GM Loses Another $16 Billion -- Bankrupt?

[DanS]

FYI, it recently changed that Big 3 retired salaried workers will now go into the medicare system. But UAW workers still don't do so -- they have the gold-plated system that they always did.

[Vanguard]

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

This is nonsense. Five years ago you could have said "Based on 95 years of data, we can forcast that GM will be likely be very profitable in the future----- and you would have been wrong the very next year. And, in fact, GM flacks undoubtedly did say that five years ago.

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.

That's the market for everyone. GE got "bailed out" (if you call it that) by Buffet and yet their stock is down. Lehman got access to money from the discount window and went under. There's more to come.

(1) As stated, GM's pensions are well funded.

Yes, somewhere in Lake Michigan there is a mist shrouded island where the great dragon Gemoteryx guards a huge pile of treasure, bound by magical geas to release it only to True Pensioners, and only at the time of their greatest need.

What "well funded" actually means is that there is a sizable pile of assets set aside to cover the cost of GM pensions. Nice, safe assets. Like GM stock. Bank stocks. Mortgage backed securities. And of course government bonds, which derive their value from the taxes generated by our mighty industries--- such as GM.

Well funded? I'm not even sure if they are funded at all at this point.

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.

They certainly aren't going to be paying more FICA than they are now. Likely a lot less.

And GM pays a lot for health care. If GM stops doing that, then presumably hospitals are going to have to make up that lost income by charging more to everyone else.

On the other hand, the growth from these folks doing something productive would add something to my pocket.

Are we supposed to believe that the 300,000 people put out of work by a GM bankruptcy would quickly find work in some sector of the economy that is more productive than.... industrial mass production?

May I ask what sector of the economy that would be? Nanotechnology? Replicators? Mortgage origination?

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

The United States is the world's largest consumer of cars and the world's largest economy. If anybody in the world should be producing cars, it is us. And nobody in the United States is likely to be able to design or produce cars better than GM. They have the design experience, the manufacturing know-how and the industrial base to do it better than anyone else in America.

The fact that GM doesn't produce great cars is unfortunate. But they do produce good cars. There is no reason why they should not continue to do so.

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

I would say the exact opposite. GM is the only company in America that is too big to fail. I would let all of Wall Street go under rather than GM.

There are other companies that you certainly would not want to see go bankrupt---- defense shipyards, airplane builders---- but GM is the only one whose mere bigness is enough to make it worth saving (at reasonable cost).

[Q Classic]

I'm not so sure about letting Wall Street go under.

After all, if GM did go bankrupt, I have my doubts as to whether the ripples would destroy the global financial system; whereas if all of Wall Street went under, I don't think any nation would be unscathed.

[Vanguard]

If GM goes bankrupt, it could take a large chunk of the non-fictional US economy with it (Did I say non-fictional? Sorry. I meant non-financial).

What we are trying to avoid is a crisis in the real economy. Not the financial economy. There may be no way to do that. But it seems more efficient to loan $50 billion to keep hundreds of thousands of workers employed than it is loan $700 billion to keep thousands of people employed.

[Q Classic]

Manufacturing naturally, in the age of globalization and free trade, goes to where it can be done cheapest.

Look at the steel companies.

It's entirely possible for America to build cars--I think America could, and should--but rather than prop up a withering, rotting tree, why not let it fall and just plant many saplings?

[Vanguard]

That sounds nice.

But how are these saplings supposed to pay all the taxes we need so the government can afford to bail-out Wall Street?

[Q Classic]

How is a company that we continually need to give bailouts to (I highly doubt that this $50 billion is a one-time thing, as you suggest) going to pay all the taxes we need?

[DanS]

Originally posted by Vanguard
If GM goes bankrupt, it could take a large chunk of the non-fictional US economy with it

This is not true. The US economy as a whole routinely absorbs shocks of much greater magnitude.

[Dinner]

Plant new saplings? The last successful automobile start up in the US was in 1925 with Chrysler. The last attempt at a large company entering the auto market as a sapling was in the 1946 when Kaiser Steel & Shipyards attempted to diversify into auto manufacturing. How many Kaiser cars do you see on the road these days?

[Kidlicious]

Originally posted by DanS


This is not true. The US economy as a whole routinely absorbs shocks of much greater magnitude.

I wonder if you think we can import every little thing. Sure the economy can absorb small set backs for awhile, maybe even a long time, but it can't just deteriorate like that forever without collapsing.

[Dinner]

The basic fact is it is enormously difficult to get a car company up and running. It takes tremendous amounts of capital, expertise, and viable parts suppliers. Nations have tried, and tried, and tried again using the whole resources of their governments to get car companies up and run and almost always they fail. With all of its resources China is still struggling to build a viable auto sector even behind huge protectionist barriers.

Once they're gone, they're gone and along with them goes much of the heavy industry sector. Just look at the virtual depression Britain fell into after Thatcher killed the British car industry. Further more countries need that heavy industry in times of war or national emergency. The auto sector is not something which should be thrown away lightly.

[Kidlicious]

We've got to face the fact that the economy isn't going to grow like it used to, so there isn't going to be as much demand for cars. But we can't just go on pretending that we've got some comparative advantage in borrowing money from other nations. We've got to close the trade deficit.

[Dinner]

The big 3 currently do have some of the most efficient and innovative factories and production lines in the world but unfortunately they're not in the US largely because the UAW Union refuses to allow increased automation. The government needs to step in and curb union power or failing that nationalize the companies (at least in part) and force the needed reforms.

Here's a great video from the Detroit News: http://info.detnews.com/video/index.cfm?id=1189

[Bosh]

There's plenty of car factories in America that are owned by non-American companies...

[Agathon]

Originally posted by Vanguard

The United States is the world's largest consumer of cars and the world's largest economy. If anybody in the world should be producing cars, it is us. And nobody in the United States is likely to be able to design or produce cars better than GM. They have the design experience, the manufacturing know-how and the industrial base to do it better than anyone else in America.

The world needs American cars the way it needs Ethiopian computers. The US should stick to producing reality television, war and obesity. Comparative advantage, you know.