Should the government bail out GM?

[Cyrus]

http://www.trainweb.org/mts/ctc/ctc06.html
http://en.wikipedia.org/wiki/General_Motors_streetcar_conspiracy

You can say what you want, but a car company bought public transportation companies and destroyed them.

That was 60+ years ago.....why is this relevant?

 

[WarPhalange]

Are you trying to say that things that happened in the past have no impact on what is happening today? Seriously?

 

[D H]

No, let them go broke. Their cars are UGLY, and I don't ever see them putting in any effort compared to European or Japanese cars.

Almost here is using emotional arguments: capitalism is good so we should let the free market run its course, capitalism is evil so we should let the beast die, GM killed public transportation and is the cause of global warming, GM's cars are UGLY. This is supposed to be a rational forum.

Rational arguments against bailing GM out

• Our government has historically kept its dirty mitts out of businesses' business (for the most part), and that hands-off attitude is one of the reasons for our country's economic success. Bailing out GM sets a very bad precedence.
• Just because we bailed out Chrysler in the past doesn't mean we should replicate that mistake.
• Their is no guarantee that bailing GM out will succeed and there are plenty of indicators that it won't succeed. The maxim "Don't send good money after bad" comes to mind. We will spend a lot in bailing the company out and we will spend a lot again when it eventually goes bust. It's better to just spend a lot if and when it goes bust.
• The potential that they will go bankrupt is forcing GM to act a little smarter than they have in the past. They might well work themselves out of there mess without any government assistance/interference. Bailing GM out implicitly assumes they will go bankrupt and removes the pressures to reform themselves.

Rational arguments for bailing GM out

• Should GM go bankrupt, it will cost the US government a lot of money. GM has "only" 266,000 employees, most in the US. They have a lot more indirect employees in the companies that supply GM parts. The US government will have to shell out a lot of money in terms of unemployment compensation should GM go bankrupt. Many of those 266,000+ employees will not find jobs for a long time.
• The costs of paying 266,000+ people unemployment compensation pales in comparison to the payments the US government would have to make to GMs retirees should GM go bankrupt. While unemployment compensation stops after a short time, pension payments do not stop. GM has 450,000 retirees , and their pensions are backed by the Pension Benefit Guaranty Corporation in the case of bankruptcy.
• Those 266,000+ employees pay income taxes. A good chunk of that income stream will be lost forever should GM go bankrupt.
• GM stockholders will have a one year claim of massive capital gains losses. The wealthiest people in this country represent the lion's share of the federal government's total receipts, and these people will legitimately pay very little tax for the tax year in which GM goes bust. The timing of this event couldn't be much worse.
• The baby boomers, many of whom are about to retire, will not have enough work years left to recover from the shock a GM bankruptcy will inflict on their retirement accounts. Many of these people will thusly need government assistance in later years, and they will not need this assistance if GM remains a viable entity.

 

[quadraphonics]

The potential that they will go bankrupt is forcing GM to act a little smarter than they have in the past. They might well work themselves out of there mess without any government assistance/interference. Bailing GM out implicitly assumes they will go bankrupt and removes the pressures to reform themselves.

I'd say that this is the most fundamental entry in either list. Whatever the government does or does not do, GM is in trouble for a reason, and that reason is not a lack of government backing. All of the arguments for bailing GM out hinge on the bailout being successful; i.e., resulting in a viable business. The whole problem with that is that the prospect of a bailout is a huge disincentive for the kinds of measures that would make GM viable. A policy of privatizing profit, and socializing risk, results in grossly irresponsible behavior that ultimately blows up in everyone's faces (see also: mortgage crisis). We need to get past the idea that some companies are too big to be allowed to fail, because actions premised on that idea lead directly to failure of said companies.

