Why American car makers are nearly bankrupt

qdognjNovember 12, 2008

aside from obvious issues such as building cars many people don't want,legacy costs,etc..How about this one...A friend had a son employed straight out of college just 18 months ago with a division of GM...His job was eliminated 1 month ago, and he was given 50k and a brand spanking new car!!!!!!! Imagine working for approx 15 months,probably at a salary of 35k, and get a going away package like that....

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Well and some other problems include paying people not to work. When times are tough every other company lays people off - period. Automotive industry lays them off - with pay.

    Bookmark   November 12, 2008 at 2:25PM
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Also consider that the auto makers are paying an enormous amount of money in retirement benefits to the members of the UAW. That is the albatross around the Big 3's necks.

It may be time to let go. If Ford, GM and Chrysler go under - that may be the best thing. You can't keep propping up an industry that refuses to change it bad habits or refuse to bring to market products the public wants.

And just so people don't think I'm anti Detroit, I own and American made vehicle! American made vehicles have improved their quality and reliability greatly over the last several years. Unfortunately, their past reputation versus Japanese autos still haunts them.

Enjoy the journey.
eal51 in western CT

    Bookmark   November 12, 2008 at 4:05PM
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eal51, thats what i meant by "legacy costs"....And i agree,why prop up an industry that has faint hope of thriving again..The fallout will be very painful,but perhaps necessary...

    Bookmark   November 12, 2008 at 4:52PM
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Oh, goodie! Lets see what happens to the economy as a whole when Detroit's entire workforce -- union and management -- is unemployed and without health care. Their housing has already tanked.

Who here is volunteering to feed and house and nurse these people if the big three go bankrupt. (Not that I have 'the answer', but is dangerous talk.)

BTW, plenty of people were buying big three vehicles until they were upside down in their mortgages; lost their homes; couldn't get credit to buy a car; became un- and under-employed; filed for bankruptcy after they got sick and couldn't pay our inflated health costs.

    Bookmark   November 12, 2008 at 5:21PM
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Plenty of people buying big three vehicles? Have you seen the statistics? Their sales have been declining for years,and this recent credit crisis has made it more obvious...My point about possibly letting them go under is where does the government stop bailing out businesses? How about people who lose their jobs but who don't work for industries that may be "bailed out",,should they be simply out of luck? food for thought

    Bookmark   November 12, 2008 at 5:33PM
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It's highly doubtful we need Chrysler. Ford and GM, however, can downsize into viable businesses once again through bankruptcy. They don't really need a handout.

And actually, the slowdown in sales of BIG cars/SUVs/trucks has hurt Detroit disproportionately because they refused to get off the SUV gravy train and invest in fuel-saving cars. Questions about Detroit's dependency on gas-guzzling models were being raised five years ago or more. Anybody remember how GM tossed out the EV-1 electric car - it still has a fervent fan base, in fact. Toyota just opened a big-truck (Tundra) factory in the US - they're hurting too, but since they didn't bet their entire company on Tundras, they are balancing it out with Scions, Corollas, and Prius.

    Bookmark   November 12, 2008 at 6:06PM
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jkom51 your probably right, we don't need Chrysler. And I also agree that Ford & GM can downsize and still be viable. A bailout is not needed. GM & Ford need to get out of the SUV/ truck market and build decent family and economy cars. The UAW needs to take a look in the mirror and realize they are a big part of the problem. Until they do, Detroit will not rebound.

And to the comment of what happens to all these people who may, notice I say may, loose their jobs. The Japanese will jump right in and fill the void. But they won't have the fat contracts that have been strangling Detroit for decades. But nobody wants to hear that one, do they!

I drive A FORD EXPLORER!!!!!

eal51 in western CT

    Bookmark   November 12, 2008 at 6:15PM
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Sure, folks. Let bankruptcy go ahead and wipe out all the holders of the bonds - what's another couple hundred billion or so out of our pockets? And then unemployment at all the suppliers, dealers - let their health care costs get added to your taxes - you obviously have enough money to share. Suggesting that bankruptcy is the solution sounds like something Congress would come up with and I don't mean that in a complimentary manner.

    Bookmark   November 12, 2008 at 6:36PM
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kec,who said this a solution? Not speaking for other posters,but time has passed our auto industry by..They aren't able to sustain their business models, and i believe no matter how much $$$ we throw at them,their problems still exist...The ripple affect will hurt many people,but there have been hundreds of thousands of jobs lost in the past decade, and the government didn't rescue any of them

    Bookmark   November 12, 2008 at 6:45PM
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I believe there are several factors involved:

  1. Reputation for poor quality cars through the mid-
    1990s which they never really recovered (except for
    their trucks).

  2. Failure to anticipate and update their models for a
    new generation of buyers (the japanese were

  3. Putting everything they had into SUVs and sacrificing
    their core base. Cadillac & Lincoln are the
    exception but they cater to a higher end buyer.

  4. Legacy cost of union benefits which both sides failed
    to work through. i think this could have been worked
    through had the big 3 made vehicles which were
    comparable to the japanese.

As a member of generation x i grew up with my parents having american cars which constantly broke down and can never seem to be repaired properly. i never bought an american car and bought honda. that has skewed my car buying to this day. I would say the first one is the most important.

    Bookmark   November 12, 2008 at 8:28PM
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I really don't think we should bail out the American auto industry to continue with the status quo. If it is to survive it needs to reinvent itself - which MIGHT come out of some ingenuity that is the result of necessity. Another bailout prolongs the failed status quo in my opinion. And in business or out of business taxpayers are paying either way. Oh, and I see the home building industry is next in queue for a bailout.....

Frankly it seems we are going to need to suffer through a painful correction to get over all of our past overindulgences and failed business practices. Once that happens hopefully people will come out of it more rational and intelligent and make sound business and personal decisions for another generation or two - before another cycle of irrational, foolish behavior.

    Bookmark   November 12, 2008 at 10:59PM
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My family has driven Ford Explorers for 14 years. The oldest (14 yrs) is still going strong. I now drive a Honda Pilot and hate it. No comparison between the two and the gas mileage is only slightly better. It cannot get me up my driveway in snow as the Explorers can. I looked at the Toyota Prius and the price for this small car was ridiculous.

