Howard County Maryland Blog

Local Politics and Current Events

Let GM Go Bankrupt

Posted by David Keelan on Wednesday, November 19, 2008

Readers please comment.  I want to write a long post on this one but can’t quite get it started.

Big Three Automakers Running out of Time

WASHINGTON – Detroit’s Big Three automakers are running out of time in their quest to convince skeptical lawmakers that Congress should throw them a $25 billion lifeline.

Top executives with General Motors, Ford and Chrysler will return to Congress on Wednesday, appearing before a House committee to plead for a “bridge loan” to give them a massive infusion of cash to prevent millions of layoffs, stave off bankruptcy and stabilize their teetering companies.

Here is a stab a conveying my thoughts.

If GM is so cash strapped and begging for emergency loans why wouldn’t they cleanse themselves in a bankruptcy?  Think of how much cash they would generate if they didn’t have to deal with secured creditors.  I am not talking about liquidation.  I am talking about shedding debt, kicking shareholders, and creditors to the curb (pardon the crudeness but that is what it would be).

Now the downside is that they would likely walk away from their post-retirement obligations and leave a lot of people solely dependant upon Medicare for their health benefits.  If we are talking about 6 million related jobs is that the price we would have to pay?

Seriously, what do you think would happen?  They would still make automobiles, they would still be going concerns.  Look at the airline industry.

Freemarket and Hayduke – I know you are out there.  What do you think?  Cindy, Ed, Pz, Jim?  Anyone?


12 Responses to “Let GM Go Bankrupt”

  1. Jim Walsh said

    Having grown up in the Midwest, it pains me to see the economies of the Great Lakes states in their current shambles.

    Nonetheless, I don’t think it’s appropriate for the U.S. government to bail out the auto makers. It will be painful, but necessary, to allow the Big Three automakers to slip into bankruptcy so that they can finally fix their cost structure.

    This is not a new problem. The automakers have been losing market share to foreign competition for over 30 years. And it’s not a matter that you can’t profitably make cars in the U.S. Most foreign automakers have plants in the U.S. now, and a high percentage (if not a majority) of “foreign” cars are actually made in the U.S.

    The inconvenient truth is that the U.S. auto makers are still in the stranglehold of the UAW. Yes, the union has made some concessions over the past 30 years, but not nearly enough to let the Big Three be competitive. The average wage for U.S. auto workers is $28/hour (that works out to about $58,000 per year), and the still-generous benefits package that the auto makers provide pushes the total cost per worker to about $74,000 per year.

    If the Big Three and the UAW can’t adapt after 30 years, they aren’t going to adapt at all, unless bankruptcy forces them to do so.

  2. Freemarket said

    A bailout for GM would be the worst possible outcome, as it would only waste tax dollars and prolong the inevitable. Let them go into bankruptcy and see if they can re-align themselves with an economically sustainable business model. That would be painful for many unsecured creditors and shareholders, yes. But letting the UAW suck GM dry at taxpayer expense is far worse.

    I read a good opinion piece in the WSJ a few days ago on this:

  3. PZGURU said

    I agree 100% with Jim and Freemarket. I would add that on top of the generous base pay that Jim outlined above, many of the workers also get lots of doubltime and overtime pay – pushing a lot of their salaries up to 80,000 or more.

    If the big 3 are cash strapped, they need to do like every other company in the world – overhaul their program by streamlining production, cutting costs, laying off workers OR propose pay cuts and keep all the workers on the job.

    Trying to save these relics is like trying to re-plant a dead tree. It died for reason. Leave it dead and let a new tree grow in its place. Some other existing car maker could buy them up (thus saving a lot of the jobs), a new car maker could emerge to replace them, or I bet a lot of the workers could find jobs with other car makers.

    If the taxpayers don’t get to share in the profits when things are going well, we shouldn’t share in the losses when business goes south. Call me mean or whatever, but it’s just not fair or possible to subsidize every business, no matter how big or small they are.

  4. General Zod said

    I agree with you guys on some points. I don’t think the government should write them a blank check. The 700 Billion bailout for the banking industry has been a joke. We do not need another AIG debacle. It really is a tough decision because so many people will be affected by the outcome. Everyone from the assembly-line worker to the dealerships.

    It’s easy to point the finger at the unions but the bottom line is that the Big Three have mismanaged their respected companies and have a poor business model. They have too many brands and dealerships, not enough fuel efficient vehicles, and the CEO’s continue to give themselves enormous salaries and bonuses. The list goes on. They need to restructure and overhaul their business models instead of a 25 billion dollar bandaide.

    It really is a shame that it has come to this but the CEO’s and top executives have run these companies into the ground and they should be the first ones to go. These companies need a Steve Jobs or someone with an innovative mindset to restructure the industry in America otherwise it will be a revolving door with the same issues.

