GM Loses Another $16 Billion -- Bankrupt?

[Vanguard]

Originally posted by DanS

Nobody's going to provide money to a dead company under Buffett's terms. Maybe Oerdin wants to cut a personal check to GM to prop up the company.

Do you want to cut a personal check to the federal government for the amount in benefits we are on the hook for if GM goes bankrupt?

If we loan GM $50 billion now, they probably will survive and repay the loan. If they fail, the Federal government ends up paying an extra $25 billion dollars a year in benefits---- every year, for the next 30 years.

[DanS]

What makes you think $50 billion would be even close to enough? What makes you think GM would be profitable after it was loaned the money?

[Vanguard]

GM makes product that sells--- in normal times anyway. Their cars aren't the best in the world. But they work and people buy them.

This is at least as good a place for the government to invest money as in the financial sector. We know GM produces product, employs people and provides benefits. If we manage to save the economy, then they will almost certainly repay the loan in a few years.

In the financial sector, on the other hand, it is just dump the money out of the helicopter and hope it somehow does some good.

[DanS]

You answered neither of my questions.

[Vanguard]

I can't tell if GM is going to be profitable. Nobody can. We don't even know what "profitable" means for a company like GM. That is part of the reason the financial crisis exists. In the past two decades, profits for companies become nothing more than a form of public relations.

As for whether $50 billion will be enough, maybe it will. Maybe it won't. But if it keeps them alive a year, that is one year we don't have to pick up the costs of their benefits package. It is one year where we don't have to deal with the collapse of one of the nation's largest employers and the subsequent collapse of thousands of small businesses dependent on it. It is one year where we don't have to worry about the financial repercussions of the failure of another huge bank.

I am not inherently in favor of subsidizing industries of marginal competitiveness. This year however, keeping GM alive is more important than dumping money on Wall Street.

I've answered your questions, now you answer mine.

How do you plan to raise the money to pay for GM benefits if they declare bankruptcy?

What makes you think that the US should not build cars?

[DanS]

Based on 100 years of data, we can determine that GM will not likely be profitable in the future.

Based on the fact that the $25 billion already in train to the auto industry never even registered on the market value of these companies, I have no confidence that an extra $25 billion (or $50 billion or $100 billion) would do the trick either.

How do you plan to raise the money to pay for GM benefits if they declare bankruptcy?

What makes you think that the US should not build cars?

(1) As stated, GM's pensions are well funded. The medicare costs would be funded as GM workers get productive jobs and pay FICA taxes. It is true that on a net basis, the medicare may turn out to take something from my pocket. On the other hand, the growth from these folks doing something productive would add something to my pocket.

(2) I like cars. I like Americans building cars. However, I don't view auto manufacturing nostalgically (or any manufacturing for that matter).

[Dinner]

Originally posted by DanS
What makes you think $50 billion would be even close to enough? What makes you think GM would be profitable after it was loaned the money?

It's a cyclical industry and right now it is in a down turn. It's all part of the cycle.

[Q Classic]

I'm not saying the US shouldn't build cars. But I am saying that GM isn't too big to fail.

[DanS]

Originally posted by Oerdin
It's a cyclical industry

GM hasn't made a profit in more than 5 years.

[Dinner]

The truth is if the US got national health care then most of our manufacturing sector would suddenly be on an even footing with the rest of the world. One of the reasons the Japanese, Germans, and Koreans can do so well (besides the fact that their management isn't shortsighted like American managers) is that their companies aren't saddled with health care costs. Supposedly, health care costs aloe add $2500 to the cost of each car GM builds.

Universal care is the only intelligent way to deal with health care costs. Spread costs around the entire population and make sure everyone is covered. I looked up pension costs and DanS is actually correct. The big three have paid up their pension systems and then off loaded them onto the Union so they don't have to worry about that any more. Health care is the big problem as it is for most of America's big manufacturers.

I have high hopes that the coming Democratic Majority will solve this problem with universal care.

[DanS]

Honda, Toyota, and the rest do just fine building cars in the US. They pay health care.

[Dinner]

They don't have the legions of retired people to care for because their factories are only 20 years old. In 30 years they'll be in the same boat.

[DanS]

Actually, they will not. Toyota and Honda give 401(k)s rather than pensions, as I understand.

[Dinner]

They'll still have the same health care obligations. Pensions are no longer an issue since the UAW took over future pension payments in exchange for some fat one time payments from the big 3. Now health care is the big expense.

[DanS]

Not so, AFAIK. Honda and Toyota retired employees have the same retirement health care that all the rest of us do. UAW workers don't even go into the medicare system, AFAIK.