Friday, February 20, 2009

They're Back!!

February 20, 2009, 12:10 p.m.

They're Back!!
(brought to you by*)

[Credit: Carol Ann: "They're back." Poltergeist II: The Other Side (1986), The Internet Movie Database/Quotes.]

Who is back? The auto companies -- GM and Chrysler.

G.M., the nation’s largest automaker, . . . is assuming it will be able to pull off a remarkable turnaround if gets the additional loans.

In its restructuring plan filed Tuesday [Feb. 17] with the Treasury Department, G.M. projects it will end 2009 with a $14 billion cash shortfall, but then improve to a $6.6 billion surplus by 2012.

That would be a swing of more than $20 billion, and whether G.M., which last earned a profit in 2004, can realistically achieve it is among the biggest questions for the Obama administration as it reviews the company’s latest loan request.

G.M. has received $13.4 billion in loans since late December . . .. Most of the new loan money that G.M. requested would be used to cover its continuing losses. The company has been losing roughly $2 billion a month since last fall.
Bill Vlasic and Nick Bunkley, "G.M. Says New Loan Is Adequate to Save It," New York Times, February 19, 2009.

Frankly, I see nothing that has happened during the last three months, or that GM is now proposing, that leaves GM's request for more funds as anything other than even less compelling than it was last November and December.

I don't see the business plan that explains how $30 billion more from taxpayers -- essentially $300 from every family in America -- is going to recreate the profitable and vibrant GM of old.

And I sure don't see how a proposal that includes laying off 47,000 workers and closing 14 plants can be characterized as either "a jobs program" or a part of a stimulus to our economy. ("G.M. contends that . . . losses will shrink . . . because of savings from cutting 47,000 jobs worldwide and shutting 14 plants in North America." Ibid.)

After all, GM's problem is not that there aren't enough GM cars in dealers' showrooms -- or that there could not quickly be. The problem is that those vehicles are not selling -- and that there is nothing in its proposal designed to increase sales. ("United States vehicle sales this year are at their lowest point in more than 25 years, and many industry analysts do not share G.M.’s optimism for a recovery by 2012." Id.)

Nor is this just my opinion: "in a scathing review of the restructuring plans submitted by G.M. and Chrysler, Moody’s said there was a '70 percent' probability that one or both of the companies [i.e., Chrysler as well as GM] would have to file for bankruptcy protection." Id.

Giving more taxpayer money to "the automobile industry" -- meaning GM -- primarily benefits its shareholders and handsomely paid top executives. It doesn't put money in the pockets of potential car buyers. And it essentially turns its back on the UAW members who, as a potential part of the consumer spending that is 70% of our GDP, could actually do something to boost the economy.

Insofar as those auto industry suppliers and their workers are concerned, their welfare turns on vehicle manufacture and sales -- which the GM bailout does nothing to improve. There is still an automobile market in the U.S. -- albeit substantially less (10 million vs. 13 million cars a year) than it used to be. The cars that will continue to be manufactured to satisfy that market, whether Fords or Toyotas, will continue to need parts -- all the parts for which the U.S. auto industry has a need (with or without GM). Will those suppliers take a hit? Absolutely. But it shouldn't be much greater without a GM than with it.

Here are links to eight of the blog entries from last November and December that explore some of these issues in greater depth. Almost all of them seem equally applicable today, if not more so.


Nicholas Johnson, "Why America Needs a Jobs Program: Because When Your Auitomobile (Industry) is in the River It Makes More Sense to Go For the Shore Than to Continue Bailing it Out," in "Jobs, Not Unemployment, Key to Recovery," November 8, 2008

Nicholas Johnson, "Trust Your Instincts, Auto Bailout's Terrible Idea," November 14, 2008

Nicholas Johnson, "Auto Bailout: An Open Letter to Congress," November 19, 2008

Nicholas Johnson, "Auto Loan Makes Too Few Dollars Even Less Sense," December 4, 2008

"What Was Wrong With the Auto Proposal?" in Nicholas Johnson,"Quick Fix for the Economy," December 12, 2008

Nicholas Johnson, "A Car in Every Garage," December 16, 2008

Nicholas Johnson, "Of Theaters and Automobiles," December 20, 2008

Nicholas Johnson, "Et Tu, Toyota?" December 22, 2008


* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself. -- Nicholas Johnson

# # #

No comments: