Total price of the bailout: $97.4 Billion

[Philly]

*linky*

With all the rescue/bailout talk going on here at Autoblog and, oh, just about everywhere else, you may find that it's tough to keep up with it all. Thankfully, the scribes over at Detroit Free Press have consolidated the discussion down to one easy-to-read but tough-to-comprehend figure: $97.4 billion. That's the total you get when adding up the initial $25.4 billion that automakers were promised to help retool their plants to build more fuel efficient cars; the $25.5 billion that auto suppliers have banded together to seek from the Feds and the $39 billion in loans that General Motors and Chrysler have requested from the feds to stave off a worst case scenario.

Of that $97.4 billion, a total of $24.9 billion has already been paid out to General Motors, GMAC, Chrysler and Chrysler Financial. If the entire amount were paid out, every American would then have contributed $874 to the auto rescue/bailout.

We all know that the bailout was getting expensive, but this is the figure that really hit home. Thinking of the differences between good times and bad times, I figured that sales the thing dragging the Big 3 down the most, by far.

So a little math shows that the total cost of the bailout is equivalent to 3.25 million $30,000 cars. I know sales are down a lot, but really? That is a third of total 2007 sales for GM, worldwide. Is there something I'm not understanding about economics here? Because something there just doesn't add up all the way.

 

[YSSMAN]

The simple part of the equation is that new cars and trucks just are not selling. For anyone. Regardless of who is making it. When Toyota, Nissan and Honda are all posting HUGE operating losses (for some, the first, ever), it really demonstrates how big the problem actually is.

I'd look at it this way:

- Banks get greedy do the bad loan dance
- Bad loans go really bad... The credit market dries up
- No one is buying cars, because they don't have the credit (when they used to)
- Automakers lose billions, forced to cut jobs
- Former auto workers can't pay their home loans, cut spending across the board
- People not associated with auto industry start to get cut due to lower sales figures
- People who would have bought a car, now are out of a job
- Automakers lose more money, ask the Fed for cash
- Housing problem continues to spiral, credit markets remain flat
- More jobs loss, less things bought, etc...

Or maybe thats just about how bad its been here in Michigan?

Really, more or less, its a race to the bottom in my opinion. There are a lot of people who can buy cars, but are choosing to go used, or to buy less-profitable models from the automakers. Until the cheap car market is filled, many of those buys will likely go to foreign brands... Or until there is some guarantee that GM or Chrysler will be around for a while, people may shop elsewhere.

Throw China onto the pile, as well as the suddenly collapsing problems that we're having in Eastern Europe... Holy cow! Its a mess!

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There isn't a easy fix for any of this, and depending on who you believe, things can be much worse. The General has been arguing that should they be forced into a bankruptcy, their own situation alone could cost the Fed hundreds of billions of dollars to back up its assets, certainly waters we aren't likely to test at this time. Then you have to factor in the parts supplier losses, it just gets even more messy.

I've heard a lot of talk about just nationalizing GM. That thought still doesn't make me feel good.

 

[Philly]

Are there other factors than just poor sales that are factoring into GM's losses though? 3.25 million is a lot of cars, and it just doesn't really add up to me that that is the number of cars more that GM would need to sell in however long to keep afloat.

I've heard a lot of talk about just nationalizing GM. That thought still doesn't make me feel good.

I have actually had a pretty serious think about this (well, nationalizing the banks, not GM), and while it probably wouldn't turn out favorably for everybody, it would show that no company is "immune," even the ones that are "too big to fail" and that if the management is just dinking around, there will be consequences.

 

[Leonidae]

.... let them sink and wait for the opportunists to come up with better plan, without UAW this time.

 

[YSSMAN]

Are there other factors than just poor sales that are factoring into GM's losses though? 3.25 million is a lot of cars, and it just doesn't really add up to me that that is the number of cars more that GM would need to sell in however long to keep afloat.

We'd be looking at a matter of capacity there, I think. Keep in mind that we sold over 17 Million cars in the US in 2007, and only about 10-ish million in 2008. I'm willing to bet that its going to be absolutely dismal this year. Have any business lose as much as 50% of their sales, they're going to lose money. A lot of it.

 

[Vasco]

Are there other factors than just poor sales that are factoring into GM's losses though? 3.25 million is a lot of cars, and it just doesn't really add up to me that that is the number of cars more that GM would need to sell in however long to keep afloat.



I have actually had a pretty serious think about this (well, nationalizing the banks, not GM), and while it probably wouldn't turn out favorably for everybody, it would show that no company is "immune," even the ones that are "too big to fail" and that if the management is just dinking around, there will be consequences.

You can't just divide the number by a 30,000 and say that's how many cars they're going to make. They will be using the money to (ideally) fund extensive R&D and design projects which will be built to meet customer's needs and not the other way round (making a car then trying to find a target market which they then discover isn't that big) which is what they've been doing for the past decade.

And then of course a lot of the loans are to help them meet cashflow problems - if they run out of cash then they simply won't be able to manage their business anymore, so injecting the extra cash can help them pay off some of their debts and free up the cash so they don't become insolvent.

At least that's my understanding of it.