The auto bailout failed.

Re: The auto bailout failed.

My fear with bailing them out is that they will return to the status quo all to quickly. Poor choices in the types of vehicles produced and unions have done them in. While they can make changes to the product line, albeit slowly, unless the unions make some pretty hefty concessions, the outlook seems grim to me. I understand that they made a comitment to retirees, etc. but without huge wage and benefit cuts to current machinists, I don't understand how the bailout will help.

I agree. I don't understand this as any sort of long term fix or even short-long-term fix.

[Momo]

Re: The auto bailout failed.

Are you guys serious?? I mean come on ...they FINALLY realize that they MUST produce a different type of vehicle. They see what Toyota was able to accomplish w/ their Hybrids. GM failed when they Killed(literally crushed) The Electric Car. These folks know that they have no choice but to compete w/a whole new breed of vehicle.

I am just completely disgusted that the financial institutions we BAILED OUT with OVER 1/2 a TRILLION dollars weren't made to FLOAT the BIG THREE BRIDGE LOANS?? WHY haven't there been stricter conditions on these banks to PROPERLY loan out this $$$$?

Re: The auto bailout failed.

I guess I don't agree that they see a need to make different cars because they haven't done it. I'm thinking of the big 3 CEOs blaming their problems (at least a few weeks ago) on the sharp drop-off in consumer demand. They had problems going in to the recession. Do the bridge loans just keep the same flawed model and union-negotiated salary and benefits afloat or does it help them make some changes? I have an easier time buying that the freeze in the credit markets is crippling their operations.

I wouldn't loan them money or buy their stock...but I'd say the same for Citigroup. I still think the financial bail-out, to some degree, was necessary which I know is an unpopular opinion. Aim your tomatoes here!

[mommax3]

Re: The auto bailout failed.

I just have a problem with the ease with which the financial insititutions were able to obtain a bailout (and a LARGE one at that) compared with what has been offered to the car companies. I'm sure my view is influenced by where I live, but if GM goes under, there are going to be thousands of families that will go under with them....current workers at GM plants, as well as families who work for their suppliers. The GM plant here in Indianapolis employs less than 10% of the workers that it had a generation ago, so it seems that here, at least, there have been concessions made (in the form of jobs lost) over the past 20 years. I just know the economic implications in my state will be HUGE, and most of the auto industry left here 20 - 25 years ago. I can't imagine what the economic picture will be in states where the auto industry has more of a presence. I may just be ignorant, but I haven't heard of large-scale lay-offs in the banking industry. :huh: It doesn't make sense to me to help one sector but not the other.

Sally

Re: The auto bailout failed.

There will be large scale lay-offs in banking. I can't remember the numbers, I'll go look, but Citigroup and B of A are talking about 10s of 1,000s of layoffs. Citigroup will lay off between 5-10% of its workforce of 320,000 per a CNBC article and a San Francisco Chronicle piece says a total of 54,000 (maybe the difference is by the end of this year versus total expected). B of A might cut 35,000 over the next few years. Merrill Lynch is laying off at least a thousand Goldman Sachs is as well.

I heard the union rep say that GM and Chrysler wouldn't make it out of bankruptcy. Of course, he is biased on that but I wonder what other people think.

[Sheherezade]

Re: The auto bailout failed.

My current thought on the auto industry story:

1) Can they sell enough cars to compete with foreign automakers in the next few years? Iffy. They already undercut the foreign auto makers by around 2K a car - and even with equalizing the labor costs to those offered by domestic Honda/Toyota/BMW plants, it will only reduce their costs per car by an additional 800 dollars. So....I'm not sure that additional discount will suddenly turn around common opinion on their product. I doubt it. I like the idea of the electric Volt, but it is one car. The current asking cost was also way too high to make it popular. Also, I think it wasn't coming out for a few years. So :huh:

2) Would nationalized health care here - like they have in Japan and Europe - significantly help the auto makers? Maybe. If they could have no healthcare costs for either current workers (adds $1250 to the cost of each car at last calculation) or their retirees, maybe that plus the labor costs would reduce their bottom line significantly. I know Wagoner has been screaming about healthcare costs absorbed by the company vs. no healthcare costs in competing nations for years now. Maybe it's a red herring, but it is a significant cost that U.S. companies have to shoulder for all their workers.

3) Will the legacy costs eventually devour the foreign companies as well? From what I've read, Big Three support 40,000 retirees now - and Honda, et al support 700. Legacy costs at the Big Three account for $15 of that 70/hour figure often quoted. They can't get out of that. I don't think even bankruptcy will help that -- (GreyMatterWife please correct this if wrong!) -- because I think that pensions must be paid if they have been collected. (Something about accrued assets?) So.....I think the crazy, crazy, crazy pension deals that these companies made with the UAW back in the 60s and 70s did not have good forward vision. They may not be able to escape that without completely going under. It's a solid lesson to learn. So, bankruptcy may not help, either. They may be doomed. Bailout would be pointless unless there was a structured way for them to escape their legal obligations to retirees. Ithink this is how Big Steel went down back when Billy Joel was singing about Allentown.

