Is GM about to have a fork stuck in it?

[Cvstos]

The Obama admin has just denied additional bailout funds for GM and Chrysler, stating that neither have delivered workable plans to get themselves out of this mess. http://www.msnbc.msn.com/id/29944834//

I'm personally rather torn. I don't want to see the auto manufacturing base leave the country. That could be disastrous, especially in the short term.

However, long-term it may be needed or even positive. Detroit has really screwed themselves by being way, way behind in reliability and the development of more efficient passenger cars. Instead they focused on massive trucks and SUVs, which hit a huge wall once gas prices soared. Then, just as they got going again, the economy hit a huge wall and the sales all dried up.

I'm wondering if now really is the time to let them die and take the short-term hit. Maybe even take the same money that was going to be used for the bailouts to help fund some of the start-ups like Tesla which are making next-generation cars that are either all-electric or strong hybrids. I'd imagine that with a $1B grant Tesla would be able to start up production operations quite quickly. And that's just a fraction of what GM is seeking.

We could also take some of the money and use it to build infrastructure for electric cars. That would probably provide a huge hiring boost to help ease the loss of GM. And it would make electric cars easier for the public to get into (pun intended).

In addition, some of the new battery technologies that have been announced lately may start coming around soon in the auto sector. Toshiba and others have announced that they've figured out ways to get lithium ion batteries to charge to 90% in just 5 minutes or some other insane numbers. http://www.msnbc.msn.com/id/22240865/ 

That's fast enough to compete with pouring gas in the tank. And you don't even have to stay outside of the car for fear of a spark making gas go boom.  Cold outside? Hop back in your car. No worries!

What if we put up funding to refit or replace a huge number of gas pumps to add power cables? There's some jobs. What if you you could pull up to one of these, put in a Hamilton, and in 5 minutes have another 300 miles you can go in your electric car? That would just be awesome.

I don't really want to see the legends of GM fade into the darkness. That would be a huge loss for America economically (with the loss of 148,000 jobs just from GM, maybe up to 2M from supporting companies) and culturally. But, before giving them billions more, maybe we should at least consider some real alternatives.

[Darkmoon]

I'm all for looking closer into Hydrogen as well. That's one that seems, for the most part, to be pretty damn clean. Only emits water vapor? Sounds great to me.

Best part is, the infrastructure we currently have would have to be completely retrofit. Underground Storage Tanks at gas stations could still be used to store the liquid hydrogen (although they'd likely have to be completely cleaned out first). Pumps would have to be refit, but refitting gas pumps is a whole lot "easier" than building an electric grid into/onto the highway system.

[Valynth]

I'm all for looking closer into Hydrogen as well. That's one that seems, for the most part, to be pretty damn clean. Only emits water vapor? Sounds great to me.

The key problem with that is the fact that it is extremely difficult to get hydrogen into a pure form, and usually, it costs far more energy to refine said hydrogen than our current methods.

Also, I say good for Obama, let these companies fail.  This whole bail-out should never have happened, no company should EVER feel that "they're too big to fail" since this exact same thing will happen until the U.S. currency is worthless.

Mark my words, this bail-out will happen again or it will never stop.

[Turnsky]

I'm all for looking closer into Hydrogen as well. That's one that seems, for the most part, to be pretty damn clean. Only emits water vapor? Sounds great to me.

The key problem with that is the fact that it is extremely difficult to get hydrogen into a pure form, and usually, it costs far more energy to refine said hydrogen than our current methods.

Also, I say good for Obama, let these companies fail.  This whole bail-out should never have happened, no company should EVER feel that "they're too big to fail" since this exact same thing will happen until the U.S. currency is worthless.

Mark my words, this bail-out will happen again or it will never stop.

from what i've heard, they are looking into it.

[Noone]

I certainly think that some form of economic stimulus was necessary at the time, but I was actually against the auto-bailout from the beginning. (I was actually for the bank-bailout but I've since reconsidered my stance.)

In short, the bailout didn't correct the real problem with the auto industry, aka oligopoly economics. Too much supply and too few suppliers, and they put themselves in a position where they can't be realistically dislodged by newcomers to the market. The bailout failed to address this issue, though to be honest, I don't really see how to address the issue, other than a review of anti-trust laws.

