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Ask YC: To save GM or not?

• noodle 18y ago
  let them die, imo. keeping them on life support will just be a drain on everyone. bailing them out will just allow them to continue to be a terrible company. instead, use that money to fund grants and initiatives and prizes to incentivize new companies or GM itself, provided results are produced. that way, the industry will move forward. a bailout would almost definitely result in stagnation for many years. imo, ofc. the bad companies will go away and other companies will take their place, providing new jobs.
  • iigs 18y ago
    Everybody's mad at the financial institutions for spending their bailout money on bonuses and other seemingly irresponsible things. Because these companies are not bankrupt, they're not able, as far as I know, to renegotiate much of anything they've committed themselves to contractually. From inane Union concessions (job bank) to executive compensation and stupid parts contracts, the domestics are shackled with the cumulative damage from decades of mismanagement. Bankruptcy is the tool they need in order to actually recover from the mistakes they made. When you start talking about dissolving large scale manufacturing enterprises, however, there are people that start asking who will build the tanks in the next large war. I don't understand the military aspect of that but I suspect if all of the plants go foreign owned they'd just be nationalized in the event of a crisis. Maybe the bailout is the nationalization and they're just thinking ahead -- I don't know.
    • steveplace 18y ago
      Fortunately, GM doesn't build our tanks. Also, when people argue about how if GM fails then all these jobs will be lost--remember this: Detroit still has leftover production infrastructure for light rail. Not a whole lot of retraining necessary, and it would work with the inevitable Keynesian domestic spending we'll have.
  • bdotdub 18y ago
    I hear ya. Let them go bankrupt. I believe that there is no reason why we should be saving them because of their inability and refusal to adapt and change. The fact that these US automakers have blocked legislation to make cars more fuel efficient because the profit margins are gigantic is ridiculous. They are wholly responsible for their failure while other car makers around the world are creating better cars and not, you know, going bankrupt. Isn't Chapter 11 bankruptcy made exactly for this? The trouble now is the loss of jobs and the effect it will have on our economy. I have some trouble with this, but I also feel like these people could be better used creating and working at companies that progress their products, and not produce the same SUV across all of their lackluster brands.
  • chubbard 18y ago
    In theory I'd say die die and die some more. I'd like to think that if we let GM just die then out of work car people will move on to creating the cars we actually want/need. Rather than arguing with unions over health care and labor standards, and begging for hand outs. If they just died we could move onto the next stage of creative destruction, and those car people would build cars using alternative fuels, electric cars, fuel effecient, cool looking cars (not buicks, SUVs, and La Sabres). However, I think we have to consider that if America stopped making cars then we'd just be sitting ducks for all the other manufacturers out there that are doing fine. Toyota, Germany, the Chinese, and Koreans. I think they'd just dump cheap imports on us, and we wouldn't get an environment where entrepreneurs could innovate new products without competition from larger manufacturers. So I think the die argument, even without considering the pain of job loss, is naive to think we'd get better products made by American companies. I'm not convinced we would be better off letting them die.
    • lacker 18y ago
      This is slightly missing the point - if GM goes through a Chapter 11 bankruptcy they will not "stop making cars". Their stock will go to zero, they will default on most of their borrowed money, they will probably have to fire a lot of people, simplify their product line, and sell off some brands to other groups. But they will keep operating as a company.
• vaksel 18y ago
  it can't be a blank check, if they are going to bail them out that better come with a huge list of demands...forget golden parachutes, demand complete reorganization, huge cuts, new focus. i.e. I'd sell/cut Buick, Hummer, Saab and then go through the brands cutting models. GM makes 89 vehicles and many of them are pretty much copies of each other and compete with each other. Notice how honda only has 10 models, 1 for each class. This lets them make 1 good car for each space, instead of 4 half-assed ones. Startup idea wouldn't really work, it costs way too much money to bring a car to market, and there aren't that many startups in the automotive space, Tesla is pretty much it. Personally I'd want GM/Chrysler and Ford to go into a joint venture for a new brand to sell a full line of electric/hybrid vehicles. The space is too costly of an investment to take on by one company. This way they can spread the risk and work together on the same technology. And people looking for electric vehicles wouldn't be locked down into funky looking hatchbacks as their only choices.
