With General Motors in serious trouble, Speaker of the House Nancy Pelosi, D-Calif., and Senate Majority Harry Reid, D-Nev., are making a push for the government to intervene and rescue the auto giant as they did with AIG. However, Francesco Guerrera, U.S. editor for the Financial Times, isn't so sure a GM failure would be as bad as some are letting on.
Guerrera appeared on CNBC's Nov. 10 "Power Lunch" to weigh the pros and cons of the newly revised AIG (NYSE:AIG) rescue package. He was asked if this type of government intervention should be offered for General Motors (NYSE:GM).
"That's what they say," Guerrera said. "I'm not sure I buy that. I think there'll be a lot of job losses if GM fails, but there's nothing systemic in the sense that if AIG goes or if, you know, one of the other banks goes - there'll be a ripple effect throughout not just the U.S. economy, but global financial markets. I don't see how you can make the systemic risk argument for a car company."
Pelosi and Reid, in a letter dated Nov. 8, urged Treasury Secretary Henry Paulson to intervene and rescue the ailing auto giant - part of which meant to aid in "the creation of green jobs for the future."
One of the arguments made by legislators, as CNBC's Michelle Caruso-Cabrera pointed out to Guerrera, is that the lending arms of the automakers, including GMAC and Ford Consumer Credit, pose "systemic risk" to the global economy. She also cited the fallout from the failure of Lehman Brothers earlier this year and its effect on the credit markets. Guerrera explained bailing out GM would not be the same thing.
"I think they're less interconnected than Lehman in terms of their exposure to parts of the credit markets that froze when Lehman went," Guerrera said. "And, I think that those arguments are valid. I just think that they're less clear cut than you would have them for an AIG."
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i am not so sure the
November 10, 2008 - 17:25 ET by patmac49i am not so sure the government should bail out gm..that is a road to full fleged socialism and obama is not even president..some jobs will be lost,some families will face a tough time ,but eventually,we would survive..i think it would be better for the gov to study WHY gm cannot survive
GM
November 10, 2008 - 20:02 ET by doug1950I once had to do a point/research paper on organizational effectiveness and I chose GM as my subject. At that time they were again in serious financial trouble and during the course of the research, I found that GM had at least 8 levels of management. It was utter ridiculous the various levels where decisions had to be made so far up the chain of command. More often than not the various departments did not ever talk to each other, the final decisions would often never get back to the people who had to implement them. Additionally, the decisions were made by people not qualified or knowledgeble enough to make the decisions. In contrast, I cited Toyota where if a worker on the assembly line saw something that was not cost effective, or dangerous, etc. they could immediately stop the entire line, go to their supervisor on the spot. Or if the average worker had a better idea they could present it without fear of someone higher up the food chain stealing the idea as their own. They have something in their culture called integrity that prevents them from doing that. At that time, GM was losing money on every Cadillac they sold due to the high costs to maintaining the union workers packages and the company had to make up the differences through their other models that were more popular and sold more (Chevy, trucks, etc.) Since then (it's been over 15 years since I did this) GM has not learned a damn thing.
Companies need to be
November 10, 2008 - 19:16 ET by katainkentCompanies need to be allowed to fail. Darwinian as it may sound, if they are not allowed to survive or fail on their own merits, they will be weak and will drag the overall market down. Example being the mortgage market. Allegedly there was no risk of failure in the "high-risk" loans which in turn led to excessive leveraging and poor investments.
Not all banks did this, and those banks remained strong. By trying to prevent the weak banks from failing, the overall banking market is weakened.
Consider now the auto industry (or insurance industry!)…if we continue to bail out failing companies, there is no incentive to make their companies cost efficient and profitable. Incentive leads to innovation. Innovation leads to growth.
