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Bail Outs For Auto Industry?


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Breakfast Boy
For those who are in favor of a bailout and/or the auto unions, what in your opinion has caused the failure of the big 3?

Coporate greed only?

Do the Unions share any blame?

As a UAW worker, I blame stupid spending by both the UAW and Management.  To blame just one or the other would be living in a make believe world.  You guys can blame it on UAW workers wages all you want, and just for the record I am willing to take a pay cut if need be, but if the big 3 would cut out their totally unnecessary spending, they would save billions.

I really get a kick out of you guys that believe all UAW workers are lazy and feel they are owed something.  Classic stereotyping right there.  That ranks right up there with some people's belief that all hunters are drunk hillbillies.

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As usual, there is no simple, one thing to place the blame on. The important thing is to recognize that that very fact means the system is deeply f*#@ed up. And more importantly, that it can't be allowed to continue by just giving it more money. If this bailout (oops - sorry, "loan") happens, it absolutely has to be contingent upon serious, major restructuring of the way the auto industry does virtually everything, not just little shell games to give the appearance that they're trying some different things to please the oversight committee.
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In the real world, a risky company trying to get a loan would be required to have the financing guaranteed by the stake holders in the business.  It is always a sticky situation because a VC doesn't want to personally be on the hook but often they must do it to get the loan.  

In the auto bail out I would be much more inclined to think of it as a loan if the officers, employees and unions guaranteed the "loan".  If those that are asking for the "loan" are unwilling to take the risk, why should we taxpayers?

Dave

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Breakfast Boy
As usual, there is no simple, one thing to place the blame on. The important thing is to recognize that that very fact means the system is deeply f*#@ed up. And more importantly, that it can't be allowed to continue by just giving it more money. If this bailout (oops - sorry, "loan") happens, it absolutely has to be contingent upon serious, major restructuring of the way the auto industry does virtually everything, not just little shell games to give the appearance that they're trying some different things to please the oversight committee.

Agreed.

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Breakfast Boy
In the auto bail out I would be much more inclined to think of it as a loan if the officers, employees and unions guaranteed the "loan".  If those that are asking for the "loan" are unwilling to take the risk, why should we taxpayers?

Dave

Agreed.

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Gettlefinger spoke about the unlevel playing field because of our governments actions. He was told that even though that was true, those issues were for another day. The Execs are keeping their heads down and acting subservient and don't dare speak of the hypocrisy.

Compuware chief takes on Detroit Three senate critic

BY PETER KARMANOS JR. • November 19, 2008

U.S. Sen. Richard Shelby, R-Alabama, has emerged as the leading Senate critic of the proposed aid package for the Detroit auto industry. It’s pretty clear Shelby has nothing but disdain for Ford, GM, Chrysler and the United Auto Workers, not surprising considering he comes from a state with assembly plants for Mercedes-Benz, Honda and Hyundai. Shelby is in a key position on the Detroit rescue as senior Republican on the Senate Banking Committee.

Wednesday, he continued his anti-Detroit rhetoric, saying he didn’t think the U.S.-based industry was going to turn around without a bankruptcy and the ouster of its leadership.

“I don’t think they have immediate plans to change their model, which is a model of failure,” Shelby said, dismissing the $25 billion in bridge loan being requested as “life support” for Detroit.

“I believe their best option would be some type of Chapter 11 bankruptcy,” Shelby said. “These leaders have been failures and they need to go.”

Shelby actually ratcheted up his anti-Detroit campaign on the Sunday morning talk show circuit, which drew an interesting response from Motor City defender Peter Karmanos, chairman and CEO of Compuware Corp., which moved its headquarters into a new downtown building just a few years ago.

Here’s part of what Karmanos said in a letter to Shelby:

I watched with great interest Meet the Press, during which you and Sen. Carl Levin debated the merits of (or, concerning your position, the folly) providing financial aid to America’s domestic auto industry.

I must admit that I was more than a little taken aback by how out of touch you really are about what Detroit’s Big Three automakers have been doing for some time and continue to do to transform their businesses to both survive in today’s debilitating economic climate and thrive in the future. The steps have been extremely significant and take it from me—someone who lives and works in the Motor City—incredibly painful as well.

