General Motors Headed For Disaster Again?

Think the auto bailout was a success? Think again.

President Obama and his supporters like to point to the bailout of General Motors and Chrysler as examples of his successful economy polices, and there’s no doubt that the moves have been popular in the Mid-West and other areas with close ties to the auto industry. At the same time, though, the jury is still out on just how successful the bailout will actually turn out to be in the long run. Chrysler was once the great example of a turnaround company and considered valuable enough at one point for Damlier Benz to purchase the company. By the time they were forced to file Chapter 11 however, they were a shell of their former selves and ended up being bought lock, stock, and barrel by Italian car maker Fiat. Chrysler, the company founded in 1925 by Walter Chryler, now exists in name only.

General Motors, meanwhile, has allegedly been more successful after stripping itself of several brands and paring down a dealer network that had been far bigger than it ever needed to be. However, as Louis Woodhill notes in Forbes, the company’s future doesn’t look all that bright and a second bankruptcy seems almost inevitable:

President Obama is proud of his bailout of General Motors.  That’s good, because, if he wins a second term, he is probably going to have to bail GM out again.  The company is once again losing market share, and it seems unable to develop products that are truly competitive in the U.S. market.

Right now, the federal government owns 500,000,000 shares of GM, or about 26% of the company.  It would need to get about $53.00/share for these to break even on the bailout, but the stock closed at only $20.21/share on Tuesday.  This left the government holding $10.1 billion worth of stock, and sitting on an unrealized loss of $16.4 billion.

Right now, the government’s GM stock is worth about 39% less than it was on November 17, 2010, when the company went public at $33.00/share.  However, during the intervening time, the Dow Jones Industrial Average has risen by almost 20%, so GM shares have lost 49% of their value relative to the Dow.

It’s doubtful that the Obama administration would attempt to sell off the government’s massive position in GM while the stock price is falling.  It would be too embarrassing politically.  Accordingly, if GM shares continue to decline, it is likely that Obama would ride the stock down to zero.

GM is unlikely to hit the wall before the election, but, given current trends, the company could easily do so again before the end of a second Obama term.

In the 1960s, GM averaged a 48.3% share of the U.S. car and truck market.  For the first 7 months of 2012, their market share was 18.0%, down from 20.0% for the same period in 2011.  With a loss of market share comes a loss of relative cost-competitiveness.  There is only so much market share that GM can lose before it would no longer have the resources to attempt to recover.

As evidence of GM’s problem’s Woodhill cites the example of the Chevy Malibu, which is being redesigned for the 2013 model year and will have to compete in the market segment dominated by cars such as Honda’s Accord, Toyota’s Camry, Nissan’s Altima, and Hyundai’s Sonata. Because of the importance of this segment of the car market, GM invested a lot of resources into the development of the Malibu and, as Woodhill notes, how the car stacks up against it competitors would be seen as a significant test of the company’s ability to engineer a turnaround and compete in the modern automobile market. Unfortunately for General Motors, the Malibu hasn’t been very well received at all:

Not only was the 2013 Malibu (183 points) crushed by the winning 2012 Volkswagen Passat (211 points), it was soundly beaten by the 2012 Honda Accord (198 points), a 5-model-year-old design due for replacement this fall. Worst of all, the 2013 Malibu scored (and placed) lower than the 2008 Malibu would have in the same test.

Uh-oh.

Digging deeper, the picture just gets worse.  Despite its mild hybrid powertrain, which is intended to provide superior fuel economy (at the cost of a higher purchase price and reduced trunk space), the 2013 Malibu Eco delivered the same 26 MPG in Car and Driver’s comparison test as the Passat, the Accord, and the Toyota Camry.

In a recent speech, Dan Akerson admitted that GM’s powertrain technology had fallen behind that of competitors in some cases.  This is illustrated by the Malibu Eco’s EPA gas mileage ratings.  At 25 MPG City/37 MPG Highway, the Malibu Eco is not as fuel-efficient as the conventionally-powered 2013 Nissan Altima (27 MPG City/38 MPG Highway).

In addition to the powertrain, the Malibu also suffers from the problem of having a shorter wheelbase than any of its competitors, meaning that the interior ends up being far less comfortable for driver and passengers alike, another potentially bad selling point for the car that is supposed to be leading the turnaround of the new General Motors.

Dave Schuler sums it up nicely at his place:

Essentially, there is no place in today’s market for a company that makes mediocre products and needs to sell a lot of them to maintain its operations. Further, unlike VW GM does not appear to be preparing to make and sell the best cars in the world but to progressively reduce its operations until, presumably, there is nothing left but the smile.

When the federal government bailed out GM there were essentially two viable alternatives. The company could be allowed to resolve its problems in ordinary bankruptcy with the government’s attentions focused on bailing out GM’s employees or GM’s cost basis, most of which is labor costs for employees present and past, could be reduced and the company forced to modify its fundamental way of designing, manufacturing, and selling cars to do much, much more with much, much less, an enormously tall order.

The Obama Administration elected to do neither, choosing to remove top management (as Woodhill puts it “rearranging the deck chairs on the Titanic”), preserve GM’s labor cost problems, and double down on GM’s losing investment on EVs, assuming that the tremendous sales of an enormously popular vehicle which has proved itself anything but would right all wrongs. These were catastrophically bad assumptions. If there were vast demand for street legal golf carts in the United States, I suspect we’d already know about it.

