Posted by
Andrews on Saturday, June 06, 2009 1:07:37 AM
How does the government ever expect GM to be privatized again?
Let us look at the facts. GM was in dire financial straits to begin with. It could not sell cars profitably, was eaten alive by union costs, and was suffering from bad investments.The government stepped in and essentially loaned GM money, which it cannot afford to repay. They then jiggered the bankruptcy process to leave the creditors with cents on the dollar, guaranteeing no one will ever invest in or loan money to GM again. They also gave the union huge ownership interests, meaning every decision will be vetted by the union.
Most companies, to come out of bankruptcy have to cut costs, scale back operations, and otherwise restructure to be profitable. GM can do none of those. If they try to shut down plants they need to
get the approval of the politicians representing those districts. If they want to renegotiate union contracts, they can only do so by promising even greater future concessions to their union owners. They are saddled with huge debts to the government, and have no prospect of borrowing elsewhere thanks to the bankruptcy fiasco.
Nor can they take the other route out of bankruptcy, finding a brilliant manager who will take the audacious actions needed. First, he simply could not take those actions, as congress and the unions would shoot down most or all. But that doesn't matter, as who would willingly become head of GM? The last head was pushed out for political reasons. That alone makes the job unappealing. Not to mention
being answerable to both congress and the UAW. Nor has anyone forgotten
all the mock outrage over AIG and the
micromanagement the government has proposed over any bailout recipient. If I were a CEO I would not take a job at GM for any amount of money, much less the pittance the government will likely impose as the
maximum salary GM can offer.
So, for the foreseeable future, GM will likely be a debt ridden company, managed by political patronage appointees, beholden to the UAW and regional politics, unable to cut costs, forced to produce unmarketable "green" cars by congress, saddled with unworkable union contracts, huge union pension costs, and required to maintain facilities it doesn't need in the districts of powerful congressmen. It will be forbidden from looking overseas for cheaper alternatives, and will be forced to give in to every union demand. And, finally, it will be capital starved, unless it take son even more government debt.
So, exactly who is going to be clamoring to buy this white elephant? No one wanted it before the government stepped in, who will want it after months or years of government mismanagement, additional debt and ever greater concessions to the unions?
In the end there are only two outcomes. One, it will become the Tatra of the US, an inefficient, unprofitable government automotive combine producing politically motivated products no one wants to buy. (Likely government agencies will be required to buy cars from GM in order to keep up the appearance of profitability.) Or else the government will eventually give up, and the company will be liquidated as it
should have been months ago. Unfortunately, it will finally be dissolved only after countless billions of tax dollars were wasted, creditors were robbed of most of their investment, and whatever assets remain were squandered by the government and union. Btu, at least it may eventually go away.
Sad that the best possible outcome is that the government finally allows it to die.
POSTSCRIPT
Many other articles on similar themes can be found in the postscripts to "
Living Large During the Good Times".