I would hate to see these companies go down. I think some sort of help should be given, but I agree that the UAW needs to be dealt with. I am not anti-union but agree the power of some have gotten out of control.

    Bookmark   November 12, 2008 at 11:01PM
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If I had the answer...maybe they'd be calling me President Elect. :-)

The problem is that if the domestic auto industry goes belly up, it effects a whole lot more people than just the Big 3's employees. They buy everything from electronics to cow hide to mops to clean the floor. The ripple effect could be disastrous.

On the flip side I object to rewarding people for doing a lousy job of running a company. It's kind of like an alcoholic, sometimes a little tough love is the best thing for them.

    Bookmark   November 13, 2008 at 12:35AM
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Most businesses supply what sells. I can't blame Ford and GM for America's long love affair with gas guzzling SUV's. I seldom see anything else on the roads around my town. I dislike them, but they seem much like McMansions -- big and relatively cheap.

We haven't driven an American-made vehicle in twenty years. Never owned an SUV. I can't say about the future; depends on what Tata decides to do.

    Bookmark   November 13, 2008 at 10:02AM
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If you are going to throw billions at the problem deal direct with the displaced workers, providing reasonably generous "work transition benefits", medicaid health coverage, and re-education and relocation funding. Let the administrative/management folks and the infrastructure collapse. Fire is regenerative.

    Bookmark   November 13, 2008 at 12:55PM
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Actually, one of the pluses about bankruptcy is that the stronger businesses will CONTINUE to operate. That's why I believe Chrysler is unimportant save for the Jeep division, which the military needs to continue. GM and Ford simply need to restructure to continue. The airline industry still exists, despite the fall of Pan Am, TWA, and others.

Yes, the bondholders will hurt. Just like the bondholders of AIG, Bear Stearns, Freddie and Fannie, etc. etc. Why else do you think bond yields have gone up? Companies aren't paying that extra money because they want to put it in your pocket - it's because the risk has become greater. Bonds have their own risks, just as equities do. There is no free ride...well, unless you have highly placed friends, LOL.

    Bookmark   November 13, 2008 at 1:08PM
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I would vote in a heartbeat to let all 3 file BK...except, I keep wondering whether it's in our best national security interest to have a viable American auto industry?

What if suddenly Japan was no longer our friend? I know the military requires Jeeps...what company makes all of the other military vehicles? Also, what about the general population? IMO, for security purposes we need at least two viable manufacturing companies.

Am I right? Wrong? If wrong...why?


    Bookmark   November 13, 2008 at 2:35PM
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T, I say let them file, then they could emerge from bankruptcy in a different position..Possibly in much better financial position
Even if we lose Chrysler, GM and Ford might actually prosper after reorganizing..I'd have a much less issue with the government helping them AFTER they reorganize,then before..How does throwing money at them now help them? It only prolongs the agony and time before they fail or ask for another handout...

    Bookmark   November 13, 2008 at 2:48PM
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Part of the problem seems to me that they've been rather arrogant, figuring that they knew best.

Also, the fact that the trucks and SUVs were exempt from the company-wide requirement to build vehicles with average m p g rates that were rather high led them to concentrate there, I think, in order to make an end run around the restriction.

Sometimes when we try to be too smart by half ...

... the error comes back to haunt us.

I think that we in the Western world have been some arrogant, as well, figuring that we had most of the world's answers and didn't have a lot to learn from the great unwashed of the world.

As an old European proverb had it, "Too soon old ... too late smart!". Was it German-originated?

ole joyful

    Bookmark   November 13, 2008 at 4:39PM
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The US actually DOES have a thriving auto industry - in the South. Honda Accords, Toyoto Tundras and Avalons, Nissan (who builds also in Canada as well as Tennessee). Hyundai wants to build over here as well, which is why they are interested in buying some part of Chrysler.

Toyota also took over the NUMMI plant in Fremont CA when GM dropped it, and builds the Matrix/Vibe (for Pontiac) models here.

The difference is, they are flexible mfg plants with non-union workers and no defined benefit pensions. They are profitable and have added considerable tax revenues to the states they are located in. If GM and Ford declared bankruptcy, it would force the unions to renegotiate and management could close the unprofitable lines that are no longer viable business models.

I'm not against unions - I'm married to a union member. But the antagonistic us-against-them attitude has contributed greatly to the decline of the US steel industry, and it is now a major factor in the US car industry. The handwriting is on the wall, and ignoring it will not make it go away. We need competitive businesses, not dinosaurs propped up artifically.

If Japan fell into the sea - which is far more likely than their becoming an enemy of the US again - the plants are standalone and could be easily nationalized in an emergency.

    Bookmark   November 13, 2008 at 9:40PM
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Also, the fact that the trucks and SUVs were exempt from the company-wide requirement to build vehicles with average m p g rates that were rather high led them to concentrate there, I think, in order to make an end run around the restriction.

I believe the domestic auto industry lobbied heavily to to keep trucks (and truck based SUV's) except from the CAFE standards. They were making big bucks with SUVs, why invest in the technology to make fuel efficient, less profitable cars?

While certainly the Big 3 share some of the blame for not having vision the other part of the equation is that the market places such a premium on quarterly profits that there isn't much incentive to plan beyond the next three months. Japanese companies have a much different business model that rewards long range planning (or at least doesn't hurt the company in the short-run).

    Bookmark   November 14, 2008 at 8:14AM
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My grandafther is GM retiree and has already been informed that he will be losing his healthcare. I think it is dispicable not to stand up to the promises you have made to people that helped make you successful back in the "glory days." I can understand not offering anything to new employees going forward but honor your commitment to those who served you.

    Bookmark   November 14, 2008 at 10:36AM
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If your grandfather is over 65 he can buy a Medigap policy with mandated rates to cover what Medicare does not.

Did you know there is no requirement that companies actually FUND, as they go along, the retirement medical benefits they were actually promising? It is estimated that the vast majority of state and county government promises to their employees for retiree medical benefits, are a "hollow shell".

This is why I believe in mandatory voting coupled with a truly informed electorate. We need to understand when the media "sound bites" of both labor and management are insufficient, and be willing to analyze the true pros and cons of an action or proposal.

