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dwot (99.57)

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August 23, 2008 – Comments (13)

Mish has a post about GM and Ford seeking a taxpayer bailout. 

Now, this is just my thoughts on the subject.  It seems to me that these are mature companies.  It seems to me that once a business entity is mature it should be completely financing all of its operations from earning and should have little debt.  It should have a reserve for future needs.

It seems that much of its infrastructure is now obsolete. In a mature company loans to build that obsolete infrastructure should be paid back by the time it become obsolete and a reserve built up or investment into upgrades should already have happened.

The loans aren't paid back and there isn't money for the new development...

Does anyone know what Buffet says about these companies?  There is a quote of his about companies that have to constantly rebuild the moat aren't such great investments...

Looks like the last moat was never paid for here ...

Now add in the pension burden, well, I think these companies are toast because I think most people are with me, we sure as heck aren't going to paid a premium for vehicles so they are pay their loans back on making cars long sold and to pay for generous pensions for cars long sold...

13 Comments – Post Your Own

#1) On August 23, 2008 at 9:28 PM, RainierMan (40.03) wrote:

I think there is a strong argument that they are toast, but they do have Europe as well as some other markets that might see them through. It doesn't look good.

They have always opposed increased fuel economy standards, arguing that the market didn't want that and it was technologically not practical. But now the market wants that and they are caught flat-footed, they want money to do what Toyota and Honda have already done. Truthfully, I'm not sure it's a wise loan even if one supported the concept of helping them.

I'm not sure any of the auto companies saw the changes coming so abruptly (though they all knew it would happen eventually), but the difference is that some of them have industry-leading technology to adapt quickly (especially Toyota and Honda) others do not.

Worse, I think Toyota and Honda are about to move the technology well beyond where it is now (like plug-in hybrids and, in at least Honda's case, fuel cells), so GM and Ford will be chasing a target that is not only moving, but is likely to be two steps ahead, not just one step ahead.

Having said all that, I predict they'll get the loans for the obvious political reasons. It's no coincidence that they're asking a couple months before an election. Saying "no" to the loans will play extremely poorly throughout the Midwest. It could easily make a difference between winning important states and losing them.

 

 

 

 

 

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#2) On August 23, 2008 at 9:29 PM, RainierMan (40.03) wrote:

I think there is a strong argument that they are toast, but they do have Europe as well as some other markets that might see them through. It doesn't look good.

They have always opposed increased fuel economy standards, arguing that the market didn't want that and it was technologically not practical. But now the market wants that and they are caught flat-footed, they want money to do what Toyota and Honda have already done. Truthfully, I'm not sure it's a wise loan even if one supported the concept of helping them.

I'm not sure any of the auto companies saw the changes coming so abruptly (though they all knew it would happen eventually), but the difference is that some of them have industry-leading technology to adapt quickly (especially Toyota and Honda) others do not.

Worse, I think Toyota and Honda are about to move the technology well beyond where it is now (like plug-in hybrids and, in at least Honda's case, fuel cells), so GM and Ford will be chasing a target that is not only moving, but is likely to be two steps ahead, not just one step ahead.

Having said all that, I predict they'll get the loans for the obvious political reasons. It's no coincidence that they're asking a couple months before an election. Saying "no" to the loans will play extremely poorly throughout the Midwest. It could easily make a difference between winning important states and losing them.

 

 

 

 

 

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#3) On August 23, 2008 at 9:32 PM, RainierMan (40.03) wrote:

Sorry about that double post; not sure what happened there.

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#4) On August 23, 2008 at 9:59 PM, dwot (99.57) wrote:

That would be from refreshing after posting.  The post data somehow is still there and it gets posted twice.  I try and close or reopen into a new browser window to carry on.

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#5) On August 23, 2008 at 10:00 PM, dwot (99.57) wrote:

good link on bailouts...

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#6) On August 23, 2008 at 11:31 PM, alstry (35.68) wrote:

Actually, the loan is insanity due to incredible debt loads, both companies are losing  tens of billions per year.

Last quarter alone F and GM lost $25 billion without Chrysler's losses.  Without wiping out legacy debt....any new capital infusion will go to paying debt service as opposed to developing new technologies.

These companies must be restructured.....the sooner the better... or America will lose its entire auto industry to the better capitalized foreign competitors.

 

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#7) On August 24, 2008 at 4:31 AM, Donnernv (< 20) wrote:

A cautionary note to DWOT and Alstry.  Your "the world is ending" histronics are well documented.  Over and over and over.  You are children relative to history.

The government may well provide a loan accomodation to GM and Ford.  I am not saying they should, but there is precedent.

But if you think that GM and Ford are incapable of developing, manufacturing and selling the most fuel-efficient, thrifty and high-performance vehicles on Earth, you have never met them.  I have.

Corporate fat-heads do exist.  But to even think that GM and Ford do not have the will, capital and brains to manufacture what is needed and wanted is naive.  Turning a battleship on a dime is impossible, but it's not a sprint, it's a marathon.

I am not a buyer of GM or F.  But to think they cannot compete is silly.  Time will tell.

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#8) On August 24, 2008 at 9:56 AM, alstry (35.68) wrote:

There is no doubt F and GM can compete.  That is not the issue.  They have hundreds of billions of dollars of debt that can't be serviced....especially with lower sales volume.  That debt was accumlated over the past 30 years.

So injecting capital into F and GM goes to pay debt service and not innovation.

Even the greatest sprinter in the world would have trouble winning with two 50lb weights strapped to his legs.

