So unless you just crawled out of bed still in your Greenspan Underoos because you no longer have an office to go to, you probably know that General Motors is looking at a 2008 loss of $31 billion. Don’t worry though, because this is about what we expected.
Perhaps it is our cynical side, but does anyone really believe that these firms are going to be anything but a huge gravity well for cash for the next 20 years? In all seriousness, under what scenario is it possible to imagine that anything resembling General Motors can even arguably make back a fraction of what has been and will be dumped into it in the next five years?
In 2006, Nissan- the best of the Japanese manufacturers that year on this metric- pulled in about $2,100 in profit per car (Honda and Toyota were in the $1,200 – $1,500 range). Assuming General Motors could manage to recover Nissan’s margin (and this is Disneyland levels of fantasy) they would have to push over 14 million vehicles out the door just to cover the 2008 loss. For perspective, GM sold about 8.3 million vehicles in 2008 with more than a dozen brands, and not only have they been forced to cut capacity and brands, but demand might not even get that good again.
Ok, that’s probably not a fair analysis, since the $31 billion is sunk cost. Surely, we aren’t going to have to dump that much money into GM again… right? Ok, what about the $12 billion in underfunded pension liabilities yet to come? The $[whatever] billion in cash they are about to ask for? The however much they burn through in the next five years?
It might be time for GM to punt.
General Motors Corp posted a nearly $31 billion loss on Thursday for 2008 and said its auditors were likely to cast doubt on its viability as it seeks an expanded federal bailout to stay afloat.
GM, which asked for up to $30 billion of U.S. government aid, posted losses in all of its major units during the fourth quarter and it burned through $6.2 billion of cash. Revenue plunged by more than a third.
GM posts massive loss, auditor may question viability [Reuters]
The auditors sure waited a while to cast doubts on their viability. The first handout by the government should have at least given them a clue.
Mm, I think the margin point seals the deal. Now the question is whether there’s any scenario where Pelosi & Reid decide that standing up to the UAW is less painful than orchestrating another giveaway and punting. Magic 8 Ball is saying no.
It’s free gift time in DC, jsut before the cheery trees blossom.
The liberals are underestimating Ameica’s deep-rooted suspicion of government intervention…
Like all of us Americans, GM is too big and too hefty to succeed. It’s time for a diet. Shred the pensioners. Cut out the union contracts. Downsize to fewer brands (what’s the point of giving the same car two different names). Like most of us fat slobs, we know how to lose the extra pounds, we simply do not have the will power to do it. Fixing GM, and that other bloated carcass, the American economy, is easy. We just need the balls to make the tough decisions
Surely a simple idea is to put a $4,000/vehicle tax on all non-GM, Ford or Chrysler vehicles. This will drive up the Big 3′s market share and allow them to increase the margin on each vehicle. The UAW keeps their jobs, the loans to the gov get paid back and the gov gets more tax revenue. Am I missing anything.
American Bandersnatch, New Car Czar
The spending blueprint, sent to Congress today, forecasts record outlays for the current fiscal year of $3.94 trillion, up 32 percent
Game over!
Burn it down, start over again. $31B towards a rail system would have made more sense.
hey everyone- lets all go over to the edificial blog and argue about architecture in the comments
@8 – why would we punish the smarter, more innovative car companies (that just happen to be foreign) simply because the American companies are poorly run.
How about this as an alternative – let all the car companies fend for themselves. If the D3 companies can’t figure out a viable business plan, well, this is America, and chances are good that *someone* will.
We just need to let them go and see who springs up from their ashes. I bet Richard Branson could start Virgin Motors and blow these guys out of the water….
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two words: chevy volt
I agree with Phobos, if it fails, sell the parts and move on… break them up and sell the factories… There is no room to subsidize failure in the US.
Survival of the fittest includes failure of the weakest. That includes TBTF banks.
~SEG
They need a “good-car company” “bad-car company” aggregator approach. Take all US automakers ongoing viable models and production facilities push them to the good, take all the bloat and write-offs and stick it in the bad. Minimize wastage on the bad but otherwise wind up. Gov’t gets 100% equity in good company but 100% of shares to be transferred to employees within 5 years.
@8
You are missing the trade war that would result from such a blatently protectionist move.
That doesn’t mean Obama wouldn’t do it. I’m guessing he missed a few of his economics classes.
AB, #8-
I can’t tell if you’re being serious or not…
If you are, take a moment to think about who obviously loses in that scenario… consumers.
If you say, well you can either buy a malibu for 20k or a camry for 20k, I think the people have overwhelmingly chose the camry. If you say, well you can buy that camry, but you have to pay an extra 4k in tariff, you are taking that 4 grand from the consumer to subsidize the malibu. This is obviously harmful to the consumer, but that’s not all. The 4k that comes out of the consumer’s pocket would have been spent on something else, so you’ve destroyed jobs somewhere (wherever that 4k would have been spent). So while you may be protecting the worker that produces the malibu, you’re doing it at the expense of another worker somewhere else. Since it’s not obviously clear who that worker is, it makes it very tempting for politicians to save those that are highly visible. However, again, there have been no net jobs saved, and, in fact, probably some jobs destroyed, because we’re not allocating our scarce resources as efficiently as we possibly can.
“Perhaps it is our cynical side, but does anyone really believe that these firms are going to be anything but a huge gravity well for cash for the next 20 years? In all seriousness, under what scenario is it possible to imagine that anything resembling General Motors can even arguably make back a fraction of what has been and will be dumped into it in the next five years?”
No, no, that’s not cynical.
Cynical is thinking GM will become profitable again soon when we go to war with Pakistan in a year or two, touch off a world war, and need to get some vehicles out there, fast.
C’mon baby, think bigger.
@18 – You have too much time on your hands.
You think?
@18 – also, as was evident during the old auto quotas targeting japan in the 80′s, quotas actually significantly benefit the foreign producer as they induce artifical scarcity and discourage overproduction, leading to higher per-unit margins. A much better solution (only on a relative basis) is to tax all car sales and then give the proceeds to domestic manufacturers, still a stupid approach but at least then you don’t benefit the foreign manufacturers.
@8
You are missing the trade war that would result from such a blatently protectionist move.
That doesn’t mean Obama wouldn’t do it. I’m guessing he missed a few of his economics classes.
22-
Uhhhhh, why should consumers be forced to hand over money to domestic car producers at all? If this were wise, why shouldn’t we just let car companies roam the streets with guns and demand money from whomever they encounter? What you’re proposing is exactly the same thing: taking money from one group and giving it to another by force (pay these taxes or go to jail.)
The ONLY moral solution that will actually increase efficiency is bankruptcy.
these companies have to fail
stop forcing me to buy over priced cars