  5. PZGURU said

    Gen Zod – I agree with you on the CEO’s. If a pilot crashes a plane you sure as hell wouldn’t give him/her a bonus for doing so. SO why should these CEO’s who mismanaged their companies, as you pointed out, get tens of millions of dollars in bonuses? They shouldn’t.

    The reason why I blame a lot of this on the unions is that they are the ones who have forced the CEO’s and owners into these guaranteed contracts that dictate that a certain number of cars MUST be produced every year, that the cars have to sell for a certain price, and of course that the union workers must make a certain wage. So, to a degree, the unions have handcuffed the CEO’s – but they still don’t deserve huge bonuses.

  6. cindy vaillancourt said

    I wouldn’t go as far as to blame the union labor for the lion’s share of the mess. Negotiated contracts are a two way street at the negotiation stage… and whatever deals the management struck with workers need to be honored …. or renegotiated as times change. What they can’t be allowed to do is renegotiating retroactively… as in the case of retirement promises, pensions, retirement healthcare/insurance promises. Those contract items were inducements in lieu of straight pay to secure already performed labor. To eliminate or reduce those “benefits” at this point is simply theft.

    That said, I would have little problem seeing the auto manufacturers go into bankruptcy. If the existing business model and the long term commitments are such that the businesses need to be liquidated and start over – so be it. Liquidate the assets, pay off the contractual obligations to the pensioners first, then current contract obligations, then creditors, then investors. Whoever purchases the liquidated assets can then start over to build a new business.

    It would be painful at first for many – but not the end of the world that all those talking heads behind the microphones are calling for. The “new” owners will need a skilled workforce. The new products will need outlets, and spare parts, and a sales force etc. Just like the transition from horse drawn wagons to cars left buggy makers needing to retool – things will eventually evolve and ultimately end up stronger.

    I am reminded of a warning I received from my flight instructor. When you start having problems in the air, there is one thing that is certain…. you will eventually hit the ground. The question is, will you control the plane to a relatively safe landing… or will you try to stay in the air until all your options are gone and you fall out of the sky into a burning crater.

    The auto-industry can either have a controlled crash…. or we taxpayers can keep blowing until it falls on top of us and burns us all.

    Cindy V

  7. Jaime said

    Bailout the last big 3? Yes. Right now is the wrong time to go chapter 11. (besides it would quickly go chapter 7 as the credit crunch prevents them from doing business). 12 months from now would be a better time to go bust. They could re-tool, re-train and go “green”. I’m guessing if they go bankrupt now, and all of those jobs are lost, wouldn’t that just be more homes foreclosing? Either way the taxpayer pays. This is an example why I think that “Corporations” were not part of the founding fathers plans. They (corps)should be nationalized. (Oh God. I said that out loud.) Only “Mom and Pop” businesses should be independent. Only “Mom and Pop” businesses should be independent. The other hidden factor here (besides UAW) is the high cost of promoting their (cars) products. That cost is enhanced by getting endorsements from people with over bloated salaries such as sports persons, movie persons and singer celebs. We are a consumption society that requires constant star power titillation that has finally eaten itself out of job and home. Good luck with that.

  8. Jaime said

    Just to continue on one point about corporations, Corporations do not equal freedom, they do not have rights (only people as in “We the people”) and have no business in politics (they can’t even vote but the certainly do buy votes). There has certainly been gains from their being I will give you that. Technology and medicines are the two clear cut (no pun intended) examples of those contributions. But with that being said, I think once a business changes status from private to corporate then it should be viewed as just another branch of government. Kinda like the Post Office or Federal Reserve or sumptin’. Okay not really a branch of government. But should be subject to some really stringent oversite and controls. Including bonuses.

  9. cindy vaillancourt said

    I’m not persuaded by the “it will be better” for the automakers to go bankrupt next year instead. if the goal is to keep the pain from spreading beyond the auto industry – I’d be ok with using federal money to soften the blow to the wider economy by extending severance pay/unemployment benefits to laid off employees instead of using that money to prop up a dying company for a year. pull the bandaid off quickly and get on with the healing.


  10. Freemarket said

    Yeah, Jamie. Nationalizing the means of production worked quite well for the Soviet Union.

    Btw, corps do in fact have rights. They can own property, sue and be sued, enter into contracts, etc. Corps are simply a structure that allows personal assets to be legally separated from private assets. You know, the concept of limited liability.

  11. JessieX said

    My comment on the subject is in a blog post titled, “A Noble Death,” found here:

  12. mussor said

    The Political Octagon has commented on the subject, titled, “The UAW Needs to Fold up their Tent for the Good of the Nation” reach it here,

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: