By on October 21, 2010
Megan McArdle initially opposed the GM bailout. But now, in an article in the November Atlantic Monthly, the magazine’s business and economics editor paints a positive picture—with a little bit of help from Jack Baruth and TTAC. 

Before the bailout, McArdle writes, quoting David Cole of the Center for Automotive Research, GM faced “a cost penalty of more than $1,000 per car between its production costs and the competition’s.” GM dealt with that, McArdle writes, by chipping away at its cars. The government-backed bankruptcy has changed all that, she writes. The closing of 13 plants, the shedding of 25,000 union jobs and 1,500 dealerships, the shifting of retiree health costs from GM’s balance sheet to the UAW’s and various other adjustments have reduced GM’s costs per car by $4,000 to $6,000, according to Cole. And in the Chevy Cruze, at least, “GM is already using that advantage to deliver higher quality, even in the small-car market,” she writes, paraphrasing Cole once again. And then she quotes Baruth: “It’s well-positioned against the Civic and Corolla. I believe that it beats both of those cars in significant, measurable ways.”

Nonetheless, the new CAFÉ standards, 39 MPG by mid-decade, could cost $2,600 per car, McArdle writes, citing National Research Council data, erasing most of the new cost advantage, and one set of legacy costs, pensions, still puts a drag on GM. All this could make dealing with new UAW wage demands “particularly sticky.”

As for the bailout, a libertarian economist “of my acquaintance” considers it to have been “surprisingly successful,” McArdle writes. She then quotes that economist that the bailout was “not necessarily a good idea, but far from the worst thing the administration has done.” We the people may not get most of our money back, but as McArdle says,  a billion dollars represents less than the cost of a venti latte per American. Thus, if GM’s IPO fails to pull  in the $70 billion needed to repay us, we’re out less than two C-notes, each. (Nonetheless, that’s potentially a lot for a working class family of four.)

McArdle concludes as she began, with a paean to the Buick Enclave. While it’s not my idea of anything special, according to Consumer Reports, satisfaction with the Enclave is “better than average.”  Still, I’d have more confidence in GM’s future if I knew that they’d shaken up their sclerotic bureaucracy.

http://www.theatlantic.com/magazine/archive/2010/11/can-gm-get-its-groove-back/8247/

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67 Comments on “The Conversion Of a GM Bailout Opposer...”


  • avatar
    HerrKaLeun

    What a BS.
     
    First: the added cost for CAFE affect every manufacturer. with this it is an even playing field.
     
    Second: if their cost per car was $ 1,000 higher before and they reduced it bu $ 4,000 – $ 6,000 – how come their cars are not significantly less expensive nor are they making any real profit and cash flow?

    • 0 avatar

      On your second question, sellers tend to charge what they can get regardless of the cost of production. This is why a lot of drugs have absolutely huge markups. In theory, their cash flow should be improving.
      Probably you’re correct about CAFE, since if memory serves, it’s not absolute, but rather it’s keyed to the size of the vehicle.

    • 0 avatar
      jjster6

      Ummm… have you read the financial statements?  Better yet, do you understand the financial statements?  There are profits as measured by US GAAP, which is the appropriate measurement tool.  And also there is real cash flow.

      Or is there a “conspiracy theory” behind your remarks?

    • 0 avatar
      HerrKaLeun

      jjster6: no conspiracy here…
      If you think GM is profitable without cooking the books… I’m ready to take my share of the bailout back at any time if they are so profitable now. Including the GM financing bailout. now would be a good time. Or now. Still waiting for my money. Still waiting…

    • 0 avatar
      mikey

      Good piece ,David….It was pretty lonely being one of the few GM cheerleaders here at TTAC looks like I’m getting some company.

       Now for some real good news….The last of the laid off people will be called back to the Oshawa plant on Monday. Some of the skilled trades will have to spend some time on production,but it beats the alternative.

       Yes, it cost the taxpayers of our two countries billions of dollars. Money well spent IMHO.

    • 0 avatar
      jjster6

      HerrKaLeun,

      So if GM is cooking the books, so must every other company on the NYSE.  They all report audited Financial Statements, but somehow GM’s are “faulty.”  As for your money back, you the tax payer own 62% of GM.  Therfore, you the tax payer need to sell that 62% of the company.  The US Treasury and GM are working to do that right now.  But guess what, an offering of stock that big can’t happen overnight you simpleton!!!  Could you sell your house by the end of the day?  Maybe.  Would you get a decent price?  I highly doubt it.

    • 0 avatar
      HerrKaLeun

      jjster6:
      if I could magically go bankrupt, wipe out my mortgage but still keep the house, I could sell it at quite some profit. Even under value since the debt I needed to buy it is gone.
       
      Maybe I’m a Simpleton. But the idea to give a failed business taxpayers money instead of having the market take care off (and Toyota/Ford and others buy the pieces) sounded much more like one of the Simpleton plans that sounds too good to be true.