    Bookmark   November 14, 2008 at 12:54PM
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Food for thought as the automakers ask for a bailout (article excerpted):

Here Today, Gone Tomorrow
NYTimes November 15, 2008

HYBRID versions of the Chrysler Aspen and Dodge Durango seem likely to secure a spot in automotive history: the two vehicles fell under the executioners ax in the same month they went on sale.

The hybrid S.U.V.Âs became available at dealerships in early October. But on Oct. 23, Chrysler announced that at the end of the year it would close the Delaware plant where they are built. Even if production continues until Dec. 31, the Aspen and Durango hybrids are almost certainly the shortest-lived new models from a major manufacturer in modern times.

A Chrysler spokesman, Ed Saenz, said last week that 400 of the hybrid S.U.V.Âs had already been built; this suggests that total production may not exceed 800.

The Durango and Aspen hybrids, which are 2009 models, use the two-mode gas-electric powertrain that was jointly developed by General Motors, BMW and DaimlerChrysler.

The models are not built anywhere else, so the Newark plantÂs closing effectively means the end of the line for the Aspen and Durango, including the hybrid versions.

Chrysler will not disclose how much it spent to produce the two-mode models, although Mr. Saenz said, "The investment was minimized."

Chrysler intends to use the hybrid system in the 2010 Dodge Ram full-size pickup. Two of the three plants that build the Ram  St. Louis North in Missouri and Warren Assembly in Michigan  were recently upgraded at a cost of $200 million each.

    Bookmark   November 15, 2008 at 1:21PM
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fyi chry. is dropping the durango and aspen both the hybrid and the reg. models. latest news here in motown is hyundai may buy the jeep division, if chry. isnt able to sell the whole thing to renault/nissan. as far as g.m. and ford, i think they will continue on slowly, after an infusion of our tax dollars. that way they can continue to make things like my 08 company provided impala, thats spent 23 days at the dealers with problems. oh well

    Bookmark   November 15, 2008 at 11:17PM
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Great opinion column in the WSJournal today:

Why Bankruptcy Is the Best Option for GM
Chapter 11 would better preserve the valuable parts of the company than an ad hoc bailout.
WSJournal Opinion by Michael E. Levine, November 17, 2008

General Motors is a once-great company caught in a web of relationships designed for another era. It should not be fed while still caught, because that will leave it trapped until we get tired of feeding it. Then it will die. The only possibility of saving it is to take the risk of cutting it free. In other words, GM should be allowed to go bankrupt.

....GM's solution is to ask the federal government for the cash that will allow it to do all of this (restructuring)piece by piece. But much of the cash will be thrown at unproductive commitments. And the sense of urgency that would enable GM to make choices painful to its management, its workers, its retirees, its suppliers and its localities will simply not be there if federal money is available. Like AIG, it will be back for more, and at the same time it will be telling us that it's doing a great job under difficult circumstances.

Federal law provides a way out of the web: reorganization under Chapter 11 of the bankruptcy code. If GM were told that no assistance would be available without a bankruptcy filing, all options would be put on the table. The (legal)web could be cut wherever it needed to be. State protection for dealers would disappear. Labor contracts could be renegotiated. Pension plans could be terminated, with existing pensions turned over to the Pension Benefit Guaranty Corp. (PBGC). Health benefits could be renegotiated. Mortgaged assets could be abandoned, so plants could be closed without being supported as idle hindrances on GM's viability. GM could be rebuilt as a company that had a chance to make vehicles people want and support itself on revenue. It wouldn't be easy but, unlike trying to bail out GM as it is, it wouldn't be impossible.

    Bookmark   November 17, 2008 at 12:03PM
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jkom - that is a great piece. I can't even put into words how ridiculous I think a bailout of American carmakers is but this sums it up pretty well. If the bailout happens, it's just more of the same - politicians bought off by special interests - rather than making the tough decisions required to do the right thing in the long run.

    Bookmark   November 17, 2008 at 1:36PM
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bail them out now, nothing will change, and in 10 yrs we the taxpayers will be paying to bail them out again. let the chips fall where they may, and may the best companys survive.

    Bookmark   November 18, 2008 at 12:00AM
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Until last year, the trucks and SUVs were all the rage. Car companies have ignored the need for smaller vehicles because they were only looking at the fact that their sales came from all of the huge ones. Their heads were in the sand. However, product lines cannot turn on a dime. Americans wanted their gas guzzlers right up until the moment that they didn't, and all of a sudden, Detroit is to blame? It is not just a Big Three problem, it is an American problem. Six months ago, I could hardly see in traffic because my PT Cruiser was always surrounded by larger vehicles. I wonder where all these Ford Contours and other older small cars came from, because no one was driving them around here before last summer. With so many of the cars the Big 3 made "sold" on leases, consumers could drop their current model within a year or two, then go for the smaller cars. Nobody really "owns" their cars around here anymore, and we are the only family I know with two paid-off cars. Granted, here in Detroit we are different, being in the motor city where everyone thinks about cars a lot more than other places.

I learned about what the UAW and AFL-CIO did for labor when I married and left the State of Michigan. My husband took a job with Exxon, the biggest oil company of them all, in 1980. It was hard to believe, but the refinery workers did not even have dental insurance! Dental and vision insurance came along after DH joined the company. Back in Michigan, these were benefits that everybody who worked for a large company, government, and even mid-sized companies had. Union workers earned these benefits, then other workers expected (and got ) them, too. The right to be paid during layoff meant that a skilled workforce would stick around. A middle class could be built.

Yes, things went overboard as most human endeavors do. In recent years, though, unions have given back some of their gains. My sister's best friend from high school is working beside seasoned machinists at a Delco plant, and earning a fraction of what they earn because she was hired after bankruptcy.

My current DH is "retiring" from Chrysler in two weeks. They offered a deal and said to take it now, the offer may not be made again. He is job hunting and there are a few contracting positions out there that he may have a chance at. He is getting about 1/5 of his current salary and the "promise" of health care as a retirement package. The health care will probably end when Chrysler goes under, but the retirement income is supposed to even be covered by the Pension Guarantee Trust Fund. We will see.

