Steadfast FinancesShould General Motors Go the Way of a Gangrenous Limb?

Should General Motors Go the Way of a Gangrenous Limb?

Filed in Auto Sales , Financial Crisis 12 comments

If you had a gangrenous foot, you would have it amputated.

Wouldn’t you?

Sure, it’s justifiable to be reluctant.  It’s justifiable to be completely scared out of your mind.  After all, what else would you have but fear invading your every thought while you are laying there your hospital bed wondering how you’re going to cope with your new disability.

If it were me, I would be probably be whining like a little girl and hiding my fear behind ridiculous jokes like I just wasted $400 on a new treadmil.

However, if this really was you, and you watched as that tiny infection at the tips of your toes quickly spread to your leg, you would obviously be worried about more than just your foot.  You would be immediately focused on your ability to survive at all.

Losing a foot isn’t as bad as dying.  Is it?

The Big Three Automakers Should be Allowed to Fall into Bankruptcy

I hope you’re not offended by my analogy, but in some respects, the Big Three automakers are a festering, gangrenous segment of the U.S. economy.  If they wish to regain their former glory, they must first consolidate and then retrofit their product pipeline if they truly want to compete against the more popular (BMW) and more economically appealing (Honda) automakers.

Don’t get me wrong, I’m completely against putting anyone out of a job, but when a private company that is non-vital to our national economy goes to Congress begging for risky loans using fear mongering as their best argument, I tend to blow my stack.

My reasons for denying GM, Ford, and Chrysler their requested bailout, and for allowing them to go bankrupt are:

  1. Natural Selection / Darwinism – private businesses that are non-vital to our national well being should not receive taxpayer money just to stay afloat.
  2. The Precedent – If Congress gives bailout loans to anyone who employs large number of Americans, every business with a piss poor balance sheet and needing a handout will be knocking at the proverbial door.  Not to mention, that TARP will be an acronym we will hear for the next 10 years on a daily basis.
  3. Risk on Investment – the proposed “bridge loan” is only meant to stave off possible bankruptcy.  In all likelihood, the money given to the Big Three will never be repaid even if they get it.  I would rather invest in the Las Vegas timeshare market than buy any type of investment related to GM or Ford.
  4. Sunken Costs – My fear is we are about to let good [taxpayer] money chase bad ideas.  I could justify any number of ways how the Big Three have hurt the U.S. economy for the last three decades, but with this proposed bridge loan, we’re simply throwing new money at an archaic business model that needs to go the way of the Dodo bird.
  5. Arrogance – bad decisions are rampant among Detroit’s elite management teams and now the inevitable is upon them, they expect handouts.  Sorry guys!  Try flying coach next time you come begging for money instead of flying to Washington D.C. in your private Lear jet.
  6. Fairness – try telling some Average Joe working for a U.S. based Honda manufacturing facility that his tax dollars are going to bailout his competition.  If anyone can justify this, I would be shocked.
  7. Saturation – In the U.S., we have just over 1 car for every 1 person over the legal driving age.  With an impending recession on the way, and the cost of high gasoline always lurking over the horizon, it’s justifiable to suggest that we have far too many cars roaming the streets.  Cutting production would boost prices, eventually helping the automakers.
  8. The Future – President-Elect Obama likely has a workable Green Energy, or “Green Collar” initiative just waiting to be unveiled after he officially takes office.  Big Three CEOs are pushing Congress for immediate loans now, and it’s not unbelievable to suggest he would want to annex a small amount of this labor force to convert to green collar jobs.

I’ve long agreed that the trickle down effects of letting the U.S. automakers go bankrupt will reach far and wide, but it’s no reason to loan out taxpayer money with the very real possibility that we won’t be getting paid back.

My suggestion (to be fair I heard this on CNN) would be having each company submit a business plan stating why their company should be allowed to continue functioning.  Whomever comes in last place with their business plan gets the boot, is forced into bankruptcy procedings and is salvaged for parts if needed.  This way, we retain at least two major U.S. based automakers, Detroit get’s to save face (small but acceptable amounts), and we have a new available workforce to train as Green Collar workers.

