
Ask YC: To save GM or not? - jdavid
I wonder which is better the government has already approved 25billion to save GM but GM wants more.<p>GM is a company that has been struggling for a decade vs. global competition because it refused to innovate.  Pumping in 25-50 Billion might save 3 million jobs, but are there other options.<p>Would putting $100 Billion into auto company startups be better?  The companies that come out of that would most likely get most of GMs assets on the cheap.<p>what do you think is better, give GM another chance or let bankruptcy create a fertile ground for a new kind of car company to come in and do better.<p>or maybe, there are a ton of problems like warranty enforcement and replacement parts that would be VERY disruptive.  I just don't like the idea of us having Government owned companies.
======
mdasen
Is it really that GM has failed to innovate? Let's look at the numbers:

    
    
      GM======================================Toyota
      $1,525 in healthcare per vehicle        $201 in healcare per vehicle
      $73.73 avg cost of a labor hour         $48 avg cost of a labor hour
      34.3 hours to build a vehicle           27.9 hours to build a vehicle
      Loses $2,331 per vehicle                Makes $1,488 per vehicle 
    

So, let's just alter GM's healthcare and labor costs to Toyota's levels.
Lowering labor costs would save GM $882.54 per vehicle. Add to that the
difference in healthcare costs and GM would save $2206.54 per vehicle - nearly
making them profitable right there! Yes, they're still not profitable, but it
would be a huge difference.

The other things they need to do is use less labor hours to build a vehicle,
increase plant utilization (which is only at 85% right now), and get idle
workers off their payroll - yes GM is contractually obligated to pay people
not to work.

GM should innovate. They do need to come up with better models. They do need
more reliable cars. They do need to be more fuel efficient. However, none of
those are really their big problem. GM is still selling nearly as many cars as
Toyota. They don't have problems creating popular cars. That's a misconception
with many people who happen to dislike GM cars (heck, I think they're complete
crap).

The big question is, can GM reduce those labor and healthcare costs? If not,
they will NEVER, EVER be profitable. You can't compete with a $2,200 handicap
per vehicle. In fact, it's a testament to GM that they have been able to
compete for so long with such a huge disadvantage. If those costs can be
lowered, GM just needs a small loan (like $25bn) and a few years time. If
those costs can't be lowered, we'll be talking about giving them another $50bn
in a year and another $100bn in two years.

EDIT: Figures provided by NPR (<http://www.npr.org/news/specials/gmvstoyota/>)

~~~
jdavid
Have you ever heard of JIT Manufacturing? or just in time manufacturing? The
process was DEVELOPED by the Japanese in the 80's to compete with the American
giants.

The Japanese do not produce a car, until they know it is needed. It took the
American car companies decades to catch on, and even then labor unions prevent
the auto industry from moving from human labor to machine labor, which can be
cheaper than even a Chinese laborer.

We can produce cars cheaper than Japan, we just don't want to sacrifice
millions of jobs doing it. Where the Japanese have found a way to move
forwards. Labor unions have had such a grasp on the airlines, education, and
the auto industry its no wonder that we need to consider bailing these
industries out. They are the most socialist industries in the country.

If we need to save these industries, I do think we need to use government
funds, but shouldn't they be economic development funds? Rather than cash that
will be burned on failed employment standards?

~~~
mdasen
I agree to an extent with what you've said. I think labor is a balance. GM had
it swing too far toward labor. However, if you're an auto worker, there's
likely only one employer in your town which gives that employer undue power.
Ideally, there are many employers that demand the same skill set that you can
get a job with. In that case, you have the choice of many firms and the firms
have the choice of many workers and it works out pretty well.

Since there are only a few auto manufacturers and the likelihood that there's
more than two in your commutable distance is low means that auto manufacturers
have the power necessary to abuse their workers without unions.

However, unions became ultra-effective in many places demanding things like
pay even when plants aren't used and benefits fit for a king. GM agreed to
that because, at the time, the auto industry was really just Ford and GM and
the unions were sticking it to Ford too and so it didn't matter so much.
That's changed, but the UAW won't face the post-80s reality.

Having workers have no power is bad. Having companies have no power is bad.
Having each group have equal power works pretty well.

