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But Then You Came to My Bailout Rescue

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Feel like owning a car company? Me neither, but it's not like we have much of a choice.

General Motors and Cerberus Capital Management have asked the U.S. government for roughly $10 billion in an unprecedented rescue package to support a merger between GM and Chrysler, two sources with direct knowledge of the talks said on Monday.

The government funding would include roughly $3 billion in exchange for preferred stock in the merged automaker, according to one of the sources, who was not authorized to discuss the matter publicly.

The U.S. Treasury Department is considering a request for direct aid to facilitate the merger and a decision could come this week, sources familiar with the still-developing government response said earlier on Monday.

An injection of $3 billion in equity to support a GM acquisition of Chrysler would be roughly equivalent to the current, depressed value of the top U.S. automaker.

That last paragraph is worth a re-read.

If everything in this country that's "too big to fail" is bailed out by the federal government, with cash injections equivalent to the market value of the crappy company, what will be left? And how much will it be worth?

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  1. An injection of $3 billion in equity to support a GM acquisition of Chrysler would be roughly equivalent to the current, depressed value of the top U.S. automaker.

    What does “depressed value” mean? I think they just mean “value.”

  2. Well, if we’re going to own General Motors, I want a damn Cadillac. Now! That’s socialism I can appreciate!

  3. There needs to be enough federal oversight to protect the sleek and timeless lines of the Chrysler Sebring.

  4. Preferred stock? It’s not as if GM is going to pay out any dividends in the coming, say what, hundred years.

  5. Why doesn’t the GM pension fund (or heck, the UAW themselves) tender an offer for 100% equity in the company? They might have $3B available, and then union incentives will actually be strongly aligned with management if they own the place.

    A quick google shows the pension fund had $90B total value, with $2B over committments in 2004.

    Come on workers, now is the time to take ownership of the means of production! (/trotskyist)

  6. “In addition to its equity stake, the U.S. government is also being asked to provide support for the GM-Chrysler merger by taking over some $3 billion in pension obligations under the terms of a proposal now before the government for review, the first source said. “

  7. C’mon, people! America’s rental fleets demand a continuous supply of crappy cars to offer to unsuspecting foreign visitors! This vital industry must be saved!!

  8. I knew this would happen. I posted it on these pages.

    I’m the vangaurd of a new political movement. The Cassandrarians. Inspire by a another poster, I coined the term just this morning. I may be using it for quite some time.

  9. It seems all of you vehicle users (as opposed to motorheads) have missed the major outrage here: GM and MOPAR in the same firm!!!!! AAAGGGGGG!!!!

    Okay, this is a true crisis now, just talking about that sort of a merger.

    Well, at least it is not ford and MOPAR.

    BTW, LOVE the “Smoke out big government” chick in the left margin ad.

  10. I can see it coming now: when the next summer blockbuster tanks, Hollywood can ask the feds to bail out the movie! Certain stars are too big to fail, you know (Travolta, I’m looking at you).

  11. /agree on the smoking chick

    I can’t bear the thought of my Corvette being made by the government. That just seems horribly wrong.

  12. More crony capitalism. I’m so depressed.

  13. I guess Russia won the cold war after all. Well Played, Gorby, well played.

  14. Oh, the government won’t be making Corvettes. No, no, no. Hybrids only from now on.

  15. I can’t bear the thought of my Corvette being made by the government.

    I can’t bear the thought of some GM toadie even looking at one of the new Dodge Challengers during assembly (or any time before/after).

  16. CN,

    [psst] some of us MOPAR guys have been talking about our Organic Hydrocarbon Powered Hybrids for years. Don’t tell the government folks, or anybody at TNR, what it really is, okay?

  17. Does this mean Rick Wagoner will be Secretary of Transportation?

  18. can see it coming now: when the next summer blockbuster tanks, Hollywood can ask the feds to bail out the movie! Certain stars are too big to fail, you know (Travolta, I’m looking at you).

    You must not be counting the additional tax credits in the bailout bill, as well as all the tax credits to film in other states and in Canada.

  19. You know what REALLY sucks about this? Obama’s first act as POTUS will be a government bailout of the NYT.

  20. PB,

    Not sure, but I am thinking that guy who was in The Lost Boys, from the MOPAR commercials.

  21. I can’t wait for my first glimpse of a car designed by Henry Waxman and Barney Frank.

  22. Err… is there ANYTHING in Chrysler’s current lineup worth a damn? Aside from the very-diluted Jeep trademark?

    And obligatory prebuttal of Guy that his nostalgia for certain vehicle names and fanboyism is clouding his vision of the company.

