This Won't Be My Most Popular Post...
Submitted by Nick D on Tue, 11/11/2008 - 6:53pm.
...but I haven't shied away from posting my thoughts on this blog before, and I ain't gonna start now.
The U.S. Government should not bail out General Motors. They should be allowed to enter Chapter 11 bankruptcy.
There, I said it.
First, Most of the banks who the government bailed out earlier this year were profitable mere quarters ago, and were simply the victim of a financial panic right out of the history books. GM, on the other hand, hasn't made a profit on its core North American automotive business in almost five years. Thus, a bailout of GM presents a much greater risk to taxpayers than bailing out a bank.
Secondly, GM is saddled with eight brands which it can't easily shut down due to state franchise laws. Only in bankruptcy court could tired old brands like Buick, Pontiac, Saturn and the rest be retired. Toyota is kicking GM's ass all over the field with just three brands: Toyota, Lexus, and Scion. Honda has only two: Honda and Acura. If the government bails out GM without closing some of these brands, it is simply delaying the inevitable.
Third, in bankruptcy court, GM could be freed of its crushing pension and health care obligations to its retirees and become a car company again. The money which GM spends on its retiree benefits is money that the other guys are plowing back into research and development of new cars, and it shows in the products they put out. Retirees have safeguards like Medicare and the Pension Benefit Guaranty Corp., and while those benefits are less generous than the ones they are getting under GM now, its sure as hell better then nothing, which is what most Americans have in the age of 401Ks and at-will employment.
Finally, I find somewhat unconvincing GM's cries that no one will buy a car from a bankrupt car company. Oh really? Well, people once said that no one would purchase a ticket to fly on a bankrupt airline, and yet every major U.S. airline except American has been bankrupt at one point or another since 1990. As a matter of fact, my co-editor in cheif, David Potts, flew out to Denver on Frontier Airlines, which was under Chapter 11 bankruptcy protection at the time (still is, as a matter of fact).
Bankruptcy doesn't necessarily mean that GM goes kaput. It means it gets a chance to shed the debt and bad contracts that got it to where it is today, and puts the creditors in charge of the new company. It means fewer brands, more money for R&D, and quite possibly a successful company on the other end. If GM does go kaput, you better believe it will have some valuable assets to be sold to other car companies who might actually be able to make a profit with them, which GM has been singularly unable to do.
And, as my last point, we need to draw a line in the sand and say no more bailouts for big business. I'm tired of privatized gains and socialized losses. I'm tired of big bonuses for the CEOs when you're riding high, but extending an open palm to Uncle Sam once you hit the skids. Donald Trump once said that capitalism without bankruptcy is like Christianity without Hell. I'm not interested in seeing my tax dollars being used to keep GM out of hell, when they've been obviously headed in that direction for so long.
Democrat w/ Business Degree
Submitted by Nick D on Wed, 11/12/2008 - 1:35am.
Joe, I am a Democrat, but I do have a degree from the Fisher College of Business @ OSU and I do remember most of what they taught me.
Namely, if business A has a significant labor cost advantage over business B, the business B will eventually go bankrupt, where they either will 1) bring their labor costs in line with business A or 2) will be liquidated, where the new owners of their assets will make damn sure that they hold down their labor costs.
And, BTW, I totally agree that a national health care system would help businesses like GM. Does that prove my Democratic bona fides enough for you? :)
continuing revolution
Submitted by mvirenicus on Thu, 11/13/2008 - 7:55am.
I'm enjoying the view as capitalism collapses. Our most recent election is roughly the equivalent of Russia's "February Revolution," in which the Tsar was toppled and the liberal bourgeoisie attempted to hold "the middle." This "provisional government" lasted til November 1917. 
What form our "November Revolution" will take is open to debate as the American industrial working class is now virtually non-existent (but that little inconvenient fact didn't stop agrarian/mercantile Russia either). Mark my words -- world capitalism is dying in its very seat of power.
Do you Realize What the End of GM Would Mean for...
Submitted by MrsD on Wed, 11/12/2008 - 7:28am.
... the Thousands of the small manufacturing and service and retail businesses who depend upon GM and its employees for sales???
Best comment I've read is to can the GM leadership and put Steve Jobs in charge.
But I'd prefer a creative team effort that included Al Gore, Jobs, Gates, George Lucas,the Disney Imagineers and NASA.
GM, along with the other big 3, lacked creativity and the ability to adapt to a changing market, changing environment and changing consumer needs. We need individuals who truly think outside the box and have proven themselves to be proactive on issues and have built successful and profitable organizations by bringing to market new technology.
I'd buy stock in a company run by this group!
While America Aged
Submitted by Randy on Wed, 11/12/2008 - 8:48am.
I just finished reading a book by Roger Lowenstein "While America Aged". Fully 1/3 of the book addresses the issues with the GM pensions (the other 2/3 looks at NYC subways and San Diego). The book is long on the history of the problem and short on the solution.
