Voluntary Bankruptcy for the American "Big Three"

[johnkarls]

---------------------------- Original Message ----------------------------
Subject: Re: The bailout
From: John Karls
Date: Thu, December 11, 2008 1:02 am
To: Utah Owl
--------------------------------------------------------------------------

Dear Utah Owl,

Thank you very much for the "Big Three" ad!!!

Incidentally, it is always fascinating to see ourselves switching
positions!!!

I remember last summer, you were arguing for Al Gore's 10-year challenge
to re-power the electricity grid and I was pointing out that only the
government could undertake such a project in the face of Saudi predatory
pricing, and the next month I was arguing that the government should
proceed and you were hanging back.

And the last two months, you had been arguing that Chapter 11 bankruptcy
does not necessarily mean that the Big Three will disappear and in our
meeting last evening you seemed to be unwilling to take the chance that
they might. And, in the meantime, I had taken up your cudgel and was
pointing out that Sen. Dodd has been making the rounds of the talk shows
this past week, demagoguing the issue by claiming that if the bailout bill
is not passed, the Big Three will in fact disappear overnight!!!

On another note, I'm glad that we were able to talk a bit during our
meeting last evening, both early and late, about what happens when a
country's currency becomes worthless -- such as Germany's Reichmark in the
1930's and, in effect, the Soviet Union's Ruble in the 1990's, when
Germany ran on the British Pound for a decade and when Russia effectively
ran on the US dollar for quite an extended period.

Because trying to operate without a banking system is worse than trying to
operate without your own currency. You're down to a barter economy with
urban dwellers trying to find something with which to barter with farmers
for food. At least if we preserve the banking system (which the Treasury
has done), we could still operate on Euros (if necessary) so that we
aren't reduced to bartering with farmers.

I feel sorry for my original home state of Michigan, but you can't take
over an industry and subsidize forever its losses -- disguising a de facto
welfare roll as the payroll of the subsidized industry. Even the United
Kingdom got tired of decades of doing that and elected Margaret Thatcher
to return the British nationalized industries to market discipline.

And I wish Sen. Dodd would stop demagoguing the issue, claiming that the
Big Three will disappear overnight if they file for bankruptcy. I was
Senior Tax Counsel and Director of Worldwide Tax Planning for Texaco Inc.
when it was still a Fortune-Ten company and when we were forced to file for
bankruptcy because we could not post a 100% bond in order to appeal
Pennzoil's judgment against us in the 1980's. Which, incidentally, was quite
a shock for Texaco employees who didn't get reimbursed for pre-bankruptcy
travel expenses for five months after Texaco entered bankruptcy because
our outstanding travel expenses meant we were general creditors and had
to wait in queue until the Bankruptcy Court approved paying us.

One of our alumni became CEO of United Airlines solely because of his
bankruptcy expertise. And most of the airlines have been through
bankruptcy, some of them more than once in the last 20 years.

And the same argument that we hear now, that nobody will buy a car from a
company that may soon be bankrupt, we heard back then vis-a-vis the
airlines -- that nobody will purchase tickets from an airlines that may
file for bankruptcy before the dates you are scheduled to fly.

As a UAW member who spent the summer before his first year in law school
working the graveyard shift running drill presses in a General Motors
factory, I can testify that at the end of the model year, all of the tools
and dies get shipped over to the General Motors parts plant where they are
kept for at least 10 years to manufacture new spare parts whenever the
supply of any particular part around the country begins to run low.

The parts plants of the Big Three would be guaranteed to be viable
businesses that would survive any bankruptcy proceeding even if, as could
happen, the rest of the Big Three have to be liquidated because UAW
members are unwilling to accept wage levels in line with all of the
foreign-owned automobile plants in the American South.

And the repair departments of the Big Three's current dealerships, which
number more than three times the ratio of dealerships to market share of
foreign competitors, will find that if the Big Three actually have to be
liquidated in the face of a refusal of the UAW to accept the level of
wages prevailing in foreign-owned automobile plants in the American South,
that many of their former employees will find it lucrative enough to continue
working on repairing cars manufactured by the Big Three before their
demise (in gasoline stations or repair shops), with parts from the parts
plants of the Big Three which, at a minimum, would survive bankruptcy.

People such as Sen. Dodd do a disservice to the Big Three automobile
companies by scaring off potential customers with their demagoguery!!!

Just as all of the talk about our economic problems from politicians have,
to a great extent, undermined consumer confidence and caused a great deal
of our current problem!!!

Though the latter was probably unavoidable, while Sen. Dodd's scaring off
customers for Detroit is avoidable!!!

Your friend,

John K.




---------------------------- Original Message ----------------------------
Subject: Fw: The bailout
From: Utah Owl
Date: Wed, December 10, 2008 8:45 pm
To: John Karls
--------------------------------------------------------------------------



http://img369.imageshack.us/img369/6012/bailoutyk2.jpg

[lesurry]

.
---------------------------- Original Message ----------------------------
Subject: RE: The bailout
From: Leslie Urry
Date: Thu, December 11, 2008 9:50 am
To: John Karls
--------------------------------------------------------------------------


Dear John,

Thank you for the forward regarding the bailout of the "Big Three".

