# Auto bailouts turn out well...



## sags (May 15, 2010)

Chrysler made the final payment to the US and Canadian governments.

In Canada, the 1.7 Billion bailout was repaid with interest. It was repaid 6 years early.

After all the wailing and complaining by people like Denis Derosier, the auto analyst always quoted in the press, the bailouts look awfully good now.

Jobs were saved, tax revenues continue, unemployment benefits were saved, suppliers were saved, and Chrysler is still in business.

Is the government had listened to the naysayers, the buildings would be vacant and the jobs would have been lost forever.

Just proves the government CAN step in and make a difference.

No comments noted from Mr. Desrosier.

http://www.ctv.ca/CTVNews/Canada/20...al-government-ottawa-divestiture-fiat-110721/


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## andrewf (Mar 1, 2010)

We're still in pretty bad shape when you consider the equity investments.

We didn't bail out the auto makers, we bailed out the auto unions. In bankruptcy, GM and Chrysler would/could have defaulted on pensions and their debt and re-emerge. Our intervention saved the auto unions from more haircuts.


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## HaroldCrump (Jun 10, 2009)

andrewf said:


> We're still in pretty bad shape when you consider the equity investments.
> 
> We didn't bail out the auto makers, we bailed out the auto unions. In bankruptcy, GM and Chrysler would/could have defaulted on pensions and their debt and re-emerge. Our intervention saved the auto unions from more haircuts.


+1 to the above.
In addition, this is not the first time that the govt. had to bail out the auto makers, in some shape or form.
It has happened several times in the past, and will probably happen again.
It's probably a 15 - 20 year ritual circus.

Not including all the fantastic discounts and subsidies these corporations get (such as the recent $150M to Toyota by the federal and Ontario governments).

Essentially, this is one sector of the working population carrying another sector (indirectly).
I'd say a form of hidden unemployment.


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## m3s (Apr 3, 2010)

As a ski-dooer these discussions always remind me of a story closer to home - Bombardier Recreational Products known for one of the most iconic Cdn inventions of all time. Bombardier was heavily subsidized before the split of the aerospace and recreational companies. The recreational products are now market leaders and world renown for innovation and technology - they in fact put into production some tech that is only reaching production cars and competitors years later - many say thanks to Cdn taxpayers. Now the sad part is Cdn taxpayers pay a much higher price, and aren't allowed to buy from US dealers.... I would say money well spent by the Cdn gov though


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## Square Root (Jan 30, 2010)

andrewf said:


> We're still in pretty bad shape when you consider the equity investments.
> 
> We didn't bail out the auto makers, we bailed out the auto unions. In bankruptcy, GM and Chrysler would/could have defaulted on pensions and their debt and re-emerge. Our intervention saved the auto unions from more haircuts.


Agree.


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## sags (May 15, 2010)

andrewf said:


> We're still in pretty bad shape when you consider the equity investments.
> 
> We didn't bail out the auto makers, we bailed out the auto unions. In bankruptcy, GM and Chrysler would/could have defaulted on pensions and their debt and re-emerge. Our intervention saved the auto unions from more haircuts.


Neither GM or Chrysler had the capital or would have been able to borrow the capital, to restructure and emerge from bankruptcy, without the explicit support of the US and Canadian Governments.


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## carverman (Nov 8, 2010)

HaroldCrump said:


> +1 to the above.
> In addition, this is not the first time that the govt. had to bail out the auto makers, in some shape or form.
> It has happened several times in the past, and will probably happen again.
> 
> Essentially, this is *one sector of the working population carrying another sector (indirectly).*I'd say a form of hidden unemployment.


And what do you call EI?...or welfare? it's the same.

Yes, the auto industry seems to go through the boom/bust cycle every few years. 
But certainly in Ontario, it represents quite a lot of jobs lost forever, if they don't do it. 

We all know from the past what happend with Avro 
(the Arrow) when the gov't pulled the rug from under them..the company closed down, and there was a exodus to other countries that needed the expertise of the Avro aeronautical engineers, tool+ die makers and any specific skills that were needed. 
Military and commercial planes developed by "our" lost engineers were used in the Vietnam war and
other places. 