  • unalone 18y ago
    Problem is, if we do bail GM out we most likely would not attach any strings. So I think bailing out would have to be a no for now.
  • tc7 18y ago
    Yeah... I read somewhere that the GM bailout should come with the requirement of replacing their current vehicles with a hybrid/electric/whatever lineup in X number of years. I would be happier about a bailout with those sort of strings, but in general, reading that Executives at these car co's have been deriding climate change evidence and the need for hybrids/alternative fuels, makes me skeptical that refunding these companies is the best way to fix the car problem. On another note, this stuff sucks. Everyone loses if we bail out poorly run companies, but there's a very high cost to letting them go under. Good luck, Mr President-Elect.
    • redrobot5050 18y ago
      Sometimes a one time upfront cost is optimal than a high overhead for all your operations. Its like sorting an array of integers (O(nlogn) so you can rapidly search it with Binary Search (O(logn) rather than having to do a linear O(n) every time. It sucks for the people in Detroit and Michigan as a whole. Their education system has not yet caught up to the fact that the name of the game is "value added". Also, now that "peak credit" has hit (shortly after peak oil last december) I do not see the trend of American families buying a brand new car every 1 to 2 years continuing. Much more effort is going to have to be spent making your manufacturing base as efficient as possible -- simply because the car buying cycle will likely be an "every five-six years" trend from now on.
• swombat 18y ago
  Where financial organisations were concerned, letting them go bust was not an option because of the impact on the rest of the world... The Lehman bankruptcy fucked everyone up big time, and should have been avoided. However, when it comes to "normal" companies like GM, I say let'em go bust. Obama sees them as a key part of gearing up the US to becoming a leader in green cars, but tbh, I think the $50bn would be better spent buying Toyota or something...
• thrill 18y ago
  Some (self described) smart people believe that "it'll all just work" if we put the just-right smart person in charge of such a bailout to decide what the just-right thing to do is. We instead need to put 200 million smart people in charge of deciding what to do - and they can each decide with their own hard-earned money. Give your money to government - or just the same, give government the power to take your money - and all you get is a handful of not-really-that-smart people deciding what is best for you.
  • ovi256 18y ago
    If only there were 200 million smart people in the US! By definition, 50% are below average.
    • thrill 18y ago
      Perhaps we need some sort of document that states, and that people in elected office would swear an oath to support, that no matter where you fall in the bell curve, that only you have the right to pursue your own path when deciding what is best for yourself. I just can't think of what to call such a thing.
      • gills 18y ago
        We could call it "The Constitution of the United States of America". That has a nice ring to it.
    • tc7 18y ago
      So? The 'average' IQ could be 200, which would make a lot of 'below-average' people still really smart. :)
      • huherto 18y ago
        I think it is implied that the average IQ is 100. But you are right there is nothing wrong having 50% below average if the average were 200.
      • 18y ago
• aidenn0 18y ago
  If GM goes bankrupt, there will be massive unemployment and closed factories. This sucks. On the other hand, this is a good environment in which to be a manufacturing company with cash on hand. If GM can't turn a profit, they need to make room for someone who can.
  • Retric 18y ago
    When a company goes bankrupt nobody needs to be fired the next day. A judge can restructure the company and toss out specific contracts such as executive bonuses, union pay, and debts. Look at Delta Air lines as an example of this http://en.wikipedia.org/wiki/Delta_Air_Lines http://en.wikipedia.org/wiki/Delta_Air_Lines.
