Auto companies should go into receivership -- then the government should assist

[grantcart]

Any automakers unable to continue operations should seek bankruptcy protection. It should be noted that their are several car companies like Toyota and Honda that manufacture in the US and are not facing bankruptcy.

Protection would allow the company to go through the radical restructuing that would allow the company to get rid of past debt that is no longer serviceable, reduce costs and renegotiate competitive labor rates. The shareholders would suffer losses and then the companies could restart with a blank page. Almost all the airlines sought such protection and continued in operation.

At that time the US Government should enter the market as a major customer and instead of loaning billions for a black hole operation completely restock the government fleet with hybrid and gas efficient models. They could also loan billions to states and cities so that they could do the same.

The advantage would be that the companies would be healthy with plenty of orders for future production and that would allow them to retool for more competitive future production.

The government would get an up to date fleet (along with state and city governments) and in the long run the government would save substantial money on gas when gas goes back up - which it will. The Government could also spend billions in giving tax breaks to people buying cars with very high gas efficiency and this would not only help the environment but also reduce our dependence on foriegn oil.

We will get alot more out of our tax dollars if we use the market rather than subsidizing inefficient companies that are not prepared for the future.

[KittyWampus]

1. Makes too much sense. Off on a tangent, Government really needs to stop wasting money on private

contractors who perform jobs that traditionally used to be done by civil service employees.

Blackwater, for example.

[AllentownJake]

2. Difference between an Airline and a Car Manufactuer

The commitment to buy an airline ticket is one flight and maybe the loss of frequent flyer miles.

The commitment to buy a car is a minimum of 5 years.

Alot of people will not buy cars from a company in bankruptcy due to concerns of warranties, mechanics, and getting parts in the cars later life. The cars would have to be sold at a discount and far cheaper to prices of stable foriegn companies to entice buyers to take a chance on their products. Since our labor cost will be more expensive regardless it will be difficult to achieve a car at the price consumers are willing to pay and make a profit.

If a US Automotive company declares bankruptcy that company will see a significant decrease in already dwindling market share and probably will go extinct anyway. Bankruptcy is not an option if you want to survive.

[grantcart]

4. you have a lot more security in buying a car that is in protection and

is able to make future purchases from suppliers than a company that is carrying huge debt that could simply collapse outright.

Although there may be a short term problem with the perception of consumers that will be overcome after production continues in bankruptcy production.

The larger question which you do not address is which is better putting $ 50 billion into a black hole that is losing money and is likely to go bankrupt anyway - and have all of the problems that will still entail that you outline, or put it into a careful restructuring and use that $ 50 billion to bolster sales. If we used it to by product rather than buy bad debt then we frankly wouldn't have to worry about consumer purchases for a while as the government purchases would more than compensate for market decline.

[AllentownJake]

6. Its a catch 22

To be honest we are only delaying something that is going to happen anyway.

Their business model has been broken for over 20 years and they have failed to adapt.

The only real question now is how we rescue what we can into an efficient business model and how we help the displaced workers. The 50 billion is simply a way to keep people employed till we can figure out what to do next.

[grantcart]

18. that's my point - better to let them go into restructring

make the changes they need and then spend the money on product rather than delay the inevitable and then have nothing to show for it.



Restructure and then use the money in the market to help profitable companies get back on their feet rather than just buy time.

[AllentownJake]

20. No perfect or even good solutions out there

Just alot of pain for the workers if you ask me either way.

Hopefully we can direct some of those green jobs to the rust belt to make up for it.

[Jack Bone]

3. It's difficult for any automaker to make that move.

The first thing to come to mind is sales.

Sales are what drives the industry, and in the slagging economy there's a large group of potential customers that would shy away from the showrooms of companies under bankruptcy protection.

Perception is such a factor in the auto market. Just look to the Honda Minivan, selling like hotcakes, that's made by Chrysler. It has a Honda moniker on it, not a Dodge or Chrysler.

IMHO, The Big 3 can't afford to lose any potential sales right now.

[grantcart]

5. They are heading for bankruptcy any way

the difference is that the US government will be subsidizing bad debt and past performance.

would you rather that the US government put in $ 50 billion and the automakers still go bankrupt or that it seeks a limite protection restructures and that we put that $ 50 billion into buying product. Whatever temporary loss of confidence is experienced will soon be a memory when the automakers are able to announce that they are through restructuring and now profitable.

Loaning the automakers tens of billions now will do nothing to prevent their eventual bankruptcy and all of the problems that you outline except now the government will have already spent the money and there will be no more help and they will face shutting down production.

In my opinion it is a question of a limited bankruptcy now or a fatal bankruptcy later on.