------
noodle
let them die, imo. keeping them on life support will just be a drain on
everyone. bailing them out will just allow them to continue to be a terrible
company.

instead, use that money to fund grants and initiatives and prizes to
incentivize new companies or GM itself, provided results are produced. that
way, the industry will move forward. a bailout would almost definitely result
in stagnation for many years. imo, ofc.

the bad companies will go away and other companies will take their place,
providing new jobs.

~~~
iigs
Everybody's mad at the financial institutions for spending their bailout money
on bonuses and other seemingly irresponsible things. Because these companies
are not bankrupt, they're not able, as far as I know, to renegotiate much of
anything they've committed themselves to contractually.

From inane Union concessions (job bank) to executive compensation and stupid
parts contracts, the domestics are shackled with the cumulative damage from
decades of mismanagement. Bankruptcy is the tool they need in order to
actually recover from the mistakes they made.

When you start talking about dissolving large scale manufacturing enterprises,
however, there are people that start asking who will build the tanks in the
next large war. I don't understand the military aspect of that but I suspect
if all of the plants go foreign owned they'd just be nationalized in the event
of a crisis. Maybe the bailout is the nationalization and they're just
thinking ahead -- I don't know.

~~~
steveplace
Fortunately, GM doesn't build our tanks.

Also, when people argue about how if GM fails then all these jobs will be lost
--remember this: Detroit still has leftover production infrastructure for
light rail. Not a whole lot of retraining necessary, and it would work with
the inevitable Keynesian domestic spending we'll have.

------
justindz
One idea I heard on C-SPAN this morning was to chop them up and take the
bailout money to instead build something like 12 hardcore engineering outfits
to build cars of the future, then get startup people to pitch for an
opportunity to run those outfits and/or commercialize them down the road.

I don't have any capacity for analyzing the pros and cons to this, but the
idea of focusing on starting from innovation rather than trying to steer a
big, unwieldy ship towards innovation sounds attractive.

~~~
jdavid
I was just thinking this morning that if we had 10 or 12 companies that were
all competing against each other maybe a few of them would have made some
different decisions about what markets to search for.

I think breaking up the company is a good idea if we bail them out. It will
spread out the risk and allow the companies to focus on a core market. It will
also spread out the risk.

I think it makes sense if each plant was a separate car manufacture. Let them
each decide what cars they want to make and give incentives for cars that have
over 50mpg, and cost less than $15k. In times like these its time to start a
revolution, and the car industry is a good place to start.

------
vaksel
it can't be a blank check, if they are going to bail them out that better come
with a huge list of demands...forget golden parachutes, demand complete
reorganization, huge cuts, new focus. i.e. I'd sell/cut Buick, Hummer, Saab
and then go through the brands cutting models. GM makes 89 vehicles and many
of them are pretty much copies of each other and compete with each other.
Notice how honda only has 10 models, 1 for each class. This lets them make 1
good car for each space, instead of 4 half-assed ones.

Startup idea wouldn't really work, it costs way too much money to bring a car
to market, and there aren't that many startups in the automotive space, Tesla
is pretty much it.

Personally I'd want GM/Chrysler and Ford to go into a joint venture for a new
brand to sell a full line of electric/hybrid vehicles. The space is too costly
of an investment to take on by one company. This way they can spread the risk
and work together on the same technology. And people looking for electric
vehicles wouldn't be locked down into funky looking hatchbacks as their only
choices.

~~~
mseebach
> Startup idea wouldn't really work, it costs way too much money to bring a
> car to market, and there aren't that many startups in the automotive space,
> Tesla is pretty much it.

I think that I you set up a incubator with $200mln for pre-seed VC, with a
priority for potentially labor-intensive and/or automotive businesses, you'd
see some significant job creation. Not enough to offset GM layoff overnight,
but at least the solutions provided will be sustainable.

~~~
vaksel
it costs close to 1 billion dollars to setup a factory to produce a single
model. The only reason Tesla is able to do it for a 1/4th of that is because
they aren't doing mass production, and their vehicles are using Lotus Elise
parts. So the 200 mil will be a drop in the bucket in the auto space.

And even if they did that, the job creation will do no good to the typical
worker whose family worked on the same assembly line for 3 generations.
Granted some of the jobs will be back when Toyota or Honda or some other
successful car company buys GM's assets. But GM is one of the biggest
manufacturers in the world, and right now there isn't really that much demand
for new cars. I read that last month Honda(whose stuff pretty much flies off
the shelf) sold 25% less cars than the year before.

~~~
mseebach
I'm not saying they would be mass-producing cars. I'm saying, creative
innovative people will think of something nice to do with 200 mln and 200.000
good pairs of hands.

