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You are missing that the brand name of a failed company tends to be a toxic asset, assembly lines are specialized for the technology that they are assembling, a

by btilly 8y ago

You are missing that the brand name of a failed company tends to be a toxic asset, assembly lines are specialized for the technology that they are assembling, and the real estate is of interest to companies that are trying to establish themselves rather than ones which are already established. At present current ICE companies are unwilling to sell these assets and electric startups are unable to afford them. By the time that electric startups are driving current ICE companies into bankruptcy, electric startups will no longer need those assets (because they must have built their own before this happens) and therefore still won't buy them. Please note that I'm not saying this out of pure speculation. I'm saying this because this is how past rounds of innovative disruptions played out. It is true whether we're talking about sailing ships to steam ships, wire excavators to hydraulics, integrated mills to minimills, or various generations of larger disk drives to smaller (until the rise of mobile devices making small good in and of itself ended that sequence of disruptions). It is hard to look at what has been invested into existing auto technology and not imagine that it has to be worth something. But there is every reason to believe that it will be worth pennies on the dollar, and companies will end up in chapter 7 rather than chapter 11.

derefr 8y ago
> But there is every reason to believe that it will be worth pennies on the dollar, and companies will end up in chapter 7 rather than chapter 11. I don't think you're disagreeing with me here. I said "fire-sale" above—I meant pennies on the dollar. Liquidation of assets. It's just that PE firms think they can make money by getting underwater companies to favor ch11 over ch7, because then they can play negotiating hardball over specific assets that other companies might want (like real-estate), rather than those assets just being probated out at face value to creditors. GM was already almost ch11'ed in 2008. They were sold to a PE firm, and the PE firm looked for buyers for its assets. They just couldn't find a buyer at the time, since the foreign electric market was still nascent, so no company wanted to grow into the American market at the time. Eventually, GM got propped up enough with government stimulus to buy itself back and keep going. If it hadn't, though, it'd probably have limped along for long enough that it could finally be sold some time in the last five years. Also: > By the time that electric startups are driving current ICE companies into bankruptcy, electric startups will no longer need those assets (because they must have built their own before this happens) and therefore still won't buy them. Why wouldn't a Chinese auto-maker want to buy a set of American plants (which is to say, American real-estate to stamp out copies of their Chinese plants onto) if they wanted to expand their global business into the American market? Especially considering the likely-to-only-increase trade tariffs between the US and China—it may end up far cheaper to build a Chinese electric car intended for the US market in the US than in China.
- btilly 8y ago
  We may well actually be mostly in agreement. As for the Chinese auto-maker, it is a chicken and egg problem. If the end result is Chinese EV makers having a big role in driving US auto manufacturers out of business, and they decide that they need US factories to do it, they will have to build those factories first. By the time the US auto company factories are for sale there will very much be a flavor of, "Gee, that would have been nice 5 years ago..." That isn't to say that some Johnny-come-lately who entered the US market late won't be found to snap a few factories up. But at that point they'll probably be better off looking for buyers in unrelated industries.

by btilly 8y ago

derefr 8y ago

> But there is every reason to believe that it will be worth pennies on the dollar, and companies will end up in chapter 7 rather than chapter 11. I don't think you're disagreeing with me here. I said "fire-sale" above—I meant pennies on the dollar. Liquidation of assets. It's just that PE firms think they can make money by getting underwater companies to favor ch11 over ch7, because then they can play negotiating hardball over specific assets that other companies might want (like real-estate), rather than those assets just being probated out at face value to creditors. GM was already almost ch11'ed in 2008. They were sold to a PE firm, and the PE firm looked for buyers for its assets. They just couldn't find a buyer at the time, since the foreign electric market was still nascent, so no company wanted to grow into the American market at the time. Eventually, GM got propped up enough with government stimulus to buy itself back and keep going. If it hadn't, though, it'd probably have limped along for long enough that it could finally be sold some time in the last five years. Also: > By the time that electric startups are driving current ICE companies into bankruptcy, electric startups will no longer need those assets (because they must have built their own before this happens) and therefore still won't buy them. Why wouldn't a Chinese auto-maker want to buy a set of American plants (which is to say, American real-estate to stamp out copies of their Chinese plants onto) if they wanted to expand their global business into the American market? Especially considering the likely-to-only-increase trade tariffs between the US and China—it may end up far cheaper to build a Chinese electric car intended for the US market in the US than in China.

btilly 8y ago
We may well actually be mostly in agreement. As for the Chinese auto-maker, it is a chicken and egg problem. If the end result is Chinese EV makers having a big role in driving US auto manufacturers out of business, and they decide that they need US factories to do it, they will have to build those factories first. By the time the US auto company factories are for sale there will very much be a flavor of, "Gee, that would have been nice 5 years ago..." That isn't to say that some Johnny-come-lately who entered the US market late won't be found to snap a few factories up. But at that point they'll probably be better off looking for buyers in unrelated industries.