Our loss in Ontario, but McDonnell-Douglas/Boeing and North American aviation snapped them up. These skills vanished forever in Ontario and Canada. Ok we still 
have Bombardier in Quebec..but thats about it.

Now we are spending billions and probably double by the
final JSF (F-35) rolls off the assembly line in the US.
We HAD our own (ahead of its time), all weather strike
fighter in 1957! Imagine where we would be if Avro
had been successful and continued with evolution on
the Arrow today? The Feds in their stupidity ,cancelled the program and bought useless Bomarc missiles from the
US that were never used and scrapped! 

The auto sector, inefficient as they may be and not necessarily keeping up with the times as far as energy consumption, still represents a huge amount of taxes for Ontario that would be lost, if the plants were mothballed.

Consider the DB pensions of GM/Chrysler and Ford. We all know what happened with Nortel, a small company in terms of employees compared to the auto sector, and the hassle to get the Ontario Guaranteed pension
scheme to kick in even the first $300. (They will do it for the time being, but they want to be re-imbursed from the pension plan as soon as there is a settlement on sale of the assets with interest probably.)

So imagine places like Oshawa, Windsor and Oakville, if GM/Chrysler and Ford disappeared? Not only would the Ont/Fed gov't lose tens/hundreds of billions in tax concessions and special incentives handed out to these
huge employers, but the income/HST taxes lost and the money that the Ont gov't would have to kick in to subsidize the pension funds.

Every dollar earned in the auto industry is spent somewhere and hopefully most of it ends up in Ontario in the form of goods and services... and taxes on those, coming back to the Ont/Fed gov'ts.

Places like Oshawa, Oakville and Windsor would become unemployment wastelands..where not just the auto workers but the subsidary industries would have to lay off workers or close down. It would create a mini-depression in a specific geographical area of immense proportions.


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## carverman (Nov 8, 2010)

sags said:


> Neither GM or Chrysler had the capital or would have been able to borrow the capital, to restructure and emerge from bankruptcy, without the explicit support of the US and Canadian Governments.


Chrysler went down in the late 70s. Lee Iacocca, cap in hand, appealed to the US gov't to bail them out and they did in the form of loan guarantees.
The loan guarantees is what kept Chrysler going after things fell apart because of the recession back then. They came up with the K-car, which (such as it was),
got sales going for them and they managed to get back
on their feet and pay back the gov't (or banks) and managed to employ hundreds of thousands across the world.... up until this recent recession in 2008.


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## MoneyGal (Apr 24, 2009)

carverman said:


> We all know what happened with Nortel, a small company in terms of employees compared to the auto sector, and the hassle to get the Ontario Guaranteed pension
> scheme to kick in even the first $300.


The Pension Benefits Guarantee Fund is not funded by taxpayers (however, it is administered by the Financial Services Commission of Ontario, civil servants all). It is funded via a levy on single-employer DB pension plans in Ontario. 



carverman said:


> (They will do it for the time being, but they want to be re-imbursed from the pension plan as soon as there is a settlement on sale of the assets with interest probably.)


And why on earth should the fund not be repaid if there are surplus assets once Nortel has fully wound up its pension plan?


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## LondonHomes (Dec 29, 2010)

MoneyGal said:


> The Pension Benefits Guarantee Fund is not funded by taxpayers (however, it is administered by the Financial Services Commission of Ontario, civil servants all). It is funded via a levy on single-employer DB pension plans in Ontario.


I think that this is splitting hairs.

Employer DB pension plans in Ontario funded by Ontario employers & workers. These are tax payers and any tax on a pension plan ultimately is paid for by them.


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## MoneyGal (Apr 24, 2009)

So...we should provide everyone with a DB pension because we'll ultimately all see the money come back by way of taxes paid on that increased income? 

It isn't splitting hairs to distinguish between outright injections of taxpayer money to prop up industries (that employ workers who pay taxes, no argument there) that would otherwise default on their pension plans; and pension guarantees that are funded by the companies directly. In one case, I am paying; in the other, I am not. In both cases, I get "some" money back indirectly by way of tax on the recipients' income.