  • avatar
    friedclams

    It’s cool that Jack got quoted in the Atlantic, it’s a good magazine. I think it’s a bit premature to declare the bailout a success. Moreover it does not address the issue of moral hazard (i.e. “we’re too big to fail therefore the government will prop us up”) which is significant. Furthermore the Cruze was in the pipeline way before the bailout. Maybe Lutz should get some credit and not Obama?

  • avatar
    Rday

    The bailout was a sham and strictly for UAW members. It was a con on the american voting public. If the UAW would have had to take a haircut too, then maybe it was ok. But they didn’t and that was the lie put on the american public. Shame on Obama and the democrats for putting out such bullshit and expecting knowledgeable americans to buy it.

  • avatar
    carguy

    If you count the returns (or lack thereof) then the bailout made no sense for taxpayers. If you see it as a rather clever form of keynesian economic stimulus/support in a time of a deep recession then you could certainly make a case for it. Either way, the flood of column inches devoted to partisan opinion pieces on either side shows no sign of abating.
     

    • 0 avatar
      SVX pearlie

      OK, when’s the author traveling to Auburn Hills to cover the “new” Chrysler?

      Was *that* worth our money?

    • 0 avatar
      FleetofWheel

      GM seems more sad about the negative PR value of being a bailout patient than the actual cost or value to taxpayers.

    • 0 avatar
      psarhjinian

       
      No, I mean Afghanistan.  I’m Canadian, not American, and I very much did not vote for anyone who supported it.  For what it’s worth, I would have voted for someone who was against the war in Iraq, too, but in the US that would have been a little hard to come by.
       
      As for revolution: well, that’s a fair point.  But revolutions are a poor second choice to the democratic process.  For every American Revolution there many more like the French or Russian ones: where the revolutionaries became very much that which they fought against.
       
      Personally, I find it very hard to support revolution.  We both live in democratic countries and we have only ourselves to blame if the “wrong” people keep getting elected, but taking up arms because we don’t like the results of an election, well, that’s tyranny if I’ve ever seen it.
       
      The quote about “four boxes” makes it very plain that we should use the first three before resorting to the fourth.  Currently, with voter turnouts low in both our nations, we’re barely using the second.
       

  • avatar
    MikeAR

    Your whole tone, “only a latte per person” and “less than 2 c-notes each” was offensive. It is my money and I resent it being wasted on the single worst managed company ever and to a union that feels entitled to everything while giving nothing in return. It has failed and will continue to fail because things haven’t changed at GM, still the same clueless management and greedy unions. GM should have been allowed to die completely. They weren’t though so they will be back for more sooner rather than later.

    • 0 avatar

      MikeAR: the “latte per person” is McArdle, not me. And you have every right to be offended by the “less than 2 c-notes, each”. But see my last paragraph about GM, which accidentally was left off the original posting.

    • 0 avatar
      stryker1

      In point of fact, it’s not your money, as it’s not in your bank account. Also GM may be the biggest Boondoggle-that-limps-like-a-car-company of all time, but the important part of that expression is “biggest”. GM employees a freaky-scary amount of people. And that amount of people being suddenly jobless would have sucked for Road-Warrior-Apocalypse values of the word Suck.

    • 0 avatar
      MikeAR

      David, apologies, I misread that paragraph and the added paragraph explains everything. Sorry that I jumped the gun.

      And, yes, Stryker, it is my money. I work for it and that entitles me to complain about it being wasted and used to pay off unions for their political support. Learn one thing, it is your money and if you are brainwashed to believe that it is the government’s money then you ought to be willing to donate more of yours if you think it is so well spent.

    • 0 avatar
      psarhjinian

      MikeAR,
       
      You are part of a social collective, whether you like it or not, and your earning will be spent on things you don’t necessarily support, but might either be generally beneficial and/or democratically mandated.  There are people who don’t want money spent on defense, or bank bail-outs, or abortion, or whatever.
       
      When it comes down to it, it is the government’s money as well as yours.  They print it as part of their role in the social collective, they back it so that it has value, and they provide the services to ensure that, if you have it, it’s secure.
       

      Personally, I find it offensive that my tax dollars are being used for certain things that I find unpalatable as well (bailing out GM isn’t one of them) and you and I have the same recourses: a) move somewhere that’s more aligned with your sociopolitical philosophy, b) move somewhere with no government at all, or c) try and get the bums voted out.  That’s the nice part about social democracy: even when you don’t like what’s happening, you have choices to either remove yourself from it, or try and change it.

    • 0 avatar
      FleetofWheel

      In addition to likely being an active voter, MikeAR is expressing his opinion on a popular auto forum which is a useful way to engage in speech.

      Hilarious every time someone suggests govt be trimmed by a finite amount, the old straw man argument of “you don’t want ANY government” is brought out.

      Justifying govt spending by invoking the ‘latte’ unit or un-built B2 bombers is absurd and you can rationalize anything that way. Let’s not have a manned mission to Saturn…boom, 2 Trillion saved right there.