Let's also not get too frightened about the consequences of a GM failure. The likely result is not the disappearance of all of GM's infrastructure, jobs and value, but rather the purchase of said entities at discount rates by entities with the will and means to make them work. Those factories will mostly be purchased and retooled by other, more productive automotive companies, who will in turn employ the productive employees, generate huge increases in their stock value, and ultimately offer better, cheaper cars to everyone. The only people that lose are GM executives, unproductive employees, and people who invested in GM stock to the exclusion of all the other (much more successful) automotive companies. Not only should we allow GM to fail, we should hasten that event by boycotting the crappy, ugly, inefficient cars that they produce until they get their acts together. GM is a company, not a social institution, and it would behoove us to treat it that way. When an American car company cannot compete in an era of a low dollar, we're better off without it, as scary as that might be for people in Michigan.

 

[Cyrus]

Are you trying to say that things that happened in the past have no impact on what is happening today? Seriously?

You can read, can't you?

Maybe you can explain how GM destroyed the metro-rail and bus system I use here in washington, DC?

 

[Cyrus]

Almost here is using emotional arguments: capitalism is good so we should let the free market run its course, capitalism is evil so we should let the beast die, GM killed public transportation and is the cause of global warming, GM's cars are UGLY. This is supposed to be a rational forum.

Rational arguments against bailing GM out

• Our government has historically kept its dirty mitts out of businesses' business (for the most part), and that hands-off attitude is one of the reasons for our country's economic success. Bailing out GM sets a very bad precedence.
• Just because we bailed out Chrysler in the past doesn't mean we should replicate that mistake.
• Their is no guarantee that bailing GM out will succeed and there are plenty of indicators that it won't succeed. The maxim "Don't send good money after bad" comes to mind. We will spend a lot in bailing the company out and we will spend a lot again when it eventually goes bust. It's better to just spend a lot if and when it goes bust.
• The potential that they will go bankrupt is forcing GM to act a little smarter than they have in the past. They might well work themselves out of there mess without any government assistance/interference. Bailing GM out implicitly assumes they will go bankrupt and removes the pressures to reform themselves.

Rational arguments for bailing GM out

• Should GM go bankrupt, it will cost the US government a lot of money. GM has "only" 266,000 employees, most in the US. They have a lot more indirect employees in the companies that supply GM parts. The US government will have to shell out a lot of money in terms of unemployment compensation should GM go bankrupt. Many of those 266,000+ employees will not find jobs for a long time.
• The costs of paying 266,000+ people unemployment compensation pales in comparison to the payments the US government would have to make to GMs retirees should GM go bankrupt. While unemployment compensation stops after a short time, pension payments do not stop. GM has 450,000 retirees , and their pensions are backed by the Pension Benefit Guaranty Corporation in the case of bankruptcy.
• Those 266,000+ employees pay income taxes. A good chunk of that income stream will be lost forever should GM go bankrupt.
• GM stockholders will have a one year claim of massive capital gains losses. The wealthiest people in this country represent the lion's share of the federal government's total receipts, and these people will legitimately pay very little tax for the tax year in which GM goes bust. The timing of this event couldn't be much worse.
• The baby boomers, many of whom are about to retire, will not have enough work years left to recover from the shock a GM bankruptcy will inflict on their retirement accounts. Many of these people will thusly need government assistance in later years, and they will not need this assistance if GM remains a viable entity.

I am rational. They have ugly cars that suck. What do I care, let them go under! Design better cars so more people buy them. When I think of 'good car' I don't think of anything GM.
They waste resources with the junk they put on our roads.

Lets put it this way, what is GM doing, or planning on doing so that they DONT go broke? What innovative technology do they offer to bring to the table to make me spend my tax money bailing them out? Are they going to still make big SUV's that look ugly? What reason do I have to bail them out.

 

[Astronuc]

Ford is much in the same boat as GM. Ford just announced a loss of $8.7 billion, of which about $8 billion was a write down. Their vehicles are worth less.

Ford and GM are taking it on the chin. It was mentioned on a news program that neither GM nor Ford can re-adjust (react) as quickly as the market. However, they should have reacted last summer.

GM and Ford apparently suffer from bad business models and bad management.


