Stop The “Detroit 3” Bailout – $375,000 Cost Per Employee To Taxpayers

America’s Two Auto Industries – Why Bailout The Old – The New Is Healthy

Government Aid to GM, Ford, Chrysler Could Preserve Old Way of Building and Selling Cars 

Last Friday, November 7, 2008, GM announced that unless its financial performance improves, there is a substantial risk of the company collapsing by the middle of next year. http://online.wsj.com/article/SB122608860916209213.html?mod=article-outset-box

Discussions abound about the current “credit freeze”, economic turndown, etc ….. a discussion of current economic trends is misplaced …. a broader historical perspective is needed. A perspective that looks ahead and not just back at GM’s and the rest of the Detroit 3’s  historical importance to the Country.

I believe the term is “throwing good money after bad”.

The value of GM did not suddenly decline. In 2007 GM lost 38.7 Billion Dollars. It has been a five year slide for GM stock from $60 a share to today’s $3.00 and change per share.  http://meganmcardle.theatlantic.com/archives/2008/02/gm_loses_big.php  Also see: http://money.cnn.com/2008/06/24/markets/thebuzz/index.htm?eref=aol

GM’s solution, “reduce costs by offering buyouts to more of its union employees. It’s astonishing how lavish these buyout packages can be, and yet still save the company money–early retirement plus $45,000 is apparently cheaper than keeping them on the line. It’s a sign of something deeply out of whack in the labor market when companies are consistently this desperate to shed workers–how can the UAW swing enough clout to keep the automakers tottering in and out of unprofitability?”

http://news.yahoo.com/s/ap/20081109/ap_on_bi_ge/autos_what_happened            http://money.cnn.com/2005/11/25/news/gm_possibilities/index.htm

Critics say leaders over the years at Ford Motor Co., General Motors Corp. and what is now Chrysler LLC were slow to take on unions, failed to invest enough in new products, ceded the car market to the Japanese and were ill-prepared for the inevitable rise in gas prices that would make their trucks and SUVs obsolete.                http://news.yahoo.com/s/ap/20081109/ap_on_bi_ge/autos_what_happened

“There’s been 30 years of denial,” said Noel Tichy, a University of Michigan business professor and author who ran General Electric Co.’s leadership program from 1985-87 and once worked as a consultant for Ford. “They did not make themselves competitive. They didn’t deal with the union issues, the cost structures long ago, everything that makes a successful company.”    http://news.yahoo.com/s/ap/20081109/ap_on_bi_ge/autos_what_happened

Whatever the reasons, the Detroit Three are closer to collapse than ever, and likely won’t make it without billions in government loans. http://news.yahoo.com/s/ap/20081109/ap_on_bi_ge/autos_what_happened

On Friday, GM posted a $2.5 billion third-quarter loss and ominously said it could run out of money before the end of the year. The company spent $6.9 billion more than it took in for the quarter and reported that it had $16.2 billion in cash available at the end of September. http://news.yahoo.com/s/ap/20081109/ap_on_bi_ge/autos_what_happened

Ford reported a $129 million loss but said it burned up $7.7 billion in cash for the period. It had $18.9 billion on hand as of Sept. 30. Its chief financial officer says he’s confident Ford will make it through 2009, but that’s because the company took out a huge loan last year. http://news.yahoo.com/s/ap/20081109/ap_on_bi_ge/autos_what_happened

Industry analysts believe Chrysler, now a private company that does not have to open its books, is as bad off as GM as U.S. sales continue to plummet because of tight credit and lack of consumer confidence due to the economy. http://news.yahoo.com/s/ap/20081109/ap_on_bi_ge/autos_what_happened

The Detroit 3 failed to challange the Union, the companies say the UAW drove up their labor costs to $30 per hour more than Japanese companies paid their workers. When the Detroit 3 have pushed for change the Union has simply called for strikes, strikes which cost the companies 10’s of billions in lost profits. The last strikes came just this past summer, in the midst of the current economic turmoil.

