We Are All Flint, MI Now

I was talking with mr. emptywheel about what one of the bad–but by no means worst–case scenarios in a GM bankruptcy would be. This scenario is just one of several that might happen–by no means guaranteed, and Congress would fight the scenario at every stage, though with increasingly less leverage. But it is a scenario that follows a great deal of logic about possible outcomes. It is this scenario, though, that explains why both Toyota (I’ve seen reported–looking for the link) and many in Congress want to bailout GM before it gets to bankruptcy.

Here’s the short version: more details below.

  1. GM files for Chapter 7 bankruptcy
  2. GM’s Chinese partner, SAIC, buys much of GM (Buick, Chevy, Cadillac)
  3. GM/SAIC starts importing Chinese-made Buicks and Chevys, undercutting Toyota’s cost advantages
  4. GM/SAIC owns the Volt technology, requiring US firms to lease it if they wanted to use it

GM Files for Chapter 7 Bankruptcy

As Jonathan Cohn points out, an imminent GM bankruptcy is more likely to be a Chapter 7–total liquidation bankruptcy–rather than a Chapter 11 bankruptcy. That’s for the same reason why GM is begging for cash right now in the first place: no one is lending.

In order to seek so-called Chapter 11 status, a distressed company must find some way to operate while the bankruptcy court keeps creditors at bay. But GM can’t build cars without parts, and it can’t get parts without credit. Chapter 11 companies typically get that sort of credit from something called Debtor-in-Possession (DIP) loans. But the same Wall Street meltdown that has dragged down the economy and GM sales has also dried up the DIP money GM would need to operate.

That’s why many analysts and scholars believe GM would likely end up in Chapter 7 bankruptcy, which would entail total liquidation. 

So if GM goes bankrupt in January, as may happen, it may well have to sell itself off (unless the government guarantees the same kind of financing that it is refusing now). And I believe one company is one of the most likely–and indeed sensible–buyers: Shanghai Automotive Industry Corporation, or SAIC, the Chinese company with which GM partners to do business in that country.

GM’s Chinese partner, SAIC, buys much of GM (Buick, Chevy, Cadillac)

SAIC is, in my opinion, by far the most sophisticated of China’s automobile companies. Unlike Chery, the company that makes cheap knock-offs it has threatened to sell in the US (but which even the Chinese don’t like to buy), SAIC has high quality and good expertise, gained largely through its partnerships with GM and Volkswagen. SAIC has ambitions to sell cars internationally–and it has been willing to spend money to advance those plans. Consider, for example, its purchase of MG:

In a move that may help pump serious life back into the Chinese MG experiment, China’s SAIC Motor has purchased Nanjing Auto, the company that paid some 53 million pounds (around $105 million) for the MG brand after MG Rover’s collapse in 2005. SAIC, which has partnerships with GM and Volkswagen, is a much bigger player in the Chinese automotive industry than Nanjing, selling 1.25 million vehicles during the first 10 months of 2007 to Nanjing’s 79,196.

The move works for SAIC on several fronts. Buying Nanjing allows the automaker to gain control of the MG brand and to become an even bigger player in China and other markets. The purchase also allows it to gain control of the MG plant in Longbridge, England, where Nanjing had recently begun producing MG TF roadster prototypes (pictured at left).

During the dissolution of MG Rover, SAIC snagged the Rover expertise and technology, but has been forced to produce Rover cars under the Roewe brand (the Roewe 750 sedan is pictured) due to Ford’s ownership of the Rover name. With the acquisition of Longbridge, SAIC will now theoretically be able to use the plant to produce Roewes as well as MG-branded cars for European markets. [my emphasis]

As with MG, a GM purchase would give SAIC the ability to sell-Chinese built cars under brands (reasonably) popular in the US. But a purchase of most of GM would be an even better match for SAIC than its MG purchase. After all, SAIC has been building a large volume of GM cars in China for years; it knows the company and the culture.

And SAIC has two more things that make it a likely buyer. First, cash, certainly enough to buy GM at a bargain and more to make a bunch of changes in its US operations. Also, it has got increasing numbers of factory workers pressuring for higher wages; those wages would be too high for cars built exclusively for the Chinese auto market, but a mere fraction of what American auto workers are making.

An SAIC purchase would be accompanied by a lot of the same angst that accompanied Lenovo’s acquisition of IBM’s PC and laptop business. After all, SAIC would acquire not only GM’s brands, but also a great deal of technological know-how.

But approval for such a deal would face very different pressures than the Lenovo-IBM deal. Unlike IBM, GM would be in bankruptcy, meaning the company itself would have a lot less flexibility to pick and choose between deals. There would be a lot of politicians aiming to save whatever jobs they could in the short term, as well as some pressure from other players in the industry to keep GM cars in production. Moreover, given the economic fragility of the country as a whole right now, China’s got a lot more leverage to push through such a deal if it wanted–what are going to do, tell the country’s banker that it can’t buy what it wants?

GM/SAIC starts importing Chinese-made Buicks and Chevys, undercutting Toyota’s cost advantages

Now, in this scenario, we’d be lucky if SAIC just bought what it wanted in January and set right to making changes to the company. The Center for Automotive Research’s scenario for lost jobs with GM envisions a lapse of production, which brings a related collapse in the supplier industry that even affects domestically-produced foreign makers (that is, even Honda and Toyota plants may be idled because their suppliers would go out of business and they wouldn’t have all the parts they need). And frankly, SAIC might well have an incentive to let GM stew on the market for a while, to get beyond the immediate credit crisis and persuade the government to kick in some money to sweeten the deal (this is similar to what they did with MG). But let’s be optimistic and say SAIC jumps right in to buy and run the parts of GM it would want. I’m imagining it would want Buick, Chevy, Cadillac, and possibly SAAB (though SAAB would be easier to sell off separately); I have no idea what it would do with Opel (presumably, European countries might try to save that as a distinct entity); it almost certainly would not want GMC or Pontiac and those two brands might simply disappear.

If I were SAIC, I would generally leave Cadillac alone, at least for now–its brand is improving, it’s got better margins, and it’s not a good fit, yet, for Chinese production. 

I would immediately shift production of Buick models to China, starting with the LaCrosse that is already made in China for its domestic market. As part of this, I’d introduce the LaCrosse Eco-Hybrid in the US. Because Buick is a minor brand  in the US, it won’t attract a lot of bad PR. And by introducing a Chinese-built hybrid into the US market, SAIC could begin to compete more aggressively in the hybrid market while still achieving profits on those vehicles. (This is one of the biggest reasons why SAIC would buy Buick, which is worth much less as a brand here: because it has the most infrastructure and experience working with Buick in its own country, and could use it as a trial run for what it will eventually do with Chevy.)

With Chevy, I’d move toward quick introduction of Chinese-produced Chevy Aveos, GM’s sub-compact car that is being freshened anyway and for which American production is not profitable.  This would allow SAIC to more competitively vie for this growing segment (think Toyota Yaris, Honda Fit, and Nissan Versa)–and again, by building these cars in China, it could get closer to profitability. But the biggest thing I’d do with Chevy is to dramatically cut the number of dealers in the US (by a third to a half) and renegotiate contracts with those left. Then, for a number of the smaller Chevy models (things like the Cobalt), I’d introduce a 10 year warranty. By cutting the number of dealers (thereby eliminating a lot of the cannibalization of sales that drives prices down right now and moving away from rebate-based sales) and offering a guarantee of quality, SAIC would shift the ways dealers make money–but more importantly, it would improve brand; this is precisely how rising brands–like Hyundai–have built their brand. Also, during this period, SAIC would make sure its dealers have the access to credit for product–and consumer financing–that is hurting all auto makers right now (I’m not sure, but I suspect that the legacy of GM’s financing would give SAIC greater flexibility to offer credit to consumers than the Japanese manufacturers, which, if true, would give it a tremendous advantage over those brands for the duration of this credit crunch, helping it build market share because of the recessionary conditions).

All of this, of course, SAIC could do while just picking at the edges of the current UAW contract, the production of three or four little-noticed models in China, and do without a lot of the backlash that will come when it starts building the "heartbeat of America" in China. But it would lay the groundwork for moving most of Chevy’s small vehicle manufacture to China starting about two years from now. That is, by the time the next UAW contract was up for negotiation, SAIC would be prepared to respond to a strike by simply moving production of many of its Chevrolet models to China. At that point, UAW’s workers would probably be happy to retain whatever jobs they had assembling Chevy trucks in this country–it’s a diminishing market, but it’s a job.

The idea, of course, is to capture the rising small car market, but do so with the margins not available–to US car-makers or to Japanese makers–by building cars in the US. SAIC would have built up the Chevy brand, and done so with margins that the Japanese manufacturers couldn’t match. To say nothing of Ford. If SAIC played things right, it would be set up to beat the Japanese at its own game, and undercut all US-assembled production by importing cars from China. It would no longer be just union jobs in the MidWest that disappeared, it’d be non-union jobs in the South, too.

(Incidentally, Chevy has an increasingly strong brand position worldwide, so by moving toward Chinese built Chevys, SAIC would be well-poised to compete against Japanese companies in Europe and the expanding developing markets as well.)

GM/SAIC owns the Volt technology, requiring US firms to lease it if they wanted to use it

But that’s not the only huge downside to SAIC buying chunks of GM. GM has been dumping lots of money into research in recent years and is close to introducing technologies, starting but not ending with the Volt, that would actually lead the industry in emerging areas. 