Added on top of all of this is the news released earlier this week that the American taxpayer could end up losing $25 billion on the auto bailout:

American taxpayers could wind up losing as much as $25 billion on the 2008 – 2009 automotivebailout, according to a new report, a figure that has increased by 15% since an earlier forecast, in large part representing the significant downturn in General Motors’ stock price.

Beginning with the outgoing Bush Administration in 2008 and continuing once Pres. Barack Obama took office the following year, the U.S. Treasury invested $85 billion to help the domestic industry survive the deep recession – primarily to fund the post-bankruptcy turnarounds at GM and Chrysler.

But, in a report sent to Congress, the White House raised to $25.1 billion the amount it said it cannot now expect to recover – primarily by selling off the remaining 26% stake it still holds in GM.  The previous quarterly estimate was $21.7 billion. On the other hand, the latest figure is about 45% less than the $44 billion the Obama Administration had once predicted.

The forecast has actually been rising for some months, government analysts last year issuing a projection closer to $15 billion.  And, following the November 2010 GM IPO, there was some hope the Treasury might even break even.  That was based on some industry research, such as one report from influential Deutsche Bank that initially forecast GM shares could eventually top $50 compared to the IPO strike price of $33.

But, in recent months, automotive shares in general, GM in particular, have been tumbling.  The $25 billion government loss forecast was based on a stock price of $22.20 at the end of May.  During the last month, however, the number has dipped to less than $19 a share, though the stock has since rebounded to $20.61 at midday today.

(…)

A Treasury spokesman, Matt Anderson, continued to defend the bailout this week, insisting, “Theauto industry rescue helped save more than 1 million jobs throughout our nation’s industrial heartland and is expected to cost far less than many had faeared during the height of the crisis.”

That’s the standard reply one gets from the Administration and from the President’s supporters when the subject of the bailout comes up, but it misses the point. All that money we gave General Motors and Chrysler from December 2008 through May 2009 ended up not being enough to save either one of them from the bankruptcy proceeding that was exceedingly inevitable to anyone paying attention as early as the late summer of 2008. This didn’t start with President Obama, either. It was President Bush who, defying the will of Congress and the American people, used money that had originally been allocated for the TARP bailout and gave it to General Motors and Chrysler. Instead of doing that, he should’ve let both companies go into Chapter 11 right then and there, possibly with government guarantees for the Debtor In Possession financing. In that bankruptcy, the government should have refrained from putting its finger on the scale in the manner that Dave Schuler describes about, largely because that government favoritism has prevented GM from truly addressing the problems it faces in the future. It would have been better for the taxpayers, because they would have saved themselves some $80 billion, and it would have been better for the companies too because it would have permitted them to make the changes necessary to become companies capable of competing in the 21st Century.

Instead, we’ve gotten what we have now and General Motors’ ever shrinking market share suggests that another round of troubles isn’t very far away. What will the people praising the bailout say then?

FILED UNDER: Economics and Business, US Politics
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. MBunge says:

    “The company could be allowed to resolve its problems in ordinary bankruptcy”

    As has been pointed out over and over and over again without anyone ever substantively disputing the assertion, it would have been impossible for GM to simply go bankrupt in the sense of the phrase today – a managed process whereby a company gets out from under unsustainable debts. Instead, because the global financial structure was imploding at the same time, GM would instead of gone bankrupt in the pre-modern sense. The company would have been there on Monday and then gone Tuesday, leaving every employee, dealer and other business that worked GM or relied on their business shit out of luck.

    Even if the Bush/Obama bailouts did NOTHING else but delay the death of GM until a time when it would be less damaging to the overall economy, it was still the absolute right thing to do. It is gobstopping how supposed “free marketeers” like Doug are childishly ignorant about the most basic realities of business.

    Mike

  2. michael reynolds says:

    So, here’s what we know:

    1) Malibu is not a great car. This may or may not result in bankruptcy somewhere down the line. Maybe. Or not.

    2) We should have let them go through normal bankruptcy because money that was absolutely not there at the time would have magically materialized, summoned by the Libertarian Gods. Because why? Because libertarianism, that’s why. Also: Obama.

    3) Had we let them go bankrupt three plus years ago the Malibu would totally be kicking ass now.

    Okay then. So long as I have it all clear.

  3. Jeremy R says:

    Beginning with the outgoing Bush Administration in 2008 and continuing

    It’s funny how the media likes to add the Bush admins $17.4 billion bridge-bailout which lacked any binding strings attached, to the amount Obama needs to recover for his own policy, which forced heavy restructuring, to be deemed completely successful. Bush kicked the can to the next administration, and basically flushed that money down the drain, as he didn’t want to be the one to take the political hit for partially nationalizing the U.S. Auto Industry. It’s also worth noting that there’s someone on the current GOP ticket who voted for the former, to support his President I suppose, but not the later bailout.

  4. MBunge,

    Hence the need for government guarantees on DIP financing. Heck, even if we’d done it the way that it ultimately was, it would have been far better to do it December 2008 than wasting 80 billion dollars and doing it anyway in May 2009. Again, without the governments thumb on the scale in the bankrutpcy process

  5. sam says:

    I really, really like this sentence from Mr. Woodhill’s piece:

    GM is unlikely to hit the wall before the election, but, given current trends, the company could easily do so again before the end of a second Obama term.

