Obama and GM: The Best Outcome in an Awful Situation
The Obama administration's plan for General Motors is a serious effort to try to make the best of really awful situation. In the current economic situation, sitting back and allowing GM to be liquidated was not a serious option. This would have wiped out a whole network of suppliers and ancillary businesses in Michigan, Ohio, and Indiana, devastating the economies of these three states.
The federal government would have been forced to step in with large-scale aid in this case just to prevent mass destitution.The state and local governments would have lacked the resources just to maintain basic services like schools, hospitals, and sanitation facilities. Of course the plan is not perfect and it can be argued that one or another of the parties got too much or too little.
The often told story that the UAW made out like bandits is nonsense. Workers are making substantial concessions and many will be losing retiree health care benefits for which they already worked decades. The bondholders are great whiners, but none of them have said that they wanted the company liquidated. They know that they would get less if the federal government had not intervened. They whine because they know the media are always sympathetic to investors, so their whines will be presented to the public as serious arguments.This could create a political environment in which they could get more money, offering substantial returns to speculators who just bought GM debt at steep discounts.
Finally, it is remarkable how much anger has been generated over the government lending money to GM. This is an effort to save jobs and save the economy of the Midwest. In exchange, the government is getting a substantial ownership stake in GM. It could actually profit from this stake, but of course there is no guarantee.
By contrast, the government just handed $12.9 billion to Goldman Sachs through AIG. The government got nothing in return for this -- no stocks, no bonds; there is no pretense that this money will ever be paid back. And, the only jobs we saved were probably the jobs of Goldman's lobbyists who want to make sure that we don't regulate the derivatives that helped bring on this disaster. (See also Jonathan Cohn.)
I agree that the government could not have stood by and watched the unemployment rate skyrocket to 30% or more in the states most affected. I'm also sure government could not have allowed the financial system to collapse.
However, no one knows if government efforts will be fruitful. Will Chrysler-Fiat and the new lean GM will be profitable? The odds are that one or both of them will subsequently fail - given their long track records of failure under much better conditions, and the failure of government intervention generally in the car business. Nor are the prospects for the bank interventions any better given the continuing decline in housing, and burgeoning defaults everywhere.
Could government have done better? Who knows? All we can be sure of is that your present criticisms are completely partisan and utterly without merit.
June 1, 2009 11:08 AM | Reply | Permalink
Ah, another ordinary comment by Ordinary. (Sorry, I couldn't help myself on that one.)
Of course there are no guarantees that either Chrysler or GM will untimately even survive, let alone be profitable. But, this way there is a chance for them. Allowing them to fail without any assistance at all would offer zero chance of avoiding the extreme economic impact of their failures.
June 1, 2009 12:18 PM | Reply | Permalink
As usual you understand nothing.
Would government dollars have been better spent in some other way? When it comes to the bank bailouts Baker is sure that the answer is yes...but his opinions are too partisan to be worth serious consideration.
Alternatives were certainly proposed; direct aid to homeowners, massive investment in green training, jobs, projects, public transportation, etc., etc., etc.
No one can be sure they wouldn't have been better.
June 1, 2009 12:54 PM | Reply | Permalink
I agree that the Federal government had to help GM. But it is only a bandaid. This economy is way sicker than our leaders understand. I think this economy is crashing.
Why is it crashing? Because the very wealthy on the FIRE side are strangling us. The wage earners have kept up by working two jobs, overtime, and credit cards. Sure, some overspent on non essentials. But everybody's insurance, fuel and other costs went through the roof.
Why did those costs go through the roof? Here are a couple of guesses:
1. We really have a free market, and well that old free market just operated for the benifit of all of us.
2. The Leeches are in controll.
June 1, 2009 8:25 PM | Reply | Permalink
Maybe Michigan, Indiana and Ohio should diversify their economies. Depending on the automaker for survival is proving to be dangerous territory. After all, we are watching history today as GM becomes the largest industrial bankruptcy in U.S. history.
Source: http://www.newsy.com/videos/gm_refuels_with_bankruptcy
June 1, 2009 4:37 PM | Reply | Permalink
This is the list of AIG counterparties that Dean is talking about when he says the U.S. Govt is giving money to Goldman Sachs via AIG:
http://www.aig.com/aigweb/internet/en/files/CounterpartyAttachments031809_tcm385-155645.pdf
June 1, 2009 7:08 PM | Reply | Permalink
I maybe dating myself here but I remember that American cars and GM in particular had one thing going for them. Of they guzzled gas and didn't handle for crap. But they use to last a long time.
You could beat the crap out of the drive train and do minimal maintenance on them and they would still run. I still see Fords and Chevys and Pontiacs etc. from the 70s and 80s and even lat 60s on the road. And I am no talking about collectors either.
Don't see many VWs or MGs and damn few Jap cars from that era. Even from the 90s.
Chris
June 1, 2009 8:36 PM | Reply | Permalink
Bricks last a long time too.
Given the vast improvements in the safety and emissions of automobiles over the past 20 years or so, it is a very good thing that there are few cars older than that on the road. I would never allow a child or, in my case, a grandchild of mine, to own, drive, or if possible, be a passenger in one of those cars that "last a long time".
By the way, there are still many, many Volkswagons from the 70's and 80's still in use. And many more have been converted to "dune buggies". That car is one of the most rugged ever built.
June 1, 2009 11:53 PM | Reply | Permalink
Monetary troubles are everywhere and we can observe even the biggest companies are having a hard time maintaining their own businesses. One of the most unexpected one is the General Motors Company. GM employees are in a pretty tight spot these days, as GM has announced plant closures, dealership closures, and even entire brand closures (such as Pontiac), and most of the employees dedicated to those jobs are going to likely experience a layoff. Even with good budgeting or funds from the government bailout, it still isn't enough to cover the ground lost by the loss of a profession. Short term loans aren't going to assuage the hurt, and GM is in trouble. They are all but filing for bankruptcy at this point, and hopefully if they do file it will be a short one. It looks like there will be cash advances in the near future for GM employees.
June 2, 2009 2:03 AM | Reply | Permalink
Obama Saving GM Needed Dealmaker Team to Break It
I don't find this reassuring.
Chrysler is supposed to survive by using FIAT technology to produce good small cars. It's going to take them at least a couple of years to ready the new product, and a couple of more years to iron out the inevitable bugs. In the meantime they'll have to survive on their present line-up and its reputation. Talk to owners of these cars and the effect of the bankruptcy on their warranties and you know it'll never happen.
GM is in the same boat. It's cars are shit. It's trucks are better, but still not competitive. It's projected new vehicles are inadequate. It's going to lose 40% of its dealers.
As a result of the bankruptcy both companies are generating an enormous amount of ill-will among investors and potential buyers. So how are they going to survive?
June 2, 2009 3:46 AM | Reply | Permalink