And I can assure you SAIC would not purchase chunks of GM without getting this technology too.

If you’re an environmentalist, this is not all bad for you. After all, a Chinese-produced Volt is going to have a lot lower price point than a US-produced Volt–this is the quick and dirty way to get the price down to $20,000 at not that great a loss to the company. And since SAIC will have renegotiated contracts with its dealers, it could avoid some of the dealer-based problems that hurt the roll-out of the electric car in the past. (Though, this scenario likely results in a larger number of combustion engines on the road worldwide because it uses the GM infrastructure in developing countries to sell marginally cheaper cars, expanding the total number of consumers who will be first time car buyers.)

But if you’re an American hoping to make all of your energy use more efficient, the huge downside is that American companies that wanted to use that technology would have to lease it from SAIC (in the same way that a lot of the US-produced hybrids lease technology from Toyota, which is one of the reasons they’re not profitable); if the Chinese government (which owns a chunk of SAIC) wanted to allow you to lease that technology. 

At precisely the time the Obama Administration was emphasizing greening our economy and developing the energy technologies that will move us energy independent, we would be all-but giving away some of the technology that is closest to mass production capability. We could still develop those technologies–but much of those sunk costs would be lost.

Those pundits saying that a GM reorganized after bankruptcy would be much more efficient are right–insofar as it would make dealer structure more lean and produce smaller cars with margins that make them profitable. But it might well utterly devastate the US assembly industry in the 5 to 10 year timeframe. And it would be a terrible setback in efforts to develop the technologies to make our economy more energy efficient.

103 replies
  1. Mary says:

    I think Cohn and others are making the point that GM will end up in a 7, not necessarily start in a 7. They would more like start in an 11 for the flex, then convert to a 7 as they structure the implosions to least affect insiders.

    • emptywheel says:

      Doesn’t matter in the least whether it tries to start in 11. If it can’t get the credit, it will cease operations, which is where you get into CAR’s nightmare scenario (involving up to a year of no production) and making it a lot cheaper for SAIC to scoop it up.

      GM is squawking because its credit needs are immediate and short term–you don’t sell cars to dealers without credit, and you don’t order parts to make more cars without credit.

  2. Mnemosyne says:

    Aside from the automobile industry, and the thousands employed by suppliers, without the big car manufacturers, who would build the engines required by the Pentagon for its weapons of forever war? Hadn’t thought about that one, had ya, GOP?

    • emptywheel says:

      It’s not so much who would build those engines–the Big Three are doing less of that then they were. It’s whether they could get the technology they needed to make the war machine efficient enough such that an Iranian and Venezuelan boycott wouldn’t ground it.

    • emptywheel says:

      I asked yesterday how it was possible that “New tooling is not a requirement for SCEV transition rollers” and why Young would eliminate a growing segment of cars that is more efficient than the ones he saves (like the BMAV mentioned above).

      No one had an answer for me.

  3. barne says:

    We’re not just selling them the rope to hang us, we’re letting them cart off our rope plants, for 10 cents on the dollar.

  4. Mary says:

    3 – While if you assume your endpoint happens with the same timing and effect either way, it doesn’t make a difference how you get there, as practical matter I think it can make a big difference in how and when you get to the endpoint, depending on the path there.

    For one thing, all the analysis above flows from a view that SAIC or others will be able to cherrypick GM assets at a bargain price in a 7 or an 11, either or. While DIP financing isn’t going to be easy, the fact is that there are a lot of existing GM creditors out there. That means that assets, even intellectual property assets, have creditor claims on them that kick in prior to SH claims and that in a 7 could cause the kind of free for all that any outside bidder wouldn’t want, bc you end up having to determine the extent of secured creditors’ security and asset valuations and dealing with lots of competing motions for relief from stay to effect non-structured sales, etc.

    An 11 gives cramdown powers against secured creditors that don’t exist in a 7 and 11 are often used to do organized liquidations and when there are attractive assets, like, for example, the Volt tech, a court can let “operational” financing (DIP) end up with priority, so that all the incentives shift. Also, while an entity like SAIC might be mulling the opportunity to pick out the flesh from the bones and start mfg overseas to ship in with greater margins, this is one are where US lawmakers have not been afraid to be interventionalists and there’s no way China can presuppose that there won’t be a legislative and regulatory response to that would whittle those margins way down.

    But more to the central point, DIP financing is going to be hard in this climate, but the abilities of an 11 to offer cramdowns and superpriorieties and to effect structured liquidations and play with existing executory contract terms etc – and even the huge creditor related issues in a 7 vis a vis extents of security interests and asset valuations, means that it is not going to be as easy for someone to do a fast, clean pick off of prime assets as it might seem from the Cohn piece.

    • emptywheel says:

      Fair enough.

      Though I think you are vastly overestimating the efficacy of a legislative and regulatory response.

      Congress has some leverage now–that’s an advantage to the bailout, leverage and equity.

      But the US, as a whole, has very little leverage against China, and what leverage we do have is going to get smaller and smaller as we’re forced to do deficit spending. Some in China are already thinking of putting IMF-type conditions on us. Add in the fact that people like Richard Shelby are going to obstruct some of these issues, and I’m doubtful that, if we wait too long, we’ll have much leverage left.

      • LabDancer says:

        You’re right [of course] about the leverage – but while its been there for a while [Toxic Toys Iz US anyone?] and it can be expected to escalate, I don’t think the Chinese model for its employment accounts for the possibility of a Black Swan – like Obama.

        Plus IMF issues aren’t stand-alone; rather, they are intimately connected to trade issues. The Chinese business model assumes an arc for North American consumerism that is basically unchanged from WWII – which I see as already showing signs of mutability. But again: it’s going to require a national commitment to inscrutability.


        • emptywheel says:

          Ha! is right.

          Part of the attraction, in the short term, is that SAIC gets to ease some of its labor pressures in China, the first auto company to do so in a significant way, bc it can pay higher wages if it’s selling some of the cars in the US. That’s going to be a pretty strong incentive in the short run, as labor pressures are really heating up in China. I’m not positive, but I assume that SAIC faces more challenges than, say, Ford’s partner, since it’s got Shanghai area plants with higher cost of living.

    • LabDancer says:

      Your third paragraph expresses part of what I’m referring to in my response above.

      Also, I don’t see Chapter 11 and 7 powers as NECESSARILY mutually exclusive. Court supervision can be quite innovative and useful, depending on the vision and commitment of the person sitting on the bench.

  5. joejoejoe says:

    One of your best posts ever Marcy.

    How much new technology do you actually think will be in the Chevy Volt? My understanding is the Volt is just a new combination of existing technologies in a hybrid auto that can operate as a true electric on short range. The battery technology doesn’t seem like anything too special. Lithium ion batteries have been used in cordless drills and R/C cars for years. I always thought GM was just figuring out how to jam a lithium ion battery and motor safely into a traditional 4 passenger sedan.

    Most people don’t use a great many features in a traditional 4 passenger sedan (like two seats and a top speed of 100 mph) so I’d like to see Detroit start selling some non-traditional cars. That’s something that could be encouraged with some of the sweeteners/strings that Pelosi is trying to put in any bailout deal.

  6. earlofhuntingdon says:

    Those pundits saying that a GM reorganized after bankruptcy would be much more efficient are right–insofar as it would make dealer structure more lean and produce smaller cars with margins that make them profitable. But it might well utterly devastate the US assembly industry in the 5 to 10 year timeframe. And it would be a terrible setback in efforts to develop the technologies to make our economy more energy efficient.

    You did spend a lot of time on East Asian issues for Big Auto. Your final comment is exactly right. A GM bankruptcy as prelude to a purchase of most of its assets by SAIC would be good for GM, good for SAIC and China’s aspirations, and a disaster for American manufacturing and the American worker.

    It would accelerate the migration of technology-cum-manufacturing expertise to China, further enhancing the economic and financial pressure China is able to bring to bear on the US.

    It would accelerate the demise of US-based manufacturing jobs. That would have an enormous ripple-effect on the decline of associated jobs: design, development, and the accounting-finance-marketing skills that require close knowledge of design and manufacturing. (The kind of cross-training the Japanese are so skilled at. They long ago discovered, unlike their Detroit counterparts, that it made no sense to design what you couldn’t build, to build what you couldn’t pay for, to sell what no one wanted to buy or what lacked the most obvious features buyers wanted.)

    SAIC would invest in new, union-less factories, such as those in Shelby’s Alabama. Like the Japanese and Koreans, it would invest in strategic CongressCritter districts. It would borrow in the US, for leverage over US banks, for tax purposes and to keep dollar debt in step with dollar income. It would invest in US distribution, though there would inevitably be less inventory, fewer dealers and more just-in-time deliveries to customers.

    SAIC and its GM label would represent a leaner, more efficient, much larger company for sure. It would also be one much farther beyond the negotiating pressure that the Japanese and Koreans were originally subject to. Like China as US debt-holder, it would be in the driver’s seat, able to charge its passengers well over meter rates for what it wants (though as a seller of goods, it could price them competitively).

    Presumably, such negotiations, the athlete’s intense training, are going on now. Bankruptcy filings themselves are just the sound of the starter’s gun.

  7. LabDancer says:

    I don’t say this enough, but Ms E you really are brilliant at incorporating & synthesizing the many varied factors as they emerge in the public discourse.

