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[Blog] Why the Seagull thinks GM is worth bailing out
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Author Topic: [Blog] Why the Seagull thinks GM is worth bailing out  (Read 11602 times)
purplecat
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« on: November 11, 2008, 17:36:14 EST »

http://www.idrewthis.org/2008/11/why-i-think-gm-is-worth-bailing-out.html

I don't know.

Perhaps the US needs this chunk of manufacturing capacity. Perhaps it needs the skills to retool its massive transport fleet to higher mileage and alternative fuels. Perhaps it needs to build buses for the public transport that it sorely lacks.

But I cannot see any bailout doing any of that. I see a wedge of notes going straight into the pockets of bungling management who bet the future on more of the same. Into the pockets of shareholders who gambled on the wrong horse.

Wipe them out. 100%. That's the price of failure. Then we can talk about the productive parts of the company. The parts that build, that create, that keep the country moving. If the country needs them, we can call them into service.

The other bailouts around the world have shown the way. If the people pump in capital to keep it going, they should get ownership. More importantly, they should get control.
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« Reply #1 on: November 11, 2008, 18:15:49 EST »

That's why I've begun to tolerate the current bailout.  The government buys the mortgages at dirt cheap prices in order to put liquidity back in the market and get people on their feet, then patiently waits until they are worth something again, whereupon it sells them to recoup the money it lost and then some.  No corporation or group of people could afford to take a 700 billion loss and simply wait for years before it goes back in the black, the government CAN.

So in this case, perhaps, the government can basically buy GM, then sell it to people who can run it competently, and with a shiny new administration, it might actually be able to pull it off rather than be corrupted into selling it to a bunch of equally moronic people with lots of bribes.

See, that's the advantage the government has, it is to a corporation what a corporation is to a mom and pop store, it can afford to soak up a LOT more punishment, and is capable of making far bigger shifts if the situation calls for it.
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« Reply #2 on: November 11, 2008, 18:59:39 EST »

I must say, I mostly agree with Seagull and Wodan. If GM is heading towards a breakthrough in alternative fuels, then that is something that is absolutely worth saving. Oil has caused us far too much trouble and will only continue to do so in the future. But the current management perhaps should be exchanged for more competent people, otherwise it'll just be a license to fuck up again.
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« Reply #3 on: November 11, 2008, 21:45:57 EST »

I disagree, both from a straight capitalist (actually, I'm a technocrat, not a capitalist) perspective and froma  solid government perspecive.  For a couple of reasons.

One:
Once they have the money, the government enters into an "in for a penny, in for a pound" political deal.  There is no way that once a bailout occurs, the government can afford a subsequent failure of the company.  This will lead to large amounts of wastage and "hail mary" concepts.

Two:
Electric cars are a pipe dream.  Not becuase they don't work, but because the companies already have working models and scrapped them.  Why?  Hydrogen cells, in theory, but the reality was that they made them under duress.  Once they had a new technology "right around the corner" they wriggled out of thier sanctions and requirements and started pursuing that.  The industry has a pattern of this sort of bait-and-switch nonsense.  It -is- nonsense.  They have no intention of ever moving away from existing patterns as long as they can be assured the company will stay afloat.  A bailout assures this.

GM is failing because it has very little actually promising R and D, if it did, that R&D would be valuable to the industry, and we would see other companies at least doing do diligance to see if an aquistition was viable.  We are not, GMs tech is just showy garbage, if they wanted an electric car they could have schematics up by the end of this month for a prototype 200 mile range compact.  The Volt is a standard hybrid with a 40 mile max range.  40 mile.  That is significantly below the range of the EV1 with 60-80 (also built by GM).

Hydrogen is...hydrogen is 5-10 years out.  It has always been "in the future", and IMHO, is not a viable option for N.A. due to the cold weather and starting problems.

Don't get me wrong, the EV1 was trash-tech, and the Volt looks to be the same.  GM's R&D is just smoke and mirrors while desperately trying to come to even the same levels as surplus-companies (there is a critical mass and stability need which simply cannot be provided in a failing company).  As a company it's garbage, and that's why no-one with any sense in business wants anything near it.  It's main reason for R&D was, by my understanding of how they rigged it up, to set themselves up to look like a futures company on paper, and have accumulated value and simulate false earnings.  Given that soon enough R&D will not enter into some estimation quagmire they will soon have to show thier real balance sheet in public and nightmares will begin.
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wodan46
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« Reply #4 on: November 11, 2008, 22:56:35 EST »

Stuff
That is basically what I thought.  On the other hand, I'd prefer that GM be reconstituted as a new company with non-idiot management, rather than cause the US to lose one of its more important businesses.

Why can't we be making more Apteras?
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« Reply #5 on: November 12, 2008, 06:01:20 EST »

But I cannot see any bailout doing any of that. I see a wedge of notes going straight into the pockets of bungling management who bet the future on more of the same. Into the pockets of shareholders who gambled on the wrong horse.
Yes.  It rewards lobbying not good business.

