GM is a Mess but We Still Need to Bail GM out

Since 2007, GM has lost 90% of its total value and it dropped by 25% alone just yesterday (Nov 10 08) and it is now trading at its lowest price ever and edging closer to $0. As part of GM’s aggregate cost savings plan to try stay in business, it has terminated 3,600 jobs effective immediately and has halted R&D expenditure completely. In addition, it has also stopped contributions to pension funds. Implicit costs at GM are now also skyrocketing. GM is inefficiently utilizing resources to maintain the company, including by paying fees to attorneys and lobbyists, instead of using resources towards the effort of further developing the company.  GM is continuing to burn cash, it can’t get credit as a direct result of the credit crisis, and I would expect it to run out of cash completely by March 09 assuming it doesn’t get bailed out.

GM needs to cut costs and move vehicles, but the question now is: why would you consider buying a GM vehicle? No rational buyer should buy a GM car right now. The company is too volatile and it is no longer an innovator because it has discontinued R&D expenditure therefore quality will further diminish. Also, how will a company that goes under service your vehicle?

However, the problem is GM is too big to fail. It can’t fail. People argue that if companies make bad investment decisions, they should be held accountable (and I agree), but people don’t realize GM is just too big to fail. If it does, everyone will suffer. If GM now goes under completely, the consequences will be profound as it employees close to 266,000 people and about 1,000,000 people would be directly affected with their jobs. And lets not forget the ripple effects where suppliers and other stakeholders would also lose business and also layoff yet more people. Where will all these people find work, what about pension beneficiaries? The costs are just too great for GM to fail.

The government needs to bail GM out, and I think it’s going to happen. The Obama camp hinted it would give GM money during the campaign, though there is no other indication as of yet. If GM acquired Chrysler about a week ago, at least, it would have gave GM more time (about a year) to reorganize as Chrysler has $11 billion in cash. Some would argue that would just be avoiding the inevitable because GM still wouldn’t produce quality vehicles and cut costs. However, a GM/Chrysler merger just isn’t likely anymore and the truth is that GM needs $11 billion in new working capital now otherwise it will run out of cash completely by March 09 and it will go under where we would all be adversely affected. If GM gets this money, I hope it learns its lesson and restructures management, cuts costs, and produces quality vehicles, than maybe, it can get out of this mess.

So, what do you think? If GM was bailed out, could it survive? Will it change? Is it too late, or do they simply not desrve to be bailed out? Do you think its just too big to fail?


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Hercules holds a B.Comm Finance from Ryerson University in Toronto, Canada. He is a Chartered Financial Analyst (CFA) level 3 candidate. He was previously a contributor at FiLife, a finance website owned by Dow Jones and IAC. Write to hercules@business2press.com
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  • mogden

    Just put GM into bankruptcy and let the court sort it out. It’s not like the assets (factories / workers) will vaporize. They will be bought / hired by new companies, most likely for less wages, but that’s inevitable.

  • dan

    The oil companies must be enlisted to bail out the American auto companies. Due to long production lead times, the automobile manufacturers are at the mercy of the oil companies’ whims; oil companies can double the price of gasoline in less than a year, but the car companies cannot retool their production lines in less than two years. Now the car companies will be stuck producing an inordinate number of small, cheap, efficient, yet ultimately unwanted cars (again) just in time for the oil companies to reduce gas prices (yet again.) Read the consumer magazines; most American cars have greatly improved in quality to reach competitive levels, but without a stable (regulated?) oil pricing structure they will never be able to produce exactly the size and type of vehicles that the majority of consumers will want when they will want them. It’s now up to the oil companies to reciprocate to the car companies and rescue them for their own good, too.

  • Joe

    I agree with Mogden, let them go bankrupt or be sold to private companies. Get the idiots out of management who didn’t heed the warnings fast enough that gas-guzzlers are out and alternative energy vehicles are in.

  • Yippyo

    Maybe if they built an automobile that didn’t fall apart after 2 years and only 15k on the clock they could stay in business. I’m honestly flabbergasted at all this ‘bailout’ BS.

    Since when did the citizens of America become responsible for the financial success of a company outside of obviously buying/supporting their products. If they built a product that was competitive they wouldn’t need a bail out, as sales would reflect that.

    Let them die. Let them all die. The cause of our problems are greed and corporate douche bags. I guess people forgot about the cycle of life, as it can be used in any of these situations.

    The weak die off and the strong flourish. So let them.

  • RemovetheMess

    One big thing would be to get rid of the Unions that these car companies have to pay extra for. Don’t get me wrong, they were great back in the “day”, but with today’s Work Force Watchdogs (OSHA,Dept of Labor) there are ways to complain about the job issues.

    If unions were great, my company would have one, for people would love to get free benefits too and 4%+ pay increases every year.

    And of course, would be nice to see a American car that seems to run for more than 3 to 4 years with out that “old” feeling.. (Yes, own a 2001 Import, and still feels nimble and tight)

    ML

  • http://www.marisic.net Chris Marisic

    The bailout won’t help GM unless they disband their unions and go with a fair payment scheme for their business. The unions were a large part of the problem dictating that the workers need to be paid overtime instead of hiring another full time position, putting the largest health care burden on them in most likely the world, making it next to impossible to develop innovative technology since unions need to approve making new parts in the planets. It’s insane. FIRE THE UNIONS.

  • Eric

    You can’t fix capitalism with socialism.

  • Rod Panhard

    It might be one thing to let GM, Ford and Chrysler shut their doors and leave us to own and drive other products. But there’s a problem, and it’s that GM and Ford, and to a much smaller extent, Chrysler, are multi-national companies with factories and supply chains all over the planet.

    What Washington should do is allow the Big Three to sell the products that are appropriate to market conditions. GM and Ford have some fabulous products that would be great to have in the US, but the NHTSA deems them “unsafe,” even though they are deemed safe in Europe. While this wouldn’t immediately create jobs for UAW employees, it would at least keep the dealers afloat until the North American factories could tool up to make products that are appropriate for the market conditions (more affordable, fuel efficient)

  • http://evancarroll.com Evan Carroll

    Let it fail. No one wants to pay for GM, nor does anyone care how many employees they have. I’d rather give the eleven billion to the one million employees in a severance package. There is no evidence that the billions will even keep the company afloat for any significant period of time, and you ignore that we already gave the sector 25 billion back in September.

    http://www.usnews.com/blogs/flowchart/2008/09/24/a-25-billion-lifeline-for-gm-ford-and-chrysler.html

  • http://www.workpost.com Workpost

    Where’s my electric car? Seriously.

