Detroit one city of broken dreams.

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G.M.’s Troubles Stir Question of Bankruptcy vs. a Bailout

By MICHELINE MAYNARD
Published: November 12, 2008

DETROIT — Momentum is building in Washington for a rescue package for the auto industry to head off a possible bankruptcy filing by General Motors, which is rapidly running low on cash.

But not everyone agrees that a Chapter 11 filing by G.M. would be the disaster that many fear. Some experts note that while bankruptcy would be painful, it may be preferable to a government bailout that may only delay, at considerable cost, the wrenching but necessary steps G.M. needs to take to become a stronger, leaner company.

Although G.M.’s labor contracts would be at risk of termination in a bankruptcy, setting up a potential confrontation with its unions, the company says its pension obligations are largely financed for its 479,000 retirees and their spouses.

Shareholders have already lost much of the equity that would disappear in a bankruptcy case. Shares of G.M. rose 16 cents Wednesday, to $3.08, but they have fallen 90.5 percent over the last 12 months, amid sharply lower auto sales and fears about G.M.’s future.

And as companies in industries like airlines, steel and retailing have shown, bankruptcy can offer a fresh start with a more competitive cost structure to preserve a future for the workers who remain.

“Just let market forces play out,” said Matthew J. Slaughter, associate dean at the Tuck School of Business at Dartmouth. “And if G.M. or one of the other companies files for bankruptcy, support the workers and the communities that would affected by a bankruptcy filing.”

William Ackman, a prominent activist investor who runs Pershing Square Capital, said Tuesday that G.M. should consider bankruptcy. “The way to solve that problem is not to lend more money to G.M.,” he said in an interview with Charlie Rose on PBS.

Instead, G.M. should submit a prepackaged bankruptcy, laying out steps it plans to enact once in Chapter 11 protection, said Mr. Ackman, who is not a major holder of G.M. shares.

“I’d rather the government’s money be used to train people for other jobs,” Mr. Ackman said. “The bankruptcy word scares people. It’s simply a system.”

Not surprisingly, Rick Wagoner, G.M.’s chief executive, disagrees. He told investors last week that “the consequences of bankruptcy would be dire and extend far beyond” the company. G.M. will “take every action we possibly can to avoid it,” he added.

The company also may be forced to take drastic actions as a condition of receiving any federal bailout package. It may include stiff requirements that G.M. and other automakers restructure and meet financial goals before they can get access to federal financing. Lawmakers may also demand a change in management.

Such demands “may have the same end as a restructuring,” but avoid the taint of an actual bankruptcy filing, said Susan R. Helper, a professor of regional economic development at Case Western Reserve University.

Even though a bankruptcy might help create a stronger company in the long run, consumers could easily see it as a sign that the cars they bought might not retain their value, and seek other options when shopping for a new car. (By contrast, travelers tend to have fewer concerns about flying on airlines operating in bankruptcy because their commitment ends with the flight.)

A car is “a major investment for a lot of families and the assurance that it will perform for a set period of time is part of the bargain,” said Christie L. Nordhielm, an associate professor of marketing at the University of Michigan.

To help ease consumers’ fears, G.M. could put money in escrow to reimburse its 6,468 dealers for any repairs to address problems covered by warranties. Airlines have taken such steps in the past to guarantee the value of tickets for future flights.

A study of 6,000 consumers last summer by CNW Marketing found that 80 percent of them said they would switch companies if G.M. or Ford filed for bankruptcy protection in the United States, suggesting that only G.M. loyalists would stand by the automaker.

A bankruptcy filing by a single Detroit car company could cost the economy $175 billion in the first year of the legal case in lost employee income and tax revenue, the Center for Automotive Research estimated this week. Given the complexity, a G.M. bankruptcy case could last three years or more.

A bankruptcy at G.M., with $111 billion in assets, would rank as one of the biggest bankruptcies ever, but would still be dwarfed by the case filed by Lehman Brothers last spring.

There are parallels between the Lehman bankruptcy and G.M.’s situation. In each case, the government was faced with deciding whether it was worth favoring one entity over its competitors as it worried about the impact on the broader economy of a potential collapse.