America has two auto industries. The “Old Auto Industry” the one represented by GM, Ford and Chrysler is Midwestern, unionized, burdened with massive obligations to retirees, and shackled to marketing and product strategies that have roots reaching back to the early 1900s. http://online.wsj.com/article/SB122608860916209213.html?mod=article-outset-box

The other American auto industry, the “New Auto Industry” is largely Southern and non-union, owes relatively little to the few retirees it has, and enjoys a variety of advantages because its Japanese, European and Korean owners launched operations in this country relatively recently. Their factories are newer, their brand images and marketing strategies are more coherent — Toyota uses three brands in the U.S. to GM’s eight — and they have cars designed for the competitive global market that exists today. http://online.wsj.com/article/SB122608860916209213.html?mod=article-outset-box Despite the economic turmoil, they are all profitable.   

The New Industry has controlled costs, developed superior products and marketing. In fact the “New Industry”can’t produce some vehicles (Toyota Prius) fast enough to meet consumer demand.

The Old American auto industry is represented by the “Big Three” of Detroit. The “Detroit Three” employ approximately 200,000 people.   http://online.wsj.com/article/SB122608860916209213.html?mod=article-outset-box 

The New American Auto industry employs approximately 113,000 people, this is according to a recent study by the Center for Automotive Research.  http://online.wsj.com/article/SB122608860916209213.html?mod=article-outset-box

This bailout debate is strictly about the Old American Auto Industry.

At present, the “Detroit 3” are talking about a preliminary bailout number of an additional $50 Billion dollars. This would bring the total to $75 Billion Dollars for the “Old Auto Industry”.  

The original $25 Billion has already been approved but is currently tied up in the Energy Committee of Congress. http://ca.news.yahoo.com/s/afp/081110/business/stocks_us_auto_company_gm 

A $75 Billion dollar bailout for the “Detroit 3”. $75 Billion Dollars!

$75 Billion for an industry that has 200,000 direct employees?  

That comes out to $375,000 per direct employee. I kid you not, $375,000 per direct employee.

You try the math, $75,000,000,000 divided by 200,000. ($750,000 / 2 = $375,000).

You’ve got to be kidding me. 

It just isn’t worth the gamble. Over the last 30 years the Detroit 3 has failed to demonstrate it can complete globally. How will throwing more money at their problem help. Throwing money at the Detroit 3 won’t solve their problems and they seem incapable of solving them on their own.

At Ford Motor Co. they called it “Blue,” a team set up around the year 2000 to design an array of small, fuel-efficient cars to compete with the Japanese. It didn’t get far because no one could figure out how to make money on low-priced compacts with Ford’s high labor costs. The same thing happened at GM & Chrysler. The Detroit 3 concentrated on trucks and SUV’s, markets that the New Auto Industry nearly conceeded, because focusing on that market (SUVs & Trucks) was just too short sighted for ongoing business success.

Now the Government is considering buying the Old American Auto Industry. That is essentially what a bailout would mean. The Government buying the Detroit 3.

“We are lowering our target on GM equity to zero dollars,” the Deutsche Bank report said. “Even if GM succeeds in averting a bankruptcy, we believe that the company’s future path is likely to be bankruptcy-like,” it said. “While we believe that GM’s secured creditors may get a par recovery, unsecured creditors may get very low recovery. Equity shareholders are unlikely to get anything.” http://ca.news.yahoo.com/s/afp/081110/business/stocks_us_auto_company_gm  

 

Duetsche Bank’s assessment, the bailout isn’t likely to work. Duetsche bank noted, “even if there is a government bailout of the auto giant, shareholders would not benefit.” http://ca.news.yahoo.com/s/afp/081110/business/stocks_us_auto_company_gm

The US Government should not be in the business of buying private businesses, especially not businesses that will still be bankrupt after a $75 Billion cash investment at taxpayer expense. 

Throwing good money after bad? Absolutely!

In a Capitalist economy, poorly run companies that can’t control costs, successfully plan future product or get desired products to market in a timely manner, fail. Simple enough, bad companies fail. They are not rewarded for inefficency. Successful companies are rewarded. 

