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Lou

Vincent, you are not very receptive to the government's help. You believe that it is best to go the bankruptcy route do you? If that is true, name me 5 manufacturing companies that have done it successfully!

Name me 10 companies in the last 10 years that have done it successfully. While I am at it can you tell me why Canada, Germany, Japan, Switzerland, et al are helping their auto companies.

Finally, this is not an issue that occurred in the last 2 years, the auto companies have been losing money since 1998 without a profitable year. I can give you a lot of reasons but you probably have one in your driveway right now and feel it is perfectly OK to own a FOREIGN car as it is your given right to do so. But because of the financial mess it came to a head. Hard to sell to people that cannot finance.

I could go on and on but I think you get my drift. There are more reasons then mismanagement or union bull-headedness for the problems of the big three.

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Vincent (The Stalwart)

Thanks for the comments Lou.

I think your point that US automakers have been doing horribly for a long time is actually proof that they are structurally unproductive entities, ie not value creating. Its not just a matter of Americans choosing foreign vs. American cars. Americans are choosing the best cars to meet their needs relative to price. And increasingly these cars have been made by foreign brands. (Though I believe mostly built in America) It has always annoyed me how the private owners and interests (UAW) of US automakers have appealed to US patriotism for protection. I see no patriotism in guaranteeing a small slice of individuals a free ride of economic rent despite the fact that they can't compete in an even match. Buying american doesn't help the US economy, but rather buying the best value for your money. Please ask if you want me to elaborate.

Nevertheless, my key points in the above post is that first, equity holders should be totally wiped out before these companies get bailed out by the govt. (such as well, Cerberus) They took the risk and they lost. This is how it works for 99% of other companies. Many creditors should likely get wiped-out as well if US automakers are insolvent without Govt aid. These risk takers should be wiped out before we (taxpayers) have to step in, if we even have to.

The second point is that any US automaker-related assets that produce value will have a value. And in bankruptcy, value producing assets are allocated as per claims seniority. Thus any value producing assets need not worry, they will have a price and a buyer. Everything the US automakers do will not disappear in a poof of smoke in a bankruptcy. Nevertheless, assets which don't create value, ie can't compete, such as those with inflated cost bases, will either have to be adjusted so that they can produce positive value (such as by reducing UAW compensation down to competitive levels or focusing on core US auto brands rather than a host of weak brands).

As for whether bankruptcy works as a process, bankruptcy happens every day in the US, you just only hear about the big ones, and the bad ones. Also, while the original name and corporate entity of a company may cease to exist post-bankruptcy, any productive assets will continue to exist and be further developed under a newly structured entity, or split amongst many new owners. But they don't disappear in a poof of smoke. If they are worth something, they will have a price and be bought. The UAW's problem is that their contracts actually have negative economic value, being uncompetitive vs. other auto manufacturing salaries, thus will not survive.

Whether that is via the former creditors becoming equity holders while forgiving debt or the entry of brand new equity holders, depends on the extent of the problems.

But the process works and happens every day. Its part and parcel of our economic system, and the speed and flexibility of US bankruptcies is one of the country's strengths.

Please understand that this is corrupt government support. The bailout is not for America or Americans in general. It is a corrupt transfer of wealth from all taxpayers to the UAW and auto-related equity and bondholders (ahem... Cerberus). Sugar-coated with appeals to the public good and expediency, the auto bailout is corrupt and has duped Americans.

Anal_yst

@ Lou

Your 1st point was the only remotely valid one before you went rambling down a hill of factual questionability and blatant nonsense.

Contrary to your comment, decades of incompetent management the UAW destroyed GM and Chrysler, and are teetering on the edge with Ford.

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Good information but I have always liked German Cars.
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  • The Stalwart is a blog written by Joseph Weisenthal, covering such topics as stocks, business, economics, politics, technology, gambling, chess, poker, economics, current events, music, math, Chinese food, science, randomness, kurtosis, sports, evolutionary fitness, and anything else of the author's choosing. The words contained herein are the author's own, not affiliated with any other firm or employer.

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