Certainly workers in other industries who have lost their jobs may feel the government should extend more help to them, too.

“Why should the government treat G.M., Ford and Chrysler workers any differently?” said Professor Slaughter.

But the United Automobile Workers union, which has joined the automakers to push for a bailout, might find grounds for a strike if a bankrupt G.M. asked a court to throw out its labor contracts.

A bankruptcy also could jeopardize the fate of a health care fund created in 2007 that was supposed to shift a $100 billion burden off the companies’ backs. The U.A.W. recently agreed to let G.M. delay payments to the fund.

Professor Helper, of Case Western Reserve, said the social cost to communities in Michigan, Ohio and other states where its 55 plants and other operations are located could be devastating, if G.M. were to liquidate or significantly cut its work force.

“Even if they go bankrupt in a year, it is better than going bankrupt now,” given the state of the national economy, she said. “From a social point of view, even if G.M. is not providing a return on investment, it is still providing a lot of good jobs.”

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Op donderdag 2 april 2009 17:56 schreef Maanvis het volgende:
Het daalde met 14% .. 14% van wat?

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The city also recorded a 14% drop in murders in 2008 from the previous year which reduced the homicide rate from just under 46 per 100,000 persons to 37

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Op vrijdag 3 april 2009 09:22 schreef Perrin het volgende:
One in 10 Americans gets help from U.S. to buy food

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Op donderdag 2 april 2009 17:52 schreef Drugshond het volgende:

We Almost Lost Detroit

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Detroit: de spookstad waar een huis nog 5.500 euro kost
donderdag 19 mrt 2009

Detroit, de grootste stad in de Amerikaanse staat Michigan, is vooral bekend omdat de grote drie Amerikaanse automerken er hun hoofdkwartier hebben: Ford, General Motors en Chrysler. Maar de auto-industrie verplaatste steeds meer productie naar lagelonenlanden en deze ooit bruisende stad - ook de bakermat van techno en muzieklabel Motown- werd stilaan maar zeker een spookstad.

De afgelopen 40 jaar waren één langgerekte lijdensweg van sociale en economische crisis. 1 op 3 inwoners van de stad (en 1 op elke 2 kinderen) leeft in armoede, het gemiddelde gezinsinkomen is sinds het jaar 2000 met 24% gedaald, aldus cijfers van het Amerikaanse Census Bureau voor statistieken. 82% van de inwoners zijn zwarten, 47% zijn functioneel analfabeet, schrijft Newsweek.

En daar komt nu nog een triest record bij. De middenprijs voor een huis (median price betekent dat evenveel huizen meer kosten als er huizen zijn die minder kosten dan dit meetpunt) daalde in december tot 7.500 dollar (5.550 euro).

‘Niet 75.000 dollar', schrijft de Chicago Tribune. ‘Neen, haal een nul weg- het is zeven duizend vijfhonderd dollar, een pak minder dan de laagste prijs voor een nieuwe wagen'.

Toch is er ook goed nieuws. Detroit's moordpercentage daalde vorig jaar met 14%. Kandidaat-burgemeester Stanley Christmas: ‘Ik wil niet sarcastisch doen, maar er is gewoon niemand meer om te vermoorden.'




Toch de moeite van het kicken waard.

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Op zaterdag 18 april 2009 19:01 schreef Q. het volgende:
Mooi kijkvoer voor onder het eten zometeen.

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Op zaterdag 18 april 2009 19:29 schreef Swetsenegger het volgende:
Detroit one city of broken dreams.

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Retooling Detroit: Fixing a Failure of Finance or Imagination?

By Edward Bernton | Monday, March 16, 2009

As the Obama Administration deals with the bankruptcy crisis of the U.S. auto industry, it is clear that the very nature of U.S. manufacturing must change. Edward Bernton describes how Detroit re-made itself during another global crisis — World War II — and how it can do the same thing today.

If heavy industry leaves Detroit, and the U.S. automakers fail as businesses, it won’t be as much from lack of financing as from a failure of imagination.

