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Bail Outs For Auto Industry?

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datongdave
The slump is not just Gm, Chrysler, and Ford, but industry wide. Toyota just restarted it's Tundra factory after a three month shutdown and the dealers really don't want more trucks than they have now.

There is a big, big difference between the "slump" that Toyota and Honda are facing and the gross financial and operational mismanagement of GM, Ford & Chrysler.  The big three are on the verge of insolvency while Toyota/Honda are dealing with reduced margins

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nickwilliams

The slump is not just Gm, Chrysler, and Ford, but industry wide. Toyota just restarted it's Tundra factory after a three month shutdown and the dealers really don't want more trucks than they have now.

There is a big, big difference between the "slump" that Toyota and Honda are facing and the gross financial and operational mismanagement of GM, Ford & Chrysler.  The big three are on the verge of insolvency while Toyota/Honda are dealing with reduced margins

For the fiscal first half April/September Toyota posted a $335.9 million loss in North America. Toyota president Watanabe is in charge of a commitee charged with trying to keep the company in the black during the present "crisis". I don't see a big, big difference.

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Guest

Greg, although you and I disagree on some of the points you raise we agree that we are in a world of trouble.  I also see two other shoes about to drop.  

I believe it is more likely than not that the Middle East is going erupt at anytime.  I base this on the fact that Israel can not allow Iran to develop nukes.  Between now and Jan 20 they can count on the US back stopping a strike by Israel to take out Iran's development sites.  After Jan 20 it isn't a sure thing.  This strongly points to sooner rather than later.

Social Security is about to come to the forefront as a major issue.  Our generation is about to retire and the funding simply isn't there.  People have had their 401 Ks and similar plans cut in half.  I do not believe the Defined Benefit Pension insurance is going to be able to handle the amount of claims and I beleive the interest rate assumptions in those plans are not what they should be.

Although we are currently in a deflationary period I strongly believe we are about to be slammed with inflation as the Gov priniting presses are working 24/7.  As I have said previously I believe that some inflation would help with the housing situation, but I think we are headed for something that will make the Carter years look like the good old days.

I am also worried about social unrest.  As Katrina and the Rodney King riots demonstrated, we barely have social order now.  Imagine what it would be like if social unrest in that magnitude let loose in our largest cities.

I have never been one of the "this time is different crowd".  My natural inclination is against that outlook.  That said, history doesn't show us any economy that has survived the magnitude of the challenges we now face.  What history does show us is that all economies eventually have failed.

What can we individually do?  That is a tough one.  I haven't gone the T bill route since I believe inflation will spike.  I don't want to buy anymore real estate right now so that is out although I have made investments in equities in the beaten down housing sector.  I am in some conservative financials with good yeilds.  My short term trading has greatly slowed down.  Last week I shorted Ruger because it popped on anticipated increased short term sales.  I closed that out on Friday.  I have been going into oil as a hedge against future inflation.  I have been buying DXO an etf that doubles the movement in crude.  Since oil has been trading down lately I have been averaging in on weakness.  There really isn't a whole lot the individual can do right now, we are all hostage to the macro scene.

Dave

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datongdave

For the fiscal first half April/September Toyota posted a $335.9 million loss in North America. Toyota president Watanabe is in charge of a commitee charged with trying to keep the company in the black during the present "crisis". I don't see a big, big difference.

Yes,  Toyota lost $335 million this year.  GM has lost $55.9billion through the third quarter of this year and is facing severe cash flow issues.  Not even factoring its losses over the last five years, GM's problem from a net loss stand point is still 164.9 times bigger than the loss of Toyota in a similar time frame. GM is in trouble, major trouble because it has burned through its capital reserves.

Toyota is struggling but there isn't the issue if its going to be functioning as company in the next six months like GM.  It may face reduce profits or even losses but isn't facing the possibility of bankruptcy

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Greg Hartman

Greg, although you and I disagree on some of the points you raise we agree that we are in a world of trouble.  I also see two other shoes about to drop.  

