Anyone watching the auto industry these days is acutely aware that General Motors is hurtling towards disaster. It's burning through cash reserves at a rate that will put it in Chapter 11 sometime next year, no matter how much management says "that's not an option." It's still being crushed by its legacy costs, yes, even after concessions from the UAW. And it just witnessed its own finance arm, GMAC, essentially pull out of the automotive lending business.
What was an emergency just a month ago has now blossomed into a full blown crisis. Unless something is done quickly, General Motors could collapse.
This is why we're hearing talks of a potential GM-Chrysler merger, and of a bailout from the Federal Government.
John McElroy is host of the TV program "Autoline Detroit" and daily web video "Autoline Daily". Every week he brings his unique insights as an auto industry insider to Autoblog readers.
Some people say, "They deserve it. Let them die." But those people may not fully appreciate what that entails. If GM collapsed it would have national security consequences, it would gut the U.S. manufacturing base, and it would cripple many hi-tech American companies.
Even in its damaged state, GM is still a gigantic corporation that plays a significant role in the American economy. Everyone focuses on its manufacturing plants and the tens of thousands of blue-collar jobs they provide, but its importance to the economy goes well beyond that.
GM is a leader in the use Information Technology and buys billions of dollars worth of IT equipment. The same goes for cutting-edge virtual reality displays, advanced electronics, and the latest simulation software. It probably has the most work-stations of any company in the country. And it is pioneering the development of smart materials (memory shape alloys and polymers), advanced batteries, fuel cells, and telematics.
More importantly, GM is a major recruiter of the kinds of people who know how to develop and work on these things. The company employs all kinds of engineers, scientists, and researchers. And it hires its best and brightest minds mainly from American universities.
The cynics say that foreign automakers will fill in the gap. But that's not the case. While Toyota, Honda, Nissan and Hyundai are to be commended for building engineering campuses in the U.S., all their advanced technology is developed in Japan and Korea. They are not going to transfer it here. Even the Priuses that Toyota will build in Mississippi will be built from kits imported from Japan. None of the advanced hybrid components will be built in the USA.
The cynics also overlook the fact that if GM were to collapse it would pull dozens upon dozens of critical suppliers down with it. Suppliers who also sell to Ford, Chrysler and all the transplants. A move like that would cripple Ford, kill Chrysler, and damage the transplants.
The cost to the Federal Government would be huge. GM would dump its pension obligations on the already stressed Pension Benefit Guarantee Corporation. Unemployment compensation would soar. And it would destroy the tax base of many communities that depend on GM plants to pay for their schools and local governments. In other words, it would be cheaper for the Feds to bail GM out than to let it go under.
The cynics say GM management brought this all upon itself and they don't deserve to be rescued. Yes, management did make mistakes. So did the unions. So did the government regulators.
I say, so what? It's not worth punishing so many innocent people, companies and communities for the mistakes of a few.
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