  • charles

    Tesla motors died, so did a million other companies, no matter what you do, if GM is going to die, then, there is nothing to do, let it die.

    Harsh? no way! if its employees cant figure out how to keep the company healthy, they simply drove themselves into unemployment and will get a new job, no big deal.

    At least that is what the stock holders have already done, see, the price is so low, because of many reasons, including the fact that, a lot of people sold GM stock because the price was going down; going down, going down, SOLD! ..maybe they own VW by now, who cares, just move on and buy the healthy company’s stock, and dont expect GM to pay for your 401, whatever that is…

  • http://evilstickman.com/blog Matt

    If a company is considered “too big to fail,” then the best solution for the long run is to just let it fail now. Will it hurt in the short-term – yes. But until we re-establish some decent corporate lending and business practices in this country we’re going to keep seeing companies that lack the foresight to plan for tough times. A terrible example was set by the bailout of AIG, and then by TARP. Corporate socialism is not any way to run a capitalist society. Let them fail – if the need is there, a new company manufacturing new cars will arise out of the ashes. The longer we prolong the inevitable, the longer our slow recession is going to last.

  • http://www.thereheis.com SLEZE

    Christ, where do I begin?

    At what point does a company become so important to the US economy that it can abandon good business practices and expect the government to bail it out? US Automakers have been giving us crap cars that constantly break. It’s not that they don’t have good engineers. Look at the 2009 Ford Focus…in Europe. It is friggin SWEET. For some reason, the management has made one blunderous decision after the next and quite frankly, should be held accountable.

    If GM were to go under, would each one of its brands die too? Probably not. The factories that make unpopular cars would be sold to a competitor. People forget that there are profitable FOREIGN car makers that would snap up those factories to make their POPULAR cars.

    Oh yeah. The unions. Until US car companies don’t have to pay a $1500 “tax” with each car because of their contracts with auto-unions, don’t expect to get quality cars for a reasonable price. Unions protect crappy workers, in the name of seniority, at the expense of good works.

    Who’s John Galt?

  • http://savvydollar.org Dan Griffin

    Let it fail. That is how free markets work. If GM fails and no longer produces cars, other more efficient companies will rise up to take GMs place. That may be existing foreign companies or emerging US manufacturers. Believe me, if GM liquidates, it will be Christmas for an emerging car company needing the type of scale equipment GM uses on its line….and they will get it for a song.
    The thought that any company is “too big to fail” undermines the free market system. GM has burned through cash and saddled itself with enormous obligations to unions — now it is time to pay the piper. If the government comes to the rescue, it just delays the inevitable…as the factors that caused this failure have not changed. What happens 2 years from now when they have squandered the bailout money and are in the same predicament? Will we bail them out again?

  • arealpickle

    You are wrong. That is all there is to it.

  • Brandon

    Get rid of NAFTA please! It is the reason behind this madness.

  • andrew sinclair

    One of the rules of management is that when you have an employee who is “indispensable” you plan cross-training, or his or her termination as quickly as possible. The last thing you want is for an employee to be able to hold you up to extortion. You take the pain now, not later. When a company gets so large that it becomes “indispensable” it is time to break it up. Think AT&T. If GM were to be broken up into smaller entities under completely separate management, the necessity of causing the huge upheaval in the global economy goes away. The smaller shops can become more agile to market changes. For the consumer, there are more choices. The only people who would be hurt by such a change is GM management. GM investors wouldn’t lose everything; they would own a piece of the pieces.

  • George Kastanza

    This is horse-crap, folks. Where will this end? The people, and the companies themselves would be better served to let these clowns go out of business. If they’re going to give money away, they should give it to the people as consumers to spend in a free market, not prop up failed business that can’t manage change.

  • Ace

    Maybe if GM made a quality vehicle that people wanted, there wouldn’t be a problem. People don’t want to shell out for a piece of crap. Maybe they should just give the money directly to the execs.

  • Hobobob

    Let Gm fail. “Business failure is as key to a market economy as business success.” The fact of the matter is a business is never to big to fail and the company is paying for a bad business plan. The best thing that the government could do is ensure the pension plans get paid out to GM employees it would not only be cheaper than a bailout but by letting GM fail, other car companies are almost guaranteed to go without a bailout. Ford and Chrysler will definitely advance because there is still a need for large vehicles in businesses and other places. Again, GM has scaled back so much that by failing the impact will be large but minimal compared to 10 years ago.

  • Confused

    I think a lot of the commenters are missing the bigger picture. If GM goes under, there isn’t going to any “white knight” that’s going to ride in, buy up the pieces and employee that same workers. Ford and Chrysler are struggling themselves and I can’t imagine that any of the foreign automakers would touch an American car company today.

    You don’t have to like GM as a company to see that their failure would have huge effects on the already beaten down economy. Sure if you don’t work for the auto industry directly you might not be immediately affected but do you think that those 1 million+ unemployed workers are going to be buying anything?

  • Jess Wilder

    Personally, I am tired of bailing out big multi million dollar companies. Who is going to bail out Main Street America when the bottom falls out? NO ONE thats who.

    Jess
    http://www.anolite.echoz.com

  • Dank Jemo

    GM wouldn’t really be in this mess if they paid attention to the American, and Global markets they wouldn’t be in this mess. While the rest of the world was pumping out smaller, more efficient vehicles, GM kept releasing huge, gas guzzling Trucks and SUV’s. Does the word “Hummer” mean anything to anyone?

    Even as gas prices sky-rocketed GM kept releasing cars that “get great gas mileage with an amazing 24 mpg!” Which, actually is not all that great. It really sucks that all these people may lose their jobs, but it is economic Darwinism. GM continued to make automobiles that had problems, while competing companies like Toyota, and even Ford have started releasing cars that get better mileage, are relatively cheap, and still have a level of quality that GM just doesn’t have anymore. They produce vehicles no one wants to buy, even if they did, couldn’t afford to drive them. Trim the fat, one less car company isn’t going to make all that much of a difference.