Your ability to put into words what I feel in my gut but
can't often express is a breath of freshness.

Have a pleasant ski day....... Leslie

[UtahOwl]

.
---------------------------- Original Message ----------------------------
Subject: Re: Fw: The bailout
From: Dr. June S. Taylor (aka Utah Owl)
Date: Thu, December 11, 2008 3:26 pm
To: John Karls
--------------------------------------------------------------------------

Dear John,

Maybe the fact that I'm recovering from "walking pneumonia" - aka mycoplasma pneumonia - made me timid about the auto company bailout!!.

I agree with you on the parts & repair issues, but I do think that folks will be extremely reluctant to buy a car from a company in the throes of bankruptcy - as I said last night, there is a vast difference between buying a car & buying an airline ticket for most folks. ( Maybe not for you, because you seem to be traveling constantly!). For most people, the car is critical to their ability to get to work, get kids to school, etc., and it is also the 2nd largest financial chunk of cash they borrow (usually - we pay cash, but most can't!) after their mortgage, so they get a lot more antsy about cars than about airline tix.

I realized we had to bail out the banks & AIG, but we did not have to just hand over the money with absolutely no conditions or oversight. I wish we had done what Gordon Brown in the UK did & put some conditions on it (Iike, you can't use it for dividends, or for acquisitions, or.....). The Congress seems to be going at the Big Three bailout in the same "Ready-Fire-Aim" idiotic way that Paulson did the bank bailout...but it may well not get thru the Senate.

If I am not mistaken, the wages for autoworkers at the foreign plants are pretty comparable to those of our US auto companies - it is the healthcare & pension obligations, & the job bank, that make the lion's share of difference in labor costs. Also, the US auto makers must waste huge amounts of money ( in advertising) competing with themselves with their 5 brands of cars (GM has 5, at least - Chevy, Buick, Saturn, Pontiac, Cadillac), no? Toyota has only a couple, plus 1 minivan & 1 or 2 all-wheel sport vehicles. The Dodge brand is probably the only salvagable brand in Chrysler, & it ought to be folded into Ford or GM. Ford ought to kill the Mercury brand & maybe keep the Lincoln town car as its "Cadillac", & GM needs to kill at least 3 of its plethora of car brands. You are probably right that Ch 11 is the only thing that will force sufficient restructuring, but the current management teams of GM & Chrysler absolutely have to go. Ford has been moving in the right direction for at least 5 years, at least as regards reliability (according to Consumer Reports), aalthough it always mystified me as to why they couldn't find a water pump that didn't break.

That was a good discussion - I'm glad so many showed up.

June

*****
Editorial Notes =

Re June’s last paragraph, nine of us braved the cold to come to the Library to discuss “The Dismal Science.”

Re June’s second paragraph, I still believe that if people such as Sen. Dodd would make the rounds of the talk shows educating the public that service and parts will never be a problem even if The Big Three undertake Voluntary Bankruptcy Protection and, for some reason, do not survive because there is no scenario under which they are economically viable – instead of demagoguing the issue to claim incorrectly that The Big Three will disappear overnight if they follow virtually all of the airlines, Texaco, etc., etc., into bankruptcy – The Big Three would be much better off by not having Sen. Dodd scare their customers away!!!

John K.

[UtahOwl]

.
---------------------------- Original Message ----------------------------
Subject: Fw: The bailout
From: Dr. June S. Taylor (aka Utah Owl)
Date: Thu, December 11, 2008 3:31 pm
To: John Karls
--------------------------------------------------------------------------

Thought you'd appreciate this note from my old HS classmate...
----- Original Message -----
From: Bob Robbins
To: Dr. June S. Taylor
Sent: Thursday, December 11, 2008 1:44 AM
Subject: Re: The bailout

And Chrysler is owned by Cerebrus Capital Mgmt, a private equity firm whose pres was secretary of the treasury under "W". when asked, Cerebrus (actually Nardelli) said they couldn't inject any capital into Chrysler because of its fiduciary responsibilities to its investors……….our govmt has no "fiduciary responsibilities to the taxpayers……….

*****

Editorial Notes =

Chrysler is indeed owned by Cerebrus, a private-equity firm – in the 1980’s and 1990’s, we used to call them LBO (Leveraged Buyout) Firms.

However, Robert Nardelli was never the President of Cerebrus, and he was never the Treasury Secretary under President George W. Bush.

Nardelli joined General Electric in 1971 as an entry-level engineer and rose to become one of the three senior GE executives to vie for replacing legendary GE CEO Jack Welch upon his retirement.

When Jeff Immelt won that three-way race, Nardelli was offered the position of CEO of Home Depot in which he served from Dec. 2000 to Jan. 2007.

During the period that he was CEO of Home Depot, Nardelli was a member of President Bush’s Council on Service and Civic Participation – a position he no longer retains.

On 8/5/2007, Cerebrus which had acquired Chrysler from its public shareholders in a leveraged buyout, hired Nardelli to become Chairman and CEO of Chrysler (not Cerebrus itself which owns many companies in addition to Chrysler).

John K.