The GM Bailout

[Sizzle]

With the current state of the economy, I find the automakers bailout situation particularly interesting. On one hand, a big part of me has to shake my head at the company for making such poor decisions in innovation and automobiles; continuing to build and focus around large trucks and SUVs, and not looking to develop a viable alternative to gasoline is really hurting these makers and their sales (although sales in the industry are significantly down across the board, even for Honda, Nissan, etc.). If you make a poor business decision, and fail, you should not be rewarded.

On the other hand, there are a lot of other industries, including the manufacturers of parts of the cars, down to the chaos that would be felt in a lot of the towns that house the factories and parts suppliers (think Tommy Boy) and it's rough.

Does anybody know what the terms are on the pay-back of the bailouts (or if there is a payback)? Just curious...

Here is a decent article from CNN.com on the GM Bailout:

http://money.cnn.com/2008/11/14/auto...ion=2008111412

[TripletDaddy]

I do not, but my guess is that there has to be an element of punitive payment in there.

For example, any payments received would likely be booked as a long-term note that could be written down over time. under general circumstances, such a massive influx of cash would hit retained earnings, thus resulting in a flowthrough benefit to shareholders....usually in the form of a dividend. I havent seen any of the specifics, but i promise that there will be no dividend push or even a return of capital as a result of this loan.

I don't see this as a "reward" at all, altough I get your use of the term in your post. This is literally an infusion of working capital to pay salaries, A/P, and keep people employed.

I would also assume that there would be a moratorium on parachutes, exec bonuses, etc..

The interesting thing is whether it would be an equity infusion....GM actually gets dilluted and Uncle Sam now becomes part owner. What a disaster.

[UtahDan]

I'm not a sophisticated economics guy but I am alarmed by how much is now either going to be government run or propped up by the government. The bottom line is that Detroit makes an inferior product. Let some of these manufacturers go under. The market place has spoken.

[Brian]

Bankruptcy is a good thing. It's how capital learns to not chase bad ideas. Nothing will improve if bad ideas aren't punished. I've had two american made cars and I will never buy another.

We need a king.

[SteelBlue]

I'd really like to see Pelagius weigh in on this topic. Any chance of that P-lag?

[Surfah]

The US Auto industry needs to consolidate. There is no reason GM needs both GMC and Chevy. Ford does not need Mercury. I am fine with the luxury lines of Cadillac and Lincoln but there is no need for a secondary brand that is selling the same vehicle with different badges.

I like Ford's new one world, one model approach. They're starting with their Fiesta. Why these automakers are wasting so much money designing different cars for every market is beyond me. I think this is the approach that all manufacturers should take. We'll see how Ford does with it.

And I agree with UtahDan and Brian. The market has spoken. Is the auto industry going to turn into Amtrak? It's a tough call because you have jobs and livelihoods at stake, but at what point are these businesses going to take accountability for their bad decisions. Ford should have never gone after Land Rover, Volvo, etc. They unloaded them finally but look at the cost. GM needs dump Hummer.

[Pheidippides]

I take a lot of heat on this from people who think I am a fellow conservative (sometimes I am, sometimes I'm not) but I have been vocally in favor of the bank rescue package (bailout is a horrible misnomer, or at least was at the time, but that's a whole 'nother Oprah). If you're not involved in the credit markets on a day to day basis, it's hard to properly describe what is going on, but I would generally throw it into the cats and dogs living together, mass hysteria category. I mean, from where I stand, the entire economy was about to collapse, and I personally swore I would never vote for anybody who didn't vote for the first rescue package on the grounds that they were either too stupid or two partisan to be an effective legislator.

(I do think we need to follow it up with major regulation of certain markets (credit default swaps included), and that's saying something from one of the last 'free market' guys).

However, I'm not in favor of any bailout or similar to GM. Maybe at very most a guarantee of a gov't loan. That's it. If you can't make products that are competitive, tough. If you have high labor costs, tough. I don't want to help along a couple of companies, no matter how large or influential, that are doing nothing more than limp along, especially when I have no reason to think they will do anything more than limp along in the future.

I realize I haven't given any coherent reasons as to why I draw the distinctions between these two cases. I am happy to do so, but that may require its own website.

[Surfah]

However, I'm not in favor of any bailout or similar to GM. Maybe at very most a guarantee of a gov't loan. That's it. If you can't make products that are competitive, tough. If you have high labor costs, tough. I don't want to help along a couple of companies, no matter how large or influential, that are doing nothing more than limp along, especially when I have no reason to think they will do anything more than limp along in the future.

I am in support of this if they hire Lee Iacocca.

[cougjunkie]

Interestingly enough my dad worked for GM for 30 years. He ran their largest dock in the US, off the coast of California. A guy he worked with came to him one day and said that he had discovered an alchol based fuel to run cars off of. He said that you could fill your car and drive 250 miles for under 3 dollars. My dad new the VP at GM and got him in touch with him. GM loved the idea but told him that it was not them that needed to approve it, that he needed to take it to the fuel manufacturers. He took his idea to Exxon, BP, and one other one they all offered him 8 figure deals for his idea. But they also all said they would never make it or use it they just didnt want the idea out there because it would cost them way to much money. The guy did not sell it and instead tried to privately fund the cost of manufacturing. A week after his meeting with these big oil companies he was found murdered in his house and his house was burned to the ground.

Most speculate that it was the oil companies that had it done becaue of the amount of money they were on the verge of losing.

[il Padrino Ute]

I am against the bailout of the big three automakers for the same reason I was against the bailout of the credit situation:

They got what they wanted in order to do things their way and failed.

Screw 'em.

[fusnik]

I am against the bailout of the big three automakers for the same reason I was against the bailout of the credit situation:

They got what they wanted in order to do things their way and failed.

Screw 'em.

You were against the bailout because you, like most people, don't really understand what is going on.

[Pheidippides]

I am in support of this if they hire Lee Iacocca.

To shamelessly paraphrase from Dave Barry, I am in favor of using Lee Iacocca as a passenger airbag.

[SteelBlue]

Interestingly enough my dad worked for GM for 30 years. He ran their largest dock in the US, off the coast of California. A guy he worked with came to him one day and said that he had discovered an alchol based fuel to run cars off of. He said that you could fill your car and drive 250 miles for under 3 dollars. My dad new the VP at GM and got him in touch with him. GM loved the idea but told him that it was not them that needed to approve it, that he needed to take it to the fuel manufacturers. He took his idea to Exxon, BP, and one other one they all offered him 8 figure deals for his idea. But they also all said they would never make it or use it they just didnt want the idea out there because it would cost them way to much money. The guy did not sell it and instead tried to privately fund the cost of manufacturing. A week after his meeting with these big oil companies he was found murdered in his house and his house was burned to the ground.

Most speculate that it was the oil companies that had it done becaue of the amount of money they were on the verge of losing.

Isn't that the plot of a 70's movie?

[il Padrino Ute]

You were against the bailout because you, like most people, don't really understand what is going on.

I am always against bailing out people who make idiotic business decisions.

You are free to disagree.

[fusnik]

I am always against bailing out people who make idiotic business decisions.

You are free to disagree.

Few things:

When the government implies they'll back 2 companies, ie Freddie and Fannie, it means when the shit hits the fan and billions are on the line, you must bailout

When China calls your government and says if you don't pass the bailout we'll dump your securities on the open market, you must bailout

When millions of peoples pension plans securities have lost their insurance because real estate prices have dropped so drastically and certain securities are not able to be marketed or auctioned, you must bailout

Allowing the market go to shit and letting 'capitalism' work itself out is as misguided as somebody thinking Marxism is viable.