Incentives for G.M., not a bailout.

Instead of letting G.M. go bankrupt, why not give them a bailout with strings? Say, $1B for every additional MPG/year in CAFE standards. If they agree to hit the 32 MPG mark in 2011, they get $1B. 33 MPG, they get $2B. 34 MPG in 2012, they get $2B. Etc.

Published by Waldo Jaquith

Waldo Jaquith (JAKE-with) is an open government technologist who lives near Char­lottes­­ville, VA, USA. more »

11 replies on “Incentives for G.M., not a bailout.”

  1. Sadly, there’s probably no better way to ensure that they *do* go bankrupt than to ask them to invest in green technology.

    Bailing out GM is like bailing out the horse-and-buggy industry. There are plenty of other ideas out there from smaller, independent firms that will revolutionize the industry… no reason to hold them back.

  2. You know, I don’t like the term “bailout” when in reference to the Big 3. It isn’t a grant and the Fed isn’t buying any assets like the $700B spent on Wall Street. It’s a low interest loan. Chrysler got one back in the late 70’s/early 80’s, and paid the gov’t back in full with interest.

    When people say they want the Big 3 to fail, it seems to me that they don’t grasp just how many people and how many industries these manufactures touch. Raw material markets: Steel, glass, plastic, rubber, electronics. All the auto parts suppliers. It is unreal And look at what these companies pay in taxes each year. They can’t just cease to exist. Like it or not, our country still heavily relies on road transportation for the vast majority of our commodities and every industry still needs work vehicles.

    These companies made dumb moves in the past. But so have Toyota and Nissan, except they’re heavily subsidized by their home country. And they already had strict regulations placed on their overseas markets, especially in Japan. If it wasn’t for those two factors, they’d be in the same boat as the Big 3. That and they’re anti-union.

    Any new companies with better technology or greener solutions are fine competition, but they’re not able to compete on a level anywhere close to scale of what the Big 3 do. So invest in the small companies. Encourage their growth. Put whatever stipulations on the loan you want, but stating that the Big 3 should fail would cause a major, major economic downturn in this country. Something much bigger than if a few banks went under.

  3. I could go for that, Waldo, if they’d also make the UAW accept some concessions related to the collective bargaining agreement, esp they’re benefits and/or pension packages. One thing no one’ talking about is what’s gonna happen when these pension plan contributions get in arrears in a little while. Will make what’s happening now look like child’s play if we gotta bail them out, too.

  4. their 3Q cash burn rate was >$2b per month and their 3Q loss was $4b. Even w/ a $25b fed loan, they won’t make it through 2009. And these losses are occurring at the front end of a serious recession.

    Read GM’s 3Q 8K report. One of their listed “liquidity enhancement initiatives” is to ENGAGE THE US GOVERNMENT TO AID THE DOMESTIC AUTO INDUSTRY. Included is $5b in cost cutting, on top of the $10b they’ve already implemented. Make no mistake, they are betting on a bailout, because they know they won’t be around in 6mo if they don’t get one. Forget CAFE standards, retooling operations and cost cutting initiatives. They’ve got $50b in current assets vs. $70b in current liabilities. $53b in noncurrent assets vs. $97b in noncurrent liabilities (most of which is pension/retirement benefits). They are insolvent and will be for years to come.

    And while GM is the largest, we still have Ford and Chrysler who are teetering on the edge.

    They need chapter 11, not more federal money. they need to have their liabilities restructured and their business model overhauled. If, in fact, the feds do lend the money, I predict one of two things: they will receive an additional $25 – $50b 18 months down the road, or will declare ch.11 within the same period.

  5. Ford will resist Ch 11 since the Ford fam’s net worth is mainly tied up in stock they’d be loathe to see worth $0/share. Is their another way out for them?

  6. GRS is right on the money talking about the companies dependent on the big 3. My mother-in-law lost her job because the company she worked for went under. They primarily supplied Chyrsler.

    My step-dad retired from Chrysler and my dad retired from Ford (after spending their entire careers there). Depending on what happens with Chrysler, my step-dad is looking at losing most of his retirement. Ford is in a little better shape, but not much, so my dad is facing similar fears. They’ve already lost their health insurance (and my dad still has a kid in high school and one in college).

    This issue just hits so close to home for me. I’m really afraid that my parents, who are only in their 60’s, are going to find themselves without the income they thought they could count on as they start reaching an age where going back to work isn’t an option.

  7. I have to say that after watching the big 3’s mind-bogglingly stubborn refusal over the past decade to act responsibly by seriously pursuing low mileage and alternative power vehicles, I’m inclined to believe this is just throwing money into a hole in the ground. The people who manage these companies clearly do not have America’s best interests at heart. They stood by in stubborn refusal as Honda and Toyota developed and then sold hybrid cars, and as both Japanese and European auto makers have prototyped and now prepare to sell electric cars. (Electric Mini Coopers hit the streets here in the US next year.) The big 3 pay tremendous lip service to these new techs, but they still fail to deliver. For all the talk about the Volt, it is clearly years behind everyone else. In the meantime, small startups like Tesla have exceeded their efforts in far less time and with far fewer resources. I have deep sentimental attachment to names like Ford, Chevrolet and Jeep, but I think it’s time we let them crash and burn. Buy out their pensions and take the money we’d otherwise invest in them and invest it in these smaller, more innovative companies that actually have a chance of success. They can produce the competitive products the big 3 repeatedly fail to, and they will create far more jobs and domestic wealth than the sinking ships of the big 3 can, bailout or no.

  8. The American firms almost seem to have purposely NOT sought to produce products that are as efficient as their European counterparts. Ford recently opted not to pursue the entry into the US market of a car they produce in Europe that has exceptional mileage on a cleaner burning diesel fuel than we use in the US, yet they decline to import it or manufacture it in the US. Ford has a panel van sold all around the REST of the world that would get 25-28 mpg, yet they continue to stick by their Econoline with a V-8 that averages ~ 15 mpg. I’ve since replaced 3 Econolines and a GMC with 4 Dodge vans manufactured by Mercedes; they have all been averaging ~ 26 mpg on the highway, and they outperform their American counterparts in just about every other way.
    Pigs get fed, Hogs get slaughtered- not necessarily what I want, but most likely what will happen after a few more billion dollars of taxpayer money goes up in rust.

  9. jay, I hear you, but if you’re a member of the Ford fam you live in hope of a gov’t bailout, economic turnaround, low gas, etc could once again have your shares selling for $50/share in 3-4 years. It’s happened before. What you wouldn’t do is simply give up and file Ch 11 unless you absolutely had no choice.

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