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#9) On August 24, 2008 at 1:12 PM, LordZ wrote:

Donnernv  Dwot loses tens of thousands of dollars in the market and its the end of the world.

As to Alstry well he has a bad experience with some broker banker and all heck breaks lose.

These 2 are constant nay sayers and have only a bleak outlook.

They are like one sided coins, no matter how many times you flip them, you always get the donkey side of that coin. They are simply rigged that way from past bad experiences.

Thats there charm in that they are reliable in presenting the bear side of everything except for being bullish on bad news and bad results and bad consequences and bad just bad everything else you can imagine and think of.

 

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#10) On August 24, 2008 at 1:26 PM, nuf2bdangrus (< 20) wrote:

I think they have honest and valuable insight as to the state of the markets and the economy. 

 Our middle class American prosperity is an illusion, financied by cheap credit from abroad....and those days are going to end.  

 

We have misused and abused our currency, and future taxpayers obligations to bail out the uncompetitive and inneficient players of the present, simply because they are large and have political influence.  It disgusts me.

 

Honda and toyota have no problem making money and selling vehicles in todays world.  I drive a Honda Pilot, and at 15k less than comparable GM vehicles, it shines.  Yes, GM and Ford now realise what lays ahead, but frankly, what lays ahead was not very hard to see from the outside.  The big 3 have fought tooth and nail against safety and economy features, only grudgingly adding them when it was too late.

 

Our union way of life for these automakers allowed people to have an artificially high standard of living in relationship to their true skills.

 

The days of vast benefits and wages for undereducated blue collar workers is a relic of the past.  That relkic demands to take dow the instituions that paid for them, not be financied by future taxpayers.

Alstry and dwot are not Cassandras, they are people who are astute to the realities that face us today.  

 

Our government is corrput, our treasury is bankrupt, and the only reason we continue to life this charade is we issue debt against the future and print mney from thin air.

 

The days is coming when China and others will no longer buy our debt.

 

Woe to us that day.  I don't know if it will be a week, a month, or a year.  But it will come. 

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#11) On August 24, 2008 at 2:13 PM, LordZ wrote:

Oh its easy to predict that the mine is unsafe after hearing explosions and seeing that the canary in the cage is taking a dirt nap.

What great insight does Dwot and Alstry bring to the state of economies and markets ??? honestly ?

Dwot is good at red thumbing and copying other top player red thumbs, than she simply waits for the score to achieve a certain level and than she closes out the red pick to guarantee and lock in accuracy ~ wow. true skill would be making actual money in the market.

Just take a look from time to time and you'll see they all seem to have the same picks around the same times, a collective group bent on finding easy picks.

Even a broken clock is right twice a day.

 nuf2bdangrus

Please take some time out to rethink your thoughts and reread your own words, your spelling is atrocious at times.

And yes anyone can make predictions and observations.

Its funny after the facts and events have occurred when so called experts make statements explaining why something happened more often than not they are talking out of their butts.

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#12) On August 24, 2008 at 8:59 PM, dwot (99.57) wrote:

Donnernv, I think you are relying too much on experience that can't be repeated.  But time will tell.

Lordz, if being a copy cat is what makes my score, well then copy it.  I got out of the market at the top and I went to red thumbs.   When I think the market is worth entering again, I will change my game strategy.

alstry, I am with you on the debt level.  So much has to go into existing debt servicing, never mind off balance sheet commitments, well, I would have no trust of ever getting my money back if I was a lender or a bond holder.

Something that I found interesting with selling my used car, and the extreme difference in the price of a used car when I was young compared to today, well, there is a huge supply of good second hand cars which is why the prices are so low.  With an economic downturn of the magnitude that is happening, it is going to be years before this glut of good used cars are ready to be crushed.  Probably used cars also commanded a good price for the sellers when I was young was the fact that there was such a high demand from young people not yet established enough to buy a new car.  At least for Canada I was born in the peak year for births before they started to decline.

I think you are very right about America being at risk to lose its auto industry.

nuf2bdangrus, I don't think American appreciate at all the degree of priviledge of being the world's reserve currency brought, nor the degree to which that priviledge has been abused.  Ultimately it will "save" America from some of the hardships that will be passed on to foreign holders of the currency.

But, contrast the debt level in the US to say the debt level the latin American countries had.  Their debt was in US dollars and their currency weakened and their debt grew relative to their currency and it buried them.  America has the priviledge of having their debt in American dollars so the devaluing of the currency doesn't increase the debt burden as it did for all other countries as fiscally irresponsible as America has been. 

So, shorter term it buys more priviledge, but those that have seen their investments decline in value will not be such willing lenders in the future.

Isn't that the second wave with financial institutions now?  They went out and got new investors and more capital, relatively easy, and now the deals they are making scream dire straights and they are selling off their assets.

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#13) On September 19, 2008 at 5:09 PM, Montol (< 20) wrote:

GM was dead in the water years ago.  With (at the time) half a college education, and using 2004/05 Financial Statements, it wasn't a genius' guess to surmise that hundreds of billions of dollars of unservicable debt, declining sales, an uncompromising union, raising pension and health care costs, and refusing to innovate for the future would end this company.  It wasn't a matter of if.  It was a matter of when. 

Getting a taxpayer bailout is their only option other then bankruptcy at this point.  All I can say is that I'm happy I'm not an American citizen - I'm happy I don't have to be footing the bill for all these failing companies that are apparently 'too big to let die'.  When did that happen?  Poorly managed companies die all the time, big freakin whoop.

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