CNN Money: Big Three Could Return to Profitability in 2010
CNN Money’s Chris Isidore writes that if all the stars aligned, the Big Three could return to profitability by 2010. He qualifies his comments often, with phrases like “if they make it to 2010,” but the bigger issue is the specious nature of his explanations for how the companies would return to profitability. Isidore’s claims are essentially underpinned by the philosophy of “cutting your way to profitability” — as such, he highlights the Big Three’s smaller workforces, supposedly reduced pension obligations, and cuts in overcapacity. The only actual increase in income Isidore speculates about is increased new car sales, an argument barely more sophisticated than “they’re really bad now, so obviously they have to get a lot better.” This kind of journalism is dangerous, not just because it’s overly optimistic (in spite of its own acknowledgements to the contrary), but because it’s wrong. There is no reason to believe sales will be up to 14 million units in the US by 2010; there’s even less reason to believe that GM’s share of those 14 million units would be the same percent that it was in 2007. Isidore’s math on the potential savings from cost cutting is calling the glass 1/8 full at best, by assuming the UAW will allow GM to just defer its contribution to the pooled-benefit VEBA account to another year. That might work in accounting ledgers, but the bottom line is that this is the kind of nonsense that contributed to GM’s collapse in the first place.
Immensely bored law student. I've also got 3 dogs.
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