CarTalk.com Blogs Car Info Our Show Deals Mechanics Files Vehicle Donation

Big Three Survival

Every day I read more bad news about the US car companies. Most financial analysts give all three a less than 50% chance of suvival if they continue on their current path.



Should there be a major merger, like in Britain years ago, with government guarantees, or should we let the laws of economics take their course and see who, if any, survive?

Yep, bigggggg problems. Up to me, I’d let Chrysler go to its fate, it was already foundering the last time (when Mercedes ‘sold’ (actually gave) them to Ceberus), maybe Goshn/Nissan/Renault can do something with them. On the other hand, I’d be very inclined to prop up GM and Ford, they at least seem to be on the right path. Something like what was done for Chrysler years ago. Chrysler paid off those loans early, it was a major success.

There should be NO Government intervention. GM/Chryco/Ford got themselves in this mess by extremely poor management and GREED. Why should we bail them out with OUR money.

Executives have these enormously high salaries. 10 years ago when they were making record profits they had the money to shore up the health and retirement benefits problem they are in. But they CHOOSE not to and take give themselves these Hugh multi-million bonuses.

Sorry to say it…but let them go bankrupt or bought out by some foreign interest. They screwed themselves and I’ll be dammed if I’m going to pay to bail them out. The ONLY way I would even consider a government bail out is if every executive over the past 20 years returned their HUNDREDS OF MILLIONS OF DOLLARS they all got in bonuses. Hell if they did that then they wouldn’t need a bail out would they.

Looks like we need a latter day Lee Iacocca; someone who does not pussyfoot around. He also paid off the government loan in full before their due date.

Then again, what about the hundreds of thousands of regular folks who either work directly for them or for suppliers? It’s not really a simple solution. I’m not into government bailouts, but guaranteed loans might be appropriate, as was the case for Chrysler in the 1970’s. At least they can continue to meet their obligations if they continue to operate.

If the auto companies close, we’ll end up paying for the largest part of the cost drag: pensions. This is absolutely guaranteed, up to a maximum value that only upper management will exceed. Don’t bother fretting over how much it costs. It’s the surest bet in the universe.

Are there any US car companies anymore? Every major car company I can think of has gone global. I think there are more Hondas and Toyotas made in the USA than Chevys and Fords.

Just like the banks and mortgage companies, I believe in economic Darwinism. If a company makes bad decisions, they deserve to fail and be absorbed by one of their competitors. Sometimes CEOs aren’t flexible enough to be creative. We should not subsidize their failures.

I can remember when companies were able to expand without government loans. If they wanted to, they could finance their expansion with retained earnings.

I agree it’s a catch-22. And I feel sorry for the men and women that work there. I have 2 nephews and a uncle that work for Chryco.

But we can’t keep bailing out these companies when they fail. A true capitalist believes that companies take all risk and if they fail they fail.

And American capitalist also believes that companies take all the risk and if they fail they fail…EXCEPT if it’s a company they own stock in.

The government recently extended a “bail-out” of sorts to the big three in the form of low-interest loans (taxpayer funded, of course). Anyone who couldn’t see this mess coming was not looking or didn’t want to see it.

I have no pity for them.

Besides, just because their US operations are tanking doesn’t mean the whole corporation is tanking. GM and Ford both have many successful models overseas.

Chrysler? Well, it’s Chrysler. Hemi V8s might not be the best idea right now.

Besides, just because their US operations are tanking doesn’t mean the whole corporation is tanking. GM and Ford both have many successful models overseas.

For now. Same thing happened in the 70’s and 90’s. The big three (or 4 depending on which decade) had slumping US sales but the European market was doing great…But we are more of a world market now then ever. Within a year the European sales sunk too and ALL operations was loosing money.

The auto makers are aligning themselves to become “to big to let fail”

Same logic for the used for the Banks and other institutions (Freddie, Fannie, AIG etc.)

I agree with Mike on this one. These companies should not be propped up by tax dollars. That’s not the function of government.

I should point out that the road to bad mortgage loans was excavated with the Consumer Redevelopment Act in 1977 that was passed in an attempt to prop up the housing market and stumbling economy. You may recall that in the '70s inflation, unemployment, and interest rates were all double-digit and nobody could afford homes. The road to our current disaster was then paved with further deragulation providing incentive for lending institutions to make high risk loans made in “redlined” (targeted) zones where people could not really afford the loans.

When the government meddles in the marketplace, we ultimately pick up the tab. Chrysler during the Iaccoa years was the rare exception, but there is no Lee Iaccoa out there right now.