    • 0 avatar
      psarhjinian

      Hilarious every time someone suggests govt be trimmed by a finite amount, the old straw man argument of “you don’t want ANY government” is brought out

      Turnabout is fair play: people drop “communism” and “socialism” at the slightest hint of government involvement, usually in things they find ideologically unpalatable.
      I actually understand Mike’s point, but I do want to point out that claims about the morality of the bailout and/or the idea that one’s income is one’s own and without obligation to society are problematic.  You need an organized framework to make a modern society work.  I’ll admit it’s coercive, but it’s nowhere near the kind of coercion you get when you don’t have the framework democratic socialism provides.

      If you don’t think the bailout was wise economic policy, that’s fair.  The idea that you were coerced into paying for it, and that it’s immoral is no more valid than how I was coerced into paying for the war in Afghanistan, or the extraction of oil from the Tar Sands, or a bunch of fighter jets, or a tax cut that doesn’t benefit me.

    • 0 avatar
      TrailerTrash

      psarhjinian

      I believe you mean the war in Iraq.
      Actually the war in Afghanistan was a result of a direct attack on out country.

      I agree with your point about the government and money, except for a tiny bit.
      It is not the government money as the government is kind of like my investment banker.
      He buys and sells using my money, which is what I hired him to do. But it is still my money.
      And again I agree, if he screws up, I fire him.

      However, there is one option you left out for those who don’t like the way things are going…that’s revolution.
      Our founding “fathers” even spoke of this right.
      And given the new “gerrymandering” elected-in power pols use to keep themselves in power and the difficulty involved with removing modern politicians, revolution is an option.
      At least this is a reason for the feeling of being powerless leads so many to screaming.

    • 0 avatar
      GarbageMotorsCo.

      GM employees a freaky-scary amount of people.

      http://www.numberof.net/number-of-gm-employees-in-the-us/

      “How many employees does General Motors have in the United States?
      68,500 employees”

  • avatar
    ott

    “New CAFÉ standards…” –Double-double standard?

  • avatar
    dhathewa

    $70 Billion?  I thought it was $50 Billion?  Oh, well…

    “A billion here, a billion there, pretty soon it adds up to real money.” – Dirksen.

    The question isn’t whether or not the IPO will fail to raise any money, it’s whether or not it raises enough to repay the entire investment.  We’re not going to lose the two c-notes per family of four.  Of course, if we did, what is that compared to the $Umpteen Gazillions in National Debt, as it stands or, more appropriately, as it stood when Obama took office?

    It’s possible that patience on the part of the Treasury in selling off their ownership will end up balancing the books (in unadjusted dollars, anyway).

    The more important result is what didn’t happen.  If GM had gone bankrupt “normally,” what would the collateral damage have been?  How many suppliers would have closed?  And you know where those jobs would have gone…  Would the disruptions have pushed Ford over the edge?  Think about the massive increase in unemployment and a likely measurable additional drop in Consumer Confidence.  Just the incremental additional loss in real estate values in the Detroit area would have been an immense figure and probably would have intensified the banking crisis.

    The idea wasn’t bad, it was just ideologically impure from certain perspectives.  It was a very pragmatic response to a crisis.

    MikeAR, well, they did die.  They were just reborn in a big hurry.  You’d be unnecessarily punishing many innocents and the truly guilty mostly parachuted gently away (or retired before their sins became obvious).

    A bigger question would be, what did we learn from this?  Well, unfunded pension and medical care liabilities are toxic.  Have we done anything about that?  I hope so but I doubt it.  A long line of GM CEOs brought us to this point.  How much did they rake off?  Have we done anything to curb ridiculous CEO compensation?  I doubt it.

    • 0 avatar
      geeber

      Curbing CEO pay isn’t going to prevent future GMs, because the level of CEO pay isn’t what brought the company to its knees in the first place.

      It’s fair to ask whether GM’s CEOs earned their huge paychecks, but paying Rick Wagoner and his executive team $20,000 per year each with no benefits would not have kept GM solvent.

      What did bring the company down was an insular executive team that really did believe GM was too big to fail, and a stubborn union that exploited management’s schizoid approach to labor relations – they gave away the store at negotiation time while blaming the union for most of the company’s problems. The union, too, believed that GM was too big to fail, and also believed its own rhetoric about being the torchbearer for the middle class. Both of which, of course, were nonsense. The UAW has been the torchbearer for the UAW and no one else.

      I’ll proclaim the GM bailout a success when it is truly profitable and has stopped the steady erosion of market share. Given that the bailout is a done deal, arguing over how much worse the economic collapse would have been if we had let GM file for a convential bankruptcy is largely academic.

      At this point, though, the pro-bailout crowd would be wise to refrain from jumping to one conclusion – arguing that the bailout will turn out to be a financial bonanza for the American taxpayer. Based on the figures I’ve seen for the IPO, GM won’t be paying back the total amount it received from the federal government for a long time, if ever.  

