General Motors Death Watch 147: Everything You Know is Wrong

Day two of the UAW strike and media consensus has been reached: chill. Amongst The Detroit News’ (DTN) hopeful headlines: “Gettelfinger: Strike may prod bargainers to end stalemate.” Uh, isn’t that the point of a strike? Anyway, in a piece entitled “GM Can Handle A Short Strike,” the DTN rounds-up the usual suspects to allay fears that the automaker and its union are headed straight to Hell. In sum, “Analysts view GM's tough bargaining as a calculated gamble that is likely to pay off.” That’s a bit like saying Russian roulette offers its players terrific odds.

The party line: GM is finally getting tough with the UAW. According to auto insiders, that’s a good thing (unless the strike goes on too long and then it bloody well isn’t). But those analysts who view the UAW’s company-wide walkout through the prism of traditional labor relations– it’s high time GM “taught the union a lesson”– fail to understand that this isn’t about GM getting tough. It’s about GM not being able to afford its union.

This is the idée fixe that informed GM’s side of the negotiations. And it’s true. Unless GM pares down its labor costs, overseas profits or no, they’re headed straight for Chapter 11. But, the union counters, that’s only true because of YOUR incompetence. If you designed better cars you'd make enough money to pay us what we want. That’s the UAW’s idée fixe and it’s also true. GM’s erstwhile leadership has shown no ability to get its product-related shit together in the US market.

So here we have the UAW and GM management blaming each other for the poisoned fruits of their shared arrogance, incompetence, intransigence and greed. The obvious answer: both sides should sit down and figure out the best possible way to work together to right the ship, setting aside all past agreements. That’s about as likely as Tom and Jerry getting married in Mississippi.

The single largest roadblock to union – management cooperation is GM management’s refusal to accept the fact that their entire North American business is going down in flames. GM’s brands are meaningless, its products uncompetitive and its dealer network bloated beyond any rational idea of sustainability. “Tweaking” the underlying business model– whether through a $51b union health care superfund or a reduction in union salaries– won’t rescue GM from the abyss.

What’s needed is radical surgery. Given the franchise law strait-jacket prohibiting the required dealericide, and the union’s satisfaction (indeed love of) the status quo, there’s only one way GM management could sort out both its labor problem and its business fundamentals: Chapter 11.

Most people consider Chapter 11 a way to jettison union contracts and hire scab labor. This is far from the case. GM would a very hard time indeed finding a federal judge willing to [risk life and limb and] toss the UAW aside. The situation over at bankrupt parts maker Delphi illustrates the point perfectly; UAW workers worked under their “old” contract from bankruptcy declaration (October ’05) to July ’07.

Even in Chapter 11, GM would have to work with the UAW to find a way to reinvent their relationship. Why wait? GM could use this strike as an opportunity/excuse to approach the UAW ahead of a bankruptcy petition and say “We’re all in this together guys. Let’s find a way to start with a clean slate. What would a commercially successful, American-based, fully unionized automaker look like?”

And then I woke up.

It’s a Catch 22. The sort of management team who could even consider this strategy is not the sort of management team that would have put the company in this position in the first place. The fact that GM’s top brass drew down millions in compensation as the company’s market share sank, profits dwindled and union negotiations loomed is all the proof– if proof be needed– that GM management doesn’t have the humility required to admit that everything they know is wrong.

So, will the UAW strike last more than a week? If so, GM is doomed. An analyst for Lehman Brothers told the Associated Press that the UAW strike would cost GM around $8b per month. Speaking to the DTN, BNP-Paribas analyst Brad Rubin pegs the cost of a month-long GM strike at $4b, and adds that the hit would likely tip the automaker into bankruptcy. And therein lies the tale…

Is it really possible that GM is now so weak that a “mere” $4b loss could send them into federal court clutching bankruptcy papers, hoping against hope that they have enough cash to recover? If so, it doesn’t really matter if the UAW and GM sign a new contract. The ongoing slide in GM’s US profits will top that number by year’s end. Chapter 11? Anyway you look at this, they lose.