If the market will support it, the employees laid off will be absorbed by more efficient manufacturers that have better satisfied the marketplace. If not, then their employment will simply be supported by tax dollars…and if we’re going that route we should simply create temporary government jobs and pay them directly. That way the failing companies don’t benefit from their own bad management. If this smacks of the “New Deal”, then so be it.

I should point out that the road to bad mortgage loans was excavated with the Consumer Redevelopment Act in 1977 that was passed in an attempt to prop up the housing market and stumbling economy. You may recall that in the '70s inflation, unemployment, and interest rates were all double-digit and nobody could afford homes. The road to our current disaster was then paved with further deragulation providing incentive for lending institutions to make high risk loans made in “redlined” (targeted) zones where people could not really afford the loans.

That’s only PART of the problem. The majority of these foreclosures are from the middle class. The upper Middle Class and even upper Class are having the same problem. Many people in the middle class and upper middle class who are in this mess bought homes beyond their means with interest only loan for the first 5 years…HOPING to sell by then and make a nice profit.

That way the failing companies don’t benefit from their own bad management. If this smacks of the “New Deal”, then so be it.

YUP…I’m not a total capitalist…I do believe in SOME Government regulation. If you take a look at all the government regulations that do with businesses…a VAST majority of them were put into place to fix a problem.

got a call last week from are stock broker.wanted us to buy gm stock at $6 a share.the risk is to high.and one reason gm wants to buy out chrysler is they still have billions in cash to keep them a float for little bit longer.

Agree with Mike that too easy credit and too little regulation was part of the problem. Even Ed McMahon, Johnny Carson’s sidekick, lost his $8 million dollar home when he could not keep up the payments.

Alan Greenspan this morning called for more financial regulation; the SAME person who jawboned the government to LOOSEN credit a few years back.

Chrysler’s bailout by Lee Iacocca using government LOANS was unique; he went to work for $1 a year until Chrysler was back on its feet. He also told the unions that at the rate they had been paid, there were NO JOBS, but at the rate he proposed ther were many jobs. The unions bought the deal. At that time Japanese and Korean competition was far less deadly than it is now.

Each of the 3 companies have to completely overhaul their business models, their presidents and vice-presidents should agree to temporarily work for a nominal salary like Lee did and the unions have to take the necessary rollbacks to get the manufacturing costs in line.

A few months back Craig58 refered to the “death spiral” the companies were in. That seemed strong language, but now appears to be true.

The British car industry imploded in the 70s and right now there is nothing left of the group. The best plants out there are Japanese, and only niche markets are served by the remnants of the former Rover PLC. Nearly all are foreign owned now; BMW owns Rolls Royce and Mini, Tata owns Jaguar and Land Rover, Bently is owned by Volkswagen, Lotus is owned by Proton of Malaysia, etc.

I’m not sure that’s true. The high foreclosure areas are the targeted zones where high risk loans were the norm, encouraged by the CRA and made possible through the creative financing of the associated deregulation, are defaulting. While I agree that the middle class in many cases did use the creative financing to buy more than they could afford, that’s not the bulk of the bad paper. And that too was a result of the same deregulation.

GM, Ford, and Chryco are, on the other hand, victims of their own mismanagement and a major factor in the current economic crisis. They’ve been struggling in the marketplace for these past years and the loss of investor confidence due to the stumbling of the credit market led the drop in their stock values, which led the drop in the market. They are intertwined.

Agree Mountainbike, the current financial crisis is accelerating the downward spiral, since even good companies now have difficlty getting credit to operate their businesses. Ford stock just closed below $2, essentially junk paper. GM stock is about $6, a far cry from $60 or so at its peak. Without strong government loan guarantees, and very strong economic medicine, they won’t likely survive.

The basic union pension plans are funded but the healthcare is not, so that will likely disappear.

that’s not the bulk of the bad paper

I read a hud report just last month here in MSN and that’s where I got my stats from.

There might be higher foreclosures in the lower income population…but NOT ALL were because of these creative financing loans. When we go into a recession (which we currently are in) the unskilled labor market is the first to feel it. As this recession grows we’ll start to see more and more middle-class and upper middle class homes in foreclosure.

Agreed. The pain is moving up the ladder fast.

I heard this morning on the news that AIG, American Incontrollable Group, has a $600M fund still kept aside just for executive bonuses and golden parachutes. Cute, huh?

No - no Government (AKA you and me the taxpayers) bailout.

There are many fine (large) US automakers, with more on the way such as:

Honda
Toyota
Nissan
Hyundai
BMW
VW Audi Group (soon)

…and probably a few more I forgot. Not to mention all the smaller brands (which I would rather help than these Union dinosaurs).

AIG…What a sleeze outfit…About 10 years ago they closed down their IT center in Bedford NH and moved the whole operation to India laying off a few hundred engineers. Then 5 years ago they moved it back to the US.