Okay, so maybe the prayers worked.Kind-of.
It seems that Congress is going ahead with it's $15bn bail-out plan. While not the initial $25bn (and later amended to $34-$55 billion) requested by the auto industry, some help seems to be on the way. Some experts say the the real cost should be around $125bn!
But what do we get?
Some services have stated the Big Three's net worth as a negative.
But I'll use the more hopeful quotes for this question.
Net Worth
GM - $3 billion (asked for $18bn total loan)
Ford - $6 billion (asked for $9bn credit line)
Chrysler - $.5 billion (asked for $7bn loan)
At a total estimated net worth of $12.5 bn (less than BMW's $16.5bn).
Q; Why are we spending billions of dollars on companies that have less value than the amount of their requested loans?
The idea that we would spend this amount on a product that has less worth than the amount requested is ridiculous.
This is the housing crisis all over.
And in plain sight.
Maybe our book keeping system needs to be overhauled along with our banking system.
The amount of money that should have been spent was zero - let the chips fall..
ReplyDeleteOutrageous. Maybe they should recycle all the cars on the lots that people don't purchase. Give the employees something to do while they make those into new models. Better yet, fire the big wigs who splurged their way into this mess.
ReplyDeleteWe need to consolidate the American car companies. Re-examine our unions. Take a page out of honda's and toyota's book, fire the top executives and get off this oil..... Not all in that order though...
ReplyDeleteI think we need to look back and see what they were worth before the housing crisis. Everything is worth nothing right now until it gets adjusted. The issue is no one wants to go into debt over this. Everyone wants to say they had a bad business strategy but truth be told they just got caught off guard. It wasn't gross mismanagement like the Banks, this is truly a economic downturn. Everyday on CNBC someone is laying off workers and as that number rises these big ticket items will suffer.
ReplyDeleteThere are no good choices in this situation. I tend to lean towards freemanpress' position. The companies' market value today is currently less than the proposed investment; however, with a recapitalization and reorganization there is substantially improved potential for these auto assets to throw of significant value in the long-run, where the value of the companies would substantially exceed the proposed investment amount. Hence, the stock prices for these companies move up significantly every time it looks like the bailout is going to go through. When a VC looks to invest in a start-up company the value of those start-ups is virtually $0, yet they typically invest millions of dollars more than what the current value of the start-up would seem to be. The VC says, given the market prospects, management team, the money that will be invested, etc., what is the possible future value of the company. From a broader perspective, the current value of the entire auto value chain, that possibly will fail too, if the autos are not bailed out, likely dwarfs the proposed bailout amount. Focusing on only on the value of the big 3 may not be the proper perspective.
ReplyDeleteNormally, I would not be in favor of such a bailout, but with the current state of the economy, I think allowing these companies to fail at this time would just create so much economic damage it would cause chaos that could get worse than ugly. Also, I do believe there are some national defense considerations here as well.
Alternatively, if the government could use the bailout money to pay everyone in the value chain 2 years' pay instead of saving the companies, I would be for that as well. I just don't think you can lose that much economic activity at this time.
The autos did get blindsided a bit due to the credit disaster. I don't think anyone had a sudden 40% decline in sales in their forecast. Nevertheless, they have been horrible managers of their businesses, though all had, in fact, substantially reorganized over the last year or two.
In either case, the double standard between white collar bailout (the banks)and a blue collar bailout (the autos) is glaring! AIG can get $50 mil over a weekend, but the autos have to jump through every hoop.
This whole situation (banks and autos) sucks no matter what perspective.
I'm completely lost when it comes to economics. However, continuing to bail out every Tom, Dick and Harry that roll up to our nation's capitol is eventually going to cause many more problems than we're already facing...but who asked me I'm just another John Q. Public who's been forced to foot the bill!!!!!!!!!!!
ReplyDelete