------
callmeed
I don't like the word "bailout", but I think letting them die at the moment is
too risky.

I would consider a government-backed loan or temporary equity stake on the
conditions that: \- Executives are replaced \- The UAW agrees to major
contract restructuring or is disbanded altogether (see below before you
crucify me) \- The companies set efficiency goals for production and sales
processes (stop putting out designs earlier and changing them every year)

I also think the government could do things on the demand-side to help. Such
as offering tax credits for buying a new, American car

On the UAW issue, please be aware that I'm not "anti labor". Non-union workers
at US-based plants (for Toyota, Hyundai, etc.) have comparable salaries, good
benefits (including pensions), and negotiating power.

Some good info on all of this at NPR:
[http://www.npr.org/templates/story/story.php?storyId=9694532...](http://www.npr.org/templates/story/story.php?storyId=96945326)

------
antiismist
There is a middle ground between bailout and a liquidation - a bankruptcy
reorganization. It would probably wipe out the shareholders and the debt
holders, and some jobs and factories, but a lot of GM and its brands and
factories would live on.

~~~
hapless
As stated elsewhere, the great danger is that a reorganization would fail due
to tight credit markets.

In a normal economic situation, a GM bankruptcy would be good news. The
company could be held in trust, re-organize itself, and become profitable for
(some) creditors.

Right now, credit is tight, investors are skittish, and government resources
are stretched. It's not that GM is too big to fail. It's that GM is too big to
fail right now.

~~~
thrill
"It's not that GM is too big to fail. It's that GM is too big to fail right
now."

Maybe the problem is that GM is too big to succeed.

------
thrill
Some (self described) smart people believe that "it'll all just work" if we
put the just-right smart person in charge of such a bailout to decide what the
just-right thing to do is. We instead need to put 200 million smart people in
charge of deciding what to do - and they can each decide with their own hard-
earned money. Give your money to government - or just the same, give
government the power to take your money - and all you get is a handful of not-
really-that-smart people deciding what is best for you.

~~~
ovi256
If only there were 200 million smart people in the US! By definition, 50% are
below average.

~~~
tc7
So? The 'average' IQ could be 200, which would make a lot of 'below-average'
people still really smart. :)

~~~
huherto
I think it is implied that the average IQ is 100. But you are right there is
nothing wrong having 50% below average if the average were 200.

------
blurry
One of GM's largest problems is the unions. Going through bankruptcy would
provide them with a much needed chance to re-negotiate the labor contracts. I
vote for bankruptcy all the way.

------
swombat
Where financial organisations were concerned, letting them go bust was not an
option because of the impact on the rest of the world... The Lehman bankruptcy
fucked everyone up big time, and should have been avoided.

However, when it comes to "normal" companies like GM, I say let'em go bust.

Obama sees them as a key part of gearing up the US to becoming a leader in
green cars, but tbh, I think the $50bn would be better spent buying Toyota or
something...

------
redorb
yeah when I heard anyone under 10 years will get a $100k "your fired" fee, and
over 10 years gets $140k ... I just shake my head and realize the damage the
UAW has done.

 __These are mostly un-skilled labor, who have "thugged" there way into
skilled labor pay

------
DaniFong
As a founder of an auto(motive) startup, let me tell you that the things we'd
do with x billion at this stage are not good. Some investment would be helpful
(and we're looking for it), but a government administered venture fund of
those proportions would probably be a disaster; a distraction for the ages.
Our contention is that the market has not yet fund the successor technology to
gasoline yet, and giving existing solutions massive wads of cash will only
reduce the speed that it will.

