Re: Should GM Get A Bailout Deal?

On Fri, 7 Nov 2008 20:23:31 -0800 (PST), jon_banquer
<jon_banquer@xxxxxxxxx> wrote:

http://news.yahoo.com/s/ap/20081108/ap_on_bi_ge/earns_autos

Jon Banquer
San Diego, CA
http://jonbanquer.blogspot.com/
=============================
Re: Should GM Get A Bailout Deal?

The question is not "IF" Detroit will go bankrupt, but "WHEN,"
and how many other people/firms/governments it will take down
with it when it goes. The destruction of Detroit automotive
manufacturing has taken about 50 years, beginning in the early
1960s, and cannot now be reversed by simple money injections,
even in huge amounts.

Note that the federal government has already injected billions
into the car companies through other programs such TARP and the
FDIC, as the car companies have very significant financial
operations, and the tax payers have already absorbed billions in
retiree medical costs via medicare. Huge amounts have also been
injected at the state and local level through Economic
Development bonds, tax increment financing, tax abatement, etc.
THERE IS NOTHING TO SHOW FOR THIS MONEY.

The only thing that being accomplished by the continual existence
and operation of these zombies is the dissipation of what little
capital remains. Their stockholders and unsecured creditors are
screwed. Their collateralized bond holders *MAY* get a few cents
back on the dollar. The US taxpayer and their retirees will take
it in the shorts big time because of the pension shortfalls.

While the taxpayers will have to make up much of the pension
shortfalls, either directly, or through loss of dividends because
of assessments by the PBGC on the remaining solvent companies,
the employees/retirees will also take a considerable hit, as the
PBGC has upper limits on the amount of pensions it will pay, and
does not cover medical. Medicare will cover *SOME* of the
retiree medical costs, but again this is at taxpayer expense.

FWIW -- I forecast that because of the highly intertwined
networks of suppliers, credit, etc. when the first domestic car
company files for bankruptcy [voluntary or involuntary] the other
two will file within days or possibly hours. Many of the
Detroit "spin-offs" such as Delco/Delphi and Vestion as well as
the major Detroit suppliers [e.g. Eton, Dana] will also declare
bankruptcy within days of the first Detroit BX filings. The web
of credit cross connections because of the proliferation of CDS
and other derivatives is also likely to result in the collapse of
companies in totally different locations and sectors.

While your intention to avoid what will be a very serious
situation is laudable, The question
"Should GM get a bailout deal?"
appears to make two "assumption of facts not in evidence" as
Matlock used to say.

(1) By pouring additional billions down these particular rat
holes, the problem will magically be "solved." The facts appear
to indicate that these companies are bankrupt in far more ways
than just money, and the current management is disconnected from
the business of making cars and in total denial of the actual
situation. If we pump 25 or 50 billion of the taxpayers money in
today, they will be back tomorrow or the day after for another 25
or 50 billion. We went through this before in the 1970s with
Chrysler. Why would anyone expect a different outcome with the
same management?

(2) If 1, 2, or all of the "Detroit" car companies go bust, there
will be a shortage of cars available for purchase in the United
States, and the existing employees and vendors will be unable to
find other work. In fact, what will occur is that we will still
have large numbers of domestically produced automobiles and
trucks [made at the transplant fatalities], many of the "big
three" employees will find work with the transplant companies,
and many of the "big three" vendors will produce components for
these transplant companies. [With the market contraction, even
with the production of the domestic companies eliminated, it
appears there is still excess manufacturing capacity [can make 5
for every 4 that can be sold] among the transplants (with more
companies e.g. Volkswagen on the way).]

The unfortunate part of this is that much of the working capital
of the Detroit vendors is now tied up in Detroit accounts
receivable, and the employees will have to relocate to the newer
automotive plants in other states ==> but again they are screwed
no matter how much taxpayer money is pumped in. <==


Unka' George [George McDuffee]
-------------------------------------------
He that will not apply new remedies,
must expect new evils:
for Time is the greatest innovator: and
if Time, of course, alter things to the worse,
and wisdom and counsel shall not alter them to the better,
what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman.
Essays, "Of Innovations" (1597-1625).
.

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