      As for the vehicles – they will be lucky to stop the bleeding. But they aren’t going to make that much headway against rivals, all of which are not sitting still, waiting for GM to get its house into order. In most cases, the new models have brought GM’s offering up to par with the existing competition. (In one big case – the Cadillac SRX – GM has failed to do that.) That isn’t a compelling reason for someone to trade their Toyota for a Chevy, or their Lexus for a Cadillac. This may come as a shock to GM fans, but most people I know who drive the foreign competition could care less that GM is coming out with new vehicles. They wrote off GM a long time ago, and don’t even bother to shop its vehicles against the competition.

      I’m not seeing the necessary change in either corporate or union culture that will enable GM to really become a powerhouse in the domestic auto industry. Most likely GM will become the equivalent of a middle-aged man who was once a star athlete, but is now rather fat and lazy, but basically harmless. You can’t ignore him because of his size, and everyone remembers his achievements, but no one really cares about what he is doing next.

      Which means GM will probably merge with a partner that wants the good stuff, or be slowly sold off in bits and pieces down the road.

  • avatar
    Zackman

    Megan finally got it right.

    “He gazed up at the enormous face. Forty years it had taken him to learn what kind of smile was hidden beneath the dark moustache. O cruel, needless misunderstanding! O stubborn, self-willed exile from the loving breast! Two gin-scented tears trickled down the sides of his nose. But it was all right, everything was all right, the struggle was finished. He had won the victory over himself. He loved Big Brother.” – 1984

    What took you so long?

  • avatar
    philadlj

    Ahh, but how will those new ‘CAFE’ standards affect the price of those Venti lattes?

    //dodges thrown vegetables

  • avatar

    It is never a good idea for the federal government to interfere in the natural financial cycle of success and failure, all to benefit a vocal minority — in this case, labor unions. It just isn’t.
     
    If you don’t believe that, then all of us may as well sign a blank check over to our government now to control our lives more than it already does. (Wait, that’s already happening anyway. Ah, hell…)
     
    All the bailout did is stave off the inevitable failure of GM in our country. So long as GM remains a slave-entity to the whims of the UAW, there is no hope for long-term success.

    • 0 avatar
      CCH

      Rob, while i get that point of view to a certain extent, it is far to simplistic and leaves out the cold hard facts of the situation, i agree with you that GM is a mediocre manufacturer at best and that the UAW has long ago served its purpose and is now a millstone around the necks of the big 3. However the most important factor in the whole bailout equation is employment, for one single company to be able to move the unemployment rate by whole % points if it went down is not good, however it is what it is and unless you want to see the whole Detroit area regress into an economic disaster zone on a par with the dust bowl you have to save the company, I’m sure nobody in Washington wanted to do this but it had to be done..

    • 0 avatar

      Thanks for the thoughtful reply, CCH. I appreciate a higher level of discourse on this issue.

      The argument you put forth assumes the failure of GM and Chrysler would have bankrupted the entirety of what’s left of the US automobile manufacturing industry. That wouldn’t have happened… and I’d argue that even if it had, the ends would have justified the means.
       
      Yes, suppliers and vendors that relied too heavily on the failed automakers would have also crashed, as would have any ancillary businesses in that process. So what? Other, healthier companies would fill the void, and after a short time reap additional success without the competition from weaker entities. As business grew, new companies would emerge from the ruins.
       
      Ford, being essentially the last US automaker standing, would also see its business grow… but only to a point, as outside companies would buy up the tatters of GM and Chrysler and continue building and selling the products that remained popular. (Don’t believe me? One word: SAAB. And that’s not even a particularly popular or desirable brand.)
       
      No, the biggest single advantage for Ford in this scenario would be the dismemberment of the UAW. I don’t think I need to go any further about why I would love to see that happen — except to say we’d likely see a rebirth in the American manufacturing sector not seen since the days of WWII, as factories and other businesses returned to America without fear of organized union thuggery and extortion.
       
      Yes, this process would be very messy. Chaos is sometimes a good thing, and is often what is needed to spur real, genuine, positive change. Half-assed measures to forestall the inevitable have brought us to this very point. Our economy is still in tatters, with little real evidence of growth. But at least GM can sell rebadged South Korean econoboxes, bolted together by UAW drones.
       
      Lastly… in the end, do I care what happens to Detroit? Not really, no. Not in the slightest. The city cast its lot with the wrong team, and stuck with it too long. Frankly, Detroit deserves to die along with GM.

      That’s not being cold, just rational and pragmatic… but of course, as you noted, that’s not a politically popular or saleable viewpoint.

    • 0 avatar
      CCH

      Good reply Rob, “in the end, do I care what happens to Detroit? Not really, no. Not in the slightest” Ha ha, a bit of brutal honesty is always appreciated in this corner.
      I didn’t mean the entire industry would collapse, rather a large proportion, it could be possible (although neither of us can prove it either way) that it would take down Ford, again all idle speculation. The long and complicated supply chains that auto manufacturers have developed take many years to build, in the meantime what do you think vw Toyota saic et al will be doing? We aren’t living in a closed economy here, suppliers without any political or economic ties in this country will most certainly move far more production abroad.
      I’m in agreement that GM and Chrysler are barely surviving, even in their new and improved state, however i have been the victim and the victor in chaotic wind downs of companies(more so the victim, the lawyers are the only ones who really win). And i can tell you without a shadow of doubt that an orderly wind down taken place in the context of a takeover / merger is far preferable to what would have happened if a bailout didn’t happen, so i suppose what I’m saying is that keep em pumped full of steroids for a couple of years, wait for the economy to get strong enough to withstand the shock of the failure of either one (entirely possible) and try sell them (or parts of) to the highest bidder.
      BTW I’m a big fan of SAAB, nearly jumped on a 900 turbo last week, but i think that’s one brand that’s circling the drain faster and faster..

