Wall Street Journal
By: Michael E. Levine


General Motors is a once-great company caught in a web of relationships designed for another era. It should not be fed while still caught, because that will leave it trapped until we get tired of feeding it. Then it will die. The only possibility of saving it is to take the risk of cutting it free. In other words, GM should be allowed to go bankrupt.

Consider the costs of tackling GM's problems with some kind of bailout plan. After 42 years of eroding U.S. market share (from 53% to 20%) and countless announcements of "change," GM still has eight U.S. brands (Cadillac, Saab, Buick, Pontiac, GMC, Saturn, Chevrolet and Hummer). As for its more successful competitors, Toyota (19% market share) has three, and Honda (11%) has two.

GM has about 7,000 dealers. Toyota has fewer than 1,500. Honda has about 1,000. These fewer and larger dealers are better able to advertise, stock and service the cars they sell. GM knows it needs fewer brands and dealers, but the dealers are protected from termination by state laws. This makes eliminating them and the brands they sell very expensive. It would cost GM billions of dollars and many years to reduce the number of dealers it has to a number near Toyota's.

Foreign-owned manufacturers who build cars with American workers pay wages similar to GM's. But their expenses for benefits are a fraction of GM's. GM is contractually required to support thousands of workers in the UAW's "Jobs Bank" program, which guarantees nearly full wages and benefits for workers who lose their jobs due to automation or plant closure. It supports more retirees than current workers. It owns or leases enormous amounts of property for facilities it's not using and probably will never use again, and is obliged to support revenue bonds for municipalities that issued them to build these facilities. It has other contractual obligations such as health coverage for retirees. All of these commitments drain its cash every month. Moreover, GM supports myriad suppliers and supports a huge infrastructure of firms and localities that depend on it. Many of them have contractual claims; they all have moral claims. They all want GM to be more or less what it is.

And therein lies the problem: The cost of terminating dealers is only a fraction of what it would cost to rebuild GM to become a company sized and marketed appropriately for its market share. Contracts would have to be bought out. The company would have to shed many of its fixed obligations. Some obligations will be impossible to cut by voluntary agreement. GM will run out of cash and out of time.

GM's solution is to ask the federal government for the cash that will allow it to do all of this piece by piece. But much of the cash will be thrown at unproductive commitments. And the sense of urgency that would enable GM to make choices painful to its management, its workers, its retirees, its suppliers and its localities will simply not be there if federal money is available. Like AIG, it will be back for more, and at the same time it will be telling us that it's doing a great job under difficult circumstances.

Federal law provides a way out of the web: reorganization under Chapter 11 of the bankruptcy code. If GM were told that no assistance would be available without a bankruptcy filing, all options would be put on the table. The web could be cut wherever it needed to be. State protection for dealers would disappear. Labor contracts could be renegotiated. Pension plans could be terminated, with existing pensions turned over to the Pension Benefit Guaranty Corp. (PBGC). Health benefits could be renegotiated. Mortgaged assets could be abandoned, so plants could be closed without being supported as idle hindrances on GM's viability. GM could be rebuilt as a company that had a chance to make vehicles people want and support itself on revenue. It wouldn't be easy but, unlike trying to bail out GM as it is, it wouldn't be impossible.

The social and political costs would be very large, but if GM fails after getting $50 billion or $100 billion in bailout money, it'll be just as large and there will be less money to soften the blow and even more blame to go around. The PBGC will probably need money to guarantee GM's pensions for its white- and blue-collar workers (pension support is capped at around $40,000 per year, so that won't help executives much). Unemployment insurance will have to be extended and offered to many people, perhaps millions if you include dealers, suppliers and communities dependent on GM as it exists now. A GM bankruptcy will make addressing health-care coverage more urgent, which is probably a good thing. It would require job-retraining money and community assistance to affected localities.

But unless we are willing to support GM as it is indefinitely, the downsizing and asset-shedding will have to come anyway. Even if it builds cars as attractive and environmentally responsible as those Honda and Toyota will be building, they won't be able to carry the weight of GM's past.

GM CEO Rick Wagoner says "bankruptcy is not an option." Critics of a bankruptcy say that GM won't be able to get the loans it will need to guarantee warranties, pay its operating losses while it restructures, and preserve customers' ability to finance purchases. While consumers buy tickets from bankrupt airlines, electronics from bankrupt retailers, and apartments from bankrupt builders, they say consumers won't buy cars from a bankrupt auto maker. But bankruptcy no longer means "liquidation" or "out of business" to a generation of consumers used to buying from firms in reorganization.

 

Pretty solid article, in my opinion. Back in 81, I worked for a brief time at the Fisher Body plant in Kalamazoo (which is now an industrial park). Those 9 months there showed me how the "U" works. When I had a job offer for higher wages, and 1st instead of 2nd shift, I jumped at it. The "U" is what drove the big 3 into the ground, IMO. Not that the workers didn't deserve what they had, but where are they now? Just too big. You're just a number. No team work. Too cut throat. Still is. My wife is UAW, but not automotive. State employee. Still have the cut throat attitude from the "U".

I have no sympathy for the big 3. I DO for the workers and their families. In this NAFTA age, along with world free trade, the wages of the unskilled workers in the auto industry are double what they should be. Skilled labor is one thing, but the unskilled laborer making only a few cents under what a skilled tradesman that went through years of training, for what? a few cents?

I firmly believe that GM and the other 2 can survive this mess WITHOUT a bailout, but reorganization IS necessary. Chapter 11 was put in place for situations EXACTLY like this. Size is irrevelant. CUT! CUT! CUT! CUT THE FAT! Start at the TOP. cut ALL salaries! NO ONE MAKES OVER $80,000! NO ONE!