    The latest addition- the inapplicability of Chapter 11 in recognition of the implications of, among other things, the modified-Walmart business model of the domestic auto industry- well, I noted its absence, and now here you come up with it. Well done.

    This particular series of yours seems to me an effort to attract more inputs, more factors, to enable it to evolve towards prospects of a more ‘hopeful’ picture, in the sense of allowing for some critical home grown control over what’s looking at this point like a loss of sovereignty from a clueless approach to globalization, particularly in trade and governmental borrowing.

    So – I’d appreciate knowing if I’m proceeding on a wrong footing on this but if not- I offer up a few more factors.

    The smaller point, though I think its quite important, derives from the nature of ownership of ideas, including technological ones. There’s a very large conflict of values implicated from the ‘western’ approach to patent protection and its limits, and the Chinese approach, which based on its prominence in our lexicon I would think most of us would regard as largely indistinguishable from the sort of contempt we associate with piracy.

    Case in point: not too many years back I acted on a lawsuit for a family-owned business concern developing for commercial exploitation a not-insubstantially-controversial innovation from entrenched, pretty much ubiquitous technologies, that managed to secure patent protection in the US and a few key complementary regimes. The lawsuit arose from a fairly prosaic, nonetheless very often fatal type of legal challenge, which though I managed to get the courts to place under a degree of interim control, constituted something of a ticking time bomb and so chased away a number of potential investors and several credit options, both of which were needed for expansion, further development, cash flow – & oh yeah – legal fees. The last led to my being pressed into involvement with some representatives of a consortium of interests based in China.

    Though contact continued to drag on in various forms for years, that avenue seemed to me closed off from one of the earliest meetings I attended outside the enthusiastic boosterism of the client base, when the representative of one critical Chinese party explained to my complete satisfaction the extent to which my clients’ intellectual property ownership interest would be safe-guarded in China – by the act of blithely proceeding to sign a comprehensive confidentiality agreement our side sweated over for weeks, without reading any of it, nor requesting a copy, and only on my raising those facts as both unusual and troubling, simply smiling and giving off the impression that I was utterly naive in imagining it had the slightest ability to bind his side.

    That’s at least superficially quite discouraging, but in fact the ‘western’ patent exploitation regime is flexible enough, through the dreaded legal system, to allow for a number of counter-vailing regulatory safeguards – which for the most part [as far as I can tell – we haven’t even seen the wording in the latest last-minute massive deregulation efforts by the out-going team of ignorant and corrupt zealots] have only been explored piecemeal in isolated North American and European court cases – with the governments in North America largely failing to act on opportunities bearing national sovereignty implications.

    To put it more bluntly [albeit somewhat over-simplistically], the means to ensure sovereignty exist [again, as far as I can tell], but for some reason, eg the need to fund overseas wars without calling on stakeholders- ie the taxpayer- to pay for them, just haven’t been used.

    The larger point is something I don’t believe has been harnessed in any great or meaningful way since before I was born: the sense of community purpose engaging the entire Union, such as expressed in the call to duty from December 7, 1941.

    To this point the American consumer’s expressions have mostly if not entirely been personal, ’selfish’ if you will. That can change – I think it must if the items on the agenda being received by Obama are to be addressed without the country turning into Spain at the turn into the 19th century.

  8. earlofhuntingdon says:

    GM’s Opel subsidiary, its center of design, manufacturing and sales in Europe and internationally (outside China), would also be caught up in any bankruptcy of its parent company.

    An SAIC purchase of Opel (inevitably including other European brands, such as Saab), would greatly SAIC’s presence in Europe. It would be interesting to see what the EU competition Commissioner would do with that. The ailing firm defense would, no doubt, be trotted out. But SAIC, like China politically, considers itself the center of the world, and its aspirations in Europe are unlikely to be more modest than they are for North America.

    Meanwhile, the US worker’s plight threatens to become much like that of the Yorkshire miner, the newsprint typesetter, and the London dock worker in Thatcher’s Britain. Steam engines all, making way for diesel and maglev trains.

    Obama’s CFIUS (the Treasury Dept’s Committee on Foreign Investment in the United States), would be somewhat more protective of US interests than Bush’s, but not much. And labor’s concerns has never figured prominently in its deliberations.

    This is where the US’s lack of a real economics ministry pinches so hard that it cuts off circulation and leads to amputation. Such a ministry would be the logical place to assess the cost-benefit of loans to Wall Street or Big Auto, of allowing, demanding, and enforcing restrictions on mega-foreign investments.

    The US economy may be robust; but like an exposed sea coast, it has huge sections of once prominent bluffs crumbling into the sea. Holding back the sea is not an option. Neither is blithely ignoring the loss of land until what’s lost is under the manor house, the farm house, the schoolyard and public park.

    • emptywheel says:

      Can you expand on two counts–how you think the competition commissioner would respond, and how you think an economics ministry would assess this?

      I didn’t put too much though to Opel, largely bc I think Europe would be more pro-active to defend its workers here (and I’m sure VW is watching this closely, since SAIC has as much incentive to eat VW eventually as it does GM). But my sense is that GM is not suffering from any competitive disadvantage vis a vis competitors in Europe, and so there’s less short term advantage for SAIC to bite off big there right at the moment. Also, I’m not sure how a Chevy purchase without an Opel purchase would work, since GM has been pushing the former. One way or another, SAIC will retain a hold on SAAB and Opel through its partner agreement in China. I don’t think either are being produced in China yet (though I’m not sure about Opel–they sell the Astra there), so the partner agreement is likely just a way to get showrooms and not too abysmal tax rates on those two brands.

  9. earlofhuntingdon says:

    From what I’ve seen of US managers negotiating in East Asia, they are like rube poker players who put their cards face-up on the table, asking other players which is the best hand.

    The Chinese and Japanese, used to playing each other with martial artist aides at their side and daggers drawn under the table, restrain their smiles and tell their opponents what they want to hear. The Americans win a few pots, enough to keep them in the game, until their opponents figure out how much money they have to play with, and how best to take it. When they’re done, they buy the Americans a few drinks and invite them back. It was such fun.

    • emptywheel says:

      No doubt.

      A big part of that, of course, is that their interlocutors speak English, but the Americans don’t speak Japanese and even more rarely Mandarin. (mr. emptywheel and some of his lads hear a lot of things they’re not supposed to because their Japanese colleagues assume no Anglo could ever speak Japanese well enough to hear the anti-AMerican comments).

      That, and their desperation to get into China at whatever cost, because it has been the only way to stay alive this last decade.

      • earlofhuntingdon says:

        Sad that the Japanese still imagine that no gaijin could speak Japanese well enough to understand them, much less understand the issues, pressures and methods of Japanese business. I found that they looked on negotiating with US players as walking on the moon: it required so much less effort than the same work back home.

      • earlofhuntingdon says:

        “Desperation” is the right word, also on display in the the move to invest in SE Asia half decade earlier. The costs for acting desperately, rather than planfully — SAIC’s enormous negotiating leverage among them — are only now becoming clear. It reminds me of an observation from John le Carre, via George Smiley. It’s like buying a fake painting: the more you pay for it, the less inclined you are to question its authenticity.

        American managers are very skilled. But it was disheartening to witness how consistently they left their skills behind when they boarded their 747’s for Shanghai, Beijing, Tokyo and Seoul. Constructive disbelief, strategizing and negotiating skills they would have used with a home real estate broker or car salesman in Chicago were deemed not “friendly” or “helpful” to the tasks at hand. Perhaps, that was simply another expression of the desperation of their CEO’s and boards back home.

        • chetnolian says:

          My experience of being in a UK company which merged with a US company and did business in Seoul left me aghast at the failure of otherwise admirable Americans to comprehend the system, the people and the culture. And, sorry folks, it was down to arrogance. And I am afraid I see a lot of the same in the posts and comments above. Welcome to the real world, where since 1926 Vauxhall (none of you mentioned that)has been part of GM. Suddenly, globalisation doesn’t mean domination by the USA. Get used to it. We have had to in Britain especially since the days of Mrs Thatcher who was so keen to destroy the unions she detroyed the industries they worked in. It’s a new world which the financial community who have held especial sway in the UK and the USA for so long have created for us. IT won’t be fun but it just might be survivable.

        • earlofhuntingdon says:

          Vauxhall once had an interesting product range, if variable quality. I understand it’s been Opel-ized for ten years; Saab in Sweden, for less than that.

          I agree that the parallels with the demise of England’s manufacturing sector are depressingly close. Instead of powering England, Yorkshire coal is mined now to use for carvings of miners and their equipment. A significant difference, localized pain notwithstanding, is that Britain’s safety nets still worked then. The US has fewer of them, and notably lacks national health care; university education is also an order of magnitude more expensive. Bush, like a toothsome shark, has tried mightily to gut the few nets we have.

        • readerOfTeaLeaves says:

          Although England had copyright, I’m unaware that it ever had anything like the Patent Protections of the USofA. If you scout around in the US Federal Patents records, you’ll find patent apps from Sony (Jpn) and a variety of other nation’s technologies submitted to the US Patent Office.

  10. FrankProbst says:

    And I can assure you SAIC would not purchase chunks of GM without getting this technology too.

    This is the only part of this post I don’t understand. If everyone else wants this technology, wouldn’t everyone else be bidding on it, too? I don’t follow how it would “automatically” go to SAIC.

    • emptywheel says:

      It wouldn’t.

      But first of all SAIC has the cash. A lot of other normally suitable buyers don’t.

