Given the special circumstances that we face, I am taking liberties and republishing an editorial from Automotive News with regards to a bailout of GM . As much as I dislike the concept of a federal assistance for companies who have found themselves in such a position, I feel that we have been left with few viable options. If Congress feels that some of GM's management must walk the plank in order for a federal bailout, then so be it. As the saying goes, "No pain, no gain." The market turmoil of 2008 has been unprecedented in our lifetime and we're all going to have to suck it up and try to muddle through this. Federal bailouts are bitter medicine, but I fear that if we forgo that medicine our nation's health will be worse for it.
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If Congress thinks a bailout of General Motors is expensive, it should consider the cost of a GM failure.
Let's be clear. The alternative to government cash for GM is not a dreamy Chapter 11 filing, a reorganization that puts dealers and the UAW in their place, ensuring future success.
No, even if GM could get debtor-in-possession financing to keep the lights on (which it can't), Chapter 11 means a collapse of sales and a spiral into a Chapter 7 liquidation.
GM's 100,000 American jobs will die. Health care for a million Americans will be lost or at risk. Hundreds of GM's 1,300 suppliers will die. Their collapse could take down Ford Motor Co. and Chrysler LLC, perhaps even North American transplants. Dealers in every county of America will close.
The government will face greater unemployment, more Americans without health insurance and greater pension liabilities.
Criticize Detroit 3 executives all you want. But the issue today is not whether GM should have closed Buick years ago, been tougher with the UAW or supported higher fuel economy standards.
In the next two to four months, GM will run out of cash and turn out the lights. Only government money can prevent that. Every other alternative is fantasy.
The $25 billion in loans that Congress approved to partially fund improvements in fuel economy? Irrelevant. Dead automakers do not invest in technology.
The collapse of the global financial system has crushed the American car market, dried up revenues for the Detroit 3 and highlighted their weaknesses.
Each of the Detroit 3 is in crisis. But Ford, which borrowed big two years ago and thus has more cash today, may skip a bailout and the strings attached. Cerberus, which bought Chrysler last year, doesn't deserve money. Government cash might help sell Chrysler to a strategic owner.
Some Detroit critics want their pound of flesh: Throw the bums out and install a government czar. Treasury Secretary Henry Paulson won't use any of his $700 billion bank bailout money to help manufacturers. In any case, he'd need a guarantee that a bailout would make Detroit "viable."
Well, nobody -- not even AIG -- is insuring guarantees for viability.
The taxpayer needs protection and an upside. GM's top management may need to go. Government-as-shareholder deserves a big voice. Those details can be worked out.
The Detroit 3 CEOs and UAW President Ron Gettelfinger had better tell two critical congressional hearings next week what sacrifices they are prepared to make.
But the stark fact remains: Absent a bailout, GM dies, and with it much of manufacturing in America. Congress needs to do the right thing -- now.
source: Automotive News
Friday, November 14, 2008
Automotive News Editorial on GM
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2 comments:
Agreed wholeheartedly.
In addition to thinning the ranks at the executive level, GM needs to assert itself as a leader in compact and midsize car market.
If GM took half their lobbying budget and applied it to production planning the Cruze 1.6 would already in be in US showrooms and GM would be competing on a level playing field with the Japanese.
I just hope that this temporary dip in crude oil prices doesn't send GM into another cycle of dependence on gas-guzzling cash-cow SUVs and full-size trucks. That market has already shown how vulnerable it can be; GM can't afford to make the same mistake twice.
Years ago I read a story about how Honda was able to do a major model change on its Civic production line in a matter of weeks. The secret was to keep certain welding points the same. By contrast, GM was changing from the Cavalier to the Cobalt and it was taking months.
I agree with you that there was a lot of short sightedness by the Detroit 3 in that they allowed key model segments to become abandoned. The argument was that they weren't making money on these cars and making tons of money on truck so why bother. We now know what they should have bothered and hopefully they have learned from their mistakes.
I certainly consider it fair for lawmakers to impose certain conditions upon any bailout. If part of the deal means that Rick Wagoner packs up his things, well then that's the way the cookie crumbles. Of course, some ask "Who could have done better?" But even from a symbolic point of view, Wagoner his presided over a terrible slump--whether or not it was all of his own making.
Hopefully the Cruze will not be further delayed, the Volt will deliver on its promise and Epsilon II will birth excellent sedans for Buick, Saturn, Saab, etc.
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