General Motors Death Watch 194: Good Money After Bad
Of all the failures that have led GM to the brink of bankruptcy, the automaker's failure of imagination is the most profound. Never mind the plug-in electric – gas hybrid Chevy Volt. How about conjuring a vision of a company with two or three tightly-focused brands that each produce a handful of distinctive, class-leading and profitable vehicles, that markets them with relentless focus, and stands behind them with a national network of honest, efficient and courteous salesmen and mechanics? Whatever else Car Czar Bob Lutz can say about GM's product strategy, that ain't it. Which begs the question: what does The General want to do with U.S. taxpayer’s money?
The proposed cure is symptomatic of the disease. Like General Motors’ endless, target-less turnaround, the automaker’s plans for low-interest federal loans are utterly vague. GM won’t disclose exactly how much federal money it wants, or what they want to do with it. “We know the legislature authorized up to $25 billion," GM spokesman Greg Martin told the St. Louis Post-Dispatch. "But the amount that could really make a difference likely is much higher.”
Of course, that all depends on who gets how much and what Martin means by the phrase “make a difference.”
If GM wants a share of the proposed $25b in federal loan guarantees to subsidize production of the company’s “game-changing” plug-in Volt, six to ten billion ought to do it. Free marketeers may wonder why American taxpayers should subsidize the producer (GM) rather than the consumer (a buyer of ANY vehicle that meets a certain mpg rating), but hey, Michigan is a "battleground state." American
votes jobs are on the line.
Did I say $25b? In the run-up to and (especially) including the Democratic and Republican national conventions, Detroit has been lobbying pols to increase the federal tax cash to $50b. Michigan Senator Debby Stabenow hinted that even more federal funds might be needed (a lot now, a lot later). This desperate doubling down stripped away any pretense that the supposedly eco-friendly federal loans will pay for Uncle Sam's green dreams. It’s bailout bucks, pure and simple.
Well, not so pure and not so simple.
The $25b loan program is part of last year’s Energy Bill. Your elected representatives mandated that the funds be used to develop and build fuel-efficient vehicles. To channel these loans to The Big 2.8, applicants (supplicants?) must use the low-interest (4.5 percent) loans to re-tool U.S.-based production facilities to manufacture gas-misers. The bill also stipulates that The Department of Energy– the agency charged with steering boatloads of Benjamins to Motown– must give “priority” to assembly plants that are at least 20 years old. (Toyota and Nissan have one qualifying plant each, and they don’t want/need the money).
Of course, federal programs are almost infinitely… mutable. Even though the Energy Bill’s wording seems clear enough, Detroit’s spinmeisters are already pointing out that the final rules are yet to be written. (The final definition of applicable vehicle types should be a fun read.) Taxpayer grumbles about federal favoritism aside, dumping more money into this part of Uncle Sam's trough will be easy enough.
Assuming (as we must) that significant federal funds will flow into GM’s new product development, it should be remembered that the tax money will replace GM cash already allocated for that purpose. GM can then use the [former] development money for housekeeping: union buyouts, unconscionable executive compensation, Delphi's pensions, etc.
So, what’s the bet that the $25b to $50b (to whatever) loans won’t do any damn good? And by “good” I don’t mean that GM will end-up with electric Volts or gas-miserly Cruzes. I mean what are the chances that our tax money will provide anything more than a temporary, ineffectual band aid for GM’s arterial spray of red ink?
Even if you gave GM a blank check and said “Here, whatever it takes. Build something that will kick the imports (the other guys’ imports, not yours) ass,” they couldn’t do it. Or do it often enough, what with eight brands selling over 40 different(ish) products.
Heads up feds: tight money has not been– nor is it now– the bane of GM’s existence. The General’s goose was cooked by managerial and union greed, sloth, arrogance and, above all, bureaucratic bungling. As anyone who’s ever worked for a company with its head up its ass will tell you, giving copious amounts of fresh capital to execs in charge of a dysfunctional corporate culture to “fix” their business is like trying to extinguish a log fire with gasoline.
If we used our $25b to buy out every GM senior manager and union worker currently employed by the company, and then let the new guys get on with it (with performance-related pay), GM might dodge the bankruptcy bullet. Or, alternatively, embrace C11 as the best way to create a sustainable American automaking endeavor. In fact, the new team would do whatever they'd have to do to survive. And if they didn’t, they wouldn’t. Imagine that.
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