In Defense of Owning GM
To anyone who's followed the domestic automakers over the past few months, Monday's bankruptcy filing by GM was as anticlimactic as the episode of "Ellen" in which Ellen Degeneres came out of the closet. "Yep, I'm bankrupt." You don't say....
More surprising is finding ourselves owning 60 percent of the company. I'm not convinced that younger generations are afraid of the word “socialism” — or even the concept of it — like those who associate it with communist oppression are, but the Obama administration's actions raise some questions and concerns. From my perspective, there are good, bad and inevitable aspects to what we've seen unfold, and what we still shall see. To my surprise, I find myself supporting the way things are turning out, mainly because I know how much worse it could be.
It Could Be Worse
To paraphrase the overwhelming sentiment I've heard — and seen in our blog comments — since the announcement: Most American taxpayers don't want to own a car company, or at least not this one, or they simply don't trust the government not to screw it up. All of these notions are understandable, but they ignore a critical predicate: that there were no good choices. I believe we're witnessing the least-bad one.
At the end of 2008, Chrysler and GM were unstable buildings, ready to collapse and wipe out whatever lay in their shadows. Bankruptcy back then would have been like bringing the buildings down in a barely controlled implosion — a safer option, but a violent one that created shockwaves and left little of value when it was done.
What the Obama administration appears to have done, with the help of company management, is to start at the top and strip the buildings piece by piece. Now that the assets and people have been evacuated, a few strategically placed charges will bring down the framework that has no place in a modern skyline.
It's time for everyone to recognize that the white- and blue-collar job losses we're seeing — along with the axed brands and discontinued models — aren't the unavoidable result of Chapter 11. All of these things, and the bankruptcy itself, are the unavoidable consequences of the automakers' missteps over decades, combined with this year’s automotive market and overall economy.
The Role of Government
What gives the government the right to "fire" a CEO and dictate what a corporation does in our free-market system? It would be a relevant question if the Bush and then Obama administrations hadn't rushed in and braced the structures. Isn't this complaint like criticizing a good Samaritan for saving people from a burning building because you don't like the way he did it, or because he was only able to save some and not all, and because it's really the role of a firefighter, which he is not? Without government investment, GM had nothing at all. It would be dead, gone, liquidated. The jobs, brands, models and dealers saved could very well be zero. We're so busy arguing about how to arrange deck chairs on the Titanic that we're blind to the narrowly avoided iceberg and the luxury of not having to grasp for chunks of buoyant debris. (I know the building just turned into an ocean liner, but work with me here.)
Compare the investment approach to a collapse, or to a never-ending series of taxpayer "loans" with no strings attached — a move that didn't go over well when We the People threw exponentially more billions of dollars (never in the form of loans) at Wall Street. Ownership equals an unprecedented vested interest in the business of automaking. Isn’t this the best way to ensure that the government keep its demands on GM reasonable and, if needed, support the company through any further edicts, such as regulations and an insistence on stateside manufacturing?
You Bought It, Don't Break It
Over the decades when Corporate Average Fuel Economy standards were effectively abandoned, lawmakers believed automaker claims that higher mpg standards would bankrupt them. It wasn't true then. Maybe regulators are close enough to the business now to see whether it's true or not. This newfound understanding is what brought about the new mileage standard as a single, national plan with revisions that back-load, rather than front-load, the phase-in to work with the long-term nature of automobile development.
As for concerns about micromanagement, about "Government Motors" forcing the manufacture of "cars people don't want," the government could force all manufacturers to do the same without holding equity in any of them — and some critics say that's exactly what the new CAFE standards will do. The most positive signs to the contrary come from GM itself. In spite of the difficult circumstances, people within GM seem enthusiastic about the administration and even the auto task force.
What we see now — the seemingly fast and tidy restructuring — takes the place of what could have been a drawn-out, played-out-in-the-courts Chapter 11 were it not for the buy-in from constituents. More likely, lacking debtor-in-possesion financing, GM would have fallen directly into Chapter 7. It appears that the threat of bankruptcy is a better incentive to compromise than a bankruptcy itself would have been. At least the timing's good. What better time to put a dent in your sales than when you — and your competitors — don't have many sales anyway? If the plans succeed, the companies' recovery should follow the trajectory of the economy itself.
Why Not Sooner?
Anyone who bemoans the bankruptcy's coming months and billions of taxpayer dollars after the possibility first arose reflects a quintessentially American trait that’s both admirable and pitiable: the refusal to imagine that things could be worse. The formal Chapter 11 might be ending soon for Chrysler and possibly — though improbably — within two or three months for GM. To be clear, this isn't the end of a painless surgical restructuring; the Novocain just hasn't worn off yet. It will get worse, and public outcry will only intensify as the ripple effect spreads. The same personalities who couldn't foresee the pain can be counted on to overreact rather that to recognize, once again, that it could be even worse.
This investment is a gamble for the Obama administration. I think GM underestimates how difficult it will be to lure consumers post-bankruptcy, and how much it will cost them to bribe shoppers with low prices. This could easily become a political quagmire for Obama. Politically speaking, the only safer strategy would have been to let Chrysler collapse. Sacrificing the smaller, privately held company would have been easier to justify. Then, as the dominoes fell, the jobs liquidated, the economy nosedived and Americans experienced the shock we often require before we wake up to reality, the administration could have swept in and saved GM — saved us all — from catastrophe. Maybe they aren't so Machiavellian. Maybe they didn't think of it. Fortunately for the administration, they have more than three years for this gamble to sort itself out.
