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Why Some Get a Bailout, Others Get Bluster
Tweet Share on Facebook November 25, 2008 Comment (9)The government has bailed out a bunch of banks, so why shouldn't it bail out [fill in the blank]?That's what Detroit wants to know. And some faltering retailers. And American Express shareholders. Maybe General Electric, too. Oh, yeah, there are a couple million struggling homeowners wondering the same thing.If it seems as if the feds are bailing out everybody except you, well, that's not far from the truth. But there is still some logic to the government's machinations, even if that's getting washed away in the furious flow of cash from the beltway to select firms deemed worthy of a rescue.
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What Geithner Must Prove
Tweet Share on Facebook November 24, 2008 Comment (1)He's certainly had plenty of bailout practice. As president of the Federal Reserve's New York branch, Tim Geithner has been one of the handful of guys in the room for every Wall Street flameout this year: Bear Stearns, Lehman Brothers, Merrill Lynch, AIG, Citigroup, and now, once again, Citigroup. That's why the markets cheered his appointment as Barack Obama's treasury secretary: He's already on the job and will take the baton from the outgoing Henry Paulson with as little disruption as anybody Obama could have picked.
But Geithner is still a risky choice, and in a few months' time, the markets could very well have turned on him. Here's why:
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6 Myths About GM, Ford, and Chrysler
Tweet Share on Facebook November 20, 2008 Comment (283)Memo to CEOs: Ask for a bailout, and your company will be reduced to a caricature.
Recent congressional hearings on the plight of GM, Ford, and Chrysler have illuminated a few important issues—like how the Detroit executives travel when on business. Populist politicians and gotcha journalists delighted at the prospect of rich CEOs riding corporate jets to ask for taxpayer money. There was a little talk about jobs and cars and the foundering economy, too. But you might have missed that part, or gotten confused by a welter of misperceptions that emerged from the spectacle of supplicant CEOs trying last-ditch tactics to save their companies.
As the automakers careen toward bankruptcy, here are some of the myths complicating the debate over the future of the Detroit Three:
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Why America Is Shunning GM
Tweet Share on Facebook November 19, 2008 Comment (76)While asking Congress for billions in bailout money, General Motors CEO Rick Wagoner promised that "we will repay the taxpayers' faith."
Yo, Rick: What faith?
The CEOs of GM, Ford, and Chrysler clearly believe that the old adage is still true: If it's good for the automakers, it's good for America. Thus, the predictable doom-saying about how the entire U.S. economy will be reduced to ashes if even one of those bloated automakers is forced to declare bankruptcy.
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How Bankruptcy Would Benefit GM
Tweet Share on Facebook November 18, 2008 Comment (110)Is the Midwest about to tumble into Lake Erie?
Sure sounds that way. With General Motors teetering at the edge of insolvency, the company's backers argue that a bankruptcy filing would basically wipe out the entire U.S. auto industry. All of GM's 125,000 employees would supposedly lose their jobs, along with many times that number at suppliers, dealerships, and other companies. A congressional analysis suggests that nearly 4.9 million jobs could be at stake. I guess we should start hoarding food and fuel, because the entire U.S. economy might implode.
At least that's the dreadful scenario that auto executives, union leaders, and the Michigan congressional delegation say justifies a government bailout that would start with $25 billion and surely go up from there—with dubious provisions meant to ensure that the sprawling automaker somehow gets religion and becomes a competitive car company.
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10 Cars That Could Salvage Detroit
Tweet Share on Facebook November 14, 2008 Comment (373)The road to recovery in Detroit is so long and pitted that General Motors, Ford, and Chrysler might not all make it. Billions in federal aid will help. But the government doesn't build cars, and without top products in the most important segments, the Detroit Three will continue to flounder while the Japanese and Europeans surge ahead. Here are some of the cars that are key to the revival of the domestic automakers (Click here for photos):
EV-1. GM famously spent $1 billion trying to build this electric-powered two-seater in the '90s, only to scrap the project because of range limitations and other shortfalls. Critics dubbed the EV-1 a huge flop. But hold on: One of GM's top priorities right now is the Chevy Volt electric plug-in, due in 2010. And much of the technology comes straight from the EV-1. If electric cars catch on and GM ends up a leader, it will be largely due to lessons learned from this failed experiment.
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10 Cars That Sank Detroit
Tweet Share on Facebook November 14, 2008 Comment (706)Updated on 4/2/09: An earlier version of this story was published before the Obama administration outlined the terms of its auto-bailout plan.
The global financial crisis is suffocating the Detroit automakers, but the problems at General Motors, Ford, and Chrysler have been festering for years—even when the mighty "Big Three" were earning billions. Aging factories, inflexible unions, arrogant executives and shoddy quality have all damaged Detroit. Now, with panicky consumers fleeing showrooms, catastrophe looms: GM and Chrysler need a multibillion-dollar government bailout to survive, and both could be in bankruptcy by summer if they don't meet tough government demands. Ford hasn't asked for a bailout—yet—but it's bleeding cash and racing the clock to turn itself around.
There will be plenty of business-school case studies analyzing all the automakers' wrong turns. But, as they say in the industry, it all comes down to product. So here are 10 cars that help explain the demise of Detroit (For a slideshow, click here):
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One Way for Chrysler to Exit the Scene
Tweet Share on Facebook November 12, 2008 Comment (87)Does the name "Chrysler" get your juices flowing? Make you crave the open road? Conjure visions of yourself in your dream car? Compel you to open your wallet?
Anybody who answers yes might want to rush out and buy a Chrysler right away (deals abound!) because the enduring American nameplate might not be around that much longer. While much of the alarming news from Detroit over recent weeks has focused on General Motors and Ford—which could both run out of cash in 2009 and face the prospect of bankruptcy—the No. 3 U.S. automaker is probably in even worse shape.
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Relief Starts to Trickle to Troubled Homeowners
Tweet Share on Facebook November 11, 2008 Comment (29)It won't solve the housing bust, but some beleaguered homeowners will finally be eligible for a tiny slice of the government's huge bailout fund.
After weeks of prodding, the honchos heading up the $700 billion financial rescue plan for banks have finally offered to help some of their most desperate customers. Starting December 15, Fannie Mae and Freddie Mac, the huge, government-controlled mortgage underwriters, will sponsor various kinds of relief to homeowners at risk of foreclosure. Here are some of the requirements eligible borrowers must meet:
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Here Comes a Bankruptcy Boom
Tweet Share on Facebook November 11, 2008 Comment (36)If you've been saving your cash for fire sales at bankrupt retailers, don't blow it all at Circuit City. Many other companies are likely to end up in even worse shape over the next year.
So far in 2008, there have been a few name-brand bankruptcies—like the recent Circuit City filing, Linens-n-Things, Frontier Airlines, and Mrs. Fields Cookies—plus the colossal liquidation of Lehman Brothers. But believe it or not, it has been a fairly calm year for bankruptcy judges, by one important measure: the corporate default rate. The share of corporate bonds in default over the past 12 months, which goes hand in hand with bankruptcies, has been about 3 percent, according to data compiled by Prof. Edward Altman of New York University's Stern School of Business. That's near the historical average. So, the vast majority of corporations have been paying their debts during the early part of this recession.