Start over. You buy Ford stock at $1.72, you're going to lose your A_S!

 

On a side note, I have no idea why the word "u n i o n" gets deleted. Usually sensored words get starred (****) out. It is pretty annoying though. So I guess I'll just call them "U"s

I am a "U" member, although not in the automotive or manufacturing industry. As for the auto workers, I'm happy for them that they are making the money and benefits they're getting. It took many decades of bargaining to get what they have. It's normal to not want to lose something it took you a long time to get. But when times are tough, sometimes you need to make some sacrifices. I think itmay doa little bit of good if maybe the "U"s gave a little during the tough times. Some "U"s already are. We just signed a new contract back in april.We have a wage freeze for two years, and a very small raise in the third year. Many other "U"s have donesimilar as well, and good for them. When times are tough as they are now, we all need to work with each other. But it also works the other way too. When times are good, the companies should remember that their employees were willing to work with them in the bad times, and reward that. Most companies like to conveniently forget that.



As for GM...I too believe that they need to cut at the top. I heard a report on the radio on friday that it would take a worker making $60,000 per year, 30 years to make what the CEO of GM makes in TWO MONTHS! GM execsare cutting people at the bottom while getting themselves a raise. That is B.S. The guys at the top need to take a major pay decrease and save a few jobs at the bottom of the ladder. If you're making 30 million dollars a year, and get cut down to 3 million, so what? You're not starving. But when you're at the bottom end of the ladder and you lose your job because the company doesn't have the money to pay you, someone's children go hungry.

I've been saying for years that GM is too big. Too many models spreading themselves too thinly. Too many dealerships because they have too many models.
Saab and Hummer I don't see as being the same as other GM divisions like Chevy or Pontiac. Saab was/is a completely different car, aimed at a completely different market. Saab isn't really all that popular in north america, but is much more popular overseas. Hummer has a similar story. Hummer was/is a military vehicle, that made it's way into the civilian market fora fewreasons. But mostly ego. I think Saab should be left alone. Hummer I think should be returned to a military only vehicle.

The other divisions of GM need to be scaled down a little. Instead of having half a dozon models in each division, make it only one or two. For example: They could have the Saturn division making the subcompacts/entry level cars, Chevy making the sports/sporty cars, Pontiac making the family cars, Cadillac making the luxury cars, GMC making trucks, minivans, vans, SUVs. Eliminate the idea of each division having it's own subcompact car, compact car, small car, large family car, sports/sporty car, minivan, SUV. I think they could also eliminate the Buick division entirely.

 

Didn't realize they got deleted. I'll try to be more careful

 

LOL!!! Tell that to Bob Lutz and Rick Wagoner!

 

CUT! CUT! CUT!
CUT Bob Lutz and Rick Wagoner!
Start at the top!

Merge truck divisions. Merge Pontiac and Chevrolet. Merge Cadillac and Buick. Streamline. Mercury division? GONE! Ford-Lincoln. Merge Chrysler & Dodge. Plymouth what?

Until the automakers bring back ALL jobs to the US from foreign countries, the government has NO business subsidizing so many jobs, that are all ready there, but shipped elsewhere, because the "U"s labor costs are so extravagant. Bring the jobs back here. Jobs at a reduced labor cost are better than NO jobs at all! NAFTA was one of THE biggest mistakes in our commercial history. GREAT for our neighbors. But what about OUR jobs?

Secondly, by streamlining, if done right, QUALITY should improve. It MUST improve! Quality is why Lexus has become the standard of Japanese quality, or the world for that matter! QUALITY! That has to be a given, and that's what the US automakers AND the dealers have forgotten about. One of the most talked about topics on THIS forum is PROBLEMS! Like batteries, tires, hubs, BCMs, and on and on and on. Dealership problems. WOW! You could start a thread about that!

We have two GM dealers across the street from each other in Sturgis, MI. Does a town of 12,000 need TWO GM dealers? NOT A CHANCE! But, we have 2 because neither one is known for QUALITY service. One GM dealer could and SHOULD be able to handle ALL GM vehicles.

Lost jobs? The government giving a floundering auto industry billions will just pad the pockets of the upper management and "U" officials. Bring the jobs back to the US for even $8-10/hour is better than unemployment! $75/hour with beni's is GREAT for the workers, but those days are gone. The "U" needs to get real and re-organize WITH the automakers. Too many jobs at stake here. Our government needs to FORCE Detroit to bring the jobs back from overseas and abroad. Other companies, too. Not just the auto industry. Tax imported products AND parts. HEAVILY! You want to drive an import, fine. 50% tax on it! 100% tax! You want to buy Chinese toys? Fine 50% tax on them! 100% tax! We make almost anything you want here in the US, but import products, like at Wal-Mart "save" us money. REALLY? When you lose you're job to China, that Chinese product just cost you your lifestyle! Was it REALLY a deal? Our lifestyle as a nation MUST change. Jobs are HIGH on the priority list. You can EASILY pay 2 or 3 workers GOOD wages for what "U"s top paid workers make. And again, "skilled trades" is one thing, but those doing general labor, which is the majority of the jobs lost, is the jobs needed. Train for skilled trades, but most of todays kids want those "computer" jobs, and are afraid to work. And that's another HUGE difference between the US and OTHER countries. They aren't afraid to work.

My 2 cents again. Am I wrong?

 

Heh. Definitely some valid points here, man.