GM Judged Too Big to Fail

[Toad]

http://www.bloomberg.com/apps/news?pid=20601087&sid=aLk5fhJegjmg&refer=home



GM Judged Too Big to Fail as Pelosi Embraces Rescue (Update2)
By Mike Ramsey and Alex Ortolani


Nov. 12 (Bloomberg) -- House Speaker Nancy Pelosi has thrown her support behind the premise that General Motors Corp., the largest U.S. automaker, is too big to be allowed to fail.

In urging Congress to enact emergency aid for the ailing auto industry, Pelosi rejected calls to let GM collapse and sided with the company and its allies in trying to prevent a ``devastating'' domino effect that would cost millions of jobs.

``Trying to reorganize the auto industry in bankruptcy would be as close to reorganizing the whole U.S. economy as you could get,'' said Alan Gover, a bankruptcy lawyer with White & Case LLP in New York. ``The vast supply chain involves thousands of businesses, millions of existing jobs and just as many retirees, as well as whole communities and states.''
Passage of an industry bailout plan may keep GM from running out of operating cash by year's end, which it says may happen without U.S. help. GM is the second-biggest provider of private health-care benefits and was the third-biggest advertiser in this year's first half.

``It's truly one of those companies that's too big to fail, and everybody understands that,'' said Nariman Behravesh, chief economist at IHS Global Insight Inc. in Lexington, Massachusetts. ``If it does collapse, it could make the recession deeper and longer.''

Recession Fallout
Behravesh said a GM bankruptcy could send the U.S. jobless rate as high as 9.5 percent, up from a 14-year high of 6.5 percent in October, and produce a recession comparable in length to that of 1980-82.
Ford Motor Co. and Chrysler LLC both likely would be forced into bankruptcy eventually if GM were to fail, Mark Oline, a Fitch Inc. credit analyst, said in an interview.

GM rose 14 percent to $3.32 at 8:37 a.m. before regular New York Stock Exchange composite trading. The shares tumbled 13 percent yesterday, extending a slide that has chopped their value almost in half in the past week.

GM, Ford and Chrysler want $50 billion in loans to boost liquidity and cover union retirees' medical costs, people familiar with the matter have said. That would be on top of $25 billion in low-interest borrowing Congress approved in September to help retool plants to build more-efficient vehicles.

The trio employs 240,000 people in the U.S., or about 70 percent of U.S. auto workers, according to the Automotive Trade Policy Council in Washington, the industry group for the U.S. companies. Health insurance for 2 million people is tied to auto workers' jobs.

Job Losses
Another 5 million jobs at dealerships, suppliers and service providers are supported by the automakers, the council estimated. The companies spent $156 billion on auto parts in the U.S. in 2007.

Job losses would total 2.5 million from an automaker failure in 2009, including 1.4 million people in industries not directly tied to manufacturing, according to a Nov. 4 study by the Center for Automotive Research in Ann Arbor, Michigan.

Those disruptions would cost $125.1 billion in lost personal income in the first year, and $275.7 billion over three years, the study concluded. The ``unimaginable consequence'' of a bankruptcy ``motivates us to really come up with cash in every way possible,'' GM Chief Executive Officer Rick Wagoner said in a Nov. 7 Bloomberg Television interview.

`Devastating Impact'
While Pelosi, a California Democrat, didn't cite GM by name in her statement yesterday, she said an automaker collapse would have a ``devastating impact on our economy, particularly on the men and women who work in that industry.''

She didn't specify the size or the rules for the aid package she is seeking for the industry, whose 2008 U.S. sales are headed toward a 17-year low. That slump is overwhelming cost-cutting efforts including elimination of 46,000 U.S. jobs at GM since 2004, when the company last posted an annual profit.

President George W. Bush hasn't said whether he supports more automaker aid. The administration is awaiting details of Pelosi's plan before responding, White House spokesman Tony Fratto said. President-elect Barack Obama talked with Bush on Nov. 10 about the urgency for an assistance package.

