Treasury: US to lose $25 Billion on Auto Bailouts

[Lord Tammerlain]

If GM had been allowed to fail, any of their decent products would have been picked up by other companies.
The less than decent products would just go away.
Many people who buy American would pick a Ford, or a Chrysler, their sales would increase, and the parts suppliers
would retool for the new demand.
Many of the displaced workers would be picked up, most likely for a lower wage.
A new company might form, without the historic burden of poor past decisions and be competitive.
Our wonderful Government could have eliminated the income taxes on those vehicles sold outside the US,
(like Japan Does). lots of possibilities. many of them good.

Chrysler was bailed out as well

 

[Helix]

i suppose one would have to consider what was saved by avoiding the disappearance of these companies. this would include all tax revenue from 2009 on into the future, and the money saved from not having to pay unemployment / other entitlements to every worker. the longer the companies exist, the more return there will be on the investment. if they both fail tomorrow, it's a loss.

i'm not happy with anything that's too big to fail / taxpayers propping up corporations, but to judge objectively on a case by case basis if it was technically worth it, one would have to consider the above criteria.

 

[Neomalthusian]

i suppose one would have to consider what was saved by avoiding the disappearance of these companies. this would include all tax revenue from 2009 on into the future, and the money saved from not having to pay unemployment / other entitlements to every worker. the longer the companies exist, the more return there will be on the investment. if they both fail tomorrow, it's a loss.

Ehh I don't think so, not necessarily. That doesn't really make any sense. This is not an "investment" for the taxpayer. It's an act of government forcing taxpayers to support a company they didn't sufficiently support of their own free will (or they did sufficiently support but it was mismanaged). At best you're forcing consumers to support something they didn't support, and at worst you're rewarding incompetence. Corporate welfare is not an investment for which the taxpayer gets a return.

And those considerations are speculative, and the same spin could be applied to any failed business. Government spends money leads to people employed, making money, paying taxes, growing the economy, or so the modern myth goes. A lot of automatic assumptions underlie these pro-corporate welfare arguments.

It's not too big to fail. It's just too big to shut down.

 

[Cephus]

Remember this was during the financial crisis. AIG went broke, Leaman, Bear Stearns, Citi, all pretty much ceased operations and had the government step in either directly in the case of AIG and Citi, or indirectly offering support to the ones that took over Bear Stearns. Let also not forget that TARP was occuring at the same time. The free market was not working with the banks, the government saved the banks as well.

That's because banks made some very, very, very bad financial decisions by jumping into the mortgage market and when that went south, so did a lot of their money. It's not like a lot of people were surprised when the housing market collapsed, plenty of people, including yours truly, predicted it years before it actually happened. The free market works by letting banks that make wise decisions survive and those that make poor decisions die. The government screwed with that process.

As for GM, it was at the time, the largest or second largest autocompany in the world by sales. Ford had already mortgaged itself and would not have gotten the extra funding to take over GM, Chrysler of course had its own issues. No European company would have had the money avaliable to take over a bankrupt GM. No Japanese company would have wanted to take the risk. The only companies that would have had the money and the desire to take over GM would have been some Chinese ones. The venture capital funds like Cerberus, or Blackstone did not have the access to funding due to the financial crisis (and cerberus had a bad experience with Chrysler already)

Doesn't matter how big they were, they made bad decisions, they produced cheap cars that cost too much, they signed on to financial obligations that were fiscally irresponsible. American auto makers pretty much drove the American auto-buyer into the arms of foreign producers who made better quality cars for less money.

In a normal economic period, I would agree with you, but that time was not normal, the Auto industry had sales drop by 33% from the mid 16 million per year to 10.4 million in 2009

So what? When you base your business model off of a system that is inherently not sustainable, you get what you deserve. American auto makers depended on planned obsolescence and the idea that people were going to buy a new car every 2-3 years whether they needed one or not. They expected an unsustainable model and when that model failed, so did they.

Without a chinese company stepping in, I could not see GM continueing its operations, it would have been shut down, as most likely Chrysler. Is what I am saying an asumption, most definately, but it is based on the knowledge that I do have and not purely a guess

Then they do. Other car companies buy the models that make sense and let the rest die. That's how the free market works.

 

[KevinKohler]

[SUP][/SUP]

Given that sales dropped from the mid to high 16 million in 2006 to 10.4 miillion in 2009, alot of people stopped buying new cars

And I'll wager that Pontiac going under had no affect on that. People bought fewer cars because they had less money, not because Pontiac was the only car they would buy, lol. If GM had gone under, sure, auto workers would have suffered. They likely would have had to move to places that had auto manufacturing NOT going out of business, like BMW, Toyota, Honda, or ford. All companies assemble cars in this country. And when you phase out all the GM cars from your 10.4 mil, believe me, those other companies would have been more than happy to snap up the extra pie on the table. Even if it's Hyundai.

 

[Lord Tammerlain]

That's because banks made some very, very, very bad financial decisions by jumping into the mortgage market and when that went south, so did a lot of their money. It's not like a lot of people were surprised when the housing market collapsed, plenty of people, including yours truly, predicted it years before it actually happened. The free market works by letting banks that make wise decisions survive and those that make poor decisions die. The government screwed with that process.

I was also predicting the housing crisis, back in 2004 or 2005 I was predicting the housing crisis. The government did screw with the process, I wont deny that

Doesn't matter how big they were, they made bad decisions, they produced cheap cars that cost too much, they signed on to financial obligations that were fiscally irresponsible. American auto makers pretty much drove the American auto-buyer into the arms of foreign producers who made better quality cars for less money.

The US automakers were turing things around, the cars they have now, are the cars they were designing back in 2008 or earlier for some of them.

So what? When you base your business model off of a system that is inherently not sustainable, you get what you deserve. American auto makers depended on planned obsolescence and the idea that people were going to buy a new car every 2-3 years whether they needed one or not. They expected an unsustainable model and when that model failed, so did they.

[/quote] And GM did fail, alot of people lost alot of money on because of GMs faluire, that includes alot of GM workers both union and non union. Planned obsolescence is part of any business model, cars fail, new models are brought out, new features, all designed to bring old customers back. As it stands cars today typically last longer then cars of 20-50 years ago, because that is what the consumer wants. The auto industry is not the only one that follows that model

Then they do. Other car companies buy the models that make sense and let the rest die. That's how the free market works.

The specific models are rather worthless, it is the factories, the engineering, the patents and that go into producing the specific models that are important.

Had the US truelly had the free market handle the auto industry and the financial industry rather then step in with the fed and the bailouts, the US would have seen an econonic contraction of 20 % rather then the 5% (if I recall correctly)

 

[beerftw]

If GM had been allowed to fail, any of their decent products would have been picked up by other companies.
The less than decent products would just go away.
Many people who buy American would pick a Ford, or a Chrysler, their sales would increase, and the parts suppliers
would retool for the new demand.
Many of the displaced workers would be picked up, most likely for a lower wage.
A new company might form, without the historic burden of poor past decisions and be competitive.
Our wonderful Government could have eliminated the income taxes on those vehicles sold outside the US,
(like Japan Does). lots of possibilities. many of them good.

judging by past new ventures into unknown markets,google would probably jump into the car market,microsoft afterwards to compete,both companies will constantly lose money cuz software companies have no experience in cars,but both will keep building them to just to give a middle finger to the other guy.

 

[Lord Tammerlain]

[SUP][/SUP]
And I'll wager that Pontiac going under had no affect on that. People bought fewer cars because they had less money, not because Pontiac was the only car they would buy, lol. If GM had gone under, sure, auto workers would have suffered. They likely would have had to move to places that had auto manufacturing NOT going out of business, like BMW, Toyota, Honda, or ford. All companies assemble cars in this country. And when you phase out all the GM cars from your 10.4 mil, believe me, those other companies would have been more than happy to snap up the extra pie on the table. Even if it's Hyundai.

Of course they would have,

One issue beign the ability to make the cars in the first place. (at least for a few years) Had GM and Chrysler gone bankrupt a large number of parts suppliers would have gone bankrupt as well, including the ones that supply Ford or Hyundai. New auto part companies would not just spring up and be able to makes the parts for millions of cars, but would take years to do so

 

[KevinKohler]

Of course they would have,

One issue beign the ability to make the cars in the first place. (at least for a few years) Had GM and Chrysler gone bankrupt a large number of parts suppliers would have gone bankrupt as well, including the ones that supply Ford or Hyundai. New auto part companies would not just spring up and be able to makes the parts for millions of cars, but would take years to do so

Like they did for Japan?

 

[beerftw]

on a serious note,american companies are failing because partly because of uaw,but mostly because they have eliminated everything nearly except fully loaded cars.it used to be the chevy vs cadillac reference,a chevy got you where you needed cheap,and a cadillac got you there in comfort,about a decade ago the big three decided to make all carss a cadillac,virtually eliminating options(someone who makes 12 an hour isnt gonna finance a 35k car,but the big three can profit from making a car that sells for 8k)i remember the neon and the cavalier selling they they were going out of style,simply because of the price.


granted neons cavaliers and ford focuses were junk,junk still got from a to b at a price people can afford,vs what they sell now which is what people could afford during a buuble economy.infact if american car companies could sell a strip model 4 cyl car for 8k,they could force foriegn car companies into the bottom feeders like they were before the 80's.