As for GMs role in mass transit, perhaps long ago, they affected some local markets as mentioned in the Wikipedia article. However, here's another perspective -

A Desire Named Streetcar: How Federal Subsidies Encourage Wasteful Local Transit Systems
http://www.cato.org/pub_display.php?pub_id=5345 (downloadable pdf available)

 

[russ_watters]

Are you trying to say that things that happened in the past have no impact on what is happening today? Seriously?

The things in that quote, yes. It's a rediculously irrelevant thing that you brought up. Regardless of what GM did 60 years ago, the public transportation system in the US would/does not look anything like how it did 60 years ago.

Your two initial claims:

GM deserves to burn to the ground for completely raping the public transportation system in the US.

You can say what you want, but a car company bought public transportation companies and destroyed them.

Your first uses the word "completely", the second drops it. Yes, GM bought and dismanteled some public transportation companies. But the fact of the matter is that public transportation exists today and what it is today is not something that GM did.

You also compared the public transportation in the US with other countries. The simple and obvious flaw in the comparison (mentioned a couple of days ago in a similar thread) is that the population density is much lower in the US and as a result, the public transit systems have to be larger and more spread out. And that makes them less efficient. That goes for the longer distance rail systems as well. Berlin to Paris is 550 miles. 550 miles doesn't even get me to Chicago from Philly.

 

[russ_watters]

Anyway, back to the topic - put a vote in for me for letting GM fail. There are few people who would benefit from a bailout and much harm to be done to the industry and the country. It just isn't a good idea.

 

[turbo]

I oppose a bailout in part because GM has valuable assets that some other companies would snap up. When Ford closed its Marysville, OH plant because it was "unproductive", Honda bought the plant, re-tooled, hired back much of the work force and launched into production of the Honda Accord. People will still buy cars if GM fails, and some other companies will come into fill the void. That's how the free market is supposed to work. If the taxpayer has to pay to bail out GM, it would be just one more example of privatizing profit and socializing risk, like appears to be happening in the mortgage markets. I have great difficulty understanding how anybody can call themselves a conservative while promoting and/or facilitating corporate welfare.

 

[Esoteric]

What percentage of those losses is due to our disastrous health-care system?

 

[Dale]

I oppose a bailout in part because GM has valuable assets that some other companies would snap up. When Ford closed its Marysville, OH plant because it was "unproductive", Honda bought the plant, re-tooled, hired back much of the work force and launched into production of the Honda Accord. People will still buy cars if GM fails, and some other companies will come into fill the void. That's how the free market is supposed to work. If the taxpayer has to pay to bail out GM, it would be just one more example of privatizing profit and socializing risk, like appears to be happening in the mortgage markets. I have great difficulty understanding how anybody can call themselves a conservative while promoting and/or facilitating corporate welfare.

I agree. The "save our jobs" people don't seem to understand that the valuable assets still exist and will be sold to other people and used. And the people who buy those assets will need skilled employees to run them. The GM people have already demonstrated that they are not capable of running their business successfully, why would we pay to keep them in a position that they are obviously not qualified for?

By the way, another similar story happened in Cleveland, OH, with LTV steel. It was hemmoraging cash, something like $4M/day. They wanted to close shop, but some judge made them stay open "for the jobs". After a couple of years and a few billion dollars they finally shut down. They sold the mill to another company who rehired a large part of the work force, and in less than a year were exporting steel!

If people run a company into the ground they should go out of business as quickly as possible so that someone else can try.

 

[D H]

You people are forgetting the 450,000 retirees whose pensions will be covered by the US government unless somebody buys GM lock, stock, and barrel. Who would do that? If GM goes bust it will cease to exist. Foreign companies will not pick up many of the plants because Toyota et al are very anti-union, and Michigan is not a right-to-work state.

IMHO, it is the UAW who are responsible for GM's decline. The UAW negotiated excessive salaries, excessive benefits, and mind-numbingly excessive defined benefits retirement programs for the union membership. The UAW did this with the collusion of the federal government. Moreover, the growth of benefits started in World War II when the government forced companies to freeze wages. Some bright young lad came up with the idea of non-taxable benefits as a way to skirt these legal mandates. What free market? It is a myth, and has been for a long, long time.