DH spent his 18 years with Chrysler putting in suggestions abour smaller, fuel efficient cars. Since he worked in IT, there was really no connection between what he worked on and the actual building of cars, so his suggestions were not significant. He is a white-collar worker, but had no more say about the company than the people on the lines. We have a $2500 deductible and $4800 out-of-pocket maximum for our health care, so it is not like we had the best benefits available. The white collar people at the Big 3 have been losing their benefits even faster than the UAW workers. Much of the retirement he is getting is due to his participation by putting his own money in the retirement plan. He had been told since he was hired that he would get no health care when he retired, and the company had it set up so you could start putting money away at age 50 to self-fund your health care costs in retirement. That is one reason this early-retirement package was too good to pass up, even if it doesn't last, health care until age 65 is part of the package.

We are saddened by the coming death of this company. My grandfather worked on the line at Dodge for 45 years. He was not rich. He lived in an apartment or condo all my life, and had a little cement block cottage on a lake in Canada.

DH worked there 18 years (8 as a contractor). He worked hard, worked unpaid overtime, never had time to squeeze in all of his two or three weeks of vacation. The company made some bad decisions, was stripped of its cash by Daimler, and is now run by people who don't want to own it. It may deserve to die.

Everybody has to think, though, about the impact of losing the auto industry. That is a lot of jobs lost all over the country. The auto companies would be doing better now that gas is under $2/gal if the buyers could get competitive financing. One guy on the radio today said that even though the car he was looking at to buy new was $5000 less than his last car, his payment would have been $150/mo more - simply because of the credit crunch.

Houses are the most expensive item we buy. Cars are next. Most people finance them. Lately they have leased them. Only one company is still leasing cars, so payments will be higher just because of the difference between buying and leasing. When you add in the higher cost of borrowing, the cars are too expensive to buy. How is that the fault of the car companies? Just like real estate, car sales do not happen without financing. In this way, the current situation at the car companies has less to do with the cars they are offering and more to do with the credit crunch. That is what makes the auto industry a special one and why they need a bailout.

BTW, DH and I both think that Jeep has not built for the military for a lot of years. The Hum-Vee and trucks seem to be the transport of choice. We may be wrong about that, though.

One argument we hear around here about the need for the car companies to survive is that in a time of war, as in WWI and WWII, heavy industry is converted into munitions production. I don't think that this is quite true anymore. I do think, though, that the absence of a trained industrial workforce will affect us in ways that we do not yet recognize.

    Bookmark   November 18, 2008 at 1:23AM
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OK, I'm still not convinced. Not that I believe the government should bail out failing companies; I just am not understanding the logistics of a BK restructure.

With our shakey banking system & the relunctance of private equity to step to the plate...

Whom, pray tell, is going to provide the debtor-in-possession financing for a BK restructure? Seems to me the government is the only entity capable of providing the required restructure capital. Under normal circumstances, a consortium of our largest banks would step to the plate & provide debtor-in-possession financing to keep the company operating while they renegotiated contracts & generally got their act together. That can't/won't happen today.

So, are people saying we should just allow all 3 to just shutter the windows, lock the door, & the last man out turn off the lights? Instantly, we'll have hundreds of thousands out of work. Is that really the best/only solution?

So, for those who are in favor of BK restructure...who do you believe will provide debtor-in-possession financing?


    Bookmark   November 18, 2008 at 6:45AM
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Thanks to Nancy and Tricia for 'insider' thoughts.

Could there be a combination of gov. aid and BK for the Big Three? Rather than handing over cash for business-as-usual, could the Feds bankroll the restructure when the companies file BK? (Or pressure some of the bailed-out financial institutions to do so?)

    Bookmark   November 18, 2008 at 11:25AM
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If the auto makers file BK then a federal judge takes over the shooting match. I'm not sure I want that judge to decide how our taxpayer money is going to be spent? I'm also not sure I want Congress to decide??? lol

Congress could provide sufficient operating funds to keep the plants operating for, say, 12-18 months. Then, the companies could file BK & forward moving decisions are made through the BK Court? That would work; but to have Congress & a federal judge getting into a turf war just sounds like a very bad idea, IMO.

Sure, Bernanke & Paulson could 'force' the banks to provide the debtor-in-possession funding. But, the banks will use part of the $700-$800B bailout so we're right back to Congress just getting on with giving them the money. Six of one & half-dozen of another.


    Bookmark   November 18, 2008 at 11:49AM
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without a huge influx of high paying jobs, its all for naught anyhoo. you cant sell cars if no one can buy em.

    Bookmark   November 20, 2008 at 12:15AM
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"My grandafther is GM retiree and has already been informed that he will be losing his healthcare. I think it is dispicable not to stand up to the promises you have made to people that helped make you successful back in the "glory days." I can understand not offering anything to new employees going forward but honor your commitment to those who served you."

If your grandfather would read the documentation that is distributed (by law) regarding his post-retirement medical benefits, he'll find that those benefits are not guaranteed in any way and can be discontinued with only a letter to notify the retiree. How do I know? It's my business.

The problem is with medical costs, which is something that really needs to be addressed in this country. Why are we the only industrialized country without a nationalized health plan? I'm moving to France. (maybe)

    Bookmark   November 25, 2008 at 3:32PM
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My grandafther is GM retiree and has already been informed that he will be losing his healthcare. I think it is dispicable not to stand up to the promises you have made to people that helped make you successful back in the "glory days." I can understand not offering anything to new employees going forward but honor your commitment to those who served you.

If GM declares BK, just wait and see what it will do to his pension!

    Bookmark   November 30, 2008 at 7:31PM
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"Just like real estate, car sales do not happen without financing..."

Not necessarily true. I kept my last car, a 1993 Corolla, over 10 years. I did have a small loan to buy it (I put down 50% and took a 3-year loan for the other half). Paid it off in 2.5 years, and continued to make the monthly payment--to myself. When I bought my current car 5 years ago (Honda CR-V) I paid cash, because I'd been making the car payment to myself all those years.

And I'm still making that same monthly payment to myself. When the time comes to get another car, maybe another 5 years down the road (10 total with with car), I'll pay cash.

