June 18, 2024

GM, the Company No One Wants

GM has a physical plant and inventory assets that exceed its current market capitalization of around $3B.  The company would be ripe for a takeover if anyone wanted it.

Instead, GM executives want Congress to loan it $18B to stay afloat while they try to whittle away at the mountains of debts and obligations they’ve incurred.  But could the company ever hope to pay that money back?

GM said it would look to reduce its debt by almost $36 billion by asking bond holders to swap out of existing debt, and that it would negotiate new terms for its planned $21 billion contribution to a health care trust fund run by the United Auto Workers union. In so doing, GM plans to cut its debt to $30 billion, Henderson said.

Wow.  GM’s grand plan is to cut debt to the point that it’s only 10 times what the company is worth?

“The plan is intended to accomplish what would otherwise be achieved by a bankruptcy filing,” he told reporters. “It is not our plan to resort to the bankruptcy court.”

Why on earth not?  GM must cut labor costs because the company’s are about 50% higher than Toyota’s are.  Despite the consequences to its members and some willingness to help the company out, the United Auto Workers union is not going to allow that to happen.  Bankruptcy is the most likely avenue for GM to slip the anchor that the UAW has chained to the company’s bottom line.  Failing to do so will cause the union’s dead weight to finally, inevitably, drag the company under.

Jollyroger wonders why the UAW, which is sitting on a huge pension fund looted from automakers over the last several decades, doesn’t simply buy GM outright.

Surely this is the moment for the workers on the factory floor to purchase the instruments of production.

Sounds like a real workers’ paradise, at least until GM’s losses drain the workers’ pension funds dry as well.  The UAW undoubtedly knows that it can’t run the company profitably.

That’s why over 60% of American’s oppose the bailout: we understand that the company cannot recover given it’s current business model and labor agreements.

The problem isn’t that GM’s products are horrible.  They aren’t.  But they aren’t as good as Toyota’s and they cost a lot more to produce.  There’s no way the company can go on bleeding money to the tune of $4B per quarter.  Something has got to give and it shouldn’t be taxpayers’ money.  As with the residential real estate market, the marketplace has not failed.  Detroit, bound in its shotgun death pact of a marriage to the UAW, et al, has failed.  Principle says that the government shouldn’t intervene simply because we don’t like the outcome.

Ian Welsh says that the government should buy GM itself, effectively nationalizing the company. 

Buy out the shareholders for the 3 billion their shares are worth, or hey, be generous and pay them double—6 billion.  In the current context, that’s not even real money.  Get the best auto people in the world and have them go in and restructure GM.  Spend the necessary money and make the necessary cuts.  Restructure the company to serve America’s interests—get the Volt working, increase mpg ratings, restructure the dealer network.  Do it all.  Fix the company and make it viable again.  Then, once it’s working again in a few years, start selling it back to the private sector.  Do it right and the government will make a significant profit.

The problem with this idea is that the government has no ability to make the kind of hard choices that would be required to bring GM back to profitability.  Too many people would be hurt by the necessary moves to make them politically acceptable.  The result would be continued losses, this time funded directly by taxpayers who are already overburdened by government obligations.

The sad fact is that we simply need to accept that these losses and failures are real.  Bailing out failing companies won’t make the losses go away.  Instead we need to accept reality, let the failures happen, pick up the pieces, and go on from there.  Doing anything else would simply be pushing the problem back a few years – and increasing its scope – in hopes of passing it off to the next generation.  That’s simply unacceptable on principle.


Marc is a software developer, writer, and part-time political know-it-all who currently resides in Texas in the good ol' U.S.A.

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