Michigan has the nation’s most extensive heavy manufacturing and transportation infrastructure. But a decade of national policies that defined “globalization” as synonymous with shrinking the U.S. manufacturing sector — while the United States a whole transitioned to the “knowledge economy” — have left Detroit’s industry fatally dependent on consumer purchases of one commodity, automobiles.

The U.S. battery industry is several years behind leading manufacturers in Japan and Korea in the development of affordable, light-weight lithium-ion batteries. Despite a $25 billion federal grant and loan program announced in 2008, the most costly component of the new electric vehicles proposed by U.S. automakers, the battery, is likely to be procured from foreign suppliers.

From an environmental perspective, the adoption of electric cars without sufficient renewable or nuclear electrical generating capacity may actually result in more fossil fuel usage, not less.

Forty one percent of U.S. electricity is generated from natural gas — and 30% from coal. Only 10% is generated from nuclear energy and about 10% from hydroelectric, wind, solar, biomass and other renewable sources.

Furthermore, generation and distribution of electric power from the generating plant to the electric car battery involves a loss of at least 20% of the generated power, as mechanical and electrical resistance turns it into heat.

Thus, with the current mix of electrical power generation, less than 20% of the energy use by electric cars would be supplied by sources which do not increase CO2 emissions, contribute to global warming, and deplete scarce renewable fuels.

In the United States, in contrast to France (which generates 75% of its electricity at nuclear power plants), it is hard to see how electric cars would reduce either global warming or dependence on fossil fuels, except to the extent they are smaller, lighter and more efficient than current automobiles.

However, there are other means by which the automotive industry and its work force could retool and reinvent itself to produce products for which there are abundant markets — and which don’t depend on the permanent expansion of America’s car culture.

The current discussion about Detroit’s future seems to focus almost exclusively on electric cars. Unfortunately, the electric car is not an ultimate solution, either for the auto industry or for global warming.

Yet, the current debate on the future of the U.S. car industry assumes that the answer is simply to build the “right car," probably an electric car.

Let’s remember that the U.S. automotive industry has already showed the ability to rapidly retool its manufacturing plants in the face of a national emergency.

Six months into World War II, Time magazine reported: “The automotive industry has undertaken to build 75% of all the aircraft engines, more than 33% of the machine guns, 40% of the tanks, besides all the motorized units. One company alone is making more than half the Diesel engines for the whole U.S. Navy.”

And Time added: “It is cutting costs and saving time all along the line through mass-production short cuts: a parts plant lopped 25% off the time Army Ordnance thought it would take to make machine guns; an automaker cut the time scheduled for a British ack-ack gun by four months and evolved a new way of broaching the barrel that cut that operation from 3½ hours to 15 minutes.

“But perhaps the most extraordinary thing of all about Detroit-at-war is the change in the industry's thinking about improvisation. As late as a year ago, many automen swore that not much more than 15% of their wonderful one-purpose tools could be used for anything but automobile production.

“This week's report cited one automaker who is now using more than 80% of his automotive tools and equipment for war production. For the industry as a whole, the big manufacturers have converted some 65% of their automotive equipment, the smaller ones more than 40%.”

Given all that, perhaps the question to ask at this point of time is not, “How can Detroit build and sell more cars again?”

The more imaginative and most constructive question to ask is, “How can Detroit’s unique heavy industrial base be redeployed to produce goods that can meet our transportation needs while strengthening our national infrastructure and reducing our profligate energy use?”

Come to think of it, and ideology aside, demand for mass transit in the United States has never been greater, with ridership at its highest levels in 50 years and almost 400 new rail, streetcar and bus rapid transit projects proposed across the country. Americans took 10.1 billion trips on public transit in 2007, saving 1.4 billion gallons of gasoline.

There is so much interest in mass transit that 37 states have proposed projects worth $248 billion. Yet at the current rate of federal investment, these projects would take 77 years to complete.

The relatively low level of light and heavy rail transit investment in the United States stands in sharp contrast to funding in other parts of the world. China, for example, is dedicating $88 billion for the construction of 1,062 miles of rail from 2001 through 2015.

Over the 12-year period covered by the last two federal transportation bills, the United States dedicated about $19 billion for mass transit. Under the fiscal stimulus bill, H.R. 1, currently only $10 billion is budgeted for mass transit, as compared to $30 billion for highway projects.

