Thread: US Automakers Your opinion: Bailout or Bankruptcy?

Well the Poms and Frogs followed suit.

This thread was much more interesting to read second time around.

Do they never learn? I don't guess we'll be hearing much after this ...

British automakers to get £2.3 billion in aid

"Britain on Tuesday joined governments around the world in announcing an aid package for its ailing auto industry. The £2.3 billion plan came after three months of pleas from trade unions and executives at Jaguar Land Rover and Vauxhall.

Britain offered auto manufacturers and suppliers access to £1.3 billion, or $1.8 billion, in loan guarantees from the European Investment Bank, topped up with another £1 billion from the Treasury, the business secretary, Peter Mandelson, told Parliament on Tuesday. He also said that the government would increase its funding for retraining workers who had lost their jobs.

The automotive industry "is in the front line of the downturn, with output falling faster and further than any other sector since the summer," Mandelson said. "We need to counter this to prevent an irreversible loss of capacity, skills and technology."

But he added that the "industry is not a lame duck and this is no bailout."
"There is no blank check on offer, no operating subsidies," he said.

The opposition Conservative Party criticized the measures as "too little, too late" and accused the government of dithering while other countries moved swiftly to support their automakers. The United States, France and Germany have all announced plans to support their automakers.

The British auto industry adds about £10 billion a year to the economy and employs more than 800,000 people. But government aid to automakers is more controversial in Britain than in other countries because most of the British manufacturers are foreign-owned. For example, Jaguar Land Rover, which employs 15,000 people in Britain, is owned by Tata Motors of India. General Motors of the United States owns Vauxhall.

Pressure to come up with a plan to support the industry, which exports about 76 percent of its production, grew when production almost halved in December, manufacturers halted production at some plants and the industry's difficulties started to affect other sectors of the economy. Corus, one of the largest European steel makers, said Monday that it would cut 2,500 jobs in Britain after demand from automakers and the construction industry fell dramatically.

The British government is already worried about unemployment, which rose for an 11th consecutive month in December, when it reached 1.16 million, the highest since January 2000. The deepening recession is also harming the popularity of Prime Minister Gordon Brown as consumers grow more concerned about the government's ability to cope with the recession.

Howard Wheeldon, a senior strategist at BGC Partners in London, said he doubted that the aid package would be enough to rescue the industry in the long term, but that "it should see those that take it up through the rest of this year."

Mandelson said the support was also intended to help make the British economy "more balanced," as the recession revealed that the country had relied too heavily on the financial services industry, leaving it too exposed to the credit crisis.

"The U.K. needs an economy with less financial engineering and more real engineering," Mandelson said.

The support should also make the auto industry "greener, more innovative and more productive," Mandelson said. He did not say whether the aid was linked to specific conditions.

Mandelson planned to meet executives from Vauxhall and Jaguar Land Rover on Wednesday to discuss the aid package."

British automakers to get £2.3 billion in aid - International Herald Tribune

***

Originally Posted by Texpat

the recession revealed that the country had relied too heavily on the financial services industry, leaving it too exposed to the credit crisis.

"The U.K. needs an economy with less financial engineering and more real engineering," Mandelson said.

The penny drops.

Ummmm, pssst .... that's the pound.

This whole bailout thing seems so shortsighted that it's ridiculous. If people buy fewer cars then companies have to downsize, if the workers have no work and salaries are paid by government bailouts, you could just as well pay them unemployment money and then try to get a new job until in a couple of years manufacturers start hiring again...

Why would an upstanding, smart, efficient and classy operation like the UK auto industry -- that makes brilliant and lovely machines -- need a bailout?

Their cars corner cleverly, seat one comfortably and have nice stickers on them...

I'm confused.

"The U.K. needs an economy with less financial engineering and more real engineering," Mandelson said.

the world needs an economy with less financial engineering and more real engineering

send more suited paper shufflers to the frontline as more sandbags are needed

Ban all suits...

Originally Posted by plorf

This whole bailout thing seems so shortsighted that it's ridiculous. If people buy fewer cars then companies have to downsize, if the workers have no work and salaries are paid by government bailouts, you could just as well pay them unemployment money and then try to get a new job until in a couple of years manufacturers start hiring again...

