November 18, 2008
In a WSJ op-ed, New York University Law professor Michael E Levine argues that, GM's decline is inevitable and the company should be allowed to go bankrupt.
The costs of tackling GM's problems, he argues, are huge. "After 42 years of eroding U.S. market share (from 53% to 20%) and countless announcements of 'change,' GM still has eight U.S. brands…(and) about 7000 dealers." Toyota on the other hand has three brands and fewer than 1,500 dealers.
"GM knows it needs fewer brands and dealers, but the dealers are protected from termination by state laws. This makes eliminating them and the brands they sell very expensive. It would cost GM billions of dollars and many years to reduce the number of dealers it has to a number near Toyota's," writes Levine. "The cost of terminating dealers is only a fraction of what it would cost to rebuild GM to become a company sized and marketed appropriately for its market share. Contracts would have to be bought out. The company would have to shed many of its fixed obligations. Some obligations will be impossible to cut by voluntary agreement. GM will run out of cash and out of time."
Even if the federal government agrees to a bailout, much of the cash will be routed to unproductive areas, argues Levine. GM will inevitably be back for more and more assistance.
Slate's Daniel Gross argues differently. He acknowledges that GM is a disgrace, however states that the company should be bailed out: " General Motors wouldn't be a typical bankruptcy. GM's management argues that the very act of filing for bankruptcy eliminates the possibility of recovery since people would be reluctant to purchase expensive, long-lived assets (cars and trucks) from a bankrupt entity. And because of GM's size and the place it occupies in the supply chain, the company's failure would likely trigger the bankruptcy of hundreds of suppliers and other companies that rely upon it."
Comments | 16 Total
November 18, 2008 at 11:32am by Mark Korzilius
Instead of living with the uncertainty for years to come and always being dependend on Washington a clean cut and a new start with a radical new approach to mobility would make it a better life especially for workers at GM. Its time for a change!
November 18, 2008 at 11:40am by Colin Doody
If the treasury is going to bail out GM and the Big 3, then conditions need to be met, billions can't be handed over without major initiatives coming out of Detroit. This isn't the first time the industry is going to DC for assistance, and wont be the last without a new strategy, creating a more competitive offering not just increasing cup holders, revamping the whole product is in order - american built though catchy in a super bowl ad isn't a sustainable business plan. Paulson should grant money based on a vision each company sets forth and sticks too. Without this, might as well have the oil companies bail them out, or buy them out.
November 18, 2008 at 11:46am by Steven Collier
Just pumping more $$ into lousy executive management and a corporate culture that lacks any innovative or competitive spirit will just result in another bailout being required in the future. The federal government should figure out how to help the employees who will lose their jobs and retirement, not the executives and administrative bureaucracy that have dragged GM out of competitiveness in the global marketplace.
November 18, 2008 at 12:06pm by George Donnelly
How would any bailout be paid for? By taking on new debt. We already owe $10 trillion on the national debt. There is no balanced budget in site and entitlement shortfalls are in the $50 trillion range. Any new money has to come from inflation, mean each bailout dollar decreases the value of the money in our bank accounts proportionately. No thank you!
November 18, 2008 at 2:08pm by Vance Dubberly
Oh B.S. I've not heard anything but hype surrounding this. Where are the numbers? How many people will be out of work? What would it cost to retrain those people, heck I bet it'd cost less to pay every GM employee their salary for 2 years than it would to bail out GM who is just going to screw itself again. What? How can I back that up? Well I can't but nobody at the Fed or at GM, or in any news source has said anything of more substance. I heard some senator during the hearing say that if GM went under 3 million people would be out of work. huh? that's the population of the US. It's all BS.
November 18, 2008 at 3:34pm by Bill Barlett
GM, Ford and Chrysler should be able to go into a "special" government administered reorganization/bankruptcy that would ensure that they would continue operating after reorganization. Keeping consumer confidence during a reorganization should be a cake walk for all of the "spin" doctors in Washington, Wall Street and Detroit - its all a matter of how the deal is served-up. All of the "dead weight" including duplicated brands, top level mis-manangers and excess dealers could be removed. Take some pain now and move on with a sustainable business model for the future. All of these companies do sell millions of vehicles every year, so it is not as if the consumer/business purchaser does not like their products - they just have too many of them for no other than cosmetic purpose in a lot of instances. Let's protect the North American automobile franchise and protect the greater economy at the same time.
November 18, 2008 at 4:33pm by Jim Gordon
It is the only way to allow for a complete restructuring. Protection from the creditor's and union contracts. My word, have you looked into the Jobs Bank deal - guaranteeing 96% of a laid off workers pay?
November 18, 2008 at 6:01pm by David Angeletti
Here's an idea, the executive management teams of the big three should be entered into an office olympics competition. The bronze medal winner gets to work as the sales force for the gold medal winner. The silver medalist can be the middle management team for the gold medal winner. The gold medal winner... wait for it... Gets the honor of writing out checks (totaling $75 billion was it?) to those of us who have purchased cars from them in the past five years (about the amount of time a small business owner has to prove his business viable).
