General Motors is dying:
General Motors Corp., seeking U.S. aid to avoid collapse, said it may not have enough cash to keep operating this year and will be "significantly short" by the end of June unless the auto market improves or it adds capital.
Ford is dying:
Cash burn is the No. 1 issue,'' Rebecca Lindland, an IHS Global Insight Inc. analyst, said in a Bloomberg Television interview. "We associate cash burn with General Motors. It has not always been a problem with Ford. That is potentially a new problem."
Chrysler is dying:
Chrysler LLC is rapidly burning through cash and being driven to prepare for a possible break-up if it can't clinch a merger with General Motors Corp or get government funding needed to ride out the economic crisis, people with knowledge of the situation said.
There are many reasons these patients need a do not resuscitate order which we'll explore below the fold.
General Motors, Ford, and Chrysler are at the end of their run. Their sales are all down 25% to 35%. Each is burning cash at such a rate that they have at most months to live. The massive deflation we entered a year ago last August has no where near completed its course and by the time it does automobile sales will be a fraction of the reduced numbers causing so much trouble now.
President-elect Barack Obama has been given 100 days to save the American motor industry from collapse. Industry executives have warned him that up to 3m jobs could be lost unless the Big Three - General Motors, Ford and Chrysler - are bailed out with fresh loans of up to $50bn (£30bn). The US industry is bleeding to death. It is hemorrhaging sales, cash and jobs.
Statements like the above are utter crap; those companies are the living dead and the sooner they get right with objective reality the better off we'll all be. Letting them swill up fifty billion in taxpayer dollars in order to extend their misery into the first months of Obama's term is cause for all of us to go into the street, pitchfork in one hand and torch in the other.
Let's examine the financial particulars first, then we can talk about something useful to do with fifty billion dollars.
Per the cited articles each company is in a death spiral with cash reserves plunging, no hope of raising additional capital in the terrified markets, and the fundamentals of their businesses indicating a need for a chapter eleven treatment to bring their costs in line with future operating potential.
I've lost the link but I'm certain I saw it on The Automatic Earth within the last month – auto dealers were being denied inventory loans. The U.S. Treasury can get played around election time but banks already under the gun recognize a coming implosion when they see it and steer clear of the impending mess. This jibes with my personal experiences. Our strategic marketing guy used to do radio advertising for auto dealers in Arizona, until they laid him off and started doing things like 50% off sales on large trucks that got no takers. I built the telecom network for the country's largest Ford dealer and I still have contact with folks there. They confirm the grim state of affairs.
Consumers are lashed to houses sporting mortgages that either are or soon will be underwater. Employment is shrinking dramatically and certain to get much, much worse before we see an end to deleveraging. Detroit needs a bailout, the taxpayers need a bailout, the casinos of Wall Street, posing as banks, have already got their unsupervised bailout, and it all adds up to a fat lot of nonsense. The credit contraction is a systemic problem; you can bail out an individual sinking ship, but when all decks are awash there's no place to spread the pain that won't make matters worse.
These facts are bad enough but peak oil makes getting a clear picture of what is real and workable even more vital. Oil production reached its zenith in May of 2005 and will never exceed those numbers. There was some book cookery late last year but I'm paying it no mind – slipping ethanol into the all liquids column of a report does not fool me for one minute. The credit contraction knocks oil prices flat, which knocks down the rationale for many energy projects, and we rinse and repeat until we're down to the Earth's solar maximum.
That solar maximum is a broad range. The choices we make now determine where we get knocked back to a 1940 standard of living … or one more like 1490. Which path can we chose that leaves us with something resembling the civil society we have today?
Let them go bankrupt, all of them. They're massively overcapacity for the world today and what they do build is junk – bloated, inefficient vehicles slaved to a largely foreign sourced fuel that drives epic wealth transfer from the U.S. to strategic adversaries such as Saudi Arabia and Iran. The bankruptcy ought to be a chapter seven liquidation for two of them and a federal backed chapter eleven for the survivor with the best CAFÉ mileage. Yes, federal backing is needed for reorganization; GE Capital exited the debtor in possession financing business a few weeks back, making it extremely difficult for any company of any size to reorganize and even if they hadn't an entity the size of one of the big three would exceed their appetite for risk.
