Let GM Go Bankrupt

I know many people will be upset if GM goes bankrupt, but it’s what needs to happen. GM has many, many issues that are slowly destroying it, but one of the biggest problems is that the unions have a strangle hold on the company and are sucking the carcass dry. A federal bailout will offer only a transfusion, and all it will do is delay the inevitable.

Michael Levine at the Wall Street Journal outlines how GM has gotten to where it is and how it will never change unless forced to through bankruptcy. Here’s a portion:

Consider the costs of tackling GM’s problems with some kind of bailout plan. After 42 years of eroding U.S. market share (from 53% to 20%) and countless announcements of “change,” GM still has eight U.S. brands (Cadillac, Saab, Buick, Pontiac, GMC, Saturn, Chevrolet and Hummer). As for its more successful competitors, Toyota (19% market share) has three, and Honda (11%) has two.

GM has about 7,000 dealers. Toyota has fewer than 1,500. Honda has about 1,000. These fewer and larger dealers are better able to advertise, stock and service the cars they sell. GM knows it needs fewer brands and dealers, but the dealers are protected from termination by state laws. This makes eliminating them and the brands they sell very expensive. It would cost GM billions of dollars and many years to reduce the number of dealers it has to a number near Toyota’s.

Foreign-owned manufacturers who build cars with American workers pay wages similar to GM’s. But their expenses for benefits are a fraction of GM’s. GM is contractually required to support thousands of workers in the UAW’s “Jobs Bank” program, which guarantees nearly full wages and benefits for workers who lose their jobs due to automation or plant closure. It supports more retirees than current workers. It owns or leases enormous amounts of property for facilities it’s not using and probably will never use again, and is obliged to support revenue bonds for municipalities that issued them to build these facilities. It has other contractual obligations such as health coverage for union retirees. All of these commitments drain its cash every month. Moreover, GM supports myriad suppliers and supports a huge infrastructure of firms and localities that depend on it. Many of them have contractual claims; they all have moral claims. They all want GM to be more or less what it is.

GM cannot survive like this and it is downright immoral for the US government to require American taxpayers to support this company. Chapter 11 will make all these company killing contracts that Levine described void so they can be completely renegotiated. This is the only action that will truly save this company. Read the rest of Levine’s article. Yes, bankruptcy will be very hard. People will lose their jobs causing our unemployment rate to go up, but this is the only way to help GM restructure. In the long run, the company will be stronger and its employees will be better off at a company that actually has a future.

Slippery slope
Giving up on giving