Seriously, the stability of our domestic automotive industry is now dependent on how much the taxpayer GIVES them? I guess they should think twice about how much they accept on a trade-in, or how much their product is truly worth.
How many taxpayers are going to bail me out if I screw up on the job and lose my house and car? Can I just go to a local car dealer and ask them for a handout?
I feel badly for those who would lose their jobs, and I've been there a few times, but we've been proving time and again that we're better at concept and design than manufacturing these days, and the new industry is service, not product-based.
November 18, 2008 at 6:56pm by Robert Perry
Marketing and cheap gasoline have sustained the SUV and pleasure pick-up way beyond the edge of the cliff. GM is Wiley Coyote; look out below! American automotive manufacturing leadership has made a convincing case that they lack vanguard vision or courage. Get them gone. - And it is WAY past time for a new tax structure for the fossil fuel energy sector. Please, no more record profits in the wake of public hardship such as this year's energy price spike and Hurricanes Katrina and Rita. - If the price of beef spikes, McDonald's and Morton's margins shrink. The same should be true for ExxonMobil, but it's not. Time to correct that injustice and direct resources toward alternative energy.
November 18, 2008 at 7:37pm by David McNicholas
GM has a completely broken business model. Why would we give them money to continue to execute on the broken business model. This is what happens when you have a product that few people want. Fix your business model, don't dig through my pockets so you can conduct "business as usual".
Does anyone have a problem with the government deciding what business live and which ones die?!
November 18, 2008 at 9:33pm by Brian Hayes
Government was not designed to be the savior of any business, especially poorly managed businesses. Get rid of the unions and get new management that can improve production and the products; then people will want to buy from them again and they can survive on their own.
November 18, 2008 at 10:08pm by john weller
The country voted for change. We want change , we need change!!! We allowed Freddie ,Fannie and the banks to build up a false market that was the catalyst to this current crises. Bailing out GM would be more of the same and almost gaurantee a continued weakening of the US auto industry. Its all about supply and demand. Lets take the 50 Billion hire some engineers from Germany and Japan and build the best cars in the world. Thats a plan I would get behind!!
November 19, 2008 at 11:35am by Nunzio Martin
Here are two big issues that says we shouldn't help at all!
http://abcnews.go.com/Blotter/WallStreet/story?id=6285739&page=1
And then you have the "jobs bank" program introduced in the 80's that guarantees nearly full wages and benefits when the automaker eliminates work or closes factories.
Give me a break let them give up the jets and the ridiculous idea of getting paid for doing nothing. They need to have concessions from both management and the unions and if
the government(us) gives them a bailout it will be business as usual.
November 19, 2008 at 6:46pm by John Rudzis
Reorganization through the Chapter 11 process provides the best opportunity for releasing the “Big 3” major U.S. automobile manufacturers from their suffocating encumbrances and allows them a return to profitability. Impractical state and local dealership regulations, onerous labor union contracts, ineffective CAFE standards, etc. continue to prevent our automobile industry from competing on a level playing field with their foreign counterparts. The few changes made, as in recent modifications to labor contracts, do not demonstrate a sufficient commitment by those stake holders to stop the slide.
There is enough evidence of wasted capital over the past decade, especially by General Motors (GM), which demonstrates that taxpayers should not expect to receive any return from an investment into our automobile industry. The stated intentions of their executives are to use the “bridge loan” proceeds to essentially cover current operations. At the rate they are burning through cash, the requested $25B will do little more than prop up operations for a few more months.
The U.S. Automobile Industry’s problems are severe and change will come at a high cost. Reorganization is expensive and will extract deep sacrifices from in and out of the auto industry. Increased unemployment, surging Social Security claims and swelling liabilities at the Pension Benefit Guarantee Corporation (PBGC) are just a few of many impacts to our economy. However, neither of these companies is too big to fail and it is arrogant for anyone of their executive officers to predict an economic doomsday if they are forced into bankruptcy.
There is a lot of blame to go around as to why they are in their respective financial states but finger pointing and hand wringing in Congress won't put this industry on the road to recovery. We have the capital in this country to build the best automobiles in the world. Renewing that focus through reorganization would be a decisive step in that direction.
November 23, 2008 at 1:17pm by Anatoliy Neymark
I would agree with Mr. Levine that providing the unconditional bailout addresses the symptoms, not the cause of the reason the American car industry is sliding into abyss. However, the bailout on contingency of restructuring sounds more reasonable than just brushing the Big Three’s problems aside. On top of Mr. Gross’ concerns, the complete shut off of the industry will send shock waves through the entire world in the form of voided product deliveries, unavailability of spare parts, not to mention the at least 2.5 million strong reinforcement to the US army of unemployed with slim prospects of landing new jobs.
December 10, 2008 at 11:55am by Adam Snyder
No amount of money is going to change the Big 3 US automakers, especially GM. Giving them money now will only set a precedent upon which these same companies will come back time and time again for handouts.
Remember, too, one of the requirements for the banking bailout was an oversight committee which has yet to be established. Even if an oversight committee is put in place, do you really think that they will be able to change the culture and direction of the industry and all of its players? I think not.
I would much rather see the money go into companies like Tesla Motors and other companies which are moving foward.