      Second, SAIC might well walk away from a purchase if it doesn’t get Volt as part of it. Which is where you’re in the catastrophic short term scenarios, with 2 million jobs shut down for two years, with almost no lead time. Otherwise you’re almost certainly selling off pieces parts, bc there are few other companies internationally that would have a way to turn GM profitable as easily as SAIC, since SAIC has way fewer front end costs in cheaper factories and since it’s perfectly positioned to get what it wants in China.

      bmaz will surely be around momentarily to pitch Tata as a potential suitor, and that’s a possibility too. Not sure who else has the handy cash… And frankly, having experienced the daily power outages India has, I’m not sure its infrastructure can handle US-scale production any time soon. Not to mention the shipping routes aren’t as favorable.

    • earlofhuntingdon says:

      GM has a decade-old, multi-faceted partnership in China with SAIC in Shanghai. It includes a Shanghai development center, aka, GM engineering and development East. A framework that China’s economics and trade ministries insisted on when allowing GM to become one of the first foreign auto manufacturers to build cars in China.

      SAIC already has access to a considerable portion of the GM technology it is interested in, which gives it the inside track were it to want to purchase all of it.

  11. JohnLopresti says:

    I would look for a GM resolution something like VW’s takeover of Barcelona’s license to produce Milan’s Fiat under the name “Sociedad Española de Automóviles de Turismo, S.A.”, the latter bearing the anglophonically dissonant acronym Seat. Seat has manufacturing in Colombia, Argentina, Mexico; and a new 2009 model among the best in emissions, with a pricetag below $30.K, though the annual report of the Barcelona headquarters of the VW subsidiary eagerly advertises its more classically Fiat-ish family roadster vehicles which are less underaccelerative and have peak driving speeds around 150mph. The division was in trouble in 2006, and the 2008 FY remains underway, though 2007 represented a return to ‘profitability’. IT was chary of releasing rights to its cherished Fiat design, especially the popular VW philosophical cousin sedans, but that now is ancient history, resolved. At the time MG always was a better machine, about as economical, and similarly spirited though MG was largely a better performer and more esthetically pleasing, if one attributes aesthetics to mere cars. Another aspect of the GM mouldering and recovery is what are delicately referred to as underwatchdogged bankruptcy fora, though I defer to esteemed colleagues to elaborate specifics about the bankruptcy bench.

  12. LabDancer says:

    Again – a large component of this discussion assumes the immutability of American consumer patterns.

    To what extent would a massive commitment to New Infrastructure – not just fixing up bridges and applying fresh paving layers – and AOT critically including innovative mass transit models that reflect the ‘real America’ that does NOT pine for a return to the hills, stills and religiotic shills, cut into those patterns, to the point of marginalizing strategies adhered to for very long from far away?

    Either the Union is ingenious, or its not – & if it’s not, well then it’s post American Revolution Spain and the choice is among which masters to welcome.

  13. wmd1961 says:

    Interesting post.

    I’ve got to wonder how uch exposure there is to GM debt in CDS instruments, who holds them and what triggers them to pay out?

    Also what happens to the pensions? Would chapter 7 lead to the Pension Benefit Guarantee Corporation (taxpayers) being on the hook? It could very well be that taxpayers in general are better off by keeping GM alive as GM.

    • earlofhuntingdon says:

      The benefit to a buyer in a typical Chapter 7 liquidation is that buyers buy individual assets, unencumbered by liabilities. In a reorganization under Ch. 11, management stays in place. A buyer of or investor in the company in reorg gets assets burdened by liabilities. In either, the whole package has to be approved by the federal bankruptcy court, which generally means the largest creditors agree with the overall deal. Delphi’s (the former GM parts division) bankruptcy, for example, still ongoing, is a Ch. 11.

      GM is one of the world’s biggest companies. Consequently, its bankruptcy would involve the economic interests and laws of several dozen countries. One of the last big, multi-national bankruptcies, in effect, the estate of the oddly deceased Robert Maxwell, was nearly twenty years ago. It was nominally in England, took forever, and was a zoo.

      • wmd1961 says:

        So we would have PBGC taking up the pensions? Is this more likely under chapter 11 or chapter 7?

        What are the costs associated with bailing out GM short of bankruptcy?

        What happens to CDS associated with GM if GM indeed goes bankrupt? Is there a big risk that other (financial) companies would be forced into bankruptcy as well?

    • readerOfTeaLeaves says:

      You are wondering roughly the same thing that I am wondering.

      massaccio put up a sensationally good explanation at Oxdown a day or so ago, which beautifully explained how it is that companies can be “more valuable dead than alive” to CDS holders.

      Reading this thread is one example of such a case; GM is surely of ‘greater value’ as assorted patents, buildings (for lease, etc), and parts jobbers than it is — to CERTAIN parties — in its current, coherent form.

      Who holds the CDS’s?
      What players would find it useful to their objectives to ensure that GM (like Lehman) ‘failed’ in order to better loot the highly valued ‘assets’ of the corporate carcass like Volt technology?

      I’ve heard no public analysis of these key questions, until this thread.

  14. JohnLopresti says:

    I sense another presidential signing statment opportunity, the emergency freetrade declaration of tarrif suspension for Mx and Colombia imported new vehicles, the balance of the statement remaining a state secret, at least viewed in the postbellum phase of modern history to which my note referred, though I suspect ew’s global autoindustry expertise much closer now to where congress needs to travel for an at least in-part workable solution, some fallout, some attrition, and little change except fiscal pressure on the weakest of the extant 2.5. Footnote: There is some turbulence in China now with its cooling GDP CAGR.

  15. MadDog says:

    So let me understand this. In order for China to grab GM, they need to finese the American politics of:

    1. The American Left’s support for Unions. “The Chinese are anti-Union Capitalists!”

    2. The American Right’s support for Capitalism. “The Chinese are anti-Capitalist Communists!”

    If there wasn’t going to be such enormous pain, this would be fun to watch.

    So, will it be the Democrats who end up supporting China buying GM or will it be the Republicans?

    It could be either one depending on who makes the first move.

    I could well imagine any of the following US political scenarios:

    1. Repugs – Support Free Markets! Allow China to buy GM.
    2. Democrats – Support American Industry! Bailout GM.


    3. Repugs – Support American Industry! Bailout GM.
    4. Democrats – Support Free Markets! Allow China to buy GM.


    None of the above and GM disappears just like Studebaker.

    I can’t make up my mind to either learn Chinese or unlearn English.

  16. bell says:

    i may be too subjective in my thinking, but the concepts of ‘ownership’, ‘copyright’ and more generally where the financial or auto industry have gone lately all seem abstractly tied together..

    i think what has to happen is a leap in consciousness from greed to humanity.. it seems to me that GM which “has been dumping lots of money into research in recent years and is close to introducing technologies, starting but not ending with the Volt” will lose it all to the highest bidder if bankruptcy happens.. my basic conflict with the idea of ‘ownership’ is where much of what others (humanity) have achieved is transferred to ‘private ownership’ supported by ‘copyright laws’ which aren’t inherently interested in creating a better world( better environmental standards etc.), so much as exploiting a certain toxic business environment where it is accepted that this is just the way it works… essentially it is a continued support for ‘greed’ to have the final say more then the welfare of the planet…

    but then i never understood or appreciated the concept of private ownership of land for that matter, so clearly i am coming from a more socialistic place in my thinking..

    bottom line is i think the world needs to change the way it does ‘business’.. for that we need a leap in consciousness and that needs to be discussed in order for it to happen..

    • wmd1961 says:

      Leaps in consciousness are difficult. We do have a charismatic and intelligent president now though. Add in a bunch of engaged activists and maybe we can get somewhere.

  17. earlofhuntingdon says:

    What would an American ”economics ministry” would? I’d start by asking Chalmers Johnson, and hiring him as an adviser. I think it would do a few of the things Japan’s MITI does, and what its Chinese counterpart and their pale imitators in Europe do. For starters, it would give an institutional home, continuity, money, political juice, to those analyzing the government-economy-business interface — from the government’s and the public’s perspective.

    Now, the perspectives are almost exclusively private businesses’. We have private think tanks, genuine and false, private companies and their industry trade associations, each with a vested interest in a selfish outcome. Most selfish of all, we have tens of thousands of registered lobbyists, who call K Street home. Against whom we have a few talented players scattered among several departments, such as defense and treasury.

    By design, that array of forces favors expensive, ad hoc solutions, with short-terms aims, which are argued over in front of legislatures, as if by barristers in court, one case at a time. Solutions have to be redone, the wheel has to be reinvented and re-paid for, time after time. That process inhibits longterm analysis or programs. It favors the few with long-term money and goals, virtually all in private, not government, hands, such as the purveyors of aircraft carriers, star wars missiles, and tilt-rotor assault aircraft — and now, outsourced ”intelligence” services providers.

    It needn’t be done that way; look at the history of the Heritage Foundation. Americans do not have an innate inability to look at the political/government/business interface. But the resources for doing it are in private hands, and they will not give up their monopoly easily.

    How would EU competition authorities react to an attempted SAIC takeover of Opel and GM’s other EU-based businesses? With skepticism is all I can say. Opel is as old a name in German automotive circles as VW, Mercedes and Porsche. And as you point out, SAIC also has a conflict, in that its relationship with Volkswagen predates the relationship with GM. But any GM bankruptcy, and certainly a Ch. 7 liquidation, would require a solution approved by EU authorities.