    I also like his bio:

    I have a B.S. in mechanical engineering. I am a software entrepreneur who is currently an investor and board member in three startup companies. I am on the Leadership Council of the Club for Growth. I was born in 1948. This chapter of my life is about trying to help people make their dreams come true. I started writing about economics because I hate the way that our dysfunctional economy is crushing the dreams of so many people. Young people are delaying getting married and having children because of unstable jobs and incomes. It doesn’t have to be this way, and I want to contribute to solving the problem. I believe that prosperity is possible.

  6. anjin-san says:

    I spend a lot of time with professional drivers, some of whom you see racing if you spend any time on SPEED TV. They all seem to be very excited about the turnaround of the US auto industry, and the vast increase in quality and driver experience that has taken place in recent years. These are guys who have cars in their DNA.

    Then I meet conservatives, who seem to want GM to fail. Why? Simple. It would hurt Obama.

  7. Brett says:

    So, MBunge, you buy the “too big to fail” argument? And that a temporary staving off of the inevitable was worth the astonishing cost? Because that seems to be the argument you are making. I would suggest that calling someone “childishly ignorant” while simultaneously arguing something as foolish as that is certainly a bold strategy.

    The entire GM bailout was a cover for Obama funnelling taxpayer funds to his political base, and therefore returning some to his campaign. It’s a very ordinary money-laundering scheme. If Obama could figure a way to just grab dollars directly without running it through the UAW, GM and its union employees would have been happily thrown under the bus without a second thought. One of the clearest indicators of this is that the bailout money went ONLY to union shops – non-union workers were completely out of luck.

    The bailout was a scam from start to finish and the finish is rapidly approaching.

  8. GM is doomed for an array of reasons; not merely a substandard product line (weighing on market share already well below their bankruptcy exit plan), but their understanted retirement obligations (nearly equal to the firm’s total common equity in a fair accounting), the liabilities they are likely to accumulate in their renewed foray into subprime lending, and ultimately, the unrestrained rapacity of the UAW. In a word, GM is screwed:

    http://senatorjohnblutarsky.blogspot.com/2012/08/on-general-motors-next-bankruptcy.html

  9. Tsar Nicholas says:

    You mean giving a labor union a near controlling equity stake in a business enterprise (subordinate only to the federal government’s stake) won’t make utopian paradise fall from the clear blue skies?? Color me shocked. Shocked, I tell you.

    On a serious note, of course GM is in the shitter and headed into the sewer. For the past two years its majority ownership has been the government + the UAW and the latter in essence has had veto power over its day-to-day managment decisions. They’ve also produced Volts for no reason other than to gin up the national GDP data. Come on, let’s not be as naive as Ivory Snow.

    Then to top it off the most colossal irony is that after the government-union strongarm takeover they’re still saddled with unsustainable legacy costs for pensions and healthcare, especially when compared to their chief foreign competitors.

    P.S. – @MBunge: Dude, you need a basic refresher course in bankruptcy law and practice. By definition with a Ch. 11 reorg a company can’t be there one day and then disappear the next day, regardless of what’s happening elsewhere in the world. Doesn’t work that way. With a regular bankrutpcy GM could have tossed out its CBA and renegotiated such items as pension, healthcare and wage obligations, all to make itself more competitive. It could have written down its really bad debt, rejected any bad supplier agreements, obtained DIP financing, albeit secured and at a high rate, and thereby made itself more financially sound for the long term, without the need for the additional direct bailout dollars from Uncle Sugar, i.e., from taxpayers. Take a wild guess why the Obama administration stepped in and went in a completely different direction. Hint: it starts with “u” and ends with “s,” and we’re not talking about unicorns.

  10. Dazedandconfused says:

    @Doug Mataconis:

    What kind of guarantees?

  11. David M says:

    Was there a GM bailout or an auto industry bailout? Seems to me focusing on the GM part while ignoring Chrysler as well as Ford and the suppliers misses the big picture.

  12. anjin-san says:

    @ Brett

    The entire GM bailout was a cover for Obama

    So when Bush started the bailout, he was doing it to cover for Obama? Please explain…

  13. stonetools says:

    So an engineer (not an economist, MBA, accountant , or manager) thinks that GM may go back into bankruptcy before the end of Obama’s second term (2016)? Does he predict the horses or the stock market too?

    You may as well read chicken entrails as rely on this pile of nonsense.
    I do live his tag, though.o

    I apply unconventional logic to economic issues.

    Makes me really believe in him.

  14. C. Clavin says:

    Woodhill is a muckety-muck with The Club for Growth. What would you expect him to say? Obama saved the Auto Industry and a couple million downstream jobs? C’mon.

  15. David M says:

    @Tsar Nicholas:
    The options were Govt Bailout and Chap 11 bankruptcy / reorganization (which is what happened) or Chapter 7 liquidation.

    It is odd that conservatives and libertarians wish the Govt had been more involved and taken a bigger role in restructuring GM.

  16. sam says:

    Oh, and another writer at Forbes (Joann Muller) thinks Mr. Woodhill is, shall we say, not quite up to par on his analysis: Leadership, Not Another Bailout, Will Fix GM (And No, It Is Not Going Bankrupt).

    He concludes his piece:

    [T]here’s also a lot going right at GM, and that’s worth acknowledging.