The current proposal to bailout 1/2 of the US Auto Industry does so at the expense of the other successful half and at tremendous costs to the American taxpayer.   

Further bailouts are a bad idea. Its time to let the chips fall where they may.

 

 

Citibank Announces Moratorium On Mortgage Foreclosures – Private Plan That Won’t Cost Taxpayers A Dime

NOT A GOVERNMENT BAILOUT – A PRIVATE ACTION THAT WON’T COST TAXPAYERS A DIME – WHY IS CITI DOING THIS? IT MAKES GOOD BUSINESS SENSE – THAT IS WHY !

Citigroup says it is imposing a moratorium on most foreclosures as part of a series of initiatives aimed at helping at-risk borrowers remain in their homes — making Citi the latest big bank to announce sweeping efforts to try to curtail losses from souring mortgages.

Citi said late Monday it won’t initiate a foreclosure or complete a foreclosure sale on any eligible borrower who seeks to stay in a home if it is the borrower’s principal residence, the homeowner is working in good faith with Citi and has sufficient income to make affordable mortgage payments.

Citi said it is also working to expand the program to include mortgages the bank services but does not own.

Additionally, over the next six months, Citi plans to reach out to 500,000 homeowners who are not currently behind on their mortgage payments, but who are deemed as potentially needing assistance to keep current with their payments. This represents about one-third of all the mortgages that Citigroup owns, the bank said.

Citi plans to devote a team of 600 salespeople to assist the targeted borrowers by adjusting their rates, reducing principal, or increasing the term of the loan, steps known in the mortgage industry as a workout.

Of the four biggest U.S. banks — Citigroup, JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co. — Citi has been on the shakiest footing as a result of the mortgage crisis, reporting losses in the past four consecutive quarters while its rivals have managed to post profits. The steps announced Monday are designed to stem those losses.

“Typically the lender loses the most money when a house goes into foreclosure,” said Barry Zigas, director of housing policy at the Consumer Federation of America. “(The lender) takes some kind of loss that’s usually much greater than what they sacrificed through some kind of workout.”

Sanjiv Das, chief executive of CitiMortgage, said, “It is in our interest that borrowers stay in their homes and actually make the payments.”

Citi is targeting homeowners in geographic areas with higher-than-average unemployment and foreclosure rates, primarily in Arizona, California, Florida, Michigan, Ohio and Indiana, Das said. The program is expected to affect about $20 billion in mortgages.

“As the unemployment rate is starting to creep up on us, there is going to be increasing distress in the marketplace,” Das said in an interview with The Associated Press. “It’s not going to distinguish between what type of mortgage they have.”

“There is a huge amount of anxiety among borrowers,” he said. “We will reach out to them before they become delinquent.”

Since early last year, Citigroup has helped about 370,000 families avoid foreclosure, representing more than $35 billion in loans, the bank said.

Citi has avoided negative amortization loans, option adjustable-rate mortgages, and other types of risky mortgages, defaults on which have skyrocketed since the start of the housing bust in the middle of last year. Still, the bank has nonetheless been hurt by the relentless downturn in housing that fed the mortgage and credit crisis, and in turn, the near-breakdown of the financial system.

With defaults mounting, other lenders, including JPMorgan and Bank of America, have also become more aggressive about modifications to mortgage agreements.

But a moratorium only solves so much, according to Zigas. “A moratorium on foreclosure will be effective at stopping foreclosure, it won’t be effective at stopping the underlying reasons of why people are in trouble,” he said.

By taking a proactive approach, Citigroup isn’t waiting until it’s too late to deal with delinquent borrowers, said Steve Curnutte, president of InsBank Mortgage in Nashville, Tenn. However, the problem is growing faster than most banks can handle, he said.

“It’s nearly an insurmountable undertaking,” said Curnutte. “The number of bad loans that they can modify using their resources is being quickly outstripped by the number of new loans that need to be modified.”

More than 4 million American homeowners with a mortgage were at least one payment behind on their loans at the end of June, and 500,000 had started the foreclosure process, according to the most recent data from the Mortgage Bankers Association.