Agreed, Dave.

I see some other shoes ready to drop, as well.  By way of example:

Our creditor’s rights practice group (a fancy name for representing banks and other institutional lenders in dealing with large commercial loans gone bad) is simply overwhelmed with new work.  For the past 5 years or so, commercial lenders took a far more “aggressive” approach to commercial loans than I have ever seen – they made risky loans that left me scratching my head..  Now those chickens are coming to roost.  I think we have not yet seen the effect that lack of consumer confidence and available business capital will cause in terms of corporations defaulting on their obligations to banks.  As they say:  “If you owe the bank $100,000, the bank owes you, but if you owe the bank $100,000,000, you own the bank.”  It is the latter kind of obligations that I am talking about.  We are talking about very big dollars even in the teeny-tiny microcosm of the matters we are handling.

I think the consumer credit card crunch has yet to hit.  Remember getting five or six new credit card offers in the mail every day?  Well, that was too tempting for many people who wanted big screen TV’s and like now instead of later and many people have enormous credit card balances.   Those people who have now lost their jobs or who are facing higher basic living costs simply can’t pay their credit cards and, with the reduced availability of consumer credit, can’t keep switching those balances from one card to the another to avoid facing the music.  Happily, those aggregate numbers won’t begin to approach the commercial loan numbers, but they will still be significant.

Then you have what I’ll call municipal finance issues.  Municipalities, authorities, school boards and other tax-free debt issuers have been pushed by their financial advisors (who got substantial fees out of all this, of course) to borrow big bux at relatively low rates (has to be big bux because the margin, given arbitrage rules, etc, is small – maybe 1%) by using their own tax-free bonds and then to invest the monies so raised, not into new schools and roads, but into higher yielding financial instruments- everything from foreign bank bonds, to bonds issued by folks like Fannie Mae, Freddy Mac and AIG, to the infamous mortgage-backed securities.  Now that many of those “safe” investments have gone south and become worthless, the School districts, municipalities, authorities, etc, still owe on their bonds, but no longer have any assets to cover those debts, let alone produce the anticipated income.  Guess who is gonna end up holding the bag on this – the local taxpayer.  Guess what that’s going to do to the economy generally.

All I can say is that: I’m glad I live out in the sticks and am as set up for self-sufficiency as anyone here in the over-crowded east could be; I’m glad I no longer have any of my savings in the market (tho’ I am all too aware that this is not a long term solution due to inflation); and I’m glad I will be the last person who may be laid off at work.

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nickwilliams
For the fiscal first half April/September Toyota posted a $335.9 million loss in North America. Toyota president Watanabe is in charge of a commitee charged with trying to keep the company in the black during the present "crisis". I don't see a big, big difference.

Yes,  Toyota lost $335 million this year.  GM has lost $55.9billion through the third quarter of this year and is facing major solvency issues.  Not even factoring its losses over the last five years, GM's problem from a net loss stand point is still 164.9 times bigger than the loss of Toyota in a similar time frame.

Toyota is struggling but there isn't the issue if its going to be functioning as company in the next six months like GM.

Just pointing out that a 335.9 million dollar loss is a reduced margin and that anyone is good enough to stink it up in this market. So, then it is settled. We won't bail out Toyota just yet.

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datongdave
Just pointing out that a 335.9 million dollar loss is a reduced margin and that anyone is good enough to stink it up in this market. So, then it is settled. We won't bail out Toyota just yet.

GM's problem didn't originate with the economic downturn but rather with poor product, terrible management and suspect product.  The big three chief executives realize this situation and are milking public sentiment for additional capital at taxpayer expense.

Toyota doesn't need to bailed out while GM desperately does.

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BradSouth

all three are ran into the ground. They need to stream line their product line quit the stupid re-badge crap buick mercury just go with one brand. plus they are making too many products.

