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The GM Plan

This is why I don’t like government getting elbow-deep in the workings of industry.  I’ve tried to understand what the Feds are proposing to do with GM and it’s just ... complicated.  There’s some ugly stuff, to be sure

Many of GM’s dealers will receive lavish buyouts as an inducement to close their doors, for a total cost in the billions of dollars. That’s disgusting, but it’s required both by GM’s contracts with them and by the welter of state laws that protect the dealers. (If you want to know who the political power brokers are in any given city or town, look for the car dealers.)

This is going to be kept scrupulously out of the news, because car dealers contribute huge sums to every last man and woman in Congress and the Senate. The public was ready to torch the private residences of AIG executives, but they won’t make a peep about paying billions of their own hard-earned dollars to provide a cushy retirement for thousands of already-rich auto dealers.

And then there’s the UAW. They are in fact the beginning and the end of the government’s interest in General Motors. They will come out of this as the big winners. Never mind that the average automaker earns half again as much in wages and benefits as the average American. UAW boss Ron Gettelfinger, with CEO Obama at his side, will announce “deep, painful concessions” to be suffered by the union membership.

But don’t believe a word of it. The union will come out of this nearly untouched, with their exorbitant compensation packages basically intact, and minor changes in work and seniority rules. And you the taxpayers will be paying for every penny of this, because they won’t be earning all that pay in the market. GM in bankruptcy will force every one of its stakeholders to take major pain except the UAW membership.

And the idea seems more like a Underpants Gnome Rube Goldberg device than anything else:

As Mark notes, the government’s plan largely seems to consist of pointing out that Toyota is more profitable than GM, so GM should be more like them.  The details, like how GM is going to handle those infamous legacy costs, are not present.

To be sure, many of them still have to be worked out.  But this plan doesn’t really make it clear why they’re being worked out by the administration, rather than the Bankruptcy courts.  The core tangible pieces of the plan, like making creditors take a honking big haircut, are just the sort of thing that bankruptcy courts excel at--indeed, they are much better than the administration, which doesn’t actually have any authority to make a single creditor do anything.  The only part where the government is even arguably making a unique contribution is in the warranty plan, which it could surely do even if the companies go into bankruptcy.

You know, every time I see one of the Obama Administrations “plan which is not a plan”, I wonder—or maybe “hope in vain” is a better word—if they’re just stalling for time.  I wonder if they’re dragging this out until the economy throws up its hands and fixes itself.  I’d like to believe that.

In this end, no matter what I read about this plan, it boils down to this:  GM can not survive in its present form.  It would have to sell about twice as many cars as it’s selling right now to be profitable.  The Obama people make optimistic noises about GM developing more sophisticated drive trains and a better business model.  But that’s not something that GM, as presently constituted, can do.

Maybe there’s a case for keeping this company staggering along South Park’s chicken board until the recession is over (although that may not work either).  But in the long run, I keeping thinking that their facilities, their brands and their workers will end up working for another company.  And that’s going to hurt—a lot.

Posted by Hal_10000 on 03/30/09 at 06:43 PM (Discuss this in the forums)

Comments


Posted by InsipiD on 03/30/09 at 11:46 PM from United States

There is such a thing as doing the right thing for the wrong reason.  I wanted Rick Waggoner to go.  I know that GM needs reorganization.  I believe that both the cars and the business need to be more efficient and sophisticated.

And I believe that all of it had to be changed by the company.  Putting Obama in charge of GM too isn’t what I meant.  His thinking that he can and should meddle and “fix” GM is proof that he’s too naive to be president.

Posted by on 03/31/09 at 09:15 AM from United States

This screams of short sightedness.  I’m no auto Czar, but seems to me the only way we can save any type of meaningful US Company auto building industry is to consolidate the big three into the big 2 or big 1.
Having the Govt try to run it is a recipe for disaster.

Posted by HARLEY on 03/31/09 at 11:17 AM from United States

This screams of short sightedness.  I’m no auto Czar, but seems to me the only way we can save any type of meaningful US Company auto building industry is to consolidate the big three into the big 2 or big 1.
Having the Govt try to run it is a recipe for disaster.

I agree with youa bout not having the government in charge of our auto industry, however, merging them all into one company would be a disaster. on many levels.
the risk needs to be spread out, breaking them down to 4 or 6 companies all with their own target consumers might be wiser.
Posted by on 03/31/09 at 02:03 PM from United States

however, merging them all into one company would be a disaster. on many levels.
the risk needs to be spread out, breaking them down to 4 or 6 companies all with their own target consumers might be wiser.

Thats fine with me...Either way, the Status Quo WILL NOT work.

Posted by on 03/31/09 at 09:40 PM from United States

We wouldn’t have to debate these tough positions if government had just stayed out of industry in the first place.  Instead, we follow the road to fascism, merging corporate and state power.  These are perilous times for liberty.

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