GM facts and fiction

[RedSHED]

My opinion is that the current product mix - and therefore the current difficulties are in large part due to the well-intentioned but ultimately counterproductive use of CAFE standards to raise fuel economy while leaving big loopholes (literally, large enough to drive an Escalade through) allowing the continued production of very inefficient vehicles. (and it affected domestics the most because this was their chief market)

If the government had a hand in creating those conditions - a unique set of tax & safety laws among the home countries of auto producing nations - then that government probably needs to do something about the resultant mess.

As far as the US being too small for three manufacturers, the presence of 3 independents in Germany (plus a 4th, Opel, which is a subsidiary of GM's) shows that to be false.

As Wagoner said back in July or August, "We're going to need some help on the demand side" which Autoblog (or Autobloggreen, I forget) translated as a request for higher gas taxes. This would have the effect of stabilizing the conditions, creating demand for fuel efficient products, and moving us away from the fragile truck-based manufacturing model.

Also, remember Nardelli came from Home Depot - Chrysler's current state is more a reflection of Daimler's wishes (they owned it until last October) than anything. Mullaly came from Boeing, where he rolled the dice on the next big Boeing being fuel efficient instead of fast. Only Wagoner is an "insider" and stories are circulating about the extent of GM's cost cutting. I think they're serious.

[RedSHED]

One other note, the US Government has already approved 25B in loans. These loans will be made available in the indefinite future. One of the requests of the 3 is to make the money available sooner than late 2009, which seems reasonable.

Also seemingly reasonable is a statement on how the loan money would be used and plans to pay it back.

[mrmossyone]

Originally Posted by Silvertwinkie

I had left this thread until I heard this news today:

Bush: U.S. will act to safeguard financial system - Nov. 24, 2008

Then please, enlighten my as to why this is ok and not giving the automakers money? Citibank was just given another 20 billion having already been given 25 billion a few weeks ago, and the government is guaranteeing 300 billion in losses.

So I know you are totally against these actions as well, but if we are already doing it, I can't see still how even $100 billion to the domestic automakers is any less important, degree in economics or not. We've already opened up the treasury for the banks, and I see the point of where do you stop, but my point is, you can't just stop with the banks. I mean really, 45 billion to Citibank in the last 4 weeks and zero to the big 2.5? Both institutions are important.

By this logic the government can't then stop when any industry puts their hand out, they will all have very compelling reasons why they are so vital to our economy. I hope smarter people than me will figure this out but I don't personally see how throwing good money after bad will help anything.

[RedSHED]

Originally Posted by mrmossyone

One major reason cars with more mass are safer is that they generally have much larger crush zones to dissipate energy release. There is new technology coming on line to help increase the size of crush zones without increasing mass which would be safer in an accident with a car of same or less mass and even help in a wreck with a vehicle with more mass. There is no doubt that everyone would be safer if there were only small cars with very little litlle mass and large crush zones( which is not currently the case with small cars), but your playing with the big boys out there on the road and will continue to do so in the forseeable future. Small cars can be made to be much safer in auto accidents, the technology is there but be prepared to pay a whole lot more for the car.

Slightly OT, but a fun watch:

1960's Crash Test compilation

.
a more modern head on

Truck vs car

I suspect if smaller cars become the norm, there may be some insurance increases to the larger cars/trucks to account for the difference. Do not know that, however. The trick is to find an 80 year old who's never had an accident and learn from them. I did that while learning to fly and didn't regret it :-) .

[Air2Go]

Re: Citibank vs. GM


George W. Bush owned a 1980 Chevy Chevette and has never forgotten the experience

[Gene]

Originally Posted by hampstead38

You have not demonstrated that the loans are necessary... or even a good thing.

Look at how long it took us to understand the Great Depression.

Hampstead, your reference to Silvertwinkie never having shown loans were necessary is incorrect. I just went, quickly, through the entire thread and among others he's posted, his point of view can be seen in Posts 6, 7, 14, 18, 19, 36, 57, 222, 227. Of course, many others have also written on this thread about why the loans are necessary.

As for the G. Depression, given our disagreement on the causes and cures, it appears it will take somewhat longer to reach a universal agreement.

'twinkie didn't stay away for long and the pull of this thread seems strong. Even jimmini came back. I do think we are tending to repeat ourselves, however.

