This Really Tells You How Bad It Is

[Guest]

As of close of markets on Friday, the market capitalization (the value of all the common stock) of General Motors and Citigroup combined is only about the same as Costco or WalMart of Mexico. The value of both of them is only about a quarter of the value of Apple. In fact, the market cap of GM and C combined is only about 10% of WalMart.

To put that in the perspective of the request put forth by the auto companies last week in Washington, the government could buy both GM and Citigroup and own them outright for $20 Billion, about 20% less than the car companies asked for just to keep going.

[Guest]

As of close of markets on Friday, the market capitalization (the value of all the common stock) of General Motors and Citigroup combined is only about the same as Costco or WalMart of Mexico. The value of both of them is only about a quarter of the value of Apple. In fact, the market cap of GM and C combined is only about 10% of WalMart.

To put that in the perspective of the request put forth by the auto companies last week in Washington, the government could buy both GM and Citigroup and own them outright for $20 Billion, about 20% less than the car companies asked for just to keep going.
Considering that "We, the People" are "the government," do "we" want to throw our money into companies which are dry holes?

If the government buys up the companies, and thus "nationalizes" the industries, we will become what was tried throughout most of the 20th Century by the USSR and failed.

If we allow our elected representatives acting as the government to take via taxation and redistribute it to the control of a select few, whose personal greed indicates they will take it for themselves and not have any "trickle down" in the idyllic belief that they "know better than us" and "it's for our own good," then we have become lobotomized sheep.

Companies have come and gone, either through bad management and greed, or just because the technological changes in the world have rendered them obsolete. I have seen American Motors, Studebaker, and several other car companies disappear because of the marketplace. I've seen Eastern Airlines, TWA, and many other fold, and there are still planes flying and airports have expanded. The buggy whip industry is gone, television antennae manufacturing is fraction of what it was 40 years ago, and the list goes on and on.

What happens to GM, Ford and the others is nothing new, nor will throwing money at them change or deter the inevitable. There was a time in America when there was one major car company and dozens of smaller ones. Business finds its way to cycle, unless we as government try to help its evolution, and we always make it worse by interfering. Our "success" in the shipping industry, ship manufacture, energy production and precision machining in general is best evidenced by the fact that once thriving industries have all but died in the US, but are growing very well and profitable elsewhere on this planet.

This "campaign contributions and votes for money" charade is wearing thin. If the Big 3 consolidate and become the "Big One," that's fine, too.

I have very little empathy for folks who have bet their future on the success of one industry or company because they don't want to learn new skills, don't want to move, or don't want change. During my lifetime I've had to morph myself (including move) several times in order to feed my family and keep it solvent, and I am not alone in having to have done this. That's life. It's a gamble every day, and sometimes you win, and sometimes the dealer removes your chips from the table.

Everywhere in the US there is a city or town almost totally dependent on the success or continuity of a single plant, company or industry, and this issue of "government bailout" will raise its head in every one of them at some time during the life cycle of the product being made there. If "we" give financial CPR to the Big 3 now, will the patients survive or are we delaying the undertaker because the illness has not been treated? If we give to the Big 3, who is next - which vacuum cleaner company? which refridgerator manufacturer? which snack food maker? which telephone company? which distillery? The list is endless....

[Guest]

Steve: You are sooo right on. However, sad to say, we have an even worse bunch of folks in office now who for the next 4 years will do exactly that, nationalize everything and just tell the unwashed (the American taxpayer), it's for their own good. That's socialism -- how do you like it so far ??!!! (rhetorical question)

Don't know if we'll live long enough to get our country back. As each generation dies off, what is left is the next that has been schooled in NON-critical thinking.

[Guest]

Yours is a well thought, well-written argument, Steve. The only difference between the failure of the litany of companies that have failed and been somehow replaced is their failure didn't happen during a short period of time when the national economy was already in an extremely fragile state. That's all that the politicians are talking about, I think. I really don't think the politicians are pandering for votes or contributions. I believe any plans they're considering for government involvement in any of these sick companies or industries have more to do with broader, longer-term damage to the economy that would result from their failure than trying to save any one company or group of employee-voters. I know that's certainly the reason I'm even continuing this discussion.

