The Industry Standard - Will U.S. automakers receive a bailout? - Comments

@Eric, correction ... I had

David Kuan — Fri, 19 Dec 2008 14:15:15 -0800

@Eric, correction ... I had a total of 25 transactions on this prediction which covers both sides of the fence! Think I am ready for the Xmas break :)

Bush Approves $17.4 Billion

Edward Beckham — Fri, 19 Dec 2008 12:26:24 -0800

Bush Approves $17.4 Billion Auto Bailout
AT: http://www.nytimes.com/2008/12/20/business/20auto.html?ref=us

WASHINGTON — President Bush announced $13.4 billion in emergency loans on Friday to prevent the collapse of General Motors and Chrysler, and said another $4 billion would be available for the hobbled automakers in February.

The money to aid the automakers will come from the Treasury’s $700 billion financial stabilization fund. Shortly after Mr. Bush’s announcement, the Treasury secretary, Henry M. Paulson Jr., who will oversee the aid to the auto industry, said Congress would need to release the second $350 billion for that program in short order.

Now - Let's wait and see how this prediction is determined.
I think that it is going to be a favorable judgment.

It's been an exciting bet.

I'll restate my earlier

Eric Hill113600 — Fri, 19 Dec 2008 11:19:00 -0800

I'll restate my earlier opinion. The overall "spirit" of your prediction asked if the auto industry would receive a bailout. In the most basic form, that has come to pass.

The issues your prediction has created are, in some part, no fault of your own. Sometimes, the more criteria one adds to a prediction, the more complex and murky it can become. Usually, it's the other way around. But, at least when it comes to any topic related to legal/political issues, there can be so many twists and turns along the way, sometimes less is more.

Hindsight is 20/20.

If you had created this prediction with only the title - and stopped there - this would already be a done deal.

I think we should make a determination on this as soon as possible, too - say, by 1pm PT. People are starting to leave their offices early across the country today.

First off, I have no stake

Garrick Hileman932530 — Fri, 19 Dec 2008 11:17:57 -0800

First off, I have no stake in the outcome of this prediction.

Unfortunately, this development doesn’t provide a crystal clear basis for judgment. There are problems with both the spirit and technical interpretations of the prediction.

The outcome of the Executive branch bypassing Congress to provide the automakers with a loan is not in alignment with the language in the prediction. However, on Dec. 4 I clarified with a response to David's question saying that the Administration acting alone was ok.

Congress did approve TARP, which is where the funds are coming from to be provided to GMAC & Chrysler Financial (both financial firms). Unless there is a legal challenge or formal protest from Congress to Bush’s decision then one could make a good argument that Congress did in fact approve the money when it approved TARP.

Further, to Edward’s point, TARP represents new money to the automakers in the sense that it is separate from the $25 billion the automakers were approved earlier this year, as mentioned in the prediction. The reference to new money was narrowly intended to address the talk of simply shifting the previously approved $25 billion for clean car development towards the bailout. It was not intended to cover all previously approved funding sources, such as TARP. However, one could argue that the prediction’s language is problematic on this count and that TARP funds don’t technically qualify as “new.” Hence the reasons for my earlier comment about TARP not meeting the criteria of the prediction. But, contradicting my earlier comment, I would agree that TARP money should be ok because the original intention was to simply address the shift of the $25 billion. However, I directly contradicted this with my previous TARP response to David's clarifying question.

So those are the issues with rendering judgment on this prediction. If people don't have a problem with my reversal on TARP, then I would say that we render a favorable judgment.

Thoughts?

@David, you accounted for 21

Eric Hill113600 — Fri, 19 Dec 2008 10:01:36 -0800

@David, you accounted for 21 transactions? Great Scott! ;)

I've been in this situation

Eric Hill113600 — Fri, 19 Dec 2008 09:24:00 -0800

I've been in this situation before myself, so I know Garrick will be torn over this. My final argument - the title, "Will U.S. automakers receive a bailout?" seems to say it all right there.

Today's lead headline on the front page of NYTimes.com, "Bush Approves $17.4 Billion Auto Bailout"

@Garrick, in re-reading the

David Kuan — Fri, 19 Dec 2008 09:02:51 -0800

@Garrick, in re-reading the arguments laid out by Eric and Edward, I think they do make a point. TARP funds were not meant to be for auto industry (so from their perspective, it is "new"). Also TARP funds are not part of the $25B authorized for the 2007 Act.

