Is GM going bankrupt?

[Ted Striker]

DanS I think we should take bets on when GM is gonna declare bankruptsy.

[pchang]

I believe he is already selling puts.

[Ted Striker]

What's the date on those?

[pchang]

Don't know, but I'd go for December

[Ted Striker]

You know you just brought something to my attention I hadn't thought of yet.

The investors are out there and putting GM's woes into the press, where their demise is getting alot of coverage. Now this is going to cause alot of puts out there, favoring guys like DanS who are ready to cash in on the downside.

You're like, "duh."

But it sounds like a December meltdown could certainly be possible. This press is certainly going to accelerate it.

[mrmitchell]

Don't be silly. GM is huge.

On the other hand, I'm shocked to learn that any single company can have $300 BILLION in debt. I thought that kind of wreckless spending was reserved for governments.

As for comparison Toyota has $80 billion in debt with $120B market cap and $32 billion in profit and is tossing factories all over the place in the US.

I don't think GM's $10B in hydro research will be enough, it will probably be a success, but it won't do as they hope and put GM on the front of the future-car market.

[pchang]

Actually, I have some inside info here (but not in the legal SEC sense). The Pension Benefit Guarantee Corp. is close to taking over GM's pension plans. When news comes out, it should boost their stock. Maybe going long is the right choice here.

[JohnT]

Serious? On top of the UAL takeover?

I was reading GM's latest 10k and I saw a stunning figure - they are paying labor costs totalling $75/hour for every hour worked, an increase from $66/hour 2 years ago! I'll have to look it up when I get back home to see if they list what costs are captured in that figure, but still... that's high.

[Ned]

JohnT, I assume much of that $75 is benefits, and much of that is health care costs.

But still, when GM comes calling Congress for a bailout as it goes bankrupt, I wonder how we are going to justify bailing out GM when it is paying its workers, on average, $150,000 a year, when the average person the United States makes $50,000 or less.

[pchang]

Serious.

[DanS]

My brother-in-law is a UAW employee, although not related to one of the big three. He's making nowhere near $75, including benefits, even considering that he's got 15 years in already.

GM might be including people that they are paying not to work into that figure (it still boggles my mind that a union could demand and receive such a sweet deal). The managers for the big three must have been real pussies for a good long while.

[pchang]

Let's see what kind of deal you negotiate with Guido and his "large" associates who know where you and your relatives live.

[DanS]

Hmmm...

I concede the point.

[Ned]

As GM goes bankrupt, I think it will cut a deal with its unions. If they don't negotiate, I think GM is history as a going firm. No one will take that entity with those union contracts and pension liabilites.

[JohnT]

Originally posted by DanS The managers for the big three must have been real pussies for a good long while.

Originally posted by pchang
Let's see what kind of deal you negotiate with Guido and his "large" associates who know where you and your relatives live.

From the 1950's-on the unions didn't need that, at least at the highest levels where contracts were being negotiated and signed. GM and the unions entered a 25-year symbiotic arrangement where the unions would threaten, GM would counter-threaten, and then a new deal would be signed, with the workers winning more, more, more. Sometimes the unions would strike Chrysler or Ford to send a message, but for the most part post-WW2 automotive relationships have been benign because GM was buying the workers off.

And what did GM care? They had 50% of the US car market, the only market that mattered, and they held a nice position in the world markets that could matter in the future (except for Japan). They could pass on extra labor costs to the consumer anyway, especially if they cut back on things like R&D and design, especially if they focused in on the accounting and financial side of things to the point of forgetting (and even holding with disdain) the automotive sections of the company.

Laws changed and increased in complexity, regulations did so trebly, all done with the assumption that everything would stay the same, that GM (and Ford and Chrysler) would be #1,2,3, with their respective percentages of the US market being 50/25/18.

The automotive business was too complex, too big to break into, and GM and the UAW could ride this wave forever. In 1947, industrialist Henry Kaiser started a car company, thinking that his experience building Liberty ships (2,710 in total, 27% of total US shipping tonnage during the war) and the Hoover dam might give him the qualifications needed to start a new American car company - and in the post WW2 consumer boom as well, coming off both Great Depressions and World Wars. This linked ad is for the 1951 model. Kaiser barely put out a 1955 model, and then moved the dies to make cars for the Argentenian market.

And he wasn't the only one to do poorly in that decade: Packard, Studebaker (these two merged in 1955, finally shutting their doors in 1956), Nash, and Hudson (these last two merged in 1954 to become American Motors Co. (AMC)) all either died or stumbled as the decade approached the sixties, and this in the midst of the biggest consumerist frenzy the world had ever seen!

And the reason why they failed is because they couldn't compete on cost, because the rich UAW contracts that GM signed was expected up and down the automotive line - that is, if you worked for Nash you should be paid just as much as if you worked for GM. Their cost structure could not be maintained with their volumes, but their volumes demanded a higher quality laborer (more of a craftsman, actually) than they could pay for given GM's new UAW contracts.

Now whether you "blame it on the union", well, I don't know. Hell, it was Henry Ford who started this pay-race in the first place with his $5 days. However, the fact remains that the cost structure of labor in the automotive industry, both then and now, is totally out of whack compared to the country (not to mention the world) as a whole.