Gene

[wheel interested]

Hampstead I looked up your link on moral hazard and I will copy this short section:

Brokers, who were not lending their own money, pushed risk onto the lenders. Lenders, who sold mortgages soon after underwriting them, pushed risk onto investors. Investment banks bought mortgages and chopped up mortgage-backed securities into slices, some riskier than others. Investors bought securities and hedged against the risk of default and prepayment, pushing those risks further along. In a purely capitalist scenario, the last one holding the risk (like a game of musical chairs is the one who faces the potential losses. In the 2007–2008 subprime crisis, however, national credit authorities – in the U.S., the Federal Reserve – assumed the ultimate risk on behalf of the citizenry at large. This led to concerns about the rise of corporate welfare, or economic fascism(corporatism), given the potentially large transfers of wealth to investors in mortgage-backed securities.

I am learning a lot in this thread. That explanation is easy to follow. We used to play hot potato besides musical chairs, excellent analogy I thought.

I too have wondered why building and rebuilding in unstable places such as beach front that often floods should be passed along to those that do not make risky decisions. Good link you posted. Knowing you have a fall net would encourage engaging in riskier behaviour.

So while I am learning I am still inclined to think intervention is necessary at this point. I can't disagree with what you have said and now that I am learning it it is clearer than ever. And I agree with you that no one knows what will happen either which way until it is long over.

This has been a good thread as mentioned before, very civil and very good information and very diverse and interesting.

[pmclemore]

I'm not an expert, but I believe the difference between the loans to the financial institutions and those to the auto industry is that the former need the funds for liquidity rather than to meet operating expenses, which is what the auto makers need.

The cash and credit markets have gotten so intertwined that they have got to be sorted out. Cash provides the time to sort it. Absent an infusion of cash, you'll have crises similar to bank runs, in which good assets are devalued along with the bad ones.

Pat

[53flyingcloud]

Originally Posted by mrmossyone

One major reason cars with more mass are safer is that they generally have much larger crush zones to dissipate energy release. There is new technology coming on line to help increase the size of crush zones without increasing mass which would be safer in an accident with a car of same or less mass and even help in a wreck with a vehicle with more mass. There is no doubt that everyone would be safer if there were only small cars with very little litlle mass and large crush zones( which is not currently the case with small cars), but your playing with the big boys out there on the road and will continue to do so in the forseeable future. Small cars can be made to be much safer in auto accidents, the technology is there but be prepared to pay a whole lot more for the car.

Yes, the technology is there and, you don't have to pay a whole lot extra either~!
The range of prices is "acceptable"

YouTube - smart car crash

I found this to be very, very interesting..
Even the windshield survived~!
ciao
53FC

[Gene]

Originally Posted by wheel interested

I too have wondered why building and rebuilding in unstable places such as beach front that often floods should be passed along to those that do not make risky decisions. Good link you posted. Knowing you have a fall net would encourage engaging in riskier behaviour.

Giving people flood insurance to protect something they built after it was learned there was a flood hazard has never made sense to me. If they want to build after being flooded out, they should be required to build a bunker—and they are to some extent.

But I think the problem with the moral hazard argument is that it cannot be absolute. I accept it for people who build in a flood plain now, but those who built decades ago, before there was a societal recognition of the dangers, should be able to get the insurance. We also subsidize people in flood plains by building flood control projects and the gov't doesn't even collect insurance premiums for that.

With the flood issue, there was a societal decision that there were too many homes and businesses in flood plains to allow them to be destroyed or to let all those people have massive losses since they couldn't get private insurance. In other words, they were too big to fail because of the severe dislocation that would be caused.

We have had another example of the "too big to fail" argument when Citigroup has been propped up again. And, unfortunately, it appears there have been no controls, restrictions, execs fired, just like the other banking bailouts. This refusal to trade restrictions and the rest of it for the bailout is a perfect example of the moral hazard argument—banks have learned they can screw up and just get bailed out.

I am not condoning that. There has to be a trade off to promote good banking behavior and protecting other parts of the national economy.

And, still nothing from the Treasury Dept to help homeowners facing foreclosure because they were sold bad mortgages and they didn't have the financial knowledge to understand what they were getting into. They respected the sales people as authority figures, didn't have economics, accounting or law degrees, and got screwed. This is where the problem started and yet there's no attempt except from the FDIC to solve the underlying problem. As so all suffer because of that. Every attempt to create national legislation to prevent predatory lending was defeated by free market guys like Phil Gramm. Now Treasury (Hank Paulson) talks moral hazard about mortgages while ignoring it when bailing out his banking buddies. This is the utmost in hypocrisy.

Gene

[Larry in MO]

Originally Posted by CrawfordGene

And, still nothing from the Treasury Dept to help homeowners facing foreclosure because they were sold bad mortgages and they didn't have the financial knowledge to understand what they were getting into.