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## andrewf (Mar 1, 2010)

I don't think think the government should be in the business of directly or indirectly bailing out failed private sector DB pensions. The auto bailouts were massive transfers of wealth from society at large to a fairly privileged and powerful lobby of current and former autoworkers. 

GM and Chrysler may or may not have been recapitalized privately, but the government could have capitalized them at some sort of FMV, leaving a bigger haircut for the unions and bondholders.

We probably need a better model of bankruptcy in this country. Bankruptcy should be relatively quick, and generally allow firms to continue to operate. The shareholders should be massively diluted, the junior/unsecured bondholders should be given haircuts and the equity of the company, the secured bondholders should take a significant haircut and be given unsecured claims and new secured debt could be issued to raise cash. Just bump everyone down the capital structure. Let the new owners decide if they would rather let the business continue to operate or to seek a bidder for some or all of the assets.

Bailouts create massive problems with moral hazard.


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## carverman (Nov 8, 2010)

MoneyGal said:


> The Pension Benefits Guarantee Fund is not funded by taxpayers (however, it is administered by the Financial Services Commission of Ontario, civil servants all). It is funded via a levy on single-employer DB pension plans in Ontario.


Ok, I see your point..but the money for the fund (or pension insurance 
scheme as it may be) comes from employers, who employ people to 
do the work for them. 

If the employer goes out of business, it doesn't matter I suppose
because there are other employers that pay into it..but other than 
investing in robotics or automation doing the work, companies still need workers..
It's the productivity, good sound management and ingenuity of these 
workers that make a company successful to pay into the pension funds. 




> And why on earth *should the fund not be repaid if there are surplus assets *once Nortel has fully wound up its pension plan?


I'm not arguing that point. After all if the company has some assets,
then at least the GBPF should get back what it did for the bankrupt
company's retirees. At least the gov't gets something back for helping 
out the pensioners, because the creditors or the successful bidders 
hat bought the assets certainly won't.


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## MoneyGal (Apr 24, 2009)

carverman said:


> After all if the company has some assets,
> then at least the GBPF should get back what it did for the bankrupt
> company's retirees. At least *the gov't gets something back* for helping
> out the pensioners, because the creditors or the successful bidders
> hat bought the assets certainly won't.


This is my whole point. The Pension Benefits Guarantee Fund is not government-funded. It is funded by eligible companies. The *fund* gets repaid, *not the government.*


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## carverman (Nov 8, 2010)

andrewf said:


> I don't think think the government should be in the business of directly or indirectly bailing out failed private sector DB pensions.
> We probably need a better model of bankruptcy in this country.


This is the current problem that we as Nortel pensioners are experiencing.
Because the bankruptcy is handled by a Federal bankruptcy court in Canada (CCAA) Companies Creditor
Arrangement act, (don't know how it is handled in the US), the current bankruptcy laws do not put pensioners
above the unsecured creditors.

An attempt was made in Parliament to change this.
There was a private members bill C-501 read in Parliament on companies in bankruptcy and plight of pensioners.

Here is an excerpt from the first reading on the bill 
mentioning the Nortel issue: 
(Wayne Marston MP) 
" Today far too many of our seniors are forced to live in fear, just one crisis away from financial catastrophe. Seniors are worried about their private pensions and how they might be significantly less than what they were told they would be, or, as in the case of companies like Nortel, where there was a significant loss to the amount of pension income, they worry if they will have a pension at all going forward." 

and..again from Wayne Marston MP

"Mr. Speaker, Nortel workers now have a gun to their heads. A judge ruled the February deal on extending health and disability benefits could not be approved because a clause would allow pensioners to argue for a higher priority if the government changed bankruptcy laws.

Nearly 20,000 pensioners have three days to decide whether to accept the deal without the protection of future legislative changes or lose everything.

Will the minister act immediately and use the NDP bill, Bill C-501, to change these unjust bankruptcy laws now?" 

