Let me phrase the point I tried to make yesterday in another way. GM and Chrysler are in deep, deep trouble. If they weren’t they wouldn’t need help. In the waning days of his presidency President Bush and now President Obama have been willing to extend support to them because of their importance to the economy, essentially because of the number of jobs that the two companies represent.
What will GM and Chrysler look like when and if they recover? Both companies are laying off employees and reducing the number of the dealers who are their customers which will in turn lay off employees. They’re going to be smaller companies, probably significantly smaller companies.
Will those companies be as important to the economy? Will the number of jobs the reorganized companies represent be worth the amount that’s necessary to save them? Don’t look at the number of jobs they represent now. Some of those jobs are being lost anyway, they’re a red herring, irrelevant because they will be lost with or without intervention.
Reducing the number of customers, their market penetration, and, presumably, at the margins the total number of cars sold may be the best strategy available for two companies that are barely staying one step ahead of the sheriff but is it a good strategy for the companies when (and if) they get back on their feet?
I also continue to have the question I’ve been asking for some time: what niche will these companies succeed in? Both have been losing market share for decades. Shedding additional market share may be the only way for them to survive what will it do to stop their demise? Electrics and hybrids are a formula for perpetual subsidies not one for corporate survival. Small, lightweight, high mileage, gas-fueled cars may be appealing to the Obama Administration but the American consumer has shown time and again that they aren’t nearly as appealing to him or her. Besides, I don’t see that as prescription for the survival of U. S. auto manufacturing. Many or most of those small, lightweight, high mileage, gas-fueled cars will be produced in China or India.
Chrysler’s in a box, eh? You bet they are. First came the quality problems, then the design problems. The lost brand loyalty…… Its a decades long issue. Will they now fully adjust their manufacturing footprint to their revenue realities? Don’t hold your breath. But it may not matter.
Chasing a “green” niche just because Team Obama likes it is a fools errand. Government may be able to confiscate taxpayer dollars to subsidize Chrysler in the short run, but they can’t – at least not yet – dictate that consumers buy econo-boxes. And as you correctly point out, consumers have shown no tendency, in sufficient numbers, to voluntarily do so.
This of course is the predicate for not engaging in a bailout at all. It is true that Chrysler’s constituents – owners, managers, labor and dealers, may not have been able to fix it. But at least they had personal economic motive to try. Mother government, dictating ownership structure and car model choices has no chance. Just no chance.
As I’ve quipped before. What is coming out of this Administration reminds me of a cartoon from the Carter years: “and now, here is Secy Califano to discuss his decision to give up sex….and what it means for you.”
This is a problem of going into default mode on a bankruptcy. The default mode (find liabilities to discharge, some assets to payoff creditors cheap, and some assets to keep) might make sense where the issue is merely an account balance. But its pretty close to how a corporate raider sees a corporation: a collection of assets and liabilties to be freed.
There was nothing worth calling a reorganization plan for Chrysler; bankruptcy was merely a vehicle to sell the company to the Italians (for $0).
The U.S. government is apparantly prepared to pay $50 billion to keep General Motors going. With 125,000 U.S. employees as of 2008, that’s $400k per employee, no? The government should insist on a plan.
PD –
Hear, hear.
There was nothing worth calling a reorganization plan for Chrysler; bankruptcy was merely a vehicle to sell the company to the Italians (for $0).
Zero dollars for Chrysler? The Italians are getting ripped off. Chrysler: Valueless at Any Price.