All year, General Motors CEO Rick Wagoner has been insisting his company will never declare bankruptcy. “We’re well positioned,” he said in August. Company spokespeople reiterated that in October, despite the big stock market plunge. Even the company website states that “bankruptcy protection is not an option GM is considering.”
Well, guess what. While announcing a $2.5 billion third-quarter loss, GM also said that its “estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business.” That means the company is spending way more than it’s earning and, unless something changes, will run out of cash sometime early next year. The company itself hasn’t raised the possibility of a Chapter 11 filing. But at this dire juncture, Wagoner and his lieutenants ought to be fired if they’re not doing contingency planning for bankruptcy””since that’s where companies end up when they run out of money and can’t pay their bills.
There’s one alternative, of course. No, it’s not a desperate merger with Chrysler, which GM has now disavowed, since Chrysler is in even worse shape than GM. Salvation lies in””you guessed it””a government bailout.
When I was working at GM years ago, I had a number of conversations with managers who were very, very gloomy about its medium-term prospects…and that was in a booming era. GM’s problems are deep and structural, making a bailout just a waste of taxpayer dollars. Let it fail, declare Chapter 11 and then try to restructure. It simply cannot continue under its current configuration.
I have bought one American and four imports. I still have the American made car and can’t wait to unload the lemon. Therefore I have not paid much attention to the auto industry for a while now. This article caught me by surprise and has me pondering parallels with TEC. Long term decline; failure to address the decline; bloated with too many options; a bulky structure that prevents making substantial decisions: what other comparisons do you see?
And turning the question around, can anyone think of a company that has successfully addressed the same issues and turned themselves around? Can you draw any lessons out from the example?
Sadly, I think ch. 11 would just prolong the agony. The company is a black hole of debt that can never be repaid. It will just have to shut its doors and follow the brontosaurus into extinction. And I think Ford and Chrysler are right behind.
Is part of the problem cheap foreign labor? I noticed on the window ticket that 80-90% of the VW Beetle II is being made in Mexico.
#4 – no, it’s largely legacy costs. When I worked at the Wentzville Assembly plant in Missouri, they would post the cost of building our vehicle on a regular basis at the front door. When we were really humping, production-wise, it was in the $1500-$1800 per vehicle range. At the same time, healthcare costs for retirees – union and salary – averaged around $3000 per vehicle.
Just think: People who never touched the vehicle cost twice what those who did cost.
It worked so long as competition was low, prices were high and sales were good. As soon as all three went the wrong direct….poof…end of the gravy train. Agreements and contracts from decades past sunk GM, and no one made them sign.
Are there legacy costs in TEC? If I understand you Jeffersonian, legacy costs are those costs that are paid from past commitments that have little to no bearing on current operations. I believe that the reappraising side would say that the creeds, scripture, etc are such legacy costs that need to be brought up to date. But what other costs are there? In the discussion after Duncan’s “deposition”, it was pointed out that we have an unusually large number of retired bishops who continue to have vote in the HOB without accountability to a diocese. That might be a legacy cost. In my parish, I wrestle with customs that we do because we always have done it that way (e.g. a benediction sung slowly and off key; an expectation that a priest provide the sacraments to folks who stopped coming to worship years ago; and property constraints because we “can’t” change donated rooms/fixtures/artwork). I do not know what GM’s rationale is, ours is something about respecting tradition.
So, if it’s not cheap foreign labor, is it desperate foreign labor (who don’t expect pension plans or healthcare, etc. who are just glad to have work, eat and have a roof over their head day to day) or management and structure that is driving american auto makers out of business?
Are pensions and health care wrong things to offer American workers? Can we afford to offer them, or for that matter to not offer them anymore?
In a lot of cases, it’s American labor that the Big Three are up against, only employed by Japanese or German firms manufacturing here in the US but unemcumbered by costs that Ford, GM and Chrysler have taken on over the years in a succession of contracts with the UAW (salaried employees typically got similar retirement benefits as union retirees got).
Couple that with Detroit’s johnny-come-lately commitment to quality, their uninspired designs, their lag in fuel economy and you’ve got the perfect storm of business conditions they are contending with.