    • bcostlow 18y ago
      Yeah, except GM is so shaky, and credit markets so tight, there is serious concern that they could enter a 'restructuring' bankruptcy, but end up in a liquidation, because they won't be able to secure bridge and exit financing needed operate while in bankruptcy and to actually restructure their debt. http://www.bloomberg.com/apps/news?pid=newsarchive&sid=azEnfDF7aB0s http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a...
      • redrobot5050 18y ago
        All the more of an argument to let them fail. If the "free market" does not think it is a good investment/risk ratio, why let the taxpayers take it?
        • thrill 18y ago
          "why let the taxpayers take it?" It buys votes.
      • Retric 18y ago
        If they fixed union contracts to become reasonable and limited executive pay then I don't mind government financing as part of that solution, but giving them money when they are as broken as they are now is stupid.
• antiismist 18y ago
  There is a middle ground between bailout and a liquidation - a bankruptcy reorganization. It would probably wipe out the shareholders and the debt holders, and some jobs and factories, but a lot of GM and its brands and factories would live on.
  • redrobot5050 18y ago
    Opal, their major EU brand, is profitable. Like BMW brought us the mini-cooper, a GM bankruptcy could bring us tiny turbo diesel cars that get 50+ MPG and run forever with non-chintzy interiors. I know I'm dreaming. This money is going to be spent selling us the hummer H4 until gas hit $8/gallon, but there are entirely profitable segments of GM that could be swallowed up wholesale. The wealth-incinerating assets should simply die.
  • hapless 18y ago
    As stated elsewhere, the great danger is that a reorganization would fail due to tight credit markets. In a normal economic situation, a GM bankruptcy would be good news. The company could be held in trust, re-organize itself, and become profitable for (some) creditors. Right now, credit is tight, investors are skittish, and government resources are stretched. It's not that GM is too big to fail. It's that GM is too big to fail right now.
    • thrill 18y ago
      "It's not that GM is too big to fail. It's that GM is too big to fail right now." Maybe the problem is that GM is too big to succeed.
• justindz 18y ago
  One idea I heard on C-SPAN this morning was to chop them up and take the bailout money to instead build something like 12 hardcore engineering outfits to build cars of the future, then get startup people to pitch for an opportunity to run those outfits and/or commercialize them down the road. I don't have any capacity for analyzing the pros and cons to this, but the idea of focusing on starting from innovation rather than trying to steer a big, unwieldy ship towards innovation sounds attractive.
  • thrill 18y ago
    "I don't have any capacity for analyzing the pros and cons to this". Nor does anyone else - especially if they claim to do so.
  • jdavid 18y ago
    I was just thinking this morning that if we had 10 or 12 companies that were all competing against each other maybe a few of them would have made some different decisions about what markets to search for. I think breaking up the company is a good idea if we bail them out. It will spread out the risk and allow the companies to focus on a core market. It will also spread out the risk. I think it makes sense if each plant was a separate car manufacture. Let them each decide what cars they want to make and give incentives for cars that have over 50mpg, and cost less than $15k. In times like these its time to start a revolution, and the car industry is a good place to start.
• blurry 18y ago
  One of GM's largest problems is the unions. Going through bankruptcy would provide them with a much needed chance to re-negotiate the labor contracts. I vote for bankruptcy all the way.
• kazoolist 18y ago
  Short answer is "yes, let GM fail". For more details, I appreciate Daniel Ikenson's insights on this: http://www.cato.org/dailypodcast/podcast-archive.php?podcast_id=778 http://www.cato.org/dailypodcast/podcast-archive.php?podcast...
• biohacker42 18y ago
  Let them die, but don't let them die now, because now things are bad enough as it is. Think of it as a bail out of everybody else. We're going to spend 3,4, maybe 5% of annual GDP to get through this mess. Might as well use some of that to kick the GM can down the road a bit.