My biggest fear about GM collapsing is not about the jobs lost, as I kind of think, at this point, their loss is inevitable. However, I am concerned that eliminating GM is going to end up with one of the other firms seizing all of their power over the market, further reducing the number of suppliers, and possibly leading to one company's monopoly over the auto-industry, which, I certainly don't like the prospect of. I just don't see the idea of having newcomers into the market and being remotely successful as even possible.

[Lisky]

The largest problem with the auto industry getting taken out is that well over 1,000,000 jobs are in connected fields to GM and Chrysler, so, if GM goes down, then so does several hundred other companies... without jobs, the government has to pay welfare, which, if these people are specialized, means they may not find another job, making it no longer a short term hit...

i could argue several other points, but instead, i'll just say that i see it as a huge mistake to let the auto industry go under.

[Noone]

On the other hand, if the government has to continually bail them out in order to keep them afloat, then it's really just delaying the inevitable. I guess they could wait until the economic crisis is over, but that's going to mean a lot of money the government has to spend keeping GM afloat. Money, which could of course, go to more stable causes.

I'd think that economic stimuli should benefit the lower quintiles the most, since they have incentive to spend, not save.

[Lisky]

yes, maybe if your looking extreme short term... but the problem is, say someone works for a small company that produces galvanized bolts... if they are a supplier for GM, and GM goes under, that company goes under too, because of that uncertainty, rather than spending money because of a secure job, the employees will save every penny not spent on essentials.  which in turn, means that stores where they normally bought things no longer get as high of income, which means they have to cut spending.  it turns into a vicious cycle when it's a corporation as massive as GM, one that will really mess up the economy if we don't get things sorted out.

[Darkmoon]

The key problem with that is the fact that it is extremely difficult to get hydrogen into a pure form, and usually, it costs far more energy to refine said hydrogen than our current methods.

See, that's the bit right there, though. Our current methods. They're going to spend money on programs to get us off foreign oil. Why not make it something truly worthwhile (and, in the long run, efficient to maintain)?

[Alondro]

I see less of a problem bailing out automakers for several tens of billions and actually saving the jobs of regular people than bailing out the financial markets for nearly a trillion in total so rich fat cats who screwed everything up can still get paid outrageous salaries and bonuses, plus a good chunk of American money ends up either vanishing or being sent to pay off foreign banks. 

The taxpayer is essentially being made to pay for bad loans that the financial and mortgage companies caused (plus politicians in passing bills that changed the previous sensible rules and allowed for these awful mortgages and loans to be made in the first place).  At least GM and the automakers contribute directly to the public economy.

The way I see it, these mammoth bailouts are the politicians trying to cover for their own ineptitude in not watching what was going on.  All their financial committees and watchdog agencies FAILED miserably, even ignoring direct requests from investors to investigate the most enormous pyramid scams in history (Maddoff and others).  And in doing so, they are so rapidly increasing the national debt that it makes even W look like he was actually a real Conservative by comparison. 

[Cogidubnus]

I see less of a problem bailing out automakers for several tens of billions and actually saving the jobs of regular people than bailing out the financial markets for nearly a trillion in total so rich fat cats who screwed everything up can still get paid outrageous salaries and bonuses, plus a good chunk of American money ends up either vanishing or being sent to pay off foreign banks. 

The taxpayer is essentially being made to pay for bad loans that the financial and mortgage companies caused (plus politicians in passing bills that changed the previous sensible rules and allowed for these awful mortgages and loans to be made in the first place).  At least GM and the automakers contribute directly to the public economy.

The way I see it, these mammoth bailouts are the politicians trying to cover for their own ineptitude in not watching what was going on.  All their financial committees and watchdog agencies FAILED miserably, even ignoring direct requests from investors to investigate the most enormous pyramid scams in history (Maddoff and others).  And in doing so, they are so rapidly increasing the national debt that it makes even W look like he was actually a real Conservative by comparison. 

While quite possibly true, the way I see it, is it's one of those lesser of two evils choices.

Give people money they don't deserve, or watch the credit markets freeze solid. The financial sector does contribute directly to the economy, be it through mortgage loans (can't build houses if people can't pay (get a loan) for them), car loans, school loans, and to a lesser extent business loans to keep people like, say, GM and Ford, from going under.