    GM is in an enviable position in China, where it has 13.8 percent market share and continues to invest for a market that is expected to sell 30 million cars and trucks a year, twice what the U.S. sells.
    In the U.S., GM and the UAW have a strong relationship where they tackle problems together rather than butting heads as in the past. Today, GM’s labor costs are just about on par with its Japanese competitors in America.
    GM’s vehicles are more competitive than in the past. Cadillac, GMC and Chevrolet quality all ranked above average on the recent J.D. Power Initial Quality Study.

    Clearly, Akerson (CEO of GM) still has a lot of work to do in turning GM around. But I get angry when people use the GM bailout as a political football and ignore the facts.

    I like the Mr. Muller’s bio, too (though for different reasons):

    I’m the Detroit bureau chief for Forbes, which means I spend most of my time covering the automotive industry. But I also keep an eye on the rest of America’s heartland—where stuff is manufactured and grown. I’ve been on the auto beat for more than 15 years at Forbes, Business Week and the Detroit Free Press. At the Boston Globe, I rode the tech bubble for a while, but I found there’s nothing quite as fun as the auto beat.

  17. stonetools says:

    So Doug and Dave, in their even handed objectivity, ignored a column by someone who has been covering the auto industry for 15 years in favor of one by a Club for Growth hack with no relevant credentials, but with a conclusion that they liked?

    Fascinating. I’m beginning to finally figure out the lay of the land here.

  18. anjin-san says:

    There’s also a lot going right at GM, and that’s worth acknowledging.

    Amen. When I was growing up, great US cars were everywhere, and I owned some nice ones (’69 Cougar & ’69 Mustang). For a long time starting in about 1980, I was driving German cars, and would happily pontificate about how I would never buy another American car, as they were simply crap.

    Times have changed. If I was a bit younger, I would be very happy driving a Camaro. When the lease on my Z expired, I was pretty close to getting a Cadillac. I actually went to the local dealership ready to buy, but was turned off by the salesperson I had the misfortune to encounter. I am still amazed that I would consider buying American. It’s a nice turn of events.

  19. Rafer Janders says:

    Instead of doing that, he should’ve let both companies go into Chapter 11 right then and there, possibly with government guarantees for the Debtor In Possession financing.

    What ignorant nonsense. There would have been no managed Chapter 11 restructuring and no DIP financing, for the simple fact that at the time, the entire world financial market was imploding. There was simply no one, other than the federal government, that had the will or the cash to lend to GM and the rest of the auto industry. Who would have lent to them? All the banks which were themselves running to the feds to save them?

    If the government hadn’t done it, GM would have gone completely bust within a few days — no restructuring, no later emergence out of bankrutpcy — and would have dragged the rest of the US auto industry and all its related businesses along with it.

    Of course, these are well known facts that have been trumpeted time and again, so it’s not as if I expect Doug to know them.

  20. Rafer Janders says:

    @Doug Mataconis:

    Hence the need for government guarantees on DIP financing.

    Jesus. In late 2008, government guarantees or not, there was no DIP financing available. No one would have or could have been able to lend GM the money.

  21. C. Clavin says:

    This article posted at Rueters, and dated tomorrow, sounds like GM is taking positive steps forward…not receding into bankruptcy.
    http://in.reuters.com/article/2012/08/16/us-corp-credit-autos-idINL2E8JGEWK20120816

  22. Mr. Prosser says:

    “At the same time, though, the jury is still out on just how successful the bailout will actually turn out to be in the long run.” Bailouts are a short run proposition.There was never a promise it would all be rosy unless other factors and production variables changed. Well, they didn’t, thanks to a lot of obstructionists. Will the variables change in the near future? Who knows? As Keynes said, “In the long run we’re all dead.” In the short run some still have jobs.

  23. Rafer Janders says:

    Again, just so I’m clear about this, exactly how would this “government guarantees of DIP financing” work? At the height of the financial crisis, when the banks were themselves days away from insolvency, they would have gotten together to lend $85 billion in speculative loans to an industry also within days of insolvency, thereby putting themselves into the hole for additional tens of billions of liability on their balance sheet, and they would have done this because of “government guarantees”?

    Government guarantees which would have had to be made good on immediately becuase, once the market saw that these underfunded banks had lent $85 billion to the car industry, everyone would have completely panicked and hammered their stock price even further into the ground, causing both the banks and the car industry to fail and leaving the taxpayer to pick up the irradiated ruins of America?

    That’s how you think it was going to work?

  24. bk says:

    Not sure what type of law you practice, but it doesn’t appear that it involves bankruptcy. Or finance.

  25. bk,

    You’d be wrong then. GM and Chrysler should’ve been put into Chapter 11 in December 2008. Hell, I would’ve been fine if the govt had been the DIP lender, at least then we wouldn’t have wasted $80 billion

  26. jan says:

    @Tsar Nicholas:

    I’m glad you were able to do a tutorial on bankruptcy law, Tsar.

    GM is just another example of the Obama administration choosing ‘winners and losers’ according to what fits in with his own policy agenda, as well as keep donors and political allies happy and on board.

