The Big 3 - facts and issues

[editec]

This would have made a great poll. Anyway, I vote for option 2.

If they can't meet Chapter 11, "going concern" criteria, tuff. Let them liquidate. I suspect some billionaire or private equity group right here in the good ole USA would snap them up.

Some FOREIGN company will feed off the corpse, I expect.

The investor(s) who bought the bones could probably (HA!) still get X$ from Uncle Sam to retool and make a go of it. Additionally, I think a lot of special confederation, including national security, would go into any such sale of assets.

Yes, by all means let the cows get into the corn THEN chase them out.

I also think this would only happen to 1 company, most likely GM, and to be honest, I rather support the temporary unemployment compensation effort resulting from it than literally waist billions of dollars on GM. The other 2, Ford and Chrysler, would suddenly become much healthier companies with little to no assistance from US.

According to the experts I'm listening too, if GM goes down, their suppliers go down then Ford and Chrysler ALSO go down.

 

[NOBama]

[/font][/color]According to the experts I'm listening too, if GM goes down, their suppliers go down then Ford and Chrysler ALSO go down.

Yeah, right. Did American or United crumble when Delta failed? No, they didn't, their business picked up, and Delta eventually re-emerged (although my freakin' equity position in the company got wiped out).

I thought you were an advocate for Change We Need but, now that the reality of change is at your door step, it seems to be scaring the shit out of you.

Letting go of the concept that the Big 3 auto companies, one of which is a privately held company, will distroy the country if they fail is ridiculous. Would you build a skyscraper ten stories taller than the maxium stress load of the materials used to build it would support and expect it to stand forever? Probably not.


The fact of the matter is: The Big 3 have gotten TOO BIG for OUR own good. It's time to let the winds of change blow them away, IMO.


As I said before, if GM fails, I believe Ford and Chrysler will suddenly realize that their not as unhealthy as they claim they are. I think they'll suddenly find ways to lob a few stories off those towers.


Like it or not, either we do something about this or we put it on our future generations. I don't need an expert to convience me otherwise.


The good news is, according to the news I've read this morning; The GM bailout is becoming less attractive on the Hill, so perhaps they'll accidently get something right, for a CHANGE.


One more thing that's been bugging me... 6 or 7 months ago GM was telling investors that they had enough money to hold out for another at least another year and that their burn rate was 1B$ a month. Now, apparently all that's changed and their burn rate has doubled.

My question is: Were they lying to us then, or are they lying to us now?

 

[Paulie]

Yeah, right. Did American or United crumble when Delta failed? No, they didn't, their business picked up, and Delta eventually re-emerged (although my freakin' equity position in the company got wiped out).

I thought you were an advocate for Change We Need but, now that the reality of change is at your door step, it seems to be scaring the shit out of you.

Letting go of the concept that the Big 3 auto companies, one of which is a privately held company, will distroy the country if they fail is ridiculous. Would you build a skyscraper ten stories taller than the maxium stress load of the materials used to build it would support and expect it to stand forever? Probably not.


The fact of the matter is: The Big 3 have gotten TOO BIG for OUR own good. It's time to let the winds of change blow them away, IMO.


As I said before, if GM fails, I believe Ford and Chrysler will suddenly realize that their not as unhealthy as they claim they are. I think they'll suddenly find ways to lob a few stories off those towers.


Like it or not, either we do something about this or we put it on our future generations. I don't need an expert to convience me otherwise.


The good news is, according to the news I've read this morning; The GM bailout is becoming less attractive on the Hill, so perhaps they'll accidently get something right, for a CHANGE.


One more thing that's been bugging me... 6 or 7 months ago GM was telling investors that they had enough money to hold out for another at least another year and that their burn rate was 1B$ a month. Now, apparently all that's changed and their burn rate has doubled.

My question is: Were they lying to us then, or are they lying to us now?

They're ALWAYS lying to us.

And I agree with your post completely.

 

[tigerbob]

One more thing that's been bugging me... 6 or 7 months ago GM was telling investors that they had enough money to hold out for another at least another year and that their burn rate was 1B$ a month. Now, apparently all that's changed and their burn rate has doubled.

My question is: Were they lying to us then, or are they lying to us now?

Perhaps it's not quite as black and white as that.

Quite a bit has CHANGED in 6 or 7 months. Perhaps their burn rate has doubled because their position is largely the same as it was in April / May, but their sales forecasts are off by a huge margin and they can't borrow to cover the shortfall because nobody is lending.

