All Blog Posts from Econwatch

This post by Jill Schlesinger originally appeared on CBS' MoneyWatch.com.

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When is a loss good news? When you're General Motors and the loss could have been worse. Call me a cheerleader or a concerned citizen, but I have been rooting for GM throughout the financial crisis.


This morning, GM announced that it lost $1.2 billion in Q3. Yes, we'd like to see profits, but the news is movement in the right direction. Pessimists might note that it's a lot easier to get back on track when you wipe out a boatload of your outstanding debt and the taxpayer pumps billions of dollars into the endeavor. True enough, but GM had some good news on that front too - the company said that intends to re-pay the $6.7 billion US taxpayer loan by the middle of 2011. Here again, the more cynical will remind you that those loans represent something like 13% of the $52 billion of the government's infusion over the past year, still, I'd prefer to get the money back, wouldn't you?

What's next for GM? During the earnings call, CEO Fritz Henderson said that the company is seeing signs of "stability" in the in the auto sector and that vehicle sales should increase from about 10.7 million vehicles annually today to 11-12 million next year. The company has also seen some success in China and is trying to address problems in Europe, especially after backtracking on the sale of Opel.

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Following a pattern of economic improvement in recent weeks, General Motors was surprised to find that its dealers want up to four times more cars than the company had predicted it would build in October, reports the Detroit News.

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This post by James Picerno originally appeared on CBS MoneyWatch.com.

In February, President Obama signed the massive $787 billion stimulus bill into law with the idea of jump-starting the economy with spending on everything from tax cuts to new highways to programs to increase energy efficiency. The size and specifics of the package-and even whether it was necessary at all-were hotly debated, and the resulting bill was supported by only three Republicans in the Senate. Seven months later, what can be said about whether the stimulus package has worked or not?


The answer is that at least some of the spending has goosed the economy. But it's a tricky business to assign credit-if a start-up hires six people, was it the entrepreneur's vision or the government grant that was responsible? And the jury's still out on all the stimulus money that hasn't even been spent yet.

In many ways, the Cash for Clunkers program, which offered rebates of up to $4,500 to consumers for upgrading to new, more fuel-efficient cars, exemplifies the debate over the effectiveness of stimulus spending. The program disbursed $2.9 billion in rebates, spurring the purchase of close to 700,000 new cars and giving a much-needed boost to the faltering auto industry. Critics accurately point out that many of those purchases would have been made anyway in the future, without taxpayer subsidies. But one of the primary goals of stimulus spending is to get people spending money now, while the economy is hurting, and Cash for Clunkers certainly did that. (See our earlier story, "Did Cash for Clunkers Really Work?")

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The wiseacres had a field day after word circulated about a Bloomberg News interview in which General Motors' new chairman, Ed Whitacre acknowledged knowing nothing about the auto industry.

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General Motors isn't worried about Chapter 11. All they're focused on is "Chapter One."

At least that's the message the automaker is hawking in its new 60-second ad set to begin airing Wednesday.

The spot, heavy on sports imagery and self-effacement, centers on the theme of reinvention – the new GM's goal after it emerges from the bankruptcy process it entered into Monday.

"Let's be completely honest. No company wants to go through this," the ad begins.

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With the news of General Motors' historic bankruptcy this morning, we asked CBS Evening News business producer Guy Campanile to provide some perspective by answering the following five key questions about the storied automaker, the whole car industry and the greater economy:

1) How will GM survive all this negative publicity in terms of getting future customers to buy their cars?

GM's ability to win back consumers scared off by bankruptcy depends on the speed of the bankruptcy case. The Obama Administration would like to see a debt-free and smaller GM spin out of the courts by September.

The trick in the car business is to get rational people to spend money for an irrational thing. Remember -- all a car or truck really does is provide transportation. The auto industry makes money by convincing consumers that they require leather interiors, sunroofs, sculpted lines and a killer sound system to feel good about making those trips.

People are unwilling to lay out the $25,000 required to buy such amenities if they are dubious about the sustainability of a car company. People typically own cars for 5 years or more. That's a commitment that must be supported by confidence in the brand. GM will have no chance at convincing people to buy its brand unless it quickly gets back to the business of building profitable cars and trucks in North America.

2) What does this bankruptcy mean for the rest of the auto industry?

The American auto industry as we knew essentially ended today. The auto making behemoth that was General Motors is dead. It is now a government-owned ward of the bankruptcy courts. Chrysler is part of an international car company (FIAT).

Only Ford remains as a fully independent American automaker. How Ford takes advantage of its strong position is unclear. They could play-up the fact that they are the last survivor on the island. But they could risk alienating many consumers. Of course, the economy could get worse and Ford may find itself in the same boat as its Detroit cousins.

Ultimately we are looking at an industry that is not American, Japanese, Korean or German. The new reality is that cars are made in bits and pieces all around the world by companies that are capitalized by investors all around the world. The modern auto industry is now truly a global affair with a far more nebulous national character.

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As part of General Motors' bankruptcy filing, the automaker will be closing 9 new plants and idling three. The company will also close three service and parts centers.

Below is a list provided by GM, along with the effective dates (which may come earlier, as the market demands):

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Two perennial corporate titans are being replaced on the world's best-known Wall Street barometer.

Dow Jones is pushing out newly bankrupt automaker General Motors and financial giant Citigroup from its industrials index in favor of Cisco Systems and Travelers Companies, Inc., respectively.

The move will be effective June 8 and reflects the two companies' turbulent recent history.

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The Obama administration is weighing a "controlled bankruptcy" for General Motors Corp. if the floundering auto giant cannot meet government standards for viability by June 1, the New York Times reports Wednesday.

The move would fall somewhere between a prepackaged bankruptcy and a potentially chaotic legal battle between the company and creditors. It would involve persuading only some creditors to agree to a plan that would split the company into two pieces, sources familiar with the discussions told the Times.

In most prepackaged bankruptcies, all the creditors must agree terms, but the White House may circumvent that by financing the sales using taxpayer money, reports the paper.

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CBS Evening News anchor Katie Couric interviewed GM's new CEO Fritz Henderson, who talked about what the embattled automaker needs to do to survive.

"Given the situation we find ourselves in today, we need to do more," Henderson said. "We need to do it faster. We need to reduce more liabilities. We need to take tougher measures to make sure that GM can actually ... sustain itself in this kind of environment."

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