Auto Bailout, yea or nea?

[motordavid]

Worth the 5 min read, imo, before one says, "screw the car companies"...


Fair Game

Blank Check for Banks, Pink Slips for Detroit

By GRETCHEN MORGENSON
Published: December 13, 2008
HERE in Bailout Nation, you’ll be surprised to learn, some of us are more equal than others.

Witness the Congressional back of the hand delivered last Thursday to Detroit automakers. Chrysler and General Motors were asking for $14 billion to see them through the end of the year; the Senate said no.

Mitch McConnell of Kentucky, who leads the Senate Republicans, opposed the rescue. “None of us want to see them go down, but very few of us had anything to do with the dilemma that they have created for themselves,” he said. “We simply cannot ask the American taxpayer to subsidize failure.”

That’s a new concept — not asking the taxpayer to subsidize failure. Is that not what we just did with the banks, to the tune of $700 billion, 50 times what the beleaguered carmakers asked for?

Moreover, in the bank rescue, taxpayers are subsidizing not only failure but also outright recklessness and greed. In spite of the fact that financial institutions drove the nation into the economic ditch, and even though “very few of us had anything to do with the dilemma that they have created for themselves,” the financial industry received billions, with few strings attached.

Complaints about bailing out high-earning autoworkers are another fascinating disconnect. The supposedly exorbitant autoworker wages that get everybody so riled up pale in comparison with the riches of Wall Street.

Neither were the banks required, as Detroit would have been, to get rid of their private jets or supply Treasury with in-depth restructuring plans in exchange for bailout funds.

This is not to argue that handing money over to troubled carmakers is a good idea or without peril. (On Friday, Treasury said it would move to prevent carmaker failures until Congress reconvenes and deals with the mess.)

Rather it is to remind everyone the degree to which the banks have been blessed with a no-questions-asked bailout that will almost certainly generate tremendous taxpayer losses down the road.

YES, of course, banks are different from you and me and Chrysler and G.M. Because lending makes the world go ’round, banks need to be healthy and well-capitalized.

But the Troubled Asset Relief Program is open to banks that are both well and[B] sickly. And nobody overseeing the program seems eager to ensure that its funds go only to those institutions that will survive and be able to pay back the taxpayer.[/B]

“Why is it that each of the carmakers needed a specific plan in hand to share in $14 billion while most of the banks only needed a large hat in hand to share $700 billion?” asked Brian Foley, a compensation consultant in White Plains. “I don’t have a sense of transparency, that there are visible accountability criteria being applied to TARP. If banks want to tidy up their balance sheets, they can go right ahead.”

As of Dec. 5, Treasury had allocated a total of $335 billion to TARP and disbursed $195 billion to institutions under its various parts.

Testifying before Congress last Wednesday, Neel Kashkari, the youthful former Goldman Sachs executive whom the Treasury Department has charged with overseeing “financial stability,” defended the $700 billion federal triage package intended to get our banks lending again.

The plan’s achievements so far, according to Mr. Kashkari: “First, we did not allow the financial system to collapse. That is the most direct important information. Second, the system is fundamentally more stable than it was.”

Maybe so. But an audit of the Troubled Asset Relief Program, released last week by the Government Accountability Office, suggests that the program’s holes are many.

For example, the G.A.O. said, Treasury has no way to determine if the program is achieving its goals of increased lending by banks. There also seems to be no monitoring of the banks’ compliance with TARP limits on executive compensation, the G.A.O. added.

Treasury should take nine actions to ensure the integrity of the TARP, according to the G.A.O. Many relate to keeping its operations transparent, managing conflicts of interest and hiring enough staff members to ensure that the program’s goals are met.

While these recommendations all have merit, there is one important item missing from the TARP to-do list: Hire tough-minded bank analysts to help determine which institutions are best positioned to use TARP funds in a way that will benefit their shareholders and the taxpayers at the same time.

Such a team could help prevent Treasury from throwing good money after bad.

