General Motors: Time to Pull the Plug

General Motors (NYSE:GM) has become so fat trying to save it would be the equivalent of cutting apart a mobile home to free the monstrously obese woman clinging to a bucket of fried chicken inside.

Yes, the federal government can extend a huge bailout to Detroit and the companies that have been sucking at its overweight teats, but sometimes cutting the fat lady out of a trailer does much more harm than good.

Unless you change her eating habits and her over-consuming lifestyle, the weight will not disappear on its own. Who is to say she will not have a heart attack on the way to the hospital or bribe the ambulance driver to stop at McDonalds (NYSE:MCD) for a six-pack of burgers and a chocolate shake?

Corporate liposuction

Just like most of the nation, I too view GM as one of America’s great corporations. The company epitomizes everything that made this country great, at least over the past few decades. Right now, on the other hand, it represents some of the nation’s greatest problems.

GM, just like its union-fed employees, wants something for nothing. The American taxpayer did not get the automaker into this trouble. Its management and its union concessions did.

You and I are not the ones that promised to pay defined retiree benefits for hundreds of thousands of past workers. We are not the ones that promised to pay wages to a “bank” of workers we no longer need. And we are not the ones that produce inferior products few consumers demand or are proud to own.

We all know, if you or I ran our businesses the way GM is run, we would have been on our butts a long time ago. And most certainly, there would be no congressman pulling strings to hand us huge sums of money to fix our senseless mistakes.

In America, we have two choices that must be made today. We can take the easy route and write a check to Detroit and its supply chain, essentially putting off the auto industry’s problem until the next recession.

Or we can make the hard choice and let GM fight for its life in bankruptcy court, just as the free market is dictating. Yes, this would propel America into a deeper recession and unemployment would almost certainly reach double-digit proportions. But most importantly, it would ensure that 10% unemployment, like Europe has become used to, does not become the accepted norm in America.

Temporary pain, permanent improvement

If we cut GM loose, we will endure a lot of temporary pain, but the nation’s future will be much brighter. The wounds will heal. The job market will rebound. And a new, much more profitable industry will emerge from the ashes.

We already have a huge segment of the nation’s population trapped in the gutter thanks to overly ambitious social welfare. Now America is about to make an even larger mistake and embark on what will essentially be permanent corporate welfare.

It is a mistake that will haunt this country and its growth potential for generations. If Bush signs any legislation into law, the corporate nation will never look the same.

Life support is for bodies that have a chance at healing and getting stronger, not for fat ladies that will continue to eat themselves to death.

It is time to pull the plug on GM and see what happens.

Disclosure: no positions

Comments

[llkwildcatt:]

GM already pulled the Plug years ago , I just don't believe people can see the plug is missing. By the goverment putting money into GM as a bail out is like putting water in a bathtub without a drain plug. It's a waist of time. I as a American and not a autoworker do like GM cars, BUT and the word BUT does mean something, But I do believe GM needs to be restructured. The Union is bleeding the company to death. If the workers of GM and Gm parts want a bail out, I do believe they should bail out GM there own self. There are 300,000+ workers. At my company we the employee bought out the comapny and did a much better job at running it as a result. 5000 dollars per employee would make this happen . Let there Union make GM work or maby the EMployees will vote to get rid of the Union sence they do own the company they work for. I do believe this is the only way to make GM work out. This is the bail out.

2008 Nov 18 03:57 AM

[User 300370:]

This is a lame article and shows no genuine thought on the CURRENT economic situation impacting the US markets. It’s clear the author has not understanding about what the world has become. The US will never have another American car company. They will all be Indian owned (tata), Chinese owned (Chery, SAIC, FAW) or Korean (Hyundai). Let GM die and buy Chinese. And these new companies will not build using Americans to build these cars and trucks. So, no more lame comments about UNIONS. They will be using Chinese and Indians…far away from the good US of A.

2008 Nov 18 04:54 AM

[PeteK:]

User300370,
When a person shop for an item, first that item must be affordable, second, that item must be durable and attractive. And third, hopefully that item was American made. But the first & second are more important. Affordability and quality really count. Junk products won't survive. So if the Indian or Chinese cars are no good, they won't sell. Simple as that.

2008 Nov 18 05:39 AM

[PeteK:]

llkwildcatt,
Agree 100%.
That'll be the best solution.