Wipe them out. 100%. That's the price of failure.
Exactly.

Then we can talk about the productive parts of the company. The parts that build, that create, that keep the country moving. If the country needs them, we can call them into service.
Perhaps it needs the skills to retool its massive transport fleet to higher mileage and alternative fuels. Perhaps it needs to build buses for the public transport that it sorely lacks.
Think about what happens when GM is liquidated.  The factories and the staff will still exist, the knowledge will still exist.  New entrepreneurs will take what capital is valuable and use it to build products that people actually want to buy.

The best way to replace the management is bankruptcy.

Quote from: Wodan46
That's why I've begun to tolerate the current bailout.  The government buys the mortgages at dirt cheap prices in order to put liquidity back in the market and get people on their feet, then patiently waits until they are worth something again, whereupon it sells them to recoup the money it lost and then some.  No corporation or group of people could afford to take a 700 billion loss and simply wait for years before it goes back in the black, the government CAN.
I don't disagree with you that government can theoretically take "more punishment" and wait longer.  However, in practice government's decisions are determined by the electoral cycle and interest groups.  The US government is not taking the long term view when it buys up these mortgages, it is taking a short terms one.  The banks and the home buyers are being rescued for short term political gain.

It is quite possible that the private sector could get together 700 billion if doing so would result in profit eventually.  Note also that the mortgage backed securities are each for small amounts, so it would not be necessary to collect together such a vast amount of capital before proceeding.  The private sector can now borrow at 2% interest rates.  At this small interest rate they can look very far into the future.  They are not buying these securities not because they cannot wait for them to turn a profit.  They are not buying them because they probably won't turn a profit.  Specifically, they probably won't provide a good return compared to other investments.
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« Reply #6 on: November 12, 2008, 08:34:26 EST »

Also...

Quote from: Liberal Seagull
Cars are the most complicated mass-produced consumer products in existence
As a person involved in computer design I beg to differ.

Quote from: Liberal Seagull
and a country that can build cars can build anything.
Not necessarily.  It's quite specialized actually.  A country that can build cars can build anything only due to it being part of international trade.  How much of a US car do you think is made in the US?

Quote from: Liberal Seagull
The auto industry represents know-how we need to retain; the loss of it would inevitably lead to an engineering brain drain.
Would it?  I doubt it personally.  More likely those engineers would be re-employed in the US.  Why would they go elsewhere? the US pays the best salaries in the world for engineering.

Quote from: Liberal Seagull
The recent financial collapse has shown the folly of basing an economy entirely on moving money around; countries are suffering in direct proportion to how much of their GDP comes from the financial industry. We need to remain a country that can make things.
Just because the latest spell of over-investment has been in the housing and finance industries doesn't mean that those industries should be abandoned.  You can't guess what the "value" of a particular industry and make policy based on that guess.
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« Reply #7 on: November 12, 2008, 22:02:32 EST »

Quote from: Liberal Seagull
The auto industry represents know-how we need to retain; the loss of it would inevitably lead to an engineering brain drain.
Would it?  I doubt it personally.  More likely those engineers would be re-employed in the US.  Why would they go elsewhere? the US pays the best salaries in the world for engineering.

Apparently the UAE can do better, due to the tax rates. Also, if it's quality of life you want, foreign programmers in India have a tendency to have chauffeurs.
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« Reply #8 on: November 13, 2008, 05:51:28 EST »

Quote from: Liberal Seagull
The auto industry represents know-how we need to retain; the loss of it would inevitably lead to an engineering brain drain.
Would it?  I doubt it personally.  More likely those engineers would be re-employed in the US.  Why would they go elsewhere? the US pays the best salaries in the world for engineering.

Apparently the UAE can do better, due to the tax rates. Also, if it's quality of life you want, foreign programmers in India have a tendency to have chauffeurs.
There are a few places that can do better.  Ireland amongst them - for some jobs.  On the whole though it is not economic for an engineer to move from the US.  That said I have known people who have done it, mostly for family reasons.
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« Reply #9 on: November 18, 2008, 11:55:34 EST »

I've just had an interesting idea I've not seen floated.  Haven't examined it enough to know whether I'm actually in favor of it, but I figure I'll put it out there:

What if the union buys (some of?) GM?

No one has a stronger stake in the success of the company than the workers.  Let the union buy up some of the company to provide the cash the company needs.  Here's what I envision:

The union says, "We're not interested in accepting pay cuts simply because management's been dumb BUT not all of the pay needs to be in cashmonies/bennies."  They renegotiate, accepting lower wages.  In exchange, they get the difference in *voting* shares of the company.

Thoughts?
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« Reply #10 on: November 18, 2008, 13:29:17 EST »

Hahahahah, not likely.

First, Unions cannot own part of it, as it would violate the principle of Union V. Management, but more importantly, voting shares would have to be distributed, and I see no miracle on the horizon where unions will operate at anything like efficency.

