Chrysler and GM are in merger talks. It's unclear who is supposed to be the boss of bosses here, and the earlier DaimlerChrysler experience teaches us that things are not always as they appear. After the merger, Daimler moved to make German the working language of the group, and was the lead partner in the merger. But......
Chrysler ended up being more of an albatross around Daimler's neck than laurel's on its head. The second aspect of this is whether this new merged company will be publicly owned company, or whether Cerebrus is going to move to take the company private. GM's market capitalization is pathetic right now. Under US $3 Billion. Ford is under US $5 billion.
And in the current economic crisis, there will be less likelihood that the merger would raise anti-trust action.
DETROIT -- General Motors is in preliminary talks about a possible merger with Chrysler, a deal that could drastically remake the landscape of the auto industry by reducing the Big Three of Detroit automakers to the Big Two. The talks between G.M. and Cerberus Capital Management, the private equity firm that owns Chrysler, began more than a month ago, and the negotiations are not certain to produce a deal. Two people close to the process said the chances of a merger were "50-50" as of Friday and would most likely still take weeks to work out. A merger would be a historic event, with two of the most iconic names in American industry coming together to survive in an increasingly difficult environment. Both have roots dating back decades in Detroit and, with Ford, long dominated the auto industry -- until Japanese and other foreign car makers began making inroads into the American market.
The talks between G.M. and Cerberus Capital Management, the private equity firm that owns Chrysler, began more than a month ago, and the negotiations are not certain to produce a deal. Two people close to the process said the chances of a merger were "50-50" as of Friday and would most likely still take weeks to work out.
A merger would be a historic event, with two of the most iconic names in American industry coming together to survive in an increasingly difficult environment. Both have roots dating back decades in Detroit and, with Ford, long dominated the auto industry -- until Japanese and other foreign car makers began making inroads into the American market.
GM finally has good product in the chute, but in the short term the company is facing a looming credit crisis of its own. It's been burning through cash reserves, and is going to need a cash infusion soon. And with the lack of credit in the market.......
I favor nationalization of the US auto industry in the short term, with a tripartite ownership structure composed of equal stakes held by a state-based national trust, labor, and a third left to float freely in the market as it does now.
It's time to bring a little democracy to the marketplace. And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg
As long as Toyota and Honda can pay their US workers a third of what GM, Ford and Chrysler are effectively paying, the latter are going to lose market share and cut jobs.
A solution to the future of the American auto industry has to entail the following elements:
A nationalised health care system; amendments to the constitution of Michigan to eliminate the possibility of forming new communities; enlargement of the city of Detroit to include the entire metro area in a single administration; a large national investment programme in the Detroit metro area to create new industries; strong regulatory oversight of abuse of monopsony power and incentives for vertical integration (a breakup of the big three is an alternative that will partially eliminate the need for this), and strong and progressively tightening national emission standards for cars.
Anything else is just a stay of execution.
Chrysler and GM should both be allowed to go bankrupt, IMO. They are poorly managed companies that are locked in on a path to further decline. Maybe Ford can be turned around. GM and Chrysler are hopeless.
Wow. You couldn't be more wrong. I mean I assume that this has to be snark.
I'm going to say to you the same thing that I said over at Economic Populist when a similar sentiment was expressed.
Consider. 1) If there is not GM, a vital component of the US industrial base that has been our fallback when threatened by foreign enemies is destroyed leaving us at the mercy of enemies who have a very different idea of how the world works than us. 2)The absence of a domestic automotive industry will mean that efforts by the government to reduce our dependence on foreign energy sources will be in the hands of foreign nations. The Japanese transplants have a policy of matching UAW wage rates negotiated with the Big 3. That wage is ~$28 hour. Toyota was caught saying that wages would be cut from the current rate matching UAW wage rates to around $12-14/ hour once GM was pushed beneath the water. Honda doesn't even match pay now. It pays $12-$14 hour in Ohio and Indiana. Unemployment is already floating around 9% in Kokomo and Elkhart in Indiana, Detroit in Michigan, and Flint. Flint's been fucked for a while. If GM falls, so do Indiana, Michigan, and Ohio. The economies of these states are intimately tied to the auto industry, and a GM collapse would mean that unemployment would most likely climb into the double digits. I honestly think that the unemployment brought by a GM collapse in these states would be, far, far worse than the Depression. The ripples would be dramatic. UAW wages keep towns afloat. If those disappear, then the jobs that they support do as well. And before you start praising the Japanese carmakers, read this article. Toyota has greenwashed its labor record. And even in environmental terms, the company has used the decline of GM to expand its presence in SUVs and trucks. Toyota is no facing the same problems with an aging workforce that have caused GM such problems.
