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Why is GM too big to fail?
CommunistCow
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From the chat thread:
So does GM + parts suppliers + dealerships = a few million jobs?
I have googled the topic and I usually come up with articles that make blanket statements about how GM is not too big to fail but they fail to follow that up with some factual reasons why. So is GM really to big to fail because of the number of people they employee or the revenue they generate as a percentage of the GDP?
CommunistCow wrote: »CommunistCow wrote: »So playing a little devil's advocate here but why is GM "too big to fail?" In 2007 they had roughly 180k(correction this is worldwide, in the US they have roughly 80k) employees and if you account for part suppliers that would lose their jobs as well that would still be a really small portion of the workforce. Taking a wild guess lets say that with parts suppliers there would be 500,000 jobs lost which is roughly .4% of the current US workforce. In '07 GM got ~150billion in revenue and assuming you could compare this to GDP (which may be a horrible assumption), they make up ~1.2% of our GDP.
So do these losses of .4% in employment and 1.2% of our GDP account for the reason why it is "too big to fail" or am I missing something else?
My understanding is that parts suppliers + dealers equals a few million jobs.
So GM's plan is to close 2,400 dealerships out of the 5,969 they have. I heard a quote from CNN saying the average dealership had about 55 employees. So if you did 5,969*55 = ~330k. So 180k + 330k != a few million jobs. Do parts suppliers really have a few million people working for them? Even so if it was say 3 million out of the ~132million employed in the US that is 2% of the workforce. I guess its possible a sudden jump from 8.9% to 10.9% unemployment could be very detrimental to the economy.
So does GM + parts suppliers + dealerships = a few million jobs?
I have googled the topic and I usually come up with articles that make blanket statements about how GM is not too big to fail but they fail to follow that up with some factual reasons why. So is GM really to big to fail because of the number of people they employee or the revenue they generate as a percentage of the GDP?
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I should follow this up by saying GM has officially been kicked off the Dow alongside Citigroup. Their replacements are Travelers and Cisco. GM specifically has been booted because bankruptcy automatically disqualifies you from being part of the Dow.
The 180k number is actually a world wide employment number so yea the numbers are smaller if you just consider US employees. My bad.
It's for the best.
Basically, the parts suppliers/dealerships/auto manufactures themselves + all of the offshoots that the auto sector employs (the pdf mentions one auto sector job generates 1.7 non-autosector jobs) is what runs the total job losses up so high.
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"The collapse of just one company, General Motors (GM), would lead to an estimated reduction of 900,000 jobs."
I wonder if there are any reports out there like this that paints a less end of the world like scenario if we let GM fail.
Isn't that a cheating a bit?
This basically. My dad for example, is a software engineer that works for a new company his old boss started maybe two years ago. Both the former company and the new one aren't directly related to any of the big three, but it's (of course) another Michigan job that would go poof without the auto industry as that's who they're writing software for. While prosperity doesn't trickle down, pain sure as hell does.
Anecdote != data, obviously, but just to give an example of a job that isn't directly employed by GM or a dealership but would be affected by them failing completely.
Well it makes sense when you're talking about the entire financial industry, without which the entire US economy is pretty much screwed. Also, most of the banks were fundamentally sound, they were just suffering from some short-term problems.
With GM though, we can survive without it, and there's no guarantee they'll ever be profitable again. I suppose back in the 50's and 60's they might have been "too big to fail", but certainly not now.
Most of the banks were certainly not "fundamentally sound." Unless you mean it in the John McCain sense.
basically, the places where those employees eat lunch and get their drycleaning done and whatnot may also have to make cuts
so it's a ripple effect
How can anyone now compete with a government owned entity? No matter what GM does now it's backed by the US taxpayer dollars so they can undercut everyone, flood the market, and do whatever it takes to sell their cars. I wonder if this now means all government contracts for cars will go to GM and they will be the official US car.
Car industry is the USA is done for now. No matter what GM now does they will just be bailed out more. NO longer will they have to make smart business decisions, they are an arm of the government and will have to answer to no one.
I guess my current Chevy is the last GM I ever buy.
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A, just because you have a lot of product does not mean anyone actually wants it. As you yourself demonstrate when you said you've bought your last GM.
B, you do realize this is intended to be TEMPORARY ownership, right?
Do they have a defined exit strategy for GM or is it going to be "as long as it takes" or some other nonsense?
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GM is too big to fail because it is the final deathblow to manufacturing in America. Its been slowly disassembled in the quarter century beginning with Reagan and it is finally coming to a conclusion. A service or invention based economy is fictional. You have to make things and we dont anymore.
All while Toyota is bringing more and more factories TO America, and not failing.
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Are you saying it is currently ficitional or that it would never work in 30+ years if we put a bunch of money in science and engineering education?
How can we make things and be competitive if we have labor laws unlike china and we pay our autoworkers obscene amounts of money considering the menial tasks they are performing? The only answer is to become very protectionist and start tariffing the shit out of foreign products but that probably won't turn out well.