 

[turbo]

You people are forgetting the 450,000 retirees whose pensions will be covered by the US government unless somebody buys GM lock, stock, and barrel. Who would do that? If GM goes bust it will cease to exist. Foreign companies will not pick up many of the plants because Toyota et al are very anti-union, and Michigan is not a right-to-work state.

I'm not forgetting it. If we taxpayers have to look that poison pill in the face every decade or so and keep bailing out incompetent managers, what's the point of putting it off. No company is "too big to fail". That is a specious argument put forth by the faux "conservatives" that want to suck the public dry to pay for the short-sightedness of the managers of large companies. These greedy unethical people will do anything to drive short-term profits and create favorable environments to exercise their stock options. It's time that the US taxpayers get some relief from corporate welfare.

 

[russ_watters]

What percentage of those losses is due to our disastrous health-care system?

Well, if you mean that the UAW gets rediculous retirement benefits and the company mismanages the funds, that's actually about half the problem. It adds a lot to the price of their cars.

It isn't "our" healthcare system, though - I don't work for GM. I have my own.

 

[Dale]

IMHO, it is the UAW who are responsible for GM's decline. The UAW negotiated excessive salaries, excessive benefits, and mind-numbingly excessive defined benefits retirement programs for the union membership. The UAW did this with the collusion of the federal government. Moreover, the growth of benefits started in World War II when the government forced companies to freeze wages. Some bright young lad came up with the idea of non-taxable benefits as a way to skirt these legal mandates. What free market? It is a myth, and has been for a long, long time.

I can't argue with you here. However, the GM management that gave into the unreasonable UAW demands are also complicit. They knew that they were agreeing to pay the workers more than they were worth, but they also knew that it would be someone else's problem.

 

[Benzoate]

If its unconstitutional to bail out corporations like GM and Chrysler from bankruptcy, then it is uncertainly unconstittutional to bail out private citizens from bankruptcy as well. Why does the debate center around whether or not we should bail out corporations from bankruptcy?

 

[WheelsRCool]

Although I am a staunch free-market capitalist, would it be wise to let corporations as large and influential in our economy as Ford and GM to fail? Don't they serve a certain aspect of the national defense and our industrial capability?

Also, as pointed out, the UAW is one of the main things hitting GM, Ford, and Chrysler so hard. What really got them is healthcare costs. They never dreamed healthcare costs would skyrocket so high.

There's even a joke that GM, Ford, and Chrysler are healthcare providers that produce cars and trucks as an industrial by-product.

I think certain corporations, in very limited circumstances, such as the Big Three, should be saved if necessary, for economic, national defense, and also national pride reasons. The Big Three employ a LOT of people and a large part of our industrial base.

Or perhaps scale them down some, I mean is a Mercury Mountaineer really any different than a Ford Explorer? Is a Chevy Tahoe and different than a GMC Yukon?

Sure, save the luxury versions, like Lincoln and Cadillac, but get rid of the aspects that are identical in design if they create unnecessary bureaucracy.

Though for GMC, get rid of the "GM" moniker and preserve Chevrolet!

 

[turbo]

Sorry WRC, I can't agree. GM, Ford, and Chrysler can't keep up with import brands. The quality and durability is just not there and instead of concentrating on improving efficiency and making well-built cars geared to the US market, they plod along like dinosaurs, targeting the US market of 20-30 years ago.

The US taxpayer should not be forced to pay for the bad decisions of the managers of these corporations. When they're making money, it's bonuses and stock-options all around, and when their lack of planning puts them at financial risk, suddenly, everybody gets all huggy and wants to save the poor mega-corporations. No thanks. If GM is forced to sell off their plants, Toyota, Honda, Subaru, Hyundai and others will buy the plants (surrounded by a skilled work-forces within commuting distance) and start producing vehicles to fill the gap. The free market is not a zero-sum game. The demise of GM could be a boon to the US economy, and to our environment. Somehow, Asian car companies seem to be capable of producing well-engineered, reliable vehicles that perform well and are quite efficient.