2008 Nov 18 05:41 AM

[MichaelZZ:]

GM should go through a "packaged" Chap. 11 re-organization to include:

1) Adjustments in pay - union and white collar

2) Strict control over management's salaries and bonuses

3) A massive, but rational, reduction in legacy responsibilities

4) A 100% loss for all common and preferred shareholders

5) At least an 80% loss for bond holders, other than GMAC holders, to be paid for with new common stock

6) An infusion of the People's funds in the form of preferred stock with "business-like&qu.... parameters, such as 10% dividends, a very healthy option to convert into new common, and a serious number of long-term warrants to purchase new common

7) Reduce obligations to suppliers by 30% with the reduced amount paid in new common

The above is a good starting-point of discussions



Michael Z.
Sherman Oaks
[e-mail]
[e-mail]

2008 Nov 18 06:10 AM

[Tom B:]

GM's troubles have little to do with the unions; GM pushed "land yacht" SUV's for decades, oblivious to the fact that oil production has been in decline for a comparable period. If their whiny lobbyists hadn't railed against the VERY Modest CAFE standards; if they had gotten off their tushes and made efficient cars-- they would be a viable business.

2008 Nov 18 10:16 AM

[Dividends A...:]

I think the unions aren't fully responsible, but they certainly didn't stop this ship from running onto the rocks. Do people seriously think that $50/hr to put a door on a car is productivity? It's a depreciating asset.
The bottom line is that workers are overpaid for their work and that contributes to the broken business model. Do GM workers deserve to make more than engineers, nurses or teachers? When you measure meaningful productivity the UAW's are overpaid on wages and benefits. Yes they got that because of the big 3's sickening addiction to SUV's and higher margin vehicles but UAW management should have been smart enough to see that as unsustainable.
Capitalism works best when the weak are allowed to fail. There are no freebies in business and Chapter 11 is calling their names. That will make them more competitive - not a bailout or infusion of funding

2008 Nov 18 10:59 AM

[CarDealer123:]

I am constantly amazed by how little fact checking is done by the pseudo-journalists in the business sector. They hear something that’s not true and then report it as factual. Whatever your stance on the GM LOANS (not bailout) is it would be wise to consider the facts.

The most often stated myth is that GM builds inferior cars and trucks and that nobody wants to buy them. THE TRUTH is that GM sells more cars and trucks in the USA than anybody else. A million more per year than Toyota.

There are 46 Brands available for sale in the USA - these brands are owned by 19 different Manufacturers.

GM sells one out of 5 new vehicles sold in America. Ford sells 1 out of 10. They compete with 19 different manufacturers from all over the world. GM's fair share of the market would be 5% and it has 20% !!!!!! - Are all these journalists idiots?

The "free market" loves GM and Ford. These two companies are the overwhelming FAVORITES among American consumers. So how can any responsible journalist make the statement that nobody wants these cars or that they are junk.

They are not junk according to JD Power and Consumer Reports - The Chevrolet Malibu is THE HIGHEST QUALITY midsize sedan sold in America - beating out Toyota Camry AND Honda Accord and everybody else in the segment. There are many other Domestic cars that rank substantially higher than the imports.

Then there is all the bogus reporting that GM builds all these gas guzzlers - The fact is that either GM or Ford has the BEST fuel economy in every gasoline powered segment that they compete in.

Then there is more inaccurate reporting / blogging that GM and Ford need to build Hybrids. GM and Ford both build more Hybrids than Honda or Nissan and by next year will be selling more hybrids than Toyota.

Everyone is entitled to their opinion - but you ought to at least know the facts when you form that opinion. REAL JOURNALISTS report facts - not misinformed personal opinions.

2008 Nov 18 12:55 PM

[Research Guy:]

If the PennCentral Railroad could fail, then GM is not too big to fail!

2008 Nov 18 03:03 PM

[a. palmer jr.:]

I don't like the idea about GM bondholders having to take such a huge loss on their investment. After my losses in Lehman, I don't know if I can stand a loss in GM also. (Bought, by the way, when times were much better).

2008 Nov 19 12:16 AM

[Tom B:]

Ye, the Chinese can't manage to produce baby formula that doesn't kill babies and they want to make cars? No doubt the gas tanks would explode! Stick to Toyota and Honda!


On Nov 18 04:54 AM User 300370 wrote:

> This is a lame article and shows no genuine thought on the CURRENT
economic
> situation impacting the US markets. It’s clear the author has
not
> understanding about what the world has become. The US will never
have
> another American car company. They will all be Indian owned
(tata),
> Chinese owned (Chery, SAIC, FAW) or Korean (Hyundai). Let GM
die
> and buy Chinese. And these new companies will not build using
Americans
> to build these cars and trucks. So, no more lame comments
about
> UNIONS. They will be using Chinese and Indians…far away from the
good
> US of A.

2008 Nov 19 09:23 AM

[cz:]

1-15-09
Andrew,
Do you or anybody at SA actually re-read the stuff you write before letting it loose on the public??? Your analogies are weak and far reaching. Your ideas do not mesh in a coherent manner. And, the thrust of your main theme has you coming across as a mean spirited, union busting, Toyota-Senator-boot-li... self-absorbed, whiny-assed, evil little kid… about 8 years old would be my guess!!!
Grow up… and have somebody proof read your bullshit before you erode SA’s credibility even further.
CZ

Jan 15 01:08 PM