Perhaps.

 

[Turboswede]

I think folks on the board are misreading the All of the people on the board are getting the wrong impression of the US auto industry. What is happening is that there is a liquidity crisis where the Automakers don’t have enough cash coming in to pay their bills. It’s not that the industry is ruined; it just needs time to adapt to the current market conditions. The reason that the big 3 are where they are today is:

1. All made huge profits in the 90’s on light truck sales
   
2. Invested huge profits in mortgage markets (higher return than expanded production)
   
3. Sales slump in the 00’s led to losses, covered by barrowing against assets
   
4. Asset values tanked because to mortgage & market collapse
   
5. Still in sales slump and can no longer barrow against assets
   
6. Liquidity Crisis
   

I will use Ford (again) as an example. If you look at their Financials in 2007 their Auto Production (taken as a separate element) generated sales of $154B with costs of $142B making the Auto Manufacturing segment profitable as a going concern. The problem is the $13B in administrative costs unrelated to auto production and the $5B in losses suffered by Ford Motor Credit, In a Chapter 11 the Admin costs would be gutted, production costs would be lowered and they could liquidate FMC as well.

What you would have is an auto manufacturer capable (at current sales levels) of $155B in sales with about $140B in production and $5-10B in administrative costs. Essentially a leaner FoMoCo would emerge able to generate $5-10B IN A DOWN YEAR.

Asset wise FoMoCo has a $27B liability for retiree medical that could be discharged in a Chapter 11 leaving the company with $118B in assets and about $97B in liabilities for a market cap of $21B or $10 per share.

With the bailout we will still have a bloated and inefficient FoMoCo generating a loss of $4.2B per year (given current sales) so given a $50B bailout we will be in the exact same position in 15 years (give or take). I addition, without discharging or renegotiating its liabilities FoMoCo’s market cap goes instantly to about $50B or $25 per share but will continue a downward trend until the next bailout.

Who does a bailout help?

SHAREHOLDERS…In a Cpt 11 existing equity (stock) goes away and may be replaced by some other instrument (new shares) post bankruptcy. In a successful Cpt 11 the most existing shareholders could expect would be about $10 per share. With a bailout a $50B cash infusion would go directly to shareholder equity and bump the stock price up to $40+ per share. The thing is, as FoMoCo remains committed to a losing business model, there will be an incentive to sell shares now rather than wait as FoMoCo posts additional losses.

OFFICERS AND DIRECTORS…In a Chapter 11 the equity holdings of officers and directors (the main way they are paid) may end up worthless, in addition the pensions for officers are not backed by the PBGC and may be used as assets to pay creditors. Employee Pensions are protected in trusts that are NOT subject to creditor claims as they meet specific ERISA, and IRS rules.

Employees will not be any more negatively impacted by a Chapter 11 than a bailout because FoMoCo is a viable concern and employee benefits are protected. With or without the Bailout FoMoCo will need to institute reductions in force, but mostly in areas that are not profitable (Ford Motor Credit, Administration, etc.) which should not have a significant impact on FoMoCo’s suppliers.

Just think about it, If FoMoCo has 500,000 industrial workers and generates a profit of $5B from auto production that equates to about $10,000 profit per employee per year. Given the absence of a significant capital investment, cutting 10,000 industrial jobs will result in a $100M reduction in profits, that’s just cutting off your nose to spite your face!

 

[tigerbob]

In a successful Cpt 11 the most existing shareholders could expect would be about $10 per share. With a bailout a $50B cash infusion would go directly to shareholder equity and bump the stock price up to $40+ per share.

So now would be a good time to buy Ford stock (a $2 share bought today would be worth $10 after Chapter 11 or $40 after a bailout).

 

[NOBama]

So now would be a good time to buy Ford stock (a $2 share bought today would be worth $10 after Chapter 11 or $40 after a bailout).

No, there's a better than good chance that the common shareholder will get wiped out if they file chapter 11.

 

[tigerbob]

No, there's a better than good chance that the common shareholder will get wiped out if they file chapter 11.

Sorry - I was joking.

 

[Turboswede]

So now would be a good time to buy Ford stock (a $2 share bought today would be worth $10 after Chapter 11 or $40 after a bailout).

Sure...and I have a bridge you might be interested in buying too

 

[tigerbob]

Sure...and I have a bridge you might be interested in buying too

Bridge to nowhere by any chance?

 

[NOBama]

Sorry - I was joking.