Well, Gene, I'm going to have to respectfully disagree. I have more than a little problem w/ the idea that people were "screwed". If it were me it probably would have occurred to me that I would not have qualified for a house because:
a. I didn't have a job
b. I didn't have any savings
c. I didn't have any down payment
d. I'm up to my neck w/ credit card debt
e. I owe money to the check cashing places and pawn shops
f. My car has been repossessed
g. I never could afford a house before, why can I now?

Or some combination of the above--lots of people were simply
not qualified for home ownership never mind the idea of home
ownership for everyone.

I think people should be more aware, act for themselves, and look out for themselves w/out waiting for the government to do every single thing for them.

**Flippancy alert**
The dikes have broken and the water is rushing in. Maybe we should move up the hill to higher ground.

Government involvement, such as the Community Reinvestment Act signed by President Carter 1977 which pushed Fannie Mae and Freddie Mac to aggressively lend to minority communities by lowering the bar for qualification in lending. Along come President Clinton and about 1977, he pushed rule changes that gave Fannie Mae and Freddie Mac extraordinary leverage, allowing them to hold just 2.5% of capital to back their investments, vs. 10% for banks. Let the cronyism begin!

With incentives in place, banks poured billions of dollars of loans into poor communities, often "no doc" and "no income" loans that required no money down and no verification of income. Screwed? No, but certainly not helped any.

[Stephen Mick]

As to the question of "why bail out one sector (financials) but not another (auto industry)," here's my take. (Opinion follows.)

The failure of the auto industry will certainly affect many, but likely not all. The failure of large firms in the financial sector undermines the public's belief in the stability of the entire sector. It's likely a very short short step and very long fall from perceived instability to complete monetary panic. Therefore, the failure of large banks/holding companies like Citigroup has the potential to create panic on a much larger scale, with much longer-lasting effects.

(Again, my opinion, based in a "fair" understanding of the economy and markets.)

--SM

[mrmossyone]

Originally Posted by 53flyingcloud

Yes, the technology is there and, you don't have to pay a whole lot extra either~!
The range of prices is "acceptable"

I found this to be very, very interesting..
Even the windshield survived~!
ciao
53FC

Did you hear what they said about how the other little econobox faired better than the smart car? Did you also hear them at the end when they said the smart car might have faired okay but the passengers certainly would not have. Also those were not true head on collisions both were from an angle to allow the car to carom off to the side. Can you imagine if there was another car hitting the smart car from behind. What if you were struck from the side with just that flemsy 3 or 4 inch door between you and whatever is hitting you. That car has a long way to go before I would consider it safe in comparison to larger cars. There simply isn't enough crush zone room to protect you from the energies being released.

[Gene]

Originally Posted by Larry in MO

Well, Gene, I'm going to have to respectfully disagree. I have more than a little problem w/ the idea that people were "screwed". If it were me it probably would have occurred to me that I would not have qualified for a house because:
a. I didn't have a job
b. I didn't have any savings
c. I didn't have any down payment
d. I'm up to my neck w/ credit card debt
e. I owe money to the check cashing places and pawn shops
f. My car has been repossessed
g. I never could afford a house before, why can I now?

Or some combination of the above--lots of people were simply
not qualified for home ownership never mind the idea of home
ownership for everyone.

I think people should be more aware, act for themselves, and look out for themselves w/out waiting for the government to do every single thing for them.

Larry, what seems obvious to you is not obvious to lots of less sophisticated people. Your example does not cover everyone who got a subprime or Alt-A loan. It probably is a very, very small group that resembles the guy you describe to make your point (no, I don't have the statistics and I'm not sure anyone does).

Mostly they are people who believed what they were told by people pushing loans to satisfy their bosses at crazy companies like Countrywide. If someone who works in the industry tells you that you are qualified, why wouldn't lots of people believe it? Obviously they did and does that make them bad people? This could be criminal or civil misrepresentation or fraud; there are lawyers starting to take this on, but it's only a piecemeal approach. Some may have been told the terms of the mortgage were different than they actually were (how many people can understand all that paper at a closing), and perhaps something was changed just before closing (all that really did happen to some people). Maybe they were dumb, maybe they were lied to, maybe they just believe what people tell them when they appear to be honest (but aren't). Some were people trying to flip houses. That latter group took their chances and it's ok with me if they got caught in it. But for most, they are victims of their lack of knowledge who were trying to have the American Dream, encouraged by the gov't (remember the "ownership society"?).

