General Motors: Bankruptcy Preferred

General Motors is a billion-dollar rathole and America keeps pouring the money in.

Those funny little cars appeared on the American scene sometime in the 1960’s – bug-shaped German ones, while those from Japan looked like shriveled limousines. Year after year the invaders got better, flashier and safer, but Detroit didn’t see the writing on the wall and went right on producing obsolete, shoddily built cars with sky-high price tags.

Including benefits such as pensions and health insurance, the average autoworker cost General Motors $81 an hour in 2006. A year later, it was still $73 an hour, of which $28 was the actual hourly wage. It was a perfect conspiracy between management and the unions against the customer, and it lasted for decades. Toyota only paid an average of $48 an hour and was able to build factories across the country that turned out better and less expensive cars.

But the conspiracy of the powerful continued. GM had to put $50 billion into health care for its already retired workers alone. The funds, outfitted with a one-time deposit of $30 billion in cash and $1.4 billion in GM stock, were to be taken over by the United Auto Workers union this year.

The problem is, GM is virtually broke. One share of GM stock that cost $100 forty years ago (that’s $700 in today’s money) when those funny little Japanese cars started arriving is now worth just three bucks. And another figure: GM invested $310 billion in the corporation over the past decade; today’s its market value is less than $2 billion. And this company, used by the Harvard Business School as a textbook example for perfect incompetence, now pleads to be rescued.

Why would one want to save a money-sponge? Because of the well-known excuse “too big to fail.” Aren’t there up to 3 million jobs at risk here, including suppliers to the Big Three? But that sort of logic is ridiculous because Americans won’t stop buying cars. Demand for cars won’t disappear; it will just be redirected, creating new jobs in the competition’s factories.

If GM isn’t allowed to go under, the $25 billion dollars they get today will be shortly followed by requests for more. The company will have to continue paying huge labor costs. It will have to continue paying rent for immense areas of real estate it will never use. Honda has only 1,000 dealers nationwide whereas General Motors has 7,000 – and they’re protected by individual states. The short moral of this story? Even if GM builds as great a car as Toyota, wrote GM-expert Michael Levine, “they won’t be able to carry the weight of GM’s past.”

By the way, in the United States “broke” means “Chapter 11” and that, in turn, means court protection from one’s creditors. In that phase, GM would be able to offer concessions to its management, workforce, retirees, dealers and suppliers, something they wouldn’t be able to do while basking in the warmth of eternal government support. “Chapter 11” could result in GM being bought by its healthier subsidiaries such as Opel, thus avoiding extinction. But common sense isn’t being sought in this case. Barack Obama wants to give them billions more and so does Chancellor Angela Merkel. If Opel is well enough insulated, it could conceivably survive. But GM will die on its billion-dollar bed.