 

[Cephus]

I was also predicting the housing crisis, back in 2004 or 2005 I was predicting the housing crisis. The government did screw with the process, I wont deny that

Had they never played with it, we never would have had a housing crisis. Had we left things the way they were, the housing bubble would never have existed.

nd GM did fail, alot of people lost alot of money on because of GMs faluire, that includes alot of GM workers both union and non union. Planned obsolescence is part of any business model, cars fail, new models are brought out, new features, all designed to bring old customers back. As it stands cars today typically last longer then cars of 20-50 years ago, because that is what the consumer wants. The auto industry is not the only one that follows that model

And in every single case that said model is followed, it fails eventually. Had the auto industry developed a strategy that insisted on people paying off their previous cars before they could be financed for a new one, they never would have had an issue. Instead, they drove the consumer, who is really pretty stupid and irresponsible to begin with, deeper and deeper into debt they could not get out of while their advertising arm pushed people to buy bigger and better cars with very little money down and bad credit? So what!

Had the US truelly had the free market handle the auto industry and the financial industry rather then step in with the fed and the bailouts, the US would have seen an econonic contraction of 20 % rather then the 5% (if I recall correctly)

No, likely we wouldn't have had a crash at all had we simply acted responsibly in the first place. Had we not pushed Freddie Mac and Fannie Mae to give mortgages to people who had no visible means of support, had we not allowed banks to take over mortgages, had we prosecuted every single fraudulent loan document that came across anyone's desk, had we not bundled mortgages until nobody knew what they actually owned anymore, we never would have had a housing bubble and therefore, never would have had a housing crash. You'd think we would have learned from the dot com boom but we didn't. We just made the same kind of stupid decisions, backed fully by the government who was thrilled to see the economy flourish even if it was just a pipe dream.

When are we going to learn?

 

[Cephus]

Of course they would have,

One issue beign the ability to make the cars in the first place. (at least for a few years) Had GM and Chrysler gone bankrupt a large number of parts suppliers would have gone bankrupt as well, including the ones that supply Ford or Hyundai. New auto part companies would not just spring up and be able to makes the parts for millions of cars, but would take years to do so

Why? They go bankrupt, someone else buys all of their assets including their manufacturing facilities, they slap a new name on the building and start production with the same molds and the same machines. If you hired back the same people under different contracts, you could be in production a few weeks after the paperwork is signed.

 

[Lord Tammerlain]

Had they never played with it, we never would have had a housing crisis. Had we left things the way they were, the housing bubble would never have existed.



And in every single case that said model is followed, it fails eventually. Had the auto industry developed a strategy that insisted on people paying off their previous cars before they could be financed for a new one, they never would have had an issue. Instead, they drove the consumer, who is really pretty stupid and irresponsible to begin with, deeper and deeper into debt they could not get out of while their advertising arm pushed people to buy bigger and better cars with very little money down and bad credit? So what!



No, likely we wouldn't have had a crash at all had we simply acted responsibly in the first place. Had we not pushed Freddie Mac and Fannie Mae to give mortgages to people who had no visible means of support, had we not allowed banks to take over mortgages, had we prosecuted every single fraudulent loan document that came across anyone's desk, had we not bundled mortgages until nobody knew what they actually owned anymore, we never would have had a housing bubble and therefore, never would have had a housing crash. You'd think we would have learned from the dot com boom but we didn't. We just made the same kind of stupid decisions, backed fully by the government who was thrilled to see the economy flourish even if it was just a pipe dream.

When are we going to learn?

Economic crisis's are a part of the natural cycle in economic

I have read various books that all seem to indicate a historic patern of a very severe economic depression of around every 60-70 years. Even the Italian city states had economic crisis's brought on by debt and debt default. This is without the interference of the Fed or the US goverment ( having occured in the 1100-1300s)

The US had a depression in the 30s, a crisis in 1920 or so, a depression in the 1870s and a large number of recessions before that.

Recessions and depressions are part of the economic cycle. Government or no government. People will make the same mistakes every generation

As for the housing crash

The US was not the only country to have one, the fed, the US government did not cause the housing and lending crisis in Ireland, Iceland, Spain, and the UK, (australian might be included in that, but I do not know if propery prices have crashed there or not). None of those country had the CRA or equialent, to force banks as conservatives like to suggest to make bad loans. Most did so out of their own free will

 

[Lord Tammerlain]

Why? They go bankrupt, someone else buys all of their assets including their manufacturing facilities, they slap a new name on the building and start production with the same molds and the same machines. If you hired back the same people under different contracts, you could be in production a few weeks after the paperwork is signed.

