts for GM Daewoo's new Gen3 engine, but now nobody knows when GM can introduce new vehicles in the face of the global economic meltdown," says Choi Bum Young, who also heads the association of 228 primary part suppliers of GM Daewoo.

    While the linkup is less vital to their financial health, Toyota and GM share production at the New United Motor Manufacturing plant in Fremont, Calif. Meanwhile, Nissan and Chrysler have inked production agreements that will see Nissan make small cars for Chrysler. In return, Chrysler will supply pickups and vehicles to Nissan in North America.

    Even Asian carmakers that don't have alliances, particularly Japanese players such as Honda, still share U.S. suppliers with the Detroit Three. Indeed, analysts say that the biggest short-term worry if GM fails is it will also damage suppliers. That would then have an impact on all their customers, says KBC Securities' Phillips. The ideal situation for Japanese automakers is to continue to take market share gradually from Detroit in a way that allows suppliers time to adjust and avoids a consumer backlash against import brands. From a Japanese carmaker's point of view, "It is better that the Big Three slowly wither away, but that scenario is looking increasingly difficult," says Phillips.

    Rowley is a correspondent in BusinessWeek's Tokyo bureau. Moon is BusinessWeek's Seoul bureau chief.
     
  10. rocketsjudoka

    rocketsjudoka Member

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    Except though just cutting cost though isn't going to guarentee that the cars will sell. If people are worried about quality fuel economy, resale or anything else why buy a car even if you are getting a great vehicle if you still think you are going to have to spend a bunch on service, on gas and never be able to unload it if you have to.

    On top of that if GM cuts the price of their cars to fire sale levels they are digging themselves into a even deeper hole. What then pump more money government money into them?

    The problems with GM are structural and just pouring money into them isn't going to change those things. Propping GM up now there is little guarentee that they won't be back hat in hand in a few months. In the end is it worth it to just make them a ward of the state?

    I don't think so and think it would be better to have them try their hand at bankruptcy and if that doesn't work then they go under. The money spent bailing out could be spent on how to help out those who lose their jobs directly rather than propping up a failed business.
     
  11. Invisible Fan

    Invisible Fan Member

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    Well we run the risk of further deterioration and hollowing out of our manufacturing industry. What other American big players are left? Boeing?

    Retraining people into nurses or professional cashiers/managers isn't going help much in the current climate. This is like the first time in a long time where retailers have not been hiring more despite a downturn, and buying other countries's products will not be the answer to dig ourselves out of our financial hydra of deficits. It will be a global recession and our service economy will be the hardest hit abroad and domestically on a combination of tight credit lending, large personal debts, and decreased total wealth and value of their assets.

    I don't think this is the time to drink the globalization kool-aid and assume that foreign companies can pick up the pieces and then we'll all merrily be better in the long haul with smarter and more efficient companies.

    So this is a very tough challenge for our nation and the correct answers will be hard to come across.
     
  12. rocketsjudoka

    rocketsjudoka Member

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    ^ I wholly agree that there will be some serious repercussions if the Big three fail but I'm not sure the Fed giving them a $25 billion will guarentee that they actually do end up solving their problems.

    I agree we very well might be dealing with a global recession but I don't believe that propping up a flawed company is the way to address that just as much as trying to save Soviet era industry would've been the way to save the USSR.
     
  13. Invisible Fan

    Invisible Fan Member

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    Giving them a blank check will not solve their problems, but not giving them any support at all is foolhardy when the poorly kept secret is out that the government will game the system and become the invisible hand.

    I can freely admit that the credit crisis/implosion scares the hell out of me enough to support giving the car companies some cash with thick strings attached. Especially when our currency might not have the same clout it will have by the time the American car industry recovers from bankruptcies....

    And Shock Therapy didn't save the post-Soviet states from the toils of reconstruction either.

    Kind of ironic that the foreign auto companies constantly mentioned...Toyota...Hyundai...Honda are all propped up by the respective governments through Keiretsus and Chaebols, for better or worse. And Europe has no problem supporting its national champions.

    Then again, American bailouts aren't a new thing either. So are we headed towards USSR Socialism and the death of our free market culture, or is this a matter of buying them some time for the chance of getting their act together with the knowledge that the volatile economy is not the best time to arbitrarily test pure economic theory?
     
  14. geeimsobored

    geeimsobored Member

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    I dont think its a question of propping up bad industries. If this happened 10 years ago, I think a lot of people wouldve just said GM can die. The problem is that we're in a serious situation as it stands now and losing GM would make an already bad situation much worse.

    I agree with what youre saying but the timing couldnt be any worse and we are almost forced to bail them out.
     
  15. DaDakota

    DaDakota Balance wins
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    I hear ya D.o.D, but Chrysler did ok under Lee Iacocca.....sometimes you just have to face the music....and come out a stronger company on the back end.

    To me it is all a matter of marketing, you go bankrupt, downsize, relaunch with more economical cars, and appeal to the American people and their pride in American products.

    The auto companies have been lazy for more than 30 years.....especially management....

    If you do a bailout, do like they do in Europe...toss out all the senior executives as part of the bailout and promote middle management up.....let's innovate people.
    DD
     
    #235 DaDakota, Nov 20, 2008
    Last edited: Nov 20, 2008
  16. mleahy999

    mleahy999 Member

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    $33,520... cloth seats.

    What a joke.
     
  17. rocketsjudoka

    rocketsjudoka Member

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    I'm far far from being an expert on economics and financial markets but I'm not sure the credit crisis is the same as the what's happening to the Big Three. The problems of the Big Three appear to be something that has been with them for decades where as the current crisis is something new and not necessarily a structural failure.
    That's true but I think nearly everyone would agree that if they didn't let those soviet industries fail things would've been worse.

    Is this something that those governments do only when things get bad for their companies or is it part of standard practice? My understanding is that those governments that have been involved in major industries tend to keep a lot more oversight that we have. I'm not saying that that is a bad way to go but what bothers me about the Big Three is that we are trying to come in to save them when their problems are structural in nature so that things are so bad that it isn't very clear, at least to me, how those problems are going to be solved. These problems though have been known for a long time while the Big three haven't made serious efforts to address them previously.

    Its true we did give Chrysler a big bailout in the 80's and an example always brought up in MN was that the state helped to bail NWA out in the early 90's. In both those cases though there was a fairly good plan to get those companies back on their feet. At this point though I don't know if this is just throwing good money into bad companies.

    I still though expect the Big Three to get a bailout. While I don't agree with it I think the political winds are such that if one doesn't pass in the lame duck session it will very likely pass in the next Congress.
     
  18. fmullegun

    fmullegun Contributing Member

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    Or not.


    http://autos.yahoo.com/articles/autos_content_landing_pages/782/the-years-bestand-worst-selling-cars
     
  19. juicystream

    juicystream Member

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    You would think if you have to bail someone out multiple times, they'd be better off not existing. Chrysler should go under or sell out to another manufacturer.
     
  20. rimrocker

    rimrocker Member

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    Wow! I thought Repubs were telling me it's the American worker that caused the decline of the car companies, but here I see declines in foreign companies as well...

     

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