Got Comments?

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Posted by CJ   @   19 November 2008 12 comments
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Nov 20, 2008
12:31 am

Thanks for posting the article, was certainly a great read!

Nov 20, 2008
10:33 am

I am still waiting to read the GM business plan for taking one big shot of bridge loan money from the taxpayers and using it to turn around its business in 6 months. Anyone seen that plan? Anyone?

Nov 20, 2008
11:20 am
#3 Matt :

@ Mr. TML

I hear you. It’s almost as good as GM taking out a full page ad in the NY Times yesterday explaining their PR problem. If you haven’t seen the highlights from the Congressional hearing yesterday, I suggest you take a look at them. Some of them are fairly hilarious.

I particularly enjoyed the questions about private jets and bailing out out Mexico’s autoworkers since many of GM’s cars are assembled there.

Only time will tell.

Nov 22, 2008
11:54 am
#4 Mike :

I think you are so far off base. The root of this problem is the fact that young people think it’s sexy to drive forgein cars and forget what their fathers and grandfathers died for in this country to give workers a fair share. This country was once about as fair to their work forces as China is now. Ford’s quality is now better than Toyota’s, look at JD Power reports for this info, it’s there. Gm is bring out a car, the Volt, that can go 40 miles without a drop of gas. There is plenty of good things happening with the big three but so many American’s don’t buy American and could give a shit about anything but how they look in their forgein car. One in every ten jobs in the USA are linked to the auto industry and if it fails it would probably be must worse than anyone thinks it would be including you. Are you ok with the housing market getting worse also. Are you ok with everyone needing unemployment or worse welfare because there isn’t jobs. Your blog would probably lose ad revenue but a person like you can’t understand what this really means. The UAW has had many cutbacks in their contracts and havn’t actually had a raise in over five years. Can you say that. I know Ford has lagged in new technolgy, I also know they are a great company that was the first one to give people a decent standard of living. Your facts are more fiction and you need to research what the company has done and is doing to make it profitable in todays market. Ford has stumbled but it wil raise again and I hope your forgein car makes you sleep better at night.

Nov 22, 2008
12:49 pm
#5 Matt :

@ Mike,

First up – let me poke a few holes in your comment since you used offensive language and obviously didn’t read most of the post.

1) There is no ad revenue from this site! Try being more observant next time before you accuse them of writing fiction.
2) The research is spot on since I only used data I could back up and from Congressional testimony. Try watching news from an independent news from PBS instead of UAW propaganda.
3) Your email address suggests you’re only 1 year older than myself, so the “Young People Like Me” is false assumption.
4) I have a 10 year old Chevy pickup sitting at my barn. It’s my workhorse and I cherish it.
5) I lost 3 great uncles in WWII and one of my best friends in Iraq in 2006. Both my grandfathers served in the Pacific theater during WWII and whose burial flags reside in a sealed memorial case in my study. So don’t you dare assume I have forgotten what anyone in this country has died for you arrogant ass!

As I said (and you didn’t read), I don’t want anyone losing jobs (which equates to losing their homes and proceeding income). You’re obviously passionate about this situation, but your emotions are clouding your judgment.

What’s best for our country as a whole is 1 of the Big Three go bankrupt… preferably Chrysler. As you said, that’s 10% of America’s jobs. What about the other 90% of American’s Mike? What’s best for them? Desperate times call for desperate measures and it’s wrong to stick 90% of Americans with more national debt.

Fact is, automobiles are the single worst investment that American’s make because you’re buying a devaluing asset, that most people pay interest upon since no one knows how to save money any longer like my grandparents taught me. Excuse me if I don’t feel sorry for the Big Three who grew beyond their ability to sustain their own survival just to gobble up short term profits.

The best solution is to remove the non-critical infrastructure brought about by the envy and gluttony which fueled our incestuous credit driven lifestyle. Our excess has driven the world to recession for Pete’s sake and you’re trying to use the sympathy factor to justify keeping these guys in business? Please Mike – find a real argument and come back to try again.

