Monday, November 17, 2008

Suicide is Painless: Part II RIP GM

First off I just don't buy it when people say that Detroit and GM make crappy cars. I will concede that Toyota and Honda are a cut above in many respects, but that does not equate to GM builds shitty vehicles. I hear people say that Detroit offers nothing but huge SUV's - yes, they produce the ridiculous Hummer - but Toyota and Nissan and some of the German makers are marketing huge SUV's too, as well as cars with 400-500 horse power engines and no one gripes about them. When GM Ford and Chrysler decided years ago to cede the small car market to Japan instead of creating decent, efficient cars - even at a loss - they set into motion the world they live with today. It was a huge mistake.

Detroit has problems, this is true. They also have overhead and mandates that the foreign competition just doesn't have to deal with. When they poured all their efforts into SUV's and luxury add-ons instead of innovations in economomizing and developing hybrid-type options it was another major mistake. But they also had to be able to support the outrageous UAW and other legacies of a bygone era and large profitable vehicles were the only path they could follow.

Bottomline: The whole thing is unsustainable in today's reality. So, now what?

Bailout or Bankruptcy?

A bailout will either lead to a nationalized industry because the bailouts will never end or a total collapse when they do. Any government money will come with demands that the management of these companies be sacrificed - and replaced with whom? Government bureaucrats? Such a nationalized industry will not be efficient and will surely not be able to truly compete on the quality front with the imports. In the end it will fail anyway.

Bankruptcy MAY be the best option. Chapter 11 filing would give the company breathing room. The government can jump in to cushion the blow to the workforce as things get sorted out. In the end GM and the others will be smaller, more efficient - and better - companies.

Michael Levine makes an excellent case for bankruptcy in his Wall Street Journal piece today.

According to Levine: unless we are willing to support GM as it is indefinitely, the downsizing and asset-shedding will have to come anyway. Even if it builds cars as attractive and environmentally responsible as those Honda and Toyota will be building, they won't be able to carry the weight of GM's past.

Therein lies the key, a modern manufacturing company in this era in America has got to shed its past.

Levine sums it up with the plain truth: GM as it is cannot survive without long-term government life support. If it gets that support, it can't change enough and won't change fast enough. Contrary to Mr. Wagoner's brave declaration, bankruptcy is an option. In fact, it's the only option that merits public support and actually has a chance at succeeding.

Both Ford and GM say they are on the cusp of success with the measures they have taken in the last few years. The UAW has made concessions too. But this problem is decades old now. The Japanese, Koreans and even the Germans have somehow delivered good vehicles in the context of a good business model - why has it taken the American companies so long? Now in the midst a global economic meltdown the Big Three are not healthy enough to stand on their own.

As a GM owner and booster I really want this company to survive because I believe America simply has to build cars - it is a vital part of who we are. As GM goes so goes America.



TJ Willms said...

Agreed! GM can make a fine car. However, they did and still do make some turds that nobody in their right mind would want. GM does need to re-organize and Chapter 11 may be their only hope. Their cost structuring is insane and a great deal of that can laid at the UAW's door. The bailout has little to do with saving GM. It's only purpose is to save the jobs of UAW workers and keep those campaign contributions rolling in to the very people that are trying to kill the American auto industry. Demon-crats