[Guest]

and "we the people's perspective" is most do not understand bankruptcy proceedings! The media interviews workers and the workers say "we" cannot let the auto makers fail.
The auto makers have already failed. The unions are sucking up and supporting management's hand out for free money. They do not understand....or do not want to understand the way it has been done has to change. TYhe only way it will change is if they go into chapter 11. Get rid of the same old boys that will contionue the same old running of the business...same old union gets big pay checks for not doing enough....
I wonder what the rank and file would choose if offrered a job with a newly organized...non union company...committed to make a better quality....lower cost car than the competition....and oh by the way they get to remain employed at a reasonable wage.
There is a reason why the foreign owned car companies are doing better than the American owned and operated car companies.
Chapter 11....flush out the millionaire management....flush out the union....establish a reasonable competitivr wage....building a better car...assuring a longer term employment.
The company management and the union need to be to be dumped. Until then....it is the same old same old!!!
The CEO and board of directors have only one objective.....how much they make.....has absolutely nothing to do with the best company making the best products
The irony is a do nothing me first Congress grilling a bunch of do nothing me first executives...
Chapter 11....the enema needed to cleanse the car maker industry.

BTK

[Guest]

Yours is a well thought, well-written argument, Steve. The only difference between the failure of the litany of companies that have failed and been somehow replaced is their failure didn't happen during a short period of time when the national economy was already in an extremely fragile state. That's all that the politicians are talking about, I think. I really don't think the politicians are pandering for votes or contributions. I believe any plans they're considering for government involvement in any of these sick companies or industries have more to do with broader, longer-term damage to the economy that would result from their failure than trying to save any one company or group of employee-voters. I know that's certainly the reason I'm even continuing this discussion.
Saying that you are right and there was no pre-election deal, we are still having to face that no branch of the US government is staffed to be a "car czar" or anything equivalent. We just don't have the governmental expertise for industrial management, and historically every time Congress or the Executive Branch has tried to meddle in private industry, it has ended up miserably. Heck, they can't even handle the baseball anti-trust exemption without flubbing things.

Nobody is going to buy a new Chevy based on a government bailout and some snowjob that it is now the patriotic thing to do. Nobody is NOT going to buy a new Chevy because Chevrolet Motor Division of GM (or GM itself) is in Chapter 11 reorganization proceedings. Nobody (except a hard-core Ford-Chevy loyalist) is NOT going to buy a new Chevy if there is a GM-Ford merger.

If the auto industry built more product than it has customers, shall we prepare a bailout for Heinz because Heinz has made more ketchup than people are buying?

If the auto executives and UAW want to play financial "chicken" with the rest of America, let them get run over! They have all of the tools to fix their mutual problem, and have refused to take advantage of what tools are there to use. This is not about the economy and the national security - this is all about GREED.

[Guest]

...but in The Nation section of Sunday's NYT, there is an article describing how what happened to the U.S. steel industry might actually work to fix our auto industry. The idea presented is very much aong the lines of what I think should be done.

If you recall what happened to steel, there was a government bailout that didn't work and all the big steel companies declared bankruptcy. The union contracts were voided, the pension obligations were turned over to the Pension Guaranty Corporation for the government to make good on, healthcare benefits for the steel retirees were cancelled, and the companies were liquidated. Then there was a guy by the name of Wilbur Ross who bought up what he wanted of the big steel assets and started a streamlined and more efficient steel company based on mini-mills which he called International Steel. He bought the big steel assets for a song and after getting the new company going, he sold the newly formed company to the Indian entrepreneur Lakshmi Mittal, who owns it today. (The U.S. steel industry is foreign-owned, in case you missed that point.)

But in the current situation, Mr. Ross is not in favor of the auto companies declaring bankruptcy. Mr. Ross doesn’t dispute that the auto companies are as bloated as the steel companies were, and certainly doesn’t think they should get a blank check. But he thinks the consequences of what he calls free-fall bankruptcies — ones without any government role — would be disastrous. GM would drag hundreds of suppliers down with it, and they would all have trouble getting back in business.

Furthermore, it’s a tremendously problematic time. The final collapse of the steel industry came when the economy was healthy and could absorb the blow. The current economy is the weakest in decades.

“Bankruptcy will be a total mess, and may not produce anything of value at the end of it,” Mr. Ross said. Instead, he would like to see a 90-day government loan to keep GM afloat on the condition that all the stakeholders — including employees, management, bond-holders — agree on a restructuring. The government would be there essentially to crack heads and make sure everyone made concessions.