Product is King
At Cars.com, our focus is on the products, and that's how we know GM has a solid chance. Automakers have a rich history of saying things like "There's no problem good products can't solve," and "Product is king!" — then turning around and devoting resources to everything but. It's time for you to put our money where your mouth is, GM, and you'd better make it good. It's not just Cars.com watching. It's everyone.
Previous
Subscribe to our feed
Email us your tips!
Certainly made the case for the best way to save GM, but as the devil's advocate, I ask, why save GM in the first place? I understand the heartbreak at seeing the hard-hit Detroit area suffer even more, but a relevant argument here is that there has to be this pain in order for someone to start with a blank, clean slate in that region, and figure out how to bring business back to the heartland. Personally, I see high-speed rail as key component in the future of transportation.
If we would have let GM and Chrysler file Chapter 11 instead of pumping Billions of taxpayer dollars into the companies... IE Bailout, how much money would we have saved?
troy. it begs the question on how much money it would take to put this people on things such welfare and food stamps. could it be cheaper than all those billions?
What everyone here does not understand is that this is about pride, American Pride. Nobody, especially the Obama Administration, wants to see once great American companies fail and disappear forever. I'm not saying they are great companies or anything, but they deserve to be re-worked and re-made to become more competitive in the industry.
By the way, other posts from today, and prior, are not allowing me to blog using Firefox. I’m also having issues posting using Internet Explorer…must be Cars.com
Juan,
If the companies would have been allowed to bankrupt before being bailed out, maybe, just maybe, they could have operated under chapter 11 protection while retaining employees and restructuring at the same time.
Those Billions of dollars could have been better spent IMO. Think Social Security and Medicade.
Now, The taxpayer will be footing the losses for decades to come.
I don't have a GM or Chrysler automobile in my driveway either. I'm certainly paying for them though.
The government ownership in GM could backfire bigtime. It has to do with sales incentives.
First you have normal taxpayers. They mght not be too happy about subsidizing the purchase of a car by some other guy, via incentives paid with tax dollars.
Next we have Ford. Ford employees won't be too happy seeing their tax dollars subsidize sales incentives for their competitor. Those sales incentives will make it harder for Ford to turn a profit, thus hurting shareholders. Would there be a legal case for Ford to insist that taxpayer dollars NOT be used to subsidize its competitor?
The various imports and transplants might have a very strong case to bring before the WTO. Most WTO agreements forbid subsidizing local makers at the expense of foreign competitors. Sales incentives supported by the US gov't could certainly be seen as just that.
They still don't get it.
They're calling their current promotion on their overpriced and over optioned cars a "Loyalty discount".
I don't know anyone that is loyal to GM that is not in hock already to GMAC. $1000 when just about everything is over $20000 after you pay the taxes is a drop in the bucket and doesn't ever cover the taxes in most cases.
Great article. Max makes a great point, too.
Max:
The US market is so diverse and fragmented that support of GM is hardly enough to cripple competitors. The media has taken great pains to tell us how small GM is now relative to the glory days. If GM is as small and inconsequential as the media tells us I would to know how the government's support of the company is going to present a major issue at ford and Toyota. If anything, Ford is enjoying watching GM get all this bad press. Ford has been hailed as the only American automaker not to take government money and that is great for their image. Ford and the imports will NOT complain because they know the collapse at GM would have damaged their prospects. Do you think that every worker tied to GM and its suppliers buys GM products? If you put a million people out of work due to the collapse of GM and Chrysler that is going to hurt Ford/Toyota suppliers and potential customers.
So here is what i dont understand. How do you give the UAW part ownership when they work for the competion?!?!?! Is that not a conflict of intrest.
Also I am of the philosophy that failure leads to inovation. It seems like America has lost that drive and ambition. Kids now days are part of the Entitlement Generation and it seems like our cooperation are too.
And since when has it ever been a good idea for government to control inovation. The private sector does much better with that.
Joe:
YOur blog made it on GMreinvention.com- just got added under their list of GM related articles/blogs.
SVX:
First of all the UAW owns part of GM to make up for what GM cannot afford to pay to the VEBA. There is no conflict. The UAW wants GM to succeed just as they want Ford to succeed. The UAW is smart enough to know that they have to cooperate with Ford just as they have with GM in order for Ford to survive and have a chance at long term prosperity.
Secondly, the government will not be designing cars for GM and will have no control over how the company innovates. The Auto Task force and Obama have seen enough of GM's operations to know GM understands how to build cars. They will stay out of the design and engineering side of things because they know nothing about either. What makes you think GM will stop innovating because the government is the largest shareholder? Do you think that makes a difference to the average GM designer or engineer?
GM is a victim of their own poorly run operations however the fact remains that this administration doesn't know how to create jobs and without job creation the car market will not rebound. It will be a small miracle if GM survives with the Government and UAW as owners as soon we will be looking at 12-15% unemployment. If GM does come back I wouldn't hesitate buying one of their cars as I've always had good ownership experiences with them. It's the current WH administration that I will not be voting for a second time as they are simply horrendous. When all is said and done GM will be a small time experiment considering what BHO will be doing with our utility bills and health care costs over the next year. I may actually vote Republican for the first time in my life.
Original sheth:
Really, they already told GM to stop pursuing Hydorgen technology. I'm sure that has nothing to do with the close relationship the administration has with GE.
Dave Wuss:
Vote Third party, the other two are just the same thing.
If we could just forget the day of the Vega and bring back a little American pride I have owned American cars since 1972 (1970 NOVA) I now have a 1955 chey pick up and a 2002 Trailblazer with 98000 miles on it and the only reason I dont buy a new one is because I love it and it has been dependable Am I the exception I'm sure I'm not so give America a chance