"Let Detroit Go Bankrupt":
In yesterday's New York Times, Mitt Romney offered up an interesting essay arguing that Congress should not try to bail out the Big 3 automakers.
"Let Detroit Go Bankrupt":
In yesterday's New York Times, Mitt Romney offered up an interesting essay arguing that Congress should not try to bail out the Big 3 automakers.
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Does anybody in the bailout bunch have any idea what it would look like? Is there any sense of how much money would be necessary to support the Big Three until they got back into the game?
At the rate they're burning cash, how long will $25 billion last? Where will they be then?
Wagner said that, under a worst-case scenario it would take a "significant" amount of money to get to the end of March. This was in the context of the $12-$13 billion requested, so the implication is that it would be considerably more. What will be happening in March of next year to make another huge belt of tax-payer money unnecessary?
The GM factories aren't going anywhere; nobody claims that GM would just shut its doors if it didn't get the money. The only question is whether the necessary changes get made through bankruptcy today, or through bankruptcy tomorrow (after billions of dollars of taxpayer money are spent).
First, as Romney says, restructuring should include profit sharing or stock for all employees, cuts in executive compensation and eliminating executive perks. If the unions have secured contracts that have bankrupted the owners (I don't buy this, but if so, good for them) then the logical solution is to transfer the stock to the employees in exchange for givebacks. Guaranteed pensions and healthcare benefits are assets, just like an annuity. Owners who want to buy back those assets should pay for them with their own assets -- their stock.
Second, comprehensive healthcare reform. Without it, every large employer with pension costs that include healthcare expenses is going down, as are a fair percentage of any business that tries to provide its employees with good health insurance (whether because they want to or because, as in the case of the automakers, they are contractually obligated to do so.
Well, yes, a lot of people are making that claim. The piece of evidence cited to in support is that of a poll of car buyers, 85-90% of whom said they would not buy a car from a company in bankruptcy, since they don't know if they will have a warranty worth anything, parts available, etc.
This is Mitt Romney we're talking about. The wind changed direction.
LA Denizen:
Romney's proposal would potentially cost the Federal Government something. He wants the government to guarantee post-bankruptcy financing, which given the current credit environment, the car makers in bankruptcy would not likely be able to obtain without such a guarantee.
Actually, Romney is still calling for the Federal government to save the auto industry. By guaranteeing post-bankruptcy financing and the warranties that the companies provide their customers.
The automakers and the UAW have wound a tangled web of problems. The Automakers are probably more to blame, but the UAW did its share too.
A complete restructure of the companies is probably the only long term solution.
My Brother-in-Law finished his Masters in Mechanical Engineering just two years ago. He was recruited by the big 3, but eventually turned him down. Too bad too, his Masters work was on emissions improvements for diesel engines. He told me he didn't want to work for a company where the average engineer made less than the average line worker. Because engineers were considered management, they aren't covered by the UAW contract.
I don't know if it is true, but that was the impression he received. If it is true, it helps explain part of the problem. The only engineers they can hire out of college would be the ones who weren't good enough to find a better job.
Of all the offers he got, my BIL considered the offers from the big 3 to be among the bottom 10%
Anyway, this has nothing to do with the above subject but my first car was a 1973 American Motors Hornet--I loved that car!!!
Should read "but eventually turned them down.
1. Shareholders and bondholders will get wiped out. Insurance companies that are major bondholders will fare accordingly.
2. Suppliers won't get paid. Many will also go BK. Same with dealers, who are already being cut back on reimbursements from GM.
3. Many are claiming that GM will just shut its doors (i.e., BK will be Chapter 7). GM is operating cashflow negative, and will need the $25B in DIP financing to keep its doors open. There does not appear to be $25B of available DIP financing in the private markets. Nor is there an obvious source of private equity and new debt capital to take a meaningful chunk of GM back out of BK.
I think I'm being too optimistic on the behavior of the government and (hopefully) too pessimistic on the market, but I think giving them $50B (and no more) so they can just go bust 2 years from now would be money well spent vs. letting them go bust today.
I’m not sure what you mean. When I read the transcript of the speech he gave to the Detroit Economic Club before the Michigan primary, the only “help” he called for was for the federal government to increase its R&D spending in energy research from $4 billion to $20 billion which is the same thing he’s called for this op-ed.
How about letting them go bankrupt, auctioning them off, and giving the NEW ownership a loan that's limited to certain purposes and conditioned on permanent departure of all the previous top management.
I found it interesting that in the DEC speech (as well as in the speech I heard in Lansing), Romney blamed the automaker's woes on higher CAFE standards. That's a good one.
He may or may not be right, but he is clearly advocating a significant government role. Just not that we follow the path of British Leyland.
A Portrait of My Industry
GM wants a level playing field, not a bailout. by RICK WAGONER
Tuesday, December 6, 2005 12:01 A.M. EST
The Wall Street Journal
www.opinionjournal.com/extra/?id=110007641
What a few years, changes in control of Congress and then the White House, and the precedent of tossing hundreds of millions of dollars at failing Wall Street firms without any plan or adult supervision, will do to someone's opinion.
And, there's a certain irony in "We can do this" being the GM CEO's slogan in 2005.
I'm not sure I agree with Romney's proposal, but it's better than Barney Frank's asinine statement that the Not So Big 3 should pay back any bail-out money if they are not financially viable.
If that is not done then the whole exercise will be nothing more than finding deeper pockets for the UAW to pick.
