This morning the LA Times commends President Bush’s reprieve of GM and Chrysler:
We think the administration did the right thing under very tough circumstances. As Bush said Friday, the risk was too great that the imminent defaults by GM and Chrysler would lead to a “disorderly liquidation” of U.S. automakers, which would only exacerbate the country’s economic turmoil.
and proceeds to point out the obvious:
But the aid package also exposes the fundamental problem with government intervention in the auto market. The restructuring targets set by the administration would bring the automakers’ costs into line with their competitors’, in part by relieving the crushing burden of their debts. Yet the cost of making a car is irrelevant if no one is buying.
It’s so obvious that I’d think it didn’t need to be pointed out but companies can’t pay more in wages than they make in the form of revenues indefinitely. Clearly, there are some people who think that $5 billion a month to keep GM and Chrysler on life support is money well spent, just until things get back to normal.
For GM and Chrysler this is the new normal. They’ve lost market share and re-establishing the brand loyalty they’ve squandered over the last 30 years won’t happen overnight, indeed, it won’t happen for the foreseeable future. And nobody’s going to buy the high-mileage cars that Congress wants them to make as long as oil is selling for under $40 a barrel.
While GM and Chrysler are figuring out what to do the world will not stand still. Toyota is hurting, too and will be looking for ways to increase its sales in the U. S. rather than surrendering market share to GM or Chrysler. And then there’s the Chinese and Indian auto makers who want a piece of the U. S. auto market for themselves. China wants to export its way out of its own economic turndown and I wouldn’t be surprised if we start seeing low cost Chinese cars here in the U. S. soon.
Is there anything that GM and Chrysler can do to achieve viability? If so, I don’t know what it is.
Well, I drove one of those Yugo’s for six years..it wasn’t a great experience either, but it was all that I could afford at the time..as the economy continues to contract, stall and fail…you just might see some of those cars from China at your nearest Wal-Mart
Have you been to a Wal-Mart lately..you should go sometime soon and get back to us on just how great Wal-Mart patrons are doing…more of that to come I’m sure…it’s pretty scary!
So long and thanks for all the fish!
GM is worth more as parts than as a whole. All of my economics training (not a lot) and reasoning (quite a bit) and business experience (a fair amount) tell me that when that happens, it’s time to break the company up and sell off the parts.
Every problem that persists in an organization is a management problem. If the problem is with a manager, it’s a management problem one level higher.
So if the problem with GM is that they are not making money because their costs exceed their revenues, you find the position where the two come together. Well, that’s the CEO and the division Presidents and (GM is a highly-matrixed organization, after all) the regional Presidents, and the staff of all of those entities. If they cannot make money at what they are doing (and they haven’t in years) and cannot change what they are doing so that they can make money (and they haven’t in years), then it’s a CEO problem. If he can’t fix it by the appropriate policies and personnel actions, then he’s the operational problem, and the management problem shifts to the Board. If the Board of Directors cannot get the CEO to fix the problem, then they need to replace or supplement him. If they cannot or will not do either, then it’s the shareholders’ problem: they need to replace the board. If they cannot bring themselves to do this, then they deserve to lose money. And that’s convenient, because at that point, they’ve abrogated their duties as shareholders and they will lose money regardless of what they deserve.
But it ends there! There is no reason why I should have to pay the shareholders. Heck, I was a GM shareholder (indirectly) until nearly a year after I went to GM as a contractor. I not only sold out my indirect investments, but then, after nearly three years at GM, left because it was obvious that the company couldn’t survive. So again, why should I or anyone who’s not a GM shareholder have to throw our money into GM, to see it wasted by the same management team and BoD that has spent years not fixing GM’s problems? The shareholders failed, and they deserve the fruits of their failure. I did not fail, and don’t deserve the fruits of their failure. But as with housing loans, it seems that doing the right things doesn’t pay anymore — or at least, that it pales in comparison to being big enough to go rent seeking in a big way.
Not that I’m bitter. Oh, wait…
You could carve up GM and Chrysler, and sell the good parts on auction (with Ford getting first dibs, and possibly a subsidy to buy them if you want them to stay in American hands, since Ford probably doesn’t have the spare cash to simply purchase them on their own).
Jeff –
The problem is that the “fruits of failure” in companies the size of GM and Chrysler don’t simply accrue to the shareholders and employees if you stand aside. They have a whole range of other devastating effects, like bankrupting the supply industries, bankrupting the people who made a living selling food, housing, services, and so forth to GM and Chrysler workers (particularly in the auto states), and then hammering the state governments with lack of revenues from the taxes lost.
Get your coats on and head out to the nearest street corner and take a nice long slow look around…what do you see? How much of what you see can be connected to the auto industry? This is not a small problem!
All companies affect people beyond those who work directly for them or who own them. But it’s hardly the end of the world: the name plates might change, but there are still going to be American made cars, because economic and political realities don’t just go away. But free markets depend on allowing inefficient companies to fail, so that the resources that they consume are reallocated to more efficient companies. This makes everyone wealthier over time. Moreover, I don’t understand the fascination with the Fascist economic model that we are rushing headlong into.
Yeah, it’s been used as an insult for so long that people have forgotten that “fascism” really refers to a form of corporate socialism.
Jeff, I think the plan is to try and prevent as much human suffering as possible for as long as possible..l think the goal is not to throw the baby out with the bathwater..
Larry, if that’s the case why not bail out the individuals rather than the companies?
“our present crisis is not just a financial meltdown crying out for a cash injection. We are in much deeper trouble. In fact, we as a country have become General Motors — as a result of our national drift. Look in the mirror: G.M. is us.”
The above from NYT p-Ed Columnist
Time to Reboot America
By THOMAS L. FRIEDMAN
Published: December 23, 2008
When you replace an old bridge, do you remove the old one before the new one is built? Let’s bail out people by keeping their jobs and dignity, and then rebuild the auto industry and the rest of America..
Welfare builds dependence, not dignity, and the proper salvation of the auto industry is effective business models well managed.
“ut it’s hardly the end of the world: the name plates might change, but there are still going to be American made cars, because economic and political realities don’t just go away.”
Is this in that Magical Land where Barriers to Entry in the market do not exist?