    I didn’t agree with the bail out of the financial system, and I definitely don’t agree with this bail out. All saving them does it send the message that if you are going to screw up, Screw up really, really badly some then someone else can come in and fix all your mistakes with someone else money… Losers…

    That is our tax money for our kids, our schools, and our military. It isn’t a big pool of petty cash for private companies to go all “willy-nilly” in.

  • http://rockcampbell.com Rock Campbell

    What happens in a couple of months when they need more money? Any bailout should be contingent on GM gutting their board and renegotiating union contracts. For far too many years the UAW has been able to get whatever they want or they would threaten to walk out. Its time for congress to step in and say enough is enough, but why would they when the UAW is a big reason for the very power they enjoy right now. Let’s not close our eyes to the fact that any bailout money is going to pass right through GM and into the pockets of the UAW.

  • Matt

    No, if GM was bailed out it would last for another short period of time, and then fail. Why would the American people want to invest in a FAILING BUSINESS? Same goes for the financial bailouts!

  • arealpickle

    Actually, maybe the oil companies who profited from the US auto industry’s continued ignorance to efficiency should help with loaning them some cash…along with the banks and other creditors that profited from the loans they gave to the borrowers that purchased these new piece of crap cars each year by doing the trade in dance with worse and worse loan terms? Where do the bailouts stop? At what point is something not eligible for a bailout or federal funding. If you want government ownership of all free market businesses, you will have it by thinking the government has to take care of everything.

    Loaning, yes a loan with terms, is the most we should do as taxpayers. GM and Ford should enter into Chapter 11 to stop the bleeding and reorg their businesses. Labor unions should start from scratch to renegotiate the contracts. It is very overdue that we quit protecting this secret society in detroit that has been screwing all of us citizens for years!

    Ask yourself this, who is to blame for us not having a robust national, or even regional, public transportation system? What happened to all of the rail operators at the beginning of the 20th century? Electric cars, demand for low cost vehicles, easy credit, low then high gas prices, unionized workers…there are so many factors that it is easy for the general public to tune out with the complexity of the underlying factors that have caused us to end up here.

    The bottom line is this bailout is nothing more than a UAW bailout. There is a reason that unions suck and this is a prime reason. Ask the steel industry in the US how the unions worked out for them. Like it or not, we live in a global economy. The rest of the world drew their lines in the sand a long time ago and compromised with what they could. We are no longer, and will not return to, a country that makes things. We create ideas and services that use things that other people make. We are the innovators and then let others do the work, not some $40 an hour metal stamper. I know they have families and that the UAW is very thick in things, however, at what point does this end. When everything began to unravel about a year and a half ago, I said this:

    - Blood must be spilled for us to get through this. We are not letting the free market fight and are prolonging the treatment that will quickly get us through this.
    - For years, we have grown our economy at the expense of quality. There are only so many pennies you can squeeze form a product or service and eventually you reach a floor of some kind where growth is flat.
    - We NEVER should have given in to the federal mandates to lend to anyone. This is inherently what led to many crap mortgages and in turn, lending to anyone to buy cars they could not afford otherwise. GM and Ford’s sales would have been nothing without the credit bubble.
    - As a society we think about today and never tomorrow. We say we do but we do not. Whether or not the overpowered people in Washington force the fed to give the auto makers money is irrelevant. It is more important to be able to guess what the long term risk to our economy and society is for setting precedents like this.

  • Voltron

    Why put the entire country into more debt? Why cause even more inflation? Won’t that just increase inflation and cause more problems across the board? I say we take our losses now and deal with the automakers failures and take the 1/3 GDP hit.

  • http://www.misterinfo.de/users/erichansa erichansa

    if the unions dont want to renegotiate their unsustainable contracts then the big 3 need to fail and be rebuilt under new union contracts and we should let all the retards in the union that are motivated by greed to find new jobs

  • duder

    Other then the truck/SUV boom of the 90′s GM has been sucking hardcore for the last 30 years! As soon as the bailout hits the unions will be clamoring for more money and we will be back where we started. If we bail them out they will continue to suck and go under anyway. Let them fail.

  • Jace

    What most people fail to realize is that if you let GM “fail”, then taxpayers like you and I will take a hit on this as well.

    Right now, its $90 billion pension fund is fully funded on an accounting basis. But the GOVERNMENT-BACKED Pension Benefit Guaranty Corp., which acts as a safety net for corporate pension plans, says GM is underfunded by $31 billion.

    Government-backed…did you get that? GM goes down, pensions get turned over, PBGC asks for their government insurance to help fill that $31 billion hole, we get screwed.

  • Steve

    The company should be bailed out because its employees would suffer? Why not bail out the employees instead of the company?

    GM’s failure would make available opportunities and assets for competing companies that are more valuable to the US economy than GM is.

    What incentive is there for a huge, struggling company to cut back on waste when a bailout is in store? This waste is also a loss to the economy, and we should not encourage it at taxpayer’s expense.

  • Shane

    How can people preach free market, then when capitalist class messes things up, leaves the middle to lower classes to bail them out? Yes if the company goes under it adversely affect our economy but that’s capitalism. The fall of GM would allow the start of fresh companies to compete in the market. Thousands of companies start and fail every year; just because GM is “too large” does not make it any more important. Don’t Preach Equality and Free Market When It’s Most Convenient.

  • Shane

    How can people preach free market, then when capitalist class messes things up, leaves the middle to lower classes to bail them out? Yes if the company goes under it would adversely affect our economy but that’s capitalism. The fall of GM would allow the start of fresh companies to compete in the market. Thousands of companies start and fail every year; just because GM is “too large” does not make it any more important. Don’t Preach Equality and Free Market When It’s Most Convenient then to turn around when it’s not.

  • Jeremiah

    So if GM goes under. Does Chevy, Pontiac, gmc, hummer, Cadillac, Saturn, Buick, Saab all go with it. what about all the other companies that they own or support them 100%. do they all go under. that seems like a big deal?

  • http://swaits.com Stephen Waits

    Wrong!

  • Jeremiah

    wrong????? a little more info would be helpful.

  • Brad

    If we continue to classify companies as “too big to fail” what message does that deliver to the executives at those companies? That’s right. It says to them, do whatever you want, take whatever risks you want. If they pay off then great, you get the benefits. But if they fail then don’t worry about it, someone else will bail you out because we can’t let you fail. That is a horrible, horrible message to be sending to these people. It just encourages greed, corruption, excessive risk-taking without regard for consequences. In fact, I think it’s the worst possible thing that could be done.