  23. I can’t wait for my first glimpse of a car designed by Henry Waxman and Barney Frank.

    ROFL!

  24. I think we should put Wagoner in charge of the Ministry for Going Nowhere Fast.

    I was reading an article about this earlier which said, as I recall, GM stock was nearly $100.- per share when (fix yer) Wagoner took over.

  25. Bingo,

    Just how unfamiliar wre you with these and how does liking them constitute ‘fanboyism’?

  26. Guy, I love the look of the challenger remix, and the camaro remix, and etc.

    But part of me is severely depressed that the best and brightest engineers in the US can do nothing but copy forty year old sheet metal designs.

  27. Does the Challenger have a T-top? I’m generally too tall to sit up in anything with a hardtop.

    I was out in 41-degree temps today with the top off. The gf thinks I’m crazy, but it’s not that bad, and this might be the last week this year.

  28. Err… is there ANYTHING in Chrysler’s current lineup worth a damn? Aside from the very-diluted Jeep trademark?

    No there is not.

    I bought a new fully loaded Chevy Impala in February. What does this mean to my resale value in three years?

  29. Come on workers, now is the time to take ownership of the means of production!

    Well, they don’t want to have to pay for it. Geez.

  30. Hmm, 425hp kicks some ass. Vettes are prettier, though.

    Or used to be, anyway. The hydroformed 2004 C5s were the last, best real Vettes, imo. The C6s were deliberately Euro-ized for better sales across the pond. Bastards.

    The newest one does come with 450hp, tho.

  31. This ride during the slippery slope is a lot faster than I expected. What do they have this thing greased up with anyway?

  32. If everything in this country that’s “too big to fail” is bailed out by the federal government, with cash injections equivalent to the market value of the crappy company, what will be left?

    The government.

    And how much will it be worth?

    $0.00

    What does “depressed value” mean?

    What the company is worth, as opposed to what the company dreams it should be worth.

  33. Guy: I wouldn’t consider a large, heavy, 2-door V8 to be “innovative” in an era when gas prices seem to fluctuate up to $4/gal at the slightest hint of future scarcity. Add on to that fact that a lot of people are feeling squeezed by the current economy and are unlikely to buy a new car. If they do need a new car, they will likely choose something economical and practical. The big 2.5 have set themselves up for disaster. Maybe 35 years ago it was a good idea, but not now.

    Muscle-cars had a time and a place, it’s time to let go.

  34. I bought a new fully loaded Chevy Impala

    I found your problem.

    Muscle cars are awesome, but Detroit is insane if it expects them to save its ass. Their best bet is to churn out a bunch of Honda Fit clones, and fast.

  35. I wouldn’t trade my work-in-progress Porsche 914 Karmann Ghia mk IV for ten of those New!Challengers.

  36. Err… is there ANYTHING in Chrysler’s current lineup worth a damn? Aside from the very-diluted Jeep trademark?

    I bought a 2005 RAM 3500, Cummins Turbo-diesel brute of a truck off of my Credit Union’s repo lot in July. That is a kick-ass truck!

    Actually, I have thought for years that Chrysler’s styling is the best in the US. I realize that is purely a cosmetic thing, but I like pretty girls for the same reason and it seems rational until their ugly, dark internal workings are exposed.

  37. I’ve been a fain of GM’s powertrain for a few years and am looking to pick up a Camaro SS in about a year and a half. But his bailout shit is angering me more and more. …so conflicted.

  38. Boy, who would have ever guessed that it would be banking and auto industry CEOs who would lead the socialist revolution.

  39. I will admit that, aside from the abominable PT Cruiser, the interiors of all the Chrysler rentals that I’ve driven have been much nicer than their GM, Ford, or even Mazda counterparts.

  40. I can’t bear the thought of my Corvette being made by the government.

    How many of you would have guessed that TallDave drove a Corvette?

    All of you, right?

  41. Just remembered that a) the PT Cruiser exists and b) it got 23 mpg HIGHWAY for me. Fuck Chrysler, they can burn.

  42. Pushrods! It’s the twenty-first century, for crying out loud.

    The cylinder head on my 90 cubic inch Honda will probably flow more air than the the head off a small block chevy. Those bozos have barely progressed beyond wooden wheels; it’s time to shut them down and let Hyundai pick through the bones.