So what do we do? If you, as a smart guy with a 20% down payment, bought a house in "Happy Acres" and about 25% of the people there paid too much a year later for a house because values kept increasing, and another 25% got loans they thought they could afford, but couldn't for any number of reasons, what would happen? Some people will want to move (Americans are always moving generally at the rate of 20%/year) and have to sell at a loss. Maybe they'll just walk away, maybe their corporate employer will take the house and sell at a loss, maybe they'll list it cheap, but can't sell it, or can. Others will default because the interest payment goes up or they lose their jobs or they are maxed out on their credit cards or their just kinda dumb. Some will cut back on food, medications or landscaping.

Pretty soon there are some houses that look uncared for because of the landscaping problem. Others are abandoned or taken back by mortgagees who don't keep the property up. Some teenagers break into one and have parties there; maybe it burns down because they started a fire in the fireplace and left it. Now you have been offered a job in another city at a big raise, but can't sell your house because it now looks like Unhappy Acres, or because your house is worth less than your mortgage and you can't afford to make up the difference. The whole neighborhood starts to look bad—only 5 or 10% of empty houses has a big effect. A lot of "for sale" signs tend to lower prices too. The local gov't has two choices because property tax revenues (maybe sales tax too) are dropping—raise the millage and you pay more, or cut services. Maybe they close the nearest fire station (no wonder that party house burned down), or lay off 10% of the cops, or close the nearest school or don't fill the potholes or don't clear the snow as often. Then Happy Acres is even less desirable. You did all the right things, but now you are a victim. Your only way out is to buy flood insurance and blow up the dam just upstream.

Solving the mortgage crisis is not easy and parts are hard to swallow. Some people who do not deserve to be bailed out, would be bailed out because it can cost more to distinguish who's bad from who's dumb. Whole communities will suffer because a relatively small number of people were wrong or dumb or foolish. But we are all in this together. It is a community and what happens in one part, affects the neighbors. I have to pay for this too. I'm not only advocating spending Hampstead's tax money and yours, but mine too, because I think it's the only way out of this without much worse consequences. I'm also angry that we are in this mess, but we may be angry at different people or groups. But whomever we are angry at, the problem and the consequences are the same.

So, Larry, I respectfully disagree, and I hope you don't live in Unhappy Acres.

Gene

[Larry in MO]

Originally Posted by CrawfordGene

Larry, what seems obvious to you is not obvious to lots of less sophisticated people.

Ouch!

And, no, I don't live in Unhappy Acres. I live on the corner of a cow pasture where there are no county services but we do have a volunteer fire department. I do not, however, have sirens, people screaming for help, gunshots, boom boxes, and crime. I like my pasture and Earl, Abby, and Otis, the Golden Retrievers can chase the deer. Never caught one but they still try. I'm as happy as if I had good sense! The only "for sale" sign is up the highway and is owned by a builder that builds a house and moves in and tries to sell it. It's been a little slow lately.

The new thing around in the big city which I try to avoid at all costs (to lend a little support to your theory) is that the thrifts have slowed down the foreclosures when folks are behind or have walked away. They figured out that they become responsible once it is back in their possession so it is up to them to cut the grass, etc., or face the wrath of the codes crazies. "Not our house, ma'am, and, no, I don't know where Mr. and Mrs. Smith are," is the current mantra.

I certainly respect your opinion but I think there were just as many larcenous hearts in the home buyer business as the home loan business, if not more. Some more of something for nothing. There are assistance groups for the folks that need legal help, medical help, free ambulance rides, college tuition, groceries, school lunches, school breakfasts, cab rides, etc., everywhere around here. They use the free deals like they have to use them or they will lose points or something. (Wanna start a thread about abuses of the social system?) It was there for the asking.

I see the point of helping out the banking system--it is involved in literally everything and makes it all run. I didn't like it and I don't want to pay for it but they did it so I'll end up paying like any other person w/ a job. The auto industry? They made their own bed. I'm certainly sorry for the individual workers' families but I don't want to pay for them either but I bet I will. Financing the current theory of spreading the wealth will not come from the people that don't work.

The problem, as I see it, is that the leaders of the government caused this mess and they are the ones that have decided they should fix it. After all, a politician only has one job once he's elected and that is to get reelected. (Grease the palms, rake in the earmarks, and act like you care unless you're emailing dirty things to pages or trying to meet a new friend in the crapper or get caught with bundles of money in your freezer.) There has to be some money in it for them. Well, that usually means way more problems than they solve. Next time you go to the DMV watch what goes on. That is the gov't in action. The gov't has pretty well ruined Social Security by financing every feel good, hold your hand out program since I can remember. Lessee--The New Deal, The Great Society, and now Spreading the Wealth. I'm not sure I can finance many more gov't plans. They do put together a pretty good military, however. Anything else the gov't does well? Anybody?........Anybody?