… I can only trust that you will take some time and conduct the proper due diligence before continuing to espouse your inaccuracies. At minimum, I believe the domestic auto industry (and its millions of hardworking, tax-paying employees), which helped make America great, deserve as much.

Don’t you?

The intent of this letter, however, is not to take you to task for the inaccuracy of your comments or for the over-simplicity of your views, but rather to point out the hypocrisy of your position as it relates to Alabama’s (the state for which you have served as senator since 1987) recent history of providing subsidies to manufacturing. During the segment on Meet the Press, you stated that:

“We don’t need government — governmental subsidies — for manufacturing in this country. It’s the French model, it’s the wrong road. We will pay for it. The average American taxpayer is going to pay dearly for this, if I’m not wrong.”

I trust it is safe to say that when you refer to “government subsidies,” you are referring to subsidies provided by both federal and state governments. And if this is in fact true, then I am sure you were adamantly against the State of Alabama offering lucrative incentives (in essence, subsidies) to Mercedes Benz in the early 1990s to lure the German automobile manufacturer to the State.

As it turned out, Alabama offered a stunning $253 million incentive package to Mercedes. Additionally, the State also offered to train the workers, clear and improve the site, upgrade utilities, and buy 2,500 Mercedes Benz vehicles. All told, it is estimated that the incentive package totaled anywhere from $153,000 to $220,000 per created job. On top of all this, the State gave the foreign automaker a large parcel of land worth between $250 and $300 million, which was coincidentally how much the company expected to invest in building the plant.

With all due respect, Senator, where was your outrage when all this was going on? … I certainly don’t recall you going in front of the nation (as you did this past Sunday) to discuss what a big mistake Alabama was making in providing subsidies to Mercedes Benz. If you had, however, you could have talked about how, applying free market principles, Alabama shouldn’t have had to resort to subsidies to land Mercedes Benz. Competitively speaking, if Alabama had been the strongest candidate under consideration (i.e. highest quality infrastructure, workforce, research and development facilities, business climate, etc.), then subsidies shouldn’t have been required.

The fact is that Alabama knew that, on a level playing field, it could not compete with the other states under consideration and, thus, to lure the German car builder to the State, it offered the aforementioned unprecedented subsidies. In effect, Alabama — your state — did exactly what you said government should not do: provide subsidies for manufacturing.

It’s no great mystery why Alabama politicians went to such dramatic anti-free-market measures to secure Mercedes Benz — they did it for the betterment of their state through job creation and increased tax revenues. And who could blame them? Is that so different than what would occur by providing financial aid to help rescue the domestic auto industry? Such aid would save millions of jobs and millions of dollars in lost tax revenue.

Additionally, unlike the giveaways Alabama bestowed upon the foreign automaker in question, United States tax payers would be reimbursed with interest (as they were when Chrysler received government aid in the early 1980s) for their investment in what is clearly a critically important industry for America’s present and future.

Peter Karmanos, Jr. is Chairman and CEO Compuware Corporation

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Bankrupcy may sound like an option but it puts us out of business. What do you think happens when we deliver 5mil of product then they get to not pay us. Maybe the big guys have enough behind them to ride it out but on todays margins in a global areana we will loose alot more manufactoring knowledge that will no longer be in our country. there are only 2 shops in North america left and both of us will be gone when we don't get paid for what we have already done.

I bet if someone owed you money you would probably not be thinking bankrupcy for them would be good for you either.

-Jeff

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that sucks, but wheres my bailout? Contructions tapering off, commecial inventory is stupid high, and unoccupied. I'll be lucky to still be working in 6 months. Why are your(industries) problems any more important than mine? I've busted my ass for 18 years to get here...... now where is here??
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I still think the Ch 11 option is the best way to go.  Here it is another week end and time is running out so It will be interesting to see if something happens.

Time is an interesting aspect to the whole bail out issue.  In the financial industry time was what was needed to allow things to work out.  So far it seems to be working with the Gov putting out fires as they errupt.  What is different in the auto industry is that time only seems to make the problem worse.

