

Huge loss leaves GM almost out of cash - josefresco
http://money.cnn.com/2008/11/07/news/companies/gm/index.htm?postversion=2008110711

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Dilpil
Yes, we could give a low interest loan (low relative to the risk of the loan)
to GM. This might save some jobs and help the US economy.

Or we could let GM fail, and invest that same money in energy and biotech.
Many would lose their jobs, but many more would get new jobs. These would be
higher paying jobs, but also higher skilled jobs.

Lets not act like these loans are free. We should keep in mind that every
dollar we loan to GM is a dollar we don't loan or invest in something else.

~~~
Alex3917
"We should keep in mind that every dollar we loan to GM is a dollar we don't
loan or invest in something else."

Don't pretend this is true, because it isn't, and to say otherwise is to be
complicit in covering up a problem that's way bigger than whether or not we
throw a couple bucks at GM.

~~~
ckinnan
They lost more THIS QUARTER than their entire market capitalization. Keep
taxpayers out of it!

~~~
Alex3917
I'm not sure how you got that I was advocating bailing them out, but I'm not.

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ksvs
The UAW must be worried. They're going to be like a parasite that kills the
host if they're not careful.

~~~
mdasen
They're also the reason GM won't be bought. No one will take on the nebulous
liabilities they got GM to agree to. Those liabilities wouldn't have been a
problem had the auto industry remained an oligopoly, but with (closer to) real
competition, GM and the like couldn't extort consumers as much. Before, GM and
others could simply pass the gouging on to customers.

The fact is that GM will never be profitable in the future because its labor
costs are so much higher. Does anyone think GM can become 3x as efficient as
Honda, Toyota, etc.? It's a credit to American ingenuity that they've held on
for this long.

Many people like the idea of institutionalizing things. Like, I've done this
and I work hard, therefore I should be set. That happens a lot in Europe
(although it's lessening as EU laws become more competition-friendly). It
sounds great and works for a while, but then this happens and you're left with
two options: the poor-house or convincing people actually producing value to
support you in a welfare-with-pride sense.

The problem is that life changes. GM agreed to contracts with provisions like
offering x% of salary for the rest of an employee's life as well as covering
their healthcare. Well, that was fine until Americans started living longer
and that became a ton more money. On top of that, we have decided that it is
inhumane to deny someone even the most cutting edge health care. That's fine,
except that it means health care providers can charge anything they want since
it's a violation of rights to deny it. No matter how marginally effective, no
matter what the cost, people should get it. I'm not saying this is bad. I'm
saying that it's ridiculously expensive and that it used to be more acceptable
for people not to have access to the most cutting edge health care. In fact,
it's the mark of a successful society that people want to continue living so
much!

So, GM has agreed to those and it's way more than they budgeted and put away
for. Not only that, it's likely to raise way faster than inflation as people
shift spending to things like health (from consumer items which haven't spiked
as much in price) and live longer. No one in their right mind would buy into
that.

What will most likely happen: GM will file for bankruptcy. A lot of its labor
contracts will be nullified. Someone will buy GM sans the labor contracts.

~~~
anewaccountname
The difference in a 20 year annuity and a 30 year one is significant, but not
that significant. GM could easily cover the difference with the dividends they
have irresponsibly paid out in the last 10 years.

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krschultz
Why can't we stomach letting a big company die in this country? A lot of
people will lose their jobs but in reality it might be for the best moving
forward. Demand for cars won't go away, there just won't be a supply of GM
ones.

A lot of "foreign" cars are already built here anyway, let Toyota snap up the
GM factories, reemploy their workers, and lets move on.

The downside is that there are a lot of GM pensions out there, but if the
government won't let GM fail because of the pensions, maybe the government
should just take over the pensions and let this dinosaur die. How much more
money would we have to spend to prop up this failing company again and again
when all we really want to do is make sure a bunch of retirees don't go
bankrupt?

~~~
comatose_kid
Although their product line needs a lot of work, killing them would have huge
ripple effects (forget about the stockholders, consider the suppliers and debt
holders). So, yeah, we could let GM die, but the effects on the economy would
be considerable.