Treasury Secretary Henry Paulson has resisted a proposal by Pelosi and Senate Majority Leader Harry Reid to tap the $700 billion bank-rescue fund to help automakers, and investors including New York-based hedge-fund manager Bill Ackman have said GM should reorganize in bankruptcy, not receive a bailout.

``Let the company default, maybe manage the process a little,'' said Martin Fridson, chief executive officer of investment firm Fridson Investment Advisors in New York. ``There's no reason for taxpayer dollars.''

`Textbook' Versus Reality
Such an approach is too risky, said Gary Hindes, managing director of distressed investments at Deltec Asset Management in New York. His firm doesn't own GM bonds.

``With all due respect to the free-market, or moral-hazard types out there, it's all wonderful in a textbook,'' Hindes said. ``But in a real world this would be disastrous.''

A GM failure would ravage an auto-supply base battered by bankruptcies or companies nearing failure, said Maryann Keller, an automotive consultant in Greenwich, Connecticut.

Delphi Corp., GM's largest supplier and former parts unit, has been in court protection since 2005. Automakers and suppliers cut 140,000 jobs in the past 12 months, according to the U.S. Labor Department.

``At the current level of production nobody's healthy, nobody's making money, and many are running out of working capital just like GM,'' Keller said.

Suppliers such as American Axle Manufacturing Holdings Inc. and Lear Corp. would suffer the most in a failure at GM, because it's their largest customer. They also make parts for automakers including Ford, Chrysler and Japan's Toyota Motor Corp.

``We're worried. We're concerned about it,'' said Mike Goss, a spokesman for Toyota's North American manufacturing unit in Erlanger, Kentucky. ``The vehicles we build in North America use about 75 percent local content, and much of that is coming from the same companies that supply the Detroit Three.''

[Toad]

I'm getting pretty tired of this socializing of capitalisim. You adapt and innovate to be compedetive, or you stagnate, fall behind, and die. That's the way it's always worked. Business is survival of the smartest and fittest.

Are we sliding into trickle down bailouts? Seriously, where does it stop?

Maybe I'm just in a pisssy mood. But my tax dollars are not meant for supporting for-profit corporations with CEOs who earn 100x more than I do. They can support their own damn company with their own money and fresh innovative ideas.

[Backstop]

Toad, you’re not pissy.

I’m 100% in agreement with you.



NO BAILOUT FOR ANYONE!

Businesses, banks, investors and consumers ALL made bad choices.

All we’re doing is enabling bad behavior.

My vote is to let every single one of them fail.

If they lose everything they own, lose their businesses, etc - fine.

I’ll guarandamntee you they won’t do that behavior again.

And now they’re gonna tax me more?

Guess I’m a middle class blue collar worker. I have no wife, no kids at home, no mortgage, and owe less than $10K on my 2007 vehicle.

I live a most frugal existence as I’m banking money to build a house - a debt free house.

And they tax the holy crap out of me.

I believe with the utmost certainty that Obama will raise my taxes to pay for businesses, banks, investors and consumers who have crappy financial responsibility.

7 years ago, I was sued for the financial escapades of my (ex) wife. I knew nothing of her shenanigans until our Divorce Court. I paid a little over $100K for her irresponsibility.


And then there's the Welfare crowd.



I am sick and fucking tired of bailing people out.

The air is kinda thin up here on this soapbox - I'm climbing down now.

[Malsua]

I want to borrow 1 billion at 2%. If if invest right, I can make a nice return, lavish weath on myself and my cronies. If I invest wrong, I just gotta ask uncle sugar for a bailout. Seems fairly simple.

[vector7]

GM Mexican Plants Expand as Carmaker Seeks Funds for Rescue

By Thomas Black

Dec. 17 (Bloomberg) -- General Motors Corp., the biggest automaker in the U.S. and Mexico, increased production of $12,625 Chevrolet Aveos south of the border while seeking a bailout to keep domestic plants from closing.

