General Motors Death Watch 42: Slouching Towards Bethlehem

I used to think that spin meant arranging facts to conceal their meaning. After watching Rabid Rick Wagoner's responses to the pre-shocks signaling GM's impending implosion, I now see spin as the art of distraction combined with the sin of omission. Back in October, on the day Rabid Rick revealed a $1.6b quarterly shortfall, Wagoner also announced a $1b health care "giveback" by his unionized employees. Only later did we learn that GM is paying the union $2b to cushion the impact. Yesterday, Wagoner announced he was slicing 30k jobs and closing nine production plants by '08. So Rick, how much will THAT cost GM?

Wagoner publicly conceded that The General will take a "sizable charge against earnings" to cover the plant closures– and then point blank refused to provide any details. It's entirely unlikely that Wagoner made the downsizing decision without knowing its exact impact on GM's bottom line. His reluctance can only mean one thing: red ink, and lots of it. Merrill Lynch analyst John Casesa estimates that shuttering the nine plants will cost The General between $1b and $2b. Mr. Casesa was unavailable for comment; it's not exactly clear what expenses his figures encompass. Of this we can be certain: the closures will cost a bundle and do sweet FA to relieve GM's sky-high labor costs, either now or in the future.

As we mentioned the last time Wagoner proclaimed job cuts, The General is hoping that the majority of the unneeded workers will either retire or be coerced into retirement (i.e. be paid off or be paid off). The rest will collect unemployment benefits at the taxpayer's expense. That said, GM is contractually obliged to make up the difference between the "idled" workers' government checks and 90% of their GM base pay AND continue to pay their health care benefits. When their jobless benefits expire, GM will place the workers into its infamous "Jobs Bank". They will then receive a full paycheck for doing nothing, until they retire to collect their pensions and use their GM-financed health care benefits.

With that kind of downside, it's no wonder GM has continued to build cars and sell them at a loss rather than the bite the [exploding] bullet. It's also clear to anyone who even glances at the details of Rabid Rick's mini-restructuring plan that the plant closures are too little, too late. Unlike the health care give-back scam, industry analysts and the mainstream automotive media are all over this one. The Detroit News, Free Press, San Francisco Chronicle, JP Morgan, Merrill Lynch, Sanford & Bernstein, Deutsche Bank, Goldman Sachs– it's pig pile on Ricky. And rightly so. The closures are a tacit admission of GM's failures both in the domestic marketplace and on the factory floor. They do nothing to rectify the fundamental problems bedeviling The General's potential profitability.

Wagoner's spin on this development is the old "tough medicine" routine. In case you missed the implied corollary– I'm the Doc courageous enough to administer the diabolical dose– Rabid Rick dismissed those who would dismiss him: "I wasn't brought up to run and hide when things get tough." Yes, well, the ramifications of his retreat from the field of battle are many– and none holds forth the prospect of a corporate turnaround. As the offical UAW response to the closures pointed out, GM under Wagoner has proven itself incapable of designing cars, trucks and SUV's people want to buy. Predictably enough, Wagoner says the killer products– once new SUV's, now crossovers– are just around the corner. Again. Still.

In any case, when all is said and done, a great deal will have been said about The General's plant closures and job cuts, and nothing will be done to steer GM away from the troubles ahead. With a Delphi-shaped iceberg about to strike GM's hull, you could even argue that GM's production plants should be cranking up to provide inventory, not winding down to bolster Wagoner's flagging rep on Wall Street. Meanwhile, GM's Board of Bystanders– I mean Directors– should be publicly flogged for allowing Wagoner to dance with wolves when he should be busy re-creating GM as a leaner, meaner and more creative organization; making fewer models for fewer brands at a greater profit. It is hard to understand what Board members do to deserve their paychecks, or how they can possibly justify paying dividends at this time of crisis.

Rest assured, there will be a moral to this story: you can spin anything, but lies and half-truths only provide a brief respite from reality. The only way Rick Wagoner can help GM is to be the instrument of its destruction. Whether he knows it or not, the rough beast that will replace the world's largest automaker is already on its way.