But in the closing pages, Lowenstein offers many suggestions, including national health care and "nationalizing" (my word, not his) of pensions. While the book is very good at explaining the problem, I felt the book was very light on explaining the solutions. There was NO effort placed on disarming arguments against health care and expanded government. Not an easy read, but a good study.
If anyone is interested, I have a detailed write-up on the book that is available.
I agree with Nick
Submitted by Ryan on Wed, 11/12/2008 - 8:48am.
The fact is, GM cannot sustain their current obligations, namely with regard to the pension and health care of their retirees. The fact is, GM no longer is a car company...its a health care company.
GM should be allowed to go bankrupt. They need to close down or sell off their unprofitable brands and revamp their business model so they can actually turn a profit. As a result, I think national health care will come to fruition.
I'm a little biased*, but
Submitted by bonobo on Wed, 11/12/2008 - 10:54am.
Points 1,3, and 4 are good ones. The whole idea that it would be a good thing to simply jettison the retirees health care because other people get by on our nation's shitty system, however, is totally messed up. These contracts were negotiated with the car companies. Every single cent of the retirement and health benefit obligations represents a concession by employees on wages, safety, flexibility, job security, and benefits during employment. These retirees paid for that benefit, and as the term 'obligation' implies, GM has an obligation to provide it. The easy response to this is that the point of bankruptcy is to get out from under such obligations. I'm okay with that as long as retirees (and current employees working under contracts with post-employment guarantees of benefits) are treated as the primary creditors that they are. For example, if GM were to buy out retirees fixed return pensions and health care benefits at $500,000 per retiree (minus $5k for every year post-retirement) prior to compensating suppliers and other creditors, that might be okay/fair. Otherwise, it's just the retirees involuntarily bailing out GM.
*Two of my family members have already seen their retirement benefits basically disappear because they were classified as management at GM, and so did not have the same protections as UAW employees. As such, bailout vs. bankruptcy doesn't affect them much, but the experience of watching the process has shaped my opinions...
I would agree if....
Submitted by cadfile on Wed, 11/12/2008 - 4:57pm.
the bad management would suffer as much as the workers who lose value on benifits due to them but in these cases the bad guys NEVER suffer. I vote for the bail out.
Level the playing field
Submitted by paper ballots now on Thu, 11/13/2008 - 3:00am.
The U.S. needs to do what most other industrialized countries do and protect the American car industry. Korea and Japan slap big tariffs on imported cars.
That and universal health insurance would make them competative again.
AIG has gotten $150 billion from Uncle Sam so far. I think they are talking about $25 billion for G.M.
Bankruptcy would put the economy in a death spiral as workers would lose half their wages. Wages create demand which drive the whole economy.
CNN report says GM can't save bankruptcy
Submitted by Randy on Thu, 11/13/2008 - 7:58am.
http://money.cnn.com/2008/11/13/news/companies/gm_bankruptcy/index.htm
"Saving the company through bankruptcy is probably not a viable option for the troubled automaker."
The question of GM's loss being good or bad is not answered.
Re: Level the playing field
Submitted by kweber7 on Fri, 11/14/2008 - 1:13am.
I agree. I love the idea of free trade, but only when it's balanced. China needs to adjust its currency too.
Bailout the big three? Or the unions?
Submitted by Randy on Tue, 11/18/2008 - 5:51am.
I've been reading a lot about the bailout of the automakers. IBD had a good article that suggested (like Nick) it would be better to let them declare bankruptcy. The biggest single reason was that it would allow the big 3 to break the union contracts. Is this then union busting that we haven't seen since Reagan?
Every write-up I have seen says that bankruptcy will allow the automakers to "be freed of its crushing pension and health care obligations to its retirees." Is this a guise then to find a way to mandate nation health care and retirement?
Nick said "GM is saddled with eight brands which it can't easily shut down due to state franchise laws." I can't find anything on this topic. Can you point me to more reading material? I've mentioned this to a couple of others and they question it immediately.
I'm honestly undecided on a bailout for automakers and have to issue the disclaimer that I have a personal interest. However, the personal interest is causing me to dig ever deeper.
Ask and Ye Shall Receive
Submitted by Nick D on Tue, 11/18/2008 - 12:07pm.
Hi Randy, here's an article from BusinessWeek that details what I'm talking about re: the eight brands that can't easily be shut down.
http://www.businessweek.com/autos/autobeat/archives/2008/07/gms_brand_dilem.html
health care obligations for retirees?
Submitted by buckwild on Thu, 01/15/2009 - 5:47am.
Hey Nick, nice post.
So you really think the US Government shouldn't rescue GM?
Retirees would really have the same Medicare routine?
What about medical device companies such as Hadasit? wouldn't it be ironic?
So you really think the US Government shouldn't rescue GM?
Retirees would really have the same Medicare routine?
What about medical device companies such as Hadasit? wouldn't it be ironic?
Democrat?
Nick D, Democrat? Or secret Republican? :)
But seriously, I disagree that GM or any company should just be freed from their pension and health care obligations in bankruptcy. I'd argue that they need to step up and finally admit that a national health care system might actually help big businesses like GM and then become a big supporter of the idea.
Only then should we discuss helping them out.