Cynical Synapse

Mon, 01 Jun 2009

GM Goes Bankrupt; More Aid Promised

Filed under: Bailout, Business, Cars, Economy, Michigan, Paradoxes, People, Politics — cynicalsynapse @ 9:54 pm

General Motors filed for bankruptcy in New York today. From The Huffington Post:

  • The government has no desire to own equity stakes in companies any longer than necessary, and will seek to dispose of its ownership interests as soon as practicable.
  • The government will not interfere with or exert control over day-to-day company operations. No government employees will serve on the boards or be employed by these companies.
  • As a common shareholder, the government will only vote on core governance issues, including the selection of a company’s board of directors and major corporate events or transactions.
HT: theblogprof

So how does an extra $30 billion in taxpayer aid to GM fit into this? And why is $30 billion after bankruptcy a good thing when it wasn’t while trying to keep GM out of bankruptcy? Back then, it was about how the US automakers weren’t competitive as the foreign or transplant companies. Don’t get me started on domestic vs. transplant disparities.

There will be a lot of collateral damage, with plant closings, layoffs, and the ripple effect with economies surrounding those plants. Gas stations, mom-and-pop restaurants, bars, strip malls, and banks around those plants will see business drop. This will ripple to suppliers and we’ve already seen some 2,000 dealerships, with about 96,000 employees, on the chopping block. Even President Obama finally admits the automaker crisis affects the entire country. Suddenly, Detroit’s population is over 300,000,000 and not less than 1,000,000.

Unfortunately, more people can just say, “I feel your pain.” Too bad the short-sighted didn’t see that coming. While I agree GM and Chrysler (and probably Ford) weren’t as proactive as they could have been, they made cars consumers wanted to buy. Their quality is competitive but people want to blame the current situation on their mistakes during the 80s and 90s. The Big 3 weren’t healthy in 2007 and 2008, but they suffered a double-whammie. First, gasoline shot up to $4 a gallon. It takes at least 18 months and usually 24-36 months to bring a new product from concept to production, so it’s not feasible to react to market change within 6 months. Even the foreign manufacturers, whose products have been growing in size, aren’t as well positioned as they originally were. They’re just better positioned. The other kicker was the Wall Street melt-down and sudden lack of consumer credit. Interestingly, after $700 billion or more in taxpayer dollars, the credit situation is still practically DOA.

We hope the “good” Chrysler and the “good” GM will emerge from bankruptcy in short order. Those results depend on large government shares, foreign ownership (in the case of Chrysler), and concessions from union workers, retirees, and debtholders. Chrysler plans to trim at least 100 suppliers. Expect GM to trim, perhaps, double that. How many jobs associated with those suppliers. How many of them do the transplants depend on and will they shift to the remaining GM/Chrysler supplier base for economy of scale? US Rep. Candice Miller (R-Mich) says GM’s bankruptcy means buy American but that’s not the same as buy GM or buy Chrysler (or Ford). The Big 3 have plants in Canada, Mexico, and elsewhere, while Honda, Toyota, and Hyundai have plants in the US. Which American products is she talking about? It’s time people looked at the real impact—the family-level effects—of this rather than their particular agenda.

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