From

David Kuan — Fri, 19 Dec 2008 06:03:23 -0800

From http://www.politico.com/news/stories/1208/16740.html

Fact Sheet: Financing Assistance to Facilitate the Restructuring of Automobile Manufacturers to Attain Financial Viability

Purpose: The terms and conditions of the financing provided by the Treasury Department will facilitate restructuring of our domestic auto industry, prevent disorderly bankruptcies during a time of economic difficulty, and protect the taxpayer by ensuring that only financially viable firms receive financing.

Amount: Auto manufacturers will be provided with $13.4 B in short-term financing from the TARP, with an additional $4 B available in February, contingent upon drawing down the second tranche of TARP funds.

Viability Requirement: The firms must use these funds to become financially viable. Taxpayers will not be asked to provide financing for firms that do not become viable. If the firms have not attained viability by March 31, 2009, the loan will be called and all funds returned to the Treasury.

Definition of Viability: A firm will only be deemed viable if it has a positive net present value, taking into account all current and future costs, and can fully repay the government loan.

Binding Terms and Conditions: The binding terms and conditions established by the Treasury will mirror those that were voted favorably by a majority of both Houses of Congress, including:
? Firms must provide warrants for non-voting stock.
? Firms must accept limits on executive compensation and eliminate perks such as corporate jets.
? Debt owed to the government would be senior to other debts, to the extent permitted by law.
? Firms must allow the government to examine their books and records.
? Firms must report and the government has the power to block any large transactions (> $100 M).
? Firms must comply with applicable Federal fuel efficiency and emissions requirements.
? Firms must not issue new dividends while they owe government debt.

Targets: The terms and conditions established by Treasury will include additional targets that were the subject of Congressional negotiations but did not come to a vote, including:

? Reduce debts by 2/3 via a debt for equity exchange.
? Make one-half of VEBA payments in the form of stock.
? Eliminate the jobs bank.
? Work rules that are competitive with transplant auto manufacturers by 12/31/09.
? Wages that are competitive with those of transplant auto manufacturers by 12/31/09.

These terms and conditions would be non-binding in the sense that negotiations can deviate from the quantitative targets above, providing that the firm reports the reasons for these deviations and makes the business case to achieve long-term viability in spite of the deviations.

In addition, the firm will be required to conclude new agreements with its other major stakeholders, including dealers and suppliers, by March 31, 2009.

According to Bloomberg,

David Kuan — Fri, 19 Dec 2008 05:37:49 -0800

According to Bloomberg, announcement to be made in about 30 minutes time. Loans from TARP to be provided via GMAC and Chrysler Financials.

@TIS, seems like this one

David Kuan — Thu, 18 Dec 2008 14:51:36 -0800

@TIS, seems like this one will be somewhat controversial. Will leave it to TIS to arbitrate while I watch from the sideline.

@Edward, the Total Bets of "75" represents a cumulative count of every bet and cash out. I alone accounted for 21. So, I anticipate the number of TIS members who have an active bet on this one no more than 10-15.

@ Garrick. RE: Federal

Edward Beckham — Thu, 18 Dec 2008 13:52:59 -0800

@ Garrick. RE: Federal Assistance beyond What Was Previously Approved

Garrick,
Building off of what Eric Hill just commented, I am hoping that you might provide all of us (the 75+ persons who voted on this prediction) a reasoned explanation as to why TAPR funds would be excluded. Preferably an explanation that takes into consideration and clearly addresses the fact that you explicitly stated in your prediction:

“This new assistance would be in addition to the $25 billion in loan assistance to help build clean vehicles that was approved by Congress and President Bush in the 2007 energy law.”

The posted Prediction made explicit, by linking to a news article, that the federal assistance “approved previously” was speaking of the Independence and Security Act of 2007. It seems to be unarguable that your prediction was not casting a wide net definition of “new” and including all previously approved federal assistance,but that your use of the term “new” was very narrow and explicitly defined as anything beyond the 2007 Act. It seemed that your use of “new” was not referring to the Type or Timing of additional funds, but merely required something new beyond what was previously approved, meaning “in addition to the $25 billion in loan assistance to help build clean vehicles that was approved by Congress and President Bush in the 2007 energy law.”