According to the G.A.O., as of Nov. 21, about 48 employees were assigned to TARP. Only five are permanent staffers; the rest come from other Treasury offices, federal agencies, and organizations providing temporary help.

What is needed is a small army of TARP analysts — a lot of former bankers are out of work, by the way — to conduct a worst-case analysis of the banks’ assets and capital cushion. In private equity circles, this is called a “burndown analysis.”

Such an assessment typically involves extremely harsh loss estimates for every loan category in Year 1 and higher-than-average loss estimates for loans in Years 2 and 3, the elimination of dividend payments, and a valuation of the bank’s prospects based primarily on its deposits — not its loan portfolio.

The essential questions are these: What are the bank’s assets really worth, how much can it earn and how much capital would the bank need to operate profitably?

Bankers will object, of course. They want to keep their rosy scenarios intact for as long as they can. But such a see-no-evil approach has been central to the slow-motion nature of this train wreck. Now that the government is dispensing dollars, it is time for misplaced optimism over asset values to disappear.

Private investors looking to put money into beleaguered banks are running precisely these types of analyses. Why shouldn’t the officials who have opened the taxpayer spigot for the banks do the same?

http://www.nytimes.com/2008/12/14/business/14gret.html

[LeMansX5]

^^ I think I have known that Brian Foley guy. Not the brightest.
Few points:
Failing car mfg have history of failing and asking for money, so they need a plan.
They have plague(UAW).
If banks were not helped than even if the car manufacturers and other product manufacturers in the economy with products to sell, no one can buy as they don't have the money which will fail the not just car manufacturers but several manufacturers.
No bank help means no home purchases, no loans and that will put brakes on economy.

[X5rolls]

More in the papers today about the court of public opinion turning on both the UAW and Auto Mgmt.

To me, everything centers around having a strong business plan based on what will actually work vs. hopes. With the current leadership at Chrysler, GM AND UAW I don't think it's possible to get a plan that can work. Moreover, the UAW (rightly or wrongly) is rapidly loosing any credibility with the public.

Might be too late for them to recover lost ground and should try to take a different tact, one that shouts pragmatism vs. protectionism of existing positions. If they screw up any more they could hurt their constituents even more.

What do the workers really want? Guarantees on what they have and fight to the end or are they willing to take less but still have a job?

It's a horrible situation to be in if you are a worker - if you have built your entire life around a certain set of income and retirement expectations.

How do you reset everything? Especially if you are nearing retirement.

Will they loose their jobs, pensions and healthcare if they don't give in some?

Those would be the questions I'd be asking.

I feel for them and I go back to leadership at the auto mfgs and UAW. Go find a pragmatic solution that will actually work.

Stepping down from soap box now.

[LeMansX5]

Poll: Most Americans oppose auto bailout

[Eric5273]

Originally Posted by LeMansX5

If banks were not helped than even if the car manufacturers and other product manufacturers in the economy with products to sell, no one can buy as they don't have the money which will fail the not just car manufacturers but several manufacturers.
No bank help means no home purchases, no loans and that will put brakes on economy.

How about this for an idea: STOP with all the borrowing and loans. More than half of Americans are in major debt in one way or another, and more than 40% of Americans have a negative net worth.

Over the past 40 years, wages have steadily declined, but many people have not noticed since we now have loans and credit cards to sustain our standard of living. The net result is most people living beyond their means.

Perhaps if people were forced to live within their means, then they would demand higher wages and things would return to the "old" way where a middle class family could have the dad work, mom stay at home with the 2 kids, and everyone live happily ever after. This would be a vast improvement from the current family where both mom and dad work, kids go to daycare, etc. The decline in the living wage is directly related to the issue of "family values".

[X5rolls]

I agree with this part.

Originally Posted by Eric5273

The net result is most people living beyond their means.