This, however, would give the government ultimate responsibility for the death of G.M., should that come to pass. “The government would have to have the fortitude to say, ‘We’re not going to keep pumping in money,’ and mean it,” Mr. Ross said.

Would government regulators have such fortitude? Mr. Ross was uncertain but said if they didn’t, “they should hang their heads in shame.”
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Ross's idea is more along the lines of what I was thinking. If you want to read the whole article it's at http://www.nytimes.com/2008/11/23/weekinreview/23streitfeld.html?pagewanted=2&_r=1&sq=steel&st=cse&scp=2

[Guest]

To all the gentlemen who have posted before me............
I have to say I have really enjoyed reading your posts on this situation and agree in principal with your comments. Back in the 70's didn't we all say that the American Car manufacturers should build an economical car to cope with gas prices. What did they do? They imported a few new models made over seas then went back to their own ways of gas guzzling cars made of parts bought from the lowest bidder and continued to pay floor sweepers $35.00 per hour (thank you unions). They didn't learn then and now they are over the edge of the water fall. When I was in business, I had one chance to make it, no one backed me up with money in case I failed. If we continue this handout idea the real marketplace conception will die and capitalism will be substituted with socialism.
As I see it the only real bailout due them is bankrupcy which will lead to a judge busting the unions and allowing the manufacturers to put themselves together a game plan paying the workers competitive wages and now on a level playing ground with the foreign manufacturers.
God forbid the government get in the car maker business. They can't run a post office..........thats another story another time.
Handie:jester:

[Guest]

Handie:

So true. But I'm thinking that they will give them the bailout with only window dressing business plan with no way of making sure they are doing what they say they are because it really will come down to the same old thing -- votes -- These guys get into office with one thing in mind -- getting re-elected, certainly not what is good for the country.

[Guest]

This concept of a 90-day float loan to the Big-3 is so silly I can't believe people listen to it and can keep from rolling on the floor in laughter.

- What will be better or different on Days 91 through 150?
- Will there be a stampede to Big-3 dealerships to buy/lease new cars because of the fabulous tax rebates and return checks we'll all get in February?
- Will Santa leave everyone a coupon for Buy-One-Get-One-Free from the Big-3?
- Will all union contracts change from US Dollars to Vietnamese Dong as the currency of measure? (1USD=16,900VTD) so that the overhead numbers balance?

In other words, what makes the Big-3 believe that John Q. Public - meaning you and me - will all of a sudden develop "car fever" and purchase one-at-a-time from that glut of inventory sitting in storage lots?

The Big-3 can pay its executives whatever it want, and pay the labor force whatever the labor force can arm-twist from management ONLY as long as there are sufficient sales to make the accounts-receivable folk work stress-free. So far, NOTHING has come forward that demonstrates there will be "future sales" sufficient to serve as collateral for any loan. If there was, the commercial money-sellers would be standing in line to service one of their best customers.

So, will YOU buy a Big-3 car within the next 150 days? Do you know anyone who probably will? Are there enough potential sales (real sales, not 'maybe' prospects) to cover the loan (at least the interest on it) and stop the fiscal bleeding? Anything else is political smoke-and-mirrors out to disguise the truth, whatever that truth may be.

[Guest]

There is little doubt that the 111th Congress is going to vote some sort of bailout for the car companies. There's some chance that GM may not make it until early January when they're sworn in without becoming insolvent, but that's another question.

Given the high probability that WE will give the car companies a bridge loan, we ought to be worrying about and communicating with our representatives regarding the content of the restructuring plan that they'll demand from the auto CEO's when they re-appear before Congress next month. We ought to be worrying about the strings that will be attached to any money we give them.

If all we do is send a check after listening to some empty pie-in-the-sky "plans" next month, that would be a huge mistake. There are a lot of elements to any kind of plan that should be required. Sure, there should be some limitation or prohibition on executive comp, but that's next to nothing in the auto companies cost structure. The requirement for more fuel-efficient cars in the product planning? That's already well underway, at Ford at least where I have more inside information. What's really needed is some dramatic reductions in employee and retiree pension plans and healthcare benefits and probably some give-up in hourly wage rates and work rules that must be sacrificed by the UAW. If that isn't a part of the plans presented next month, we'll be just peeing down a rat hole, as I've said before.

