Please don’t bail out GM

I have to agree with Greg Saunders, posting at Tom Tomorrow on this:

“When it comes to bailing out the auto industry, count me in the “let them starve” camp. The auto industry has been outsourcing American jobs for 25 years now with little regard for the devastated communities they’ve left in their wake (seriously, re-watch Roger & Me sometime). The big three have also used their lobbying might to oppose every environmental regulation in their sights. And on top of all of that, their cars suck. Bailing out the auto companies whose single-minded devotion to SUV’s made them blind to the hybrid revolution is like bailing out a record company that hasn’t had a hit since “The Macarena”. Screw them.

The US economy is brutal in its supposed simplicity. The market is the decider – good companies prosper and bad ones fail.

That means if you make shitty products then you can generally expect to eventually go out of business. 

Unless you are a US bank, airline or a car manufacturer it seems.

Unfortunately and blatantly (Ford and) GM ignored the portends, and continued to make gigantic gas guzzling, poorly constructed unsafe vehicles. They have spent years reaping the benefit of lax tax rules on those massive vehicles and now pretend to be blinded by the high oil prices and the disappearing demand from the post-bubbly economy. GM wants $25 billion, and 100,000 GM jobs and countless other jobs that are dependent on GM are at stake.

Shut the doors I say, shut the doors.

It’s time these companies (and those crappy US Airlines) were pushed into the incinerator. Out of the ashes we can expect to see one, five or even ten or twenty new, innovative and cool companies that form to fill the vacuum. We will all be richer for it.

Put them into Chapter 7 (that’s receivership where you shut the doors), chop them into pieces and sell the assets off division by division. Canny buyers will grab factories, brands and even those car loans and will operate them far more efficiently. The debt holders are in charge in a receivership situation, and this is one situation where some tough decisions should be made.

Wouldn’t it be great to see those GM brands independent again? Not just the crappy ones like Buick, Saturn and GM, but businesses like Cadillac, Chevrolet and Holden that have some following and legacy. Then there are relatively unspoiled brands like Saab, Opel and Daewoo. Imagine them all under independent ownership, scaled back and concentrating on selling quality vehicles. Imagine their suppliers in the same way.

Wouldn’t it be better for employees in the medium term to work for smaller, more dynamic, local and much more fun companies? There needs to be some pain now though, as it is just not sustainable to keep making Ladas when the economy doesn’t demand it.

Some of that $25 billion (or whatever) could go towards covering the disappearance of the pensions for former US based workers, while adding yet another nail in the coffin of private health care. 

The rest could go to creating smart incentives for the new companies to invest in clean technology would help guide them, while other startups would also emerge to provide the required parts.

The motorcycle industry a few years back figured out that it was really easy to design, manufacture and sell a much vaster range of faster and safer bikes. The technology seemed to just be there and so now a young company (like Triumph or KTM) can create a compelling yet eclectic range of vehicles. Even staid BMW got into the game and is now producing everything from race bikes to 400 enduros and of course beefy adventure and touring bikes.

US based Harley Davidson is also producing great bikes these days, which begs a final thought – what if Harley Davidson and KTM each took over one of GM’s brands? Wouldn’t they make great vehicles?


<update. Ford is selling down their stake in Mazda from 33 to 13% – and lose control, while, and GM sold down their final 3% stake in Suzuki. Actually they sold 17% of Suzuki just 2 years ago to pay for “restructuring costs” and GM has now had Hummer on the block for a month or three>

<upate 2: Chapter 11 can provide some teeth – Ch11 is the “do a big reorg and trade out” version of bankruptcy. Here’s Micheal Levine in the WSJ.

After 42 years of eroding U.S. market share (from 53% to 20%) and countless announcements of “change,” GM still has eight U.S. brands (Cadillac, Saab, Buick, Pontiac, GMC, Saturn, Chevrolet and Hummer). As for its more successful competitors, Toyota (19% market share) has three, and Honda (11%) has two.

GM has about 7,000 dealers. Toyota has fewer than 1,500. Honda has about 1,000

Federal law provides a way out of the web: reorganization under Chapter 11 of the bankruptcy code. If GM were told that no assistance would be available without a bankruptcy filing, all options would be put on the table. The web could be cut wherever it needed to be. State protection for dealers would disappear. Labor contracts could be renegotiated. Pension plans could be terminated, with existing pensions turned over to the Pension Benefit Guaranty Corp. (PBGC). Health benefits could be renegotiated. Mortgaged assets could be abandoned, so plants could be closed without being supported as idle hindrances on GM’s viability. GM could be rebuilt as a company that had a chance to make vehicles people want and support itself on revenue. It wouldn’t be easy but, unlike trying to bail out GM as it is, it wouldn’t be impossible.

Published by Lance Wiggs


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