As GM Goes, So Go Your Tax Dollars

You may recall that last year Detroit came to Washington, hat in hand, looking for another bailout using taxpayer dollars. At that time, some of us questioned whether or not this was a good idea. GM had been on the skids financially for some time and their problems seemed more endemic than temporary. Might they not, we wondered, be better off going into bankruptcy and reorganizing as the airlines did during their dark days? (And you will note that there are still no long lines of people at airports waiting for planes that never arrive.) Also, the bankruptcy option might allow them to relieve themselves of some of their legacy costs and remove the crushing weight of the albatross around their necks by the United Auto Workers.

Nay nay, we were told! Not only is GM too big to fail, but they are an American icon, right up there with the Statue of Liberty and the original Betsy Ross edition of the Stars and Stripes. All they need is a bit more time and some of our money to reorganize and begin producing lean, green cars that people actually want.

Well… so much for that plan.

General Motors’s new chief executive told CNBC that filing for Bankruptcy may be the best option for the struggling automaker.

Henderson’s comments came after President Obama bluntly rejected turnaround plans by GM and Chrysler and demanded that both companies make fresh concessions in order to get more federal aid.

Now I only have one question for the table here. What happens to the money we already gave them? Do the taxpayers get paid back as part of the bankruptcy reorganization, or does this turn into another lump of debt piled on with the rest, left to us to pay off? “Oh well, you put your money in a bad investment and now it’s gone, just like your 401K.”

And, not to be one of those “we told you so” people, but… couldn’t we have done this last year?

  

6 Comments

  1. Also, the bankruptcy option might allow them to relieve themselves of some of their legacy costs and remove the crushing weight of the albatross around their necks by the United Auto Workers.
    Much of the legacy cost are from retirees, before robots made the old production standards very labor intensive. The auto companies raided their pension funds, with the approval of both parties in Washington. Should 80 year old retirees sell apples on the corner, to unburden capitalism from legacy costs.

    During the earlier debate about GM, the $70 per hour cost came up. But, the actual pay and benefits to UAW workers is around $40 per hour, with some transplants exceding this amount when profit sharing is payed to them. But no pension from the Japs and Nazis, but I bet they pay pensions back home.

  2. Does this place accept the kind of language flung around by Rudi? I hope not.

    I don't know what would have happened to the markets, banks, other car companies, and consumer confidence last year if GM and Chrysler had been allowed to go under almost immediately, but I don't think it would have been good. There are some small imrpovbements in some economic measures now, including the TED spread and the Baltic Dry Index, and consumer confidence is up, so while the recession has still not bottomed out, and there are still some hellacious bumps coming our way, I think those billions spent to delay the blow were worth it.

  3. I've often advocated what to me is a perfectly capitalistic notion for ALL industries that need help. I'm always called a socialist for advocating it. The way for-profit companies raise capital in a capitalist system is to sell stock and borrow when needed. I advocate that to help companies in an industry considered strategic (e.g. autos, banks, insurance), we should buy their stock, not loan them money we'll never get back. If the company does go bankrupt anyway, we're still stockholders in the reorganized company.

    Yes, it's called “nationalizing” these industries, but it's just a stock purchase. If a company needs more bailout money than their stock is worth, BUY them. Or let them fail.

    I think we need an auto industry, and think the GOP has been intentionally misleading in lauding foreign carmakers with US manufacturing plants. US wages were overstated by nearly half, and “legacy” costs manipulated. Toyota and Volkswagon will be right where GM and Chrysler are now as their overseas labor force hits retirement age. (these foreign auto makers are perfectly happy to give American workers a worse deal than their employees at home, where their workers get free health care and pensions.) Incidentally, these foreign auto makers were given lavish tax incentives and other public support to locate their factories in the deep South, another advantage over the deal we have given domestic auto makers.

    The GOP argues for workers to get bargain basement wages and no pensions, and at the same time rails against Social Security. The subtext, which has become clear to working Americans, is “you're on your own” to compete against the slave labor wages of the developing world, and after a lifetime of working hard at an American job, you're on your own when you get old, too.

    The GOP advocates for a cushy life for the rich, and a race to the bottom for everyone else.

  4. “I've often advocated what to me is a perfectly capitalistic notion for ALL industries that need help. I'm always called a socialist for advocating it.” How can that be?