  43. I rented a Chrysler 300 in Vegas and drove to Tucson. I had a pretty good ride and was comfortable, but frankly, a Lexus or even a Toyota Avalon is light years better in terms of power, ride, comfort, and controls.

  44. An injection of $3 billion in equity to support a GM acquisition of Chrysler would be roughly equivalent to the current, depressed value of the top U.S. automaker.

    The problem is this assumes the market value is wrong (as alluded to by other posters such as LarryA) we’re better off if these large companies don’t fail. I’m not sure there’s much real evidence for that. A problem for one company is an opportunity for its competitors… an opportunity that is now lost.

    The companies that didn’t screw up and go bankrupt are now, in effect, being punished by the government.

  45. The new challengers are deeply homoerotic, but the gay community just ain’t big enough or wealthy enough to prop up Chrysler. Bad move.

  46. So $3 billion is the new threshold for “too big to fail”? Why stop there? My local dry cleaner has been experiencing cash flow problems recently, and he’s the ONLY one my town. Strikes me as too big to fail as well.

    On the other hand, we could let GM and Chrysler both go down the hole and see what happens. My guess is, not much.

  47. On the other hand, we could let GM and Chrysler both go down the hole and see what happens. My guess is, not much.

    Ford would likely return to profitability.
    For a short while.

  48. Here in Michigan, the prospect is pretty damn frightening. Currently we already have the highest unemployment and foreclosure rate in the nation.

    The libertarian in me knows the government shouldn’t get involved; if the private sector won’t fund a merger, then it must be a bad idea. Still, as an ex-Chrysler employee who lives here, the situation is pretty grim.

  49. Jim, why aren’t you moving out of Michigan?

  50. Kyle G.,

    An SS? Not bad. I gotta wait till 2011 for my new Z28. Assuming that GM is still around to make it.

  51. How about this:

    “Buy a Cadillac, get a bank!”

  52. Err… is there ANYTHING in Chrysler’s current lineup worth a damn? Aside from the very-diluted Jeep trademark?

    The minivans. And approximately $11 billion in cash that Chrysler is reportedly sitting on.

    The best analysis I’ve seen indicates that this is (a) a play for time by GM to use Chrysler’s cash as a cushion to ride out the economic downturn, and (b) a play to make GM/Chrysler even bigger and harder to let fail.

    There are few, if any, rational business reasons for GM to acquire Chrysler.

    –GM already has too many dealers and hardly needs more. State laws make it very difficult for car companies to get rid of dealers.

    –Chrysler has the same UAW problems and massive pension liabilities that GM does. Both companies have contracts that require them to do buyouts for laid-off union members, making it more expensive to fire them than to keep them.

    –It will take several years to integrate the product lines and processes, and GM doesn’t have that kind of time. I’m guessing that GM declares bankruptcy next year or in 2010 without a govt. bailout.

    Foreign buyers are more likely interested in GM’s and Chrysler’s “parts” rather than the companies as a whole. They’d like some of the car and component designs, but they have no desire to take on the UAW contracts or the legacy costs. And so other companies are more likely to buy up the assets after GM/Chrysler go bankrupt.

  53. Guy: I wouldn’t consider a large, heavy, 2-door V8 to be “innovative” in an era when gas prices seem to fluctuate up to $4/gal at the slightest hint of future scarcity . . .

    Muscle-cars had a time and a place, it’s time to let go.

    Fag.

  54. Eric,

    I owe $350,000 on a house that is worth, well, significantly less. I also work for an asian automaker now, ironically enough, so personally I’m in an OK position. However there just isn’t enough going on here outside of automotive to absorb all the excess labor. Lots of people are leaving the state, which also doesn’t help real estate values. I keep hoping we’ll eventually become the New South, when our wages and property values start to look attractive enough to attract new industries. I suspect we’re still a long way off from that though, and our state goverment here is more used to being able to soak the (sometimes rich)auto industry than learning how to be ‘business friendly’ and attract other industries.

  55. OT: I almost decided to go with an aluminum 440 block with Stage V HEMI heads (aluminum too), but decided to go with a traditional iron block instead. Must be that 1/4 drop of Scottish blood in me, i.e., $150 used block vs. $5,000 block.

  56. GM should phase out cars altogether and start making flying cars. Once Americans are flitting about around in our robot-controlled flying cars, the rest of the world will bow forever to our economic and technological might. Behold–we fly to work!