The transcript on Bill C-501
http://openparliament.ca/bills/40-3/C-501/

and further clarification for bill C-501
http://www.stel-salaried-pensioners.org/PolFed/110115BillC501Campgn101013UD.htm

My understanding that it did not get majority vote from the Conservatives on second reading and there it sits. Doubtful now that it will see a third reading,
or a even another vote on it.
http://www.sagennext.com/2011/02/10/why-are-the-conservatives-killing-canadian-pensions/ 



> Bailouts create massive problems with moral hazard.


Well, we live in a capitalist society. Gov'ts who are responsible for "redistributing the wealth" make those decisions good or bad..as the case for the Auto sector.


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## andrewf (Mar 1, 2010)

It's certainly possible to redistribute wealth without creating huge problems with moral hazard.


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## kcowan (Jul 1, 2010)

I think the bailouts were unfair to Ford investors. Not only do they have to make great products and have a competent CFO but they have to compete with goverment-sponsored bailouts.

I seem to recall the expression *corporate welfare bums* from another era that applies to these two companies. I own two Fords and would never buy a product from Chrysler or GM again!


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## m3s (Apr 3, 2010)

carverman said:


> Now we are spending billions and probably double by the final JSF (F-35) rolls off the assembly line in the US.


We will probably get far more than our fair share of the economic and industrial spin-offs of such a large project considering how little we've actually invested in the development relative to smaller foreign countries. If they end up charging "double for the final JSF" then it would become cheaper to break contracts and buy Eurofighters certainly for the foreign countries. The primary customers are all having economic issues - UK has cut back its orders, Netherlands doesn't even have a gov, Italy, Denmark, Norway could all just as easily buy Eurofighters. You only hear the bad press but the JSF has some economic advantages such as the global maintenance concept where parts and infrastructure can be shared among all participants. I don't think making our own jet like the Avro would be economically wise at all compared to a "joint" program. We could just let China police the skies?



kcowan said:


> I seem to recall the expression *corporate welfare bums* from another era that applies to these two companies. I own two Fords and would never buy a product from Chrysler or GM again!


I think a lot of people feel the same way as you about buying Ford because they aren't "welfare bums". Once they complete the Ford One plan and bring all the Euro products to NA I think they will further differentiate themselves from GM and Chrysler. Their Euro cars are very high quality and efficient which I think the NA market is ready for


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## carverman (Nov 8, 2010)

kcowan said:


> I think the bailouts were unfair to Ford investors. Not only do they have to make great products and have a competent CFO but they have to compete with goverment-sponsored bailouts.


Maybe now they (Ford) has a competent CFO, but in the days of Henry Ford II, they were pretty close to the bankruptcy line. Iacocca was hired by Ford to
boost their bottom line and he came up with the Mustang and the Cougar which saved their bacon, because the rest of their cars in 70s were basically junk!

I'm sure everyone has heard the old acronymn F-O-R-D...Fix Or Replace Daily and Found On the Road Dead..etc. They had their fair share of troubles too.
It wasn't until they adopted better quality standards and work satisfaction that things turned out better for them. GM and Chrysler were no better in those days either..they had their share of lemons. 

[/quote]
I seem to recall the expression *corporate welfare bums* from another era that applies to these two companies. I own two Fords and would never buy a product from Chrysler or GM again! [/QUOTE]

I'm owned two Fords (70 cougar) it was great little car, but it had it's share of suspension issues. I had a Pinto for a while (because I worked in Toronto and it was a piece of junk also. Got rid of it when I heard
about the rear ender and the gas tank catching on fire. 

GMs were hit and miss, the bigger cars were so-so and the midsize and economies were junk also.

The dakota truck I have now for 13 years, has been reasonably reliable, and only this year, I've had to put some serious repair money into it, so
I can't complain about it..but you need to be a good troubleshooter on these modern vehicles because of so many sensors and electrical complexity.
Otherwise, you can spend a fortune at the stealerships.


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## kcowan (Jul 1, 2010)

I have owned GM and Chrysler too. 3 GMs in the 70s and 3 Chryslers in the 80/90s. It was only in the late 90s that I got religion. Quality was job 1 and they never looked back. 