The thing is that a lot of big companies thought the boom years were going to go on for ever, and so they borrowed so much money to keep expanding or to produce uncompetitive products that they needed loans to pay their workers next months wages. When the market slumped they went broke very quickly. But the governments want them to keep building cars nobody wants to buy in order to prevent massive unemployment. So what you end up with is a lot of new cars nobody can afford parked in storage lots. A bit like the US houses the banks own that nobody wants anymore.

The governments are borrowing money and giving it to the bankrupt banks in the hope they will loan it to people to buy houses and cars nobody wants.

Its a modern day version of the "Cargo Cult" of the Eastern Pacific Island natives during WW2. Basically a belief that wealth and material goods will appear out of nothing if you just believe. Well, it actually worked for a while, but now we got to pay back the debt. Or at least our kids and grand kids will have to pay it back.
Cargo cult - Wikipedia, the free encyclopedia

^ I am aware of that, but even back in the days when I was in high school I've been taught about the fragility of the american system, it's huge trade deficit, whole economy based on loans etc, it didn't sound good to me back then, still doesn't. That might be because we're pretty much the complete opposite in Switzerland, constant trade surplus, huge saving rates, little consumption on loans or general domestic consumption and few domestic investment opportunities. Has it's drawbacks too, as we rely on exports and foreign investment opportunities, and thus the wealth of neighbouring countires but it's generally pretty solid unless some banks get too greedy in the US...

^ You state the cold hard facts. The government could have saved money by paying every single gm employee to retire or start thier own small businesses or whatever.
Thailand has car factories for good reason. workers are 5$ a day. Western countries cannot compete, unless they have premium product like BMW or Benz.

How long do you throw good money at a failing enterprise... BO talks about 'restructuring' the US auto industry to be more progressive... That would take years and 10's of billions of $$$... We can't afford it...

^ Yup, a good idea . . .Didn't Opel have a near record sales month in January? If GM decides to cripple Opel because of it sown inadequacy then they are cutting off their nose to spite their face

The Europeans are cunning. Good to see that it has paid off for them.

Socialism vs capitalism.

^ I'm not sure if it can be described as being cunning . . . more like having a long-term vision as opposed to making the quick buck.

The advantage/disadvantage the US has in this regard is the huge landmass combined with a relatively low population density that allows for grand-scale thinking, with its pitfalls as well as its possibilities.

Australia has a combination of the two . . . sadly we have taken mostly the negatives from both

Originally Posted by panama hat

Didn't Opel have a near record sales month in January?

Possibly but if so then how did they, GM Europe, manage to lose $2.8 billion as reported by GM yesterday?

Every major auto manufacturer is losing money and are all trying to cut losses with plant shutdowns and/or production cutbacks.

Bailing out Opel is being strongly considered by the German government as the only way to save the company. The hurdle for the moment is ensuring German taxpayers none of the money will go to GM Corp in the US. We will find Opel suffers the same problems faced with automakers in the US. That is, lagging sales coupled with inefficient structuring and non competitive labor costs.

Originally Posted by Norton

Possibly but if so then how did they, GM Europe, manage to lose $2.8 billion as reported by GM yesterday?

Not sure . . . I was watching the economic report on Deutsche Welle last night. I do know that Opel has been losing money hand-over-fist . . . maybe the incentive to buy new cars is having an effect

Originally Posted by Norton

non competitive labor costs.

That will be the case for all bar a few countries . . . even places like Malaysia and Indonesia are victims of lower wages in other countries

Originally Posted by panama hat

maybe the incentive to buy new cars is having an effect

Think so. A 2,500-euro rebate from the gov will do it for sure.

"The carmaker said on Feb. 23 that the government program, which offers a 2,500-euro rebate on trade-ins of cars older than nine years, led to sales exceeding 40,000 vehicles in February, its best month in five years."

Originally Posted by panama hat

I do know that Opel has been losing money hand-over-fist

"GM reported a worldwide loss yesterday of $30.9 billion for 2008, including $2.8 billion from its European divisions."