    When it came to the bail-out the winners were keeping unions intact, along with salaries (which are twice as high as RTW states) and benefits that were a large dysfunctional component in the company’s struggle to keep afloat, in the first place. The losers were shareholders, who took financial risks and then were arbitrarily told to go pound sand. Also some 2200 dealerships took it on the chin, and were dismantled. As a result over 200 of these dealers are suing the government. Obama has done the same subjective governance when it comes to green energy taxpayer investments (Solyanda and a slew of others, all Obama cronies), as well as a plethora of healthcare waivers to unions and supporters of his. The same deference was slanted towards dem constituencies and states, in allocating where stimulus money was to be invested.

    In the meantime, Obama continues to take bows for keeping auto union jobs intact (strange how well Ford has done without Government interference), excoriating Romney’s sounder, fairer-to-all plan, as GM stock trends downwards with over a 25 billion dollar taxpayers loss in it’s back pocket. This is the primary problem Obama has, in having an ill-equipped, partisan vision of his own, as well as the people he consults and surrounds himself with. All ideology and no business experience, in the WH, gets us where we are today — treading economic water.

  27. Herb says:

    “there is no place in today’s market for a company that makes mediocre products and needs to sell a lot of them to maintain its operations.”

    The car market?

    Because it’s that’s true of markets generally, McDonald’s and Wal-Mart should be closing up shop about now……

  28. Consumers would disagree, Herb.

    Also, Wal-Mart and McDonalds and Mickey D’s don’t sell cars. And if GM cannot compete with VW, Honda, Toyota, and Hyundai in the most important segment of the automobile market, they’re going to continue losing market share here in the US

  29. Dave Schuler says:

    @anjin-san:

    I’m neither a conservative nor a libertarian and I certainly don’t want Obama to fail. I’d like him to succeed. Wildly. Beyond his fondest dreams. But that will only be accomplished by doing things that work.

    I do work with one of the Big 3 Detroit automakers on practically a daily basis. I can’t ethically give you chapter and verse but in my at least slightly informed opinion these companies are still living back in the 1960s. The decision-making process must be seen to be believed.

  30. rjs says:

    GM continues to be number 1 in china, which is has been a larger car market than the US since 2000…

  31. anjin-san says:

    @ Dave Schuler

    The decision-making process must be seen to be believed.

    That’s hardly unique to Detroit. I recently spent a few years working for one of the largest Japanese electronics manufacturers. “Had to be seen to be believed” just about covers it. R&D, engineering, & manufacturing, all top notch. Beyond that, it was like entering bizarro world.

  32. rjs says:

    @rjs:

    thats a typo…since 2009..

  33. anjin-san says:

    @ Jan

    All ideology and no business experience

    Ah, you mean the Ryan formula…

  34. David M says:

    @jan:

    I’m curious how the dealership closures weren’t necessary or could have been avoided if GM was liquidated

  35. @Doug Mataconis:

    Hence the need for government guarantees on DIP financing. Heck, even if we’d done it the way that it ultimately was, it would have been far better to do it December 2008 than wasting 80 billion dollars and doing it anyway in May 2009. Again, without the governments thumb on the scale in the bankrutpcy process

    This is the important inner contradiction in right-wing criticism of the GM bailout.

    At top level they shout that they wanted no bailout. Sorry, loan guarantees are not “no bailout,” they are a different form of bailout, an early form of bailout.

    A Chrysler-style bailout is not “no bailout.”

  36. BTW, I don’t think “quality” rates higher or separately from “global overcapacity.”

  37. Dave Schuler says:

    @john personna:

    You bring up a good point and one that I’ve mentioned from time to time. We already have global overcapacity in auto production and Chinese and Indian manufacturers are expanding and itching to get into the U. S. market.

  38. Herb says:

    @Doug Mataconis: “Consumers would disagree, Herb.”

    About what? That McDonald’s and Wal-Mart don’t have “mediocre products?” Actually, I think it’s more like this:

    There’s a wide acknowledgement that McDonald’s and Wal-Mart and a whole host of companies (GM?) do offer “mediocre products,” but because of price sensitivity, convenience, and/or marketing, consumers are satisfied with that.

  39. Dave Schuler says:

    @Herb:

    The problem is that in the D segment GM isn’t the price leader, the performance leader, or the price-performance leader and won’t be for the foreseeable future.

  40. @Dave Schuler:

    Yeah, and I’d say neither party is real comfortable with a down-sizing of GM nor the pipeline as part of any fix.

    (I see “Obama should not have closed the dealers” has made its appearance above.)

  41. bill says:

    gm is horrible, it’s run like the gov’t. – maybe actually having to go through bankruptcy will give them a clue on how to compete, we all know what should happen but it probably won’t. every year we seem to look more and more like england (the absence of manufacturing might)……get your teeth fixed before that happens.

  42. Herb says:

    @Dave Schuler:

    “the D segment”

    How are they doing on trucks and SUVs?

  43. @bill:

    With or without loan guarantees? How do you handle retirement commitments?

    Those are hard and related questions. If government is going to guarantee anything management submits as a reorganization plan, then they’ll borrow to keep in operation and borrow to fill the retirement fund. If they don’t have forward sales to support that, management doesn’t care. Their incentives are shorter term.

    If government isn’t going to guarantee any reorganization, how do they slice it?

    I think we really know that without government loans or guarantees then GM would have gone into dissolution, and then Katy bar the door.

  44. An Interested Party says:

    GM is just another example of the Obama administration choosing ‘winners and losers’ according to what fits in with his own policy agenda, as well as keep donors and political allies happy and on board.