The Detroit-based company and competitors such as Ford Motor Co. shifted more manufacturing to Mexico this year to capitalize on wages less than an eighth of those in the U.S. and factories that make fuel-efficient models. Through November, Mexican plants turned out 5 percent more vehicles than a year earlier, versus an estimated decline of 30 percent in the U.S.

Mexico is so far weathering the collapse of the global auto industry better than its North American neighbors. Even with a projected decrease in production of as much as 20 percent in 2009, the world’s 10th-largest maker of light vehicles will still suffer less than the U.S. or Canada, according to Eduardo Solis, president of the Mexican Automobile Industry Association.

“The type of vehicle that’s produced in Mexico for the cost that it’s produced and the proximity to the U.S. are factors helping us fare better than other countries,” said Emilio Mosso, a deputy director at the Mexican Economy Ministry.

Thanks to investments by most of the major producers, Mexico has developed a high quality, low-cost manufacturing base. Assembly-line technology is now sophisticated enough to let the nation expand into aerospace, with Bombardier Inc., Safran SA and Honeywell International Inc. investing in operations in recent months.

“The number of errors produced in Mexico is relatively lower than in other countries,” Adolfo Albo, an economist in Mexico City with Spain’s Banco Bilbao Vizcaya Argentaria SA said in a telephone interview. “Plants are newer and the training processes are more effective.”

Small-Car Production
Output there also favors small and mid-size vehicles, which make up almost three-quarters of those manufactured. Other models produced in Mexico include the Pontiac G3, Ford Fusion, Volkswagen Beetle and Dodge Journey, a new car-based, sport- utility vehicle.

The product mix positions the industry to grab market share in coming years as consumers seek out fuel efficiency, Mosso said. Through November, Mexico had gained a percentage point to 26 percent of U.S. imports this year, even though close to 30,000 fewer cars from there were sold in the states than in the same period of 2007.

That said, Mexico won’t be immune to the global drop-off in vehicle sales. More than 70 percent of its cars end up in the U.S. where sales in November fell to the lowest annual rate in 26 years, according to Autodata Corp.

Export Decline
Exports to the U.S. slipped 2.6 percent to 1.1 million autos and light trucks through November versus the same period last year. That compares with an 11 percent drop for South Korea, a 9.8 percent decline for Germany and a 7.4 percent slide for Japan, the auto industry association said.
The drop was offset by increased shipments to Europe and South America in the first 11 months. Sales of Mexican exports were up 4 percent through November.

“It’s a world automobile industry crisis that we haven’t yet felt because of those export markets, which next year simply won’t be there,” Solis said.
Still, the “pothole” the industry hit won’t last forever, said Gustavo Cespedes, 46, vehicle manufacturing director for GM North America, who is slated to become chief of the company’s San Luis Potosi plant in January. “Here in Mexico, I believe we’re in a favorable position.”

Labor Costs
Lower labor costs are the biggest advantage. At around $3 an hour, the average Mexican wage is less than one-eighth of those in the U.S.’s $25.34 and one-seventh of Canada’s $21.38, according to Sergio Ornelas, the president of industrial park operator Intermex, which provides real estate services to auto and car-parts producers. Ornelas cited information compiled from the Boston Consulting Group, the U.S. Department of Labor and The Economist Intelligence Unit during a recent conference in San Luis Potosi.

Auto companies contribute to a government-run health system and mandated individual retirement accounts for each worker, which keep health and pension-benefit costs low compared with the U.S., Ornelas said.

The push into Mexico by U.S. car companies could be slowed by restrictions put on GM and Chrysler LLC for accepting Troubled Asset Relief Program funds, said George Magliano, senior auto analyst at Global Insight Inc. in an interview at the San Luis Potosi conference.

“This money is going to come with a tremendous amount of strings,” he said. “If they give you $25 billion and you start closing all your U.S. industry, that could be an issue.”

Bankruptcy Impact
If GM and Chrysler are forced to declare bankruptcy, it may speed up the transfer of production to Mexico as carmakers seek to slash expenses, said Nick Criss, executive director of industrial services in the nation for real estate broker Cushman & Wakefield Inc.

