GM Death Watch 180: Bail!
Detroit's not flying the white flag just yet, but you can hear the unmistakable sounds of unfurling. Post Black Tuesday, GM CEO Rick Wagoner set about painting General Motors as a victim of unforeseeable circumstances; the switch from truck to car sales was faster than "anyone" could imagine. Chrysler CEO Bob Nardelli simply said everything's fine– a sure sign that nothing is. And earlier today, Ford President Mark Fields pleaded for government intervention to protect/create a domestic electric vehicle battery industry. Clearly, finally, The Big 2.8 are thinking ahead. To government bailouts.
Chrysler will be the first to file for Chapter 11. Ironically, the ailing automaker's also the least likely to receive government assistance. Yes, the feds bailed out Bear Stearns. Yes, the U.S. government provided Chrysler with hundreds of millions in loan guarantees the last time ChryCo was up against the wall– and received handsome rewards for Lee Iaccoca's rescue. But that was then. This is now.
Chrysler owners Cerberus don't want an auto company-shaped millstone around their neck. Any pretense that the private equity firm bought Chrysler to run as a going concern will disappear the day they file. Cerberus will use C11 to break-up the company, sell what it can, sue Daimler, settle out of court and run in the opposite direction. You want federal subsidies/guarantees/loans/whatever to keep this sucker afloat? YOU get ‘em.
No doubt Chrysler's new new owners will receive some kind of public assistance. But the idea that the entire company can be saved will be jettisoned by everyone except the unions– who'll take what they can get.
Even if the Chrysler's dissolution gives GM and Ford a dead cat bounce– and frankly, who could tell in this market?– GM will crank-up its lobbying efforts for government assistance. Massive hybrid tax credit for the electric – gas Chevrolet Volt? It's a given. Credits for "resurrecting" old factories will also reappear. In fact, all the creativity that should have gone into GM's cars will flow into shaping a massive, green-tinged begging bowl.
And then, catastrophe. All these bail-out band aids cannot staunch GM's wounds. The company will have to file. At that point, the tax-funded pity party will REALLY start.
While America doesn't need a nationalized automobile industry any more than England did, there's no question GM will find a willing partner in Washington. For one thing, bailing out Detroit will mean bailing out Michigan. The state is [still] too large and too powerful to let sink beneath the Great Lakes under the weight of a total GM failure– despite massive complicity. For another, the political narrative is pretty compelling. It's not just Detroit that's on its knees (so to speak), it's AMERICA! Let's keep America rolling! (Again.)
Of course, the southern states, where the transplants frolic, will be none too happy watching their patrons' profits attacked by federally-subsidized domestic competition. So there will be conditions placed on these subsidies/guarantees/loans/whatever. Lots and LOTS of conditions.
The days of excessive trough snuffling (i.e. Rick Wagoner's $14.4m annual pay packet) will be finished. Pay will finally be tied to performance. Current management will get a bit of a tongue-lashing on the Hill by the aforementioned southern reps, but the Powers that Were will drift off on their golden parachutes with their money and yes, pride, intact.
The unions will demand– and receive– job guarantees. The feds will stipulate that none of the money provided can be spent building cars overseas, including Mexico and Canada. While GM will sleaze this– building overseas cars here, importing parts– this stricture will condemn GM to complete oblivion. But hey, you can't fight the will of the working man.
And if that's not enough to turn a mediocre car company into an entirely non-competitive corporate entity, there will be enough embedded green initiatives to plant a good-sized forest. The word "sustainable" will echo through the loan agreement like a cannon fired in the Grand Canyon– with about as much effect on the environment.
I'd like to think that a new GM will rise from the ashes of the old. But it seems obvious to me that neither GM's custodians nor the feds will have the foresight, courage or political will to do what really needs doing: the breakup and sale of all GM's brands.
That strategy would "save" GM by destroying it. The talent locked-up within GM would be freed from the stifling, overarching bureaucracy, to emerge in a focused and streamlined fashion. But a life-saving break-up would require a fundamental shift in public consciousness. A politically incorrect recognition that the American free market cuts both ways; helping the losers weakens the system, rather than improves it. You can't create competitiveness through legislation any more than you can outlaw it.
It's a lesson GM will learn soon enough, one way or the other.
Redbarchetta on Jun 16, 2008Dynamic88 I'm pretty sure your comment was directed at my post. No sure where you learned your definition of "their" from but here it is for future reference: “Their” is a possessive pronoun like “her” or “our” “They eat their hotdogs with sauerkraut.” Everything else is “there.” “There goes the ball, out of the park! See it? Right there! There aren’t very many home runs like that.” “Thier” is a common misspelling, but you can avoid it by remembering that “they” and “their” begin with the same three letters. Another hint: “there” has “here” buried inside it to remind you it refers to place, while “their” has “heir” buried in it to remind you that it has to do with possession. And here is the link if your interested, their. I also find it odd how you can defend our education system right now when we are far behind other nations. It wont be long before developing countries start putting us to shame.
Axel on Jun 16, 2008
netrun: GM’s hole is too deep and the stupidity is just too prevalent. Consider Exhibit A: the G3. Exhibit A??! Try Exhibit Q. Exhibit P: [s]Opel[/s] Saturn Astra Exhibit O: W-body cars. In 2008? Exhibit N: Lacrosse and Lucerne Exhibit M: $Billions to develop the finest 18 MPG vehicles the world has ever seen. Exhibit L: Failing to market their few bright, unique vehicles, like the Malibu Maxx. Exhibit K: Cobalt ...and so forth...
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