GM's 'Time Is Very Short'

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A friend of mine in the RV business, who has owned his own place for 35 years, says that his business has never dropped off as far or as fast as it has over the past 6 months. Manufacturers in his industry that have operated for more than 50 years are simply shutting down.

Even as the nation focuses on an election and the "improving credit markets" the real economy is still spiraling downward at a fast rate.

The 45% "decline" in GM's sales are a stunning drop-off more consistent with the worst recession (depression?) in several generations than a simple "decline".

The collapse of GM is now an imminent possibility.

Nov. 5 (Bloomberg) -- General Motors Corp., hammered by the worst auto market in 25 years, needs U.S. aid because ``time is very short'' to stop its collapse, says Roger Altman, the former Treasury official advising GM in merger talks with Chrysler LLC.

With the government offering a $700 billion rescue for banks, it should have enough to assist GM, Chrysler and Ford Motor Co., Altman, 62, said in an interview. Altman, now chief executive officer of Evercore Partners Inc., helped with the 1979 Chrysler bailout plan as an assistant Treasury secretary.

``The consequences of a collapse by GM or all three would be very severe,'' he said. ``The impact would be widespread,'' with jobs lost by the companies and their suppliers.

The ripple effect of a GM collapse would spread throughout hundreds of small supplier companies and involve tens, if not hundreds of thousands of jobs.

Out in the real economy, the collapse of credit-fueled consumer spending is not going to be fixed by the high level application of government borrowing and gifting of money at the institutional level.

Sure we could give GM a lot of public money, but if not enough people are buying their products for them to survive we might ask "why?"

The problem is that 25 years of excess consumption has suddenly come to a halt and many companies, like GM, were not prepared.

This is a companion discussion topic for the original entry at https://peakprosperity.com/gms-time-is-very-short-2/

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Much of what underlies these giant bailouts is the notion that some businesses are too big to fail because of the resulting damage to the national economy. This seems to me to be a structural weakness to our whole capitalist system. Perhaps there should be an upper limit beyond which corporations are not allowed to grow. This seems to me to have at least two salutary effects.

First, the economy wouldn’t be threatened by the collapse of a single corporation. Second, it would put the emphasis of capitalism back where it belongs, the small entrepreneur. Inventors and innovators would still be able to reap huge profits from their creations, but would not be able to grow their companies, or to sell there companies to larger corporations that would then grow beyond limits that are healthy for the economy as a whole. As we hear nauseatingly often, particularly during election seasons, small business is the real engine of growth to our economy. I’ve always been skeptical of that assertion, but if it’s true, then allowing corporations to grow into behemoths is counterproductive for an economy.

Am I way off base?

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Doug:

My overall view is GM demise is an effect of the major drivers outlined by Chris. Economic theory from MBA days…plus experiences suggest ideological preferences are tertiary. Capitalism…seems to handle dynamic change better due to incentive…innovation to lowest level supplemented with healthy doses of accountability and transparency.

Some thoughts…

 

 

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[quote=Doug]Much of what underlies these giant bailouts is the notion that some businesses are too big to fail because of the resulting damage to the national economy. This seems to me to be a structural weakness to our whole capitalist system. Perhaps there should be an upper limit beyond which corporations are not allowed to grow. This seems to me to have at least two salutary effects.
…
[/quote]

Only problem I would see with that, an otherwise great idea. Would be the necessary regulation to prevent corporations simply breeding multiple corporate entities of the same thing so inter-related and comanaged and mutually invested it might as well just be named the same.

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SUPPLY AND DEMAND is the only financial law that you can not regulate or protect against in the long run.

Any action by a government to stop this only increases the pain later unless a well thought out plan is in place to overcome the root concerns of the entity or market. There are few of these sitations have ever happened.

This happened with Chrysler in the early 80’s but they had a plan and a bit of luck with the minivan.

That said, even if GM is given money for a merger is it only to hold off the pain or is there a plan in place. Just trying to get over a bad time thinking is gone.

Like always the markets with Supply and Demand its one and only true law, will fix this problem if we let it. Pain will happen, but in the end what should survive does and what should not does not.

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SUPPLY AND DEMAND is the only financial law that you can not regulate or protect against in the long run.

Any action by a government to stop this only increases the pain later unless a well thought out plan is in place to overcome the root concerns of the entity or market. There are few of these sitations have ever happened.

This happened with Chrysler in the early 80’s but they had a plan and a bit of luck with the minivan.