    • 0 avatar

      Thanks for the reply, CCH.
       
      Sometimes you must confront the harsher truths in order to move forward. Corporations don’t exist as job programs, or to “save” cities. They exist to make a profit; specifically, to offer a product at a price which allows said company to make more per sale than that product cost to produce. If it costs too much to build something in America, move the plant elsewhere… and question what needs to be changed over here, so that doesn’t have to happen.

      There is no other reason for a corporation like (the former) General Motors or Chrysler to exist, but to make money. And when they can’t do that, then they must move aside for those that can. I really believe it’s as simple as that. Bleeding heart arguments only detract from that central truth, which is why I tend not to subscribe to them.

  • avatar
    Jack Baruth

    I can’t believe she didn’t call me to verify that I actually wrote that. We are both six foot two, dark, and handsome.

  • avatar
    DC Bruce

    There are three big points to be made about the GM and Chrysler bailouts.
    1.  We have a mechanism in place for restructuring failing businesses; it’s called bankruptcy.  In bankruptcy, all of the stakeholders come together and, with the help of the bankruptcy judge, work out a plan to share the loss, restructure the company’s debt and re-allocate risks.  The GM and Chrysler bankruptcies were hijacked by Uncle Sam, and the restructuring was driven by political considerations.  Some stakeholders got less than others — not because this was the agreement worked out, but because they said so.  In particular, secured creditors — i.e. the folks that held GM and Chrysler bonds, got stiffed in favor of the UAW.
    2.  Everyone agrees that there is an oversupply of auto production, worldwide and in the US in particular.  To the extent that GM and, the bigger zombie, Chrysler, are kept alive and making the kind of cars that Americans want to buy (some Americans, at least), they take sales from the other American car company that didn’t get bailed out — Ford.  Zombie airlines have been a plague on the airline industry for more than a decade — they have perpetuated excess capacity which has made it hard for any of them to make a profit.  Only now does that situation appear to be changing.
    3.  The “moral hazard” issue is no small thing.  The single biggest cost driver from the Detroit 3 has been the UAW.  Sure, management should have resisted some of the more ridiculous UAW demands (e.g. the “jobs bank” that paid people not to work).  But the moral hazard here is that, for decades, the UAW and the Detroit 3 went arm-in-arm to Washington to secure favors in the hope of preserving the oligopoly they once had in the 50s and 60s, which allowed the companies to get rich, even if they were forced to share the wealth with the workers, thanks to the power of the UAW.  What Washington gave the UAW/Detroit 3 was protection from foreign competition, sometimes direct, sometimes indirect.  For example, when Detroit “discovered” the minivan and the SUV — two vehicles that were exempt from the passenger car CAFE standards — they found two classes of vehicles for which they faced no competition.  In a rational world, this regulatory loophole would have been closed once Detroit started selling “light trucks” as passenger vehicles.  The idea is to decrease the aggregate fuel consumption of the US motor vehicle fleet, right?  But it wasn’t closed because that would have ended Detroit’s competitive advantage over the foreigners in these vehicles.   These actions by the UAW, Detroit and the US government, kicked the problem of Detroit’s inability to compete with foreign manufacturers down the road; and the bill finally came due in 2008.  Likewise, the cram down of the GM and Chrysler bondholders in favor of unsecured creditors (the UAW) kicks another big problem down the road: the next time either of these companies go into the private credit markets to borrow money, lenders will price in the risk that they could get stiffed just like the last group of bondholders did . . . which means credit will be more expensive for these companies than it would be otherwise.
    The fact that GM may be making some better cars and may be putting better numbers on the financial reports means that the bailout hasn’t failed . . . but it’s way too early to call it a success, and the time for judgment will be several years from now.

    • 0 avatar
      Daanii2

      Well said, DC Bruce. The government, in my opinion, should never be a debtor-in-possession in bankruptcy. The conflict of interest is just too great. A horrible precedent was set in the GM and Chrysler bankruptcies.

      Nor should the government be a venture capitalist. When Tesla and Fisker are each given $500 million in government money, making Elon Musk a billionaire, something is very wrong.

    • 0 avatar
      Zackman

      Unfortunately, the old rules no longer apply. It’s a globalized (I used that three times today) economy, like it or not. I don’t, but that’s the way it appears to be and I don’t see it changing anytime soon, only accelerating more.