I have also had a Volvo, Mercedes and BMW. All of them had an affinity for their dealerships.


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## fraser (May 15, 2010)

Ford could use some quality. For the years 2004 through 2009 inclusive I had a new Ford product every year-I was not a Ford employee. It ranged from a Lincoln through to the Taurus-the last two years being full load Escapes. EVERY year except one was a problem-I ended up back at the dealer for post delivery issue (s). The Lincoln had wonderful A/C in the leather seats...too bad about the transmission and front end problems. Taurus was delivered with NO working heater. The last Escape that I had went about 15K before requireing a new transmission-three weeks in the shop. And to make matters worse, the Ford dealer folks drove it up the the service window and handed me the keys...even though the red engine service light was glowing. Another four days for some sort of engine component that was on back order. Out of the six cars, only ONE was delivered with no issues and it was the only one that did not have significant warranty issues during the first year. No wonder Ford had financial problems with those kinds of post sale warranty claims.

The biggest difference that I noticed between Ford and Toyota (our personal car) was the dealership attitute. Day and night. Ford dealers, in my experience, don't get it. Maybe it was because I was driving leased fleet vehicles with prepaid oil changes. 

When our company discontinued the car plan I moved to a full load Honda Accord. We never even bothered shopping at a GM, Chrysler, or Ford dealership.


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## carverman (Nov 8, 2010)

fraser said:


> Ford could use some quality. For the years 2004 through 2009 inclusive I had a new Ford product every year-I was not a Ford employee. It ranged from a Lincoln through to the Taurus-the last two years being full load Escapes. EVERY year except one was a problem-I ended up back at the dealer for post delivery issue (s). The last Escape that I had went about 15K before requireing a new transmission-three weeks in the shop. ... the Ford dealer folks drove it up the the service window and handed me the keys...even though the red engine service light was glowing.


I don't think it's just Ford. The big three US auto makers have issues in some models. A model being introduced the first year is probably going to have issues. 

In the old days, cars were simpler..a battery, starter,
distributor/set of points, coil and sparkplugs. Any shade tree mechanic could determine what the problem was...these days with Powertrain management computers, sensors up the ying-yang, computerized auto transmissions, body management modules, timer modules, data buses running from one computerized module to another, you need tens of thousands to spend on diagnostic equipment to figure out what has gone wrong. The average driver is at the mercy of the stealerships.

I had one check engine light a few years ago, and at that time I didn't have a OBDII code reader, so I took it in to a dealer, found out it was an injector (missing) and the computer determined it was faulty from it's built in program. I had the injectors cleaned to the tune of $200

The mechanic mentioned that although he had reset the check engine light..it might come back on..and it did on the way home. 
So I ordered a spare injector from the dealer..and a few days later the trouble code reset on its own by the computer. I never got that same code back.

I went out and bought a code reader and a manual and now I try and diagnose as much as I can before I take it in.

And that is the way it is these days, with computers and sensors and their inherent complexity...sometimes you win..other times you end up expensive head scratching.


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## jagger (Jan 12, 2011)

I've always been against the bailouts, for reasons mentioned in this video...

http://www.youtube.com/watch?v=SEPJFWWprMo


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## carverman (Nov 8, 2010)

jagger said:


> I've always been against the bailouts, for reasons mentioned in this video...


This is just the tip of the auto sector iceberg..but the video comments
such as "we need to protect the crown jewel".."if we fail, there could be
2.4 million jobs lost"..and "you take this money and make the same stupid
decisions you've been making for 25 years"...provides the basis why they
manage to get bailouts from time to time.

But times are changing, and the asian car manufacturers which hire NA
workers to assemble the cars here, are chipping away at Detroit's market
share year after year. Now they no longer are competing amongst themselves
but the entire asian car industry..so it's just a matter of time until another
crisis for them surfaces. 

I don't know what Chrysler is planning to compete, but GM better be
right with the VOLT going into production, because if it turns out to
be a marketing flop, there may not be another bailout for them in the
future.


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