  • thrill 18y ago
    "Let them die, but don't let them die now, because now things are bad enough as it is." Ah - so let them continue to lose $2000 per car for a couple more years, because that'll make things better - meaning what's eventually left is worth even less to whomever finally buys it (likely the taxpayer it seems).
    • biohacker42 18y ago
      Sure, it will make things better because in a couple more years the economy is in recovery and can absorb the shock better, It's not like the government isn't planning to extend unemployment benefits because of the economy. If GM goes bust now then more people will be on the dole for longer. The tax payer pays for it one way or another.
      • khafra 18y ago
        I'm not entirely convinced there's a net benefit. Paying GM 25B to continue to use materials and labour inefficiently, creating vehicles that won't sell, provides a reason to give their workers a salary which they'll spend in their local economy, keeping second-order collapses like those that accompany the closing of military bases in isolated areas from happening. If, on the other hand, we shut down GM and put its former workers on extended unemployment, those with the aptitude and will relocate and find similar jobs; those without retrain and join the economy in a different role. The materials that formerly went into unwanted cars will be obtainable more cheaply for other uses. The point is debatable, but it seems obvious to me that even if some of the GM workers remain forever unable or unwilling to rejoin the workforce, the cost of supporting them will be lower without the inefficiency of supporting a company on top of them. I've read, but cannot source at the moment, that when federal aid to farms really took off in the 1930s, they did the math and realized welfare to individuals would be cheaper. For a variety of reasons, they implemented price controls instead, and saddled the economy with a persistent market failure in food production that's now over 70 years old.
• mdasen 18y ago
  Is it really that GM has failed to innovate? Let's look at the numbers: GM======================================Toyota $1,525 in healthcare per vehicle $201 in healcare per vehicle $73.73 avg cost of a labor hour $48 avg cost of a labor hour 34.3 hours to build a vehicle 27.9 hours to build a vehicle Loses $2,331 per vehicle Makes $1,488 per vehicle So, let's just alter GM's healthcare and labor costs to Toyota's levels. Lowering labor costs would save GM $882.54 per vehicle. Add to that the difference in healthcare costs and GM would save $2206.54 per vehicle - nearly making them profitable right there! Yes, they're still not profitable, but it would be a huge difference. The other things they need to do is use less labor hours to build a vehicle, increase plant utilization (which is only at 85% right now), and get idle workers off their payroll - yes GM is contractually obligated to pay people not to work. GM should innovate. They do need to come up with better models. They do need more reliable cars. They do need to be more fuel efficient. However, none of those are really their big problem. GM is still selling nearly as many cars as Toyota. They don't have problems creating popular cars. That's a misconception with many people who happen to dislike GM cars (heck, I think they're complete crap). The big question is, can GM reduce those labor and healthcare costs? If not, they will NEVER, EVER be profitable. You can't compete with a $2,200 handicap per vehicle. In fact, it's a testament to GM that they have been able to compete for so long with such a huge disadvantage. If those costs can be lowered, GM just needs a small loan (like $25bn) and a few years time. If those costs can't be lowered, we'll be talking about giving them another $50bn in a year and another $100bn in two years. EDIT: Figures provided by NPR (http://www.npr.org/news/specials/gmvstoyota/ http://www.npr.org/news/specials/gmvstoyota/)
  • jdavid 18y ago
    Have you ever heard of JIT Manufacturing? or just in time manufacturing? The process was DEVELOPED by the Japanese in the 80's to compete with the American giants. The Japanese do not produce a car, until they know it is needed. It took the American car companies decades to catch on, and even then labor unions prevent the auto industry from moving from human labor to machine labor, which can be cheaper than even a Chinese laborer. We can produce cars cheaper than Japan, we just don't want to sacrifice millions of jobs doing it. Where the Japanese have found a way to move forwards. Labor unions have had such a grasp on the airlines, education, and the auto industry its no wonder that we need to consider bailing these industries out. They are the most socialist industries in the country. If we need to save these industries, I do think we need to use government funds, but shouldn't they be economic development funds? Rather than cash that will be burned on failed employment standards?