“Mexico tends to be the core manufacturer for many companies because it’s a low-cost center,” Criss said.

GM, for instance, has invested $3.6 billion in Mexico in the last three years. Its auto and light truck production there rose 28 percent in November, the national car industry association said on Dec. 9.

The company said total output in North America, including Mexico, fell 32 percent for the same month to 249,000 vehicles. GM declined to break out its Mexican production.

Ford spent $1.2 billion in 2005 to increase output in Hermosillo of its mid-size Fusion sedan. Production in Mexico from January to November rose 1.5 percent, while it fell 26 percent in the U.S. and 9 percent in Canada, it said.

Investment Increases
Chrysler is building a $570 million factory near Saltillo, Coahuila, that will produce 440,000 engines a year, said Manuel Duarte, a Mexico City-based spokesman. It has canceled one of its two work shifts at a light truck plant there, Duarte said.

China FAW Group Corp. has announced plans to build a car factory in Michoacan on the Pacific coast that will begin operation in 2010. Other Asian companies, including Hyundai Motor Co., South Korea’s biggest automaker, and Tata Motors Ltd., the Mumbai-based maker of Jaguar and Land Rover vehicles, are looking to invest for the first time, Mosso said. Toyota Motor Corp. increased capacity last year at a plant in Tijuana to 50,000 Tacoma trucks.

The wave of investment helped Mexico expand its production to more than 2 million cars in 2007 from 1.54 million in 2003. Mexican car output is forecast to rise to 3 million units by 2015, Magliano said.
U.S. in Reverse

Over the same period, the U.S. industry has gone in reverse, dropping 12 percent to 10.54 million vehicles last year from 11.92 million in 2003, according to CSM Worldwide. The seasonally adjusted annual rate through November plummeted to 8.71 million cars and light trucks, CSM Worldwide said in a Dec. 15 statement.

Mexico also has 12 free-trade pacts, including ones with Japan, the European Union, Chile, Colombia and Israel, and preferential tariff access with 44 other countries, Mosso said.

“We have intrinsic advantages in Mexico that nobody can take away,” GM’s Cespedes said.

http://www.bloomberg.com/apps/news?p...GE&refer=home#

[vector7]

GM to temporarily idle three Mexico assembly plants

Mon Dec 15, 2008 11:18pm EST

MEXICO CITY, Dec 15 (Reuters) - General Motors Mexico will temporarily shut down assembly lines at three of its Mexican car factories as part of an overall strategy to cut production due to falling demand, the company said on Monday.

GM (GM.N: Quote, Profile, Research, Stock Buzz), one of the car companies asking the U.S. Congress for immediate injections of cash to avoid near-term collapse, announced on Friday it would slash first quarter production in North America by 60 percent.

As part of its plan to idle some 30 percent of its assembly plant volume in the region, the San Luis Potosi and Ramos Arizpe factories in Mexico, which make Chevrolets, Saturns and Pontiacs will both go offline from Dec. 22 to Jan. 5.

The Silao factory, which makes Chevrolets, GMC trucks and Cadillacs will shut down from Dec. 22 to Jan. 8 and two assembly lines will be closed until February.

The three plants have more than 10,000 employees -- the bulk of the 13,000 GM jobs in Mexico -- and workers will have to use some of their vacation days for the lost work time, General Motors Mexico said in a statement.

"These stoppages will allow for preventive maintenance on the equipment and an adequate production balance," the statement said.

Mexico, the world's 10th-biggest car producer last year, is heavily dependent on the U.S. economy. It builds cars for most of the world's top companies, but exports are slackening as the United States goes through its worst economic downturn since the Great Depression.

U.S. automotive giants GM, Ford (F.N: Quote, Profile, Research, Stock Buzz) and Chrysler -- known as the Detroit Three -- have all been badly battered by the crisis and turned to the government for a bailout package that could be announced this week. (Reporting by Mica Rosenberg; Editing by Anshuman Daga)

http://www.reuters.com/article/rbssC...53356320081216