It just isn`t something unions are meant to do, and if the laws are bent to allow it, Unions would be able to be formed by management individuals and thereafter unions as a whole would break (imagine, if you will, if not only could corporations collude they could do so in a legally binding method).

You think the under the table cartels are ugly *shudders*, get ready for food and oil to triple if management of companies could form unions.
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« Reply #11 on: November 18, 2008, 13:55:29 EST »

Hahahahah, not likely.

First, Unions cannot own part of it, as it would violate the principle of Union V. Management, but more importantly, voting shares would have to be distributed, and I see no miracle on the horizon where unions will operate at anything like efficency.

It just isn`t something unions are meant to do, and if the laws are bent to allow it, Unions would be able to be formed by management individuals and thereafter unions as a whole would break (imagine, if you will, if not only could corporations collude they could do so in a legally binding method).

You think the under the table cartels are ugly *shudders*, get ready for food and oil to triple if management of companies could form unions.

As I said, I've not thought it through entirely.  That said, you seem to have misinterpreted some of what I said (or tried to say), so let me clear that up.

I am not saying the union itself should hold the shares.  I am saying that the union should renegotiate contracts in a way that leaves total compensation the same but includes *voting* shares of stock as a part of it, in place of cash.

While IANAL, and particularly have looked little at labor law, I don't *expect* that this involves any change in law.  I also don't see the connection to unionization of management.



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« Reply #12 on: November 18, 2008, 14:01:51 EST »

Not directly related to my previous posts in this thread, but I do think the government has *a* roll to play in bailing out GM:  nationalization of health-care would go a long way toward making them competitive, since $1500 of the cost of a GM car goes to employee health-care, while only $200 of the cost of a Toyota goes to health-care.  I don't think we should be extending them loans, however, and health-care is not a short-term fix, which they also need.
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« Reply #13 on: November 18, 2008, 14:32:08 EST »

Let's say you have a group of companies that manufacture screws.  These companies gather together to form a cartel for the manufacture of screws.  This is illegal.  (It is also not very effective because one or more company is likely to find it in its interest to break the cartel, just as Venezuela have been breaking OPEC shipping limits in past years)

Let's say you have a group of unions that represent screw manufacturing employees.  These unions gather together to form a huge single union to represent screw manufacturing employees.  This is a cartel too, a cartel on supplying screw manufacturing labour.  This is legal in most western countries.  For the same reasons as above it is unlikely to be effective.  There will always be some "blacklegs" who will offer to take less than the union rate or refuse to strike.

The two entities above could be married together.  Let's say the union of screw manufacturing employees become the only union representing those employees.  At this time the screw manufacturing companies are not a cartel.  That union then buys up one of the screw manufacturing companies.  The combined union+company is in an excellent situation.  The union side can cause strikes in the rest of the industry and disturb production to the profit of the company side.  The union+company could then form a cartel between the various screw manufacturing companies threatening those companies who don't cooperate with strikes.  The same sort of thing could emerge from a cartel of companies.

The advantage of this to those involved is that there are the combined privileges of being a company and being a union.  All of this happens to the detriment of everyone else buying the products.  It has happened several times in the past.

For this reason Heq is probably right.

True cooperatives are a different situation.
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« Reply #14 on: November 18, 2008, 15:36:35 EST »

Let's say you have a group of companies that manufacture screws.  These companies gather together to form a cartel for the manufacture of screws.  This is illegal.  (It is also not very effective because one or more company is likely to find it in its interest to break the cartel, just as Venezuela have been breaking OPEC shipping limits in past years)

Let's say you have a group of unions that represent screw manufacturing employees.  These unions gather together to form a huge single union to represent screw manufacturing employees.  This is a cartel too, a cartel on supplying screw manufacturing labour.  This is legal in most western countries.  For the same reasons as above it is unlikely to be effective.  There will always be some "blacklegs" who will offer to take less than the union rate or refuse to strike.

The two entities above could be married together.  Let's say the union of screw manufacturing employees become the only union representing those employees.  At this time the screw manufacturing companies are not a cartel.  That union then buys up one of the screw manufacturing companies.  The combined union+company is in an excellent situation.  The union side can cause strikes in the rest of the industry and disturb production to the profit of the company side.  The union+company could then form a cartel between the various screw manufacturing companies threatening those companies who don't cooperate with strikes.  The same sort of thing could emerge from a cartel of companies.

The advantage of this to those involved is that there are the combined privileges of being a company and being a union.  All of this happens to the detriment of everyone else buying the products.  It has happened several times in the past.

For this reason Heq is probably right.

True cooperatives are a different situation.

Ok, I see that, but I think there are two things getting in the way.

1) Flagrant anti-competitive behavior outside the scope of that explicitly blessed by labor law would presumably still be subject to antitrust law.

and probably more significantly:

2) It is not the union holding the shares that I propose, but those individual union members who work at the company.  While significant in number, employees at GM (or any given manufacturer) still make up a minority of union members, and the union would suffer significantly if any of the *unionized* competitors were to go under, and it is only these that the union has any influence over.

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