Toyota Nissan Volvo hundai BMW Benz all employee americans building cars. Don't give me the talk buy american, I have many friends that work for Nissan Mercedes they are all americans you buy their cars you are helping a family in TN Ala etc..and why do they not need bailing out??????? Yet? Chrysler is private company!!!! give me a break they all need to look at their models and sale what is profitable and what sales. if there is a market place that the company does well in like large trucks then own that market if the mid size care market is owned by the camry and accord etc..get out of that market.

A recession is necessary to teach the corporate american businesses that this is gut check time. Corporate american business are fat lazy and not efficient and is drunk from 20 years of stupid growth and easy money, and they are FULL of unqualified Pollyannas who dont fix any problems that they encounter. I could take two 9 yo kids and teach them how to run a lemonade stand and within two weeks they could do better than many CFOs they would at least understand profitability. I am buying ford and GM for 2 bucks the govt is going to step in.

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Guest

This is getting too depressing.  Sorry I brought it up.

Greg you are absolutely right on the consumer credit.  Some figures came out last week about credit card purchases over $1,000 dropping off a cliff and many can't pay their cards down.  Rather than sending out credit card applications they are sending out revisions on the terms.  The muni situation is dire and states like California are ready to go.  I personally know of one venture capital deal fizziling last month after two hedge funds back out of their financing agreements.

There simply are no easy answers on way too many fronts.

Dave

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nickwilliams

There simply are no easy answers on way too many fronts.

Yes there are. Get two nine year old kids to replace the bosses.

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bobman

IMO we need to start making decisions based on finances for a while and not politically correct things like global warming ect. Much of the problems we face are directly and indirectly the result of the hugh jump in the cost of energy.

We all need to take a hard look at what will make fuel cheap with the constraint that once we get there and back on our feet financially we can get real evironmentally sound. Coal is abundant nuclear should be empasized and we need to drill.

The ethanol boondoggle is killing the meat and poultry industry, we can buy it much cheaper from Brazil and not drive the US chicken and beef industry out of business.

I work in the poultry industry and its bankrupt due to this ethanol nonsense which is a politically driven not market driven thing.

The high cost of fuel is also killing the american car market, bring the prices down thru more domestic production and expect that if we give anything to the auto industry expect them to retool with small efficient good quality vehicles.

We need a plan that covers the next 10-20 years thats a step back on environmental standards now and two forward in the later years.

When food and fuel are expensive we our economy is going to stay in danger.

I have no hope or expectation this will happen its just what I think should

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bigjohnsd

Look at the front page of USA Today for this morning, read the Creedit card article then shake you head and wonder.  The big banks have been packaging consumer debt and selling it just like the mortgage companies have done with the subprime mortgages.  As I recall it says the average american household has 10,000 in outstanding Credit Card debt which they can arbitrarily and capriciously raise the interest rates on at the banks whim.  Some Scart SH*T!

Pay off the credit cards each month or don't use the damn things.  

Kash is King!

Batten down the hatches mateys, we're in for a blow!!

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rosies dad

No question that many areas of the financial world and investment world have turned into a game of money mismangagement shell game.

Everybody got duped, now the house's of cards are falling and it seems everyone is beginning to see how interconnected the various parts of the economy are.

First, I have no problems with the Govt loaning to prevent insolvency. There should be strings to bailouts, for starters NO Golden parachutes or bonuses to High Level Managers.

Whats scary is so much of the core of US manufacturing is GONE overseas. We couldnt bring it back in years if we wanted to. WTF can people do for work if the factories arent here? We all cant work at Mc Donalds flipping burgers.

Do you think going to college is the answer? Not if the companies are offshore and managers are foreign...

WAKE UP AMERICA....  its an economic WAR we are in.

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bobman

Whats scary is so much of the core of US manufacturing is GONE overseas. We couldnt bring it back in years if we wanted to.

ANd wheres that leave us if we get in a big war?

ANd almost all of it moving overseas is because of federal tax policy, it would be a simple trend to reverse. There are trillions locked up overseas due to our stupid tax policies.

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