Bloomberg.com: Worldwide

Originally Posted by Norton

a 2,500-euro rebate on trade-ins of cars older than nine years

Killing two birds with one stone there . . . getting rid of inefficient old cars and spurring sales of the new with many benefits . . . provided these people don't lose their jobs.

Oddly enough it states here:

Insgesamt habe General Motors (News/Aktienkurs) (GM) in Europa mit einem "ordentlichen" Gewinn abgeschlossen, berichtet die Zeitschrift. 80% des GM-Geschäfts in Europa stammen von Opel. Profitable Märkte des Rüsselsheimer Automobilhersteller seien in Europa unter anderem Großbritannien, Spanien und Italien.

. . . that Opel ended the year in the black with the UK, Spain, Italy ond others, were profitable.

Here it states:

RÜSSELSHEIM (Dow Jones)--Die GM-Tochter Opel schreibt in Deutschland offenbar Verluste. "Der deutsche Markt sei nicht mehr profitabel", sagte Hans H. Demant

That the German market isn't profitable for OPEL


Economics and statistics . . .

Originally Posted by panama hat

Economics and statistics . . .

Not sure if "Opel" per se is losing money. As you point out depends on what is counted. I do know there is a significant management overhead that gets rolled into the GM Europe financial's so could be this is a big contributor to GM Europe losses.

^ Precisely what the article also mentioned . . . US costs/losses are slipped into the GM Europe p/l.

Also:

In Germany, many say that a split from its Detroit parent is the only thing that can save the car maker. And, as became clear on Thursday, Opel workers are furious with GM for the predicament they currently find themselves in. "They built up overcapacity around the world without regard for losses," Berthold Huber, head of the union IG Metall, told protesters at Russelsheim. "And they have built models with the aerodynamics of a barn door and the weight of a small tank." He said that, given high fuel costs and growing unemployment, such cars are "as necessary as freezers at the North Pole."

This article doesn't really say what exactly is going to happen. The restructuring plan is 2 weeks away. At this time, there is no final verdict on GM?

General Motors Checkmates Obama In Two Moves

By 24/7 Wall St. Wednesday, Mar. 18, 2009


MARK RALSTON / AFP / Getty



The wooden but plucky CEO of GM, Rick Wagoner, told the press that if his company is allowed to go into Chapter 11, it will end up being a simple liquidation. GM will be torn into pieces and sold off as scrap. He made one good point to support his point of view. If a bankruptcy of the No. 1 U.S. car company drags on for several months, potential auto buyers will purchase vehicles from competitors that they view as being "safe". No one wants to buy a car that won't be serviced. Wagoner has made this point before, but it is more compelling now that the deadline for the government to approve or disapprove GM's restructuring plan is only two weeks away.


GM has effectively taken a page out of the AIG playbook for gaming the Administration and Congress. Henry Paulson and his associates were led to believe, perhaps rightly, that if AIG failed it would cost other financial companies so significantly that the government would have to bailout almost every large financial firm in the country. GM's argument is even simpler. A liquidation of the car firm would probably cost tens of thousands of jobs at the company, and many times that at suppliers. That argument is also old, but with the chance of liquidation in the next few months becoming more likely, it refreshes the strength of the logic.
)
GM has been in the middle of quietly challenging the government's plan to close it down for three months now. The Administration has now sent its car experts to Detroit, and they have said that a bankruptcy of either GM or Chrysler is undesirable. They did not elaborate much on this analysis, but, from the standpoint of the car companies, they do not need to. It is enough that the blue chip analysts sent by the President to evaluate the car companies have a belief system that matches the one in The Motor City. (See pictures of the remains of Detroit.)
The financial and car industries have effectively ganged up on the government. They would seem to be weak because of their remarkable failures and reliance on outside help to keep them alive. The opposite is true. By being terribly crippled, they are sucking all of the money out of the U.S. Treasury because the Administration knows that if these parts of American business fail, replacing the jobs and capital will be insurmountable tasks. The recession would get much, much worse. Staying ahead of the job losses would become impossible. (See the 50 worst cars of all time.)

Link & Entire: General Motors Checkmates Obama In Two Moves - TIME