Besides the points made by herooftheage, here are a couple more things to ponder.
First, and perhaps most importantly, there is a *vast* amount of credit sitting on the sidelines -- several trillion dollars by most estimates. That money is waiting for *confidence*: it wants to know that businesses are looking like they are going somewhere.
The bailout is likely to do nothing but hinder that process. It's a tacit (indeed, maybe explicit) admission that this company is dreadfully broken and mismanaged. Moreover, it gets the government involved in a weird ownership stake, with new and ill-defined rules. That means that nobody *outside* the government is likely to invest in it for many years, until that's unwound.
(You'll note that Ford is at pains to emphasize that it neither expects nor wants to take the government's money -- it just wants a backup plan in case things go much worse than they expect. This is probably part of why.)
By contrast, the sharp shock of Chapter 11 is likely to get to an investable state much more quickly, because they'll have court power to untie the complications. Especially if they come up with a plausible plan (much, much easier if they have that court power), they're more likely to be able to convince those investors on the sidelines that there's a real opportunity here. By breaking the union contracts, closing unprofitable business lines (which I gather are in some cases constrained by state laws), and wiping out existing equity, they could pretty quickly turn the company into a very attractive investment proposition. But most of that can't be done by a bailout, even with a supposedly-powerful "car czar".
Further, the fall in sales is at least partly their own damned fault. You'll note that the fall is not consistent across the industry -- it's especially noticeable that GM's sales have fallen significantly further than the industry average, and Ford's significantly less. To me, that's a clear sign that the consumer market has *already* priced GM's bankruptcy in. That is, everyone has gotten the message (sent mostly by GM itself) that GM is about to go bankrupt, and you shouldn't buy from a bankrupt company. It's not clear to me that a bailout is going to do a damned thing to change that: it doesn't make a qualitative difference to that message. Do you really see people as more likely to buy GM after the bailout? Personally, I think it's *less* likely -- I think it'll just worsen the death-spiral.
To put it more bluntly: it's not clear to me that a bailout of GM will do anything but stave off the inevitable for a few months. They need major qualitative changes in both their business and their image, and it's not clear to me that anything *except* Chapter 11 can bring that about, because their hands are tied in too many ways they can't change without court backing. So that bailout money seems likely to simply get poured down a black hole, as effectively a short-term job-insurance program. Which is a fine thing to want, but if that's the real desire, there are better ways to do it...
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Date: 2008-12-13 08:56 pm (UTC)Besides the points made by
First, and perhaps most importantly, there is a *vast* amount of credit sitting on the sidelines -- several trillion dollars by most estimates. That money is waiting for *confidence*: it wants to know that businesses are looking like they are going somewhere.
The bailout is likely to do nothing but hinder that process. It's a tacit (indeed, maybe explicit) admission that this company is dreadfully broken and mismanaged. Moreover, it gets the government involved in a weird ownership stake, with new and ill-defined rules. That means that nobody *outside* the government is likely to invest in it for many years, until that's unwound.
(You'll note that Ford is at pains to emphasize that it neither expects nor wants to take the government's money -- it just wants a backup plan in case things go much worse than they expect. This is probably part of why.)
By contrast, the sharp shock of Chapter 11 is likely to get to an investable state much more quickly, because they'll have court power to untie the complications. Especially if they come up with a plausible plan (much, much easier if they have that court power), they're more likely to be able to convince those investors on the sidelines that there's a real opportunity here. By breaking the union contracts, closing unprofitable business lines (which I gather are in some cases constrained by state laws), and wiping out existing equity, they could pretty quickly turn the company into a very attractive investment proposition. But most of that can't be done by a bailout, even with a supposedly-powerful "car czar".
Further, the fall in sales is at least partly their own damned fault. You'll note that the fall is not consistent across the industry -- it's especially noticeable that GM's sales have fallen significantly further than the industry average, and Ford's significantly less. To me, that's a clear sign that the consumer market has *already* priced GM's bankruptcy in. That is, everyone has gotten the message (sent mostly by GM itself) that GM is about to go bankrupt, and you shouldn't buy from a bankrupt company. It's not clear to me that a bailout is going to do a damned thing to change that: it doesn't make a qualitative difference to that message. Do you really see people as more likely to buy GM after the bailout? Personally, I think it's *less* likely -- I think it'll just worsen the death-spiral.
To put it more bluntly: it's not clear to me that a bailout of GM will do anything but stave off the inevitable for a few months. They need major qualitative changes in both their business and their image, and it's not clear to me that anything *except* Chapter 11 can bring that about, because their hands are tied in too many ways they can't change without court backing. So that bailout money seems likely to simply get poured down a black hole, as effectively a short-term job-insurance program. Which is a fine thing to want, but if that's the real desire, there are better ways to do it...