I don’t know about you but for some reason bailing out the automakers bugs me worse than bailing out the banks. The automakers have been getting their butts kicked by Japanese automakers for years and then gambled on SUVs to bring them back. The gamble failed and now they want the Canadian and American governments to bail them out? I know they are too big to fail but as a part of the next big bailout, I hope Rick Wagoner is out at General Motors and the Ford family loses control of the company. There needs to be consequences to running your company into the ground (like being sold to Honda or Toyota).
In other news, Citigroup is looking for a regional bank as it is flush with cash from the splurge.
In an effort aided by the Federal Deposit Insurance Corp., Citigroup tried to acquire Wachovia before Wells Fargo & Co. made a larger offer that did not rely on help from the government. After various lawsuits were filed over who was the rightful purchaser of Wachovia, Citigroup withdrew its bid. Wells Fargo is proceeding with its bid — valued at $12.7 billion in stock — and expects the acquisition of the Charlotte, N.C.-based bank to close by the end of the year.
Many analysts have expected Citigroup to strike again, and the bank has said it would likely use a $25 billion investment from the government — part of the $700 billion financial rescue package passed by Congress last month — to take advantage of opportunities in the market.
I had no idea the $700 billion dollar bailout was designed to help banks go on an acquisition spree.
Bailing out the auto companies might seem to many a less than savory thing, but consider what would happen if they went under. As one who recently moved to Michigan, I know what would happen. Michigan would come crashing down. It’s not just the auto companies themselves, its the suppliers, and more. A collapse of the automakers would put hundreds of thousands of workers out of work — members of my congregation.
Yes, the auto companies made some bad choices, but they did so in large part because we the people demanded gas guzzlers, vehicles that made money.
Will we buy small cars? Will we buy vehicles made in America? We have two Fords, both are good cars. It’s time we start looking here.
Wells Fargo got Wachovia for “free” – they got more in tax loss carryforwards than they paid. Under US tax code, a company can reduce it’s tax bill by using losses in prior years. Either their own, or those from a company it bought. Of course, you have to make money to use this benefit. Wells made far more money than Citi, so they were willing to pay more, because it was worth more to them.
GM has 38 billion in losses, but Toyota has no profits right now, so it doesn’t do them any good. And, even if it was free, buying a brain-dead company is risky from a corporate culture standpoint. When Compaq bought DEC, it got all of DEC’s “professional survivors”. DEC, in it’s heyday, had 200,000 employees/contractors but by the time Compaq bought it, there were only 50,000. Most of Compaq’s downfall (and sale to HP) came from toxic survivors of DEC, poisoning Compaq. But, on paper, each DEC share ($25) had $7 in cash, $7 in real estate (all you church planters know why!) and $7 in tax loss carryforwards. Any Japanese company is so culture-savvy, they would love the assets, but know there is no way they could take over a company and fire 20,000 Michigan workers.
As far as using bailout money for buyouts, I think that was written in the deal, but implementing it is another story.
[...] but am still angry that he is considering a bailout for automakers (Jordon Cooper seems to share my anger…while you’re there also look at what Starbucks would look like if it were a [...]
Bob, I lived in Alberta during the 80s. At one time every house on my street was for sale or forclosed. Those were oil field workers who were not calling the shots either. They went to church, had kids that went to school with me, and were good people but that is a result of living in a free market economy.
Mike, I agree, if I was Toyota I am not sure if I would want them. Maybe bankruptcy is the way to go.