Re: The auto bailout failed.

I thought the retiree pensions would be routed through...some national pension program...if there was a bankruptcy? I'm not sure if the retiree healthcare falls under that. I think you are right that they can't get out from that obligation (I think that is good) or that it is still covered somehow. I'm trying to remember what happened with airlines that went bankrupt. My uncle was affected by that but I think he was still an employee and not a retiree.

[Sheherezade]

Re: The auto bailout failed.

I think that the national pension picks them up if the company fails. I'm not sure if "fails" means Chapter 11. That's what I'm stuck on. If they are in Chapter 11, they may resume their obligations if they ever "recover" and the obligations are a big reason they are hurting. Nasty cycle.....

[GrayMatterWife]

Re: The auto bailout failed.

. . . Legacy costs at the Big Three account for $15 of that 70/hour figure often quoted. They can't get out of that. I don't think even bankruptcy will help that -- (GreyMatterWife please correct this if wrong!) -- because I think that pensions must be paid if they have been collected.

If you're asking whether filing for bankruptcy relief under chapter 11 of the Bankruptcy Code would allow the company to renegotiate its collective bargaining agreements with the unions, it would--but there are certain restrictions set forth in the Bankruptcy Code how that happens (details of which I would be glad to lay out, but which are tedious and may be beyond the intended scope of the question).

If you're asking whether filing for bankruptcy relief under chapter 11 of the Bankruptcy Code would allow the company to "get out of" its pension obligations, then again the answer is yes. And it is actually easier to reject pension obligations in bankruptcy than it is to reject collective bargaining agreements (collective bargaining agreements were statutorily granted more protection in the 1984 amendments to the Bankruptcy Code, after the US Supreme Court confirmed, in a famous case nicknamed Bildisco, that the Bankruptcy Code--as it read at the time of the Court's decision--allowed for the summary rejection of union contracts, just like they are any other executory contract. Congress did this after troubled companies were filing for chapter 11 without being actually insolvent for the principal purpose of escaping their union contracts. Interestingly, in the past few years, several legal commentators have noted that the post-2001 uptick in corporate 11s wherein the company dumps its very underfunded pension obligations, suggests that these companies may be committing a "Bildisco-like" abuse of pension contract rejection, and arguing that the Bankruptcy Code should be changed to prevent easily dumping pension obligations.

But, as it stands now, a company in chapter 11 may terminate its pension plan. Assuming the plan is a "defined benefits plan," upon termination of the plan, the Pension Benefits Guaranty Corporation (a government corporation born from the 1974 ERISA law) assumes the plan's liabilities. There are many problems with this, both for the pensioner and the taxpayers. For the pensioner, the benefits he receives through the plan as administered by the PBGC may be significantly less than what was offered by the plan as administered by the company, because federal law limits the amount of benefits available when the PBGC serves as plan trustee. For the taxpayer, the problem comes when the plans are underfunded (as they are for the Big Three). That means that the taxpayer will have to absorb the cost difference. (I should note that the effected "taxpayer" would be limited, though--it would be any taxpayer who is contributing to another defined benefits plan. All taxpayers do not--at least currently--fund the PBGC. It is funded by several sources, including by premium payments required of defined benefits plan participants. Obviously, if the PBGC is burdened by increasing claims for insurance but with decreasing numbers of funded participants, the participant's contributions will have to be increased for the PBGC to stay viable.) The PBGC, of course, will have a claim against the company in the chapter 11 case, but that is a general unsecured claim--which, in the Bankruptcy Code's priority for distribution--is last in line. Often, general unsecured creditors get nothing. (Of course, a way to help offset this problem would be to amend the Bankruptcy Code to give the PBGC a higher priority status, but that's just theoretical at this point.)

And, it should be noted that the PBGC itself is not particularly well-funded and, as more and more companies dump their underfunded pension obligations, the closer the PBGC comes to not being able to fully insure the plans and meet its own obligations.

Not sure if this was helpful, but I tried. I know about bankruptcy law, but I do not practice ERISA (benefits) law. The farther afield I get from the bankruptcy emphasis and the deeper I get into discussing benefits law, the less comfortable I am with my competency level. But I tried here.

[GrayMatterWife]

Re: The auto bailout failed.

I thought the retiree pensions would be routed through...some national pension program...if there was a bankruptcy? I'm not sure if the retiree healthcare falls under that.

It is not a national pension program, really. It's a government corporation (the PBGC) that, by federal statute, responsible for insuring private pension plans.

