Monday, November 17, 2008

Can we allow the failure of U.S. Auto Manufacture?


The VP said...

Extreme free marketers think so. Haven't we traveled down this road before with Chrysler and Lee Iacocca?

The VP said...

Chapter 11 is not always a bad thing, especially for mismanaged companies like the big 3 automakers. Chapter 11 is about reorganization, not going under. The transparent nature of chapter 11 requires the businesses to restructure and redesign better business plans. This usually makes them more efficient, stronger, and better prepared to compete in the global market.

Many claim that the Big 3 will have to eventually declare Chapter 11, even with taxpayer money, because of the mismanagement and lack of transparency as to their activities.

Maybe taxpayer money would only postpone the inevitable. If that's the case then it would sure be a waste of money.

If I were an employee, I'd probably rather bite the bullet now and get it over with, then to continue to dread the future.

Bubby said...

Yeah well, where is any American going to get the money to buy, repair, recapitalize and operate General Motors? That kind of money is so last summer.

If the car companies go on the block look for the Chinese to come pick up the tools, and technology at fire-sale prices and haul them back home...and start selling cars back to us.

America needs the car manufacturers, and the related skilled trades. We need to make stuff. We probably don't need the guys who brought us the Hummer, the Avalanche, and just about anything built by Chrysler.

Deb SF said...

Apparently, Chapter 11 isn't really an option for GM now, in this economy, in this credit market.

Jon Cohen at the New Republic has one of the best write-ups on the case for bailing out GM here

In part, he says:

One reason for the casual support for letting GM fail is the assumption that bankruptcy would be no big deal: As USA Today editorialized recently, "Bankruptcy need not mean that the company disappears." But, while it's worked out that way for the airlines, among others, it's unlikely a GM business failure would play out in the same fashion. In order to seek so-called Chapter 11 status, a distressed company must find some way to operate while the bankruptcy court keeps creditors at bay. But GM can't build cars without parts, and it can't get parts without credit. Chapter 11 companies typically get that sort of credit from something called Debtor-in-Possession (DIP) loans. But the same Wall Street meltdown that has dragged down the economy and GM sales has also dried up the DIP money GM would need to operate.

That's why many analysts and scholars believe GM would likely end up in Chapter 7 bankruptcy, which would entail total liquidation. The company would close its doors, immediately throwing more than 100,000 people out of work. And, according to experts, the damage would spread quickly. Automobile parts suppliers in the United States rely disproportionately on GM's business to stay afloat. If GM shut down, many if not all of the suppliers would soon follow. Without parts, Chrysler, Ford, and eventually foreign-owned factories in the United States would have to cease operations. From Toledo to Tuscaloosa, the nation's?assembly lines could go silent, sending a chill through their local economies as the idled workers stopped spending money

The VP said...

Bubby & Deb,
You make great points and I'm not necessarily disagreeing with you. There are also the unanswered questions of "will consumers buy cars from a company in bankruptcy?" and since the average bankruptcy process takes about 3 years, "how will that affect supliers, distributors and employees?"

I am first to admit that I don't know enough about the nuances of the economy and the role of the big 3 in our economy to have a truly educated opinion. To me it seems like "six of one, half dozen of the other." I guess it just comes down to which experts Congress listens to. I just hope they're right.

The VP said...

I saw a great, eye opening movie a year ago called, "Who killed the electric car?" This movie documents the premeditated, systematic attack on alternative fuels and fuel efficient vehicles in the late 1980s and early 1990s.

Why haven't the Detroit execs revisitied this issue knowing that the competition was moving in that direction and seeing what the international fossil fuel situation was becoming?

GM had bought out the patent for a car battery that would deliver 80mph, could recharge overnight at your home, and could go days between charges. Where is that technology today?

Its hard for me to feel sorry for those punks who could have postured their company better for the new century, but instead opted for greed,the status quo, and outdated technology.

Its pretty sad when China, the worst polluter behind the US, won't allow our cars to be sold in their country because they don't meet their emission standards. thats messed up.

Bubby said...

How about an all electric car that gets 244 miles between charges, zero to 60 in less than 4 seconds, and costs pennies per mile? The 2009 Tesla Roadster. Yeah Baby!

Soon to be followed by the Model S, a five passenger sedan that will be build in California (the roadster is built by Lotus in the U.K.).

Anonymous said...


With a base price of 109k, how many people's auto solution do you expect the Tesla roadster to be???

Bubby said...

Right now very few, but it is proof of concept for an electric car that doesn't look and run like a golf cart.

The VP said...

If, after the warning signs of the energy crisis of the 1970s, the big 3 had intelligently and progressively put their R&D money into moving away from fossil fuel combustion engines and into the technolgy of the future, then we'd all be driving $20,000 Tesla's that go 1000 miles between charges.

Better yet, the Teslas would be run by a solar panel the size of a credit card.