My wife has to commute 5-6 days a week in what can be pretty bad snow and ice. For that reason, we bought a used AWD Subaru Legacy sedan (built in Indiana). It was 3 years old at the time and the first time we had any trouble that required a visit to the dealership was this summer. The car is 7 years old now and the throttle cable was sticking a bit. $40 and a few minutes time and we were headed home. If we did not live in such a snowy climate, we would probably have opted for a Toyota Camry or a Honda Accord - perennially holding the top slots in reliability for passenger cars. Why can't the Big 3 produce mid-sized cars that tough and reliable?

There is no future in bailing out these corporations so they can continue to pursue their failed market strategies and lose taxpayer money as well as investors' money. Corporate welfare has to stop.

 

[WheelsRCool]

Remember though that the foreign automakers are not subject to the unions like the Big Three are. I believe that Ford, GM, and Chrysler could produce cars of equal quality and durability as the foreign companies if they were not unionized. Cadillac, a branch of GM, has actually been building very good quality vehicles lately from what I've read, and Mercedes has had some quality-control issues recently, so it depends.

The Big Three do need to get some smaller cars out that are good quality like Toyota though.

The great irony to all of this is that in the old days, Japanese products were of horrible quality. They brought in an American quality control expert to improve their product quality, and it worked. America can do quality-control. We build some of the world's best aircraft, so we need to get with the program with our auto companies.

 

[turbo]

Rather than bail out US automakers directly, we should give them a favorable environment with respect to health-care costs, which are skyrocketing. Single-payer universal coverage for US citizens would take that big negative off their books. Of course, it would also help the foreign automakers who have plants here and offer health insurance to their employees. In the end the Big 3 would have to learn to take advantage of that huge gift (get health insurances off their backs) AND learn to compete against foreign-branded vehicles. They would jump at the former, but I don't hold out much hope of success in the latter case. At least we will have managed to provide health-care for all US citizens instead of bailing out mismanaged companies, and that kind of climate would attract more manufacturers, who would prefer to manufacture goods for the US market here, and defer shipping costs and reduce the time for which unsold inventories need to be held to accommodate delays due to shipping, distribution, etc.

 

[BWV]

It is worth considering what GM would be bailed out from. When a corporation cannot pay its debts, the lenders (i.e. the bondholders) take over control of the company. This means a wipeout of the equity value and some restructuring arrangement that maximizes the recovery of value for the bondholders. If the company is worth more alive than dead then the bonds are typically converted into equity of the reorganized company. Arguably GM is worth more as a going concern than its liquidation value. In which case it would be business as usual aside from the equity holders who would be (rightfully) wiped out.

It is important to note that it was not Bear Stearns who was "bailed out" it was JP Morgan who benefited from the government intervention. Bear's stock took a 90% haircut and JP Morgan got government financing and guarantees on the acquisition.

 

[huckmank]

Did I not just address this or did you skip over it? It's more practical because there aren't enough public systems in place. If there were more, more people would use it. It's not hard to understand, I don't see why I have to keep repeating myself.

Nonsense. It's more practical to drive in the US because our country is less than 300 years old and the cities built up over the course of one-hundred years - pretty much everything west of the Mississippi - are sprawling metropolises with suburbs ranging 30-50 miles from their respective centers of commerce. Comparing these cities to densely packed European cities that have existed for a millennium or more is ridiculous, and even more ridiculous is blaming GM for the disparity between American and European public transit.

On the subject of the bailout: no, GM should not be bailed out, but neither is it unconstitutional to do so.

 

[WarPhalange]

It would help if cities (or at least all suburbs) weren't designed with cars in mind. The closest store to me currently is about a 10 minute bike ride away. That's one hell of a journey if I just want a fresh loaf of bred for breakfast.

 

[huckmank]

It would help if cities (or at least all suburbs) weren't designed with cars in mind. The closest store to me currently is about a 10 minute bike ride away. That's one hell of a journey if I just want a fresh loaf of bred for breakfast.

Are you implying that suburban sprawl is all the fault of GM buying up a trolly car company in the late 30's?! Oh my dear lord.

edit: and you get no sympathy from me. My commute to school is 15 miles round-trip and I bike every damn day. Not GM's fault that home prices are cheaper the further you get from commercial centers.