    • 0 avatar
      Steven Lang

      1. GM would have never emerged from bankruptcy. Not in a million years. There were too many special interests (dealers, UAW, bondholders, pensioners, etc.) that would have torn GM to shreds in exchange for their own special interest. Please refer to Chrysler’s debacle and multiply that by about 20.
      2. The overcapacity issue is far more acute in Europe and Japan. Capacity can (and has) been taken out without the whole episode becoming the equivalent of an automotive apocalypse.
      3. Absolutely wrong. The absolute worst issue in this process has been GM’s upper management. Nothing else comes even close. They made a blizzards worth of bad decisions and CYA’s over the last 30 years that effectively made the company uncompetitive. Ford’s management has made the tough decisions that the government ended up forcing on GM… and my hope is that the upper management culture in GM has changed for the better. That remains to be seen.

    • 0 avatar
      psarhjinian

      The single biggest cost driver from the Detroit 3 has been the UAW.

      The single biggest problem has been revenue, not cost: GM’s inability to sell it’s products at a profit.  The UAW is not the reason that GM piled three to four times the incentives on the hood vis a vis Toyota or Honda.

    • 0 avatar
      Robert Schwartz

      I don’t usually agree with psarhjinian, but he is on to something that Ms. McArdle missed. The single fact that killed GM (and Chrysler and wounded Ford) was that they could not sell their cars at the prices their competitors could command for similar models. I.e. net of incentives and warranty costs, a cobalt could not bring in the same money that a civic or a corolla fetched. The differences, were, IIRC, quite substantial. There is no way that GM was viable in that business model.

    • 0 avatar
      geeber

      And the reason that the GM and Ford offerings could not command the price of a Honda or Toyota was at least partially because of the uncompetitive cost structure that resulted from the collective bargaining agreements with the UAW. When Toyota can put the money into a stronger transmission or better interior materials that GM must pay toward benefits or inefficiencies caused by overstaffing issues, customers notice and buy the Toyota, and, as its good reputation spreads, pay more for it. This begats a vicious, downward spiral that results in bankruptcy. 

      For years we ignored this, because the Japanese weren’t competing in the heart of the American market – family sedans. But by the early 1990s, Toyota and Honda had cracked the code with the 1990 Accord and 1992 Camry, and the Big Three were in big trouble. The SUV boom conveniently masked the problem, however, enabling the Big Three and the UAW to pretend as though nothing was amiss another 15 or so years.  

  • avatar
    ZoomZoom

    I recently travelled to another city.  Rented a Hertz.  Didn’t tell them what I wanted, just a midsized low mileage non-smoking car.

    Got a Chevrolet.  I don’t know, it was one of those dull-sounding GM names; can’t even remember it now, don’t care enough to bother looking it up on their website.

    Until this trip, I have sworn off General Motors cars for purchase.  I did not mind renting them if that’s what was given to me, provided that the car was nonsmoking and new. 

    But this car was awful.  Uncomfortable.  Fussy controls, particularly for changing radio stations and so forth.  Trunk lid didn’t function correctly.  No fun to drive for a long trip.  And my personal car is a Prius (which I love to drive), so there’s your comparison. 

    At least the damned thing didn’t break down, but that’s about all it had going for it.

    But I learned something, so it was worth it.  I have learned that I don’t merely dislike GM cars.  I have decided that I am actually repulsed by them. 

    Hence, I have decided that I will never rent another GM car.  And that made the lesson worth my time and worth the cost of the rental.

    Did the bailout work?  My evidence, though anecdotal, says “NO WAY”.  There you have it.

    • 0 avatar
      SVX pearlie

      God help you if you ever get “upgraded” to a Sebring convertible.

    • 0 avatar
      OldandSlow

      Aveo, Cobalt, Camaro, Malibu, Impala – pick one.  Those are the only 5 cars Chevrolet sells in the US with a trunk lid.
       
      My personal experience with rental Chevy’s, the Cobalt, HHR and Malibu is that they seem to be an assemblage of Chinese parts – which may not be true.  The Cobalt had plenty of grunt with its big 2.2L 4 cylinder engine, but under-steered to the point that I was once worried that the tires would come off the rims. The HHR had an uncomfortable driver’s seat, a busy dash layout – but like the Cobalt at 80 mph, it was barely cracking 3,000 rpm.  The Malibu was more to my liking.
       
      My Toyota rentals, a Yaris and a Corolla were more of a let down – because Toyota is suppose to be so good.  The Yaris is a penalty box with cost cutting touches everywhere in the cabin, offers up a woeful amount of body roll and sounds like it is straining at 75 mph. The Corolla felt like a cave with hard plastic everywhere, steering was a tad better than the Cobalt and the four speed auto did not like it when I manually downshifted or upshifted due to traffic conditions – but I’m sure the trunk lid function properly.

    • 0 avatar
      Daanii2

      God help you if you ever get “upgraded” to a Sebring convertible.

      That reminds me. I happened to go to Detroit a few weeks ago on a rare business trip and rented a car. I got “upgraded,” and since it was late at night, quickly got in the car to drive to the hotel.