    Oh really? Who could of guessed that George W. Bush wanted/wants to carry water for Obama…

  45. wr says:

    @jan: Um, Jan? What do you think would have happened to those shareholders if GM had declared Chapter 7? How about all the dealers?

    And why does it cause you so much pain that thousands of high-paying American jobs were saved? Do you think that blue collar workers don’t deserve to make a decent living? Should they be forced into poverty? You keep complaining that Obama saved the jobs of workers who belong to unions — are you saying that these Americans should be punished, fired, and forced into poverty because they happen to believe in negotiating collectively?

    Tell me, Jan, should everyone but you be forced to work for minimum wage?

  46. wr says:

    @anjin-san: You should see the publishing industry. They choose to believe it’s still 1898 and behave accordingly.

  47. Jenos Idanian #13 says:

    GM in trouble again already? Man, who could have seen this coming?

    The GM bailout was about saving union jobs and bennies above all else. Everyone else who would have been at the front of the line in a bankruptcy proceeding was bent over and sodomized with a camshaft just so Obama’s cronies in the union not only didn’t lose a penny, but ended up with a sizable ownership stake in the new GM.

    And since the worst underlying problems behind GM’s initial collapse weren’t actually addressed in the bailout, all we did was buy them a bit of time. And that was one hell of an expensive bit of time.

  48. David M says:

    @Jenos Idanian #13:

    Yes, the GM bailout that George W Bush started to help Obama. Explain that part?

    GM went through a Chapter 11 bankruptcy proceeding, so I’m not sure how anyone “cut in line”. How would we have been better of with GM and Chrysler going through Chapter 7 liquidation?

  49. Jenos Idanian #13 says:

    @David M: So, David, what happened to the secured creditors who, by law, should have had first dibs? How did the UAW end up with an ownership stake well ahead of other creditors? What the hell happened to the non-union retirees at Delphi and their retirement plans?

    And your ‘it started under Bush” BS is a total farce. So what? Bush had been back in Texas for six months when Obama took over GM. Obama owns all the particulars.

    I hope GM doesn’t go under again. But I also hope that I won’t hurt myself when I hold a heavy box over my foot and let go. I suspect my hopes in both cases will be equally successful.

  50. Lynda says:

    @Doug Mataconis:
    “Hence the need for government guarantees on DIP financing. Heck, even if we’d done it the way that it ultimately was, it would have been far better to do it December 2008”
    I thought Obama was only sworn in on Tuesday, January 20, 2009?
    So Romney retroactively retired and Obama should have preemptively restructured GM – did someone invent a time machine and I missed the OTB post?

  51. David M says:

    @Jenos Idanian #13:

    The unsecured bondholders or speculators? Who gives a crap.

  52. @this:

    For the idiot downvoter: Overcapacity

    The main catalyst for the increased global manufacturing capacity is the rapid rise in demand from emerging markets. 68.5 percent of survey participants feel that China will build up the most capacity by 2016, almost doubling its current level. The rest of Asia (excluding China and Japan) is expected to be the next fastest growing region.

    41.5 percent of the respondents still consider the US to be the most overbuilt automotive market. Yet thanks to its rationalization efforts over recent years, this country is already doing better than many realize. Furthermore, respondents feel the automotive markets of Germany and Japan both have overcapacity between 11-20 percent.

    Sadly, “rationalization” of “overcapacity” means shutting down plants, and dealers.

  53. jan says:

    Here’s a comprehensive overview of the auto bailout casualties in a National Review article. It includes salient POVs from the book ‘Bailout’ by Neil Barofsky.

    Below are excepts relating to debatable commentary in this thread:

    In the Obama auto bailouts, jobs were not all created equal. The administration moved heaven and earth to save the jobs and generous benefits of General Motors and Chrysler workers who belonged to the United Auto Workers, ripping up the contracts of bondholders and secured creditors to give the UAW an enlarged stake in the new companies.

    Contrary to the administration’s claim that the closings were entirely GM and Chrysler’s decisions, Barofsky writes that Obama’s “auto team had pressured the companies to close the dealerships” more rapidly and in greater numbers than the firms had wished. As a result, more than 2,000 dealership agreements were terminated within a few months in 2009.

    And perhaps no workers were less equal in the bailouts than the employees of GM and Chrysler dealerships. About 100,000 mostly blue-collar jobs — a number approaching the total work force of GM and Chrysler, according to the Cleveland Plain Dealer — were put on the chopping block by “Team Auto,” the Obama administration’s auto-bailout task force, which insisted on extraordinarily rapid closures of auto dealerships during the government-organized bankruptcy proceedings.

    Given this evidence, it is correct to argue that many dealers would have fared better if GM and Chrysler had gone through a traditional, court-approved bankruptcy along the lines that Romney advocated rather than through the politicized bankruptcy that Obama’s team put together.

  54. David M says:

    @jan:

    You mean National Review did not like something Obama did?

    Anyway, as is common knowledge, the bondholders approved the bankruptcy deal. Anyone who says otherwise is a liar.

    Also common knowledge is that GM went through a court approved Chapter 11 bankruptcy and the other option was Chapter 7 liquidation. You and National Review are flat out pretending something normal was nefarious and there was another easy option everyone passed up.

    So quit posting how everything would have been better if they’d only gone through Chapter 11 and start explaining how liquidating them would have been better.

