by Deb Cupples | Firedoglake's Jane Hamsher has an interesting post at Huffington Post, in which she discredits some talking points from media folks and certain politicians who seem eager to watch America's Big-3 automakers file for Chapter 11 Bankruptcy protection.
Reportedly, one of MSNBC's so-called "analysts" told God and everyone it isn't true that most Americans would refuse to buy a car from a company that had filed Chapter 11 -- that the notion is nothing more than a scare tactic. The so-called "analyst" apparently didn't cite any data to support her claim -- which doesn't seem very analytical.
To this, Jane Hamsher responded by presenting actual data indicating that 80%-91% of the 6,000 people surveyed said that they would not buy a car from one of America's automakers if that company filed for bankruptcy protection. Of course they wouldn't: out of fear that their warranties would be no good.
Jane continues:
"As former Wall Street GM analyst Ron Glanz said recently, an American made car is already selling for $4000 less than the exact same car made by a Japanese manufacturer would, expressly because of bad product legacy and fear that the manufacturer will go bankrupt. It's a PR problem that can't be overcome simply by waving your arms and shouting "no, no, really, Chapter 11 bankruptcy. . . it's just financial reorganization."
"The danger here is, if they're wrong -- and all the evidence is that these "experts" are terribly, terribly wrong -- they're dooming US automakers to a hole they may never be able to dig themselves out of.
"One in ten jobs in the US is directly tied to the auto industry. The stakes here are high. It shouldn't be too much to ask that people do a little research before climbing on cable news an making outrageous and demonstrably false claims."
Amen, Jane! Yes, jobs are important to our economy, especially after a month during which our nation lost 533,000 jobs: followed by job losses of 240,000 in October and 280,000 in September. (BLS)
Yes, in just the last three months, our nation has lost more than 1 million jobs -- which will likely lead to further job losses. And our nation lost hundreds of thousands of other jobs during the first eight months of 2008.
When people lose jobs, they have less money to spend as consumers on things like computers, restaurant food, clothes, cars.... When masses of consumers spend less money, the companies that sell goods and services are less able to afford to keep their employees. As those companies experience a decline in sales, they tend to cut jobs -- which means that even more people end up with less money to spend as consumers.
And so on.
Historically, companies that emerge from Chapter 11 bankruptcy tend to shed masses of jobs. According to UCLA law professor Lynn Lopucki, the 98 companies that emerged from Chapter 11 from 1991-96 shed 31% of their jobs (about 265,000 jobs).
As of December 2007, General Motors employed 266,000 people (Annual Report, page 15), and Ford employed 246,000 (Annual Report, page 20). I don't know what those companies' employment numbers will be when the 2008 annual reports are filed, but I suspect that GM and Ford are still employing a lot of people.
Another concern deserves mention -- one that fcheerleaders for automaker bankruptcy aren't really focusing on: the effects on our nation's economy after bankrupt automakers shed debts.
Shedding debts is a big part of Chapter 11 bankruptcy, which means that bunches of creditor companies simply lose money.
Back in 2002, for example, fraud-ridden telecom company WorldCom filed what was then the largest bankruptcy in U.S. corporate history. In 2004, WorldCom changed its name to MCI and emerged from Chapter 11, having shed $36 billion in debt.
How nice for WorldCom/MCI! But what about those creditor-companies to whom WorldCom had owed that $36 billion? Did those companies simply smile and accept the losses? Doubtful.
More likely, those creditor-companies cut jobs and/or cut other spending. Shareholders likely suffered looses in the form of less valuable shares (i.e., shrinking retirement accounts). Note that shareholders tend to be at the bottom of the priority list when creditors duke it out over a company's assets during Chapter 11.
In 2005, Delta Airlines filed for Chapter 11 bankruptcy -- after managers wastefully spent money (some on themselves) and unwisely pushed the airline into massive debt. In 2007, Delta emerged from Chapter 11 after shedding about $9 billion in debt and shedding 6,000 jobs.
I could go on and on with examples, but my point is this: the media outlets and politicians who lead cheers for automaker bankruptcy filings should start doing research and giving clear explanations about the massive ripple effects that such bankruptcy filings would have on our nation's economy.
Update: CBS News states:
"Several officials say the White House and congressional Democrats have
agreed on $15 billion in loans, which is less than half of what the car
chiefs were seeking.
"They say the breakthrough came after House Speaker Nancy Pelosi
bowed to a demand by President Bush that any aid come from a fund that
had been intended to help Detroit produce more fuel-efficient cars.
"Pelosi said the House would consider legislation next week to
provide "short-term and limited assistance" to the U.S. auto industry."
Time'll tell. Memeorandum has commentary.
Other Buck Naked Politics Posts:
* Cutting Executive Pay Would Save Jobs
* The Bear that Ate Wall Street....
* Paulson's & Congress's Bailout "Mistakes"
* Lehman Execs Redistribute Shareholder Wealth (to Themselves)
* AIG Execs Redistribute Shareholder Wealth (to Themselves)
* Execs Made Millions While Driving Companies into Ditch
* Someone Please Take the Economy Away from Mr. Paulson (Pt 2)
* Are Bailout Funds Being Misused?
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