Japan kicked our butts so it’s best you learn to live with evolution.

Try telling an autoworker in Indiana who works the line for Honda that his tax dollars are going to bailout a poorly managed competitor. I should direct you to Consumer Reports or Kelly Bluebook resale values, but that’s probably a waste of time, but for anyone who reads my reply to your biased comment, I would like them to see facts over fiction.

US automakers made have bad decisions since the 1980s. You make bad decisions, you pay the consequences.

Nov 25, 2008
3:13 pm
#6 Gates VP :

@Mike: Are you ok with everyone needing unemployment or worse welfare because there isn’t jobs?

If that’s what it takes you bet!

The US has an incredibly high standard of living on an international scale. Tons of personal space, access to top-notch medical care, reasonably-priced air travel, solid Net and Cell penetration (despite the general vastness) inexpensive access to food, mass forms of entertainment as well as a host of other resources. The average American has more cars than anybody!

Now the average worker for the UAW is making like 8-10x of their “Chinese” (or other) counterpart. Plus they’re getting healthcare and a pension plan that allows them to retire with years of life expectancy ahead. 100 years ago, nobody even “retired” and now every American who can “thread the nut” correctly for 30 years is out there earning a pension?

The UAW has had many cutbacks in their contracts and havn’t actually had a raise in over five years.

So what? If you’re in a job that cannot afford to give you a raise, you’re in trouble. If your employer is losing money (and has been for years), you’re in trouble. Complaining that your insolvent employer can’t afford to give you a lifestyle that 90% of the world can’t afford is pretty foolish. Not getting a pay raise for 5 years is sign that it’s time to leave before you get the boot. What good are pension and medical plans funded by insolvent companies?

The deal is simple, we live in a global economy. Your ancestors fought wars and died so that you could have some of the best quality of life available anywhere. Right now, the guys “threading bolts” at GM have more purchasing power than like 90% of the world.

Do you honestly expect that to continue ad infinitum?
Can you actually justify that someone working the line at the Chevy actually deserves to be living a lifestyle that’s multiple times better than their Chinese counterparts?

If the average American is going to justify living in the “greatest country in the world” and the “land of the free”, they’re going to have to justify actually having that spot.

The Chevy Volt is slated for release in 2011. From their August 2007 Press Release kit: large lithium-ion batteries needed for this design hadn’t been invented yet. From more recent data, they may have solved the battery problem, but they still have to contend with cost and range. The projected cost of the 2011 model is $35k and the fully charged battery is projected to do 30 or 40 miles. And it has a base curb weight of 3375 pounds! So it’s hardly “green”, all it’s doing is offloading the need for gas onto the grid. That’s a step up, but hardly evolutionary.

To put this into perspective, the Prius costs $22k and by 2011 will likely be working on the same style of Li-ion battery (and will be “wall-chargeable”). The Tesla car is now in production. It gets 244 miles / charge (6x the Volt), it does 0 to 60 in 3.9 seconds, it uses carbon-fiber body and weighs 600 lbs less than the Volt. Yeah, it’s expensive, but it still has two years to drop in price before the Volt will even be on sale.

The guys building the Tesla have a working electric engine with 6x range and sports car performance. How can we somehow think that the big 3 deserve to survive when a bunch of smart people in California can bootstrap a better car with Venture Capital money?

But hey, maybe that’s the freedom you fought for? The freedom for smart entrepeneurs to make the world a better place when big companies get complacent.

Nov 25, 2008
4:33 pm
#7 Matt :

@ Gates VP

Nice comment – tons of value in your reasoning. It’s a tough pill to swallow for some people, but as your reasoning suggests, the standard of living in the U.S. will likely take a hit within the next few decades.

I think Mike’s comment is one of an old world economy when even the sub-par companies could manage to stay in business because times were good. Now that times are lean (about to get leaner), resources will get tighter and only the smarter & stronger will survive.

In my opinion, it will be a national tragedy if the automakers are allowed to continue doing business as they have in the past. Which one would argue is their plan considering they essentially asked Congress for a blank check last week.

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