Do I have much hope that these things will be part of a plan? No. Unfortunately, those types of things will only happen in a bankruptcy court and that is going to cost all of us a whole lot of money.

[Guest]

There is little doubt that the 111th Congress is going to vote some sort of bailout for the car companies. There's some chance that GM may not make it until early January when they're sworn in without becoming insolvent, but that's another question.

Given the high probability that WE will give the car companies a bridge loan, we ought to be worrying about and communicating with our representatives regarding the content of the restructuring plan that they'll demand from the auto CEO's when they re-appear before Congress next month. We ought to be worrying about the strings that will be attached to any money we give them.

If all we do is send a check after listening to some empty pie-in-the-sky "plans" next month, that would be a huge mistake. There are a lot of elements to any kind of plan that should be required. Sure, there should be some limitation or prohibition on executive comp, but that's next to nothing in the auto companies cost structure. The requirement for more fuel-efficient cars in the product planning? That's already well underway, at Ford at least where I have more inside information. What's really needed is some dramatic reductions in employee and retiree pension plans and healthcare benefits and probably some give-up in hourly wage rates and work rules that must be sacrificed by the UAW. If that isn't a part of the plans presented next month, we'll be just peeing down a rat hole, as I've said before.

Do I have much hope that these things will be part of a plan? No. Unfortunately, those types of things will only happen in a bankruptcy court and that is going to cost all of us a whole lot of money.
If the 111th Congressional Leadership keeps moving at breakneck speed in giving money away in spite of businesses NOT exhausting their legal alternatives, then it should be very evident to every voting American that the Congressional leadership and those who vote for such a giveaway are bought-and-paid-for, and they don't give a tinker's dam about the voting public other than to consider the voting public to be dunces with short-term memories.

Again, the obvious question is begged - no matter what terms and conditions are supposedly placed on the Great American TinCup Plan, WHO is going to enforce it - by agency, committee, person or whatever? It does not matter WHAT are the terms and conditions (or prayers) that go with the money if there isn't an enforcement agency to got with it. That little detail seems to be lost in the shuffle.

It's like giving a homeless person $10 and saying, "You can only spend this on food. Do you agree?" If the person trots down to the closest liquor store and spends the $10 on cheap wine, and then drinks most (if not all of it), what are your options? Don't give them any more money? Give them a temperance sermon? See if there is a 5-cent deposit on the bottle? It's the same story, just at a different level of cash involved.

LET"S HOPE that the voting public REMEMBERS this debacle in November 2010!

[Guest]

If the 111th Congressional Leadership keeps moving at breakneck speed in giving money away in spite of businesses NOT exhausting their legal alternatives, then it should be very evident to every voting American that the Congressional leadership and those who vote for such a giveaway are bought-and-paid-for, and they don't give a tinker's dam about the voting public other than to consider the voting public to be dunces with short-term memories.

...........

It's like giving a homeless person $10 and saying, "You can only spend this on food. Do you agree?" If the person trots down to the closest liquor store and spends the $10 on cheap wine, and then drinks most (if not all of it), what are your options? Don't give them any more money? Give them a temperance sermon? See if there is a 5-cent deposit on the bottle? It's the same story, just at a different level of cash involved. ,,,,,,,,,,



I have nothing to add, SteveZ. I just wanted to say that last paragraph of yours is an absolutely perfect analogy. There's nothing like a good analogy to explain things clearly.

Boomer

[Guest]

First of all, kudos to Steve, Kahuana and others who are engaging in a worthwhile, educational (for us dummies) discussion and presenting sides that I had never considered......good job guys !!!

I cannot add anything of any substance to the discussion but wanted to jump on the remark about remembering all that has happened with the auto industray and the mortgage/credit market in 2010. This current congress is such a HUGE disappointment ! We all need to research those had a hand in, especially the oversight, of this financial mess.

I still have that terrible gut feeling about the direction of this country, and that is to become so socialist and nationalist that we cannot recover. To me, our capitalistic society, with all its warts, is what has made us stand out from the rest of the world and I just cannot get rid of this terrible feeling that we are just simply sliding backwards to something that is doomed to failure.

Finally, and this will surprise those who read this board a lot....kudos to the Obama team for quick and decisive action on the economy thus far...no doubt their action had a lot to do with the last few days of resurgence on the market. While I have a few problems with some of the appointees, he surely did a good thing in addressing it in such a timely manner !