  55. anjin-san says:

    the American taxpayer could end up losing $25 billion on the auto bailout:

    It could. On the other hand, the American taxpayer spent far, far, far more than that to turn Iraq into a pro-Iran state, and I don’t remember the howls of outrage from the right.

    So I will take Obama spending billions to try and save American jobs and a critical industry over spending hundreds of billions to kill people that did not threaten us and to alter the balance of power in the middle east in a manner unfavorable to our national interests.

    What does that make me in the eyes of the right? Oh, yea. A commie.

  56. bill says:

    @john personna: retirement commitments were underfunded, stolen by the mob/union hacks, etc. the federal gov’t has no business bailing out inept corporations. if michigan want’s to prolong the agony they can pay for it- hopefully they’ll figure out how to compete with the market they basically invented and squandered. sucks that there are still workers up there that believe the uaw will somehow save them, and they can’t. reality bites hard when you ignore it. adapt or perish, it’s how the real world works.

  57. bill says:

    @rjs: they sell us cheap stuff and buy our trash.- nice! i’l take a toyota any day, it’ll outlive the payments at least.

  58. anjin-san says:

    @ bill

    our trash

    I was at the track recently and one of my buddies showed up in a Tarus SHO. A lot of guys who drive 100K+ cars were coming over to admire it. It’s not what I would buy, but I would certainly not be hanging my head if that was my ride. I can say that about quite a few American cars now. Not that long ago, I would not have said it about any.

    The US auto industry has a long way to go, but it has come a long way. To refuse to acknowledge that smaks of partisan hackery.

  59. anjin-san says:

    All ideology and no business experience, in the WH, gets us where we are today — treading economic water.

    And where did having a conservative “CEO” President with an MBA and a truckload of business get us? Right up to the brink of the abyss…

  60. David M says:

    @Doug Mataconis:

    You’d be wrong then. GM and Chrysler should’ve been put into Chapter 11 in December 2008. Hell, I would’ve been fine if the govt had been the DIP lender, at least then we wouldn’t have wasted $80 billion

    I don’t know why people were disagreeing with this, unless I misunderstood Doug was saying if the Govt was going to bail out GM/Chrysler, they should have done it and sent them through bankruptcy when they first needed the money in 2008 so we didn’t have to give them the money twice.

    Seems to me this would have kept the industry going and cost less. Win-win.

  61. @bill:

    Actually, if “the world worked” the way you suggest, we’d have had a very different outcome.

    I favored a more severe bankruptcy myself, but I observed that no US President was going to let GM go down hard on their watch. It was true of Bush as well as Obama.

    Now we’ve got this cottage industry of cranks who say that GM should have gone down hard, but the dealers should have stayed open. Crazy.

  62. @David M:

    I don’t know why people were disagreeing with this, unless I misunderstood Doug was saying if the Govt was going to bail out GM/Chrysler, they should have done it and sent them through bankruptcy when they first needed the money in 2008 so we didn’t have to give them the money twice.

    “Sent them through bankruptcy” in the sense of just refusing financing and letting creditors take them there?

    As I say, I think that would have been a much harder bankruptcy. Much more would have had to be closed or sold off, and I’m not at all sure that the forward business could support the past obligations.

    I mean, the right is starting to crow that GM might fail again. It sounds like they are saying that dissolution was needed after all.

  63. David M says:

    @john personna:

    Doug included this phrase “govt had been the DIP lender”, which is the government providing the financing while they are going thru the bankruptcy, same thing that happened in May/June 2009.

  64. grumpy realist says:

    I notice that none of the commentators on the right have addressed the two main problems:

    If GM had gone down completely, it would have taken not just GM, but a huge number of suppliers with it.

    No one besides the government had the amount of cash to keep GM going.

    I swear, the so-called “business experience” and “logic” demonstrated by the commentators on the right isn’t enough to run a lemonade stand….

  65. @David M:

    Right, and what I’ve been trying to say, one way or another, is that once you bring in government for financing (a) you’ve got a bailout, and (b) you’ve made government a player

    Once government is a player in a bailout, of course they are going to pursue wider societal goals, as defined by the administration in charge.

    @grumpy realist:

    Exactly.

  66. (I really don’t know how Doug or people with similar positions would provide government money and then “restrain” it to a “free market” role. That is total contradiction. It is at a minimum “free money” or “free security” and will total disrupt management incentives.)

  67. Rob in CT says:

    And let’s not pretend there isn’t a whole Right-wing fantasy here about the death of GM. GM *has* to fail. It is required. Because it has a big union, and unions are the worst thing ever (note: the UAW contracts GM management agreed to in the past were, in fact, a problem. If I understand things correctly, much of that has to do with the rise in healthcare costs – something outside the control of mgmt and the union).

    This is why there is an inevitable bit of glee whenever somebody on the Right predicts dooooooom. Because if/when GM goes down, it will have deserved to go down and will be getting its proper comeuppance (or, at least, that nasty no good union will!).

    It’s a morality tale, and the moral of the story is that unions and the government are bad. The end.

  68. al-Ameda says:

    @grumpy realist:

    I notice that none of the commentators on the right have addressed the two main problems:
    If GM had gone down completely, it would have taken not just GM, but a huge number of suppliers with it.
    No one besides the government had the amount of cash to keep GM going.
    I swear, the so-called “business experience” and “logic” demonstrated by the commentators on the right isn’t enough to run a lemonade stand….

