General Motors: The Next Growth Story?

Before you fall over in disbelief, let me explain that the title of this article is conditional. The legacy costs of GM are staggering. Too much debt, too underfunded defined benefit obligations, too many dealerships, too long before labor costs are competitive with foreign automakers, too much inventory, too much capacity, too much bureaucracy, and finally too little time to fix these problems.

So how can GM be the next great American growth story, and NOT just America's problem? There has to be a mandate change. The status quo is not an option, and all parties with a vested interest must be willing to accept a new direction. Contracts, debt, and agreements must be exchanged for a new common equity. The old equity will be dissolved, and the current common holders will be given a token of the new equity in exchange for expedited approvals. Each of the parties would be given a percentage of the new equity based on an arbitrator's assessment of the parties' contribution and claims against the old company. GM and Chrysler will be merged allowing for another round of expense reductions. Labor would be paid a fair wage, but they would receive bonuses based on the profitability of the new company. Stakeholders would derive their benefit from the success of the new equity.

The government would allocate 30 billion dollars to a research and development co-op, along the lines of the Skunkworks Project. The transportation industry would be allowed to participate jointly and share the benefits jointly of the new co-op. The automotive industry needs to understand that their competition is not each other, but oil driven profit centers. The industry has been a friend of oil for too long, and therefore an enemy of their consumer by definition.

The transformation from automakers to technology companies will revolutionize the industry. Gone will be the marketing induced buying binges by consumers. And replaced by the worldwide demand for transportation products, which lower the consumers' energy outlay. The jobs created by this creative destruction will be significant, but the real benefit will be the significant lowering of energy costs to consumers worldwide. Economics calls this the enlargement of the production possibility frontier.

Is this a stretch? Can all parties agree to a new mandate and vision, where the payoffs are risk based? The America we appreciated demands radical adjustments. The days of learning to manipulate the system for one's benefit despite the costs to society are over. We are all together in need of solutions to high energy costs, both to our budgets and the environment. General Motors has the production capabilities to implement worldwide delivery of new green technologies, but they have little product in the pipeline. It's time for the private and public sectors to come together to solve a worldwide problem.

Disclosure: I have no position in GM or F.

Comments

[car czar:]

Mark,
You should study the industry you blog about so you have some facts first.
Maybe you should pay attention to how many patients are originated from the big three and study what kind things they are doing now in terms of future technology. Maybe you just don’t understand science that’s why you’re a writer rather than an engineer.

2008 Dec 22 09:40 AM

[bobbobwhite:]

Too many ifs. Will never work as stated.

GM could again be a success story(just the physical assets) if Toyota or Honda buys its assets but not its business, and gets totally released from Detroit auto unions and does business as in non-union or right to work states where they both presently make great cars.

2008 Dec 22 12:21 PM

[UseMyFedTax...:]

The easiest way for GM to be successful would be to make all previous obligations to dealers, governments and employees disappear. If workers work for free and if vehicle prices are raised significantly higher, then GM would quickly get to profitability. Anything less than this scenario will take longer than most have the appetite for. It is interesting that our over-built housing market is basically undergoing the same economic disruption. Our over-capacitized retail footprint is also experiencing disruption.
If one considers the Japanese automotive market, one may recognize how restrictive it is to import foreign automobiles into Japan. Why is it that Japan does not offer financial or tax incentives to foreign auto manufacturers to build plants in Japan? Yet, in the US, we continue to incentivize foreign manufacturers to build additional auto manufacturing capacity. In their home market, the Japanese have learned it is not wise to misallocate human resources by “seeding” additional auto jobs.

Our land of the "free" eventually becomes the land of the "excess" in which the foreign companies get what they want, yet American taxpayers are left to financially reconcile the consequences of our own poor resources planning and strategy.

2008 Dec 22 01:29 PM