There was some interesting chatter today about appointing a special master to oversee operations and relations with creditors.  That sounds like a Ch 11 without the BK name.  The problem with the idea is that it woud take time to draft the complex legislation and if we believe the CEOs there isn't time.  By the way, we already have a system to resolve these things, it is called Chapter 11.

It was reported today that Chrysler has retained BK counsel, I am sure they all have and the pleadings are already prepared in draft.

It was reported today that a poll was taken and 52% of the respondents said they wouldn't buy a car from a company in BK.  That isn't nearly as bad as the CEOs have been saying.  Apparently the major issue was warranty issues.  I believe those results reflect ignorance of how a Ch 11 works and that education would reduce that number greatly.  It would have been interesting to see how many would have answered the same way for the current situation.

In regards to the incentives some states have provided companies to locate within the state as mentioned above, so what.  If you want to see how these deals work go to the Cabelas site and look under the real estate heading.  There you will find what Cabela's requires of a city to locate there.  It is just business and both the company and the local gov make out on these deals.  If Michigan wants to help out a resident business, go for it but don't come to the rest of us, that is those of us who act prudently, and ask for a bail out.

Dave

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why Obama (or anyone with any sense) wanted that job in the coming years is beyond me.. soon the whole mess is going to blow up! you think the unemployment numbers that came out today were bad you wait until the middle of next year.. big 3 auto gone, everyone suppling the big 3 gone, building trades down the crapper, most of the big cities are going under.. rec centers being closed, no new police or fire classes, farmers will take a huge hit (who needs all that corn for fuel no one is burning). schools tanking with none of the levies passing.. even heatlh care will take a big loss because everyone coming through the door will be unemployed with no insurance. you few with cash reserves will be able to buy a lot of foreclosed real estate next fall for pennies on the dollar.
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you few with cash reserves will be able to buy a lot of foreclosed real estate next fall for pennies on the dollar.

who ya going to sell it to when you want out? and few will be able to pay the rent tarriff. Yea I agree, it's going to get intresting

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I thought this was a pretty interesting angle on this I hadn't thought about:

"...Testifying before the House Financial Services Committee today, General Motors CEO Rick Wagoner said that his company has spent over $103 billion over the last fifteen years on pensions and post-retirement health care benefits. “Obviously if we had the $103 billion and could use it for other things, it would enable us to be even farther ahead on technology or newer equipment in our plants or whatever,” Wagoner said.

Considering these enormous costs, Rep. Gwen Moore (D-WI) asked Wagoner whether he would support “a national health care program in order to stay viable.” Wagoner agrees that serious health care reform would “undoubtedly” help the Big Three stay competitive with foreign automakers:

   GWEN MOORE (D-WI): Wouldn’t this have been a great time for GM to say, we need a national health care program in order to stay viable? You correctly identify the problem, that other markets — China, Latin America, Russia where GM does not have the burdens of those costs. Why did you stop short of saying that this kind of initiative would help our industry?

   WAGONER: Well it undoubtedly would help level the playing field for the industry. … We’ve then tried to we have been very active in the health-care debate since here in Washington. … Our competitors do in most other countries have a significantly greater government role..."

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so we're still going to get stuck with thier cost of doing business bill arent we? regardless of if we give them the money now or later.....
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"so we're still going to get stuck with thier cost of doing business bill arent we? regardless of if we give them the money now or later..... "

Isn't that how socialism is supposed to work?  Punish those that produce and reward failure?

I don't mean to sound hard hearted about this.  I don't like to see anyone suffer but as I see it there is going to be plenty of suffering in the next few years.  I don't think the auto makers deserve special treatment.  I would much rather see Joe's Auto Repair and Yang's Dry Cleaners get the hand out.  Furthermore, the tactics of the automakers in the debate really turned me off.  I don't like being lied to or threatened by someone asking for a hand out.  You guys blew it.

Dave

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I'm with you. I'm going to get screwed, and still have to pay for thier screw ups. And I may be wrong, but these are just intrim "loans" correct?? I thouht I heard the billions were just ot get them thru the next few months. Then what back for more?? Or then they go BK after taking billons?? yea i got a really bad feeling about this. Who wins? the shareholders that dump the stock at market, cause it's value is holding (where ever it is and not free falling)due to  the "loan" and a warm fuzzy??
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