It would be better to give tax incentives rather than blank checks. Otherwise these companies will stagnate and die like the dinosaurs they have become.
member of the Conservative Independant Witness Protection Program since Nov. 5, 2008
Bailout
November 10, 2008 - 19:39 ET by CrackerMomThis bailout had to be one of the most powerful arguments I had when talking to my Dem friend about politics. (She voted McCain by the way) I'm certainly not up on all the inner-workings of finance, but it really boiled down to simple capitalism. Try and fail on your own merits. Those who succeed enjoy their success. Those who fail are parceled out to those who succeded. Eventually the clients and employees of defunct companies are absorbed by businesses with a sound plan for success and growth.
Gotta tell ya, we are both pretty ticked at the "more money please" AIG. For heavens sakes, we could probably give money to every American over the age of 18 and still come out ahead on the number AIG is saying it needs. AIG only represents a small amount of folks in their investments. How on God's green earth do they need that much money unless someone on the inside is STEALING it? Before I would give MORE money to a company that has already gotten and spent my money.. I'd want to know what they spent it on! This is not loaning my buddy 4 bucks for lunch and understanding that I may not get it back, however he will help me move one day if I need him. This is billions of dollars going to my crack head friend who can't look me in the eye when I give him $5... because he's going to be back in 2 days for another $5 and never have anything to show for it. Heck if he sees I have a $10 bill he wouldn't have any compunction on taking that instead of $5. I'd hope I'd wise up and stop giving him money and feeding the disease.
Stand and fall on your own merits. Start over if you fail and do it better and smarter. Understand that with risk comes reward, but risk is still risk and you can lose everything.
Oops.. look at me talking like we are still running on capitalism. I want a bailout too!
Congress Buying Big Auto. Has Big Auto Bought Rush?
November 10, 2008 - 20:41 ET by R. Boris T.Is GM using big ad buys to mute criticism from Rush and Sean?
In a nutshell, GM has big ad buys on both shows, not merely commercials, but live endorsement spots, highlighting their new hybrid and flex fuel vehicles, and have begun the run-up to the Volt, the all-electric plug in. The hosts are driving demo models of these cars, and talking them up, and Sean said he bought the Escalade hybrid. Nothing wrong with this in itself, I’m glad for them to get the accounts. But it seems to me that rather than pushing these cars, they should be mocking them instead...
Government carrots and sticks drive Big Auto in a direction most people don’t want to go. As they invest more in factories for these cars, fueled by government incentives, they will need to defend the systems they build; that is, flex fuel and electric. Is GM likely to support “Drill Here Drill Now” to bring down fuel prices? Doubtful. Ironically, building the Volt now seems especially risky in light of Obama’s promise to “bankrupt coal” and cause electricity prices to “skyrocket”...
More...
http://treeoflife.blogtownhall.com/2008/11/10/congress_buying_big_auto_has_big_auto_bought_rush.thtml
The Dems couldn't care less about th industry. but...
November 10, 2008 - 21:14 ET by wnaegele...they gotta keep their unions going, Besides, it will give them more leverage to push for those lawn-mower cars they want the public to buy. [Enough limousine production will be maintained to supply government officials, of course.]
bailouts for the unions
November 10, 2008 - 22:08 ET by soosanI hope no one is suggesting that the bailouts of labor unions are a surprise. This is just the beginning of a resurgence in the American Labor movement - wait till they start with the card check unionization efforts. GM is lucky they've got a union workforce, at least this way they keep getting a paycheck too.
Thanks for this, Jeff
November 11, 2008 - 02:23 ET by BlindSightI'm very much with Guerrera, but I hate the editor-as-news pundit schtick. If the Financial Times or CNBC want to be making this point, they should do it with economists or competing businesses.
Let them fail
November 11, 2008 - 08:03 ET by Smoking HotEnough with these government bailouts!
The press needs to pin these people down and force them to explain their cost/benefit analysis. There's no way bailing out GM is advantageous to the country as a whole.
auto bail outs-which plants, where?
November 11, 2008 - 13:06 ET by JIMMY1660if bail outs were warranted, where would the monies be applied?GM has plants all over the world. would these monies be spent in China,Japan,Mexico. I think not. use the money here i the good old USA , or no where!!!
allow me to Love America