How do you overcome the fact that:

-The language of the prediction explicitly referred to an Act passed in 2007, not 2009.
-The language of the prediction makes clear that it is the Energy Law of 2007, which is clearly referencing the Energy Independence and Security Act of 2007.
-Finally, your prediction explicitly refers to $25B previously approved. TARP is $700B, so it is clear that your prediction could not have been referring to TARP.

Why would you even speak to the $25B Energy Act of 2007 in your prediction if you simply meant “new” in the sense that you later described in your COMMENT posted AFTER the actual prediction was published, in which you stated:

"Correct, for this prediction to come true there would have to be new money put up from Congress, which is what the automakers are seeking. Changing the terms or use of the previously approved money would not equal a favorable judgment to this prediction."

The “clarification” you provided in your comment on Nov 20th should have been in the body of the prediction, not an afterthought. It is a common rule that when something is ambiguously or unclearly written, that it be interpreted in favor of the other party and against the author. This should be the case here. The prediction is very misleading, if what you simply meant was what you later commented on Nov 20th , then that is the way you should have written the initial prediction.

I have to say, if TARP (which was approved by Congress and by Bush) funds are used to bailout automakers and the result is an unfavorable judgment on this prediction, then I am going to feel totally cheated!

Taking all of the above into consideration – how can you now try and state that TARP will not qualify?

Thanks for your response,
Edward

I have to say, I totally

Eric Hill113600 — Tue, 16 Dec 2008 11:53:00 -0800

I have to say, I totally disagree with the disallowing of "new federal aid" to include monies from the $700B bailout. From the US auto industry's perspective, ANY money to bail them out would be NEW money from their perspective. A loan is a loan. When you said new money, Garrick, you seemed to strongly imply "new" in terms of additional funds beyond the $25B they'd already received, not what the source would be.

If the White House decides to go over the Congress and pull some "temporary" funds (I say temporary because some analysts suggest the auto companies would need over $125B to really be put right) out of the $700B financial rescue package and hand it to Detroit, that seems to fit the bill of this prediction to me. To start to parse the word "new" I find a bit surprising.

Disclosure: when I read that the Senate blocked the original plan, and that the White House was considering making a move on its own, I placed a significant load In Favor of this occurring. Sure, it's a risky bet, but I didn't consider the word "new" making it a deal breaker at the time. (sigh)

There is increased

David Kuan — Mon, 15 Dec 2008 18:57:48 -0800

There is increased likelihood that at least one of the automakers will file for bankruptcy regardless of a bailout or not. Check out the related suggestions. Let's put these into prediction play. Vote for

@Garrick, thanks for the

David Kuan — Mon, 15 Dec 2008 13:46:25 -0800

@Garrick, thanks for the clarification. That still leaves a small window of the possibility that the prediction could still come true if and only if the new Congress/Senate work and voted favorably on a new bill appropriating new funds to be signed by Bush no later than Jan 16.

@David. Correct, TARP money

Garrick Hileman932530 — Mon, 15 Dec 2008 11:17:23 -0800

@David. Correct, TARP money would not qualify as new money as is called for in this prediction.

Will U.S. automakers receive a bailout?

Garrick Hileman — Tue, 18 Nov 2008 09:12:10 -0800

Judgment on December 19, 2008: This prediciton has been closed and judged favorably. Today, President Bush approved a $17.4B bailout for the US auto industry. -- The Industry Standard.

Original prediction: The U.S. auto industry is suffering from a severe decline in auto purchases and is seeking $25 billion in aid to avoid bankruptcy. GM has said that it could run out of cash as early as the end of this year.

The mayors of 15 Michigan cities, along with the U.S. Auto Industry’s Big Three’s CEOs, are descending on Washington D.C. this week seeking federal assistance.

This new assistance would be in addition to the $25 billion in loan assistance to help build clean vehicles that was approved by Congress and President Bush in the 2007 energy law.

Prediction: Will the auto industry receive new federal assistance before the end of President Bush’s term in office? For the terms of the prediction to be met Congress and President Bush must approve new federal assistance beyond what was approved previously.