Late last month, JPMorgan expanded its workout program to an estimated $70 billion in loans, which could aid as many as 400,000 customers. The New York-based bank has already modified about $40 billion in mortgages, helping 250,000 customers since early 2007.

JPMorgan also said it will not put any loans into foreclosure as it implements the expanded program over the next 90 days.

Bank of America, meanwhile, has said that starting Dec. 1, it will modify an estimated 400,000 loans held by newly acquired Countrywide Financial Corp. as part of an $8.4 billion legal settlement reached with state officials in early October.

http://www.chicagotribune.com/business/chicago-big-banks-mortgages-nov11,0,5250204.story?track=rss

Why We Shouldn’t Bailout The Detroit 3 / $375,000 Per Employee Bailout

America’s Two Auto Industries – Why Bailout The Old – The New Is Healthy

Government Aid to GM, Ford, Chrysler Could Preserve Old Way of Building and Selling Cars 

Last Friday, November 7, 2008, GM announced that unless its financial performance improves, there is a substantial risk of the company collapsing by the middle of next year. http://online.wsj.com/article/SB122608860916209213.html?mod=article-outset-box

Discussions abound about the current “credit freeze”, economic turndown, etc ….. a discussion of current economic trends is misplaced …. a broader historical perspective is needed. A perspective that looks ahead and not just back at GM’s and the rest of the Detroit 3’s  historical importance to the Country.

I believe the term is “throwing good money after bad”.

The value of GM did not suddenly decline. In 2007 GM lost 38.7 Billion Dollars. It has been a five year slide for GM stock from $60 a share to today’s $3.00 and change per share.  http://meganmcardle.theatlantic.com/archives/2008/02/gm_loses_big.php  Also see: http://money.cnn.com/2008/06/24/markets/thebuzz/index.htm?eref=aol

GM’s solution, “reduce costs by offering buyouts to more of its union employees. It’s astonishing how lavish these buyout packages can be, and yet still save the company money–early retirement plus $45,000 is apparently cheaper than keeping them on the line. It’s a sign of something deeply out of whack in the labor market when companies are consistently this desperate to shed workers–how can the UAW swing enough clout to keep the automakers tottering in and out of unprofitability?” http://news.yahoo.com/s/ap/20081109/ap_on_bi_ge/autos_what_happened            http://money.cnn.com/2005/11/25/news/gm_possibilities/index.htm

Critics say leaders over the years at Ford Motor Co., General Motors Corp. and what is now Chrysler LLC were slow to take on unions, failed to invest enough in new products, ceded the car market to the Japanese and were ill-prepared for the inevitable rise in gas prices that would make their trucks and SUVs obsolete.                http://news.yahoo.com/s/ap/20081109/ap_on_bi_ge/autos_what_happened

“There’s been 30 years of denial,” said Noel Tichy, a University of Michigan business professor and author who ran General Electric Co.’s leadership program from 1985-87 and once worked as a consultant for Ford. “They did not make themselves competitive. They didn’t deal with the union issues, the cost structures long ago, everything that makes a successful company.”    http://news.yahoo.com/s/ap/20081109/ap_on_bi_ge/autos_what_happened

Whatever the reasons, the Detroit Three are closer to collapse than ever, and likely won’t make it without billions in government loans. http://news.yahoo.com/s/ap/20081109/ap_on_bi_ge/autos_what_happened

On Friday, GM posted a $2.5 billion third-quarter loss and ominously said it could run out of money before the end of the year. The company spent $6.9 billion more than it took in for the quarter and reported that it had $16.2 billion in cash available at the end of September. http://news.yahoo.com/s/ap/20081109/ap_on_bi_ge/autos_what_happened

Ford reported a $129 million loss but said it burned up $7.7 billion in cash for the period. It had $18.9 billion on hand as of Sept. 30. Its chief financial officer says he’s confident Ford will make it through 2009, but that’s because the company took out a huge loan last year. http://news.yahoo.com/s/ap/20081109/ap_on_bi_ge/autos_what_happened