    Let the company fail. Some other company will buy up all the valuable assets and at least some of those workers will get other jobs.

  • Halo

    If we let GM fail, the US economy collapses, then the terrorists win! How did we get to the point where we rely so heavily on only one basket of eggs? And that same basket, thats been gouging us for years, now needs US to give them some money after frittering it away in the first place? Would you really give a hobo money because he ‘used to be an investment banker,’ and after seeing that same hobo use his last few dollars to buy cheap booze instead of making smart decisions to attempt to get back on his feet, would you give him more money, feeling sorry for him in the hopes that he eventually makes the right decision this time?

    Okay, so of course not, take what you will from the analogy… but seriously, this is everyone’s big solution: to fire the Unions? Is this some kind of sick joke? You think by obliterating the governing system for employee health, safety and benefits, you’ll somehow wake GM out of this torpor that is their corporate snafu? How about FIRE GM MANAGEMENT?! How about get better innovators, CEOs that have foresight, CUT the ridiculous amount they pay themselves, and any number of things that don’t involve the dissolution of QC and Worker H&S… Everyone here is blabbering on about Capitalism and Socialism… has it occurred to anyone that in a Capitalist society that success or failure of a corporate venture is not the fault of the workers, but the fault of the OWNERS and, subsequently, those they place in positions of MANAGEMENT?! Hello? McFly? Anybody home?

    Suspend Union power. I fully support it, I used to work in a union environment, and I know they’re too big and too corrupt. But to get rid of it completely, are you daft? How is ‘Joe the auto-worker’ at fault for wanting a safe working environment and a financially secure future with a pension, when GM execs pay themselves BILLIONS for making horrid decisions on what direction the company is going and where to spend profits? I’d really like to know. Please, please please show me? Eliminate incompetence- don’t bail out losers, its the American way to stand on your own and not take handouts. But I guess some hobos wear $1500 suits…

  • umm.NO.

    “Too big to fail” is a ridiculous statement under any circumstance. The government should never, under any circumstance, step in to assist a business. Yes, the impact to our GDP and joblessness rate will be vast, but that isn’t a reason to prop them up.

    You don’t go helping cancer spread simply because it’s gotten really big. You fight it, or at worst you just let it be and see what happens.

    GM has become ever worse at cutting corners and operating costs while keeping street prices on a steady rise. If they are failing for that short-sightedness I’m sorry, but “sucks to be you” comes into play.

    This bailout garbage is insane. The price of doing business is that if you cross your customers you will lose it all. A company this big just happens to take out a mass of people with it. But the economy WILL repair itself. Businesses will spring up to replace the fallen, the jobless will find or form new jobs.

    The sky is NOT falling, so go breathe in a paper sack if you’re panicked. The rich getting poor does not mean the world is going to chaos, it simply means it’s time for some new people to get rich…

  • http://vonelsk.con Vaughn

    This is just another Rich person shaking hands with another Rich person,
    Think about it, all the money will go to a select few…

    Thinking for one second that those fat cat’s think about anything other than themselves is just wishful thinking.

    All the political systems are corrupt; an yes even Obama will be seen with his hand in the cookie jar also.

    Look, you buy a car don’t make the payment because of something, loss job, sick, what ever, “they come and take it from you”

    Will the auto company help bail you out??? No I think not

    When you go to a auto dealer, they take your trade give you a couple of dollars, far less than it is worth, then sale you a car that is not what you want, you drive it off the lot and WaLa loss in value,

    It then breaks down or has some sort of recall, eats gas, repairs, payments forever, for what, junk cars, yes junk cars

    Come on, let them hit the floor and pick up that crud, not the tax paying Americans

  • j1sha

    Last year, GM CEO Rick Wagoner took home $10.2 million in total pay.
    This does not include all the perqs that executives get, that the normal worker does not: free food, travel, gifts, etc.
    This is only one of the many executives that get paid high wages.
    Why was he getting such pay if the company was doing so poorly?
    Maybe he should have been at his desk instead of playing golf?
    Why are the executives of the company not held accountable?

  • http://business2press.com Hercules K

    Hey everyone!

    Great to hear everyone’s responses…

    Regarding the previous comment “no company is too big to fail”, consider this:
    the LTCM Hedge fund which lost billions after they formulated the BSM derivative model which was working just fine which yielded returns of returns 20%, 43%, and 41% in years 1 to 3….The initial investment was $3 Billion, but it had to be bailed out because total positions totaled $1,250,000,000,000. In my opinion, that is too big to fail.

    http://en.wikipedia.org/wiki/Long-Term_Capital_Management

  • Truth Seeker

    “To put GM failing into perspective, in 1998 during a GM strike that lasted for 3 months, the aggregate US GDP dropped by 1/3rd”

    What kind of gobbly-gook is that? The US GDP certainly DID NOT drop by one third anytime during 1998. Did you mean the GDP growth dropped by a third? Please be more careful in what you post.

  • Vulkar4

    This is probably going to get a lot of flak but anyway, GM should be bailed out because it is every Americans fault that this company is failing. Gm has been going through a ten year restructuring plan that has produced numerous car that can easily compete and sometimes exceed the quality, performance and value of it’s Japanese and German counterparts. Car like the CTS, Corvette, G8, Solstice, Aura and Malibu. Instead people flock to shit box Korean cars and Japanese cars because they assume that American cars still suck. It would be a pity and a shame if GM closed when it is making the best cars that it has ever made, want proof go watch the newest episode of Top Gear.

  • Steve

    I would like to correct some facts in the article- GM does not employ 1,000,000 people. From the GM website, they say they employ 266,000. Now, when you include all the businesses that depend on GM, I am sure that it could affect over 1 million people and the effects of GM going under would be profound. But keep in mind, the world will not stop turning as a result. Yes, the unemployment rate might jump to 7% or more next month and might even hit 10% before this recession is over. I ask to keep the current crisis in perspective. This is part of the business cycle and downturns happen. Be resilient, be confident, and most of all, support the president-elect, regardless of your political affiliation. Recessions become deeper and worsen as people lose faith in themselves, the economy, and government. My advice: get off your butt, work hard, and make a difference, however small you might think it is- it will make a difference.

