A friend compares the current economic crisis to the stomach flu. “I hate to throw up,” he says. “You resist and resist and keep feeling sicker until you can’t take it anymore. Then you’re glad you threw up and got it over with.”
It’s a good metaphor for what ails General Motors and the Big 3 automakers. Should taxpayers give GM a heave and get it over with, or should we keep resisting the company’s bankruptcy until we just can’t take it anymore?
Either way, like the consequences of stomach flu, it’s starting to seem inevitable.
Now, it looks as if the federal government is holding up the toilet seat and giving GM a comforting pat on the back to do the Thing That Must Be Done.
Last September, the feds gave the Big 3 automakers a $25 billion loan. In November the automakers were back, asking for $50 billion more. They were told to get their act together and come up with a plan for reviving the auto industry.
A week ago, the Obama administration decided that the carmakers’ plan was too little, too late, with rosy sales projections that weren’t likely to bear fruit. Basically, GM’s plan was “lend us more money.”
When GM Chairman Rick Wagoner resigned under pressure in the wake of a lackluster plan, President Obama hinted that a speedy “controlled” bankruptcy might be the best way to bring the company back to health, with the government guaranteeing auto warranties until GM is restructured. Within a day or so, new GM CEO Frederick A. Henderson was saying that bankruptcy was “probable” as a means of “recreating and reinventing General Motors as a competitive enterprise, one that wins in the marketplace.”
Bankruptcy would create more hardship for Michigan in the short term. There are an estimated 266,000 GM workers, many of them spread across five Midwestern states. By one estimate, seven times that number of workers in the auto parts industry will lose their jobs if GM goes out of business.
And those auto parts suppliers will perhaps receive only pennies on the dollar for what they’re owed by GM. Who will save them?
Then there are the 400,000 or so retirees whose “legacy” costs in the way of health benefits and pensions take $1,000 in profit off the top of every GM vehicle sold.
But bankruptcy doesn’t mean the end of the world. In 2001, Congress bailed out the U.S. airlines industry with a $15 billion package, similar to that provided to the auto companies. In 2005, Northwest Airlines (NWA) filed for Chapter 11 bankruptcy protection from its creditors. It was joined by Delta, United and US Airways -- four of the six largest airlines in the country, all declaring bankruptcy at the same time.
Yet the planes of those airlines kept on flying despite being in bankruptcy, and employees kept receiving paychecks. Northwest emerged from bankruptcy in 2007 and recently merged with Delta to create the world’s largest airline.
Then there’s Kmart, which declared bankruptcy in 2002. The company closed more than 300 stores and laid off 34,000 employees. It emerged from Chapter 11 a year later and went on to purchase Sears. Both chains are still around (although sometimes it seems barely).
Northwest Airlines and Kmart are cited, because like GM, they too were big players in Michigan. Kmart had its former headquarters in Troy, while NWA operates a major hub at Metro Airport in Detroit. And like GM, Northwest Airlines has also had legendary problems between labor and management.
So it is possible to find a bright side to bankruptcy, and the mood of the country seems to be going in that direction, rather than force-feeding GM more taxpayers’ cash in the hope that this dodo will someday fly.
Consider that GM’s big ‘innovation’ over the past decade was the Hummer, a vehicle that symbolizes all that’s bad about America with the hallmarks of military aggression, conspicious consumption, and a lack of concern for the environment or energy independence.
While Japanese carmakers were coming up with innovations that have captured the market, GM seemed more interested in lobbying against EPA standards to cut emissions and improve mileage. Instead of creating an alternative to the Toyota Prius or Honda Insight, GM carried on with a product line that was dependent on the SUV.
And like the management of GM, it often seems as if the UAW is suspended in another time -- the 1970s -- when much of their benefit and pension package was negotiated. The ground has shifted since then as a result of globalization and the UAW hasn’t sold taxpayers on the idea of paying them more than workers at Toyota or Hyundai plants in America, especially when many taxpayers aren’t making half of their $60,000-per-year average pay.
“Enough is enough!” notes a blogger on a site relating to GM’s troubles. “How long are we going to continue to prop up a failing company? Great pay, great benefits, great pensions, terrible products, no sales, no profits!”
It would be a mistake, however, to assume that bankruptcy will be a magic pill to cure GM. You can fire the company’s management, discontinue unpopular models, renegotiate pay, downsize employee health plans, and cut into pensions and legacy costs and still end up with a company that makes products that don’t sell.
But we can hope for the best, and wish GM well on its new ‘green’ direction with products such as the Chevy Volt electric car planned for 2010. This is a critical opportunity for GM, considering that the Chinese have announced that they are making it a top priority to capture the world‘s electric car market. Last week, China announced that it would increase its production of electric and hybrid cars to 500,000 by the end of 2011, up from just 2,100 last year.
Isn’t that a market that the Big 3 should be desperate to own? The odometer on my car just passed 100,000 miles, but I‘m holding onto it until someone comes out with a good, all-electric car. I hope it’s an American carmaker.