Industry analysts believe Chrysler, now a private company that does not have to open its books, is as bad off as GM as U.S. sales continue to plummet because of tight credit and lack of consumer confidence due to the economy. http://news.yahoo.com/s/ap/20081109/ap_on_bi_ge/autos_what_happened

The Detroit 3 failed to challange the Union, the companies say the UAW drove up their labor costs to $30 per hour more than Japanese companies paid their workers. When the Detroit 3 have pushed for change the Union has simply called for strikes, strikes which cost the companies 10’s of billions in lost profits. The last strikes came just this past summer, in the midst of the current economic turmoil.

America has two auto industries. The “Old Auto Industry” the one represented by GM, Ford and Chrysler is Midwestern, unionized, burdened with massive obligations to retirees, and shackled to marketing and product strategies that have roots reaching back to the early 1900s. http://online.wsj.com/article/SB122608860916209213.html?mod=article-outset-box

The other American auto industry, the “New Auto Industry” is largely Southern and non-union, owes relatively little to the few retirees it has, and enjoys a variety of advantages because its Japanese, European and Korean owners launched operations in this country relatively recently. Their factories are newer, their brand images and marketing strategies are more coherent — Toyota uses three brands in the U.S. to GM’s eight — and they have cars designed for the competitive global market that exists today. http://online.wsj.com/article/SB122608860916209213.html?mod=article-outset-box Despite the economic turmoil, they are all profitable.   

The New Industry has controlled costs, developed superior products and marketing. In fact the “New Industry”can’t produce some vehicles (Toyota Prius) fast enough to meet consumer demand.

The Old American auto industry is represented by the “Big Three” of Detroit. The “Detroit Three” employ approximately 200,000 people.   http://online.wsj.com/article/SB122608860916209213.html?mod=article-outset-box 

The New American Auto industry employs approximately 113,000 people, this is according to a recent study by the Center for Automotive Research.  http://online.wsj.com/article/SB122608860916209213.html?mod=article-outset-box

This bailout debate is strictly about the Old American Auto Industry.

At present, the “Detroit 3” are talking about a preliminary bailout number of an additional $50 Billion dollars. This would bring the total to $75 Billion Dollars for the “Old Auto Industry”.  

The original $25 Billion has already been approved but is currently tied up in the Energy Committee of Congress. http://ca.news.yahoo.com/s/afp/081110/business/stocks_us_auto_company_gm 

A $75 Billion dollar bailout for the “Detroit 3”. $75 Billion Dollars!

$75 Billion for an industry that has 200,000 direct employees?  

That comes out to $375,000 per direct employee. I kid you not, $375,000 per direct employee.

You try the math, $75,000,000,000 divided by 200,000. ($750,000 / 2 = $375,000).

You’ve got to be kidding me. 

It just isn’t worth the gamble. Over the last 30 years the Detroit 3 has failed to demonstrate it can complete globally. How will throwing more money at their problem help. Throwing money at the Detroit 3 won’t solve their problems and they seem incapable of solving them on their own.

At Ford Motor Co. they called it “Blue,” a team set up around the year 2000 to design an array of small, fuel-efficient cars to compete with the Japanese. It didn’t get far because no one could figure out how to make money on low-priced compacts with Ford’s high labor costs. The same thing happened at GM & Chrysler. The Detroit 3 concentrated on trucks and SUV’s, markets that the New Auto Industry nearly conceeded, because focusing on that market (SUVs & Trucks) was just too short sighted for ongoing business success.

Now the Government is considering buying the Old American Auto Industry. That is essentially what a bailout would mean. The Government buying the Detroit 3.