  18. Putnik says:

    Dear emptywheel,

    I commend to your attention an excellent article: GM Must Re-Make the Mass Transit System it Murdered

    For one thing, all of us would be far better served if we took this opportunity to go back to the future. The vast majority of Western industrialized countries (Europe, certainly) have magnificent public transit systems. Whether intra-city or inter-city, Europeans have far superior transportation systems. Were we to seriously upgrade train service, something on a par with the French TGV or the Japanese Bullet Train, the necessity of flying would be considerably reduced as would single occupant automobile travel. Were we to resurrect intra-city light rail (and add monorails to near in suburbs), congestion and pollution would also be much reduced.

    Having grown up in D.C. before the streetcars were eradicated, I can state unequivocally that the streetcars were far superior to the buses that replaced them.

    • emptywheel says:

      I think it’s a great idea and why in my first post on this, I suggested we need to talk in terms of human transportation, not in terms of cars.

      That said, such an intentional restructuring isn’t going to happen in bankruptcy–that’s one of the things I was trying to explore with this post. If GM gets snapped up in bankruptcy it may well have the effect of leaving the US with fewer technological choices as we move forward and with more combustion engine cars globally–though the latter really depends on how deep the recession remains in developing countries.

      • Putnik says:

        Dear emptywheel,

        Oh, I thoroughly agree. However, as a price for supporting, i.e., not allowing GM to go bankrupt, we should demand that it start retooling for the manufacture of smaller, more efficient gas/hybrid vehicles as well as “suggesting”, rather forcefully, that GM and the rest of the “car companies” start seriously thinking about (and negotiating with cities/municipalities) to re-introduce mass transit (manufactured by said car companies). In addition, I would want to see the oil companies, in particular those who worked with GM and Firestone to wreck city mass transit from coast to coast, to make a substantive contribution to the car companies (who have provided the oil companies with decades upon decades of profits) and the retransition to electric mass transit.

      • Putnik says:

        Oh, BTW, I would recommend Jim Kunstler’s blog . He has been saying, for years, that the time is well past that we must turn from our “Levittown” evil ways of sprawl. Though the “American Dream” of a house with a lawn and white picket fence may have been alluring, it has always been a bad idea. Devastating productive farmland and woods for ever more developments is one of the main reasons we are where we are.

        “Bending Nature” to our will (more like raping Mother Nature) is counterproductive and is just another example of our overweening hubris.

        • readerOfTeaLeaves says:

          Kunsler is fearless, and out West, sprawl is a huge, huge problem.
          The linkages between sprawl and cars are almost endless, but that’s no reason to get rolled and let third parties walk off with the best technologies thereby reducing our options going forward.

          That’s just stupid.

          As for the politicians, judging from the clips that I saw today of Levin and Shelby on “Meet the Press,” I’d say that Wm Ockham hits the nail yet again:

          It’s interesting that the Republicans who are talking (Shelby and Kyl) are arguing that the failure of the U.S. automakers is inevitable and no big deal. Are they that stupid, corrupt, and venal? Oh wait, it’s Shelby and Kyl.

          Yeah. It’s Shelby and Kyl.
          And add in a datapoint about Palin hand-holder Randy Scheunemann lobbying for Big Oil, plus the Republic of Russia and up to his eyeballs in K-Street, and it kind of makes you wonder… “Hmmmmm… who are all these K-Street lobbyists representing? China…? Republic of Georgia…?”

          The biggest reason to clean up lobbying in DC may well be in order to put a few more boundaries around our own US-born lobbyists who sell their ’skills’ (i.e., ‘connections’) for profitable sums on behalf of authoritarian governments or interests… who surely have laundry lists of whatever technologies they’d like to ‘buy’ from US corporations — but first, perhaps, those corporations must be financially ruined, so that the corporate carcasses can then be looted for the desired patents?

          Kyl and Shelby seem like willing panderers to whatever requests Scheuenemann’s ‘lobbying’ on behalf of foreign clients will propose. And to make it easy on their consciences, they claim it’s all ‘just inevitable’. Brainless nincompoops.

          So this is what Levin’s up against.

      • 1970cs says:

        Answering my own question, GM sold the locomotive division in 2005

        In June 2004, The Wall Street Journal published an article indicating that EMD was being put up for sale. On January 11, 2005, Reuters published a story indicating that a sale to “two private U.S. equity groups” was likely to be announced “this week.”

        Confirmation came the following day with a press release issued by GM. General Motors has agreed to sell its Electro-Motive Division to a partnership led by Greenbriar Equity Group LLC and Berkshire Partners LLC. The newly spun-off company is called Electro-Motive Diesel, Incorporated, which retains the EMD brand that is so widely known in the railroad industry. The sale closed on April 4, 2005.

      • sunshine says:

        When GM started mass producing cars they bought up the streetcars in CA and dismantled them so we would buy cars. Ironic isn’t it?

  19. WilliamOckham says:

    It’s interesting that the Republicans who are talking (Shelby and Kyl) are arguing that the failure of the U.S. automakers is inevitable and no big deal. Are they that stupid, corrupt, and venal? Oh wait, it’s Shelby and Kyl. That question answers itself. It really seems politically stupid to intentionally identify with an economic catastrophe. They probably should’ve stuck with the ‘blame the UAW’ argument.

  20. JeffreyFeldman says:

    OK…this is a great post. Kudos, Marcy.

    Two points from the bankruptcy attorneys in my immediate family:

    1. DIP loans are probably easier to come by than many might be admitting. In Chapter 11, DIP loans are very advantageous to the lender–that’s the first point. It’s a competitive market and there’s no reason to believe that there won’t be people scrambling for this particular DIP market with GM. Also, nobody really knows how much private equity is out there. So, even if the China state bank is in a strong position to win the DIP loan in an open bidding situation–they are not necessarily the only ones to be able put up such a sum.

    2. Chapter 11 does not necessarily mean no liquidation. There are many reasons to choose Chapter 11 even if liquidation is the ultimate goal, chief among them being: greater control over the process of liquidation. Restructuring has many advantages and while it is true that a company needs to secure a DIP loan, typically companies are forced into Chapter 7 by regulation (e.g., many financial corporations are must choose Chapter 7), but would choose Chapter 11.

    Taken together, this could mean that a DIP loan could ‘appear’ that could allow GM to enter into Chapter 11–whereupon they might still move towards one of the liquidation scenarios described.

    The good news is that if Chapter 11 is the result, all of this would be very out in the open, so the restructuring process would not be something hidden or concealed form taxpayers.

    • emptywheel says:


      Isn’t that going to be true of bankruptcy in any case? Though isn’t the govt going to try to find some solution like this behind the scenes anyway (as the UK tried to do for MG)?

      And to what degree will there be a delay–that’s where CAR’s more horrible solutions come into play. That is, if workers are in limbo while this is worked out, and GM is waiting on financing and therefore not moving product either to dealers or to consumers, then you’re going to have a ripple effect through the industry, including to the foreign manufactureres.

      • JeffreyFeldman says:

        OK…apparently, GM *can* go into Ch.11 even without a DIP loan, so long as they have minimum cash to operate–which means they are probably going to declare very soon either way. The announcement that they have two months operating cash on hand is tantamount to saying,’Here’s your chance to be our DIP lenders or miss out on the pecking order, existing lenders. Hello? Anyone home?” The appeal to Washington is likely an endgame to get their existing lenders to budge right now on the threat of being left behind in a Ch. 11 situation and to see if Paulson/Pelosi would give them the same Halloween candy AIG landed.

        Time to filing varies–so it is likely that workers will have sleepless nights until the shoe drops. And, since all filings are immediately followed by First Day Motions, which include provisions to allow for payroll disbursal, labor will likely be stretched along for a bit.

  21. dude says:

    I have been reading how politicians are positioning on car-maker bailouts. Those who argue that the trickle down effect on other manufacturers (car parts, etc) is too great to ignore have my sympathy and support; however, I think if money is going to be dished to GM and Ford, they need to abandon the idea of dominion over the car industry. I think they need to think in the more modest terms of survival and incremental improvement from a lower position in the global car-making food chain. I think the main problem with bailing them out is that they believe they are entitled to be world powers. Wrong. They need to reduce their goals to being viable and lean for the long run, and build on that. I honestly think their glory days were over 15 years ago (or more) and their hubris is a lot like the buggy and buggy whip industry circa 1920.

  22. eagleye says:

    With all the financial calamity and big companies looking like they might go belly-up at any moment, it occurs to me that perhaps a huge opportunity is staring us in the face. Maybe this dire situation gives We The People a chance to own this country. When GM and Ford are ready to put their assets on the block and there are no takers, how about the workforce simply commandeers the operation and takes it in a whole new direction? Admittedly, there are more than a few details to work out here– but I think it’s worth thinking this notion through. If the shit is going to hit the fan, why don’t we capitalize on the moment and take responsibility out of the hands of the corrupt and incompetent managers and investors who lead us into this mess?

  23. behindthefall says:

    If the Chinese declared this economic war with their usual “Hundred Year” outlook, they certainly got results a lot more quickly than they had envisioned. What? Twenty years? That’s how little time it took to trash the world’s greatest economy and hand it over to a People’s Republic. Suck on that sour apple, GOPers, and good luck to the rest of us.