  • TizzyFoe

    classic post hoc fallacy in the 3rd paragraph.

    To put GM failing into perspective, in 1998 during a GM strike that lasted for 3 months, the aggregate US GDP dropped by 1/3rd. Think about that, it’s huge,

    The strike didn’t necessarily cause the GDP. The GDP drop may have been the reason why GM didn’t give into the strikers demands (we’re in a recession, no raises), or it might simple be a coincidence.

  • Arun

    haha I hope they go under. I hate those monsters on wheels. The people who drove them were idiots. I guess consumers have smartened up. And GM hasn’t.

  • thelongcount

    Let them eat cake.
    Come on people really – do you need your noses rubbed in it?
    Apparently so.

  • Andy

    If a company failing means it effects the stability of the country, then sure its to big for the government to let fail. I’m curious how many of you people know to what extent these “big 3″ auto company going under will have on the United-States. I’m from Detroit, ill start off by saying that. when the automakers go under, that minute, that very second, Michigan will become a jobless wasteland. 300,000 unemployed skilled workers will flood into all the 4 corners of the country. Not to mention all the suppliers and all the other supporting industries. Every person in the whole country will now be fighting against all these unemployed (more often than not, intelligent and skilled) workers for their own jobs. The competition will drop wages, and the United-States will have less gross national income. Which means a large drop in the standard of living on multiple fronts. You think it doesn’t effect you? Well im sorry to break to to you, but it does. I think a good idea would be small subsequently smaller bailouts, to allow the industry to “clean house” and scale back gradually over time. If we lose a market, like we did with textiles and steel, we never get it back. remember that..

  • umm.NO.

    “Gm has been going through a ten year restructuring plan that has produced numerous car that can easily compete and sometimes exceed the quality, performance and value of it’s Japanese and German counterparts. Car like the CTS, Corvette, G8, Solstice, Aura and Malibu. Instead people flock to shit box Korean cars and Japanese cars because they assume that American cars still suck.”

    I think that’s an extremely narrow view of why people don’t buy GM.

    Cost and value are the biggest deterrents to most GM cars. You mention the Corvette, so let’s talk about that a sec.

    The base cost of a 2008 Corvette is $49,000 according to http://chevrolet.com. Assuming you have the national average credit score of 700 you’re probably looking at about an 8% interest rate. That means on a 48 month loan you’re looking down the barrel of an $1200 car payment.

    The average income in the US is $50,000 according to the Census Bureau http://en.wikipedia.org/wiki/Household_income_in_the_United_States. That’s about $2700 a month depending on taxes.

    The average home price in the US, depending which source you look at, sits a little under $300,000. Given the same average credit score it means you’re looking at a national average mortgage payment of around $1800.

    So how many people can afford that Corvette?

    Look, as much as people love to buy cars for style, the fact is when you get in the door for most of us it’s about money. When the median price of a GM car is so far above what the average person can afford, they are going to lose out, quality or no.

    And don’t kid yourself, the quality just isn’t there when compared to other manufacturers. In 2006 GM was rated the low-scorer in JD Powers’ evaluation of most reported incidents int he first 90 days of ownership.

    This company has failed to provide a working business plan in the market today and they deserve to fail for it.

  • Pete

    I’m with Andy! And I bet most of those people have mortgages too, let’s not forget that. How these people going to put food on the table.

    If you don’t think it affects you, your out of your mind.

  • umm.NO.

    “If a company failing means it effects the stability of the country, then sure its to big for the government to let fail. I’m curious how many of you people know to what extent these ‘big 3′ auto company going under will have on the United-States. [300,000 unemployed skilled workers will be fighting for jobs.] The competition will drop wages, and the United-States will have less gross national income. Which means a large drop in the standard of living on multiple fronts.”

    Yes it does. I think any rational person who takes a second to think about it can see that this will indeed affect almost every American.

    But that is still not a justification for the government to step in to make adjustments to prop up a company who drove itself into the ground.

    I feel wholeheartedly for those who will suffer from this. As a person who was reduced to nothing a couple of years ago and who is now beginning to find the moorings to get back on my feet, I feel more than most for what people will be going through. I know the embarrassment of standing in line to apply for food stamps. I know what it’s like to choose bread and milk over electricity.

    But the fact is that if the government takes it upon themselves to fix this it will not only fail, but actually exacerbate the problem. The only way to ensure we fix GM, for example, is to give them the money and mandate what every dollar of it goes to. We in effect take over and run their business for them.

    That is a very dangerous road to tread and fundamentally alters what our country is about. Since the government has no place running the business, the ONLY viable option is to let it take its’ course.

    Will it suck for each and every one of us? Very probably. Certainly the 300,00 jobless and the upper echelon who go from rich to dirt-floor poor overnight.

    But we have a half-severed arm here that’s getting gangrene. You can’t fix it with band aids. You can sew it up hoping for the best and that no complications arise later that will kill us, but the best case for survival is to cut it the hell off…

  • Graham

    GM’s current predicament is the result of its own poor management and culture. Let it go under. It’s a company that sat on its laurels all these many years.

    Take a look at the cars links on GM. It is an exhibit in large, gas guzzling vehicles. There are also four compact cars displayed that are all based on an identical chassis, but marketed as different vehicles. Why? Why does GM not put all development resources into one outstanding vehicle rather than four different variations of what is a Chevy Aveo?

    Nobody but GM can be blamed for their present crisis. The company either produces boring vehicles with cheap looking parts, or incredibly expensive gas guzzling vehicles. If GM was a kid it would be held back a year while the foreign competition moved on to the next grade.

    For GM to survive, it needs a seriously hot fire under the feet of present leadership, or they ought to be ousted and Jack Welch’s prodigy brought in. The company needs to go to union leaders and lay it out and get Union involvement in saving the company like the crucial role the Union played when Harley Davidson needed saving.

    GM also needs to get its priorities right and yank the vaporware Volt marketing from its front page and replace it with one or two of its best low-end vehicles to get what few car sales it can.

    As for lobbying… most likely GM management will feel no fire, so lobbying is GM’s best investment right now and it ought to double that expenditure and throw cash at everyone that will take it in Washington right now.