Of course, with GM alone generating revenues exceeding $200 billion in 2006, rapid transit and light rail alone will hardly lift Detroit. But surely public transit investment should be part of a dream of sustainable transportation.

A major hurdle for both light-rail systems and modern bus transit systems is the paucity of U.S. manufacturing capability for both light-rail cars and modern buses. This results in long waits for the new cars required to expand most rapid transit systems or even to replace aging cars.

The bulk of light rail cars are either manufactured outside the United States or assembled at U.S. plants from components made by foreign companies. For example, for the San Francisco and Los Angeles systems, the cars are manufactured in Italy by Breda Costruzioni Ferroviarie in Italy — and shipped to San Francisco for assembly.

The DC Metro system initially bought cars from Breda in Italy and CAF in Spain. Newer cars are assembled in New York from major components manufactured in Spain. Other major suppliers of light rail or commuter rail cars include Bombardier in Canada, Siemens in Germany, Rotem in Korea, and Kawasaki in Japan.

While some light rail cars are assembled from foreign components, of the 10 current manufacturers of light rail cars, only one company claims to manufacture in the United States. United Streetcar in Oregon, assembles cars from designs and components from the Czech company Skoda.

In addition, bottlenecks in foreign capacity often force long delays on U.S. transit systems which compete with expanding systems in Asia and Europe to take delivery of new equipment.

Until its sale by General Motors in 2005, GM’s Electro-Motive Division was the second-largest supplier of railroad locomotives in the world. It still has the largest installed base of rail engines in the world.

And if U.S. car companies are developing the technology for electric cars and hybrid vehicles, it is important to remember that light rail cars are also electrically driven.

Is there any reason that the revitalization of the automotive manufacturing sector could not, with some government support, include the development of a U.S. manufacturing capability for light rail and commuter rail vehicles — a market now almost entirely met by imports?

Does it take more imagination than the Congress or the U.S. automotive industry now possesses to envision a future where American workers and technology compete and succeed in a big market which they have never before entered?

It is indeed ironic that General Motors is often accused of sabotaging the street car infrastructure built in the Western United States before the 1950s in order to sell its buses. An April 9, 1947 anti-trust ruling by the 7th Circuit Court found nine corporations guilty of conspiring to monopolize interstate commerce.

With financing procured from General Motors, Firestone, and Standard Oil, these corporations were accused of buying and dismantling hundreds of private street car companies, replacing them with bus lines supplied, serviced, and fueled by the above investors. However, many dispute this story, saying the street cars were replaced due to their operating inefficiencies.

Of course, sustained demand for both more fuel-efficient vehicles or mass transit will depend ultimately on predictably increased costs for motor fuels. This is unlikely without taking measures to price petroleum fuels to reflect their real costs, effects on air quality and global climate.

For many years, Europe has led the way with high gasoline taxes that limit fuel demand. These have stimulated production of efficient cars and the expansion of rail and mass transit systems.

A significant increase in U.S. gasoline taxes, ideally offset by a matching cut in payroll taxes to ease the burden on working families, would make investments in next generation cars or U.S.-manufactured transit stock sustainable and ultimately profitable. This remains a key part of the solution to Detroit’s current problems, and to any ultimate solution involving either electric cars or expanded mass transit.

The U.S. experience with industrial conversion during WWII should teach us that transformative change in the nation’s industrial base is possible.

As textiles, pharmaceutical manufacturing, electronics and other industries have left this country, we have assumed that American factories could not compete with inexpensive labor in China and India. But is there any reason to believe that U.S. manufacturing can not compete with Canada, Germany, Italy, Spain, and Japan with their high pay scales, rigid labor rules, and higher business taxes?

These are the countries who now supply the key components for U.S. transit systems. This is the opportunity to use those assets that pulled the United States through so many past crises: energy, imagination, optimism and — above all — a willingness to work hard.

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Op zaterdag 18 april 2009 21:05 schreef Drugshond het volgende:
En over een maand (of twee) gaan we helemaal los.
*Put your hands out for detroit*

GM = toast... (like beef, medium style is not good enough)