  24. tekel says:

    [a] Not to be a machiavellian pessimist, but consider this silver lining to a rust-belt disaster:

    If the entire manufacturing base of Michigan, Indiana, and Ohio is suddenly out of work, that is a whole lot of people who will suddenly have a renewed interest / tolerance in single-payer government health insurance.

    what if the easiest path to a national health care program is to ensure that there are two million new unemployed and uninsured ex-union American workers who can no longer depend on their pensions to pay for their blood pressure and cholesterol medicines?

    [b] ew, thank you for the perspective on Buick in China- I was unaware that there was actually anyone who wanted to buy a Buick, and I would have ranked the value of that brand lower than Lincoln.

    [c] Has anyone posting here ever participated in the GM “Autoshow In Motion” event? They rent out a big parking lot and offer comparison test drives of GM vehicles alongside all the competitors. I did one in 2005 I think, in the SF bay areay- it was at Candlestick Park. Lots of fun- but no way I would ever buy a GM car except for the ‘vette, and only then if it was the 4th or 5th car in the family. Even then, all of the GM SUVs were total junk. Even the escalade couldn’t hold a candle to the BMW x5.

    [d] Have you seen Carl Levin’s comments from earlier today that the big 3 CEOs should all resign?

    • emptywheel says:

      All Big THree CEOs should resign. It’s not all their fault. but there’s no reason to keep them, and I’d be really happy to see the backside of Rick Wagoner who is bad PR for the industry incarnate.

      As to Buick, yes, when I was first in CHina (I’m sure this has changed) they were making $2500 profit on a Buick Regal. But then, keep in mind that the first cars in China were used differently than we do. It’s all about a car with driver and a lux backseat. And the Chinese seem to have a taste for big and ugly like we Americans have, as well. Plus, it was a matter of good timing and location–had Lincoln gotten into the Shanghai market (where GM’s first plant was) they’d have been a better fit for those kind of customers.

    • bmaz says:


      Hey, how goes the effort? Been wondering about you. Is this year three? Please let me know how things are; I hope quite well.

  25. macz says:

    Perhaps the Government should agree to provide DIP (Debtor in Possession Financing) in an orderly Chapter 11 which would be aimed at a full reorganization, stripping the equity shareholders, giving a haircut to the bondholders, and bringing in a new management.

    • emptywheel says:

      Then why not do a bailout and ensure that the companies could put environmental efficiency ahead of financial equity in its decisions? That’s part of my point–without some kind of guarantee, I’m not sure they’ll get financing. So if they need the govt anyway, why not take a much more active role?

  26. Synoia says:

    A qualatative statement on some of these posts.

    They are incomprehensible. Gentlemen, there appear to be a number of lawyers posting here. Please let me assure you, I’d never let you write a brief for me, ever.

    I personally know I don’t write well. Or spell, or type. Gentlemen, please go back and read your own posts. This thread is one of the worst wrtten I have ever read.

    Long rambling sentences don’t work. Lack of whitespace does not work.

    Nor does the english style of writing briefs – no punctuation whatsoever.

    • LabDancer says:

      What uncanny timing.

      [break for fresh paragraph and open space between pithy thoughts, the better to ease digestion]

      You’ve joined in at the precise point where, so often, those with a bent to pomposity are tempted to give in to the eternal temptation – – [blogworld effect of double hyphenation to alert readers to incisive point to follow] to remind everyone of precisely how preferable to the heat and humidity of blogging is the thin aridity of sanctimony.

      [further paragraph break; see above]

      Ah, but then tomorrow’s a work day, and I was bound to be reminded soon enough.

      [yet another paragraph break; see above, and above]

      My apologies for the length of this response, and if any of it is too opaque, then of course for that unintended effect also. I myself am still in the process of feeling my way about the mysteries and intrigues of the blogging world, and thus, regretfully, I admit to be as yet not entirely familiar with all its ways, and in particular those which might convey in response the appropriate sentiment with maximum efficiency and precision – – [double hyphenation; see above] and fear that, at this point in our acquaintance, GFY might be too familiar.

      • bmaz says:

        See? And I bet you thought I was the crankpot around here! Okay, well, I probably am; but that aside, at least I am not the grammar police. And, for the record LD, you do just fine.

        FWIW to one and all: Good grammar, structure and style is a wonderful thing; however, it is much more important that you get your input out. We are here to work, and occasionally have some fun; not to produce the successor to E.B. White’s Elements of Style.

        • readerOfTeaLeaves says:

          Indeed, first drafts need only spill the ideas on the page; or splatter them on the pixels, as it were. Thx for the lovely bit on something other than ‘arid sanctimony’ to both you and LD @ 65, 66, and 67.

          As for Freep, nothing ’slavish’ whatsoever, is there. But I hope he’s not choking in noxious fumes in L.A., just as I hope the same for other CA residents who read and comment here.

          GoldCoastPirate, you may find George Soros’ “Age of Fallibility” helpful if you are interested in these bigger picture economic patterns; finance came to the US in the 1980s with a vengeance. Consider who was in US political leadership at that time – particularly VP. Then read anything by Kevin Phillips (”American Dynasty“, in which he traces the history of the Bush family back to early 1900s Wall Street firms that evolved into the larger brokerage firms we see today), and then also Phillips’ “American Theocracy” where he traces the fundamental economic shifts in the US from manufacturing to ’services’ (mostly selling and servicing debt) since about 1980.

          Basically, the ‘finance sector’ made far more money out of selling and servicing debt than they ever made from manufacturing autos or toaster ovens. In particular, GM was kept alive via its consumer debt and servicing services — and that’s the part of the economy we see melting down.

          Shorter: they’ve eaten the Golden Goose, but clearly there are interested parties who only want to walk off with the gizzard and the throat and leave the rest of us to bury the rest of the carcass. Not pretty.

          This is what Levin is up against.

        • jdmckay says:

          Basically, the ‘finance sector’ made far more money out of selling and servicing debt than they ever made from manufacturing autos or toaster ovens.

          That condition applies to entire BushCo Reagancomics economy, not just auto industry… the whole thing’s been running this way. That this system has dilluted final product’s quality across so many sectors: Health Care, all kinds of tech, Auto/Detroit, (especially) Energy… it’s broken, and it’s been broken for a good while now.

          BO’s opportunity, at least as I see it, is vast… almost beyond comprehension, in devising new systems/institutions and all the rest that get needed resources directly to where they’re needed, something current system utterly fails to do.

        • readerOfTeaLeaves says:

          I agree, but look at the inertia that a BO admin will still be up against.
          Much of it in the hands of either Americans whose global interests don’t necessarily make their decisions key off ‘what’s good for America’, and the rest in the hands of those who aren’t Americans and certainly don’t have ‘the American way of life’ as their top priority.

          I’m not being defeatist; the world is always full of surprises.
          But the problems endemic in making more out of servicing the debt for autos, than out of the autos themselves — ‘autos as debt drivers’, if you will — are so complex and formidable that I think it’s hugely important to try and key in on the most strategic aspects and elements.
          Which I think EW is leading us to try and ferret out.

        • jdmckay says:

          I agree, but look at the inertia that a BO admin will still be up against.

          What I see is inertia BO has. Confluence of cascading econ collapse, utterly vapid work product of BushCo’s “conservative values”, and whole bunch of other things… this is most unique, wide open opportunity for incoming president I’ve seen in my lifetime.

          I’ve expressed frustration, worry, over BO’s relative silence since election and some of his appointments. I mention this because you talk of (I’ll call it) conservative inertia. What bothers me (among other things): confluence I mention, on econ side, is endemic failure on every level:

          * structural (opaque, obfuscated, decides $$ flow and decides wrong)
          * moral (bribed rating agencies, for ex.)
          * intent (worthless paper called “creating wealth”)
          * personel, or “generals in charge of WS”

          Belatedly, public is starting to see it. But not clearly. Every day since election, on WSJ OpEds and whole lot of other media, I’m seeing bs explanations for econ problems, possible to proffer only because of large body of ignorance. Things like blaming mortgage meltdown on CRA, Bolton saying we need to bomb Iran/do missile shield, all wrapped around conservative mantras like “patriotism”, “free market principles” and such.

          Why is BO and co. not driving a stake through heart of this shit? He’s got the truth on his side, the damage from it’s implementation is cataclysmic, and (presumably) best solutions require jettisoning whole large portions (if not whole damn thing) of it.

          To summarize: why is he not…
          a) driving stake through heart of monster
          b) prepping public with tangeable ideas/proposals/goals outlining where he’s going. If for no other reason, give this excited public who elected him something to hang onto against this momentum you speak of.

          I’d remind… BO pulled away from McCain as result of long simmering cascading econ failure only in last +/- 6 weeks. Very short period of time. Our citizens, as a whole, just not that well informed. W/out serious movement confronting economy, that support can & will disappear just as fast.

          Just looks to me like a huge, huge opportunity, and a short window.

  27. LabDancer says:


    You know, what really got my goat was the implied shot at our fearless freep. One shudders to contemplate the psychic trauma that slavish adherence to decorum might visit on a spirit such as his.

  28. pdaly says:

    And it [GM reorganized after bankruptcy] would be a terrible setback in efforts to develop the technologies to make our economy more energy efficient.

    And wouldn’t that be a windfall for oil companies selling oil to Americans?

    I hope someone can explain why auto manufacturers have been doing the bidding of oil companies –keeping the gas mileage low in American automobiles.