    “Yes, it's called “nationalizing” these industries, but it's just a stock purchase.” So people don't let you call “nationalizing” an industry capitalism instead of socialism? How rude these people are not to let you create your own meaning for words.

    “I think we need an auto industry”

    Why? What is your logic, reasoning, or basis why the U.S. needs a U.S. run auto industry? I think we need a fake plastic vomit industry, but that has been run in Taiwan for decades now. Why do you think we need an auto industry; or if you have no reason why do you think your opinion without facts or reason would matter?

    'The subtext, which has become clear to working Americans, is “you're on your own” to compete against the slave labor wages of the developing world'

    Well that's just bad. So what efficiency gains do you promote to compete with the “slave labor wages” as these developing countries come up? they're not slave labor wages where they're paid; so how do we compete? Obviously we pay more, drive jobs overseas, and starve; or you call us names for not paying more… who does that help again?

    Oh of course you don't answer that. We just pay more, fail to compete, go broke, and inflate our currency to no end… while pretending our failure is because we were “too mean” instead of “too stupid”. We don't need to be smarter, more efficient, or even competitive. We just need to be nicer, right?

    “The GOP advocates for a cushy life for the rich, and a race to the bottom for everyone else.”

    Right, obviously what we need to do is to punish success and reward failure as much as possible. when you punish something you get less of it, and when you reward something you get more of it; and we desperately and seriously need a ton more failure and we have far too much success.

    I guess I know how “dreams” got into your title, as you're denying reality left and right; but why green? Less CO2 emissions after the global economy collapses back to agrarian societies, starvation, and death?

    I'm sure now I'll be called mean, heartless, etc. for wanting to promote success and allow failure to suffer its own punishment… oddly accepting reality is mean; denying reality and making plans doomed to fail yet again is “nice”.

  5. Gekkobear

    I'm glad someone around here understands reality. Reality is hard in the laisser fair economic world. These idealist don't see that profit is the only measure worth considering. Reality is hard, and people need to realize it.

    So what if people spend their entire productive life earning a decent retirement and health care. There's no profit in thinking of the 3-5 million who would lose their livelihood and retirement. At least Wagnor got out with his fair share.

    We owe Detroit nothing. Maybe they were the backbone that carried the US to the pinnacle of global productivity while you collected sweet profits on your fat assets. Yeah sure they switched from Sedans to Tanks to win a war. That's old history; it has no place on the current balance sheet.

    If American workers won't work for third world wages, it's their own damn fault. But you got to admit, that was a sweet little bit of lobbying that got tax breaks for companies who shipped jobs overseas. Good business, right?

    No, socialism has to be fought on every front. Reality is not for the weak of heart. Unbridled capitalism is the only lens with which to view this economic situation.
    If people are out of work.
    “Are there no prisons? And the Union workhouses. Are they still in operation?”

    Yeah Gekkobear, you got reality right where it wants you.

  6. “These idealist don't see that profit is the only measure worth considering.”

    I'm sorry, obviously that is just foolishness.

    Profit is useless. In fact, we'd have a much better economy if nobody could ever make a profit. Think of all the jobs that could be created if companies would just stop making profits. And all the investments we'd see from people looking to donate to our new job creation charities.

    We'll be the home for lost companies, who can't make a profit but surely provide all the necessary additions to the economy that make life worthwhile. Like green programs, and softball teams. We should save them forever, and get charitable investments to fund them. We can end this whole “for profit” economy and just go to being a non-profit charity economy…

    “Maybe they were the backbone that carried the US to the pinnacle of global productivity while you collected sweet profits on your fat assets.”
    Ok, they were… I'll agree with that. And now they need billions of dollars with no way to be worthwhile. Should we never let any company fail? If they've done well in the past we should prop them up forever? What a wonderful world it would be.

    Obviously our economy would be stronger if we had kept every company. We could be the Government subsidized buggy whip capitol of the world today if only we would follow your brilliant plan. And our Government could employ everyone, deciding what they're paid, where they work, which companies will get new employees. Everything.

    I'm sorry I didn't see it sooner. The Government would be great at managing the entire economy from top to bottom. Obviously all the other times this has been attempted it has worked perfectly… I'm just denying reality stating the companies are created to make a profit.

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