Part of the reason I can do this, is because I've driving a Toyota and a Honda since 1993. I can't imagine keeping an American car 10 years.

Maybe American cars are better now than when I stopped buying them. But I'm not putting $25K on the line to find out.

    Bookmark   November 30, 2008 at 9:16PM
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We always buy a low-mileage 'last year's model' with an extended warranty (usually 6-year) from a dealer, then buy another warranty or two. We don't drive much. Tend to keep a car up to 10 years. Tend to pay cash unless there's a fabulous loan interest rate (1% - 2%). We include depreciation towards the next car in our budget.

    Bookmark   December 1, 2008 at 11:43AM
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The men from Detroit will jet into Washington tomorrow -- presumably going commercial this time -- to make another pitch for a taxpayer rescue. Meanwhile, in the other American auto industry you rarely read about, car makers are gaining market share and adjusting amid the sales slump, without seeking a cent from the government.

Some car makers in America still have reason to celebrate.
These are the 12 "foreign," or so-called transplant, producers making cars across America's South and Midwest. Toyota, BMW, Kia and others now make 54% of the cars Americans buy. The internationals also employ some 113,000 Americans, compared with 239,000 at U.S.-owned carmakers, and several times that number indirectly.

The international car makers aren't cheering for Detroit's collapse. Their own production would be hit if such large suppliers as the automotive interior maker Lear were to go down with a GM or Chrysler. They fear, as well, a protectionist backlash. But by the same token, a government lifeline for Detroit punishes these other companies and their American employees for making better business decisions.

The root of this other industry's success is no secret. In fact, Detroit has already adopted some of its efficiency and employment strategies, though not yet enough. To put it concisely, the transplants operate under conditions imposed by the free market. Detroit lives on Fantasy Island.

Consider labor costs. Take-home wages at the U.S. car makers average $28.42 an hour, according to the Center for Automotive Research. That's on par with $26 at Toyota, $24 at Honda and $21 at Hyundai. But include benefits, and the picture changes. Hourly labor costs are $44.20 on average for the non-Detroit producers, in line with most manufacturing jobs, but are $73.21 for Detroit.

This $29 cost gap reflects the way Big Three management and unions have conspired to make themselves uncompetitive -- increasingly so as their market share has collapsed (see the nearby chart). Over the decades the United Auto Workers won pension and health-care benefits far more generous than in almost any other American industry. As a result, for every UAW member working at a U.S. car maker today, three retirees collect benefits; at GM, the ratio is 4.6 to one.

The international producers' relatively recent arrival has spared them these legacy burdens. But they also made sure not to get saddled with them in the first place. One way was to locate in investment-friendly states. The South proved especially attractive, offering tax breaks and a low-cost, nonunion labor pool. Mississippi, Alabama, Tennessee and South Carolina -- which accounted for a quarter of U.S. car production last year -- are "right-to-work" states where employees can't be forced to join a union.

The absence of the UAW also gives car producers the flexibility to deploy employees as needed. Work rules vary across company and plant, but foreign rules are generally less restrictive. At Detroit's plants, electricians or mechanics tend to perform certain narrow tasks and often sit idle. That rarely happens outside Michigan. In the nonunionized plants, temporary workers can also be hired, and let go, as market conditions dictate.

All the same, Mitsubishi Eclipses and Toyota Corollas are made by UAW workers at plants in Illinois and California. In each case, unions have made concessions to ensure the jobs stay put. Honda makes the Civic and Accord in two plants in Ohio, which isn't a right-to-work state. But attempts to unionize foreign-owned factories have generally been unsuccessful, most recently at Nissan; their workers know too well what that has meant for their UAW peers. Since 1992, the Big Three's labor force declined 4.5% on average every year; the international grew 4.3%. According to the Center for Automotive Research, for every job created by the transplant producers, Detroit shed 6.1 jobs in the U.S., 2.8 of them in Michigan.

Another transplant advantage: Their factories are newer and production process simpler. As a result, they can switch their assembly lines to different models in minutes. In response to the economic downturn, Hyundai decided to make more fuel-efficient Sonata sedans and fewer of the larger Santa Fe model at its Montgomery, Alabama plant, sparing steeper production cuts. Such a change would take weeks at UAW plants.

It's true that at the foreign companies, strategic decisions are taken and much of the value-added design and engineering is done back home. But both U.S. and the Japanese and European companies have tended to move operations closer to large markets. The expansion of manufacturing in the U.S. has brought research and development. Honda stands out for designing some cars from the ground up in the U.S. The foreigners account for a small but growing chunk of the $18 billion in yearly development spending. And while headquartered overseas, the companies have millions of American shareholders -- either directly or through pension funds. Is Honda a Japanese or an American company nowadays? It really is both.

As GM CEO Rick Wagoner recently wrote on these pages, the Detroit companies have finally begun to adapt to this real economic world. Last year Detroit struck a deal with the unions to unload retiree health obligations by 2010 to a trust fund set up by the UAW. The trio's productivity has improved as well. In 1995, a GM car took 46 hours to make, Chrysler 43 and Toyota 29.4. By 2006, according to Harbour Consulting, GM had moved it to 32.4 hours per vehicle and Chrysler 32.9. Toyota stayed at 29.9.

Yet these moves born of desperation have come so late that the companies are still in jeopardy. Both management and unions chose to sign contracts that let them live better and work less efficiently in the short-term while condemning the companies to their current pass over time. It is deeply unfair for government now to ask taxpayers who have never earned such wages or benefits to shield the UAW and Detroit from the consequences of those contracts.

There's no natural law that America must have a Detroit automotive industry, any more than steel had to be made for all time in Bethlehem, Pennsylvania or textiles in New England. Britain sold off all its car plants to foreigners and was no less an advanced economy as a result, though it was a healthier one. Detroit may yet adjust to avoid destruction in the best spirit of American capitalism. The other American car industry is a model for how to do it.

    Bookmark   December 1, 2008 at 6:46PM
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And a lovely article buttressing the above, this time from the NYTimes:

Big Three May Need to Trim Number of Car Brands
December 2, 2008 NYTimes

DETROIT For the Big Three automakers to win over Washington lawmakers in their bid for federal aid, they will have to address a critical question in the business plans they give to Congress on Tuesday.