[Jack Bone]

10. as I understand it.

$25 bil of the $50 bil will go into a VEBA trust ran by the UAW to alleviate the Big 3 from the massive expense of Retiree's health care. This VEBA, the Big 3 have been paying into since contract talks ended last year. The final installment is due at the end of the 4th qtr, to the tune of $25 bil. The Big 3, due to this floundering economy don't have the money to pay it off and they need the loan.

With retiree health care behind them...remember the talking point that GM added 2k to each vehicle sold just to cover retiree health care?..they will be on better ground, financially.

Basically this all comes down to the economy being a mess. The lack of available credit..personally affecting sales and corporate wide making bank loans difficult.

[amborin]

7. anti-union post: honda and toyota are NON UNION and UNION BUSTING

they don't face bankruptcy because:

they have never had to pay LEGACY COSTS

the UAW fought to get the 1950 treaty of detroit

giving auto workers a PENSION

OF COURSE THE BIG THREE ARE SUFFERING

THEY'VE HAD TO COMPETE WITH NON UNION, ANTI-UNION, UNION-BUSTERS

TOTALLY UNFAIR

[grantcart]

8. and after the american auto makers cease operation how is that going

to help the unions?


BTW most of my professional work is with unions.

[uponit7771]

14. GMAC shouldn't get bail out cash? Again, the Bush admin is telling GM to screw itself relative to...

...what AIG has done GM is a saint

[grantcart]

15. solving GMAC is not going to touch core issues

Reports are that sales are down 50%.


I would of course agree to a simple financing bridge if will solve the problem but I haven't seen any analysis that suggests that it is a financing problem and not a much greater structrural problem.


In any case it doesn't seem that you read the OP. I am simply suggesting that the US Government use the money to purchase product rather than to purchase debt. Let the companies go into protective status and then flood the new, healthier companies with massive orders for government production.

[amborin]

24. i'm not saying they shouldn't be bailed out...i'm calling you on

the anti-union slant to your post

[cliffordu]

9. Good ideas there, GC...K&R!!

[H2O Man]

11. Very interesting.

I admittedly have a very limited grasp of economics. (My wife would verify this.) I appreciate the contributions of DUers on the current economic crisis, because from reading the various viewpoints here, I have a general idea what is going on.

I do not trust the media's reporting. Most of their "experts" do not strike me as likely to tell the truth, even if by some chance they knew it. I have a good deal of respect for many DUers' opinions, even though there is some disagreement among the people I look to for the best information.

This OP in particular strikes me as being on target. I have no problem admitting that it is something I wouldn't have thought of on my own. I'm glad that you contribute this type of thing on DU. Thank you very much!

Nominated.

[Ganja Ninja]

12. I'd rather see the government give the money to customers in the form of tax breaks then

give money directly to the car companies. And waiting until they file bankruptcy is a good idea too.

[uponit7771]

13. Who's going to buy a car from a bankrupt company?!?!1?!?!?!?!

[grantcart]

16. no one

that is why it is better to go into bankruptcy protection now and then flood the automakers with government purchases than flood the companies with government debt only to see the companies go into bankruptcy later with all of the government money gone.


Bankruptcy now or bankruptcy later?

[JimDandy]

17. Good sensible plan. Hope the Congressional Dems see it. n/t

[gmoney]

19. can the auto industry be nationalized?

Government is one of the biggest purchasers of vehicles (USPS, military, federal and local agencies, law enforcement, etc)... seems that the US could BUY GM, Ford and Chrysler outright for about the cost of the bailout. Turn it into a public works thing... fast track fuel efficient, hybrid, electric, etc. Supplying the vehicles needed for government functions, encourage other US contractors to procure from the new entity. Get the autoworkers into government health care and pension systems, etc.

Of course, these vehicles would also be available for patriotic Americans to buy. Get a car that promotes energy independence, prices can be kept pretty low, and profits can go towards the national debt! Converting the massive fleets of US-owned vehicles to fuel efficient ones would save money, too.

Just a crazy idea for a crazy time.

[AllentownJake]

21. I'd rather nationalize the oil industry

It would be so much nicer to nationalize something that I don't know...makes money and can help us pay off our deficit. Also would take the special interest out when it comes time to phase it gradually out.

[Sensitivity]

22. This is CORRECT. May not happen exactly this way, but it's just throwing money away to

give them money now.

[drm604]

23. I posted a thread suggesting something similar to this yesterday.

You may find the discussion there to be of interest. http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x4451631

Your idea includes something that mine didn't - bankruptcy protection. I merely suggested that the government purchase vehicles from them for federal, state, and local fleets. Letting them go into receivership first is an interesting idea that may have some merit.