  57. I keep hoping we’ll eventually become the New South, when our wages and property values start to look attractive enough to attract new industries. I suspect we’re still a long way off from that though, and our state goverment here is more used to being able to soak the (sometimes rich)auto industry than learning how to be ‘business friendly’ and attract other industries.

    Michigan could fix many of its problems simply by enacting a right-to-work law. Eliminating the UAW’s hold on the state would bring in the foreign automakers like crazy, though probably not in the next couple of years due to the economy. Michigan’s base of automotive expertise and supporting industries should make it hugely tempting, apart from the anti-business policies in the state.

    An unrelated, but relevant story: When Gibson Guitars (based in Kalamazoo at the time) was bought up in the late ’60s, the buyer decided to bust the union and move most of the company’s operations to a new plant in Nashville, which opened in 1974. The senior production executive who supervised the Nashville set-up said it was a pain in the ass, because all of the tool and die manufacturers he needed to use were back in Michigan; Tennessee simply had no supporting infrastructure for a manufacturing base the way Michigan did–and does. Ultimately, when Gibson closed its Kalamazoo plant in 1984, that executive and a few of his buddies bought part of the plant and started Heritage Guitars, which makes equivalent guitars to the Gibson custom shop at about half the price.

  58. I almost decided to go with an aluminum 440 block with Stage V HEMI heads (aluminum too), but decided to go with a traditional iron block instead.

    I have an atavistic distrust of aluminum blocks.

  59. TD,

    Does the Challenger have a T-top? I’m generally too tall to sit up in anything with a hardtop.

    Does not appear to have that option, but I am sure the right custom shop could do one for you. It does have a power sunroof option.

    I am only about 6′ 3″ and fit just fine in my ’72 Charger (roof line is pretty low) but fit better in the ’96 Jeep and most pickups.

  60. Michigan was almost the site for the new VW plant, but it’s going to Tennesee now.

    Our company has a plant in Alabama, as do several other automakers. One of the things I heard is that Alabama apparently used their share of the tobacco settlement money to fund general expenses (instead of funding anti-tobacco campaigns like other states) and that is why they’ve been able to offer large tax breaks to automakers and suppliers that invest there. Maybe Michigan should have followed that lead.

  61. I keep hoping we’ll eventually become the New South, when our wages and property values start to look attractive enough to attract new industries.

    Keep your chin up, with global warming coming on rapidly you’ll be the New New South in no time. Don’t get your hopes up too much, states in the Current New South are doing their best to nullify any advantages they have over the Rust Belt.

  62. I recommend that the Rust Belt secede. We need something interesting like that to start the next administration off with a bang.

  63. Our company has a plant in Alabama, as do several other automakers. One of the things I heard is that Alabama apparently used their share of the tobacco settlement money to fund general expenses (instead of funding anti-tobacco campaigns like other states) and that is why they’ve been able to offer large tax breaks to automakers and suppliers that invest there. Maybe Michigan should have followed that lead.

    Interesting. However, I don’t think that tax breaks would be sufficient to overcome the costs and difficulties of doing business in Michigan. Ultimately, I think the Big Three probably have to die before any change can come.

  64. Pushrods! It’s the twenty-first century, for crying out loud.

    Shrug. 505hp from the LS7, and 638hp from the LS9.

  65. So I guess we’ll be getting tax incentives to “Buy American”? That should work out. We can bail ’em out twice.

  66. 3 billion isn’t depressed, it’s wildly inflated.

    GM is dead. Chrysler is dead. Ford may yet live.

    The government is doing CPR because it doesn’t want to face the facts: bankruptcy is really the only option. The government isn’t going to be willing to foot the bill to fire the hundred thousand people that need to get canned and the 7000 dealerships that need to get cut loose for GM and Chrysler to stabilize in critical condition.

  67. The bailout saga continues: looks like the White House is about to get tough with kulak banks.

    An impatient White House served notice Tuesday on banks and other financial companies receiving billions of dollars in federal help to quit hoarding the money and start making more loans.

    “What we’re trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money,” White House press secretary Dana Perino said.

    Though there are limits on how much Washington can pressure banks, she noted that banks are regulated by the federal government.

    “They will be watching very closely, and they’re working with the banks,” she said.

    “As these banks and institutions are reinforced and supported with taxpayer funds, they must meet their responsibility to lend, and support the American people and the U.S. economy,” [Treasury Undersecretary] Ryan told the annual meeting of the Securities Industry and Financial Markets Association. “It is in a strengthened institution’s best financial interest to increase lending once it has received government funding.”