Between them, General Motors, Ford Motor and Chrysler sell 112 different car and truck models through 15 brands in the United States. By contrast, the top three Japanese automakers Toyota, Honda and Nissan have roughly half as many choices with 58 models combined sold through seven brands.

the Big Three now sell fewer than half of all new vehicles in this country, with a market share of about 47 percent this year, compared to 62 percent just five years ago.

The proliferation of models is one big reason the American companies are losing so much money as vehicle sales slump to their lowest point in 15 years.

But the Big Three also need substantive changes to drastically cut costs, industry analysts said, including trimming their glut of products and sprawling distribution networks to go with their shrinking market shares.

"Downsizing brands and models is the minimum they have to do," said John Casesa, a principal in the auto consulting firm the Casesa Shapiro Group. "This cant just be about resizing the companies, but also restructuring them."

shutting down a brand is a complicated and costly effort that requires buying out dealers protected by state franchise laws, as well as scaling back production of vehicles. In 2000, G.M. decided to eliminate its Oldsmobile brand after its sales fell from 1.1 million vehicles a year in 1985 to about 265,000 a year. But the process took nearly four years and cost G.M. more than $1 billion. Rick Wagoner, the automakers chairman, has repeatedly cited the problems of closing Oldsmobile as a prime reason to avoid eliminating more brands.

G.M., for example, has about 6,700 dealers in the United States, compared to 1,200 for Toyota (the disparity is even greater when franchises are counted G.M. dealers operate 14,000 franchises for its many brands, compared to 1,600 franchises for Toyota).

Separately, union leaders will meet on Wednesday in an emergency session in Detroit to possibly discuss renegotiating terms of the latest contract, Bloomberg News reported.

The automakers are also bracing for news on Tuesday of yet another dismal month in the marketplace. Sales of new vehicles are expected to fall 27 percent for November from the same period last year, according to the auto research Web site Edmunds.com.

The forecasts by Edmunds.com suggest that Chryslers sales were down 41 percent in November, Fords 33 percent, and G.M.s 28 percent.

    Bookmark   December 2, 2008 at 12:37AM
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I wish people would stop calling it a bail-out -- it is a LOAN -- or in Ford Motor Company's case, a line of credit.


There is so much misinformation and ignorance (especially from coming from Congress) on the reasons for the Big 3's struggles.

I would encourage you to read "local news" on this story (Detroit News and Detroit Free Press) NOT the New York Times.

    Bookmark   December 3, 2008 at 8:54AM
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stir_fryi -- Did I hear this right: A third of the population of Detroit is below the poverty level?

    Bookmark   December 3, 2008 at 11:24AM
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from the US Census bureau

In the 2007 ACS, among large cities (250,000 or more population), Detroit had the highest poverty rate (33.8 percent). Plano, Texas (5.9 percent), Virginia Beach, Va. (6.4 percent) and Anchorage, Alaska (7.3 percent), while not statistically different from each other, had lower poverty rates than other cities of the same size.

    Bookmark   December 3, 2008 at 11:50AM
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The city of Detroit is very impoverished. However, the Detroit area is VERY segregated both racially and socio-economically.

Straight from Wikipedia:

Metro Detroit's suburbs are among the most affluent in the nation. Oakland County (just North of Detroit) is the fourth wealthiest county in the United States among counties with more than one million people.

I personally live 15 miles from the Detroit border and I can live happily without ever setting foot in the city. I can go theaters, zoos, parks and even the airport without crossing the border.

    Bookmark   December 3, 2008 at 1:10PM
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Thanks for the information, gdognj.

stir_fryi -- I have this picture of Detroit as a 'one-product' town. Not so? Wealthy suburbanites are not tied to the auto industry? Foreclosures limited to the city?

    Bookmark   December 3, 2008 at 3:21PM
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Can't speak for the city of Detroit itself, but here's an interesting factoid or two as to getting out from under being "one-product".

Michigan is the third largest U.S. importer of trash behind Pennsylvania and Virginia.

The Department of Environmental Quality reported that Michigan buried 20.8 million tons of trash in 2003, the last year for which data is available. A quarter of that amount came from out of state, more than 5 million tons, with 3.1 million tons coming from Canada.

    Bookmark   December 3, 2008 at 3:43PM
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People in Southeast Michigan will often tell people from other places that they are from "Detroit" or "the Detroit area." It used to drive me nuts when I was in my late teens because I lived in the city of Detroit and when I said where I lived, I could not get it through anyone's head that I lived in the actual city of Detroit. After all, I was white, so it made little sense to them that I lived there. That was in the late 1970s.

When I was a child, many of the white residents of Detroit moved out of the city when the black residents moved into the middle class neighborhoods. It was called "white flight." After the 1968 riot (or uprising, depending on how you see it), more of the white residents left. My mom inherited her mother's house in Detroit in 1975, so I lived there with her in the late 1970s.

The city elected Coleman Young as mayor about that time, and our black residents felt more empowered, having a black mayor. Young was mayor for 20 years and as often happens in long terms in office, there was a feeling among the outsiders (the white residents) that they were no longer welcome or that no one cared about them. More whites fled. Meanwhile, many black residents who had good incomes were also moving to suburbs where the garbage pickup happened on schedule, schools were good, taxes were lower, and life was less hectic. This left the less affluent black and white residents to live in the city of Detroit. When I was a child, there were 1,800,000 people in Detroit. Now there are 951,000. The number of abandoned houses is tremendous. Wildlife is moving into the city, where abandoned houses have been torn down and areas have gone natural.

This is a NY Times article about the decline in population.

Here is a link to a p-base gallery by Patricia Lay-Dorsey showing Detroit's downtown and some neighborhoods. Look at the three galleries in the top row: "Downtown Detroit", "Detroit for real" and "Detroit neighborhoods" for beautiful photography of our city.


The bottom gallery on the Eastern Market chronicals one of the city jewels, the place where produce is marketed to retailers and to those who come to buy for their own meals.

