GM and the Bigger Picture
GM warned last month that its auditors, Deloitte & Touche, could raise those concerns, but the announcement underscored the stakes for G.M. as it sought up to $30 billion in government aid to restructure with a bankruptcy filing.“Our recurring losses from operations, stockholders’ deficit and inability to generate sufficient cash flow to meet our obligations and sustain our operations raise substantial doubt about our ability to continue as a going concern,” the company said in the filing. megan mcardle
Throwing money at GM in the US or in Canada is, I fear, a wasted effort. Bankruptcy has the advantage of allowing the assets – of which there are lots – to be sold to people who can actually use them to make a profit. It terminates supplier agreements and ends the UAW strangle hold. It also screws a lot of people most of whom are guilty of nothing. Plus, and this is not to be discounted, a GM bankruptcy would have huge initial economic consequences.
The problem is that the alternative, an endless maintenance dose of government money, leaves GM no better off, simply allows the UAW a year or two’s reprieve and prevents the radical restructuring which might turn the GM assets into something productive.
Ian Campbell gets the bigger picture from the Canadian perspective:
While I have on several occasions in prior posts commented on my concern with respect to the possibility of the U.S. automakers pulling their assembly operations out of Ontario and Quebec back into American assembly plants, I completely overlooked the possibility of U.S. Steel effectively pulling steel production back into the U.S. I have little doubt this makes economic sense from U.S. Steel’s perspective. I also have little doubt this event should cause more than a little concern in the Federal and Provincial Parliament Buildings – and among those of us who live in Ontario (and Canada). From my point of view, it is not the event itself that is particularly concerning, it is the broader concept of retraction of jobs from Canadian subsidiaries by their U.S. parent companies that I think is the concern. srpblog.com
March 5th, 2009 at 1:12 pm
I bought my wife a 2007 Hyundai SantaFe because I didn’t want to fork out to GM for a crappy, over-priced vehicle. I’ve been very placed with the quality and performance of the SantaFe, especially in light of what I paid for it. It has been my second Hyundai and I’ll certainly be buying a third.
I specifically avoided GM, Ford, and Chrysler because I didn’t view a single one of their products as a good investment. So you can imagine my horror at having to give them my hard earned money via my taxes and not even having a shitty vehicle to show for it after the fact.
If the Conservatives give $$$ to big auto they’ve guaranteed I’ll NEVER vote for them again. That party will effectively be dead so far as I’m concerned.
March 5th, 2009 at 1:26 pm
British Leyland…..
March 5th, 2009 at 4:27 pm
Ford refused the Fascist bailouts…my next vehicle is a Ford F250…which is also the best vehicle in its class…no coincidence.
March 5th, 2009 at 4:33 pm
That is a neat summary of the problem. There is no neat solution.
I doubt that the physical assets can be put to productive use in North America—other places have cheaper and better labor—which means that those “huge initial economic consequences” are likely to linger.
There is likely nothing that will make GM competitive again—especially in light of the CAW’s announcement today that wages and benefits are not on the table— so the eventual collapse is a pretty much a given.
The question, in my mind, is how much money do you spend on a transition of the labour force and how do you best effect that.
March 5th, 2009 at 5:15 pm
Very Green of you WLMR.
I agree Kevin. And it is a problem which a bailout at this point would only postpone.
I would love to know what the CAW thinks it will achieve here. The bailout is politically unpopular enough without them sticking their oar in.
March 5th, 2009 at 5:25 pm
There is some assumption that if everyone holds their breath the sales volumes will come back to 2006/7 levels.
It ain’t gonna happen. GMAC was into mortgages, second mortgages on inflated home prices driven by pyramid financing schemes, allowing people to buy new vehicles that they can’t afford now.
If the government props up GM, they will have to prop everyone else up. If they let them go, the other manufacturers may survive when they pick up the sales.
There is too much capacity, and will be for many years.
Derek
March 5th, 2009 at 5:42 pm
Throwing money at GM in the US or in Canada is, I fear, a wasted effort.
Allow me to alleviate your fears, Mr Currie. Throwing money at GM in the US or Canada IS a wasted effort. No need to have any fear about making that statement. No need to fear at all.
March 5th, 2009 at 6:20 pm
“...[H]ow much money do you spend on a transition of the labour force and how do you best effect that?.
The answer is the same for both parts of the question, if when you say “how much should ‘you’ spend”, you actually mean “what should the government [do/spend]“...
Nothing: spend nothing; do nothing.
No bailout, no transition “plans”, no assistance…nothing. Don’t do anything to (or for) the companies, nor to or for the individuals affected.
Reality will sort itself out much quicker, and with less total pain, than any plans concocted by “stakeholders” working in concert with bureaucrats and politicians.
Don’t believe me? Well, how do you like the results of all the public-expensed “stakeholder-bureaucrat planning” you’ve seen so far?
Although the posts below deal with the American situation specifically, the lessons Canadians need to take are exactly the same. Bet on it.
Link 1: here.
Link 2: here
March 6th, 2009 at 5:01 am
Our recent car buys have all been Fords, mainly because of a very good local dealership. Why is the news these days not as much about how Ford is not in trouble?
March 6th, 2009 at 9:24 am
jay sez:
“Very Green of you WLMR.”
It makes a statement certainly. But you’d have to be weapons-grade naïve to think I give a good gawddamn about whose politically correct misconceptions are offended by my personal preference in vehicles…or property of any kind and my enjoyment/use of same.
My F250 4X4 will get me down the country roads in winter I need it to, haul the loads of materials I need it to, tow my boat and family camper and will still be running strong when the politically correct carbon starved “green” metrosexual toys are decomposing in some scrap yard.
My last 250 had 290K miles on it and it ran well enough that I sold it for almost what I payed for it new 14 years earlier…fuck carbon neurosis, think durability, reliability and recycling potential when it comes to vehicles…having one from a civilly responsible and patriotic corporation is just a bonus.
March 6th, 2009 at 11:28 am
I doubt that the physical assets can be put to productive use in North America—other places have cheaper and better labor
Toyota, Honda, even Mercedes (the ‘Benz side, not Chryco), have been able to produce profitably in North America in the past few years – the problem is not the quality or cost of labour (aside from pension / COBRE costs – but those were either deliberate management strategies or political policies); it is the design and production management that have laid GM and Chrysler on the mat.