1) If there is not GM, a vital component of the US industrial base that has been our fallback when threatened by foreign enemies is destroyed leaving us at the mercy of enemies who have a very different idea of how the world works than us.
2)The absence of a domestic automotive industry will mean that efforts by the government to reduce our dependence on foreign energy sources will be in the hands of foreign nations.
Toyota has had a policy of matching the rate negotiated by the UAW with the Big Three. Pattern bargaining, where one company is chosen as the strike target, and the pattern set by the contract with the lead company is taken as the model for the other two, has meant that the auto industry has had a labor relations model very similar to peak associational bargaining in Europe.
Throughout the Auto states (Indiana, Michigan, Ohio) UAW wages support a large secondary economy. Michigan has lost the most historically from the decline of the American auto industry, but the economy of Indiana is far more dependent on the industry than either of the other two states. Get rid of GM and Chrysler and the economy in these states collapses. All likelihood is that the next release of state level unemployment will show that Michigan has unemployment over 9%.
The collapse of GM would quickly lead to anywhere from 1/10th to 1/4 of the labor force being unemployed in Michigan. The effect would be similar in Indiana and Ohio. That kind of economic shock would insure that the US would see an economic depression.
And as for Ford. Honestly, it's the least prepared to transition to a market dominated by small cars. Ford has clean diesel tech used in the UK that allows the Fiesta to get 65 mpg (and that's US gallons, not imperial)
So why then is it that the "market" is punishing GM and Chrysler, while rewarding Ford?
Because the people making decisions in my country look upon the crisis in the auto industry as an opportunity to attack the power of organized labor. The current market valuation of these firms is reflective of political, not economic, forces. If GM and Chrysler recover, the opportunity to kill off the UAW fades away.
There is class consciousness in America, but it's a characteristic of the upper, monied classes. They understand that taking a personal loss in order to perpetuate an economic order that benefits them as a group over the masses is a good long term policy even if it means taking a hit in the short term. And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg
NPR: GM vs. Toyota: By the Numbers
Number of Plants in North America Source: GM & Toyota GM: 77, all unionized. Plans to close 12 facilities by 2008 (see press release). Toyota: 12, three unionized in Long Beach, Calif., Fremont, Calif., and Tijuana, Mexico.
Source: GM & Toyota
GM: 77, all unionized. Plans to close 12 facilities by 2008 (see press release).
Toyota: 12, three unionized in Long Beach, Calif., Fremont, Calif., and Tijuana, Mexico.
Average Labor Cost per U.S. Hourly Worker Source: GM & Toyota GM: $73.73 Toyota: $48
GM: $73.73
Toyota: $48
I don't see that it's true that the manufacturing power of GM is somehow needed for military reasons. Any war big enough to require the complete conversion of the GM factories to military production is a war in which very little of humanity is left after a very short time (and the GM factories are reduced to smoldering radioactive waste at any rate).
I honestly don't get what you're saying about Ford. Why would they be the least prepared? And what you're saying about GM and Chrysler's market valuation not being determined by economic contingencies is off in some other reality than the one we live in. Yes, Republicans and a lot of New Dems want to kill the unions. Doesn't determine the fact that the companies are making huge losses because they have sucky cars they're selling for too little money.
GM and Chrysler (Ford, too) are simply in a very poor position right now. I recommend reading the report 'Sustainable Value in Automobile Manufacturing'. There is simply no area in which these companies are efficient, are not trailing their competitors by a significant margin.
These industries are dying due to a number of factors. If these factors are not alleviated, you can pump money in endlessly. But it might be a better idea to improve the economies of the rust belt states by spending that money on something else. As in, provide a comprehensive social reinvestment programme to diversify the economies. It's what the Dutch government did when it closed down the (state-run) coal mining industry in Limburg. Worked out splendidly.
I think that GM's company structure lends itself poorly to global competition. If the US govt. takes over, it should at least sell all foreign factories and brands and move to transform the US business to a 1 or 2 brand model.
After the 2007 GM-UAW contract, hourly labor costs (wage+ benefits) are now lower at GM plants than at most Toyota plants. And hourly labor costs are rising at Toyota as American employees begin to retire.