~~~
aswanson
What is the timetable you envision for your product (or something like it) to
be rolled out? What are the major impediments to your progress right now?

~~~
DaniFong
There are lots of little ones. One that the government could help to solve is
that we want to hire an automotive engineer from Austria, but either have to
wait until the H1B's refresh in April or wait for an immigration lawyer to
work some magic. The other issues are mostly personal; we can't work as fast
as we would like because one of us maintains a job, and that we don't have
enough money to setup a lab. We'd need at least a couple hundred thousand for
that, though we're looking for a larger investment (x million, not xy million)
so we can bring on a few experts.

------
sethg
As a confirmed liberal Democrat I am all for helping the workers. But as the
owner of a 1999 Ford Windstar I have a very low opinion of the US automobile
industry. It's not the workers' fault--they're not the ones who (mis)designed
the cars--but I don't want to give the management any more rope. So I'd rather
see the government spend $250 billion on job-training programs for laid-off
auto workers, etc., than $25 billion to prop up GM as a corporation.

------
DanielBMarkham
Three points:

1) It's not either/or. GM can declare bankruptcy, renegotiate their debts and
expenses, ditch ideas that are not working, and come back as a smaller, kick-
butt company.

2) If you go here then it's just a big political hand-out for whoever has the
most contacts. It's not a financial bailout anymore. Be honest about it, and
expect a lot more applicants.

3) So you spend our money to bail out some business or sector. What is the
evidence that the underlying problem has been fixed? I know Congress can
attach a lot of feel-good riders onto the deal, like more green energy and
better employee benefits, but what assurance is that? Are we fixing the
problem, or just putting a band-aid on a gaping wound? 'Cause I got a funny
feeling that if you write them a check this year, they're going to be back in
a year or two.

They're an important company, and I hate to see them go. But I hate even more
the idea that some companies are "too big to fail". Times change. If GM is
able to change with them, then that's great. If not, then that sucks. But we
don't have buggy-whip manufacturers anymore -- those days are gone. And
perhaps the days of super-big American manufacturing companies are going away
too. Maybe not. I don't know. But I know you can't force it to work if it's
not going to.

------
nickmolnar
If the government could bend the rules and allow them to renegotiate labour
contracts and healthcare without declaring bankruptcy, that should be option
#1.

If these companies are still straddled with the nightmare of these
obligations, no amount of government money will save them in the long run.

Government run "innovation initiatives" are fraught with the same problems as
a government owned company (moral hazard, non-market competitive landscape,
distorted incentives) and should be considered equally inefficient. Nothing
can match the innovation that could be achieved by allowing these companies to
be broken apart (a process that began 30 years ago when Toyota started
achieving success using standard, outsourced, intermediate goods). Breaking
these companies up would create a competitive framework for smaller players to
enter. Think about what could happen if you could start a car company without
having to hire a single assembly-line worker? It would be like giving the car
business a set of APIs.

------
alaskamiller
No one will let GM die, especially not a Democrats controlled congress and a
Democrat as president. They owe the unions for the votes and no one is brave
enough to tell GM -- whom people have worked for multiple generations and who
in turn have been taken care of by the company -- to go die. We'll just going
to hand them money.

~~~
rms
If nothing else it's a much better way of spending money than a war.

~~~
alaskamiller
Anything's better than spending it on war. Good thing we voted in a president
that wants to keep fighting though.

------
aidenn0
If GM goes bankrupt, there will be massive unemployment and closed factories.
This sucks. On the other hand, this is a good environment in which to be a
manufacturing company with cash on hand. If GM can't turn a profit, they need
to make room for someone who can.

~~~
Retric
When a company goes bankrupt nobody needs to be fired the next day. A judge
can restructure the company and toss out specific contracts such as executive
bonuses, union pay, and debts. Look at Delta Air lines as an example of this
<http://en.wikipedia.org/wiki/Delta_Air_Lines>.

~~~
bcostlow
Yeah, except GM is so shaky, and credit markets so tight, there is serious
concern that they could enter a 'restructuring' bankruptcy, but end up in a
liquidation, because they won't be able to secure bridge and exit financing
needed operate while in bankruptcy and to actually restructure their debt.

[http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a...](http://www.bloomberg.com/apps/news?pid=newsarchive&sid=azEnfDF7aB0s)

~~~
redrobot5050
All the more of an argument to let them fail.