• callmeed 18y ago
  I don't like the word "bailout", but I think letting them die at the moment is too risky. I would consider a government-backed loan or temporary equity stake on the conditions that: - Executives are replaced - The UAW agrees to major contract restructuring or is disbanded altogether (see below before you crucify me) - The companies set efficiency goals for production and sales processes (stop putting out designs earlier and changing them every year) I also think the government could do things on the demand-side to help. Such as offering tax credits for buying a new, American car On the UAW issue, please be aware that I'm not "anti labor". Non-union workers at US-based plants (for Toyota, Hyundai, etc.) have comparable salaries, good benefits (including pensions), and negotiating power. Some good info on all of this at NPR: http://www.npr.org/templates/story/story.php?storyId=96945326 http://www.npr.org/templates/story/story.php?storyId=9694532...
• dbrush 18y ago
  As far as I see it... In Michigan the auto companies underpin so many other industries and fields that if the big three fail we'll be looking at the current foreclosure epidemic as a vacuum cleaner relative to the black hole that will ensue. I very much doubt that anyone in the position to decide will let the auto companies fail. In Silicon Valley it's, "Start a startup!" In Michigan it's, "Join the union or!"
• sanj 18y ago
  The best idea I've heard (can't find source right now) is for the gov't to BUY $100B worth of cars over the next 4 years, replacing their own fleet. A big chunk of that (the $25B floated) could be handed over now in order to design a fuel efficient, safe car with appropriate eco-awareness (hybrid, flex fuel, all electric). This is similar to how military contracts are structured. The bidding could be thrown open to any company that uses American labor to get the job done: it has to be built here. But Honda/Toyota/etc. are welcome to take part. If GM can't build the "car of tomorrow" with $25B in startup, they should fail.
  • Cunard2 18y ago
    If the US had free universal healthcare, would GM become viable? If the GM employee pension fund owned large quantities of GM stock, shorted it and made a fortune, would this constitute a reasonable hedge against the inevitable demise of their employer?
• KWD 18y ago
  Whatever is done, you cannot reward the current management. They need to suffer the consequences of their failure. (More so the case for Chrysler and their ownership by Cerberus). As I heard someone state this morning, why believe that the management team that created the problem will be able to solve the problem. IMO, GM needs a major overhaul from their pre-1980 ways. Besides labor unions that were mentioned, they also have an overextended dealer network. Their desire to focus on so many brands with just re-badged cars (they even neutered Saab with this approach) needs to be changed. The Toyota/Lexus, Honda/Acura, and Nissan/Infiniti models show a much better approach.
• redorb 18y ago
  yeah when I heard anyone under 10 years will get a $100k "your fired" fee, and over 10 years gets $140k ... I just shake my head and realize the damage the UAW has done. These are mostly un-skilled labor, who have "thugged" there way into skilled labor pay
• siculars 18y ago
  gm, in its present form should not be bailed out. institute new federal efficiency standards on all cars sold in america. this will level the playing field while the american auto industry retools itself. pump tens of billions of dollars into research and development to create the next wave of vehicles that meet these new standards.
• steveplace 18y ago
  Well if the gov't wants to act as a private equity firm, so be it. Buy them and then chop them up and sell to other companies. Their parts are worth more than the whole. Also, if you want any sort of green-innovation in the car industry, they have to go.
• nickmolnar 18y ago
  If the government could bend the rules and allow them to renegotiate labour contracts and healthcare without declaring bankruptcy, that should be option #1. If these companies are still straddled with the nightmare of these obligations, no amount of government money will save them in the long run. Government run "innovation initiatives" are fraught with the same problems as a government owned company (moral hazard, non-market competitive landscape, distorted incentives) and should be considered equally inefficient. Nothing can match the innovation that could be achieved by allowing these companies to be broken apart (a process that began 30 years ago when Toyota started achieving success using standard, outsourced, intermediate goods). Breaking these companies up would create a competitive framework for smaller players to enter. Think about what could happen if you could start a car company without having to hire a single assembly-line worker? It would be like giving the car business a set of APIs.