    Exactly.
    And the many of the same people on the Right, are now hypocritically blaming Obama for letting the company close dealerships. Which is it? Bailout or no Bailout?

    If Obama had done nothing and let GM go and hundreds of thousands of industry related jobs disappear, Romney would have been campaigning on “the President hates Detroit.” Remember, the conservative opposition includes the same people who countenanced the waste of hundreds of billions of dollars for an unnecessary war in Iraq.

  69. Jack says:

    Ford did not take any bailout funds.

  70. anjin-san says:

    And let’s not pretend there isn’t a whole Right-wing fantasy here

    And that the “GM is going down” meme is simply grist for the campaign mill. The goal is to take one of Obama’s signature accomplishments off the table, not to provide a reality based assessment of how GM is faring. They know information voters will buy it.

  71. Drew says:

    My detest and contempt with the current OTB commentariat is now manifest.

    I would like to thank Doug for the homework done on this subject, along with Dave’s update.

    I would like to point out to the absolute morons who now inhabit this site as commenters, This was fiduciary breach of duty. If I had done this I would have been sued out of every nickel I’ve earned for 30 plus years in investing……and deservedly so. Obama should be fired. But it’s politics, and union cocksucking. Heh. So it goes on.

    You people have zero credibility. Zip. Zero. None.

  72. al-Ameda says:

    @Drew:

    My detest and contempt with the current OTB commentariat is now manifest.

    That and your Food Stamp Debit Card, will get you a cup of coffee down at your local Starbucks.

  73. anjin-san says:

    You people have zero credibility. Zip. Zero. None.

    I can only dream of having the kind of credibility Paul Ryan does:

    Paul Ryan Slams Obama For Not Saving Auto Plant That Closed Under Bush

    Paul Ryan slammed President Obama on Thursday for failing to rescue an auto factory in his Wisconsin district — one that closed in 2008, under President George W. Bush.

    The latest attack highlights the complicated politics of the auto rescue for Ryan, who was one of only a handful of Republicans to vote in favor of the 2008 bailout that President Bush signed as a stopgap measure to prevent the industry from going under.

    “I remember President Obama visiting it when he was first running, saying he’ll keep that plant open,” Ryan said in Ohio Thursday, describing the shuttered GM factory in Janesville, Wis. “One more broken promise.”

    Ryan blamed rising gas prices under Obama for the closing. He echoed the complaint in an interview with a local ABC affiliate, suggesting it showed that Obama’s auto rescue was a sham.

    “It didn’t help Janesville,” he said. “They shut our plant down. It didn’t help Kenosha. I represent there; they shut down the Chrysler plant.”

    The Detroit News noted that Obama said during a visit in early 2008 that government help and some restructuring could keep the plant open. But after the financial crisis and a collapse in demand for the SUVs the factory produced, it shut down in December 2008 in the waning days of Bush’s second term. It’s still owned by GM, but has been closed ever since.

    Article

    So Ryan is a hypocrite regarding the bailout, AND a liar in general? Or is he just ignorant of the facts?

  74. al-Ameda says:

    @anjin-san:

    So Ryan is a hypocrite regarding the bailout, AND a liar in general? Or is he just ignorant of the facts?

    I think that Drew would tell you that Ryan has “zero credibility. Zip. Zero. None.”

  75. slimslowslider says:

    @Drew:

    “union cocksucking”

    Perty Mouth

    Yep

  76. Rob in CT says:

    Drew’s detest and contempt for those who disagree with him are NOW manifest?

    Sneering contempt has been that particular commentor’s default mode for the entire time I’ve read this site.

    union cocksucking

    Drew much prefers Galtian Hero Handjobs. Or maybe he can “handle” things himself, while watching unions get bent over. It gets him verrrry excited.

  77. David M says:

    @Drew:

    Maybe you’d like to be the one to explain why liquidating the GM and Chrysler would have been preferable? (They went through a Chapter 11 reorganization and you’ve already said they did the wrong thing, so that leaves Chapter 7 as the only remaining option.)

  78. bill says:

    @anjin-san: when we support poor quality products just to say we “buy American” we actually reward them for being bad. i bought enough big 3 stuff to know the difference between our version of “quality” and the japs version. i might look at another ford someday but my jap car just runs forever with no problems. by the time i need a new car they might be back to their old tricks.

  79. anjin-san says:

    @ bill

    my jap car

    That tells me all I need to know about you. Buzz off.

  80. anjin-san says:

    They know low information voters will buy it.

  81. bill says:

    @anjin-san: “profiling”, my girlfriends a jap, and so is my bike!

  82. Clanton says:

    @michael reynolds: I have never understood why they closed down Pontiac. Pontiac was actually turning a profit and had good cars, but I guess it was because they weren’t positioned overseas enough. The Volt gets good reviews, but priced too high to attract enough people. I can get a Camry much cheaper that gets good mpg. I had several Chevies when I was younger. They were reliable, easy to work on, and parts were very cheap. They were also very pretty cars – until the ’70’s. That’s when the US car companies really went downhill: ugly cars that were no longer reliable. Best car I had was a ’64 Impala: 327 cu. in., 4 speed, 2/4 barrel Holley carb. Had trouble keeping tires on that car, replaced several clutches due to the fast starts at traffic lights! (never got a ticket). That car would be worth a fortune now.