  • Kyle Weaver

    The one main reason I could see us bailing them out is they are our largest auto manufacturer. They have plants that manipulate steel and put engines in it.

    In time of intense war, companies like GM help build the war machine.

    I doubt Mitsubishi is going to build us tanks when we are at war with the Japanese.

  • ebennett

    So, I think GM needs to die. Hard times for a hard nation I say. We are under horrible economic duress, and even if bailouts start happening, things need to change. Hard. We need to restructure and rework our government. We need to reinvent business in America. America, a former innovator, has grown fat. The Great Depression was a time of innovation and change. We need this again. It will cost big and hurt hard, but America needs to learn it’s lesson. At less than a few Centuries old, all the other great nations of the world have learned this way. America needs a hard lesson. It sucks, and times will be hard, they always are, but America is strong, it will rebound, it’s people will make America work again, and like every great nation, with disaster comes reform. Wreck the old, bring in the new. America needs a good-morning punch in the gut to learn to defend it’s belly.

  • Brad Whelan

    I don’t think we, the American people, should be held responsible to financially save all of these companies labeled “too big to fail”. When did all logic go out the window in this country? We, as credit holders and private citizens, are held entirely responsible when we are late for or default on any monthly credit card/loan payments that we have incurred or, we suffer the consequences (late fees/increased interest rate). And, never in a million years would we expect the government to pay off our private debts for us…

    So, why are we allowing the government to pass on this ‘privilege’ to these failing corporations? After all, this financial crisis is due to those corporations’ managerial ineptitude and because they chose not to listen to the majority of consumer’s wants/needs.

    I say let them fail, just as any small business would after making a slew of major bad decisions, and let things play out as they should. This should be considered a severe wake up call for these corporations and they should have to deal with the consequences for the poor decision-making made on their parts. Having said that, some other corporation will eventually buy out GM and turn things around, hopefully for the better.

  • Wayne

    You can not solve a capitalism problem with socialism. It just doesn’t work. Just like what they should’ve done with AIG, Lehman and the others, they should do with GM……let ‘em burn. I love their vehicles (especially the Camaro), but that doesn’t mean they should be bailed out with my tax money. If they want my money, they can sell me a car that I can afford and that won’t fall apart just after the warranty expires. Everyone talks about how AIG, Lehman, GM et. al. are all too big to allow to fail, to that I say, if our GDP as a nation relies that much on one company, then we have more problems with our fiscal policies than just having one company go under. We need to move back to the gold standard and remove the controls and regulations that government has put on business. Capitalism does not need government intervention to work, it needs government to leave it alone. (Read anything by Ayn Rand to figure out why this is.)

  • Campbell

    Really? This is the argument for the bailout?

    You win. No question. None of those 1,000,000 people would be employable in any other field, by any other company. Least of all by the foreign automakers (who make their automobiles on US soil now) who would have an interest and the capital to step up production to fill demand. And definitely not by the repair and machine shops that would need GM/Ford specialists on hand for “legacy issues”. Nor would they be employable in any related field… Cause that’s not how capitalism works. There’s a finite supply of jobs to be done out there, and if a big company goes under, those jobs are gone, man. Just gone.

    And I’m fascinated to learn that the drop in GDP in 1998 was from the auto strike. I always thought it was because the Detroit Redwings won the Stanley Cup. I know there’s an alternate theory that it has to do with the Clinton impeachment hearings that year, but I think that’s BS. If anything, it’s because Disneyland opened it’s Animal Kingdom park.

    Bottom line:

    1) Capitalism, like evolution, is powered by extinction of unfit entities. If GM/Ford are unable to provide products that people want at a price they find reasonable, they should go bankrupt. It will free up resources (labor, machines, raw materials) for other organizations that DO provide products people want at a price they find reasonable. To take money out of consumers’ pockets to help a company which by definition is not providing a service that consumers want, is unjust and inefficient.

    2) Using the annual GDP of the largest economy on Earth as an indicator of the result of a single company’s problems during one part of the year is just stupid.

  • steve

    I agree with a previous poster. Let the oil companies loan them the money.

    The argument that GM is just “to big to fail” is problematic on many levels. It certainly suggests a lack of faith in the market system.

  • Dekion

    GM is in a mess of its own creation as tragic as it is market forces need to prevail even if that means the destruction of the american automobile industry. GM has repeatedly ignored fuel cost trends throwing all of its eggs into one basket with the Hummer and 4×4′s. Its abused the governments assistance in improving MPG. What is happening in the US automarkets has been telegraphed for 30 years now. The fact that the companies are sluggish now and can’t recover what should have been 30+ years of research in just a couple years should be no suprise to anyone. GM must be allowed to die as a warning to others.

    The factories, employees will be picked up by more progressive companies making the entire industry better in the long run. Sorry Detroit GM must be allowed to die to allow for the next prius to be from a new US company that can adapt quickly to modern times.

  • Scott

    What would Ron Paul do?

    Seriously, why would anyone want to invest in GM? Deficit spend to do what? Prolong the inevitable? What ground breaking products are just around the corner? A large SUV maybe?

  • Daniel

    GM fuckin’ sucks. Their cars suck, their management sucks, and they deserve to die. I’m in a stable financial situation right now so bring on the downfall. I’ll take a hit if I have to, so that the government stays less involved with the market sector. I buy Honda because they make better cars. Fuck GM.

  • Evan

    Do not bail out GM. Think about the concept of “lost jobs”, a phrase that politicians have incorrectly vilified: If 100 employees are laid off, you’ve got the same amount of work being done by 100 less people. The efficient use of scarce resources has improved. Now those 100 people are free to put their skills to use in other industries, and efficiency improves again.

    Even if you disagree with the morality of layoffs, hasn’t this last disastrous bailout proved that the market is infinitely more powerful than the government? The solution to a bad-debt economic crisis is NOT more debt. If the market has decided GM should fail, it should fail. It will either fail now, or fail 10 billion dollars of government crutch money later. Your grandchildren, who will suffer the burden of an extra $10 billion in federal debt, will thank you for stalling the inevitable in order to appease your conscience.

  • Rick Bryant

    No bailouts! Hummers and SUVs are all they keep their sites on selling stupid people who do not see gas as a limited and very controlled and expensive resource. And yet no High milage Hybrids or Electric…no R&D and huge Corporate pay checks at the top….let it sink and take the pain. Oh, and gee, maybe learn something from this for future action as to how to run a company with the FUTURE in mind!