If the "free market" does not think it is a good investment/risk ratio, why
let the taxpayers take it?

~~~
thrill
"why let the taxpayers take it?"

It buys votes.

------
KWD
Whatever is done, you cannot reward the current management. They need to
suffer the consequences of their failure. (More so the case for Chrysler and
their ownership by Cerberus). As I heard someone state this morning, why
believe that the management team that created the problem will be able to
solve the problem.

IMO, GM needs a major overhaul from their pre-1980 ways. Besides labor unions
that were mentioned, they also have an overextended dealer network. Their
desire to focus on so many brands with just re-badged cars (they even neutered
Saab with this approach) needs to be changed. The Toyota/Lexus, Honda/Acura,
and Nissan/Infiniti models show a much better approach.

------
kazoolist
Short answer is "yes, let GM fail". For more details, I appreciate Daniel
Ikenson's insights on this:

[http://www.cato.org/dailypodcast/podcast-
archive.php?podcast...](http://www.cato.org/dailypodcast/podcast-
archive.php?podcast_id=778)

------
steveplace
Well if the gov't wants to act as a private equity firm, so be it. Buy them
and then chop them up and sell to other companies. Their parts are worth more
than the whole.

Also, if you want any sort of green-innovation in the car industry, they have
to go.

------
razzmataz
1.)Slice up the company into smaller companies, based on make (Pontiac,
Saturn, Saab, Hummer[!]), and let those fight on.

2.) Any government funds come with strings attached. Things like developing
fuel/energy efficient vehicles(say, didn't we already pour 25 billion into the
big 2.5 just this year for that?). Or gut middle and upper management.

3.) Trim the 1inch thick agreements between the unions and the big 2.5.

------
dbrush
As far as I see it... In Michigan the auto companies underpin so many other
industries and fields that if the big three fail we'll be looking at the
current foreclosure epidemic as a vacuum cleaner relative to the black hole
that will ensue. I very much doubt that anyone in the position to decide will
let the auto companies fail.

In Silicon Valley it's, "Start a startup!"

In Michigan it's, "Join the union or!"

------
biohacker42
Let them die, but don't let them die now, because now things are bad enough as
it is.

Think of it as a bail out of everybody else.

We're going to spend 3,4, maybe 5% of annual GDP to get through this mess.
Might as well use some of that to kick the GM can down the road a bit.

~~~
thrill
"Let them die, but don't let them die now, because now things are bad enough
as it is."

Ah - so let them continue to _lose_ $2000 per car for a couple more years,
because that'll make things better - meaning what's eventually left is worth
even less to whomever finally buys it (likely the taxpayer it seems).

~~~
biohacker42
Sure, it will make things better because in a couple more years the economy is
in recovery and can absorb the shock better,

It's not like the government isn't planning to extend unemployment benefits
because of the economy.

If GM goes bust now then more people will be on the dole for longer.

The tax payer pays for it one way or another.

~~~
khafra
I'm not entirely convinced there's a net benefit. Paying GM 25B to continue to
use materials and labour inefficiently, creating vehicles that won't sell,
provides a reason to give their workers a salary which they'll spend in their
local economy, keeping second-order collapses like those that accompany the
closing of military bases in isolated areas from happening.

If, on the other hand, we shut down GM and put its former workers on extended
unemployment, those with the aptitude and will relocate and find similar jobs;
those without retrain and join the economy in a different role. The materials
that formerly went into unwanted cars will be obtainable more cheaply for
other uses.

The point is debatable, but it seems obvious to me that even if some of the GM
workers remain forever unable or unwilling to rejoin the workforce, the cost
of supporting them will be lower without the inefficiency of supporting a
company on top of them.

I've read, but cannot source at the moment, that when federal aid to farms
really took off in the 1930s, they did the math and realized welfare to
individuals would be cheaper. For a variety of reasons, they implemented price
controls instead, and saddled the economy with a persistent market failure in
food production that's now over 70 years old.

~~~
biohacker42
Upvoted, you convinced me.

------
sanj
The best idea I've heard (can't find source right now) is for the gov't to BUY
$100B worth of cars over the next 4 years, replacing their own fleet.

A big chunk of that (the $25B floated) could be handed over now in order to
design a fuel efficient, safe car with appropriate eco-awareness (hybrid, flex
fuel, all electric). This is similar to how military contracts are structured.

The bidding could be thrown open to any company that uses American labor to
get the job done: it has to be built here. But Honda/Toyota/etc. are welcome
to take part.

If GM can't build the "car of tomorrow" with $25B in startup, they _should_
fail.

~~~
Cunard2
If the US had free universal healthcare, would GM become viable? If the GM
employee pension fund owned large quantities of GM stock, shorted it and made
a fortune, would this constitute a reasonable hedge against the inevitable
demise of their employer?

------
siculars
gm, in its present form should not be bailed out.

institute new federal efficiency standards on all cars sold in america. this
will level the playing field while the american auto industry retools itself.

pump tens of billions of dollars into research and development to create the
next wave of vehicles that meet these new standards.

------
sethm
hell no, it's a pension mascarading as a car company, let the market decide.

------
Brushfire
Sure. Can my company apply for a bailout too? 50k sounds nice.