One might argue that it doesn't seem to have solved those problems anyway (or, from what I have heard, the banks aren't loaning the bailout money like they were expected to, and are instead using it to back up the bad loans that they've made and keep themselves solvent - odd how that works). But, on the other hand, I have heard that it might have been much worse if they bailout hadn't happened.

[Alondro]

All they've done is pass to the next generation an even worse calamity.  If the US defaults on the mssive debt load, we suddenly go from superpower to Zimbabwe II.   

[ShadesFox]

Honestly, I would like to see the car companies that are going under broken up and sold off to some of the new upstart car companies, like Tesla.  The people who allowed cars to become lumbering behemoths are sunk while the next generation gets a windfall.

[Corgatha Taldorthar]

I see less of a problem bailing out automakers for several tens of billions and actually saving the jobs of regular people than bailing out the financial markets for nearly a trillion in total so rich fat cats who screwed everything up can still get paid outrageous salaries and bonuses, plus a good chunk of American money ends up either vanishing or being sent to pay off foreign banks. 

There are so many errors involved in this reasoning that it pulled me out of my somnolence in this subforum.

1. The automakers in the U.S. have been doing badly since around the sixties. The sixties, if you recall your history, is when we started entering rather significant tariffs for foreign (especially Japanese) cars. So, for nearly 50 years they've been hemoraghing money. This is not likely to turn around soon. It will not turn around unless/until U.S. firms can make cars better, more quickly, or cheaper than it can be done in other countries. Ultimately, those businesses are doomed to die, and injecting more cash into them will only exacerbate the problem.

2. It's not just the "fat cats in wall street" who are saved by the financial market bailout.  JPMorgan Chase employs around 228,000 people.  Wells Fargo, 276,000.  AIG, 116,000. A lot of those people are accountants, actuaries, secretaries, tellers, etc, who are *not* making millions of dollars. Besides, what makes a blue collar job inherently more valueable morally than a white collar one? An aristocracy of sweat?

The taxpayer is essentially being made to pay for bad loans that the financial and mortgage companies caused (plus politicians in passing bills that changed the previous sensible rules and allowed for these awful mortgages and loans to be made in the first place).  At least GM and the automakers contribute directly to the public economy.

The first sentance is essentially correct. I will get back to it later, but yes, the bailout is effectively the ogovernment buying up the bad idea loans that the banks should not have floated, but did.

However, the argument that GM "added" something to the economy is making a falacious argument. Of course, you can say, "look, they made this car. That car has value." But the crisis, why even the "save everyone" administration is deciding that GM doesn't deserve to live is because GM loses money on each car sale. They take more resources than the car is worth to make each car. Everytime they make one, value is subtracted from the marketplace, and it is only because people are willing to prop them along that they're still around. Not only that, but this is a trend that is unlikely to change. The United states comparitive advantage lies within certain forms of manufacture, but mostly airplanes and computers. Prmiarliy, we're a finncial service driven economy, and that's what we're good at. The auto industry is unlikely ever to get better, automakers moving to greener pastures in southeast asia and Germany. The financial market, on the other hand, is far more likely to recover.

The way I see it, these mammoth bailouts are the politicians trying to cover for their own ineptitude in not watching what was going on.  All their financial committees and watchdog agencies FAILED miserably, even ignoring direct requests from investors to investigate the most enormous pyramid scams in history (Maddoff and others).  And in doing so, they are so rapidly increasing the national debt that it makes even W look like he was actually a real Conservative by comparison.  

Corruption does exist, and I'm not saying that Madoff had no impact on people's savings. However, if you remember, it was the mortgage crisis that drove Madof's victims to withdraw their money and revealed his whole ponzi scheme. As bad as the thievery is, the root cause of our current problem is one of a collective of people making poor financial choices over a number of years. More regulation of the market isn't going to help, short of creating a command economy where the "bad choice" is illegal. Oversight combats corruption. To combat ignorance, education is generally considered the premier tool, but I see precious little of that being employed, and I predict a general failure of the current policies in actually fixing the problems we have.

All they've done is pass to the next generation an even worse calamity.  If the US defaults on the mssive debt load, we suddenly go from superpower to Zimbabwe II.  

