All the screaming in the world about sinister Republican conspiracies to destroy unions and the traditional media lying about auto worker salaries and how anyone who objects to a big fat GM bailout wants to destroy the state of Michigan and all who live there can't change the fact that a big fat bailout WON'T WORK. GM is running through several billion a month. The $25 billion being discussed won't even get GM through next summer without huge restructuring. Rewarding GM with a big bag of cash simply rewards incompetence - a Hallmark of the George Bush years. Government overseen Chapter 11 gives a chance for GM to actually emerge as a company with a long-term chance of decent success.
More after the jump.
Andrew Sorkin of the New York Times put forth put forth an excellent proposal on how the government could have a competitive GM rise from the ashes. Unfortunately, much of the talk on this site has been about how Sorkin's assessment of GM salaries is inaccurate. How one measures the pensions, health care and other compensation of current and retired employees is really not the point. The point is that GM needs to restructure in a whole bunch of areas, of which employee benefits is just one, and Chapter 11 would make that more feasible.
For instance, GM desperately needs to shed unprofitable brands, focus exclusively on green cars, lose unneeded dealerships and fire its management. All of these things become more possible through a government-led Chapter 11 process:
After all that is agreed, and only then, the government should come in with what’s known as debtor-in-possession financing to help the company through the bankruptcy process. Ideally, the government would be a "seed investor" and others would join it.
Those who howl about any impact on worker salaries and/or benefits should recognize that as much as we want a high standard of living for our auto workers, for labor costs to be significantly higher than one's competition is part of the impossibility of GM's competing (along with a badly structured business and terrible management) as it is currently structured.
Let me tell you a little story. Twenty years ago, my father owned a long-held family manufacturing concern in the unionized northeast. He produced the highest quality product, the company flourished, and he was proud of the good wage his employees received. As time went on, he faced fierce competition from products made in Taiwan and the non-unionized south. He did everything he could to compete. He could costs across the board, introduced innovative products. The union even agreed to modest pay and benefit cuts. It wasn't enough. Even with all that, his competition could price him out of business, selling comparable product a good 10% below his base costs. My father went on for a couple years, bleeding cash. Finally, he faced a choice: Sell the business to a larger competitor, or simply go bankrupt in a year or so. He sold the business.
We've seen this story played out among a million manufacturing industries, from steel to textiles and on and on over the past couple of decades.
The moral is that companies simply cannot compete with competitors who have drastically lower labor costs. All the compassion in the world for auto workers cannot change this basic fact.
The solution, as Sorkin and others have noted, involves putting more government money into retraining workers whose industries are contracting in the industries of the future, not to perpetually keep an unworkable businesses afloat. Perpetually giving money to GM as it's currently structured is the equivalent of giving handouts to horse and buggy companies a hundred years ago.
The solution involves fighting for unions and union benefits as companies that don't have them, not to just giving money to the unionized businesses.
There are going to be a lot more businesses on the edge of bankruptcy in the next few difficult years. There's not going to be enough cash to go around. We need to get in the mindset of creating the (green) economy of the future, not throwing money at the economy of the past.