Wednesday, April 29, 2009

GM: Government Motors

Well, General Motors has unveiled its plan for how to move forward in the business of automobile manufacturing; and it is unique in the annals of American capitalism. As a part of this reorganization, GM will drop its Pontiac brand, eliminate an additional 21,000 jobs, and do likewise with some 2,600 dealers. It announced this plan under a government deadline of reorganization that it hopes will get it another $11.6 billion in government aid, on top of the $15.4 billion in that has already been invested by our leaders in Congress and the White House. GM likewise has a deadline of just one month to get both bondholders (who are far less than happy) and the government to sign off on the final details of this plan. It must also get the UAW to agree some kind of settlement on over $20 billion in cash obligations that GM has with the healthcare plan of its union retirees. If it fails to meet this deadline with any of the three groups in question, it faces bankruptcy. Should this perfect storm of economic events manage to occur however, the GM of the future would look something like this:
  • The government would end up with at least 50% of the common stock of the company, making them the majority stockholder.
  • The UAW would end up with as much as 39% of the common stock.
  • Bondholders would end up with the remaining 10%+ of the stock in exchange for $27 billion of GM's current debt.
  • Current shareholders of GM stock would effectively have their investment wiped out.
For those of you have somehow managed to miss the signs (Signs, more like billboards!) of a fundamental shift in capitalism in the US (and the world), this would be it. This is no longer a loan or a temporary fix, this is a company voluntarily and permanently turning over voting control of its stock to the federal government. While the taxpayer will foot the bill for this, Congress, the White House and a small group of Federal bureaucrats will determine the long term future of what was once the world's largest company. What's more, they will do this in partnership with one of the nations largest labor unions. I cannot imagine a more ill-suited group to run a business of any kind, let alone one of such size and importance.
And ask yourself this:
  • If GM is owned in the majority by the government, will it change it's name to "Government Motors"?
  • What level of debt, in a government which seems to treat debt as its closest ally, will this new GM be allowed to roll up?
  • If this plan, boldly put forward by current management, fails to return GM to profitability, what amount of red ink in this new company will determine when it fails?
  • What unsupportable contracts with its partners in the UAW will be allowed to continue regardless of a lack of profitability because the UAW controls so much of the stock and the government has the taxpayers bank account to fill any gaps?
  • What new levels of expensive federal bureaucracy will be required to direct, manage, and regulate this new Government Motors?
  • What impact on competition (from the standpoint of both US and foreign automakers) will a government owned auto manufacturer have?
And most importantly,

Would you buy a car from a company where the design, manufacture, sale, and long-term service of your vehicle would be ultimately performed by the federal government?

I have to tell you that I will be purchasing a new car later in the year, and that this situation has certainly given me pause over the potential selection that I will make...


7 comments:

Winky Twinky said...

You got that right!! That's exactly why I've already decided that next time I purchase a vehicle, it definitely will NOT be a GM or a Chrysler...I've had a few really good Fords in the past anyway...

Tim Higgins said...

WT,

You have to wonder how much of the outrage that you point out will turn into a baklash against this new Government Motors. I too may be prepared to buy a Ford just to reward them for not taking the government money.

Of course our current leaders do not seem to be above attempting to mandate certain types of future auto purchases.

Winky Twinky said...

Geez....you just had to go and say it, dincha? I was trying to avoid thinking in that direction, but I'm sure that's what we're in for...(sigh) it just hurts my brain.

Hooda Thunkit said...

Tim,

Another possible name change:

Garbage Motors

And with the government picking out the colors, UGH comes to mind. . .

Roland Hansen said...

How does Renault do it?

Tim Higgins said...

Roland,

Some would say that their partnership with Nissan has moved them a long way down the road to profitability. Me, I think that because they are French, they just ... surrendered to the inevitable.

Roman said...

I have been in the automotive repair business (less 9 1/2 years in the US Air Force) for all of my adult life. Most of this time have been working for "domestic" dealers. I have owned "American" cars for all of this time. The government involvement with the auto business, to my way of thinking, has given me permission to start thinking about driving an "import". These, for the most part, are built by capitalists!