Imagine you worked with a co-worker named Roger. Roger runs a small fiefdom at work with a lot of employees under him. But, Roger has been unproductive for a very long time. His work-product is generally mediocre. He can’t motivate his employees; even worse, they cause a lot of trouble every 3 years about his troubled managerial rein. Roger biggest redeeming assets is that he was great employee way back when and made a lot of money and trained a lot of good employees. But, for the last little while, Roger has contributed little to the bottom line and there are better managers than him more motiviated and who cost less.
In an economic down-time, the question becomes who goes and who stays in the bloated managerial rank. Does Roger deserve preferential treatment because of seniority and his name recognition in the elevators or hallways of your workplace? Or do you let Roger go and keep more deserving employees?
… I feel that this is the trouble with bailing out GM. You are bailing out a name of yester-year (yester-decades? When was the last time GM was relevant in the automotive industry?) when the money could go elsewhere. And, what exactly, are you bailing out? A business uncompetitive with bloated bureaucracy, a reputed massive pension shortfall and products not known to be environmentally friendly.
A bailout for GM is a bailout for an almost begone way of life: industrialized and unionized giants with a feet of clay (or the Emperor with no clothes).
I am sympathetic to the jobs lost and unfunded pensions but a creative politician (an oxymoron) could arrange for the government to create a body to manage the pensions (although the CAW is already assuming those functions in the near future).
My preference would be to let GM file for Chapter 11 (a reorganization as opposed to full-blown bankruptcy), have the government guarantee some vital contractual obligations and then let GM break up into the useful parts and let the unuseful parts die the death they deserve. It sounds cold but the choice to me is do you save the few for political points or use the money to help us all?
Any thoughts? Would you bail out GM? Or do you think it should go the way of the Doo-Doo bird?
November 18th, 2008 at 8:55 am
A true bailout or guaranteed loan doesn’t address the fundamental problems of the business models of the big 3 North American autos. Chapter 11 will preserve their long-term sustainability by allowing them to shed most of those legacy costs that are weighing them down so much. If there was a bailout I would hope that the government would dismiss all current executive management as a sign of how you need to be accountable for the businesses you run. They’ve done a poor job of that and workers deserve better (especially if the tax payer in on the hook).
November 18th, 2008 at 10:02 am
They must bailout GM. GMAC a very large financial institution that accounts for half of GM’s business.
They don’t lose majority of money with cars, but with their financial arm. It’s not about the cars at all.
I’d be willing to bet money that they get the bailout. Otherwise US Congress is run by complete imbeciles – or saboteurs.
November 18th, 2008 at 10:02 am
(Doo doo bird LOL)
November 18th, 2008 at 10:14 am
I think the issue of giving any of the Big 3 a bailout on the condition they dismiss their executives is that it is premised on the assumption that, after you cut off the head, the rest of the body is still healthy and I am not sure it is not.
GM has done little in terms of innovation and quality in decades. That speaks to a more systemic problem than just who leads the company.
November 18th, 2008 at 10:16 am
FYI, GM owns 51% of GMAC. It sold the rest to private equity in 2006.
November 18th, 2008 at 10:23 am
The “word on the street” is that GMAC is as big as Countrywide. Not as big as Lehman, but still dangerous.
November 18th, 2008 at 1:06 pm
While GM/F/Chrysler are not individually too big to fail, the impact on the economy through all of the inter-related suppliers is huge. Further to that, were GM to fail, the impact would cripple many of those suppliers and force them into bankruptcy. This would ripple through all the other automakers (I am suspecting the foreign makers as well) and destroy the industry and millions of jobs along the way (F’s chairman quoted the auto industry as being as big as 10% of the economy). I think they need to be bailed out with some very specific conditions. FNM and FRE are being forced to shrink…so should the big 3 (does GM need all of their brands?). They should be mandated to supply alternative energy vehicles to the market including CNG (as an aside, pressuring the oil companies to include CNG in their distribution network is a far better policy than any windfall tax). Extreme mandates on fuel efficiency standards. Lawmakers should also make it easier for them to bring the smaller autos from overseas into the US market (to be made and sold here not imported). I think if the US is serious about “getting off foreign oil”, here is an opportunity to right size the auto industry AND take drastic steps to fix their fuel consumption needs.
November 18th, 2008 at 1:29 pm
Here is how I approach this:
1. GM is worth saving because it contributes positively to society, and we want to make sure people have jobs,
2. GM is worth saving because it contributes positively to society, and we don’t care about its employees having jobs
3. GM is not worth saving because it contributes negatively to society, and we don’t care about its employees having jobs
4. GM is not worth saving because it contributes negatively to society, and we care about its employees having jobs
If GM contributed positively to society then breaking it up will mean the pieces will continue to contribute in their own way. If GM contributes negatively to society – we shouldn’t bail them out because there’s nothing worth saving.
GM’s level of success can be found on its balance sheet. Clearly it can’t allocate the resources it attained properly. Why entrust it with more so they can squander them?
As for the employees – I think its safe to assume most people don’t want to see them lose jobs.
A government has no knowledge of the auto business. Its business is governing. It would be irresponsible to give an auto company money. Especially since GM has proved to be unable to adapt to the free market’s needs (unless you consider adapting as doing nothing and expecting a handout).
As for the employees – if we are compelled to throw money at something for their sake lets direct their energies to something good for society, and not just keep the status quo: big SUV’s, fuel inefficient cars, etc. Either that or cut taxes and let the free market employ them. Who has a guaranteed job for life? I don’t.