I'm sorry to say this, but you're not very well informed on this issue, and you've drunk the corporate kool-aid. And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg
You might as well start from scratch.
And when General Motors can only retain its profitability by paying its workers decidedly less, and moving part of their retirement packages to 401(k)s which can be wiped out in any market crisis - what's the point?
ManfromMiddletown:
I'm sorry to say this, but you're not very well informed on this issue, and you've drunk the corporate kool-aid.
Would you rather spend that amount of time, planning and money on an industry that is highly labour-extensive, produces large negative externalities and has a questionable future, or would you spend it on something else?
As green proponents in charge of crush-and-swap schemes, or working in a combined way with new emissions and energy efficiency standards, GM, Chrysler and Ford could become a useful asset rather than another drain on resources.
In terms of the wider economy, they're collateral damage. A bolder move would be to nationalise big oil. They've worked so hard to own the government, the government should repay the favour. When Exxon's profits are $40bn, managed at the same time that pump prices have been the highest in living memory, there's plenty of room there for more efficient government management of the energy economy with some aggressive intervention.
Nationalising big oil would also remove one of the biggest funding and lobbying blocks against sane transport and energy policies.
I have long despaired of the lack of vision of automotive executives. But better national policy would help steer them in the right direction. They have to figure out that they must build what the country needs, not what they want to sell. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
We've got bigger problems to deal with. Let'em sink. Buh-bye. Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
We've got bigger problems to deal with.
Really, I'm talking about economic apocalypse, what trumps that, Drew?
Remember, Drew what Pastor Niemoller said:
First they came for the Socialists, and I did not speak out - because I was not a Socialist. Then they came for the Trade Unionists, and I did not speak out - because I was not a Trade Unionist. Then they came for the Jews, and I did not speak out - because I was not a Jew. Then they came for me - and there was no one left to speak for me.
Then they came for the Trade Unionists, and I did not speak out - because I was not a Trade Unionist.
Then they came for the Jews, and I did not speak out - because I was not a Jew.
Then they came for me - and there was no one left to speak for me.
There is a plan afoot to do to UAW workers at the Big Three what was done at Delphi: use the principle of sacrifice in order to survive as a firm to demand that workers wages be cut in half.
The new second tier rate at GM is $14.50, less than half the rate negotiated for line workers. At Delphi, the implementation of a second tier wage led in time to the reduction of all wages to the second tier rate. If repeated across the auto sector, this would bring a massive redistribution of income from workers to management.
And it would unleash a disastrous cycle of demand destruction because if auto workers can no longer afford to buy goods and services, workers employed in providing those services lose their jobs. And so it goes on until demand is totally destroyed in a deflationary spiral.
The only way out is reflationary policies, i.e. spending a massive amount of cash. During the 1930s the only activity that could marshal that kind of massive consumption was war....... And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg
Remember, Drew what Pastor Niemoller said: First they came for the Socialists, and I did not speak out - because I was not a Socialist. Then they came for the Trade Unionists, and I did not speak out - because I was not a Trade Unionist. Then they came for the Jews, and I did not speak out - because I was not a Jew. Then they came for me - and there was no one left to speak for me.
GM is a very bad company, MfM, but to suggest that allowing it to fail would be in any way like allowing the atrocities of Nazi Germany is insane.
Nobody's speaking for me. I'm a bureaucrat. They've been slashing government workers' wages through inflation for years, in addition to refusing to comply with the laws passed in the early-1990s requiring the federal government to bring its employees to par with the private sector.
I don't begrudge the UAW taking a bigger chunk of the pie from the auto companies, but the Nazi reference is especially offensive given that $14.50 is a lot of money to people in my region of the country. Most of my relatives in Georgia who worked in manufacturing have never, and will never, earn that wage. They didn't earn near that when the factory was open. And they damned sure don't make anything near it now.
And you want to pretend this is something akin to Hitler? Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
That's perhaps an economic apocalypse for you up there. But the idea that the end of GM would cause anywhere near the damage to the nation as a whole that a collapse in the banking system would cause is moronic. Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
That's perhaps an economic apocalypse for you up there. But the idea that the end of GM would cause anywhere near the damage to the nation as a whole that a collapse in the banking system would cause is moronic.
Let's talk about this.
I think that we can both agree that the origins of the current credit crisis lie in the large number of mortgages in default.
The presumption is that the reason that mortgages are in default is because there was a housing bubble, and that people bought more than they could afford thinking that the house price would go up allowing them to flip it. (i.e. speculation)
Ok, then let's look at the top 20 cities for foreclosures, which I've matched here with housing price appreciation.