I do not practice ERISA (benefits) law, but it is my understanding that the PBGC does insure different types of obligations, including health benefits, within a defined benefits pension program--but within the stautory cap per participant (that is, no pensioner is going to get rich through payments by the PBGC).

[GrayMatterWife]

Re: The auto bailout failed.

I think that the national pension picks them up if the company fails. I'm not sure if "fails" means Chapter 11. That's what I'm stuck on. If they are in Chapter 11, they may resume their obligations if they ever "recover" and the obligations are a big reason they are hurting. Nasty cycle.....

The mere filing of a chapter 11 case, alone, does not mean that the PBGC will become the pension plan's trustee and administer the plan from that point on. The PBGC steps in only if the debtor company rejects its pension obligations (that is, the contract it has with its pensioners to provide them with benefits pursuant to a defined benefits program). However, if the debtor company does not reject its pension obligations and, in fact, "assumes" (as the bankruptcy vernacular calls it) the pension contract, then there has been no termination of the plan and the PBGC is not needed. But, especially over the past ten years or so, rejection of burdensome, underfunded pension benefits plans is a major reason certain companies filed in the first place.

[GrayMatterWife]

Re: The auto bailout failed.

AAAAAAAGGGGGGHHHHHH!!!!

THE WHITE HOUSE IS COMMITTING EGREGIOUS LEGAL BABBLE!!

So today, Dana Perino, the White House Press Secretary, stated that President Bush is supportive of the federal government facilitating a "managed bankruptcy" of the auto makers, so that the impending "catastrophe" is not dumped on Obama's lap.

A "managed bankruptcy"??? That is not a bankruptcy law term of art. It has no technical meaning. It means nothing. What the hell??

ALL BANKRUPTCY CASES ARE "MANAGED," if by "managed," you mean "run by" someone. In chapter 11 cases, they are either run by a combination of the Debtor in Possession (which is usually the company, with its fiduciary obligations now running to the creditors), the DIP lender (who is often the prepetition lender as well), and the other secured (and sometimes, depending on facts, also the unsecured) creditors. Or, in rare instances, an appointed chapter 11 trustee. But there is ALWAYS someone in charge, managing the distribution of estate assets and promoting a plan of reorganization.

I have NO IDEA what the White House means by the imprecise, untechnical term "managed." It is total babble. Are they saying that they will serve as the DIP lender to the auto makers (thereby risking taxpayer dollars to fund a reorganization)? If so, when they say "managed" do they really mean that they will serve as DIP lender only in a prepackaged bankruptcy context (that is, when a chapter 11 is filed and the votes for a plan of reorganization have already been sewn up by prefiling efforts?). If they are NOT going to serve as DIP lender, how do they propose, exactly, that they will help to "manage" anything? The federal government will not be a party in the case, other than through its interests represented by the United States Trustee's Office.

And, Perino emphasized that it will be "an orderly" bankruptcy. ALL BANKRUPTCIES ARE ORDERLY!! The point of a bankruptcy is to provide distribution to creditors and give the debtor a "fresh start." These goals are met through the order set out in the Bankruptcy Code. I am guessing that she means that the White House will do something to prevent the bankruptcy cases from going into what is called "freefall." "Freefall" chapter 11 cases occur when it becomes clear that there will be no plan of reorganization--and, often it becomes clear that the case will be what is termed "administratively insolvent"--and most likely will convert to a chapter 7 case (where the end game will be dissolution, not reorganization).

But, most of all, it is clear that NO ONE IN THE WHITE HOUSE (or the new administration, for that matter) HAS ANY FLUENCY IN BANKRUPTCY LAW.

[Deebs]

Re: The auto bailout failed.

Abigail, I feel your pain (and appreciate your insight - I don't understand bankruptcy law or the plan proposed). Whenever there is discussion of healthcare reform, I have the same reaction. Why don't we use our political system to draw on the experts in a given situation and then make an informed, wise decision???

[McPants]

Re: The auto bailout failed.

Why don't we use our political system to draw on the experts in a given situation and then make an informed, wise decision???

Ahem. Isn't it the whole point to having politicians; to keep informed, wise decisions from being made?

[ladymoreta]

Re: The auto bailout failed.

Ahem. Isn't it the whole point to having politicians; to keep informed, wise decisions from being made?

I don't want to see the auto industry fail, but I don't think that the government having so much control over it will make it any better. One of the requirements is that executives can't use their private jets. How random is that? What other kinds of "punishment" are they going to think up, and will it end up limiting the industry's ability to run their business effectively?

I'm not crazy about the argument that since "we" bailed out the financial industry, we should be okay with bailing out the auto industry, too. The majority of citizens were against the first bailout. We were shown back then that it didn't matter what we wanted or thought - the government was going to do it anyway. But I guess that's all over with, and we're supposed to forget about that now. Okay. So, any bets on who's next? I'm thinking the airline industry has been struggling for awhile. It's about time they come knocking on DC's door again.