General Motors Death Watch 33: GM RIP

Robert Farago
by Robert Farago
general motors death watch 33 gm rip

In a news article entitled "UAW, GM near deal on Health", Detroit News reporter Daniel Howes claims that the United Auto Workers and General Motors are about to sign agreement that will trim $1b off The General's health care payments. The doyen of Detroit sums-up the current state of play in his usual comprehensive and no-nonsense style, but a thorough read of his report reveals that his premise is based entirely on rumor. And the rumor is based on hope. And the hope is false.

It's easy to understand why even seasoned journalists would give voice to such illogical optimism. While we've been charting and predicting GM's demise for some time, the actual implications of that cataclysm are so enormous they defy rational exposition. When a GM lawyer enters federal court holding the General's bankruptcy petition, the entire US automotive industry will change forever. Initially, everyone will suffer. It's no surprise that industry insiders hope against hope that the main players will see sense soon enough to dodge the bullet that will kill the status quo.

What observers fail to understand is that GM and the UAW signed a suicide pact a long time ago. Back in the day, when GM's profit-gorged, short-sighted management traded job security for freedom from strikes, they backed the union into a corner. That's right: the union. Once union members were made fire proof, the union could never, ever agree to their dismissal. Pay raises, working conditions, pension contributions, even health care– they're all negotiable. But any UAW boss that says to one of his members "The company doesn't need you anymore. That's it, you're done; you're outta here" wouldn't last five minutes.

Make no mistake: guaranteed employment is killing GM. While everyone is talking about health care payments, the key fact is this: a large percentage of The General's workforce is completely unnecessary. And yet GM is forced by its UAW contract to keep paying these workers, either by continuing to spew out cars no one wants or by putting them in a "job bank" where they receive full salary and benefits for doing nothing whatsoever. While most people understand the insanity of the job bank, few realize that one of the reasons GM makes far too many products is that the union deal means it would cost them almost as much NOT to make them.

All the UAW can say is, well, it's your fault for not designing, marketing and selling vehicles that people want to buy, which would create enough demand to keep our people employed and help you make enough money to pay our salaries. It's not a bad argument, really, but it was formulated at a time when GM owned the US auto market lock, stock and barrel. And even if it's true, it's not important. The chances of GM's design team pulling a dozen or so rabbits out of its hat are now smaller than a Chevrolet Aveo.

Despite all the media hype and hope, the current situation is a Gordian knot. GM can't live with their UAW contract, they can't get out of it without a strike, and they can no longer afford a strike. Meanwhile, the General is bleeding out. Their market share has evaporated, their new products aren't cutting it, Delphi is about to saddle the company with a $7.5b pension bill (and a catastrophic interruption in the flow of parts), their credit rating will soon be sub-junk (nuclear waste?), their losses are completely unsustainable, and so on. Today's fire sale of their stake in Fuji Industries to arch enemy Toyota is just more proof that their time is up.

In fact, GM is already dead. They're already locked in the corporate version of John Kennedy's plane crash: a death spiral headed straight to a violent, inescapable conclusion. Accepting this premise, we can understand GM's recent behavior in terms of Dr. Elisabeth Kubler-Ross' Five Stages of Grief. We've heard the denial (our products are great!); we've felt the anger (the media hates us!) and now… bargaining. As you read this, GM and UAW reps are at the bargaining table, trying to find a way to deal with their mutual loss. They may establish what Ross called a "temporary truce", but they will eventually have to move on.

When Delphi goes belly-up, I reckon the whole lot of them will make the transition to the final stage: depression. When GM itself follows suit, the depression will become chronic. The media will bemoan the loss of American pride and jobs, the UAW will get all sullen and melancholy, and GM's current management will sulk off into the distance, riding their golden parachutes without comment. All that will be left will be acceptance. Kirk Kerkorian and his pals will take charge of this final stage of the healing process, telling the world that it's over. Deal with it. And after that? Who knows? Hope springs eternal.

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