• alaskamiller 18y ago
  No one will let GM die, especially not a Democrats controlled congress and a Democrat as president. They owe the unions for the votes and no one is brave enough to tell GM -- whom people have worked for multiple generations and who in turn have been taken care of by the company -- to go die. We'll just going to hand them money.
  • rms 18y ago
    If nothing else it's a much better way of spending money than a war.
    • alaskamiller 18y ago
      Anything's better than spending it on war. Good thing we voted in a president that wants to keep fighting though.
• DanielBMarkham 18y ago
  Three points: 1) It's not either/or. GM can declare bankruptcy, renegotiate their debts and expenses, ditch ideas that are not working, and come back as a smaller, kick-butt company. 2) If you go here then it's just a big political hand-out for whoever has the most contacts. It's not a financial bailout anymore. Be honest about it, and expect a lot more applicants. 3) So you spend our money to bail out some business or sector. What is the evidence that the underlying problem has been fixed? I know Congress can attach a lot of feel-good riders onto the deal, like more green energy and better employee benefits, but what assurance is that? Are we fixing the problem, or just putting a band-aid on a gaping wound? 'Cause I got a funny feeling that if you write them a check this year, they're going to be back in a year or two. They're an important company, and I hate to see them go. But I hate even more the idea that some companies are "too big to fail". Times change. If GM is able to change with them, then that's great. If not, then that sucks. But we don't have buggy-whip manufacturers anymore -- those days are gone. And perhaps the days of super-big American manufacturing companies are going away too. Maybe not. I don't know. But I know you can't force it to work if it's not going to.
• razzmataz 18y ago
  1.)Slice up the company into smaller companies, based on make (Pontiac, Saturn, Saab, Hummer[!]), and let those fight on. 2.) Any government funds come with strings attached. Things like developing fuel/energy efficient vehicles(say, didn't we already pour 25 billion into the big 2.5 just this year for that?). Or gut middle and upper management. 3.) Trim the 1inch thick agreements between the unions and the big 2.5.
• sethm 18y ago
  hell no, it's a pension mascarading as a car company, let the market decide.
• sethg 18y ago
  As a confirmed liberal Democrat I am all for helping the workers. But as the owner of a 1999 Ford Windstar I have a very low opinion of the US automobile industry. It's not the workers' fault--they're not the ones who (mis)designed the cars--but I don't want to give the management any more rope. So I'd rather see the government spend $250 billion on job-training programs for laid-off auto workers, etc., than $25 billion to prop up GM as a corporation.
• Brushfire 18y ago
  Sure. Can my company apply for a bailout too? 50k sounds nice.
• DaniFong 18y ago
  As a founder of an auto(motive) startup, let me tell you that the things we'd do with x billion at this stage are not good. Some investment would be helpful (and we're looking for it), but a government administered venture fund of those proportions would probably be a disaster; a distraction for the ages. Our contention is that the market has not yet fund the successor technology to gasoline yet, and giving existing solutions massive wads of cash will only reduce the speed that it will.
  • aswanson 18y ago
    What is the timetable you envision for your product (or something like it) to be rolled out? What are the major impediments to your progress right now?
    • DaniFong 18y ago
      There are lots of little ones. One that the government could help to solve is that we want to hire an automotive engineer from Austria, but either have to wait until the H1B's refresh in April or wait for an immigration lawyer to work some magic. The other issues are mostly personal; we can't work as fast as we would like because one of us maintains a job, and that we don't have enough money to setup a lab. We'd need at least a couple hundred thousand for that, though we're looking for a larger investment (x million, not xy million) so we can bring on a few experts.