Uhm. I am hoping this is joking for dramatic effect. It is untrue on many, many levels.
Good afternoon,
Corgatha.

[Cogidubnus]

Honestly, I would like to see the car companies that are going under broken up and sold off to some of the new upstart car companies, like Tesla.  The people who allowed cars to become lumbering behemoths are sunk while the next generation gets a windfall.

Detroit can be recycled as a super-extreme-conditions-training / political-exile area!

"Take him to Detroit!"
"No! Not Detroit!"

[ShadesFox]

Honestly, I would like to see the car companies that are going under broken up and sold off to some of the new upstart car companies, like Tesla.  The people who allowed cars to become lumbering behemoths are sunk while the next generation gets a windfall.

Detroit can be recycled as a super-extreme-conditions-training / political-exile area!

"Take him to Detroit!"
"No! Not Detroit!" D:

I thought that was Detroit today.

[Lisky]

Corgatha, i'm curious where you get your information to make your statements.  Up until the credit crunch, GM was doing fairly well, although having diminished market share in the US, world wide, the corporation was doing well enough to make a profit, and thus their stock price increased.  The only reason GM is hurting so bad is that there is a liquidity crisis.  With no liquid assets, and no loans, cars can't be sold as a whole... Not 1 automaker is making profits in the US, not Toyota, not Volkswagen , not GM, not BMW... NO ONE

Except for the less than 1% of the US that makes millions, if not billions of dollars, a car is the second most valuable asset most people own, the first being a house.  Guess what 2 industries are hurt the most by the sudden loss of liquidity... you guessed it, Real Estate and Auto Makers... are you aware the for Q4 2008 every major automaker in the US posted losses

If the company had been hemorrhaging money for 50 years, it wouldn't have had investors, which means that it wouldn't have continued to exist... when someone buys stock, they buy ownership of a company, and they want to see that money grow, if the money shrinks, investors pull out, and move to a different market where they can grow their funds... simply put, if GM was acting as you described, then it should have been out of business 45 years ago...

You mention the 750,000 or so employees of the banks, compare that to the several million people who will loose their jobs if the auto industry goes under...

in conclusion, GM is a business who is hitting hard times because of the banks putting bad loans together, and selling them off into other funds... if 750 billion dollars is given to these banks to try and rebuild liquidity, why does GM not qualify for a 50 billion dollar loan one which they have stated many times, would gladly pay back once the market hits the upswing it needs... unlike the banks, who've literally been given close to a trillion dollars

(by the way, i'm not trying to be too argumentative, just having a little fun since i had to do a research paper on this stuff last semester... so yea, i've finally found a use for all that information that i thought was pointless)

[Cogidubnus]

I thought that was Detroit today.

This Detroit will also decapitate you, and then torture you. Egads!

[Lisky]

wait... that doesn't already happen, i mean, it has the most well equipped criminal groups in the country, if not world, and the police don't really do anything but respond to grand theft auto, attempted murder, or outright murder...

[llearch n'n'daCorna]

This Detroit will also decapitate you, and then torture you. Egads!

"We don't do drive-by's, we park outside houses and shoot, and when the police come we shoot it out with them too" ?

[Sicill]

The Economy is a rather large subject, to the point that my own speculation would only reveal ignorance. On to mechanics!
While hydrogen fuel cells may be a viable clean energy source, putting off only water vapor, I would like to note that would be changing little towards global warming. Water vapor is a type of greenhouse gas.
http://lwf.ncdc.noaa.gov/oa/climate/gases.html#wv
Where would the hydrogen come from? The only method that I have heard of is the electrolysis of water and that water has to come from somewhere. Cities like Salt Lake City, UT would no longer be able to produce its own fuel and perhaps no longer even support its massive population in the valley. I also believe that countries that are in drought, such as (last time I checked) Australia, might be more interested into diverting that water towards other issues.
They could probably produce hydrogen through salt water although I believe that method would require enough upkeep, from the silt produced and the energy lost to the silt, that it would severely hamper profits and production.
While I don't have a citation I seem to recall hearing that fuel cells need to be replaced every five years.

I personally would rather see the further development of batteries and capacitors over fuel cells.