In a normal economic environment you would be right

That time period was not normal. The banks were being bailed out, and were not lending money out that they would have a strong potential of losing. That is why Berkshire Hathaway was able to get rather high rates of returns for bond and perfered shares that he invested in at that time. He had the money, and was investing in rather solid companies (GE, HD etc). But they had to accept the high yields to get any capital

 

[Cephus]

Recessions and depressions are part of the economic cycle. Government or no government. People will make the same mistakes every generation

Only so long as they're allowed to. If we're not going to learn from the past and pass on those lessons to future generations, then we might as well just collectively shoot ourselves. That does require us to teach our offspring why things are done a certain way so that they don't keep making the same stupid mistakes. We need to be intelligent about our business decisions and have realistic expectations. The automotive industry crashed because they were trying to milk the same cow a dozen times in a row. They weren't trying to find genuinely new markets, they were trying to sell cars to people that had just bought cars and couldn't afford any more. The housing industry was trying to sell homes to people who had no visible means of income. Instead of growing intelligently and keeping infrastructure as small as possible, these industries grew as fast as they could, made horrible financial decisions and are now paying for them. The same thing is true of lots of cities that are having to declare bankruptcy because they went crazy when times were good and now can't afford to pay for all the commitments they have.

 

[Lord Tammerlain]

Only so long as they're allowed to. If we're not going to learn from the past and pass on those lessons to future generations, then we might as well just collectively shoot ourselves. That does require us to teach our offspring why things are done a certain way so that they don't keep making the same stupid mistakes. We need to be intelligent about our business decisions and have realistic expectations. The automotive industry crashed because they were trying to milk the same cow a dozen times in a row. They weren't trying to find genuinely new markets, they were trying to sell cars to people that had just bought cars and couldn't afford any more. The housing industry was trying to sell homes to people who had no visible means of income. Instead of growing intelligently and keeping infrastructure as small as possible, these industries grew as fast as they could, made horrible financial decisions and are now paying for them. The same thing is true of lots of cities that are having to declare bankruptcy because they went crazy when times were good and now can't afford to pay for all the commitments they have.

Had more US states had similar mortgage lending rules to the relatively restrictive Texas regulations then the housing crisis probably would not have occured on a level as large as it did. Had the Glass Stegal act not been repealed as it was, the banks would have probably been more likey not to have been bailed out

A lot of the past learnings were forgotten and pushed aside as not being needed (Glass Stegal) not because the government did not want them, but because industry lobbied, and pushed for it.

People, all people both in government and outside it are idiots, at some times, and that is why we have crisis, caused by or not caused by the government. The free market is definately not a cure to prevent crisis

 

[Matt Foley]

remember, Free Trade is what destroys Capitalism.........

Yeah I know. The bailouts and deficit spending conceal cause and effect...for a time.

Great Depression 2 is still coming, it's just delayed.

 

[joko104]

One questions

How much would the government have spent on

unemployemnt insurance, welfare, food stamps, health care, the PGIC top up for both the pensions to the union members and to the white collar workers had the US auto industry gone broke and went out of business?

What are you talking about? GM used the money to build auto factories in China to shift production there.Billions spend to send the American auto industry to China, beyond what was used to pay pensions.

 

[Lord Tammerlain]

What are you talking about? GM used the money to build auto factories in China to shift production there.Billions spend to send the American auto industry to China, beyond what was used to pay pensions.

What are you talking about


GM has not imported to the US one car from China, not one. It has built factories in China to build cars for the Chinese market, which has sold more cars last year then the US industry. GM has not moved the US auto industry to China, it has built up its Chinese arm to serve the Chinese market, and is doing fairly well there

 

[Matt Foley]

What are you talking about


GM has not imported to the US one car from China, not one. It has built factories in China to build cars for the Chinese market, which has sold more cars last year then the US industry. GM has not moved the US auto industry to China, it has built up its Chinese arm to serve the Chinese market, and is doing fairly well there

And that is preferable to building the cars in the US and then exporting them to China?

 

[Lord Tammerlain]

And that is preferable to building the cars in the US and then exporting them to China?

Given that imported cars cost 50% to 100% more then they do in their home market, yes. It actually lets GM make money and sell more cars in China. Which helps GMs operations in the US

 

[KevinKohler]

What I want to know is, how come some US auto makers, like Ford most especially, sell their best cars (imo) in europe, but not in the US? Are we gonna see the same thing happen with GM?

 

[Cephus]

What I want to know is, how come some US auto makers, like Ford most especially, sell their best cars (imo) in europe, but not in the US? Are we gonna see the same thing happen with GM?

Because they think American consumers won't buy them. Certainly, I've seen American auto makers selling high-mileage diesels in Europe that I'd have no problem buying but they never bring them over here because they think they won't sell. Unfortunately, they're probably right.