The astoundingly badly run car maker says it won’t declare chapter 11 because “people won’t buy cars from a bankrupt company.” Given that GM’s sales have dropped 45 percent over the last year, how would this be any different from the current situation?
Not surprisingly the “it’s not our fault” argument is echoed by UAW President Ron Gettelfinger: “We’re here not because of what the auto industry has done. We’re here because of what has happened to the economy.”
This would be more believable if GM had been doing well before the credit markets went to hell. Let’s remember that we’re talking about GM here and what it’s track record is like. This is a company that even when it gets a good idea goes out of its way to kill it.
Quoth this great article from the WSJ:
This situation doesn’t stem from the recent meltdown in banking and the markets. GM, Ford and Chrysler have been losing billions since 2005, when the U.S. economy was still healthy. The financial crisis does, however, greatly exacerbate Detroit’s woes. As car sales plunge — both in the U.S. and in Detroit’s once-booming overseas markets — it’s becoming nearly impossible for the companies to cut costs fast enough to keep pace with the evaporation of their revenue.
In all this lies a tale of hubris, missed opportunities, disastrous decisions and flawed leadership of almost biblical proportions. In fact, for the last 30 years Detroit has gone astray, repented, gone astray and repented again in a cycle not unlike the Israelites in the Book of Exodus.
Remember Saturn? GM started an authentically different company that attained a beloved cult-like status and then all but killed it by not letting it put out new models. Don’t even get me started about the electric car and where the company would be today if they’d kept developing that program they killed after putting $1 billion into it. And then there’s the decades of lobbying against improving mileage standards that — had they been in effect — would have also saved their asses.
GM is also arguing that it’s basically under new management and that the guys who made all those stupid decisions have been replaced. Even if this is true, then let’s hold them accountable for the stupidity just since Rick Waggoner became CEO. For the last seven years their strategy has been, “we’re going to bet it all on the short-term profits to be made from SUVs.” Thus they launched Hummer et al. I’m supposed to trust a bunch of guys who couldn’t figure out that the price of gas fluctuates? Who couldn’t figure out that there was a difference between short-term profits and long-term viability?
Let’s make one thing clear — the term “US automakers” is a misnomer. When someone says they want to “bailout the US automakers” they really mean GM. Ford has said repeatedly that they have enough credit to get through and Chrysler is no more or less a US company than Honda or Toyota. The Big Three is in fact the Incompetent One.
Wait, I will bow to the Journal on this one: they’re going with “The Detroit Three” and that works for me.
Also, GM has maneuvered themselves into a corner with excessive high costs, starting with fully burdened line worker costs at $75 per hour and their competitors are less then half of that.
On average, $2600 of every car’s sticker price goes to non-productive workers (retire benefits and a pooled work force paid NOT TO WORK)
That is what they are asking us to bail-out. They want to avoid years of problems with the UNIONS by avoiding Chapter 11 and thus being forced to make changes that will make the relationship with the unions very difficult in the future.
What gutless wonders. They remind me of politicians. Always wanting to use someone else’s money to fix problems they created.
Don’t confuse the issues. Business plans and models are made to be improved, reinvented and massaged to maximize resources, minimize expense and increase profitability. In the Big 3’s present condition this was ignored, regardless of their claims of progressive evaluation and action. Apparently too little, too late. To place the burden on the creditor (taxpayer) to assume a loan risk to a high risk client (Big 3) is simply bad business. Why won’t banks loan the money ? Imprudent assumption of risk / bad business. Regardless of the how or why the financial/credit markets are unwilling to loan money is irrelevant in this case as the loan proposal is simply an imprudent
assumption of risk. In the event my or anyone’s business model fails, we could not, should not and would not expect relief without accepting critical inquiry and investigation of business accounting practices. Throwing the automakers labor costs in the mix as the major contributing factor is somewhat suspect as the present average labor cost per manufactured unit is 8.4%. Factoring a more than fair 20% net profit per unit leaves a pretty healthy materials and total cost of goods number.
Simply requesting funding with little validation of necessity, disclosure, transparency and proactive, sometimes painful concessions is ludacrist. One may presume that the true profit margin built into the manufacturer’s business model is quite higher than reported.
Should the taxpayer’s representation in this transaction accept anything less than a line item review and 3rd party audited validation of revenue and expenses projects simple dereliction in duty regardless of all of the “what if” doom and gloom scenarios presented.
Someone once said “Trust, but Verify”. That someone was Ronald Reagan, who didn’t do too bad of a job of leading this country into prosperity. The mopes that followed did a much better job of screwing things up.
what’s funny here is I think we’re all in agreement. Except about Mr. Reagan. I do agree about some of those who followed him though.
any bailout to these idiots is a mistake and the Democrats will deserve to have it hung around the their necks.
GM (et al) maximised profit by building cars they wanted to sell rather than cars people wanted to buy.
The free market ethos says reward tyhose who perform well, punish those who don’t, I can’t believe the USA is going to nationalise its Auto industry.
What next, a national health system that lets poor people access doctors, and get medical treatment without selling their homes?
Actually they did build some of the cars people wanted to buy (SUVs) and they made a lot of money off of them. It’s just that they are no longer building the cars and they fought against regulations (MPG standards) that would have put them in a better position when the needs of the market changed.
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