I went away to college in 1977 and never came back until I was in my mid thirties. Mom left the City in the late 1980s after her car was vandalized twice in her own driveway (I believe this was the beginning of the crack epidemic, another blow to the city.) She sold her three bedroom one bath brick house with a full basement for under $20,000 and made a downpayment on a mobile home in the suburbs. That neighborhood now looks nicer than when she left it, with flowers out front of many houses, lawn furniture on the porches attesting to the sense of community people feel there. Other parts of the city have not done as well.

    Bookmark   December 4, 2008 at 12:36AM
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ChiSue - there are plenty of foreclosures in the suburbs. The difference is that in some of the wealthier suburbs an empty house may remain vacant without being vandalized. Copper pipes and aluminum gutters and siding are very prized at the scrap metal yards. An empty house in a poor neighborhood is at risk.

The house I cannot sell is in Mt. Clemens, about 9 miles north of Detroit city limits. We have several foreclosures on our block, but the houses that are empty are not vandalized. My boss lives in the more affluent West Bloomfield. She says there a lot of houses for sale where she lives. There are no buyers whatsoever there, she says. I see houses from all the suburban areas offering to sell the kitchen cabs, furnace, and air conditioning at low prices on Craigslist. Those are foreclosures.

The suburbs are where most of the manufacturing takes place. Autos are the top industry all over SE Mich. We are a health care center, so there are a lot of those kinds of jobs - at least until the former autoworkers leave the area. In the 1990s Automation Alley was formed and industries related to both car and other manufacturing were involved in those developments in the counties around Detroit. Our current Gov. wants to create "green" jobs of building wind turbines and other green manufacturing jobs. A former auto plant in Flint (north about an hour) will be working on making sewage into fuel, if I remember right.

It is not just Detroit that lives off the auto industry. Flint used to. The plants there closed and the city is as poor as Detroit is, or even worse. Saginaw is an hour and a half north of the northern suburbs of Detroit. The Delco plant my sister's friend works at is there. Lansing is the state capital and an hour and a half northwest of Detroit, and autos are the main industry there, after state government and education. Auto industry and tourism are our two main industries in the state. If GM fails, there will be a mass migration out, and most left behind will have little work. We will probably survive the failure of smaller Chrysler. Either way, the real estate abandonment will be a huge problem.

    Bookmark   December 4, 2008 at 1:02AM
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You have to remember that the "autoworker" is not just those who work on the assembly lines. The Detroit suburbs are full of engineers, designers, information technology professionals, marketing and sales people, managers, executives, etc...

Actually Michigan is like number 4 or 5 on the top foreclosure list. Florida is #1.

    Bookmark   December 4, 2008 at 9:13AM
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from realtytrac Nov 15th,

Which states have the highest foreclosure rates?

1. Nevada: 1 in 74 homes

2. Arizona: 1 in 149 homes

3. Florida: 1 in 157 homes

4. California: 1 in 231 homes

5. Colorado: 1 in 390 homes

6. Georgia: 1 in 391 homes

7. Michigan: 1 in 396 homes

8. New Jersey: 1 in 410 homes

9. Illinois: 1 in 410 homes

10. Ohio: 1 in 417 homes

    Bookmark   December 4, 2008 at 9:30AM
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Throughout all of this I can't believe how unsupportive people are of American car companies.

I have two friends that left the metro Detroit area in the last 5-10 years to move South. They now both drive Japanese cars. One of them has the Ford Motor Company, where her father was an engineer for 30 years, to thank for the roof over her head growing up, the braces that straightened her teeth and the fancy private college she got to attend. Yet these are the same people that refuse to shop at Walmart...

How can we survive as a powerful nation if we are not a major manufacturer? Become a nation of people with service jobs??

    Bookmark   December 4, 2008 at 2:00PM
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>>I can't believe how unsupportive people are of American car companiesNo, I'm not very supportive of GM, the company who made a decent all-electric vehicle (the EV-1) but then decided to drop it for making more crappy Buick Regals like my MIL bought.

I do support Ford, as we've owned two Escorts, one Contour, and one Taurus, all of which were very good cars. But although reliable, they are not up to the quality of the Honda, Acura, or even the Hyundai Santa Fe that is our "main" car since 2003.

There is, as pointed out, a thriving American auto industry in other states. There are 17 foreign automakers with factories in the US. None of them are asking for a bailout, even as they too are cutting shifts and reducing output.

Note in one of my postings above: "G.M. dealers operate 14,000 franchises for its many brands, compared to 1,600 franchises for Toyota)."

There is NO WAY Detroit can reduce the number of dealers easily without bankruptcy. Under no future scenario even in the most wildly optimistic guise, does GM need 12x the # of franchises that Toyota, the #2 automaker, has.

If the Detroit papers are a good source of information, you're lucky. Our local papers in the SF Bay Area s*ck big-time, I prefer to get my news from the NYTimes, WSJournal, Forbes, Barron's, and other sources.

And yes, this is a loan, not a bailout. It is the opinion of many analysts, however, that it will only be the first of several, because the Big Three is still not willing to do what they should have done a decade ago.

    Bookmark   December 4, 2008 at 3:06PM
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I read a piece today about how the UAW has now made some concessions - like abandoning the "jobs bank" where people are laid off but still paid most of their salary. If that isn't a case of "too little - too late" I don't know what is. You're begging taxpayers for billions or you're going to go under before the end of the month and you're finally agreeing to end a program that pays people not to work - and has been doing so for years. This automotive thing may end up being horribly painful for many people but it has to change now and we're going to have to deal with it. If it had been dealt with properly in the past we wouldn't be in this predicament - but no one apparently could do what needed to be done unless they were forced to. Well that time has come.

    Bookmark   December 4, 2008 at 10:04PM
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Some interesting local reading:


We are a Ford family. Ford is in the best shape of big three -- they actually were profitable in the first quarter before this credit crunch hit. We had the opportunity to drive a 2010 Ford Fusion Sport last week and it rocked! (http://www.edmunds.com/insideline/do/News/articleId=134906)

I really wonder with gas down to $1.65 by us if this "build small cars that people want" thing is going to last. I drive 2009 Ford Focus and I love it -- it is cute and fun to drive but... lets face it -- it's small. When Mom needs to transport three kids and their hockey equipment it's not going to work.

    Bookmark   December 5, 2008 at 8:51AM
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Throughout all of this I can't believe how unsupportive people are of American car companies.