The housing bubble is only part of the story here, the other half of the default crisis has nothing to do with housing prices in California and Florida. It has to due with mortgage default brought on because people are no longer able to earn what they once did.
So actually, the economic hardship in the "Rust Belt" states has had a very real impact on the economy of the rest of the country. If GM collapses then you're going to see foreclosure rates in cities where plants are located skyrocket. Same thing is watches are slashed in half. Just because you don't feel the pain immediately, doesn't mean that this all won't have an impact on the rest of the country.
Housing affects credit markets, but else than that the effect is fairly localized. The collapse of GM would unleash deflationary pressures in a number of other sectors that would have a far larger effect on the rest of the country.
A large part of this credit crisis does have to do with economic hardship resulting from deindustrialization in the Midwest. And what's happened so far would pale in comparison to what the collapse of GM and the other auto companies would do.
You would see the effects even in Washington.
<blockte And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg
5 years ago I lived in Stockton, CA (no.2) and now I live in Sacramento (no.5). The housing bubble is following me around. If I could just get off this planet, things would settle down.
Any suggestions? Now where's the fun in that! - Megatron
If you're trying to get me to agree that economic collapse in the Rust Belt has an impact on the real economy, my answer is, of course, "No shit." But your argument to me was that the collapse of GM would constitute economic apocalypse, and my point was that the collapse of GM would pale in comparison to the collapse of the nation's banking system.
The latter would make GM's demise look like the Great Keynesian Boom by comparison. We'd be going from millions struggling to tens of millions going without pay, facing foreclosure, eviction, bankruptcy, and a nearly-unstoppable downward spiral. Probably political instability as well, and not of a variety you'd like.
And it's not as though there aren't other car companies. Rebuilding the auto industry is a lot easier when there's already another set of companies around to build on. Rebuilding the banking industry is a more complex, much more expensive, and more immediately devastating (from a nationwide perspective) situation. GM isn't likely to bring down the banking system, but the banking system could damned sure bring down GM.
My biggest beef with Detroit is that they produce shitty cars and then demand money from the rest of us to continue building shitty cars. The best GM seems to be able to come up with is a $40,000 sports car with a standard-issue electric battery that wouldn't suffice for most people where I live even if we had that obscene amount of money to blow on a car. Ford made the effort by producing a hybrid SUV. Great, so now they're only several years behind their competitors.
I don't drive an American car and am not likely to ever do so as long as the alternatives continue to exist. They're lousy cars. You're essentially advocating that I, and those like me, give our money to the American automakers after we've already voted with our feet.
Now from a practical perspective, I can agree that it's probably better to find some solution that allows the automakers to continue on, at least for now, so that we're not throwing more gasoline on an already-out of control fire. There are certain areas where I'd be okay with working with them -- if (say) we had a clear avenue to get our money back, if we were allowed to dictate what they could and could not build, etc.
I'd also prefer we allow the Europeans to enter the market in a bigger way. Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
MfM is right to note that automobile manufacturing is macroeconomically significant, that macro policies have had a disproportionate impact on it because of the way it was set up (and the fact that it was a mature industry already before the Reagan/financial revolution) and that it is worth finding solutions for it that reduce the pain for the many people that are still in it and have no prospects out of it, even if it's not the best theoretical bang for a buck in overall terms. In the long run, we're all dead. John Maynard Keynes
I mean, when they go bankrupt nationalise them and preserve the jobs. A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
This said, I'm not in opposition to certain kinds of industrial policy, like when Sarko saved Alstom, or when we saved our automotive industry over here by promising Ford/GM large investments in infrastructure in the region where their factories are located. Peak oil is not an energy crisis. It is a liquid fuel crisis.
Right now, there's speculation that GM is going to be allowed access to funds through the Fed discount window through the pretty flimsy story that its GMAC that's taking out the loans.
There has to be retooling, and the only way that can happen is if the companies are able to create long term value while taking short term losses. And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg
Even if there GM swaps the 49% stake it holds in GMAC for Chrysler, there is still a lot of good that can come from it.
Both companies can't cut floor staff. They can cut office staff, and they have. They can merge R&D, and trade access to technology.
The gains from this aren't huge, but they just might be enough to allow the company to break a small profit. Going into the black would allow the companies to stem a lot of the pressure coming from the stock market, and would change the narrative on the companies. And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg
