{"id":235,"date":"2008-11-15T16:07:00","date_gmt":"2008-11-15T16:07:00","guid":{"rendered":"http:\/\/jimgworld.com\/blog1\/2008\/11\/15\/235\/"},"modified":"2014-09-21T19:26:36","modified_gmt":"2014-09-22T00:26:36","slug":"235","status":"publish","type":"post","link":"https:\/\/jimgworld.com\/blog1\/?p=235","title":{"rendered":"GM: Bankruptcy AND Better World?"},"content":{"rendered":"

I thought that I’d weigh in on the question of what to do about General Motors. GM would like some federal help in getting it through the big economic downturn that we’re in. They claim that if the taxpayers don’t cough up $50 billion in loan guarantees shortly, GM will go bankrupt, and that all kinds of dire consequences will ensue. Personally, I think that our government should just say no; but it should also get ready to say yes to the damage control that will be absolutely necessary once GM goes into the bankruptcy ringer. The potential long term benefits to our world from a GM bankruptcy are worth it all.<\/p>\n

As to a federal bailout: I think it would be the worst<\/span> of all evils. GM management would like some fast federal cash and nothing else, other than an obligation to pay the money back someday. There’s no way they’re going to get that. The Democratic Party now runs the federal government, and big labor and environmentalists now largely run the Democrats. These parties are not going to give GM a pass to do what it wants with public money. GM would be partly nationalized much as the big financial institutions have been, through public purchase of a significant equity stake. A Democratic Congress will almost certainly require this as part of a bailout package, putting the federal government on GM’s Board of Directors. <\/p>\n

From there, the Democrats will require that GM management pursue a contradictory and ultimately self-defeating<\/span> mandate: to build high-efficiency \u201cgreen cars\u201d and at the same time be very good to the labor unions. Sorry, folk, but Honda and Toyota didn’t get as far as they did with affordable high-tech cars by giving the UAW cushy terms like GM’s lazy management did. By the end of the second Obama Administration, it would be quite clear that a \u201cGM \u2013 Federal Partnership\u201d would be a boondoggle. GM would continue building second-rate cars, but now second-rate GREEN cars like the Chevy Volt. The Volt sounds great, but I remember how great the Chevy Vega<\/a> sounded in 1975, and what a dog it turned out to be (along with its successor, the Chevette<\/a>). GM would continue losing market share, and thus continue losing money. It would anticipate and require continuing injections of taxpayer money to keep it alive. It would probably also inspire Congress to enact new trade barriers for foreign auto manufacturers and parts suppliers. Trade restrictions would certainly make the unions happy and might keep a zombie GM going. But trade protectionism was a big factor in sustaining the 1930s Depression. I truly hope that history doesn’t repeat itself in the 2010’s. <\/p>\n

There’s a lot about the creative destruction of capitalism<\/a> that I don’t like, but if any capitalist enterprise seems destined to experience it, it is GM. GM got where it is today by locking itself in the past. Way back in the first half of the 20th Century, GM was the new kid on the block, who had to innovate or die. But eventually it got fat, happy and complacent, and remained so despite decades of warning signs that America was changing and that innovative foreign car companies were overtaking it. So, I believe that a bankruptcy court is the best place for GM right now. Bankruptcy does NOT mean shutting the showrooms and assembly lines down. Many big companies have gone through \u201creorganization\u201d bankruptcies whereby they continue operating while a long-term plan is made to either sell-off the company’s operations, reformulate the company so as to re-emerge as an independent enterprise, or some combination of both. <\/p>\n

I could see GM going through the \u201cboth\u201d scenario, although it might take four or five years. During that time, the federal government would have to provide GM with short-term loans to keep afloat. However, the bankruptcy judge \u2013 most likely a Republican appointee, thankfully \u2013 would have the Constitutional power to keep the Democrats from controlling the destiny of this once-great industrial empire. There would be other federal involvement, and it would be expensive \u2013 no doubt about it. GM would dump its expensive worker pension obligations on the federal government pension guarantee fund, requiring a big injection of federal funding to meet the promises made to GM retirees. And the City of Detroit would go from near-collapse to collapse; the Obama Administration would obviously have to get Congress to direct funding there to avoid some really ugly stuff. <\/p>\n

So, for the taxpayer, the GM situation is a damned-if-you-do and damned-if-you-don’t proposition. However, if we don’t<\/span> bail them out, the damnation will end sooner, and the possibility of eventual salvation will be thrown in as a bonus. GM holds a lot of assets that would be attractive to foreign-based auto companies. The Toyota \u201cwanna-be’s\u201d like Subaru and Nissan might shell out for one or two of GM’s marketing names (e.g., \u201cPontiac\u201d or \u201cBuick\u201d) and part of its dealership and distribution network. If Congress could resist temptation to fiddle with the bankruptcy laws so as to require that union agreements be protected in all GM manufacturing plants and warehouses, perhaps Nissan and BMW and Volkswagen would buy up some of the newer and better GM facilities; even Toyota and Honda will need to get ready for their increased market shares. <\/p>\n

But the billion-dollar question is whether a \u201cknight on white horse\u201d will show up to buy a \u201cvertical core\u201d GM complete with manufacturing, marketing, product development, distribution and dealership networks, perhaps based around two or three of GM’s better brands (say Chevy, Cadillac and Saturn). Without that deep-pocketed, risk-taking capitalist knight, a lot of GM operations will eventually close for good. There is an apparent candidate that I can think of: China. This would be China’s chance to get into the automobile big-leagues. They have the money and the know-how. They could wait out the US recession until things get better, and then establish a firm foothold in the US and Euro auto markets. They could use GM’s engineering and design assets to better serve their own growing domestic market. If done right, China could have the next Toyota, based upon the firm foundations that GM built. <\/p>\n

I’m sure that a lot of Americans would oppose this. And I’m not one of them. Japan has Toyota and Honda, Europe has BMW, Daimler-Benz and Volkswagen, and the USA would probably still have Ford (which might get a boost if GM went into bankruptcy and \u201ccontrolled-contraction\u201d, just enough to survive). And then China would have \u201cGeneral Motors\u201d; or maybe they’re re-name it \u201cWorld Motors\u201d. GM to WM, why not. So you and most everyone else in the industrialized world would have a lot of choice as to buying a car. A different choice from 20 or 30 years ago, but still a choice. That’s how capitalism works (when it works). <\/p>\n

And if not the Chinese \u2013 then perhaps a Latin American consortium led by Brazil might step up. I could see Lula in Brazil making a bold pitch for GM. Brazil is the rising economic star of Latin America (thank goodness that they finally have one!). This might be South and Central America’s chance to finally get onto the world economic map; it could create all kinds of opportunities for economic betterment throughout this long-stagnant region. Or, another bold thought \u2013 Saudi Arabia and the Arab oil states might finally realize that their day is coming to an end. The handwriting is on the wall that the oil-economy is not going to last forever. What better way to use their amassed fortunes than to buy into the industry
\nthat now supports them but is eventually going to abandon them as the Middle East’s underground reserves peter out? What better way to guarantee an economic future for their children and help them avoid the siren calls of an other-worldly medieval fate under the auspices of al Qaeda?<\/p>\n

Yes, a GM bankruptcy would be rather unsettling, especially given all the other economic chaos now happening. But the long-term prospects for a more prosperous world arising from GM’s ashes are just so incredible, so mind boggling. President Obama will have the chance to become a truly great President if he can grab an opportunity like this and fight off all of the political forces that will try to stop it. If Obama can JUST SAY NO to the UAW, to Nancy Pelosi, to the greenies who think they can run a car company, and to the GM big shots in Detroit who ran GM into the ground and now want to become industrial bureaucrats \u2013 if he can withstand the hellish criticism that his former admirers in the press and academia would unleash against him \u2013 well, then he has a big chapter awaiting him in the history books of the future (versus the dismissive footnotes that will be afforded to Bush and Clinton).<\/p>\n","protected":false},"excerpt":{"rendered":"

I thought that I’d weigh in on the question of what to do about General Motors. GM would like some federal help in getting it through the big economic downturn that we’re in. They claim that if the taxpayers don’t cough up $50 billion in loan guarantees shortly, GM will go bankrupt, and that all […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11,13,8],"tags":[],"_links":{"self":[{"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/posts\/235"}],"collection":[{"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=235"}],"version-history":[{"count":2,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/posts\/235\/revisions"}],"predecessor-version":[{"id":4708,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=\/wp\/v2\/posts\/235\/revisions\/4708"}],"wp:attachment":[{"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=235"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=235"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jimgworld.com\/blog1\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=235"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}