Why would Toyota buy GM's factories? Retooling them for a completely different
line of cars probably doesn't make sense, and I doubt Toyota would be
interested in selling most of what GM has today.

I don't think there is an obvious solution.

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gamble
Not sure what to think about this. On the one hand, I have nothing but
antipathy toward GM for squandering every opportunity to modernize their
business and fighting the regulations that would have forced them down that
path. If any business deserves to fail, they do.

What gives me pause is how much damage a GM bankruptcy will inflict. The auto
industry represents about a third of the US manufacturing industry. If GM (or
Chrysler) goes down, it may take everyone else with them. The job losses would
be unbelievable. I don't really want to contemplate what the economy will look
like after construction, finance, and manufacturing have all been wiped out.

~~~
dangoldin
A bankruptcy won't necessarily kill the business. Look how many times airlines
have gone bankrupt and they're still flying. What it will do is cause the
business to be restructured and make it more in line with the foreign
companies which have much lower legacy/union costs.

~~~
alecco
Please stop bashing the unions. GM has a _sales_ problem. They can't sell any
more SUVs.

~~~
iigs
It's death by 1000 cuts. The unions aren't _the_ problem, but they definitely
contribute, along side inflexible plants that can't be reassigned, never
laying off white collar workers (until last month? wtf), not building cars
people want, complete marque mismanagement (Pontiac and Chevy cars were
virtually indistinguishable for 30 years), equating small cars with low
quality (geo metro of the 90s, chevette of the 80s), abusive partnerships with
other manufacturers (Daewoo), divesting themselves of key component
manufacturing resources (Delphi) creating incentives for the independent
company to attempt to squeeze for profit, a lack of commitment to quality,
failure to tend successful brands (Ford's especially bad about this), fighting
ecological and safety regulation instead of embracing it as a feature,
coasting on their performance brands instead of cultivating new markets, and
lukewarm attempts at innovation when they actually did something new.

Fixing any one of those problems leaves all the rest. GM is facing downward
pressure on production costs (among everything else) and the unions stand in
the way. You can't blame the unions for trying, but as a disinterested
bystander you have to wonder why GM wasn't firmer in their bargaining --
everybody's losing now.

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josefresco
"GM said it had burned through $6.9 billion during the quarter and warned that
it "will approach the minimum amount necessary to operate its business" during
the current quarter."

Wow.

~~~
omouse
What's amazing is that they aren't innovating and rolling out a crapton of
electric or solar-powered cars or whatever else they can to save the business.

~~~
nostrademons
It takes a long time to roll out a new car, particularly if it uses a new
technology like electric or solar power. Like years. If they started
innovating when they first ran into problems around 2006, then it'd probably
be 2011-2012 before new cars started appearing in showrooms.

The Chevrolet Volt, first unveiled in 2007 and probably under development
since 05-06, isn't expected to start selling until 2011.

By then, it'll probably be too late.

~~~
omouse
They've had a long time to do this. A very long time. Electric cars are not a
new idea. Check out the EV1 ( <http://en.wikipedia.org/wiki/EV1> ) which was
in production in _1996_.

~~~
jerf
"Electric cars are not a new idea." - which _supports_ the statement that
electric cars are hard. In fact electric cars date back to the very beginning,
before there was even an "automotive industry"; nobody's been able to build a
practical electric car for over a hundred years now.

It's _hard_. Battery technology has not been cooperating. If electric cars are
your last-ditch hope to survive, you're just dead.

~~~
maximilian
It would almost seem that the battery, or even more simply, energy storage is
really _the problem_ holding back electric cars. If a company came up with a
new kickass battery that was way better than what exists, they should just
start a car company, or at least every car company on earth would buy their
batteries as fast as they could get their hands on them.

------
iigs
One thing that the US federal government could do to spur innovation is offer
exempt categories (low volume) for vehicles that don't meet all safety or all
emissions requirements.

