GM and Ford are once again begging at the doorstep of every honest, tax-paying American. Just two months ago, Congress gave the Detroit Three $25 billion dollars worth of bailout money, and now they want more. They say this time it’s different; this time, with only $50 billion, they can become profitable. The worst part is GM’s argument for the bailout: they say if the taxpayers don’t bail them out, it’ll spell horrible doom for the economy.
Now, I could go off on an economics lesson about how moving workers and resources from a less productive activity to various other more productive activities is a very good thing, and has great benefits for society. I could quote economists talking about how preserving jobs in unproductive business is actually a bad thing and hurts the economy. But people generally aren’t interested in stuff like that. So I’ll take it in another direction.
First off, GM’s trouble isn’t an industry-wide problem. Other auto makers are having difficulties, but they’re not asking for a handout of taxpayer’s money. For years, GM and Ford have been lagging behind their competitors. To put it in economist’s terms: they’ve been making cars that consumers don’t value as much as the cars made by their competitors. But instead of changing their cars or their way of doing business, they just spent their money on lobbyists. They tried to work the system to stay afloat. Companies like Honda and Toyota kept improving, making cars that consumers wanted, anticipating demand, while GM and Ford just… didn’t.
Secondly, 266,000 people is a lot of people. That’s a massive work force, but there are 9 other US companies that are have a bigger workforce than GM, and one of them is Wal-Mart. What if Wal-Mart asked for a handout from the US taxpayers? I doubt they would get the same amount of sympathy.
So what do we do? If I’m not part of the solution I’m part of the problem, right? Well, if we bailout Detroit again, $50 billion will only be the start. We’ll be locked-in to a partnership with a failing company, forced to “protect our investment” by giving more and more money to the sinking ship, but there will eventually come a point where it just won’t matter, and it’ll go under anyway.
So get it over with now. GM needs to file for bankruptcy, that’s all there is to it. Bankruptcy protection will get them out from under the thumb of the UAW, giving them a chance to really become competitive. GM could strip down and become a lean, mean, automaking machine, freed from all the red tape and bureaucratic nonsense that bogs it down now. But even if they don’t, even if GM fades into nothingness, that’s still a good thing. Those 266,000 GM workers and all the resources currently being used by GM in unproductive ways would be freed up. Those workers would be a valuable pool of employees for productive businesses, and the resources and buildings could be bought up and used by productive businesses. It would give a nice boost to our economy. But will it happen? Not bloody likely.
Joe:
I recognize the logic to letting GM go into bankruptcy and GM can try to come back from there under the protection of bankruptcy law. Certainly a valid point.
I fear that it is too great a risk that they will be able to come back.
If GM does fail, and fades into nothingness, do you really think that is still a good thing?
Do you really think the 266,000 employees will really ever find similar paying jobs? What about the hundreds of thousands of workers who are suppliers to GM ? Have you been to Detroit ?
If your logic is correct, Detroit should be the most productive city in the country !
The employees will not likely be of great value to the economy since there will be no manufacturing positions available to employ them.
What is the likelihood that these positions will be filled in foreign countries – not here?
Do you think their factories will be used by other productive businesses or abandoned ? Who will use them? Maintain them?
The GM pensioners out number the workers. What will be their fate if GM fails?
What will it cost to the Federal Govt. to guarantee their pensions? The $50BB will be a bargain to the Govt. if it helps save the US auto industry!
The United States is a much wealthier nation with a strong automotive manufacturing industry. I hope GM, Ford and Chrysler can survive and one day prospers again! They sure have a difficult road ahead !
I don’t think the BIG 3 have received any of the first 25 billion, which is earmarked for development of green technology vehicles and all things “green”.
Part of the BIG 3’s problem is they pay their workers too much. This is only a small part of the problem, but it is a problem. At least under bankruptcy a judge will tell the union workers what they will make. They have to get their labor costs under control.
Now that we have cheap gas we could see the BIG 3 bring many fuel efficient vehicles to market and the public still won’t buy them. The BIG 3 has never figured out how to make money on small cars anyway. What’s changed? They have to sell 4 or 5 small cars to make the same gross profit as on one truck or SUV.
I don’t hear so much about Ford pleading for gov’t money as they have more cash and assets they could sell. But imagine Ford having to compete with a GM/Chrysler/Gov’t entity. Competing with a competitor who is in bankruptcy is difficult as well. Remember the challenges American Airlines had when United Airlines went through their reorganization? United didn’t have to pay its bills in full, their employees made less…. in short, they could cut prices which damaged the non bankrupt competitor. I believe United dropped their pension plan on the gov’t as well.
I don’t see how the government has any choice but to bail them out, hopefully with stipulations on exec compensation and other issues. A condition should be for everyone working within GM to take an equal cut in pay. There will be a flight of talent, but that’s what happens when you get yourself behind the 8 ball. Bet they wish they still had some of those past exec bonuses left in their till.
Bankruptcy is expensive with lots of money going to attorneys and administrators, not for productive things like manufacturing jobs and product development. There IS an extreme possibility that the whole affair could turn into a bottomless pit.