The penguin's motorcycling and Jeep blog

Wednesday, November 12, 2008

Should we save General Motors?

There's been a lot said about General Motors - that the straits they're in are because they made bad cars or not enough small cars. Thing is, they sold more small cars last year than Chrysler and Ford combined and their cars were pretty good technically, if a bit cheap in the fit and finish department (plastick-y interiors and such) because of rampant cost-cutting. If I want a work truck, for example, I want a Chevrolet. Ford and Dodge trucks are designed for rich suburbanites as penis enhancement devices, Chevrolets are designed for work, which is why they have wider and lower beds than Dodge and Ford trucks (who wants to lift a hay bale up five feet into the bed of a jacked-up Dodge when they can lift it up three feet into the bed of a Chevy?). Then there's the notion of bad management. Well, their management certainly isn't the best on the planet, but it's no worse than any other automaker's management.

So what's the deal, then? Well, the deal is simple: HEALTH CARE. General Motors turned into a health care provider that sold cars. There is more health care than steel in a GM car, on a dollars and cents basis. The cost of providing health coverage for 1.1 million GM workers, retirees and dependents is over $10 billion per year. So we can say to GM, "okay, you can go bankrupt". But then 1.1 million people lose their health care coverage. Hundreds of thousands lose their pensions. Probably half a million Americans who are paid directly or indirectly by General Motors lose their jobs, as the failure reverberates through GM's suppliers, most of whom themselves would end up going bankrupt.

So while there's something to say about the notion "GM should not survive", this isn't the time. A down economy such as we have now simply can't take that sort of hit without going further into the hole. In the long term, we need to fix the health care system to take that burden off of GM's back and then do something about GM's management, which has not done a good job of thinking long-term over the past thirty years. But in the short term, unless something is done quickly GM is dead. And we get another half a million people without jobs on the street, and 1.1 million people with no health care. That's called "economic death spiral", folks. And no matter how much you detest GM, we can afford that even less than a bailout of GM.

-- Badtux the Economics Penguin


The Minstrel Boy said...

can't argue much with your points tux.

one of the things that the GM situation points out is the absolute failure of laffer/friedman/reagan economics. bush1 was spot on when he talked about "voodo economics" way back before he signed on as water boy to the reagan team.

what happened at GM when the tax cuts, and incentive packages came is that the motherfuckers did not re-invest into product research and development, they took profits, gave themselves huge bonuses and sent the money out with zero fucking return.

in other words, instead of acting like the moral paragons of randian fiction, they acted like greedy fucking humans.

and that, in a nutshell sums up the absolute failures of the whole system of republican economic policy.

it works like this:

hey guvmint dude, we need to be deregulated so's that we can loan a bunch of money to our friends.

(gm is also a loan company that makes cars on the side)

guvmint sez: okie dokie and majicks away regs and taxes.

hey, guvmint dude, our friends aren't paying us back!

guvmint: no problemo, here's some more money, you're too big to fail

BadTux said...

Actually, GM did a pretty good job of investing in product research and development. The *wrong* product research and development, but they did do the investing. For example, over the past ten years they've come out with an entirely new line of truck and SUV engines, a new line of small light trucks that has nothing in common with the previous line, a new Corvette that rocks, a new Cadillac line that has high tech V8 engines that rival anything available from anywhere...

Your point about GMAC's woes due to GMAC's participation in sub-prime home lending is a good one. The virtual collapse of GMAC and bank lending over these past three months has killed GM's sales these past three months since customers can't get auto loans. On the other hand, GMAC is off of GM's books. The majority of GMAC is now owned by Cerberus Capital -- yeppers, the same guys who own Chrysler. So while GMAC is not helping, that's not the cause of GM's inability to make a profit off of the cars it *is* selling (its smaller cheaper ones). That has more to do with our fucked up health care system and the problem that GM's retirement obligations are way too big for a company the size of the current GM. GM is less than 1/3rd the size they were in the 1970's in terms of number of employees, and are carrying 3 times as many retirees as they can afford to carry. So they're going to end up having to declare bankruptcy sooner or later and break those promises. Whether they go the way of Studebaker when they do so... well, we'll have to see what happens there, hmm?

- Badtux the Car Penguin

Terrant said...

While looking for links yesterday, I stumbled on an article on Motley Fool that says that we should not bailout GM (link). I would have to agree with a number of the points that the author made.

Their failure to adapt to the changing market is just the proverbial straw that broke the camel's back. They simply have too much baggage that is going to keep dragging them down.

Again, we have a company that is too big to let fail and in the end we need to bail them out (that won't stop me from complaining). However, any bailout must include something to address the baggage or it is just going to be wasting money that would be better used elsewhere.

BadTux said...

The "baggage" is the health and retirement benefits of their retirees, who now outnumber their active-duty employees due to 30 years of downsizing. Their pension plan is unfundable, their health care bill is unfundable, in the long run. The problem is that their "baggage" is *PEOPLE*, and while it's true that GM can't continue carrying all these people and still be competitive in the marketplace, the problem is, what do these people do for health care and retirement pay if GM isn't doing so?

I believe any long-term bailout is going to have to involve the Feds assuming these. But in the long term, GM is dead unless they get some cash quickly, as in, within the next month... meaning we have to figure out some short-term bailout to get GM into next quarter, anyhow, otherwise 1.1 million Americans will suddenly lose their health care benefits and half a million will suddenly lose their jobs. And this just isn't the time to add 1.1 million people to the Medicaid rolls and half a million more people to the unemployment rolls...

- Badtux the Practical Penguin

Anonymous said...

Folks, I beg to differ wth one of the earlier commenters. Yes GM is a newer smaller company, in the US of A. A bigger company in Korea, China and India. Thats where the new money is. And that is where the money went that was earlier invested with them. They don't want to realize that they are one of the buch of "bankers" that are killing the american economy. After all, after they busted their union, started to close plants, laid off their 30 dollar an hour workers that didn't take the buyouts, and hired in a bunch of $15 an hour kids, how come they aren't buying the houses, cars, microwaves anymore?