GM: Change Is Good, But Jobs Are Needed

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Includes: F, GM
by: Timothy Chappell

I am of two minds regarding Sunday evening's news about GM's change of leadership.

This change in leadership at GM is a good thing. However, it should have taken place years ago.

But will new leadership spur the American people to buy cars in an environment where 600K+ additional jobs are being killed each month?

New leadership at GM in the form of another GM-lifer will only do so much for restructuring the company. Though I am certain that Mr. Henderson clearly understands that the sword of Damocles hangs over his head.

To do less than a radical reconstructive surgery sooner rather than later means that he will go the way of Mr. Wagoner and Mr. Stemple (a leader who actually was on the right track in reshaping GM, had he been given the time and support he needed before being asked to leave).

I think a sufficiently powerful fire has finally been lit in GM’s halls to spur the kind of change that is needed. Perhaps.

Nevertheless, in reading the current articles about the auto industry, I am seeing a frightening thing: a general glossing over of some critical issues. I have said the same thing of a number of plans coming out of the nation’s capital in the last few months. Is it a reflection of the fact that there is nothing deeper to report, or that the reporters are giving us just the soundbites?

Allow me to lay out a few basic facts:

  1. Vehicle sales (in total) continue to fall 40% or more each month. The rate of decline has increased each month for a year and may will continue unabated for a while. The translation here is that people are not buying cars and trucks at volumes that are needed to maintain profits for an industry of companies that have super-sized themselves, their production, their incentives, and sales expectations to levels sustainable only in dreams.
  2. Dealers were encouraged some months ago to stock up on vehicle inventories for which many can’t now pay the loans they have incurred to build the stock. Again, people are not buying cars and trucks in sufficient volumes. The result is that dealers – who have been trying to do their part for OEMs – are now going out of business across the country under a debt load that they can't meet.
  3. March will come to a close with more than 600K additional jobs that have disappeared from the US economy. The question is how many months of consecutive job losses will we see in which figures approach 700K? In this environment, in which nearly every American adult now knows of a blue or white collar person who has lost a job, will anyone make the choice to purchase a new GM product? Or will they prefer to keep their money in their pocket for a rainy day that may come this week?
  4. If dealers are going out of business, and insufficient numbers of people are buying new cars, where is someone going to go to take advantage of the government’s auto warranty? As parts suppliers are going out of business because they can’t get loans to cover the spreads between the payments they get from the likes of GM and Chrysler, where are car parts going to come from that will be installed as part of the government’s auto warranty program?

There is a larger and absolutely obvious issue here. The economy needs jobs... hiring. Now.

Not unending government programs whose benefits arrive in the next presidency. Until massive numbers of jobs are created across all sectors, any GM restructuring will fail.

More simply put – until jobs are created, people will not buy and demand will continue to sink precipitously. Which means that GM will remain on life support no matter what form of restructuring takes place. The government is paying GM to keep the lights on until people start buying cars again.

When people start buying cars again, then we will see whether GM’s restructuring has any merit.

Jobs, and the incomes they provide, are the solution for GM and for the US economy.

If people are working, they can buy houses and cars. They can pay off credit cards. Banks will fund loans, and so on.

How do you create the jobs if companies refuse to hire? Rather than funding government programs, the government should fund the American people. Directly.

Give each verifiable adult taxpayer a direct cash stimulus of $250K to spend within 12 months within the borders of the US (not in foreign countries), and this is what will happen:

  • current mortgages will be paid off
  • current credit card debts will be paid off
  • current auto loans will be paid off
  • current college loans will be paid off
  • purchases of new and existing homes will rise
  • purchases of new vehicles will rise
  • spending on discretionary activities (dining out, going to baseball games, travel to Disneyland (NYSE:DIS) or NYC, buying more iPods (NASDAQ:AAPL), shopping for the latest knickknack at Macy's (NYSE:M) and Whole Foods (WFMI), investing in cheap stocks, etc.) will rise
  • deposits in local banks will rise

The result of this is obvious. If people have money to spend, and are spending, it requires companies to have workers producing to meet demand and banks making loans to keep demand flowing.

  • Banks are more confident and liquid when loans are paid
  • When houses are being bought builders will acquire land, build more houses, and finish building the projects that went bankrupt a year ago.
  • When people are buying cars, the assembly lines must move to keep up with demand which means the workers need to be on hand and the automotive supply and marketing chain needs to robust.
  • When workers are working, taxes are flowing into local, state and federal governments.

It's as simple as that really. Much of what has been done has been meant to resolve systemic risk. But more risk has been created, along with more debt... which has basically created a situation where our debt holders own such great quantities of US debt, that they now are able to influence our government openly and with only so much as a wink and a smile. For if they squeeze their purse strings now, the US government will have an immediate coronary.

But if you directly stimulate the taxpayers with as little as $250K, this Great Recessionary Depression will be over with before the leaves change colors this fall. That is your revival plan. And just in time for the launch of GM’s new season of cars and trucks.

Disclosure: I am not currently employed in the automotive or technology industries. I do not own automotive stocks or other investment vehicles which might influence my comments on the automotive industry.