[blockquote]Are pensions and health care wrong things to offer American workers? Can we afford to offer them, or for that matter to not offer them anymore? [/blockquote]
The Big Three carry hundreds of thousands of retirees in perpetuity on its health care dime. Essentially, they have become health insurance providers that happen to build cars today. And they’re all about to collapse. I think this answers your question.
It sort of answers it indirectly. Mostly it raises more questions, like what would be the impact of all those suddenly uninsured workers on the healthcare system. As it is, Medicaid and the currently uninsured are stressing the system and effecting insurance costs (making the insured as insurance providers for the uninsured). Will doctors flee to other work and hospitals close – more than do at present?
I live in Canada’s GM town, and it’s finally settling in that pretty much, barring an economic miracle, GM is hosed. Of course what that means is that the already depressed social fabric of this community is going to deteriorate even further.
I ask for prayers because it’s going to hurt, and hurt hard.
The company promised a future benefit to employees (healthcare etc) but didn’t set aside the money to pay for it. Both the company and the empolyees/unions are to blame for letting this happen. Even if there is not a bailout the public/taxpayers will end up paying a significant cost. We have the same problem with public employees
I believe the healthcare benefits for retireees are part of each union contract not part of some separate agreement. Thus a bankrupcy judge could void that part of the agreement – with much outcry – if this would keepthe rest of the company going. Unfortunately this may make the most sense.
My brother is an automotive engineer who has worked for GM and other companies in the auto industry for 30 years or so. We have had some conversations about the industry over the years – and one thing that seemed to clear to us, after looking at union-management negotiations, is that labor unions are slightly more selfish and short-sighted than management – but both seem to be in a contest to see who can do the dumbest things.
The only kind of bailout that makes sense is to give large tax credits to consumers who purchase energy-efficient hybrid and plug-in hybrid cars. The higher the tax credit the better. If the auto manufacturers do not want to make energy-efficient automobiles than let them go under. Those that do will benefit from consumers seeking to buy cars to reduce their tax bill in the 2008 returns.
In fact the idea of tax credits for energy technologies needs to be pressed across the board for homes and cars. The savings America achieves by reducing the amount of energy we import actually pays for the costs of the technology, while the boost in consumer spending to reduce their 2008 tax bill helps lift the economy back up.
#8 — #13 beat me with a response to your question, but I guess I’ll elaborate a little bit. The problem is not offering health care and pensions, the problem is failing to fund pensions and health care to retirees without funding it in a responsible manner. Essentially, in order to gain a short term advantage on the current balance sheet, management agreed to defer its true labor cost. With a huge number of retirees, and with life expectancies longer than ever before, that became unsustainable. If the true cost of labor had been included in the price of a car at the time it was sold (including the deferred compensation), and the funds managed appropriately by an independent entity, things might be different. It probably would also have helped in they had operated with defined contribution, rather than defined benefit, plans (something the unions would not have gone for).
Of course, as others above have pointed out, there are also problems with design, reliability, etc., that Detroit needs to deal with.
It is, of course, more than possible to build good cars in North America. Honda, Toyota, and Subaru all do it, as do many others. GM, Ford and Chrysler are suffering from the consequences of decades of bad management decisions.
I guess I have another take on it all. I served in Pittsburgh right after the collapse of the steel industry. It become a joke among my friends; predicting which company/industry/jobs would go next. Management and labor were caught in the old cycle of force and strikes. In the end, lots of companies went under. Watching it unfold, it was pretty amazing that most union folk would rather strike and kill a company than make concessions.
Maybe things have changed and I just don’t understanding unions. Yes, management made bad decisions, like caving to union demands so they could build and sell cars.
And … I was very happy with my suburban and still love my trail blazer. Detroit does build decent cars and if GM can hold on until it’s released, I’m thinking the Volt will do very well.
My old Taurus, mostly built in Mexico, OTOH, was a major POS. American workers understand quality too.
Brian
Isn’t collusive interaction, without the direct involvement of the voters, between business management, labor union leadership and the hierarchy of a national government called “syndicalism?”
Hmmmmm. What countries practiced “syndicalism” in the 20th Century?
Did they end being called ‘good’ governments or did they end up being called ‘bad’ governments?