The U.S. automakers knew they had dug themselves into a hole. Years of poor management decisions, and failure to follow demand trends and other business faux pas coupled with a poor economy had pushed them to the brink, almost exhausting their operating cash supply to the point where they would go out of business in mere months.
The U.S. automakers' CEOs flying to Washington in private jets turned a crucial turning point in the debate among Congress and the U.S. people over whether a bailout should occur. Infuriated by the display of excess, public opinion shifted from supporting a bailout to opposing it.
Nonetheless, the automakers fought hard, promising dramatic changes to their business plans, promising to take CEO pay cuts to $1/year, to sell the private jets, to slash brands, and to accept government oversight. The CEOs returned to Washington, this time in hybrid cars, which they felt embodied the future of U.S. leadership. A deal seemed close, with Democrats in Congress and Bush having reached a basic agreement and only mulling over finer points.
Then it all fell apart.
The automakers stand ended in disaster as a vote in the Senate last night failed to generate the 60 votes needed, falling 52-35, largely along party lines. The vote essentially killed the prospect of a bailout bill, at least not until the new Congress arrives.
One of the major sticking points was the United Auto Workers' refusal to accept, which would force the union to allow union plant employees to be paid at the same rate as employees at non-union Honda and Toyota plants. Currently employees at the U.S. automakers' plants make $3 to $4 more per hour and enjoy greater benefits.
And the stand may be their last; the anticipated fallout of the collapse is described by some analysts as "possibly catastrophic" to the entire U.S. auto business. For GM, which is almost out of cash already, it means almost certain bankruptcy. However, GM may not be eligible for Chapter 11 bankruptcy, meaning the company may cease to exist and its assets would be liquidated. A similar fate faces Chrysler, privately owned by Cerebus holding -- they already have gone bankrupt once.
Ford is the only U.S. automaker to still have a substantial cash stockpile. Many criticized Ford's CEO Alan Mulally for saying that his company might be able to survive without a bailout, which some blamed for weakening the automakers' plea. However Ford, as well as Honda and Toyota's U.S. holding may be in equally dire straits.
The supply chain, which keeps Ford, Honda, and Toyota's production alive, will likely in part collapse if GM and Chrysler go out of business. The companies simply do not have enough assets, according to experts, to cover the debts to part suppliers which they have accrued. The result is that many parts suppliers may go out of business, forcing Ford, Honda, and Toyota to possibly cut more jobs and close plants.
The automakers only remaining hope is to get funding from the Bush administration under the preexisting $700B USD bailout plan. However, the Bush administration has thus-far steadfastly refused to allow these funds to be tapped. A small hope may remain in that the Bush administration has also emphasized the importance of giving the automakers assistance, soon. It said today that it will consider proposals to tap the fund, if they are appropriate.
The automakers are already bracing for what may be a final outcome. News broke today that GM is hiring a team of bankruptcy lawyers to try to come up with options -- anything.
Meanwhile the stock market braces for a possible nosedive as investors panic at the prospect of the U.S. automotive industry collapsing.
quote: Besides, a laon from the government POST bankruptcy would do a heck of a lot more good than a loan in the absence of bankruptcy reorganization.
quote: In the long run, companies that exist in a competitive market place must either create excess value that compensates for the increased union costs, move production to non-union regions, or fail.
quote: I don't see much weakness and failure in the movie/entertainment industry, despite having significant union involvement
quote: Fourthly, even an $800 reduction in production costs would translate to about a $1200 cut off the retail price.
quote: That's a good thing though, isn't it -- it means a return to profitability.
quote: Most of our electricity is produced from coal, nuclear and hydro-- sources not impacted by the tumble in oil markets.
quote: If GM passes on at least some of that as a price cut -- they'll buy even more.
quote: Electricity production is a government-sponsored monopoly, a market that moves very slowly.
quote: Misleading and incorrect. That figure comes from an assumption of a $10/hr direct cut in compensation, plus $10/hr in benefits. If the cuts were larger, the drop will be more.
quote: Secondly, that assumes no reduction in workforce.
quote: Thirdly, if the Big 3 force concessions from the UAW, then their major suppliers likely will also. That'll reduce parts costs, which will further lower prices.
quote: Fourthly, even an $800 reduction in production costs would translate to about a $1200 cut off the retail price. That's a substantial reduction that would instantly make domestic makers more competitive.
quote: Even at $1200, the big 3 would still be losing around $800 per car.So they would still be losing money.
quote: One of the major sticking points was the United Auto Workers' refusal to accept...
quote: Think I'll ever buy an American car again? I know 0 people under 35 w/American cars... a few with Ford SUVs.
quote: [...] this time in hybrid cars, which they felt embodied the future of U.S. leadership.
quote: Providing Americans with jobs is the best way to stimulate economy instead of those fat cats at wall st. Force Citibank or AIG to give loans to big 3 at reduced rates or no bailout for them.
quote: I wish i had PS3...but im waiting for 1nm version of it, power consumption less 1 watt
quote: Republicans/Bush were extremely criticized for the amount of spending on the war on how they were attributing to the national debt, but now when they didn't give a billions of $'s to automakers they are criticized again.
quote: That's right, GM has more 30+ mpg models for sale than Honda or Toyota.
quote: Do you somehow consider an ape of a person who puts a car together as valuable as a tech sector job?
quote: i bet that ape of a person is smarter than you, you would probably be stumped staring at an engine wondering where the headlight fluid goes.
quote: I'm sure Toyota, Honda and others will be hiring when Detroit falters, time to do what is required to survive and get over it.
quote: I honestly could care less about other people
quote: I just wasted my time then.
quote: Gzus666, if you "honestly" don't care about the people please don't ever respond.
quote: I bet you have a lot of good close friends that care about your well being. Yeah that was sarcasm.