There’s a saying from the Vietnam War era: “Sometimes you have to destroy a village to save it.” Perhaps the same holds true with GM and bankruptcy.
It’s a good metaphor for what ails General Motors and the Big 3 automakers. Should taxpayers give GM a heave and get it over with, or should we keep resisting the company’s bankruptcy until we just can’t take it anymore?
Either way, like the consequences of stomach flu, it’s starting to seem inevitable.
Now, it looks as if the federal government is holding up the toilet seat and giving GM a comforting pat on the back to do the Thing That Must Be Done.
Last September, the feds gave the Big 3 automakers a $25 billion loan. In November the automakers were back, asking for $50 billion more. They were told to get their act together and come up with a plan for reviving the auto industry.
A week ago, the Obama administration decided that the carmakers’ plan was too little, too late, with rosy sales projections that weren’t likely to bear fruit. Basically, GM’s plan was “lend us more money.”
When GM Chairman Rick Wagoner resigned under pressure in the wake of a lackluster plan, President Obama hinted that a speedy “controlled” bankruptcy might be the best way to bring the company back to health, with the government guaranteeing auto warranties until GM is restructured. Within a day or so, new GM CEO Frederick A. Henderson was saying that bankruptcy was “probable” as a means of “recreating and reinventing General Motors as a competitive enterprise, one that wins in the marketplace.”
Bankruptcy would create more hardship for Michigan in the short term. There are an estimated 266,000 GM workers, many of them spread across five Midwestern states. By one estimate, seven times that number of workers in the auto parts industry will lose their jobs if GM goes out of business.
And those auto parts suppliers will perhaps receive only pennies on the dollar for what they’re owed by GM. Who will save them?
Then there are the 400,000 or so retirees whose “legacy” costs in the way of health benefits and pensions take $1,000 in profit off the top of every GM vehicle sold.
But bankruptcy doesn’t mean the end of the world. In 2001, Congress bailed out the U.S. airlines industry with a $15 billion package, similar to that provided to the auto companies. In 2005, Northwest Airlines (NWA) filed for Chapter 11 bankruptcy protection from its creditors. It was joined by Delta, United and US Airways -- four of the six largest airlines in the country, all declaring bankruptcy at the same time.
Yet the planes of those airlines kept on flying despite being in bankruptcy, and employees kept receiving paychecks. Northwest emerged from bankruptcy in 2007 and recently merged with Delta to create the world’s largest airline.
Then there’s Kmart, which declared bankruptcy in 2002. The company closed more than 300 stores and laid off 34,000 employees. It emerged from Chapter 11 a year later and went on to purchase Sears. Both chains are still around (although sometimes it seems barely).
Northwest Airlines and Kmart are cited, because like GM, they too were big players in Michigan. Kmart had its former headquarters in Troy, while NWA operates a major hub at Metro Airport in Detroit. And like GM, Northwest Airlines has also had legendary problems between labor and management.
So it is possible to find a bright side to bankruptcy, and the mood of the country seems to be going in that direction, rather than force-feeding GM more taxpayers’ cash in the hope that this dodo will someday fly.
Consider that GM’s big ‘innovation’ over the past decade was the Hummer, a vehicle that symbolizes all that’s bad about America with the hallmarks of military aggression, conspicious consumption, and a lack of concern for the environment or energy independence.
While Japanese carmakers were coming up with innovations that have captured the market, GM seemed more interested in lobbying against EPA standards to cut emissions and improve mileage. Instead of creating an alternative to the Toyota Prius or Honda Insight, GM carried on with a product line that was dependent on the SUV.
And like the management of GM, it often seems as if the UAW is suspended in another time -- the 1970s -- when much of their benefit and pension package was negotiated. The ground has shifted since then as a result of globalization and the UAW hasn’t sold taxpayers on the idea of paying them more than workers at Toyota or Hyundai plants in America, especially when many taxpayers aren’t making half of their $60,000-per-year average pay.
“Enough is enough!” notes a blogger on a site relating to GM’s troubles. “How long are we going to continue to prop up a failing company? Great pay, great benefits, great pensions, terrible products, no sales, no profits!”
It would be a mistake, however, to assume that bankruptcy will be a magic pill to cure GM. You can fire the company’s management, discontinue unpopular models, renegotiate pay, downsize employee health plans, and cut into pensions and legacy costs and still end up with a company that makes products that don’t sell.
But we can hope for the best, and wish GM well on its new ‘green’ direction with products such as the Chevy Volt electric car planned for 2010. This is a critical opportunity for GM, considering that the Chinese have announced that they are making it a top priority to capture the world‘s electric car market. Last week, China announced that it would increase its production of electric and hybrid cars to 500,000 by the end of 2011, up from just 2,100 last year.
Isn’t that a market that the Big 3 should be desperate to own? The odometer on my car just passed 100,000 miles, but I‘m holding onto it until someone comes out with a good, all-electric car. I hope it’s an American carmaker.
There’s a saying from the Vietnam War era: “Sometimes you have to destroy a village to save it.” Perhaps the same holds true with GM and bankruptcy.
