Comments on: Automaker Bailout Loan: Secured Or Not? http://thefinancebuff.com/2008/12/automaker-bailout-loan-secured-or-not.html like a friend telling you about money ... Thu, 19 Nov 2009 19:44:17 -0600 http://wordpress.org/?v=2.8 hourly 1 By: Pelon http://thefinancebuff.com/2008/12/automaker-bailout-loan-secured-or-not.html/comment-page-1#comment-1249 Pelon Mon, 22 Dec 2008 00:52:15 +0000 http://thefinancebuff.com/2008/12/automaker-bailout-loan-secured-or-not.html#comment-1249 I think the best hope for the auto companies is if the government guarantees a large portion of their retiree costs. That seems to be a major reason they weren't profitable before the sales slowdown. Their direct labor costs in both dollars per vehicle and dollars per hour aren't much different than the Japanese manufacturers. The legacy costs, though, are much more. To be competitive, they need to dump those costs on someone else. They were in the process of trying to do just that by transferring those obligations to the union when the market slowdown occurred. Now, they have no hope of raising the cash necessary to fund the transfer. The Treasury loan terms attempt to address that problem by requiring that the union accept a large transfer of company stock in lieu of cash, but I'm not sure the union will agree to that unless the government guarantees any shortfalls. In hindsight, it's easy to blame the car companies for allowing themselves to get stuck with such high legacy costs, but who knew that health care costs and life expectancy would increase so much? That's something to keep in mind for people planning for a retirement 20 to 40 years from now. What will our life expectancy be at that time? My retirement plan is setup to last until I'm 105. Currently, few people live that long, but what if that changes? How many of us will come up short? I think the best hope for the auto companies is if the government guarantees a large portion of their retiree costs. That seems to be a major reason they weren't profitable before the sales slowdown. Their direct labor costs in both dollars per vehicle and dollars per hour aren't much different than the Japanese manufacturers. The legacy costs, though, are much more. To be competitive, they need to dump those costs on someone else. They were in the process of trying to do just that by transferring those obligations to the union when the market slowdown occurred. Now, they have no hope of raising the cash necessary to fund the transfer. The Treasury loan terms attempt to address that problem by requiring that the union accept a large transfer of company stock in lieu of cash, but I'm not sure the union will agree to that unless the government guarantees any shortfalls.

In hindsight, it's easy to blame the car companies for allowing themselves to get stuck with such high legacy costs, but who knew that health care costs and life expectancy would increase so much? That's something to keep in mind for people planning for a retirement 20 to 40 years from now. What will our life expectancy be at that time? My retirement plan is setup to last until I'm 105. Currently, few people live that long, but what if that changes? How many of us will come up short?

]]> By: Bill M. http://thefinancebuff.com/2008/12/automaker-bailout-loan-secured-or-not.html/comment-page-1#comment-1248 Bill M. Sun, 21 Dec 2008 22:23:42 +0000 http://thefinancebuff.com/2008/12/automaker-bailout-loan-secured-or-not.html#comment-1248 Unfortunately there is so much fear in people's minds that there is nothing that can really be done by other Government that has an approval rating in the low 20s. Until we replace the well-connected politicians that are in the beltway, we will just be delaying the worst to come and make it even worst because the debt load just continues to grow. Lets every one slow down including the government, take a deep breath, repeat step 1 & 2 at least 3 times before anything is signed. Unfortunately there is so much fear in people's minds that there is nothing that can really be done by other Government that has an approval rating in the low 20s. Until we replace the well-connected politicians that are in the beltway, we will just be delaying the worst to come and make it even worst because the debt load just continues to grow. Lets every one slow down including the government, take a deep breath, repeat step 1 & 2 at least 3 times before anything is signed.

]]> By: TFB http://thefinancebuff.com/2008/12/automaker-bailout-loan-secured-or-not.html/comment-page-1#comment-1247 TFB Sat, 20 Dec 2008 20:01:11 +0000 http://thefinancebuff.com/2008/12/automaker-bailout-loan-secured-or-not.html#comment-1247 Pelon - There are strong restructuring requirements in the current auto bailout loans. I hope they enforce them and not let them be simply an empty threat. If they truly follow-through, I think we will still have a viable auto industry. I'm not against the auto bailout. I think this just gives them some time to organize a prepackaged bankruptcy. Financial problems can be solved by throwing money at them or wiping out some debt in bankruptcy. The competitive operations issues are much harder to solve. Pelon – There are strong restructuring requirements in the current auto bailout loans. I hope they enforce them and not let them be simply an empty threat. If they truly follow-through, I think we will still have a viable auto industry. I'm not against the auto bailout. I think this just gives them some time to organize a prepackaged bankruptcy. Financial problems can be solved by throwing money at them or wiping out some debt in bankruptcy. The competitive operations issues are much harder to solve.

]]> By: Pelon http://thefinancebuff.com/2008/12/automaker-bailout-loan-secured-or-not.html/comment-page-1#comment-1246 Pelon Sat, 20 Dec 2008 19:03:43 +0000 http://thefinancebuff.com/2008/12/automaker-bailout-loan-secured-or-not.html#comment-1246 I have mixed feelings about this and other bailouts. On the one hand, I'm a firm believer in the necessity for the creative destruction that has allowed our economy to rapidly develop. Bad companies must be allowed to fail so that their resources can be applied to more efficient uses. On the other hand, I have a lot of concern for the people affected by that destruction. I would be willing to sacrifice a little of our long term prosperity to avoid a huge fall in current employment. I'm not willing, however, to mire the country in a decades long stagnation. You can argue that the attempt to preserve jobs and industries is the reason Japan has had such problems. The question I have is are we simply providing a helping hand to an auto industry that has a viable future, or are we investing in the equivalent of a state sponsored buggywhip industry that will never be able to stand on its own? I have mixed feelings about this and other bailouts. On the one hand, I'm a firm believer in the necessity for the creative destruction that has allowed our economy to rapidly develop. Bad companies must be allowed to fail so that their resources can be applied to more efficient uses. On the other hand, I have a lot of concern for the people affected by that destruction. I would be willing to sacrifice a little of our long term prosperity to avoid a huge fall in current employment. I'm not willing, however, to mire the country in a decades long stagnation. You can argue that the attempt to preserve jobs and industries is the reason Japan has had such problems.

The question I have is are we simply providing a helping hand to an auto industry that has a viable future, or are we investing in the equivalent of a state sponsored buggywhip industry that will never be able to stand on its own?

]]> By: simplesimon http://thefinancebuff.com/2008/12/automaker-bailout-loan-secured-or-not.html/comment-page-1#comment-1243 simplesimon Fri, 19 Dec 2008 22:02:24 +0000 http://thefinancebuff.com/2008/12/automaker-bailout-loan-secured-or-not.html#comment-1243 What happened to "no bailout until changes to union contracts"? What happened to "no bailout until changes to union contracts"?

]]> By: Ted http://thefinancebuff.com/2008/12/automaker-bailout-loan-secured-or-not.html/comment-page-1#comment-1242 Ted Fri, 19 Dec 2008 21:28:02 +0000 http://thefinancebuff.com/2008/12/automaker-bailout-loan-secured-or-not.html#comment-1242 What world is Adam Levitin living in where he believes the Federal Government will be stopped from doing what it pleases, contrary to law or not? What world is Adam Levitin living in where he believes the Federal Government will be stopped from doing what it pleases, contrary to law or not?

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