  • Kory

    THEY NEED HELP NOW! I really liked this article for all of it’s truths.

  • Ted

    Frankly, this is bad. If they bail them out, it’s not going to fix anything. It will do exactly what the bail out for the banks did and it will only get them on their feet again. They WILL NOT restructure, they WILL NOT cut costs and they WILL NOT learn their lesson. The only way for companies, big or small, to learn any kind of lesson is for them to come to the brink of failure and pull themselves out or be bought by another company. If you bail them out it only re-enforces the idea that they can get away with anything and they will, if anything, just buy out the smaller companies, cut COMPETITION, and then they will not have cut costs but destroyed competition and effectively made it unimportant to produce quality product.

  • Anonymous

    “. . . in 1998 during a GM strike that lasted for 3 months, the aggregate US GDP dropped by 1/3rd.”

    You’re not trying to convince everyone that GM ever did or ever will produce 1/3 of our GDP right? Because if you were, that would be a ridiculous assertion.

    “So, what do you think?”

    No bailout! It is my understanding that the average union worker in the auto industry makes much more than their counterpart in any other industry. As a result, they have put themselves in a position of being barely profitable during the good times and bankrupt during the bad times. I not only lay blame with the unions and their members for this, but management as well. Therefore, they all need to pay the price of their excess, not the responsible taxpayers. If the rest of us pay by suffering through a somewhat worse economy, so be it. At least we won’t be paying with our tax money, we will be allowing our capitalist market to work as intended, and most importantly, we won’t be rewarding failure.

  • Craig

    I can see where you’re coming from saying it’s too big to fail, but for years now GM has been on a downhill slide and we’ve yet to see a turn-around. I can’t see them cleaning up their act because of this bail-out, so I say we need to just take whatever hit to the economy this creates and not waste government money on this mess.

  • http://www.nightoholic.com Doug

    We need american cars like GM

  • http://www.nerys.com/ Chris Taylor

    I have a better idea. GM burned us so lets burn them. They burned us when they killed the EV1 Electric car program AND more importantly sold the controlling patent on large format NIMH batteries to Chevron via Texaco. The Gov helped by increasing the tax incentive to 100grand for over 6k vehicles hence why GM bought HUMMER one month after closing the EV1 plant. Go Figure. So burn them too.

    I say instead of bailing out GM we CRUSH them into nothing and use the bailout money to Develop battery technology and to support and migrate the employee’s from GM to NEW car companies willing to make battery electric cars.

    Objective? put a 4door mid size sedan family car with an over 100 mile range minimum worst case scenario with a typical range of 150 miles for a sale price of under $12,000 onto american roads within 2 years.

    Barebones minimal car. Manual windows manual steering Regular radio Heat and AC that’s it. Nothing fancy nothing special. Minimum 100,000 mile warranty on ANY component related to the electric drive train and a battery rated to last minimum 250,000 miles and costing LESS than $4500 to replace.

    NOTE all these conditions except for the 4door part were ALREADY MET by the EV1 over 10 years ago so don’t reply with the terms are too high or hard to reach. THEY ALREADY DID THIS.

    Let them burn. Then let the workers and talent go onto REAL car companies who have OUR best interest in mind.

  • http://none.com Dave Z

    F- em.

    Sorry, I dont’ pay taxes so some dumb s*** company can continue to run their business poorly. And if the employees at GM have a brain in their head, they will find another job… Its not the end. Only the End of a poorly run business that could not innovate.

    The only thing GM every did worth a s*** was fund the Corvette. All the rest of their vehicles were garbage. Seriously, go look at some silly 4 banger that GM makes, then look at any Japanese, Korean or German 4 banger… Hands down I would NOT choose the GM. I would prefer to buy some 90′s Civic or Golf GTI than a brand new Cavalier, not to mention the Cavalier would break down first.

    Let them drown in their own Failure. Make sure the Executives feel the pain too.

  • Russ

    I think there is some ignorance in there post about the unions and pay. For your information there is a tier system pay the last five to eight years. New hires are only paid 13 dollars a hour so the 40 dollars a hour are way off base. With the buy outs the last five years most the uaw employees fall under the tier pay scale. Gm is paying out a half a billions in executive bonus a year. If any of you think the failure of unions is cure all for the country you need to get educated. Everyone pay will drop dramatically if companies know they don’t have to compete wage wise with companies that have unions. It will be a trickle up wage drop for everyone. GM management does need to be held accountable and penalized for there arrogance.

  • http://www.travelchacha.com India Travel

    The oil companies must be enlisted to bail out the American auto companies. Due to long production lead times, the automobile manufacturers are at the mercy of the oil companies’ whims; oil companies can double the price of gasoline in less than a year, but the car companies cannot retool their production lines in less than two years. Now the car companies will be stuck producing an inordinate number of small, cheap, efficient, yet ultimately unwanted cars (again) just in time for the oil companies to reduce gas prices (yet again.) Read the consumer magazines; most American cars have greatly improved in quality to reach competitive levels, but without a stable (regulated?) oil pricing structure they will never be able to produce exactly the size and type of vehicles that the majority of consumers will want when they will want them. It’s now up to the oil companies to reciprocate to the car companies and rescue them for their own good, too.

  • Eric

    This has been a long time coming. Manufacturing has been in decline in the US since the 60′s and the auto industry is a large part of that. Partly because americans EXPECT increases in pay regardless of economic conditions (raising costs) and other countries that have a lower wage base can produce for less. The US is losing its grip or has already lost its grip on manufacturing products, that chapter is closed. The question is, what to do now? How about technology? Well, unfortunately education isn’t taken very seriously in the US either, vs. the planet we lag far behind in science and math. Which is sad for a country with the resources to do far better. Eventually, given enough time everyone will be working in the service industry.

    The fact is were soft. We lack the hunger that as a populace to band together and succeed. People are far to concerned with iPods and distracted with Xbox’s to focus on what’s really going on around them.

    As much as it’s going to hurt, if GM is going under, no one should interfere with it. Ever see “Who killed the electric car?”