Well, they're under Chapter 11, aren't they? That pretty much means they have to have some sort of plan. I'm not entirely sure how that relates to their ownership by the government, but I'd imagine/hope there's something there.
A service/invention based economy is both doomed now and in the future. It will not work. In a country with well over 300 million+ people, only so many of them can be inventors. At some point, someone is going to have to make something.
More like it's a business that supports many other jobs, so if it were to fail it would bring down many other companies along with it. Doing something like that suddenly isn't so good for an already weakened economy.
Just because the government owns GM doesn't mean you have to buy a GM...
Ford will still be around and competing against GM just like they always were. The government isn't going to make everyone go out and buy a GM car and only a GM car now.
Also, just because the government owns GM and will, according to you, "do whatever it takes to sell cars" doesn't mean they'll be making cars that everyone will want to buy.
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Whether or not you believe that all productivity stems from self-interested entities flinging sand at each other in a Randian Sandbox, concern about the future behavior of a corporation that no longer has any cause to fear its own demise isn't totally out of line.
Personally, I'm all for cooperative efforts over competitive ones, hypothetically (okay, pipe-dreamally) speaking. But the systems we have in place today were not designed with indestructible edifices in mind, and the question of GM's outlook toward its competitors, even after it returns to "civilian" leadership, is valid and unanswered. I, for one, am suspicious.
This isn't an entirely new issue, of course.
Eh, I think it's simply the best soundbite they could use for political effect that also reflects the underlying concern over the previously mention millions of jobs that would be effected by the wholesale collapse of the auto-sector.
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Autarky is looking better by the day, no?
But a reasonable argument can be made that cost(fail) > cost(bailout).
Personally, I'm in the "French" camp. Pick a national champion (clearly Ford in our case) and make sure that one survives. If our car market went from 16 million to 10 million a year, somebody has to go.
And why are we still bailing out Chrysler? I don't see any value in that entity.
Agreed. I may be a dirty socialist liberal, but even I don't like the idea of the US govt owning a majority stake in an auto manufacturer, especially a shitty one. Hopefully, they sell it as soon as is humanly possible and recoup at least some of the cash thrown into the money pit.
Some of the reasoning behind it makes sense. It would hit the economy harder to allow the industry to collapse than it does to have unlce sam prop it up while it restructures. I just despise the corporate welfare that is so prevalent in this country, especially when it is so blatant.
Well, I think that usually when you are talking about corporate welfare that denotes that the stockholders, bondholders, and upper management types are the ones getting bailed out. The stockholders are going to be effectively wiped out in this and the unsecured bondholders are going to take a huge beating and get only about 10 percent of the new company. I don't know offhand how many cents on the dollar they are getting, though.
It's pretty clear that this is a socialist way of dealing with GM's failure by having the government(s) followed by the unions owning the bulk of the new company, but there may not have been much of a better alternative. A less controlled bankruptcy or outright liquidation could have caused a chain reaction in the local economies dependent on GM business and caused massive cost to the government in terms of the new burdens of social services for the large number of laid off workers.
GM screwed itself awhile ago by promising more than it could afford to its retirees, so it was essentially a matter of time until a downturn did them in. Less than stellar management and a bunch of screwed up divisions with lots of unnecessary redundancy probably didn't help them much either.
In terms of numbers of banks, most of them in the US are probably sound enough to survive on their own or bounce back from their troubles. The big problem is that a lot of the really big banks are the ones that are very unsound, so while a lot of the banking system has been in trouble it is disproportionate with the number of banks out there. And the part that was really screwed was the shadow banking system and financial institutions outside of the umbrella of banking, with engines of doom like AIG.
With all the money the government has been throwing at the banks they'll probably be able to weather the storm and recover given a bit of time. GM probably didn't have that luxury.
Call me a right-winger, but I do not see that making for a turnaround story. How much are we willing to sink into this? $100B? $200B?
Or do we think this New GM will actually make enough profit for us to get our money back?
Well, my understanding was that a bulk of the problem that was causing GM specifically to go under was their extremely high previously existing obligations, which they could barely support even when times were good. Pre-bankruptcy they have $172.81 billion in debt and $82.29 billion in assets.
I'm trying to find out how much in obligations they have post-bankruptcy, but I'm certain they are chopping off a very large amount of that debt by converting a lot of the bondholder debt into stock in the new company. This says that the new company will have $17 billion in debt plus continuing obligations to the UAW, with the pensions not being affected (still underfunded) but the retiree health plans are going to get cutbacks.
I'm not sure that the new GM will be able to turn a profit soon and there's a good chance that quite a chunk of the money we gave them won't be coming back (I read something suggesting $2 of every $5 government dollars will be hard to get back), but it looks like with all the cuts they are making in GM that throwing a bunch more money at them aside from what we are seeing now in the short term doesn't seem that likely to me.
Car sales are not the only way dealerships make money. A not insignificant number of dealerships make a ton of money in their service departments, and they are going to get screwed here.
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Also, forcing them to keep their wares is bullshit.