GM failure: The shockwave (3)
Posted on 14 November 2008 by Jack
If General Motors declares bankruptcy, industry watchers say, the entire domestic auto industry could be badly hurt.
NEW YORK (CNNMoney.com) — If General Motors really does run out of money by the end of the year, as it predicted was possible, the impact would be felt far and wide - to hundreds of suppliers, rival automakers and ultimately dealers across the nation.
“Once the first domino falls, it rapidly takes out all the other dominoes,” said Dennis Virag, president of the Automotive Consulting Group.
Suppliers would be among the first to feel those effects since GM only manufactures the body, the engine and the transmission used in its cars.
In the United States alone, GM spends $31 billion on parts from 2,100 different suppliers. These include the “direct suppliers” involved in producing a vehicle - those that provide everything from steering wheels and seatbelts to brakes and airbags - as well as “indirect suppliers” - those that make things such as gloves, protective eyewear, shop rags and lightbulbs.
Although lawmakers appear to be souring on providing a $25 billion bailout to automakers, the impact of a GM failure on the industry as a whole - and therefore the economy as a whole - is weighing heavily in their decisions.
Note: I’m confused in regards to this story. On the one hand (as in this article) it’s all doom and gloom unless they are bailed out. On the other hand I’ve read recent articles which indicate that Chapter 11 would be the best way to go because recovery would be faster. I don’t know but people who do know can argue it out here.
A Link: “Here’s a stat from my friend, blogger Mark Perry: Total compensation per hour for the big-three carmakers is $73.20. That’s a 52 percent differential from Toyota’s (Detroit South) $48 compensation (wages + health and retirement benefits). In fact, the oversized UAW-driven pay package for Detroit is 132 percent higher than that of the entire manufacturing sector of the U.S., which comes in at $31.59.”
Final Note: 5:58 pm and getting tired.
Goodnight everyone.
Popularity: 21% [?]
November 14th, 2008 at 7:13 pm
Have the unions made any effort to reduce their demands or re negotiate contracts. Guess they would prefer no paycheck than a lesser one to buy their viagra with.
November 14th, 2008 at 7:25 pm
Could this perhaps be a little ‘ol fashion scare mongering to get the government to fork over tax dollars instead of telling these people to solve their own problems?
November 14th, 2008 at 7:58 pm
As MaryT notes….to match the flaccidity of GM share prices….
Kind of hard (sorry) to feel sorry for these clowns.
April 18, 2006
Lifestyle drugs — chiefly Viagra — are costing General Motors $17 million dollars a year and the cost is passed along to car, truck and SUV consumers. The blue pill is covered under GM’s labor agreement with United Auto Workers, as well as benefit plans for salaried employees.
http://www.consumeraffairs.com/news04/2006/04/gm_viagra.html
November 14th, 2008 at 8:05 pm
If GM is “done in” it will be the Viagra “what done it”. You can take it to the bank.
November 14th, 2008 at 8:53 pm
Allowing auto manufacturing companies to go bankrupt would most likely seal their fate. After all, who is going to invest in a new car from any auto manufacturer unless there is some guarantee that they will be around long enough to honor the warranty as well as manufacture enough replacement parts for the future? Auto manufacturers who filed for bankruptcy protection would lose what is left of their market share, and with it any chance they had of eventually making a recovery. Besides bankruptcy protection would not at all accomplish what the US Congress is trying to do by approving billions in loans for the auto companies, which is to retool their factories to build more fuel-efficient cars, and is not much different from what Japan or Europe have been doing for their manufacturing companies for decades, and a lot lesser in scale.
Japan’s manufacturers can supply better cars, not just because of their labour practices, but also because they have received an unprecedented amount of support and subsidies from the Japanese government, which has built itself up a massive debt second only to Zimbabwe’s of over 200% of annual gross domestic product during the effort. The US debt at under 70% of its annual GDP is currently far less than that of Japan’s, and about the same as Canada’s when measured as a percentage of its annual GDP. Therefore, the US could go on spending itself into oblivion for decades, subsidizing GM all the way, before it catches up to Japan. The reason that Japan pours so much into its manufacturing sector is precisely to put the competition, especially the American big 3 automakers, out of business, so that it can have the lions share of the global market all to itself, allowing it to set prices at whatever it wants to in the future.
With Obama to be president soon, if I had to bet on it I would guess that the American big 3 will get their loans, but they may have to wait a while, getting help only after having to make concessions requiring them to get tougher with their unions and allowing some government oversight into their business practices. Flaherty won’t act here until after the US does, because he needs to know that the auto companies will be around long enough to repay any Canadian loans. Japan, Europe, and now China, have always heavily subsidized their manufacturing industries, so even though unionized workers will have to make concessions if the US auto manufacturers are to become cost effective, we will probably still have to continue occasionally subsidizing our manufacturing endeavors, as we do every other primary wealth producing industry from agriculture to forestry, as long as the competition continues to do the same, since the alternative would be to either subsidize the creation of whole new industries anyway, which would most likely be a much more expensive gambit, or join the third world in facing the much more volatile situation of having to depend on natural resources and agriculture alone to create new wealth.
November 14th, 2008 at 11:30 pm
I’m readjusting my glasses reading $17 MILLION SPENT ON VIAGARA????? Oh please, ROTFL and falling off chair….. Oh my gawd THAT IS FUNNY Jack what you said..I needed such a laugh!!
Well, wouldn’t that explain all the car recalls????ROTFL
Then there’s the “faulty parts” business. Expensive foreign PARTS and repairs. Sorry I’m laughing so hard.
November 14th, 2008 at 11:40 pm
Halt the supply of viagara to any and all banks and/or bankers. hahahhahahah.
November 15th, 2008 at 12:18 am
If it’s like Chrysler was 1979, the government need only act as guarantor for the Big Three’s loans. Back then, once Lee Iacocca had the government’s guarantee, the loans were easy to obtain and at a better rate… and he never looked back.
Mind you, we’re in a different economy now, both domestically and internationally. As I’ve said before, I don’t see the Big Three going under. I do see massive reorganization… long overdue…