  • KAL

    AS LONG AS GM HAS SOMEONE TO BAIL THEM OUT NOW OR IN THE FUTURE THEY WILL NEVER FEEL THE NEED TO PRODUCE BETTER PRODUCT OR BE MORE COMPETATIVE. WHY ARE WE BEING HELD AT RANSOM FOR COMPANIES LIKE GM GIANTS WHO ARE SO BIG THAT THEY CAN’T FAIL. FAIL I SAY. LET THE GOVERNMENT SECURE PEOPLES PENSION LIKE THE UNIONS SHOULD HAVE BEEN DOING( the supposed worker protecter ). BUT TO KEEP DUMPING MONEY INTO THESE BOTTOMLESS PITS CALLED FAILED BIG COMPANIES, COME ON. WE HAVE TO FEEL THE PINCH OF FAILURE. LET IT HAPPEN SO WE CAN MOVE ON AND PEOPLE CAN LEARN NEW SKILLS, MAYBE A AUTO COMPANY THAT IS CURRENTLY SUCCESSFUL (TOYOTA, HONDA, ETC.,) CAN COME INTO DETROIT AND DO IT AT A PROFIT.
    WE ARE BEING THREATENED THAT SO MANY PEOPLE WILL BE OUT OF WORK SO WE HAVE TO BAILOUT THE COMPANY( BANKROLL THEIR PAYROLL FOR HOW LONG). WHAT IF GM NEVER MOVES INTO A SUCCESSFUL STATE? HOW LONG CAN WE AFFORD AS TAXPAYERS TO SUPPORT THAT. I SAY LET THEM FAIL. RETRAIN WORKERS OR MOVE WORKERS TO AREAS WHERE JOBS ARE. THIS IS NOT A TAXPAYOR BURDEN. NOT THIS WAY.

  • http://radical-centrist.blogspot.com/ Rich Paul

    Communism Kills.

    No bailouts

    No way

  • earle butler

    every young american dream of owning his first car you can bet almost all of them won,t it to be a chevy-that,s gm you know-if you love AMERICA-BY GM OR A BIG THREE-PRODUCT.THEY ARE GOOD CARS /TRUCKS.THAT,S ALL MY FAMILY WILL BY.PLEASE DON,T LET THE BIG THREE GO UNDER.I WORKED FOR GM IN YSPILANTI MI./SPRING HILL TN.35 YEARS == BIG EARL BUTLER==

  • thatsimonguy

    First off, bail out the workers, NOT the companies with CEO’s that ran these companies into the ground while getting $16M salaries doing it and flying private jets everywhere for $20,000 a pop. Secondly, from personal experience, I’ve found that GM, Ford and Chrysler all make cars that don’t last very long and cost a lot to maintain. My family has owned cars from all three car companies (Ford Explorer, Ford Mustang, Chrysler Intrepid, GM Chevrolet Cavalier, GM Buick Park Avenue, GM Oldsmobile Delta 88) and we’ve spent so much money repairing those things when they broke down. We’ve since switched to Honda and Toyota (Toyota Echo, Toyota Yaris, 2 Toyota Camry’s, Toyota Corolla, Honda CRV, Honda Civic) and I can tell you right now, it’ll be a LONG time before we even consider buying another Ford/GM/Chrysler again just because of the trouble and maintenance that comes with those vehicles. Why spend money on constantly repairing my cars when I can be driving a reliable vehicle and spending my money on more important things like my mortgage, recreation or vacations? By that same token, why would I bail out the 3 companies that are responsible for these same unreliable vehicles when their competition is making something much more in-tune with my interests?

  • http://www.thepartsbin.com/guides/mercedes.html mercedes parts

    GM is the number one auto manufacturer in US. Why not bail it out? Thats the only company that will support the auto industry of US.

  • http://www.partstrain.com/ShopByDepartment/Head_Gasket head gasket

    GM is the number one auto manufacturer in US. Why not bail it out? Thats the only company that will support the auto industry of US.

  • http://www.thepartsbin.com/brands/chilton.html chilton

    GM is the number one auto manufacturer in US. Why not bail it out? Thats the only company that will support the auto industry of US.

  • http://www.thepartsbin.com/brands/chilton.html chilton

    GM is the number one auto manufacturer in US. Why not bail it out? Thats the only company that will support the auto industry of US.

  • http://www.thepartsbin.com/brands/chilton.html chilton

    GM is the number one auto manufacturer in US. Why not bail it out? Thats the only company that will support the auto industry of US.

  • http://melissa-brandon.com Brandon Hansen

    If you think that GM is too big to fail, then you have actually missed the big picture. You give GM the money and that makes our government a failure, our nation a failure. Have we forgotten where we came from?

  • http://melissa-brandon.com Brandon Hansen

    If you think that GM is too big to fail, then you have actually missed the big picture. You give GM the money and that makes our government a failure, our nation a failure. Have we forgotten where we came from?

  • http://melissa-brandon.com Brandon Hansen

    If you think that GM is too big to fail, then you have actually missed the big picture. You give GM the money and that makes our government a failure, our nation a failure. Have we forgotten where we came from?

  • http://melissa-brandon.com Brandon Hansen

    If you think that GM is too big to fail, then you have actually missed the big picture. You give GM the money and that makes our government a failure, our nation a failure. Have we forgotten where we came from?

  • http://melissa-brandon.com Brandon Hansen

    If you think that GM is too big to fail, then you have actually missed the big picture. You give GM the money and that makes our government a failure, our nation a failure. Have we forgotten where we came from?

  • http://www.basisrente.net/ Basisrente

    GM didnt plan for the future. The cars dont have the technique to success.

  • jeffsmart

    gm does make a quality product and i am tired of you scabs that blame unions when the union is the ONLY thing that keeps wages up or we would all work for $2 an hour. Just bail out banks they are government insured This would bring this country to its knees i am so happy to know we are quick to cut our own throats

  • RICHARD J PELLA

    IS IT SAFE TO BUY A GM PRODUCED CAR???? I HAVE OWNED GM CARS FOR 70 YRS BUT MY 2006 IMPALA HAS BEEN THE WORST NEW CAR I HAVE EVER OWNED……. IAM NOT SURE IT WILL RUN FROM DAY TO DAY..I HAVE NO CONFIDENCE IN AREA DEALER SERVICE ……

  • price

    Hey Rick………ever been stationed in Colorado?

  • price

    Hey Rick………ever been stationed in Colorado?

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