      At the time, I did not even notice what make of car it was. But driving the 15 miles to the hotel was a scary experience. On the freeway every time I moved the steering wheel the car swerved much more than I expected. Not enough to be too dangerous, but startling none the less.

      So when I got to the hotel, I got out and checked what kind of car it was. A Sebring.

    • 0 avatar
      HerrKaLeun

      You guys are TTAC readers but you rent a car, complain about it and don’t even know which type it is after driving it?

  • avatar
    LimpWristedLiberal

    Does the CAFÉ acronym really have an accent mark?  What a waste of tax dollars that would be.

  • avatar
    FleetofWheel

    If forward thinking Progressives in upscale communities, who strongly support the bailout, would buy a GM vehicle instead of their usual BMW, Benz, or other import, they could be the fulcrum that pulls GM ahead.

    Unlike casting one vote of out millions or writing a letter to the editor, they have it totally within their control to buy a GM vehicle and effect real change.

    Let’s see MSM news reporters to do man-on-the-street interviews of upscale car buyers in affluent Progressive communities to get evidence of this.
     

    • 0 avatar
      LimpWristedLiberal

      It’s like if conservatives went to prison because they supported imprisonment.  Even the supporters of the bailout weren’t hoping Lehman Brothers would fail so they could give money to Bob “Hoya” Lutz.

    • 0 avatar
      djoelt1

      As a forward thinking progressive in a liberal community, I would buy a GM car if they made one that filled our needs.  Right now our garage has a 1996 Civic, a 2003 Passat as our family hauler (family of five) and a BMW M3 Lightweight for track duty.  The Civic will be replaced with a Prius or other car with comparable mileage; the Passat will be replaced with a seven passenger vehicle that gets better mileage when one is available; and the M3, well, the early Z06’s are attractive but have 3 seats too few and the Camaro is simply too fat.  But at least GM has now has cars comparable to our existing fleet, even if they don’t have the replacements for our existing fleet.  Perhaps they will have replacements for our existing fleet in the next few years when we are in the market.

  • avatar

    ok I’ll repeat myself for the tenth year in a row. it’s the marketing that was and still is killing General Motors. they still don’t get it.

    • 0 avatar
      SVX pearlie

      GM’s marketing is much better than it was, even if it isn’t targeting *you* specifically.

      Caddy’s back as “The New Standard of the World”. That’s some serious cojones, my friend.

      Buick is busily reinventing themselves as something you don’t need an AARP card for.

      Chevy is making honest-to-goodness competitive mainstream cars, and challenging people.

      GM’s marketing has turned the corner, based on having decent product to push. Sure, one can quibble over the details, but it’s not completely laughable.

    • 0 avatar

      the rebate/incentive offerings are still pure insanity. they are back with the holiday Red Toe Tag and end of month short term blitzes, and remain clueless as to how to drive traffic into dealers. add in the continuation of stair step programs like SFE and EBE with the clueless requirements and it’s plain to see that the marketing really hasn’t changed and why market share will continue to drop over time.

  • avatar
    TrailerTrash

    The bailout was wrong!
    It was wrong because it was unfair.

    Everyday companies fail and individuals and families fall to bankruptcy and lose everything.
    To single out some from this without punishment is simply unfair and in any sense of equality, unfair!
    It was unfair the UAW contract agreements with these two were not forced across the board to ALL US UAW plants.
    Without this, the entire concept is illegal, in my opinion.

    And STOP telling us the world was saved and my life made better due to this. Nobody can tell us with responsibility what would have happened IF these companies were allowed to follow the course of years of capitalism policy.
    Contracts became null and void.
    Who has faith in any contract today?

    • 0 avatar
      psarhjinian

      It was wrong because it was unfair.

      Capitalism is unfair by nature.  Established market participants twist and distort and lock up markets, abuse their customers and backers and generally push things as far they can before they’re “corrected”, sometimes horribly so.

      The role of government is to balance that scale and force the corrections before things go too far, or provide a cushion when they do snap.  Is that unfair?  Sure, but it’s just as unfair when it’s the companies and cartels that do it.  Heck, we’ve been bending the market, backstopping defense, aerospace, banking and energy for decades—why is this suddenly “unfair”.

      Unfettered capitalism cannot exist.  It’s even more of an academic fiction than communism because it’s at least theoretically possible to have communism, whereas “free markets” are free for as long as it takes one or more players to bend the market in their favour and become a de facto government.

      Contracts became null and void.
      Who has faith in any contract today?

      Who had faith in contracts when one side could afford high-powered lawyers—or worse, thugs—and the other could not?  The only reason contracts exist at all is because of the social contract that creates a government to enforce them.

    • 0 avatar
      TrailerTrash

      Psaj

      This is the problem I always face when speaking of fairness or right or wrong.
      It’s always been done.
      Or, my favorite…you did this when you were younger.

      This has nothing to do with the moment.
      Never will I ever speak out in favor of big company breaks or any involvment of government to bend rules or attempt to make social changes.
      These are not the role of government.
      Regardless of all earlier failures of people or government, the decision at hand should hold it’s own.