When I'm hiring someone for a position that is important (in my case, senior engineering positions), I focus on getting the right person, not the person willing to work for "below market wages". In my experience, the best don't work cheap and the cheap don't work best.
When someone in an important position is not doing their job, I don't cut their pay, I get rid of them.
In a similar vein, if I needed a neurosurgeon, I'd probably be looking for the best I could afford, not the one who would work cheap.
It really seems a similar strategy should be used for restructuring executive management of the Big 3. Get rid of those senior executives who are not worth top dollar and replace them with those who are worth top dollar (and, as a consequence, will have to be paid top dollar to convince them to leave their current positions). Yes, one might be able to economize a little on executive compensation by exploiting the "physic income" and bragging rights that come from successfully piloting the barge through the storm successfully, but that savings is not going to be all that significant. Yes, in this case, executive compensation should heavily tied to long term corporate success (perhaps by long term stock options and/or replacement of a significant portion of cash compensation with restricted stock that can't be sold for five years - but would be worth a mint if the company is doing well).
Trouble is, by all accounts, management has been making some smart moves lately, but has been overmastered by the sudden onset of the Bush Depression.
That said, it's a mystery to me why the Big Three have no plan for a 100% hybrid future. Toyota has seen the writing on the wall and is aiming for all new models to be hybrids by 2015. Hybrid drivetrains pollute less, are more fuel efficient and a hell of a lot of fun to drive (powerful, quiet). This isn't an experimental technology any more -- just a better one.
The principled way to encourage lower CO2 emissions is a carbon tax. Unfortunately for principle, we are living in an anti-taxes polis which is furthermore in desperate need of stimulus at the moment, not a further drag on consumption. If sticks are out of bounds, carrots are the other option; one could, for example, offer low-interest loans for 100% of the cost of retooling all domestic automakers' factories to produce plug-in hybrids exclusively (with commercial and sporting exceptions where appropriate).
Follow with a 5-10k credit for recycling a non-hybrid and purchasing a hybrid.
As you successfully transition the nation's car fleet to plug-in hybrid technology, you create a new demand for electricity as the demand for gasoline is surpressed. This could, in turn, be addressed by building new solar, wind, nuclear, or clean coal plants.
You stimulate employment and capital investment (retooling the factories, building new capacity into the grid), stimulate consumption (the credit), and strengthen the auto sector without a bailout.
Now, for the most part I agree with the CW that says the government should not pick winners in technological races. Hybrids are a bit of a special case, I would argue, as they reduce emission (an important environmental goal), are clearly superior to the existing technology, and they are a mature, proven technology that will give us decades of benefit even if something like hydrogen cars replaces them eventually.
There: fixed it for you.
That's the trouble with Republicans. Much as you love to preach "personal responsibility" you can't walk the walk.
Perhaps he's decided he isn't running in 2012. That would be a sensible decision given the political fallout from Proposition 8 in California. So he's decided to play "elder statesman" and say what he really thinks.
By all accounts, he is a very bright guy, and so he has to know this is political suicide.
How does the president manage the economy?
For one thing, he is in charge of appointing the senior staff of the major regulatory bodies of the government. Such that if, for example, you have a numbskull who believes all supervision of business and corporations is bad, bad, bad, you are likely to see regulatory failures, as when key parts of the financial sector have tied up vast sums of money they don't have in risky investments they don't understand.
The president can also influence the economy by wasting hundreds of billions of dollars on a pointless and stupid war in the Middle East, hundreds more on irresponsible tax cuts targeted at the very wealthy, and hundreds of billions more on an entirely new entitlement program designed to maximize the profits of the already absurdly lucrative prescription drug market.
The list goes on. But you have the right strategy: when faced with the facts as understood by the reality-based community you must deny, deny, deny. Eventually reality will go away and leave you alone -- or your voters will, anyway.
Let's also note that:
Of all the members of the Federal Open Market Committee, five members of the Board of Governors (usually seven, but two sets are currently empty) and twelve district bank presidents for a total of seventeen, how many were appointed under Democratic presidents?
Answer: There is just one, William Poole of the St. Louis Fed (though St. Louis is not currently a voting member of the FOMC).
link
The entire Board of Governors at the Fed was appointed by Bush. Really, 123, have you not got anything better in the way of rebuttal? If not, keep the softballs coming.
Do you need an emoticon?
"The entire Board of Governors at the Fed was appointed by Bush. Really, 123, have you not got anything better in the way of rebuttal? If not, keep the softballs coming.
My, you're so forceful.
Who had authority to regulate the CDS market?
Most of those appointments are confirmed by the Senate. So his pick is their pick. And a lot of the problems we're seeing were caused by bad congressional policies finally biting us in the ass instead of the ankle. But I realize you're not trying to make sense, you just want to bash Bush. It's cool. I just wonder who you'll chase when he's not around to take the hits anymore.
I'm always surprised at just how much power Bush has over so many people though. They just can't seem to control themselves, bubbling over with all sorts of nonsense when anything concerning him pops up. Or in this case, even when it didn't. Depression was a nice touch, btw. When you learn what that word actually means, the teacher may have a star for you ;)
Why? The cars that have been killing Detroit are built by American workers (with American, employer-provided healthcare) in southern U.S. factories owned by Toyota, Honda, etc. The problem is that the UAW has negotiated far more expensive health care coverage than most Americans get (and more expensive than would be provided by any universal plan). Even where government health care is already in place (Medicare for retirees), UAW members get an expensive, gold-plated upgrade.
For those with such feelings of responsibility, do you feel the same respnsibility to ensure GM management gets the golden parachutes promised to them? Who?