That said, even if GM is given money for a merger is it only to hold off the pain or is there a plan in place. Just trying to get over a bad time thinking is gone.

Like always the markets with Supply and Demand its one and only true law, will fix this problem if we let it. Pain will happen, but in the end what should survive does and what should not does not.

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Only problem I would see with that, an otherwise great idea. Would be the necessary regulation to prevent corporations simply breeding multiple corporate entities of the same thing so inter-related and comanaged and mutually invested it might as well just be named the same.

[/quote]

Yes, traps everywhere, with regulation and even with free markets. Basically, the way I see it, basic regulations (rules) are needed, similar antitrust/monopoly/consolidation laws, but of course there are plenty of issues that may arise. If there are not set societal rules, then the wealthy/powerful will make those rules whether they are explicit or not. For a democratic, supposedly egalitarian society, one of the most problematic mechanism is accumulation of wealth through generations. There needs to be a balance that allows people to start children off well, but does not create power disparities. Maybe a huge death tax over a certain amount (bracing for blunt force trauma). This would be a use it or lose it tax…meaning that people can set up charitable trusts, invest in businesses/infrastructure, or more with wealth, but if not before they die, then the people will invest in the commons that benefit everyone. Yes, highly "socialist," but I like playing with these different hypothetical options that enable opportunity, limit the power of accumulated wealth, and preserve competition in markets. I can already feel the bruises from the responses to this post!

In the end, I always come back to a central questions. Should wealth be able to outlive the person or entity that created it? Is this multigenerational wealth anitegalitarian, antidemocratic, and antinationalistic? If the free market works so well, why have nationstates where society supposedly has some connection of identity, which can run counter to the notion of individualism in free market models. People care and look out for each other and tend to want to enact mechanisms and structures that protect those they care about. I don’t want other Americans (or humans for that matter) to suffer just because they are born into a bad situation and have no problem with the structures of the people (I am not suggesting our current system is representative of the people) creating mechanisms to assist in ameliorating these social conditions and enabling opportunity.

I don’t suggest this is anyway a comprehesive model or correct, so please don’t get up in arms. Just rambling for discussion sake.

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[quote]Sure we could give GM a lot of public money, but if not enough people
are buying their products for them to survive we might ask "why?"[/quote]

A good reason to save GM is because it represents one of the few remaining reservoirs of manufacturing capacity in the United States. So, it has great military and strategic importance.

I do agree that the company itself, should not be saved, merely the manufacturing capacity preserved.

–

Steve

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Here in Germany its the same. The "proud of our economy" our automobile indutry, is in trouble, and the government hurried ahead to offer help. Simply, nobody wants a new car, when gas prizes ever increase, and the industry failed to develop electric cars or smaller ones, that require less gas.

I think Doug is right, but nobody would have followed his arguments, in times of economic imperialism, and big corporations having huge political influence. With economic imperialism i mean the doublespeaking of politicians, who praise free trade, but favor mergers in the national industries to keep them "competetive" internationally.

Let them go bankrupt. I know its hard for the peoples who lose their jobs, but when many workers, technicians and engineers are free, it might give a boost to the "local energy producing" industry.

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Dumbasses (GM) shouldn’t have killed the electric car. Excellent watch by the way, "Who Killed The Electric Car". If they hadn’t [killed it] then they wouldn’t be here [swirling the toilet] today.
I agree. No company should get this big.

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I am sure that I many will see this differenty, but isn’t this the perfect example of creative destruction in capitalism? GM and Ford have a very inefficient business model. Granted this is not entirely of their own making, but they are still culpable to some extent. When a business doesn’t protect itself from changing market conditions…ie having huge inventories of SUVs on the lot never looking at the possibility that gas prices may rise, or planning for what might happen if people were no longer able to get financing…it is doomed to failure. Looking only at the Supply/Demand side is short sighted which is what our domestic automakers have been for years. In any business today you have to be able to operate on small margins and be willing/able to change your product to fit the needs/wants of your customer. If we look at Supply/Demand meaning that they manufacturers are not supplying what the market demands, then that company MUST NOT SURVIVE. Capitalism is in some senses evolutionary economics…the strongest (or better said the ones that are able to adapt quickly to changing enviroment) will and deserve to survive. If any company cannot do that, I, as a taxpayer, do not want to continue to keep them alive. The best thing we can do is to let them go extinct.