“We are lowering our target on GM equity to zero dollars,” the Deutsche Bank report said. “Even if GM succeeds in averting a bankruptcy, we believe that the company’s future path is likely to be bankruptcy-like,” it said. “While we believe that GM’s secured creditors may get a par recovery, unsecured creditors may get very low recovery. Equity shareholders are unlikely to get anything.” http://ca.news.yahoo.com/s/afp/081110/business/stocks_us_auto_company_gm

 

Duetsche Bank’s assessment, the bailout isn’t likely to work. Duetsche bank noted, “even if there is a government bailout of the auto giant, shareholders would not benefit.” http://ca.news.yahoo.com/s/afp/081110/business/stocks_us_auto_company_gm

The US Government should not be in the business of buying private businesses, especially not businesses that will still be bankrupt after a $75 Billion cash investment at taxpayer expense. 

Throwing good money after bad? Absolutely!

In a Capitalist economy, poorly run companies that can’t control costs, successfully plan future product or get desired products to market in a timely manner, fail. Simple enough, bad companies fail. They are not rewarded for inefficency. Successful companies are rewarded. 

The current proposal to bailout 1/2 of the US Auto Industry does so at the expense of the other successful half and at tremendous costs to the American taxpayer.   

Further bailouts are a bad idea. Its time to let the chips fall where they may.

Oil Futures Drop to $56 / Barrel – Gasoline $1.32 Gallon / Global Stocks Down

Dated Brent Spot

56.10

-1.59

-2.76

07:08

Nymex Crude Future

59.68

-2.73

-4.37

06:38

http://www.bloomberg.com/markets/commodities/energyprices.html

S&P 500

-14.90

906.60

11/11 7:16am

 

Fair Value

 

917.80

11/10 10:17pm

Difference*

 

-11.20

 

NASDAQ

-17.50

1239.00

11/11 7:08am

 

Fair Value

 

1251.68

11/10 10:17pm

Difference*

 

-12.68

 

Dow Jones

-142.00

8745.00

11/11 7:11am

DJIA Contracts

FTSE 100

-108.08

-2.45%

4,295.84

XETRA-DAX

-136.22

-2.71%

4,889.31

CAC 40

-103.67

-2.96%

3,402.08

HANG SENG

-703.73

-4.77%

14,040.90

NIKKEI 225

-272.13

-3.00%

8,809.30

 

U.S. Dollar vs Euro

-0.0048

-0.38%

1.2701

 

U.S. Dollar vs Yen

-0.1300

-0.13%

0.0102

 

U.S. Dollar vs UK £

-0.01

-0.54%

1.5

http://money.cnn.com/data/premarket/index.html

“The oil market is coming down into line with demand expectations,” said Simon Wardell, oil analyst at Global Insight in London.

“There’s more downside weakness here than upside strength. We are expecting prices to go lower before they go higher with U.S. crude hitting $50 before its reaches $65 again.”  

Oil has shed 60 percent of its value since hitting a record high $147 in July.  http://news.yahoo.com/s/ap/20081110/ap_on_bi_ge/oil_prices_11

The run up in Oil during the 6 months that preceeded the election had little to do with demand and consumption. Oil demand and supplies had only incresed slightly prior to the run up. Oil producing countries had “excess” capacity prior to the run up. (They had the ability to pump more oil as demand rose).

Opec sets oil production levels to obtain a predictable price range.

OPEC President Chakib Khelil said the oil producers’ target prices for was $70 to $90 per barrel. http://economie.moldova.org/stiri/eng/163913/  

A significant factor in the post election run up of crude oil prices was financial speculation.

“We still have this connection between the oil market, the equity markets and the currency markets,” Ritterbusch said. Crude is bought and sold in dollars, and when the dollar falls against foreign currencies, investors often sell the U.S. currency and buy oil. Oil prices are also experiencing some spillover from the equity markets, in which any significant rise “conjures up images of a softer economic landing,” Ritterbusch said.  http://news.yahoo.com/s/ap/20081110/ap_on_bi_ge/oil_prices_11

Oil prices have fallen about 56 percent since reaching a record $147.27 in mid-July, and that’s provided some good news for U.S. motorists. In Tulsa, Okla., at least one station was selling regular gasoline for $1.79 and there were a handful of states where the average price of gasoline fell below $2.

http://news.yahoo.com/s/ap/20081110/ap_on_bi_ge/oil_prices_11

 

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