  68. I love the juxtaposition:

    This: Fresno Bob | October 28, 2008, 12:29pm | #
    The new challengers are deeply homoerotic, but the gay community just ain’t big enough or wealthy enough to prop up Chrysler. Bad move.

    With this: Guy Montag | October 28, 2008, 1:55pm | #
    Guy: I wouldn’t consider a large, heavy, 2-door V8 to be “innovative” in an era when gas prices seem to fluctuate up to $4/gal at the slightest hint of future scarcity . . .

    Muscle-cars had a time and a place, it’s time to let go.

    Fag.

    Classic.

  69. 3 billion isn’t depressed, it’s wildly inflated.

    GM is dead. Chrysler is dead. Ford may yet live.

    I think you’re correct. Daimler-Benz recently zeroed-out on its books the value of the remaining share of Chrysler that it owns. The company is literally worth zero. In fact, the company is worth less than zero, since the value of its assets going forward is greatly exceeded by its pension and benefits liabilities. The same is true of GM. No outside firm in its right mind would buy either company prior to a Chapter 11 fire sale that would eliminate those liabilities.

  70. I have an atavistic distrust of aluminum blocks.

    I still have some of that dinosaurishness too. Could polish up an iron block and paint it aluminum, idunno.

  71. Fortunately, the good people at Corvette Forum are helping me move past my prejudices.

  72. Although, secretly, part of me still cringes when I rev it, waiting for a piston to go flying through the hood or something.

    I blame the four years of working in a small engine shop to pay my way through college for permanently imprinting “aluminum = cheap” onto my synapses.

  73. Besides, anyone who things a Corvette is either “large” or “heavy” obviously hasn’t driven one lately. My C5 Z06 is under 3100 pounds and quite easily to toss in and out of traffic. Plus, 24MPG city/30MPG highway is none too shabby.

  74. TD,

    For me it is just that 5k vs. $150 issue really. Then again, it is going to be sitting on a +$7k K-member and front suspension w/rack&pinion, vs. original hardware.

    Humm, this $5,000 car I bought almost 2 yrs. ago is getting pricey.

  75. ACK! Almost THREE years ago!

  76. C5,

    Yeah, I love how they snuck it under the “gas guzzler tax” limits. In your face, Al Gore!

    And you can definitely tell the weight reduction when braking — even >100mph it feels like you could stop on a dime. Of course, the racing brakes help too, even if they are prone to sing.

  77. TD,

    Yea, big giand 6 caliper brakes are what I plan for the hybrid Charger, for the front anyway. Still going with drums on the back even after swapping the rear for a Dana-60.

  78. The automakers are in trouble because of promises they made years ago that they never funded. The best thing that could happen is for them to renegotiate those to a level they can pay. Barring that, they could let a bankruptcy sort things out. There is no reason to get the taxpayers involved.

  79. I had a pretty good ride and was comfortable, but frankly, a Lexus or even a Toyota Avalon is light years better in terms of power, ride, comfort, and controls.

    Of course, an Avalon is a Lexus, with a different nameplate and a few gizmos (rear-view camera, that kind of thing) left off. Its probably the best value for the money out there, if you want a 4-door sedan.

    I keep hoping we’ll eventually become the New South, when our wages and property values start to look attractive enough to attract new industries.

    That ain’t gonna happen as long as the UAW is squatting on your state like a bloated toad.

  80. Here’s a good summary of part of the reason these companies have driven themselves into the ground:

    http://online.wsj.com/article/SB122488710556068177.html

    It’s not just the union but the management response to it. They’ve never quite burried their axes.

  81. It’s not just the union but the management response to it. They’ve never quite burried their axes.

    You’ve just described unions everywhere. The relationship between unions and management at the airlines can best be described as toxic.

  82. The Big Three were an example of how monopolies natural fail. They had the U.S. market all to themselves for 30 years, and got so fat and lazy that management assumed they could put out any piece of crap and sell it, and workers (and their union representatives) assumed that there was no such thing as cost-prohibitive salary and benefits.

    The ’80s bailout of Chrysler did allow the company to put out an innovative new product in the minivan, but the company’s culture was still the same old thing, and the problems came back quickly. The same thing will happen if a new bailout were to allow GM to survive beyond next year. Bailouts essentially function as a reward to reinforce existing behaviors.

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