'As GM Goes, So Goes the Nation': Let's Hope Iacocca Is Wrong

The AP has finally reported that GM might be going bankrupt: AP Story on GM.

The press, as usual, is slow to catch on. I predicted GM's bankruptcy last year, in a letter to The Metro: [from Metro Letter]:

[A]lmost no one in the private sector receives pensions or lifetime medical benefits, and all the private companies who used to offer such benefits, such as General Motors and Ford, are changing their policies and are slowly going bankrupt.

I hope Lee Iacocca was wrong when he (reportedly) said, "As goes General Motors, so goes the nation." But Mr. Iacocca seems to be blessed with acccurate foresight--see Where Have All the Leaders Gone?, published May 2007:

Am I the only guy in this country who's fed up with what's happening? Where the hell is our outrage? We should be screaming bloody murder. We've got a gang of clueless bozos steering our ship of state right over a cliff, we've got corporate gangsters stealing us blind, and we can't even clean up after a hurricane much less build a hybrid car. But instead of getting mad, everyone sits around and nods their heads when the politicians say, "Stay the course." Stay the course? You've got to be kidding. This is America, not the damned Titanic. I'll give you a sound bite: Throw the bums out!

It's just a little bit of history repeating...

Comments

[Pat Shuff:]

At one point GM had become the largest corporation registered in the United States, in terms of its revenues as a percent of GDP. In 1953, Charles Erwin Wilson, then GM president, was named by Eisenhower as Secretary of Defense. When he was asked during the hearings before the Senate Armed Services Committee if as secretary of defense he could make a decision adverse to the interests of General Motors, Wilson answered affirmatively but added that he could not conceive of such a situation "because for years I thought what was good for the country was good for General Motors and vice versa". Later this statement was often misquoted, suggesting that Wilson had said simply, "What's good for General Motors is good for the country." At the time, GM was one of the largest employers in the world – only Soviet state industries employed more people. In 1955, General Motors became the first American corporation to pay taxes of over $1 billion.


www.time.com/time/maga...

2008 Nov 11 02:23 PM

[JasonC:]

Look, it is terribly simple. GM and Ford between them have debts of a hair under $300 billion and they have annual sales of $300 billion. There is no reason they can't service their debts if they earn a fair margin on sales. The equity is gone and half the debt it going to turn into common. It will retain its value if and only if their margins instantly adjust to a profit of 5-7 cents on every dollar of sales --- without any change in those sales, because they are as likely to go down as up.

The average UAW line worker costs $146,000 a year. That is simply unsustainable, it is crazy, it is stark raving mad at a time when auto sales are dropping 40% in less than 6 months. There is no capital left to steal. If the unions won't let wages adjust with demand, then they will simply all be fired --- there is no capital to sustain crazy wages and benefits packages like that, in this environment. If the government tries to maintain $146,000 salaries and benefits for half a million sainted auto workers by taxing all the rest of us, there won't be any economy. It won't be the GM and Ford workers that will be fired in that case, but it will be everyone else, quite rapidly. There is no reason those people deserve $100 billion a year of our money just to maintain their ridiculously privileged union bloat lifestyles.

Cut the wages by half. Yes, by half - your sales just fell by nearly half, didn't they? Think equity can take the hit for you? There isn't any. The union owns what there is on the companies, so it takes the hit --- they already took everything else.

If these companies just paid ordinary wages instead of 3 times the national average, they'd be profitable immediately, their junior bondholders would be equity owners with real value behind them, and the senior stuff and everyone's pensions would be safe. The government can no more guarantee $150,000 a year jobs for everyone in the country even in declining and uncompetitive industries, than it can command mana to rain from heaven. Give it up, you are busted already.

Then save like everyone else if you want your standard of living to rise over time. Own a price of the company where you work, instead of trying to rob it blind with a union shakedown every five minutes.

2008 Nov 11 02:25 PM

[Phillip Mer...:]

It is simple..GM will not be allowed to fail and they will renegotiate their union contracts and become more profitable. I am buying 10,000 more shares this week... What a deal one of the largest companies in the US for only $3.00 per share? Giddy-up!!!!

2008 Nov 11 08:40 PM

[k9s-4-k8:]

Come on Matty, tell us what you really think.
Predicting GMs bankruptcy a year ago? What took you so long? I've known for more than 10 years that they would go bk, the only question was exactly when.
What is really needed in this situation is a managed bankruptcy. Managed so as to affirm to some that GM intends to honor certain contracts that will benefit the company, while dishing off what they need to rid the company of. The government should be involved to make sure they stay on course, and especially since they still need our investment money if they want to live again. UAW won't like it one bit, but they don't care one wit about the company beyond making certain their workers are paid. No doubt about it, this will benefit the company and its employees over the long run, while limiting the possibility that taxpayers will be on the hook much as French taxpayers are on the hook for life with Airbus.

2008 Nov 11 08:46 PM