quote:

ORIGINAL: GroupW

quote:

ORIGINAL: tafkam

GM and Chrysler should have been allowed to fail and restructure, the way any other company would....the free market always corrects itself if left alone....

In normal times, I would agree with that. There were, however, some unique factors at play that are worthy of consideration.

What would normally happen in bankruptcy:
- Companies in BK are usually in need of significant cash to continue operating, otherwise they wouldn't be in BK.
- Normally, a firm declares bankrupty, and then banks and other financial firms step in to provide "debtor-in-posession" financing that provides cash to keep operating.
- Essentially, those are loans that step to the front of the line and have first dibs on any cash available to repay debt.
- That kind of financing isn't all that terribly risky and pays a good little rate of return. A number of significacnt financial firms love it.

What was different this time:
- There wasn't a bank in the world capable (given the ongoing mortgage crisis) of taking down a loan that big.
- The syndicated loan market was shut down, so banks were having trouble breaking up big deals into smaller multi-lender packages.
- Banks had stopped lending to other banks, so no individual bank could raise that much cash.
- The securitization market was dead, dead, dead. Banks couldn't involve non-bank investors in pieces of the deal.

Basically, there was no cash available that would allow to firms to keep operating.

The only other option other than operating in bankruptcy was a complete liquidation. That would have been bad.

It made no sense to have two major firms liquidate only because the banks weren't in a position to step in. Essentially, the government stepped in as the lender of last resort. That's not an inappropriate role for the government to play when private mechanisms break down.

I had actually predicted this exact outcome on other forums. Given the size of the jobs at stake, the lack of bank funding for DIP financing, and the potential magnitude of the recession, government involvement here was reasonably foreseeable.

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ORIGINAL: parkerbrother

quote:

ORIGINAL: rcjames

There is a video out there of Obama saying that he would personally guarentee the warranty of GM cars.

That's comforting, for we all know that he would not tell a lie.

Thanks
RC

I know your not much interested in fact, but have some anyway:
http://usnews.rankingsandreviews.com/cars-trucks/daily-news/090330-Government-to-Guarantee-GM-Chrysler-Warranties/

quote:

ORIGINAL: davemiller7

Hey, that's great news! That means the government (we the taxpayers, really) get to finance the warranties on the lemons that people got suckered into buying in the first place. Wonderful!

quote:

ORIGINAL: parkerbrother

quote:

ORIGINAL: rcjames

There is a video out there of Obama saying that he would personally guarentee the warranty of GM cars.

That's comforting, for we all know that he would not tell a lie.

Thanks
RC

I know your not much interested in fact, but have some anyway:
http://usnews.rankingsandreviews.com/cars-trucks/daily-news/090330-Government-to-Guarantee-GM-Chrysler-Warranties/

quote:

ORIGINAL: GroupW

quote:

ORIGINAL: davemiller7

Hey, that's great news! That means the government (we the taxpayers, really) get to finance the warranties on the lemons that people got suckered into buying in the first place. Wonderful!

quote:

ORIGINAL: parkerbrother

quote:

ORIGINAL: rcjames

There is a video out there of Obama saying that he would personally guarentee the warranty of GM cars.

That's comforting, for we all know that he would not tell a lie.

Thanks
RC

I know your not much interested in fact, but have some anyway:
http://usnews.rankingsandreviews.com/cars-trucks/daily-news/090330-Government-to-Guarantee-GM-Chrysler-Warranties/

Not quite that simple.

Part 2 of my previous post....

One of the issues in GM declaring BK in the absence of DIP financing was whether or not there would be any financial capacity on the part of GM to absorb warranty claims. If consumers believed that GM couldn't pay warranty claims, they wouldn't buy GM cars. If they didn't buy GM cars, then all efforts to save GM would have been for naught.

To a large degree, the government looked at the relatively low cost of warranty claims (relative to the investment they were making) and decided it was actually good brand management to protect the value of the customer relationship and thereby the value of the company by making sure consumers didn't have a bad ownership experience.

Thing is - if consumers get burned on warranty issues by a company, it will likely be the last time they EVER buy a car from that company.

Bottom line - You can't save a company from destruction by sacrificing it's customers.

Another one of those things that on the surface looks bad, but digging deeper is actually a rational decision.

quote:

ORIGINAL: davemiller7

I was only responding, half tongue in cheek, to a link that quoted Obama as saying his administration would guarantee GM's warranties. It would necessarily follow that taxpayers would have to fork over for it, since the government does not have any money of its own.

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ORIGINAL: iluvatar

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ORIGINAL: tafkam
GM and Chrysler should have been allowed to fail and restructure, the way any other company would....the free market always corrects itself if left alone....

But at what cost?

-Dan.

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ORIGINAL: rcjames
What ever it "Cost" would have been less than the disaster that Obama and crew forced on the American public.

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ORIGINAL: coolfamily6

So if you bought a new car since Jan. 20, please tell us what particular GM vehicle or Chrysler vehicle you were forced to buy.

So, when we heard about the rebates we went to a car dealership to try to trade in our car. A 1998 Nissan Sentra with 168,000 miles on it. We were told that it was not a clunker. In our minds it was, it kept dying on the side of the road and leaving us stranded. They said that the defination of clunker was the gas guzzlers, etc. So we did not qualify for the nice rebates. We drove away and saved for another two months, stranded on the side of the road a couple more times, AAA loves us.

Finally, we bit the bullet and bought a new Nissan. Financianing 50% of the cost, not gov't help thank you very much. We can pay the amount of the payment without a problem.

God is good, we had a 1982 Corvette that we have been trying to sell for 2 yrs and within 2 weeks of buying that car we got an offer on the Corvette that was within $1,000 of the amount we had to finance. Praising God that He provides for us when we need.

quote:

ORIGINAL: wing2000

quote:

ORIGINAL: coolfamily6

So if you bought a new car since Jan. 20, please tell us what particular GM vehicle or Chrysler vehicle you were forced to buy.

So, when we heard about the rebates we went to a car dealership to try to trade in our car. A 1998 Nissan Sentra with 168,000 miles on it. We were told that it was not a clunker. In our minds it was, it kept dying on the side of the road and leaving us stranded. They said that the defination of clunker was the gas guzzlers, etc. So we did not qualify for the nice rebates. We drove away and saved for another two months, stranded on the side of the road a couple more times, AAA loves us.

Finally, we bit the bullet and bought a new Nissan. Financianing 50% of the cost, not gov't help thank you very much. We can pay the amount of the payment without a problem.

God is good, we had a 1982 Corvette that we have been trying to sell for 2 yrs and within 2 weeks of buying that car we got an offer on the Corvette that was within $1,000 of the amount we had to finance. Praising God that He provides for us when we need.

Yes, how cool is that?

....hoping my wife's '01 Sentra makes to 168k