      Unfettered capitalism cannot exist…this is wrong and a guess at best. It has never been tried.
      It has always been diluted with the greed and failures of people.
      But this is no reason to demand we stop keep trying to get there and demand every move made at this moment be clean and fair and just.

      Crime has always been.
      Racism has always existed.

      This is no reason to expect them to continue without a fight.

      So I guess I am troubled by your position. I am confused as to what we should demand as people from government and ourselves.
      I don’t know where to go with the knowledge given…except to the cabinet for more single malt.

    • 0 avatar
      Daanii2

      The problem is when the government does not itself play fair.
       
      In any lawful bankruptcy, the United Autoworkers would have received nothing. There is no rational economic basis for not throwing out the union contracts. And the pension plans. That’s what bankruptcy is for.
       
      The only reason that did not happen was political. That’s what was unfair. That’s what stinks.

    • 0 avatar
      MikeAR

      Psar, communism cannot succeed. It fails to take human nature and self interest into account. For there to be perfect communism, humans must not have their humanity. The only perfect true communist society would be a population of automatons, zombies that don’t eat brains.

      As far as perfect capitalism, there is no such thing. Some government is necessary to serve as a referee. But that government ought to allow failure. Schumpeter’s creative destruction is a good thing.

  • avatar

    “The only reason contracts exist at all is because of the social contract that creates a government to enforce them.”
    Yes, and when that government not only fails to enforce contracts but chooses to abrogate them we are in a situation where people will be a lot more careful who they loan money to, and as mentioned in a previous post they will charge higher interest to cover the chance that they will be the next lenders to be screwed by the government. This does not help the economy to grow.

  • avatar
    Daanii2

    The carmaking industry is like a lot of other industries over the years. The business model no longer works. Almost any disease that an industry can catch, carmaking has caught:
     
    · a few huge companies “too big to fail”
    · frail or bankrupt suppliers
    · strong labor unions and unrealistic labor/management deals
    · heavy healthcare and pension burdens
    · pressure to deal with political issues — pollution, global warming, oil depletion and energy security
    · government regulation and meddling
    · financial bailouts
    · chronic overcapacity in factories and workforce
    · too much unsold inventory
    · financing overhead
    · no direct customers, with dealers in the middle
    · dealers all protected by state law
    · target of lawsuits
    · layoffs
    · huge fixed costs
    · sad (and deteriorating) balance sheets
    · fierce competition
    · commodity pricing
    · poor profit margins (or lately just plain losses)
    · unhappy dealers
    · unhappy customers
    · long waits for popular models
    · unhappy shareholders
    · duped bondholders
    · soaring development and marketing costs

    We never seem to learn the lesson that industries like this one need to be left alone. They need to fight their way back to health, or die. Artificial life support does no one any good.

  • avatar
    Mike Kelley

    My employer had a long-term contract with GM, and they weaseled out of it when the government did the bailout.  I wouldn’t trust them to honor any contract, even a warranty.

  • avatar
    atlas_snored

    Megan McArdle is one of those Ayn Rand (medicare is for losers) libertarians who just happens to be a GM bailout booster.  Anyone see the inconsistency?  Megan McArdle’s fiance is also a paid shill of Freedomworks.  See more inconsistency with the meaning of libertarianism? 

    Turns out the Atlantic has been getting some money in exchange for their editorial bent.  Here’s TalkingPointsMemo’s expose of the Atlantic whoring out its editorial policy:

    The Atlantic has held approximately 100 of them since 2003, according to Zachary Hooper, a spokesman for the magazine. “The corporate sponsor…comes to us and says, ‘We’re interested in having a discussion on a certain topic.’” The magazine’s business staff, said Hooper, takes things from there. The Atlantic flier makes clear that the “salons” are paid for by corporations and focused on a public-policy issue in which the corporate sponsor has a major stake. It offers the following “sampling of salon dinner sponsors and topics”:

    AstraZeneca on “Healthcare Access and Education”
    Microsoft on “Global Trade,”
    GE on “Energy Sustainability and the Future of Nuclear Power”
    Allstate on “The Future of the American City”
    Citi on “The Challenge of Global Markets”

    Hooper declined to say how much these corporations put up to sponsor the events. And just as with the Post, the Atlantic dinners are strictly off-the-record, and not open to the public. The flier describes them as: Private, custom, off-the-record conversations of 20-30 key influential individuals, moderated by an Atlantic editor, designed to bring a thoughtful group together for unbounded conversation on key issues of the day.

    http://tpmmuckraker.talkingpointsmemo.com/2009/07/not_just_wapo_atlantics_corporate-sponsored_salons.php

    Shameless, just shameless.  The next time some libertarian comes around and supports a bailout, you may be a bit more cynical.  These editorials also don’t bode well for the sanctity of the fourth estate.  It’s as if the nefarious forces of plutocracy have infiltrated and co-opted the mechanisms that theoretically should help keep them in check.


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