[LeMansX5]

Chrysler execs leaving company

[X5rolls]

I think it is right on target. Posted from another site -


------------------------------------
This is one of the finest letters and greatest responses to the requests for bailout money I have seen. As a supplier for the Big 3 this man received a letter from the President of GM North America requesting support for the bail out program. His response is a classic, and has to make you proud of a local guy who tells it like it is. He and "Joe the Plumber" would make a great team.

+++++++++++++++++++++++++ +++++++++++++++++++++++++ +++++++++++++++++++

Dear Employees & Suppliers,

Congress and the current Administration will soon determine whether to provide immediate support to the domestic auto industry to help it through one of the most difficult economic times in our nation's history. Your elected officials must hear from all of us now on why this support is critical to our continuing the progress we began prior to the global financial crisis......................As an employee or supplier, you have a lot at stake and continue to be one of our most effective and passionate voices. I know GM can count on you to have your voice heard.

Thank you for your urgent action and ongoing support.

Troy Clarke

President General Motors North America

+++++++++++++++++++++++++ +++++++++++++++++++++

Response from:

Gregory Knox, Pres.

Knox Machinery Company

Franklin, Ohio



Gentlemen:

In response to your request to contact legislators and ask for a bailout for the Big Three automakers please consider the following, and please pass my thoughts on to Troy Clark, President of General Motors North America.

Politicians and Management of the Big 3 are both infected with the same entitlement mentality that has spread like cancerous germs in UAW halls for the last countless decades, and whose plague is now sweeping this nation, awaiting our new "messiah", Pres-elect Obama, to wave his magic wand and make all our problems go away, while at the same time allowing our once great nation to keep "living the dream"… Believe me folks, The dream is over!

This dream where we can ignore the consumer for years while management myopically focuses on its personal rewards packages at the same time that our factories have been filled with the worlds most overpaid, arrogant, ignorant and laziest entitlement minded "laborers" without paying the price for these atrocities…this dream where you still think the masses will line up to buy our products for ever and ever.

Don't even think about telling me I'm wrong. Don't accuse me of not knowing of what I speak. I have called on Ford, GM, Chrysler, TRW, Delphi, Kelsey Hayes, American Axle and countless other automotive OEM's throughout the Midwest during the past 30 years and what I've seen over those years in these union shops can only be described as disgusting.

Troy Clarke, President of General Motors North America, states: "There is widespread sentiment throughout this country, and our government, and especially via the news media, that the current crisis is completely the result of bad management which it certainly is not."

You're right Mr. Clarke, it's not JUST management…how about the electricians who walk around the plants like lords in feudal times, making people wait on them for countless hours while they drag censored…so they can come in on the weekend and make double and triple time…for a job they easily could have done within their normal 40 hour work week. How about the line workers who threaten newbies with all kinds of scare tactics…for putting out too many parts on a shift…and for being too productive. ( Volumes could be written about the bloat and abuse in union shops; in most production process businesses that need to be efficient and productive and they have outlived their true value.)

(We certainly must not expose those lazy bums who have been getting overpaid for decades for their horrific underproduction, must we?!?)

Do you folks really not know about this stuff?!? How about this great sentiment abridged from Mr. Clarke's sad plea: "over the last few years …we have closed the quality and efficiency gaps with our competitors." What the hell has Detroit been doing for the last 40 years?!? Did we really JUST wake up to the gaps in quality and efficiency between us and them? The K car vs. the Accord? The Pinto vs. the Civic?!? Do I need to go on? What a joke!

We are living through the inevitable outcome of the actions of the United States auto industry for decades. It's time to pay for your sins, Detroit .