    Now with peak oil, China would have an incentive to cut down on the oil use by Americans, but wouldn’t oil companies in the US try to block energy efficient autos by an uncooperative China?

  29. wavpeac says:

    Okay, so the Japanese make it official, they are in a recession.

    Interesting times…and yes, this is where the chinese tiger would strike. Waiting for the weakness…We can’t “control” and “dominate” our way out of this. I think we have but one option….CREATE.

  30. jdmckay says:

    Somewhat OT, but pertinent to econ discussion: Deregulator Looks Back, Unswayed , Phil Graham’s NYT OpED yesterday. A snippet:

    In two recent interviews, Mr. Gramm described the current turmoil as “an incredible trauma,” but said he was proud of his record.

    He blamed others for the crisis: Democrats who dropped barriers to borrowing in order to promote homeownership; what he once termed “predatory borrowers” who took out mortgages they could not afford; banks that took on too much risk; and large financial institutions that did not set aside enough capital to cover their bad bets.

    But looser regulation played virtually no role, he argued, saying that is simply an emerging myth.

    “There is this idea afloat that if you had more regulation you would have fewer mistakes,” he said. “I don’t see any evidence in our history or anybody else’s to substantiate it.” He added, “The markets have worked better than you might have thought.”

    “Predatory lending”, “The markets have worked better than you might have thought”… my response is wondering if this guy is criminally insane.

    • sunshine says:

      When will be start to question the sanity of people like this? And when will we question the sanity of people running for a gov office and outright lieing (doel/palin) in campaigns. I am so tired of news readers and canidates saying “they ran a hard campaign” ie their was lots of lies and bull shit thrown around.

  31. GulfCoastPirate says:

    When are we simply going to admit the the current model of ‘free trade’ we have been using is flawed? That it is nothing more than a scheme to force US wages down to world averages. When using this model there may be some advantages for some in our society up front but at the back end it is demand destructive and not only will we lose our manufacturing sector but the remaining sectors of our economy will have to shrink due to the associated lack of demand from falling real wages.

    Every small/regional bank in my area has signs out indicating the credit crisis hasn’t affected them. They have plenty of money to loan. The problem is they have no customers who want to borrow. Hence, GM and the other automakers have no customers. In my lifetime (since 1980 actually) we’ve gone from the largest creditor nation to the largest debtor nation on the planet. Consumers held on when their real wages fell by borrowing to make up the difference but it seems as though the consumer doesn’t want to continue playing that losing game.

    If you bail ou the automakers (which I support) but don’t do something to begin protecting US wages (and manufacturers) from foreign competition then you’re just pissing into the wind.

  32. selise says:

    this is exactly what we did to other countries in the ’90s via imf shock therapy. force sale of national assets (including major industries) for pennies on the dollar. only before it was our banks (and other cos) buying things up – the difference this time is that it is our national assets and saic doing the buying.

  33. NMvoiceofreason says:

    Free (i.e without money) and trade (to barter or exchange goods) comes very close to being an oxymoron, with the exception of true barter systems. When Republicans speak of “free” trade, they mean without government involvement or taxes. We’ve seen how well this concept of “regulation free trade” has worked, about as well as “regulation free financial markets” and “regulation free insurance (i.e. credit debt swaps)”.

    We could, if we chose, find some enterprising young American companies to take over the operations of the failed giants. see http://www.aptera.com/

    Our choices are more than panic/fail.

    We can restructure our industries to grow and compete globally, just as we can restructure our financial system to grow and compete globally, just as we can restructure our insurance systems to grow and compete globally. First, we need to know what needs to be done. Just as in health care, the problems can be seen as too complex to solve. They aren’t.

    1. Make the system pay for itself, you can’t keep eating your equity forever.
    2. Make the system transparent, so that dark little deals don’t have a chance.
    3. Make the people responsible, so that they only gain if we all gain, and they get a chance at real punishment when they don’t perform.
    4. Make the system fair, so that it is win/win. No business long survives when the client sees they are being taken advantage of, nor should they.
    5. Provide incentives for the results society needs.

    Protecting wages is a false hope. Growing wages, capabilities, value – that is where we need to put our efforts. A bike goes nowhere other than downhill unless you pedal. Let’s get out there and compete, the world isn’t waiting.

  34. cbl2 says:

    Marcy – this is truly a fabulous post – is our waitresses learnin’ ? think I should be awarded 4 units and not the standing 3 for getting through this one

    thank Mr Emptywheel for the insight.

    mad props to commenters !

    simply wow.

    • readerOfTeaLeaves says:

      Just a ’second’ to your enthusiasm. This really is ‘awesome’ as my kiddos would say.
      Or text.

  35. Leen says:

    Tavis Smiley shared a most important perspective on the potential GM Bailout versus bankruptcy on Meet The Press on Sunday

    Not able to find the exact clip of Tavis but his points were very different than everyone else’s on yesterday’s panel discussion on GM. He brought up jobs in Detroit, poor in Detroit.

    What I really do not get is why our Reps seemed more than willing to bailout Wall Street yet will not bailout GM? ( I do get that the AIG insurance was woven through people’s pensions and retirements and that is huge. But 25 billion compared to passing the 700 billion seems contradictory.

    What does this say to auto workers, jobs, Detroit? Why not use a bailout as a way to squeeze U.S. auto makers into making the changes that they have been resisting for so so long?

  36. pseudonymousinnc says:

    Another possibility: SAIC buys up GM’s foreign operations, and starts selling Brazilian-made GMs off the production line, with tweaks to satisfy emissions/safety cert., to Americans.

    Asset-stripping the good bits of GM’s global operations seems like the obvious choice, and the Chinese have the money to do it.

  37. Watson says:

    no one is lending

    I think another way to say it is that the cost of borrowing has gone up. I assume that there is a rate at which just about anyone can borrow.

    Because of the recklessness, shortsightedness, dishonesty, and greed of our corporate actors, lenders now insist on higher rates. The crony capitalists’ had become addicted to subsidized, below-market rates compliments of Greenspan, so their business model is no longer viable.

  38. sunshine says:

    Thanks emptywheel. You are really getting to the heart of the problem.

    Companies and the government look and plan for the future 5, 10, 20 years down the road.

    They have known for years that when the baby boomers retire there would be this big sucking noise out of the stock market, ie baby boomers taking their retirement account money and living on it. We have now had the tech bubble burst abt 10 yrs ago stripe us of a huge share of that money and now this financial crisis took what retirement money we had left just when the baby boomers are beginning to retire and need it. Coincidence? I don’t think so. I think much of what is happening now was planned many years ago.

    How can a top executive of GM go straight to the WH and yet the WH does nothing to help auto industry in 8 yrs? In fact they were making secret energy policies which in effect hurt union workers. 4 yrs ago we were begging Bush to stop in and talk to the auto makers when he was out campaigning. Bush ignored them. Why? He does not like union workers? He started out his presidency interfering with the steel workers. I believe the top management are partners with the oil industry. So I guess this would make sense. Low gas mileage is more profits for oil companies. A few years back Fox fake news had a “reporter?/actor?” asking people on people on the street how high would gas have to go before they would get rid of their big (GM/F) SUV’s and trucks. And a man answered he would drive his even if gas was $5. a gallon. I felt this was another fake report because many were going around at the time, especially the new (prescription part D?) Medicare fake reports. Paying $5. a gallon of gas would be taking either food or heat away from the families I know. Around the same time I was in my car and listening to public radio and a man was saying in the future we would be purchasing our cars in Walmarts parking lots for $8,000. dollars. Since most everything at Walmart is from China that scared the shit out of me. And let me add here that it was Bush Sr who was Ambassador to China before he was VP that started all this importing with a communist country. When and why did we stop calling China what they are, a communist country with shitty human rights? I think when Bush jr ran for pres the only 2 countries he had ever been to was his boarding country of Mexico and China to visit his parents.

    Anyways, back to I think what is happening was planned. GM sold off Hughs Electronics, part of GMAC and Delphi. Delphi went into bankruptcy, a move I think that may have been planned to get rid of what they call “legacy” workers and bring in green card Mexican immigrants. Now the wages at Delphi are cut in half and are $15. an hour and the green card immigrants are getting $7. a hour. From the view point of top management, that sounds great. From the view point of an American citizen/American worker/Union worker that doesn’t sound too good. Why would I want my children or grandchildren to have such a lower scaled job and lower standard of life? Because the worlds is flat and they should be competing with 3rd world wages and standards? I don’t think so. We spread democracy and bring home 3rd world standards? What is wrong with this picture?

    If GM still had control of all of GMAC could they have gotten the loan they needed from themselves? By bush having control of all the banking is he helping non union companies vs union companies through the loans that are held by the financial companies? What is happening to all those multi million dollar companies (world wide) that were being built? Who is getting the prime land that those banks held? I read (maybe Ian wrote this?) when you have no products to sell, no futures to sell, ALL YOU HAVE LEFT IS LAND TO SELL. That is scary, especially knowing bush already wanted to sell our ports security to foreign companies.

    My husband said that the battery patent for the EV1 auto that GM built was sold to an oil company (Halliburton?). I do not know if this is true but it would not surprise me. How many patents does the oil companies hold that could help us with better gas mileage but is kept hidden and not being used?

    Remember workers are what makes the auto compainies that they are not the upper management.