 

[WarPhalange]

Are you implying that suburban sprawl is all the fault of GM buying up a trolly car company in the late 30's?! Oh my dear lord.

No, actually I'm not. I'm saying this "suburban sprawl" as you call it further contributes to a crappy public transit system.

edit: and you get no sympathy from me. My commute to school is 15 miles round-trip and I bike every damn day. Not GM's fault that home prices are cheaper the further you get from commercial centers.

You could have small shops all over the place if it wasn't for zoning rules. Look at Europe.

My commute to school is an hour long bus ride. I don't think I could bike that far.

 

[huckmank]

No, actually I'm not. I'm saying this "suburban sprawl" as you call it further contributes to a crappy public transit system.

You could have small shops all over the place if it wasn't for zoning rules. Look at Europe.

My commute to school is an hour long bus ride. I don't think I could bike that far.

And I'm saying that suburban sprawl stems from the fact that Americans have vast tracts of land available to them. Homeowners want to buy their houses far from the city because they can get more for their money when they purchase a house in the middle of nowhere. Retailers don't want to set up in sparsely populated areas because they won't have any customers.

You seem to want to blame someone for this, but there is no one to blame/we're all to blame. Parents want the best home they can get for their children and retailers want to succeed. Any part that zoning plays is minuscule compared to the driving force of these two needs.

Good news though. When gasoline hits $10 a gallon, homeowners may start to realize that the $150,000 mortgage they have turns into $300,000 when they factor in a 60 mile round-trip commute. They'll either need to move farther in, petition their local governments for better public transport or press their companies to allow them to telecommute. While all of this is happening, the stratospheric price of oil will make alternatively powered vehicles financially viable and American consumers will purchase electric cars, not because the government forces them to, but because it makes financial sense.

Good lord, I love capitalism.

 

[OrbitalPower]

How is it the unions' fault that American car companies are failing? Unions provide accountability and provide some standards. When Firestone tires fired all their union workers and went over to Mexico they had the disasterous rolling tire problem.

Saying its the unions' fault is like saying minimum wage laws wreck the economy, it's actually been shown they have a positive effect. And do they not have unions in Germany etc.?

The unions did not decide to produce mostly large cars that would not be applicable to the future, GM, Ford, etc. did, as they could make the most money off selling these vehicles, as they costed more than cars and people could get tax breaks back on SUVs.

It was simply poor vision by the car manufacturers.

 

[Greg Bernhardt]

Saying its the unions' fault is like saying minimum wage laws wreck the economy, it's actually been shown they have a positive effect. And do they not have unions in Germany etc.?

It was simply poor vision by the car manufacturers.

Unions and Insurance are two minor players. I don't think anyone will dispute poor vision isn't the main culprit.

btw, increased min wage = increased unemployment

 

[OrbitalPower]

Unions and Insurance are two minor players. I don't think anyone will dispute poor vision isn't the main culprit.

btw, increased min wage = increased unemployment

"In a comprehensive 2004 study, the nonpartisan Fiscal Policy Institute reported that since 1997, states that had boosted their minimum wage above the federal minimum actually created jobs faster than those that did not. In higher minimum wage states, employment grew by 50 percent more than it did in states still at the pathetic federal level. Even in tough economic times, the minimum wage doesn't hurt jobs: Princeton University economist David Card found that even the minimum wage increases during the 1990-91 recession 'were not associated with any measurable employment losses.' As Republican Sen. Arlen Specter (PA) once noted, "history clearly demonstrates that raising the minimum wage has no adverse impact on jobs."...In Oregon, for instance, the state raised its minimum wage in 1998, and the average earnings of newly-employed welfare recipients climbed by 9 percent, while the percentage of welfare recipients who found a job actually rose."

From the book "Hostile Takeover."

When the US didn't have the minimum wage, large classes of people were unable to buy things and factories shut down. It seems the empirical evidence shows that minimum wage laws do not lead to unemployment.