November 12, 2008

On the Idea of Bailing Out GM: NO

Filed under: Business Moves,Economy,Taxes & Government — Tom @ 1:20 pm

Kate at Small Dead Animals graphically shows why not.

Being graphically challenged at the moment, I’m tempted to hot link to her chart, but I’ll resist. Here are three of the key numbers:

Total Compensation Per Hour, 2007-2008 (includes wages and all benefits):
Big Three automakers — $73.08
Toyota — $48.00
All workers — $28.48

We’re supposed to bail out the ones with the highest cost structure, so they can keep it in place? Surely you jest.

The Big Three have had cost-structure problems for at least 30 years, and refused to adequately address them. If you look at the financial statements of GM and Ford (Chrysler is private, and arguably suffering the most), you see that they are burning through money at rates that would make 1990s dot-com companies blush.

If the sales performance of past few months continues, GM is a year or less — maybe a lot less — from bankruptcy. Ford? Maybe — maybe — eighteen months.

Oh, and in case you didn’t notice, after avoiding such practices for years, Toyota is getting very aggressive in its rebate and special financing deals, making the Big Three’s climb-out that much more difficult, if not impossible.

The bailout money from Washington would mostly, if not entirely, subsidize current operations, would have almost nothing to do with the wonder car of the future, and would extend the companies’ lives by a few years. It is overwhelmingly likely that Uncle Sam will never get his money back if he does the lending, and will have to pay up if the deal is structured as a subsidized bank loan guarantee.

Even lefties (example here; HT NixGuy) are having a hard time with the idea of keeping GM alive. I sense that there is almost no support for this outside the state of Michigan. It shouldn’t be done.

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9 Comments

  1. Of course you know they are going to blame W for not saving the auto companies in the next two months. Obama will get a pass as usual by claiming W didn’t act proactively or it was all his fault anyway that the economy tanked. Pelosi, Reid nor Obama will receive any blame.

    IMO, it was primarily the high price of gasoline that killed the domestic auto companies. Yes, the unions were responsible for the slow and inevitable bleeding to death via the unsustainable union benefits contracts. But the killer blow was gas prices. Correct me if I’m wrong, but since GMAC and other auto company credit divisions are ready at the waiting on lending money for a car loan, I don’t think the credit crunch was a contributing factor. The unemployment from high energy prices were IMO. Thanks to Nancy and Harry, with the order taking underling Obama vote in the Senate, they drove up the price of oil and therefore gasoline. Yet the oil companies are somehow to blame for not pulling enough oil out of the ground.

    IF gasoline prices stay no higher than they are now, I predict an uptick in auto sales with the caveat of auto financing being available. The current consumer confidence may be shaken but if people don’t see continuing massive lay offs they will return to business as usual.

    BTW- tangential to this thread, IF retailers don’t do their usual seasonal hiring, would the Seasonally Adjusted Unemployment figure skyrocket?

    Comment by dscott — November 12, 2008 @ 1:37 pm

  2. Speaking of GMAC: http://michellemalkin.com/2008/11/12/bailout-mania-if-you-didnt-see-this-coming/ wait for it, wait for it…

    Comment by dscott — November 12, 2008 @ 4:24 pm

  3. Believe it or not, Tom, I agree with you on this. If you want to use my post to illustrate that “even lefties” are having a hard time swallowing the idea of keeping GM alive, go ahead:

    http://www.buckeyestateblog.com/this_wont_be_my_most_popular_post

    Comment by Nick D — November 12, 2008 @ 6:15 pm

  4. #3, meant to add originally and forgot; thx for the nudge. It’s in last sentence now.

    Comment by TBlumer — November 12, 2008 @ 10:33 pm

  5. Bush is going to get blamed either way, so might as well do the right thing and let ‘em crash and burn. B. hussein wants all this spending and bailout stuff done before inauguration so as to have an out if it all fails; he’ll still take credit for it if it doesn’t.

    Comment by Joe C. — November 13, 2008 @ 9:07 am

  6. Tom, I believe the answer to my question has been forthcoming on “seasonally adjusted” UI claims. http://news.yahoo.com/s/ap/20081113/ap_on_bi_go_ec_fi/jobless_claims;_ylt=AvmmeB0374eUkcggefqyz1OyBhIF

    And btw- the upward trend in UI claims started when Pelosi and Reid took over Congress.

    Comment by dscott — November 14, 2008 @ 8:19 am

  7. #6, that’s pretty dramatic all right. I saved the graph.

    Comment by TBlumer — November 14, 2008 @ 9:24 am

  8. Good article on WSJ why the GM should declare chapter 11. Why Bankruptcy Is the Best Option for GM by Michael Levine http://online.wsj.com/article/SB122688631448632421.html?mod=djemEditorialPage

    Comment by dscott — November 17, 2008 @ 11:09 am

  9. New UI #s

    UNEMPLOYMENT INSURANCE WEEKLY CLAIMS REPORT

    SEASONALLY ADJUSTED DATA

    In the week ending Nov. 15, the advance figure for seasonally adjusted initial claims was 542,000, an increase of 27,000 from the previous week’s revised figure of 515,000. The 4-week moving average was 506,500, an increase of 15,750 from the previous week’s revised average of 490,750.

    The advance seasonally adjusted insured unemployment rate was 3.0 percent for the week ending Nov. 8, an increase of 0.1 percentage point from the prior week’s unrevised rate of 2.9 percent.

    The advance number for seasonally adjusted insured unemployment during the week ending Nov. 8 was 4,012,000, an increase of 109,000 from the preceding week’s revised level of 3,903,000. The 4-week moving average was 3,867,000, an increase of 71,250 from the preceding week’s revised average of 3,795,750.

    UNADJUSTED DATA

    The advance number of actual initial claims under state programs, unadjusted, totaled 511,941 in the week ending Nov. 15, a decrease of 26,717 from the previous week. There were 323,124 initial claims in the comparable week in 2007.
    The advance unadjusted insured unemployment rate was 2.6 percent during the week ending Nov. 8, unchanged from the prior week. The advance unadjusted number for persons claiming UI benefits in state programs totaled 3,518,151, an increase of 60,257 from the preceding week. A year earlier, the rate was 1.7 percent and the volume was 2,293,829.

    http://www.workforcesecurity.doleta.gov/press/2008/112008.asp

    Comment by dscott — November 20, 2008 @ 2:26 pm

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