I think the big three and the UAW lost the support of the people when they expected $73 hr to manufacture cars. A place were you need seniority to get laid-off because you get 95% of your pay.

I would geuss 90% of Americans would be happy with a job paying $44 hr in pay and benefits (what non-UAW manufacturers make). Don't be surprised most Americans don't support the big 3 and the UAW. I've only owned GM cars and I'm ready to switch just to put the final nail in their bloated coffin.

    Bookmark   December 5, 2008 at 1:40PM
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Myth No. 7: Their union workers are lazy and overpaid

Reality: Chrysler tied Toyota as the most productive automaker in North America this year, according to the Harbour Report on manufacturing, which measures the amount of work done per employee. Eight of the 10 most productive vehicle assembly plants in North America belong to Chrysler, Ford or GM.

The oft-cited $70-an-hour wage and benefit figure for UAW workers inaccurately adds benefits that millions of retirees get to the pay of current workers, but divides the total only by current employees. That's like assuming you get your parents' retirement and Social Security benefits in addition to your own income.

Hourly pay for assembly line workers tops out around $28; benefits add about $14. New hires at the Detroit Three get $14 an hour. There's no pension or health care when they retire, but benefits raise their total hourly compensation to $29 while they're working. UAW wages are now comparable with Toyota workers, according to a Free Press analysis.

    Bookmark   December 5, 2008 at 7:24PM
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I don't resent union workers their pay. I do, however, begrudge stupid and short-sighted management. This is way beyond the greed of the financial institutions that built up over the last five years. The Big 3 - specifically GM - have been working off an outdated and unworkable script for decades.

Since I don't read Detroit papers, I have no idea what their opinion of this NYTimes article would be. However, it is an interesting take on how the Finance side of GM has consistently won over the Innovation side.

To quote one part: "G.M.s failure to press forward with its own hybrids was a deep disappointment to Robert C. Stempel, the former chief executive who gave the go-ahead to the EV1 program during his brief tenure in the early 1990s. "Im furious," Mr. Stempel said in a 2003 interview. "G.M. had the technology. The lead was there. I know it.""

As for GM's current plan to win over Congress, any company that chooses to continue to prop up Buick while trying to sell off Saturn, deserves bankruptcy. What's the average age of Buick buyers - something like 73 yrs old? Ask 100 people what models Buick currently offers, and I'll bet that outside of Detroit, most people couldn't tell you. I LOVE cars, but I can't name with certainty any Buick 2008 models.

In contrast, I know several folks who loved and adored the early Saturns, buying two and three generations of models. But when GM deliberately neglected the dealers, the customer service became so poor (and the quality of the cars suffered as well), it completely turned people off. Now both families drive...surprise surprise, Honda or Toyota hybrids!

People love to make fun of us who live on the "Left Coast", as conservatives like to name it. But what we see or do here, the rest of the US eventually follows in 10 or 15 years. Like it or not, the Big 3 need to become the Mid-size 2, and GM needs to face facts and use bankruptcy to reorganize into a company that really can survive the next 100 years. Remember, GM actually MAKES money overseas - so expecting us to prop up their US operations is in fact a waste of taxpayer funds.

    Bookmark   December 6, 2008 at 11:43AM
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DH just informed me that he learned while watching the Congressional Hearings on the auto industry that the auto industry's current debt is also heavily leveraged by credit defaut swaps. So if they go under and stop paying off their debt, we can expect another round of financial industry failures. Why not just keep them in business and let them pay off their debts? Why bail out the financial industry again when they produce nothing material?

jkom51: I believe that Buick is the luxury car of choice in China, a huge emerging market.

I agree that the Big Three need to get rid of their airline fleets. So shoul all the other business bailed out by the government. In doing a search on "Corporate Jets," I came across a story from 2005 that talked about executives being required to use the coporate jet when on personal travel!

"Citigroup's proxy says it spent $309,783 for personal "company transportation" for Chairman Sandy Weill, $108,208 for CEO Chuck Prince and $459,153 for executive committee chair Robert Rubin. Citigroup doesn't break out personal expenses for planes or ground transport."

And Jack Welsh, the rumored new Auto Czar:
"After reports of heavy personal plane use among disgraced CEOs and negative PR heaped upon former General Electric CEO Jack Welch over his post-retirement use of company jets, "Culturally, you don't want to send a message to the market, employees or customers that CEOs are treated preferentially," notes compensation specialist Mike Kesner of Deloitte Consulting."

Yikes! He used the coporate jet after retirement, and he is going to be the guy who gets the Big Three to be frugal?

But realistically, here is basic info on coporate jet use from Wikipedia:
"There are approximately 11,000 business jets in the worldwide fleet with the vast majority of them based in the United States or owned by US companies. The European market is the next largest, with growing activity in Asia and Central America. There is a pre-owned marketplace in which aircraft are bought and sold based on their immediate deliverability because new aircraft orders often take two to three years for delivery."

    Bookmark   December 7, 2008 at 2:13PM
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>>Buick is the luxury car of choice in China, a huge emerging market. It's all relative. They sold 655,000 Buicks in China in 2005. Not exactly huge numbers, but certainly promising. And if you read my post accurately, I pointed out that indeed, GM DOES make money abroad. Even more reason why it needs bankruptcy to restructure its US operations and get out from under the weight of archaic dealer contracts and inflexible mfg plants.

GM would have abandoned the innovative NUMMI plant in Fremont, CA except that Toyota cut a deal with them to produce cars and trucks there.

Time and again, GM has shown they are unwilling to do what it takes to compete for the future. They have become the antithesis of everything American mfg needs to be to compete on a global scale.

American workers can compete against any other country, if management truly leads and innovates. Both qualities are sadly lacking at GM. Wagoner is a disgrace to the CEO role.

    Bookmark   December 7, 2008 at 4:08PM
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Lest not forget that both GM and Ford financed many loans to "suspect" consumers through their finance arms,Ford Motor Credit and GMAC financing..And how about losses for GM thru GMAC also being in the mortgage business?...
So most of the blame can't be placed at the foot of Wall Street.

    Bookmark   December 7, 2008 at 4:46PM
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