Filed under: Etc., Earnings/Financials
POLL: Would you buy a car from a company in bankruptcy?
In recent weeks, the idea that one or all three of Detroit's automakers could end up filing for chapter 11 bankruptcy protection in the coming weeks or months has gained a lot of momentum. In theory, the advantage of chapter 11 is that it provides protection from creditors while the company is reorganized in a way that it can survive. The company is allowed to continue operating in this mode, thus avoiding a complete shutdown. A number of major airlines have done this and managed to keep operating, although some have ultimately failed anyway. There is a big difference between a plane ticket and a car. With an airline, you buy your ticket, take your flight and then (hopefully) walk away. After the flight, there is no expectation of ongoing service and support. A car is a much larger purchase and expected to operate for 10-15 years. Warranty service is demanded during that time, and spare parts need to be available on an ongoing basis. Given the long-term requirements of a car, a chapter 11 filing could be a death sentence for a manufacturer as customers look elsewhere. So the question we ask you is, "Would you buy a car from a company in bankruptcy?"
Reader Comments (Page 1 of 4)
Josiah 11:36AM (11/14/2008)
What's the difference between GM now, and GM after they file for bankruptcy? I would argue that GM post bankruptcy is a safer buy because they will have sustainable debt payments and a much smaller cash burn rate. A company flirting with bankruptcy is much more dangerous especially if they are handed more money to pay off old loans (and unrealistic health care obligations)
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Peter 11:50AM (11/14/2008)
Agreed on that point! Would have a more stable company in Chapter 11 then pre bankruptcy where your not sure what they may go into, Ch. 11 or Ch. 7. Also I think a better question would be if the car company you were likely to buy went into bankruptcy would you still buy that car? The types of people who buy GM cars may have very different feelings on that then people who buy Toyotas or BMW's. May not make too much of a difference though.
But totally agree a Ch. 11 GM may be safer and more stable for the long run then a close to bankrupt GM.
Torrent 3:14PM (11/14/2008)
Scratch everything I said.
Here's what I think GM should do:
File Chapter 11 and have the government back the reorganization loan. That way everyone gets what they want and fast.
happy_penguin 11:45AM (11/14/2008)
Make mine a Camaro, Challenger or Mustang. It's an investment. :)
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Hanoi Jane 11:46AM (11/14/2008)
Investment ha?
Say are you one of those sub-prime guys?
Torrent 12:23PM (11/14/2008)
If GM goes under, I'll still be getting a Camaro.
300Kid 1:07PM (11/14/2008)
I agree, have fun but keep the mileage low and keep it in the garage and in 25+ years or so it'll be worth a small fortune (just like the one's from the 70's are now). And not to be biased, but particularly the Mopar, only because I see it selling a lot less than the other 2 (just like it did back then).
Hanoi Jane 11:45AM (11/14/2008)
This is no longer an "IF" scenario.
Republicans are totally against it, even people like John Boehner, not only is he a HEAD of all Republicans, he is arguably the most powerful republican in USA, even more powerful than Bush, and to add to all of that he is from area that has heavy Big 2.1 presence.................................and he is the biggest supporter of stopping any bailout.
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The Other Bob 12:25PM (11/14/2008)
Boehner also happens to be head of the MINORITY party. He will have little say in it this year and even less next year.
Tagg 1:23PM (11/14/2008)
Republicans are only against a loan because GM hasn't proven to them that if they get their money that it won't "business as usual". Thats their gripe and it's legit. Why put another log on the fire?
I would support a loan if GM could show they could be viable without it. Sounds bass-ackwards but I feel the money should be used to suppliment a plan, not be the plan.
Torrent 1:39PM (11/14/2008)
Few people understand that if the Domestic Auto Industry doesn't get the Bailout, 3 million jobs would be lost in the first year, then another 2.5 million within 2 years. But I guess that's what our Country wants. a worse economy...
It all starts in the 80's when someone's cheap Omni/ Citation/ Pinto breaks down and they give up American cars forever. It happens to many people, so they don't support the economy and buy American. Instead, they buy Accords. 20 years later, everyone wants to give Domestics a try again, and once again, their 2001 Taurus/Cavalier/Stratus breaks down. Infuriated, they return it and they buy another Accord. Here we are now in an economical depression, and you're complaining that domestics have low quality? yeah! they do! It's because they've never supported the economy. You instead buy Japanese cars, and that's why they can afford to use high quality materials in cheap cars. Although you'd be surprised how many 'Japanese' cars are built in America....