[Corgatha Taldorthar]

My thanks to Basilisk2150, who forces me to check my sources and not just write what I was pretty sure was true.



Cut the scene back to 1973, during the height of the oil crisis. (Problem number 1. that makes it  35, not 50 years.)  Tariffs had just been lowered, to a low of 6.4%. (In 1968 they had been 50%)  look However, domestic pressure was rising, (car companies losing money due to oil crunch) and it looked like the tariff was about to be reinstated until Japan "voluntarily" agreed to reduce exports unilaterally, to about one and a half million a year source. (It is unclear how many cars Japan would be exporting annually to the U.S. without these restrictions. I tried pulling up numbers, but all the economists of the time disagreed. The more pessimistic voices guessed around 2 and a half million, and quite a few were higher.)

The point of this is that in an economic, albeit not in an accounting sense, GM, and other American firms were unprofitable. True, they make money, but not as much money as their rival firms are making. It is cheaper from a consumer's point of view to buy foreign than to buy domestic, and the governmental decision to force otherwise is in effect a subsidization of the industry. Hence, the conclusion that from around 1973 (and perhaps longer, look back at the tariff) the auto industry was in need of protection, ergo it was uncompetitive, ergo it was unprofitable. (Side note, the Japanese managed to sidestep these restrictions by building auto plants in the U.S. and stifling the claim that it's eating jobs.) It is getting investors because effectively, by denying competition the ability to sell an equal or superior product at a less or equal price, the government is giving a "stealth" guarantee to profit. Of course, with an economic shakeup, then yes, suddenly even this accounting profit is no longer guaranteed and their source of support isn't there to infuse them with even more cash........... the auto industry dies.


Secondly, I just wanted to point out that the bank and insurance names I pulled were just the names I saw in the news today, I'm not really sure if they're representative for employment numbers, nor am I certain as to the extent of employment in the financial sector. I primarily brought it up to counter Alondro's assertion that the financial bailout only benefitted the ultra rich, as I am certain that the employment numbers involved in banks, stock analysts, investment, etc, are considerable.

Furthermore, employment number is no measure to the health of an economy or the value of a business. To pull an example out of the air, lets take car washing. At least to the place I go to, they have this sophisticated looking getup where the car drives through and is soaped and rinsed and waxed and whatever, all mechanized. They employ one guy at the cash register, 4 people to take the car and drive it through the lanes, and 2 mechanics. (They do a little checkup.) for a total of 7 people employed. (at least that I see. There might be more) Now, if they wanted to, they could employ a lot more people. Simply take out that whole rig they have, and get a dozen people or so per lane with buckets of soapy water who would handwash each car that came through. I'm sure that a dozen people would wash a car extremely quickly. It would probably be far more expensive to hire a dozen people, even for unskilled labor, than it is to operate the doohickey, but that isn't the point here, is it?

Mechanization usually improves efficiency, while reducing employment. In Western countries, Labor costs are usually by far the largest expense of any corporation. Generally (although not always) businesses are run by people who want to make money, and are marginally intelligent enough to do it, given the chance. They wouldn't install the machines if it didn't benefit them somehow, and citing employment as a good in and of itself on a totally economic basis is a fallacious argument. (Politically, there might be some benefit to keeping people employed, even if it's nonprofitable work, or even make-work, but paying someone to add no value to an economy is well, not economically sound behavior in all but a bare handful of circumstances.)

Anyway, Basilisk. I hope this answers your queries.

[Cogidubnus]

This Detroit will also decapitate you, and then torture you. Egads!

"We don't do drive-by's, we park outside houses and shoot, and when the police come we shoot it out with them too" ?

If I hadn't looked it up, I'd still have no idea where Amityville was. Word.

[Lisky]

To Corgatha... i appreciate an  intelligent debate... one which, if you wish to continue, i will gladly post a rebuttal some time tomorrow, giving other people time to place there own thoughts

[Reese Tora]

I hate to intrude into this lovely debate, but did anyone read the rest of the article, to the part where Obama is still giving GM enough money to continue to function for the next 60 days, so they have 60 more days to develope a workable plan, at which point they may still get a "full" bail out?  I thought that part was kind of important.

[Valynth]

The key problem with that is the fact that it is extremely difficult to get hydrogen into a pure form, and usually, it costs far more energy to refine said hydrogen than our current methods.