The survivor must immediately take both the medicine I prescribe and that suggested by Set America Free. The flexibility to take gasoline, ethanol, or methanol as described in the Open Fuel Standard Act flows from Set America Free and my proposal will be popular with cash starved states; tax every liter of displace above one liter in cars and two liters for trucks and utility vehicles at a rate of $1,000 per liter for both new and used sales. Breaking the back of the tanker caravan bringing oil to our shores and hauling away our wealth will not be convenient but I promise you it's more convenient than the endgame associated with letting that process continue.
Any debtor in possession financing required by the survivor(s) would be a small thing and the taxpayers would absolutely be repaid first. Let's talk about something useful to do if we're going to throw fifty billion around.
Alan Drake has been working with the folks from the Millennium Institute to produce a Threshold 21 model of the United States that makes predictions about our economy based on a forceful, war footing type move away from crude oil and automobiles and towards electrified rail. There is a paper associated with this effort that is being presented to the Transportation Research Board.
Perhaps the paper's co-authors should be introduced. Drake is a consulting engineer, Katrina survivor, and the nation's foremost rail electrification expert. The front man for the Millennium Institute is Dr. Hans Herren, winner of the 1995 World Food Prize, and about a third of those so honored later go on to collect a Nobel Prize of some sort. Ed Tennyson is a Emeritus Member of the Transportation Research Board. Andrea M. Bassi of the University of Bergen, Norway rounds out the team. The paper's abstract pretty much lays it all out:
The upcoming challenges in the energy sector coupled with growing concern about climate risks are likely to result in dramatic changes in public policy. The choice of energy and transportation strategies will have a profound impact on the future of the United States of America and the world. A business as usual scenario indicates lower GDP, labor-intensive employment with high unemployment and increasing CO2 emissions. Practical options exist to turn this scenario into higher GDP, good employment and lower CO2 emissions.
Several policy scenarios were modeled with constrained oil supply using Millennium Institute’s T21-USA model. The most positive result by every significant metric (GDP, greenhouse gas emissions, oil used) came from the combination of the two most environmentally positive policies: a massive push for electrified rail transportation (inter-city railroads and Urban Rail) coupled with a massive push for renewable energy, to be completed by 2030.
With an estimated total investment of $250-500 billion in inter-city railroad lines Non-Oil Transportation could supplant most inter-city truck freight and unspecified modal share of passenger service. Up to $60 billion/year ($1.2 trillion over 20 years), spent cost effectively on Urban Rail, should allow for 28% annual growth (not compounded) in urban passenger-miles on Non-Oil Transportation.
These two investments create a 11% larger GDP, only 4% increase in Greenhouse Gas Emissions and a 26% reduction in oil consumption already in 2030 versus a strictly market based reaction. Adding renewable energy improved the results to GDP +13%, GHG 38% and oil consumption 22%.
Taking fifty billion dollars and pointing it at the set of solutions that have been carefully modeled would be a small fraction of the total commitment needed to finish the job but it would be a giant leap forward as we'd be taking the first steps toward facing the deadly perils of global warming, peak oil, and economic collapse on something that could be described as a war footing. The obvious first candidates for funds are Amtrak, who desperately need to expand their pool of only six hundred passenger cars for the entire United States along with funds being directed to our class one railroads with specific directions to clean house on poorly maintained track and clear congestion by double tracking lines where appropriate.
This is not going to be a popular opinion. We're seeing the same denialism associated with climate change now putting on an appearance in discussions about peak oil. Thankfully the application of the same nonsense to the massive deleveraging occurring in the finance sector gets debunked in a matter of at most months and some times in just hours. I hope we can stop kidding ourselves about this American Exceptionalism silliness before we end up experiencing Soviet Exceptionalism.