I attended an economic summit last week where brilliant economist, Alan Beaulieu, from the Institute of Trend Research , surprised the crowd when he said he would not have given the banks a penny of "bailout money". "Yes, he said, this would cause short term problems," but despite what people like politicians and corporate magnates would have us believe, the sun would in fact rise the next day… and the following very important thing would happen…where there had been greedy and sloppy banks, new efficient ones would pop up…that is how a free market system works…it does work…if we would only let it work…"

But for some nondescript reason we are now deciding that the rest of the world is right and that capitalism doesn't work - that we need the government to step in and "save us"…Save us my censored, Hell - we're nationalizing…and unfortunately too many of our once fine nation's citizens don't even have a clue that this is what is really happening…But, they sure can tell you the stats on their favorite sports teams…yeah - THAT'S really important, isn't it…

Does it ever occur to ANYONE that the "competition" has been producing vehicles, EXTREMELY PROFITABLY, for decades in this country?... How can that be??? Let's see… Fuel efficient… Listening to customers… Investing in the proper tooling and automation for the long haul…

Not being too complacent or arrogant to listen to Dr. W. Edwards Deming four decades ago when he taught that by adopting appropriate principles of management, organizations could increase quality and simultaneously reduce costs. Ever increased productivity through quality and intelligent planning… Treating vendors like strategic partners, rather than like "the enemy"… Efficient front and back offices… Non union environment…

Again, I could go on and on, but I really wouldn't be telling anyone anything they really don't already know down deep in their hearts.

I have six children, so I am not unfamiliar with the concept of wanting someone to bail you out of a mess that you have gotten yourself into - my children do this on a weekly, if not daily basis, as I did when I was their age. I do for them what my parents did for me (one of their greatest gifts, by the way) - I make them stand on their own two feet and accept the consequences of their actions and work through it. Radical concept, huh… Am I there for them in the wings? Of course - but only until such time as they need to be fully on their own as adults..

I don't want to oversimplify a complex situation, but there certainly are unmistakable parallels here between the proper role of parenting and government. Detroit and the United States need to pay for their sins. Bad news people - it's coming whether we like it or not. The newly elected Messiah really doesn't have a magic wand big enough to "make it all go away." I laughed as I heard Obama "reeling it back in" almost immediately after the final vote count was tallied…"we really might not do it in a year…or in four…" Where the Hell was that kind of talk when he was RUNNING for office?

Stop trying to put off the inevitable folks … That house in Florida really isn't worth $750,000… People who jump across a border really don't deserve free health care benefits… That job driving that forklift for the Big 3 really isn't worth $85,000 a year… We really shouldn't allow Wal-Mart to stock their shelves with products acquired from a country that unfairly manipulates their currency and has the most atrocious human rights infractions on the face of the globe…

That couple whose combined income is less than $50,000 really shouldn't be living in that $485,000 home… Let the market correct itself folks - it will. Yes it will be painful, but it's gonna' be painful either way, and the bright side of my proposal is that on the other side of it all, is a nation that appreciates what it has…and doesn't live beyond its means…and gets back to basics…and redevelops the patriotic work ethic that made it the greatest nation in the history of the world…and probably turns back to God.

Sorry - don't cut my head off, I'm just the messenger sharing with you the "bad news". I hope you take it to heart.

Gregory J. Knox, President

Knox Machinery, Inc.

Franklin, Ohio 45005

True according to Snopes: http://www.snopes.com/politics/soapbox/knox .asp

[LeMansX5]

GM to shrink to four brands

In an interview Sunday with Automotive News (sub. req'd), Troy Clarke, GM's North American president, said that General Motors will be able to make good on its promise to Congress to drastically cut costs. Clarke said that GM will now focus its "product and marketing resources" on Buick, Chevrolet, Cadillac and GMC. That would leave Pontiac, Saturn, Saab and HUMMER in automotive limbo. As part of that same plan presented to lawmakers, GM said it would sell or close Saturn. And since no one has yet stepped forward with cash, the future is not at all certain for the unique brand despite what GM's marketing VP Mark LaNeve says.

In a separate interview, Bob Lutz told AN that Pontiac will also have to get by with only four models: the G8, G5, Vibe and Solstice. Or five models if you count the Solstice coupe separately as Lutz does. Shrinking the brand would complete yet another promise GM made to Congress to make Pontiac a niche brand.

[X5rolls]

Wonder if this will be enough to save the ship?