See, that's the bit right there, though. Our current methods. They're going to spend money on programs to get us off foreign oil. Why not make it something truly worthwhile (and, in the long run, efficient to maintain)?

Considering hydrogen is an extremely small particle, storing it for longer than a few weeks results in significant loss, and this simply can not be avoided until we can make something even smaller than hydrogen (the smallest particle of matter we know of/can use) to store it in.  Otherwise, it will be like trying to cup liquid water in our hands, sure we can store a certain amount for a short time, but it simply won't be there in a week.

Then there's the fact that water is simply difficult to refine into hydrogen, the bond between the oxygen and the hydrogen is simply too strong for any sort of efficiency to make up for that.

The best option right now is the use of hybrid cars that maximize the energy of gas, and whose only down side of expense and maintenance will be solved by increased production.  Then, once we have some nuclear plants generating most of our electricity (using the French method that re-refine used fuel rods into new fuel rods so there will be less waste) as well and improved infrastructure for electric cars we can convert to electrical cars that should by that point have matching range capacity with the hybrids.

Of course, wether or not CO2 is even a pollutant is dubious in my eyes, since the people advocating that have been making bogus predictions since the 1950's.  Even if they're eventually right (in the same manner as all prophets), do we really want to trust them with devising a solution?

[Turnsky]

I hate to intrude into this lovely debate, but did anyone read the rest of the article, to the part where Obama is still giving GM enough money to continue to function for the next 60 days, so they have 60 more days to develope a workable plan, at which point they may still get a "full" bail out?  I thought that part was kind of important.

i think a lotta people missed out that GM's infact a global corporation, and as such, also have facets across the world. Vauxhall, Holden, Daewoo, just to name a few.

[Valynth]

I hate to intrude into this lovely debate, but did anyone read the rest of the article, to the part where Obama is still giving GM enough money to continue to function for the next 60 days, so they have 60 more days to develope a workable plan, at which point they may still get a "full" bail out?  I thought that part was kind of important.

i think a lotta people missed out that GM's infact a global corporation, and as such, also have facets across the world. Vauxhall, Holden, Daewoo, just to name a few.

To turn your phrase, just because something has facets doesn't make it a diamond.

Just because GM has holdings all over the world does not mean they have been profitable in a competitive market.  More often than not, as others have stated, they've been hiding behind direct(subsidies, tax cuts, bailouts)/indirect(tariffs, pressure on foreign car manufacturers) government handouts to stay a float for a very long time and grabbing foriegn realestate to appear to be proffiting and getting investors to pump money into a company that would have died on it's own a long time ago.

This is simply their most obvious money-grab that's making the American concious re-evaluated the big three's holdings and realise how scammed they've been.

[Turnsky]

I hate to intrude into this lovely debate, but did anyone read the rest of the article, to the part where Obama is still giving GM enough money to continue to function for the next 60 days, so they have 60 more days to develope a workable plan, at which point they may still get a "full" bail out?  I thought that part was kind of important.

i think a lotta people missed out that GM's infact a global corporation, and as such, also have facets across the world. Vauxhall, Holden, Daewoo, just to name a few.

To turn your phrase, just because something has facets doesn't make it a diamond.

Just because GM has holdings all over the world does not mean they have been profitable in a competitive market.  More often than not, as others have stated, they've been hiding behind direct(subsidies, tax cuts, bailouts)/indirect(tariffs, pressure on foreign car manufacturers) government handouts to stay a float for a very long time and grabbing foriegn realestate to appear to be proffiting and getting investors to pump money into a company that would have died on it's own a long time ago.

This is simply their most obvious money-grab that's making the American concious re-evaluated the big three's holdings and realise how scammed they've been.

you kinda missed my point.
my point being, that if GM goes down, the repercussions of that aren't only going to affect the US, the subsidiaries are watching what happens to their parent company rather anxiously.

[Tapewolf]

my point being, that if GM goes down, the repercussions of that aren't only going to affect the US, the subsidiaries are watching what happens to their parent company rather anxiously.

Indeed.  I only found out that Vauxhall, Saab etc. were subsidiaries the other day.  There has been very little mention of this fact from what I've seen.