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I think you all miss the point, except Chris of course… "
The problem is that 25 years of excess consumption has suddenly come to a halt and many companies, like GM, were not prepared."

Remember the Club of Rome?

They predicted this would happen way back in 1972… it was called LIMITS TO GROWTH!

 

Mike.

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Relating back to Crash Course (good direction Damnthematrix), all the exponential growth charts are classic environmental overshoot seen in any other animal populations. What happens after overshoot? Crash…in the "natural" wolrd this means population crash. Human beings are blinded by their own collective intelligence, thinking that we are somehow removed from the "natural" world and those overarching rules. In this sense, we chose to ignore our intellectual capabilities and adopted competitive societal models where social darwinism is enabled and encouraged. Over time we have been able to expand production as to only have economic crashes/recessions/downturns so that population growth was not necessarily affected. Question is…is this the point of not only economic crash, but also population crash that was predicted by the neo-malthusians in the 1960s or do we stumble through this once again to find other solutions as to allow population to continue to grow? OR do we find the happy medium, learn our lesson by understanding growth is problematic in our limited world and ameliorate human suffering through the transition. The underlying lesson, as we all know by now, is the current paradigm of "growth" is the problem.

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"Over time we have been able to expand production as to only have economic crashes/recessions/downturns
so that population growth was not necessarily affected. Question
is…is this the point of not only economic crash, but also population
crash that was predicted by the neo-malthusians in the 1960s"

Can I point you to another thread I started yesterday…

https://peakprosperity.com/comment/4189#comment-4189

Mike

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Well I can see my husbands and mine livelyhood will be back up to speed. People will need to keep older cars going and most of these companies make cars to be thrown away after a certain point. We already keep old tractors running and older heavy equipment too. Might be our route to getting through the hard times ahead till come up witha a better fuel/energy sources to use.

I find it interesting that my old suburban gets better gas mileage than many of the new trucks, overhauled engine and transmission and the body also holds up to the wear and tear.

This is what I would like to see, is less of the constant new new new, but new then use till all used up. Cars, planes, equipment, and even clothing and furniture too.

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AND just where do you think you’ll get the fuel in 5 or 10 years’ time?

Mexico won’t be able to export by 2010. Venezuela might decide it’d rather sell its oil to China. Most of the deep sea drilling is not viable with oil under $150 - $200, and in any case, there are now serious doubts that money (debt!) to finance these multi-billion dollar projects may no longer be available…

I got rid of my car last year…

Mike.

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[quote]
I am sure that I many will see this differenty, but isn’t this the
perfect example of creative destruction in capitalism? GM and Ford
have a very inefficient business model. Granted this is not entirely
of their own making, but they are still culpable to some extent. [/quote]

The problem csadvisor, is that you are looking at this issue through a very tiny lens. Economics are only one of the things that a government needs to concern itself with. Freedoms, rights, comfort, justice, protection, etc… are also the providence of a government. There isn’t any one of these issues that can be diffinitively said to be more important than any others. For instance (all other things being equal):

1) Would you rather live in a country with 4% real economic growth and no freedoms or a country with 2% economic growth and abundant freedoms?

2) Would you rather live in a country with 4% real economic growth and an average lifespan of 40 years or a country with 2% economic growth and an average lifespan of 80 years?

3) Would you rather live in a country with 4% real economic growth and be forced to work 60 hours a day of or a country with 2% economic growth and be forced to work 20 hours a day?

 

Likewise, even if GM and Ford are inefficient, there are reasons to keep them – or at least their manufacturing abilities – around. For instance, if the United States found itself in a major war, GM’s factories could be turned to the production of tanks and other weaponry. From a military perspective keeping these failed companies afloat is a very cheap prospective. Likewise, their very existence preserves US manufacturing might, and improves our ability to rebuild our country even if international trade fails (or our currency fails).

I do, however, have serious problems with rescuing the company called GM. My preference would be to destroy GM confiscate its factories, and capitalize two to three new car companies to replace GM. Then make sure that the government holds enough stock (to be sold during better times) so that it has a fair chance of reclaiming its investment plus a moderate profit. Repeat as many times as necessary until a successful business finally takes root.

–

Steve

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[/quote]

Confiscate the factories and turn them into renewable energy manufacturing services… Forget cars. They’re dinosaurs now…

Mike.

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If cars were dinosaurs, we’d have plenty of fossil fuels from their decaying scraps >_>

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GM stock chart: Would you invest in this?

GM