The financial problems that the American Auto Manufacturers are having, have MORE to do with "legacy" costs (meaning health care, benefits, retirement pensions, etc,) of their Union Workers. Since most of the foreign manufacturers don't have unions protecting their employees, they don't have those "legacy costs" to worry about.
I don't care if I get low or even lowest ranked. I'm just stating my opinion and observations and I hope people can respect that.
The Luigiian 3:13PM (11/14/2008)
It's a simplification to say "Repubs are against bailout, Dems are for it." In my home state of New Mexico, both Congressman Udall and Congressman Pearce were strongly against the bank bailout. Udall, a Democrat, won a Senate position.
I somehow doubt he's going to start supporting bailouts now.
There's a good chance even some Democrats will be against the bailout. Remember, Democrats are pro-union, pro working class, and the Big Three have shipped increasing amounts of American jobs overseas or to Mexico or Canada. They have sympathy for the workers, but may wind up deciding it's better to try to get Toyota and Nissan to unionize (I'm against this, but the Congressional Democrats may not be) than to continue to work with companies whose management is at odds with labor, and continues to fail to provide them with good jobs.
Also, I'll be the first one to buy a Chevy Colorado from a BK'd GM, assuming that the prices get reduced a reasonable amount.
The Luigiian 3:15PM (11/14/2008)
Edit: By "good jobs" I mean "stable, decent-paying jobs from a company that's not going to go bankrupt anytime soon".
Big Rocket 3:28PM (11/14/2008)
@Torrent: A lot of media outlets have been referring to the 2.5 to 3 millions jobs that might be lost if GM goes under. In every single instance that I have come across, they all refer to the same study conducted by the Center for Automotive Research. It needs to be pointed out, loud and clear, that the Center for Automotive Research has very close ties to the auto industry in general, and the Big 3 in particular. And lobbyists are seldom known for accurate and unbiased information, particularly when billions and billions of dollars are at stake. To put it bluntly, these job loss numbers were vastly exaggerated out of proportion.
Washington Post: "The Center for Automotive Research said this morning that if ... GM, Ford and Chrysler ... fail, it will mean the loss of 3 million jobs across the entire auto sector in the first year of collapse. Should Detroit production drop by 50 percent ... some 2.5 million jobs would be lost, the report says."
http://voices.washingtonpost.com/economy-watch/2008/11/report_3m_jobs_lost_with_autom.html
Bloomberg: "A GM failure that stops production would cost 2.5 million jobs in the U.S. in the first year, according to the Ann Arbor, Michigan-based Center for Automotive Research."
http://www.bloomberg.com/apps/news?pid=20601087&sid=azOHgjt14vZ8&refer=home
The Ohio State University: "Dr. Giorgio Rizzoni, Director, Center for Automotive Research... His research has been funded by, among others, General Motors, Ford, DaimlerChrysler, Delphi , Visteon, Dana, ArvinMeritor, Fiat, Honda, Lamborghini..."
http://car.osu.edu/drupal/index.php?q=node/46
brainy435 4:04PM (11/14/2008)
Uh, Torrent? Did you notice the inherent flaw in your argument? If people WANT to but American but keep getting screwed over by crap products, why is it our fault and not the companies making said crap product? I'd love to be driving a Mustang, but I know that Ford would screw me over with crappy materials, so I'm waiting for a Camaro... or a Genesis Coupe.
Although, Camaros will be built in Canada if I'm not mistaken, so do they count towards keeping those several million jobs?
Torrent 8:11PM (11/14/2008)
Brainy435: I named those cars because those 6 cars are some of the most notoriously unreliable Domestic cars made. They are extremely unreliable, and people know that, but still people buy them and get pissed off when they realize that the reports aren't lying: they're actually unreliable.
ack154 11:46AM (11/14/2008)
If I were going to buy a specific car from a company and then they went bankrupt but were still offering the same car... why wouldn't I?
Warranty and service are of course the biggest issues... but my assumption would be that some sort of arrangements would be made to accommodate. Otherwise, why bother even still selling unless you're just going to liquidate and move on. In which case it would likely be said that they are sold as-is. In that case, I would stay clear unless it was a smokin' deal.
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dudeee 11:47AM (11/14/2008)
Would you buy a car from a company that is not in bankruptcy?
YES
NO
DEPENDS ON THE CAR
I bet you will get the same results with most people sayingf it depends on the car. Thus this is a pointless poll that tells us nothing.
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Hanoi Jane 11:50AM (11/14/2008)
So what questions do you want to see?
SGV 11:55AM (11/14/2008)
Just Yes and No.