  39. JohnLopresti says:

    to @60, there is a lot in the other posts, although some content intercalated in my @29, which was partly also parody of how Bush might try to solve the issue in the ways most favorable to the lameduck cronies. Plus, several good posts have ensued; maybe I will have time to revisit the topic, as, evidently, if one is to judge by the “news” in the past few days, is likely to be an animated, and well-informed discussion widely, although our hosts here and numerous contributors bring much insight to the dialog. Currently I am reviewing a bankruptch and takeover which has been morphing since 2005, passing thru a Reno forum, and yet again in the news in the region where I am located; some of the original commentary in that other bankruptcy procfeeding might be germane to the current discussion, if I happen to locate the original sources, a work in progress.

  40. sunshine says:

    It seems SAIC is entwined with our gov in a big way.

    SAIC, Inc. is a provider of scientific, engineering, systems integration and technical services and solutions to all branches of the United States military, agencies of the United States Department of Defense (DoD), the intelligence community, the United States Department of Homeland Security (DHS) and other United States Government civil agencies, state and local government agencies, foreign governments and customers in selected commercial markets. The Company has three segments: Government, Commercial, and Corporate and Other. Its operating business units are aggregated into the Government or Commercial segments, depending on the nature of the customer, the contractual requirements and the regulatory environment governing the business units’ services. During the fiscal year ended January 31, 2008 (fiscal 2008), it acquired The Benham Companies LLC. In April 2008, the Company completed the acquisition of Icon Systems, Inc. In May 2008, the Company acquired SM Consulting, Inc.


      • earlofhuntingdon says:

        Good wiki reference to the SAIC discussed here in your item 85. A more car industry one is below. They are one of the top auto companies in China. They have their own operations, plus major collaborations with General Motors and Volkswagen. Logically, they would be a good white knight for GM. It would be good for American workers only if someone at the negotiation table(s) were actually to fight for them. I give that about as much chance as Bush admitting a mistake.


        • bmaz says:

          Yep, all exactly why Marcy’s take on their purchase (if things go to hell because of the GOP intransigence) of the GM arms is so spot on.

  41. readerOfTeaLeaves says:

    Click on over to msnbc.com and you’ll see a link for Meet the Press. You can find the clip over there.

  42. Larue says:

    Incredible post EW, and incredible comments, the rest of yaz.

    Thanks to all.

    As my dear pops used to say: “Beware the sleeping tiger.”

    Course, he also used to tell me we were our own worst enemy. That’s sure proved to be right time after time from the 50’s on . . .

    Again, masterful thoughts, commentary and stats/info. Thanks for sharing it all. Much of all of it I knew very little about . . . . all y’all sure raised MY horizons to new heights.

  43. jdmckay says:

    One last thing about all this I’d like to say, because I haven’t seen it discussed anywhere.

    Although it didn’t hurt… in fact seemed to give him a small boost, BO’s infomercial made me nervous. I had been hoping for more details on fundamental economic “change”, instead it was a walk through pockets of blue collar America w/focus on some of their challenges.

    I thought that may push BO support from those “free marketers” who abandoned McCain because of econ meltdown back into his camp, but it did not. Good.

    Most of feedback on that infomercial that I heard/saw/read was more or less as intended, eg. highlighting blue collar econ hardships. However, what really struck me… all but one of those folks was hugely (dangerously) overweight. They also had boxes of pills for unidentified maladies. I’d guess diabetes, cholesterol, various blood pressure medicine could be found in those shoeboxes based on way those folks looked.

    I live in Albuquerque. I’m 52, really fit and have been so for long time. I eat organic brown rice & steamed veggies, organic yogart and organic peanut butter. We bake our own organic bread. In last 18 mos or so, gone even further towards verifiable organic (there’s a lot of stuff sold organic that’s not) because of increasing unreliability of food quality, particularly given our close proximity to Mexican border.

    I’m not off the charts with this stuff: I’ll eat occasional chicken/steak etc. and what have you, but only a few times a year. Paying attention to “what goes in” seems like a no-brainer to me. And payoff in really good health at my age validates all that.

    We have now an environment in US where an entire infrastructure: media/fast food restaurants/distribution/labelling etc. powerfully exerts and promotes consumption of really bad food while masking doing so w/images of joy, health, convenience etc etc. This condtion has greatly accelerated under Bush.

    Ads everywhere… TV, radio, billboards… drink more coke, eat more processed sugar (it’s poison) infested burgers, bleached (entirely of nutrition) flour… on and on it goes. Most of stuff in grocery stores now uses processed sugar in same way tobacco companies used nicotine: to addict people. Have you read labels of “healthy” yogurt brands (Yoplait)? Full of processed, organ corroding processed sugar.

    Repubs have diluted food labeling to point it is impossible to distinguish very unhealthy chemical preservative ingredients from those w/out. It’s now all “health” food and such.

    In Albuquerque, I’m constantly shocked… (I’m a bike rider) riding past schools seeing huge % (off top of my head 75%) of these young kids way overweight. Not just a little bit, they’re fat, and it’s a majority of them. Around here, as percentage of entire populace, adults in even worse condition.

    And most of ‘em don’t care… unconscious about it. Oblivious. No health context whatsoever.

    Any of you had a hair analysis lately? WARNING: results will inventory poison that’s taken residence in your bodies in volumes that very well may scare the shit out of you.

    There is a whole lot of social influence pushing people towards utter abandonment of knowledge, responsibility… any influence whatsoever over relationship between food and health. In last (xxx) years I can’t tell you how many arguments I’ve had w/libertarian “free-marketers” who say everyone has a choice, they’re responsable, and whatever advertising influences move more people towards obesity/diabtes etc. is their own damn fault. Really bad food (not food at all AFAIC, just filler) pushed as “happy meals” and such doesn’t bother these guys at all, rather it’s just business.

    “Get over it”, they say. End-of-conversation.

    Aside from difficulties/challenges/travails of blue collar America Obama high lighted, at least for me… what I saw in that documentary was effects of so many hi tech environmental resources dedicated to persuading whole lot of people to live in a way that’s really bad for them.

    Obama’s featured workers, & God bless ‘em… somehow infomercial’s message did not connect all those shoe boxes full of pills and massively overweight conditions they all had with…
    a) why their health is at such risk
    b) metric of their bad health vs. good
    c) costs of unaffordable health care for them, society, etc, not to mention greatly expanded HC infrastructure required to keep ‘em all breathing.
    d) cost/benefit of energy (eg. mass of advertising, (xxx) fast food restaurants per capita, mis-leading labelling, etc etc.) devoted to infrastructure persuading and supporting people to practices/habits that are killing ‘em.

    I mean, what if all the grocery stores sold only real food… could all those MacDonalds be converted to schools?

    These dots were not connected nor even suggrested in this infomercial.

    With so many people living this way, US as a society is paying a huge price both in massively increased Health care, lack of productivity otherwise healthy people would contribute… not to mention hugely misdirected resources in infrastructure.

    These conditions need a really careful, studied, serious consideration. And AFAIC, the momentum behind these corrosive influences is the same stuff… eg: bull shit, that has driven huge misinformation resulting in current economic woes: deception, $$ for $$ sake w/o regard to purpose… I could go on & on.

    In my view, this means review of exactly what this “free market” ReaganComics economy gives us: it is good stuff, is it the solutions that free marketers promised, or is it junk… is it treating a populace as guinea pigs generating profits w/o regard to overall health of a society?

    Are there alternatives? Big questions. Why are they not being asked?

    For me anyway, very frustrating to see all this Health Care debate w/out taking any of this into consideration. A side by side comparison of where and how $$ flow, with:

    a) current avg. citizen health care cost
    b) optimum avg. citizen health cost

    … at the very least, might be a useful image in this overall debate. Journey of a 1000 miles begins w/the first step.

  44. jdmckay says:

    And back to my attempt in focusing urgency of BO not having time to wait: Paul Volker (11/17/08):

    Paul Volcker, the former chairman of the US Federal Reserve, has warned that the economic slump has begun to metastasize after a shocking collapse in output over the past two months, threatening to overwhelm the incoming Obama administration as it struggles to restore confidence.

    “What this crisis reveals is a broken financial system like no other in my lifetime,” he told a conference at Lombard Street Research in London.

    “Normal monetary policy is not able to get money flowing. The trouble is that, even with all this [government] protection, the market is not moving again. The only other time we have seen the US economy drop as suddenly as this was when the Carter administration imposed credit controls, which was artificial.”


    He advised Mr Obama to tread a fine line, embarking on bold action with a “compelling economic logic” rather than scattering fiscal stimulus or resorting to a wholesale bail-out of Detroit. “He can’t just throw money at the auto industry.”


    “There has been leveraging in the economy beyond imagination, and nobody was saying we need to do something,” he said. “There are cycles in human nature and it is up to regulators to moderate these excesses. Alan was not a big regulator.”

    I’d note, from everything I’ve seen, BO has ignored Volker’s advise (2nd to last paragraph above):

    * embark on bold action w/a “compelling economic logic”
    * (avoid) scattering fiscal stimulus or resorting to wholesale bail-out of Detroit

    Seems to me Volker’s logic is self-evident, and what I’ve been wanting to see. That BO has gone the other way further makes me wonder who’s pulling Obama’s brain into Volker’s unrecommended direction.

    If anyone has a trackrecord demanding attention, it’s Volker. Maybe people forget, he’s the guy who saved Reagan’s economic ass, and did so w/principles he’s recomending to BO. Unfortunately, only thing repubs remember about Reagan is tax cuts, something Volker had nothing to do with.

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