It's obvious that we don't want millions of people driving their children
around in dirty, unsafe cars, but there was a lower testing / R&D burden for
small companies (consider companies like <http://www.arielmotor.co.uk/> in the
UK), there would be a lot more opportunities for the fresh design the US
industry needs, along with the manufacturing to support it.

If the manufacturing industry that would support low volumes was built, it
would be possible for the larger automakers to leverage those lines for JIT
production of vehicles people want -- one of the big things Toyota has over
the US domestics.

Unfortunately I think this solution sits in the land of car-fan fairy tale --
the left wouldn't want it because it would relax eco concerns, and the right
wouldn't want it because it would possibly restrict how much the larger
automakers could take advantage of (low volumes, again).

------
alecco
I don't understand how US still doesn't get it. You bail out Wall St. people
who ran a pyramid loans scheme and now the company who was the worst in the
big car madness. Their worse bit was selling the socially irresponsible
Hummer.

<http://en.wikipedia.org/wiki/Hummer#Criticisms>

Why are you going to bail them out and not the good tech startups? Or the sane
VC, you know, the guys who risk money on new ideas that benefit the whole
world economy.

Judging how it is going with banks, this won't work for workers. The interest
rates are not passed down to mortgages and I bet the GM bailout won't save
that many jobs. Also remember what happened with the airlines bailout on
2001/2, they fired a lot of employees anyway.

~~~
anamax
> I don't understand how US still doesn't get it. You bail out Wall St. people
> who ran a pyramid loans scheme

It's not just the US - the EU's bank bailout was about 3x as large.

The loan problem was a US govt idea - encourage banks to make loans to folks
who didn't qualify under normal standards (including punishing banks that
didn't do so) and have two huge govt sponsored enterprises (Fannie Mae and
Freddie Mac) buy many of them and "create a market".

Which is where the EU got involved - EU banks and govts bought those loans
too.

------
danteembermage
Sometimes people wonder how the market value of a company can be less than the
value of their cash reserves in an efficient market. GM is a case in point.

~~~
etal
The market value is related to current assets and expected future earnings
minus liabilities. If the liabilities are greater than the expected future
earnings, the company could be worth more dead than alive.

Pension obligations are more brutal than most workers realize; the city of San
Diego has had massive financial problems because of that too. It's usually
dismissed by young employees (rationally), but it shows up on the supporting
organization's balance sheet in a big way.

And as far as future earnings go: gas prices shot up for enough consecutive
summers that consumers finally adapted; the demand curve shifted. Gas prices
have dropped recently, but consumer preferences have already changed, and
economic concerns still aren't making SUVs and big trucks any more financially
attractive.

In short, investors are saying that GM should be stripped and sold for parts.

------
vaksel
the messed up part is that GM may be down in the crapper and begging for a
hand out, but they are still looking to buy Chrysler. Why? Wouldn't you want
to buy a successful car company? There is not one car that Chrysler makes that
doesn't have a similar vehicle in the GM line up.

Instead of pissing away billions on a crappy Chrysler brand that has been
passed like a hot potato from one brand to the next, invest that money into
getting the Volt out to the public sooner. Invest that money into expanding
the line up to a whole line of Volt vehicles, Volt Sedan, Volt Convertible,
Volt Pickup, Volt small SUV. Then spend some more cash to update the current
models the new Camaro/Volt front/rear end.

~~~
Xichekolas
Well that is exactly what they are doing. The talks with Chrysler have been
called off until they find a solution to their liquidity issues. And the Volt
and other Volt-like designs are getting all the attention while other programs
company-wide have been put on hold.

So to summarize, they are doing exactly what you said.

~~~
ckinnan
The don't have a "liquidity issue", they are utterly insolvent.

~~~
Xichekolas
Ah yeah, sorry.

Part of my problem is that I actually believe the Volt would be great thing
for them, so I look at their current problems and think: "if they can just
last until the Volt comes out, they will make it".

I realize that makes me a bit of a Pollyanna.

~~~
hugh
I doubt they'll be able to sell the Volt at a big profit initially. They'll
probably be forced to sell it at cost to keep the price from being too
ridiculous -- and they're talking about the manufacturing cost being something
like $40K.