Anyhow, I hope your blood pressure has gone down. I know I'm going to have to pay for it but I don't have to like it!

[85MH325]

Originally Posted by Larry in MO

Or some combination of the above--lots of people were simply
not qualified for home ownership never mind the idea of home
ownership for everyone.

Larry, the problem is that they were qualified for loans. We know they were qualified because they were loaned money!

The qualifications for buying a loan were dropped to almost nothing by the lenders... and that's the fault of the consumer? That's a little hard to swallow. Especially when the average mortgage consumer isn't very well educated in finance or economics to begin with. They take their pay stubs to the lender, and the lender says "here's your mortgage". Never mind that it has a 72 month balloon, and that if you can't make the balloon, it refinances at an interest rate 10% higher? And the lender says, "no problem, it'll be worth more then, so you'll have the equity to show a down payment for a conventional refinance loan... don't worry about it..."

And the consumer doesn't know who to get advice from, or even what "predatory lending" means.

I have to agree with Gene... I don't like the options any better than anyone else, but in the short term, in order to preserve what's left of our economy, we need the infusions of cash.

In the long term, we need to take back control of the oversight and lax regulation that has allowed business to make the stupid decisions we've seen in the interest of trying to make a killing instead of being happy with a more reasonable rate of return.

Roger

[Larry in MO]

Originally Posted by 85MH325

The qualifications for buying a loan were dropped to almost nothing by the lenders... and that's the fault of the consumer? That's a little hard to swallow.

Do you people ever wonder how these people make it to the bathroom on their own? These people aren't 12, are they? Do their moms still walk them to the bus? If they fail a course in school, is it the teacher's fault. I'm guessing those are the cases. Hard to swallow is accepting that no one is responsible for his/her own actions anymore. Where is the individual accountability? No where, that's where. The government will take care of you! A dependent society is where we're going where no one will move or breath w/out government assistance. And you don't mind paying for it?

Originally Posted by 85MH325

Never mind that it has a 72 month balloon, and that if you can't make the balloon, it refinances at an interest rate 10% higher?

I guess I missed the part about someone pointing a gun at them and making them sign up.

What I do know is that we've moved this fairly far afield of the original post. My apologies!

[Gene]

No apologies necessary Larry. We're burnt out on GM, so we move onto mortgages. I do think there should be accountability. How do we deal with the predatory lender who has taken advantage of the unsophisticated borrower? Who is more accountable? Tough questions to answer, but I'd go after the predatory lender and try to solve the borrower's problems for the benefit of society as a whole.

I knew you didn't live in Unhappy Acres, just an story to illustrate a point. We too live in a rural area. No sirens, not much crime, very quiet. Well, last year the crazy neighbor shot up my mailbox (frontier injustice), but he died a few months later, so a guess the wheel of karma turned.

Gene

[85MH325]

Originally Posted by Larry in MO

Do you people ever wonder how these people make it to the bathroom on their own? These people aren't 12, are they?

Every day, Larry, every day! I'm a cop.

My point was that the lender is responsible for determining who's a good risk and who's not; it's not the borrower's role to say "I'm a bad risk, I shouldn't take your money". Granted there was greed on both sides, but the lenders have more culpability than the borrowers (at least IMHO).

Roger

[ROBERTSUNRUS]

[quote=CrawfordGene;641649] We're burnt out on GM, so we move onto mortgages. I do think there should be accountability. How do we deal with the predatory lender who has taken advantage of the unsophisticated borrower? Who is more accountable? Tough questions to answer, but I'd go after the predatory lender and try to solve the borrower's problems for the benefit of society as a whole.

Originally Posted by 85MH325

My point was that the lender is responsible for determining who's a good risk and who's not; it's not the borrower's role to say "I'm a bad risk, I shouldn't take your money". Granted there was greed on both sides, but the lenders have more culpability than the borrowers (at least IMHO).

Roger

Hi, I would like to say a few things about the above comments, loans, and car dealers; How many times have you seen adds stating that "We finance anyone, bad credit, bankruptcy, no money down, upside down on your current vehicle," Etc. Etc. Etc? To me, this is really asking for it, begging to loan or finance someone who is a very bad risk. This also teaches people that it's Ok not to pay on time, or not pay at all, and that you can trade in your old car for half of what you owe on it and drive off with a brand new car. Gee that works swell, maybe I'll buy a house now!