Filed under: GM, Autoline on Autoblog
Autoline on Autoblog with John McElroy
WHAT IF GM COLLAPSES?
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.
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 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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Autoline Detroit
Airs every Sunday at 10:30AM on Detroit Public Television.
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Autoline Daily
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.
Some people say, "They deserve it. Let them die."
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.
It would be cheaper for the Feds to bail GM out than to let it go under.
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.
###
Autoline Detroit
Airs every Sunday at 10:30AM on Detroit Public Television.
Autoline Detroit Podcast
Click here to subscribe in iTunes
Autoline Daily
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Reader Comments (Page 1 of 4)
Gabagool 5:15PM (10/30/2008)
The reason everyone attacks GM is simple, people are not attacking GM, people attacking its criminal management. A management that has arguably the worst record in USA all the while getting HUGE salaries, bonuses and perks. A management that wants to stick US taxpayer with bill for their incompetence. A management that fought tooth and nail to kill CAF for 30 years and that now steals from those whom they harmed so much, the taxpayer that had to breath this dirty air.
Look, I read only today that if GM and Chrysler were to merge Wagoner would take over as a CEO, this is why people hate GM. This corruption, how can anyone with his record be allowed to flip burgers, let alone run a company. He makes 17+ million dollars a year, all the while he fired thousands, cut their benefits, salaries, destroyed their lives and my RUN THE COMPANY INTO THE GROUND and that parasite thinks he deserves a penny? Not from me.
There are also those who are free marketers, people who want to see free market work, and free market dictates that by this time next year GM will either file for bankruptcy or die. These people want government to stay out and let markets work, GM doesnt offer a single car that markets wants at the price GM wants to sell it. GM can not bring new technology to the market without help from government, which contradicts capitalism, democracy and many, many other principles.
I for one want to see GM to succeed again, but under a different management.
Reply
DesiAuto 6:13PM (10/30/2008)
Dear John,
1) Fire the ENTIRE mgmt at GM
2) Make sure they do NOT get another job ANYWHERE in the world.
If you accomplish above first, I am all for GM bailout.
Gary 7:32PM (10/30/2008)
It's small minded to say "Wagoner and Lutz are to blame for ALL of GM's woes and should be fired". Crippling Pension and Healthcare obligations along with unreasonable labour demands started long before Rick and Bob were in their current positions.
GB 5:15PM (10/30/2008)
They need to use all that fun stuff below to build cars as clearly its not been used to date outside of the Volt as most GM vehicles simply cannot compete in years past with the Toyota, Honda models etc.
I have never owned a GM vehicle, couple of Fords, now Honda, Lexus and Porsche. Volt is spurring my interest after 21 years of vehicle ownership.
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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.
Reply
Dave 5:18PM (10/30/2008)
As always, you are a voice of reason. If more people looked at the big picture they would realize that GM employs America.
Reply
Gabagool 5:23PM (10/30/2008)
Open market demands GM die.
Jo 5:45PM (10/30/2008)
Gabagool,
don't be ridiculous - America/the world is *NOT* an open market, and to make a statement like that either ignores some obvious import/export inequalities or makes it pretty obvious that you've read too much Ayn Rand/libertarian propaganda. (it's like sugar - it's fun and delicious, but too much of it rots your brain)
JS 5:58PM (10/30/2008)
Jo,
You accuse Gabagool of obscuring the issue, yet you make an extremely general argument. Although there are obvious barriers to import and export, Gabagool seems to have been saying that rising costs have outpaced the effect of those barriers.
And yes, the world may not be an "open market," but there surely is a global market and the increasing fluidity of that market is going to lead to GM's demise. Now the question is whether anyone will have the guts to mitigate the damage.
hypermiler 5:19PM (10/30/2008)
If GM collapses, then it will be sold to Chinese piece by piece. Simple as that.
Reply
JS 5:21PM (10/30/2008)
The American government needs to give in to globalization and the cost advantages enjoyed by other countries in the auto sector. Instead of wasting money on bailing out a ship that will inevitably sink, the government should use that money to fund GM pension plans and retrain the employees that are below retirement age.
This is not wholly current management's fault - there has been a system in place that forces GM's costs per vehicle to be unsustainable. The main part of that system is arguably the UAW, but even without the UAW GM could not lower wages drastically because of the cost of living in the US. The US economy is no longer fit for manufacturing companies with inflexible cost structures.
Reply
the vegas style guy 12:44AM (10/31/2008)
IT'S THE UNIONS!
BLAH BLAH BLAH!
Kitko 5:23PM (10/30/2008)
Just a note - Apple, with around 7.5 percent market share (, has about $25 billion of cash. It could afford to buy 3 GM sized companies - in terms of stock value.
That's how "big" GM really is.
Reply
Todd 5:25PM (10/30/2008)
"WHAT IF GM COLLAPSES?"
Toyota would just buy them, maintain maybe 50% of the work force ( must work non-union of course ) then slowly phase out all legacy makes and models, replaced with familiar Toyota products. That's the unspoken message in their present in NASCAR, is it not?
That actually sounds pretty good.
Reply
Stéphane Dumas 9:47PM (10/30/2008)
unless Carlos Ghosn decided to step in and buy some parts of GM ;-) and we might witness a move similar to the recreation of AT&T ;-)http://www.youtube.com/watch?v=I6nuwQmhrZ8
David 5:28PM (10/30/2008)
Boeing will be next and all you negatones can work at Walmart greeting all the shoplifters. The once giant superpower that hurled a man to the moon will only be able to manufacture gumballs that will soon be made in Canada.
Reply
Todd 9:18PM (10/30/2008)
I've accepted a position in the IT depart at Toyota, not WalMart. They cannot hire enough people to meet the demand for their products.
Tool 5:29PM (10/30/2008)
I'm not advocating a GM "collapse" nor do I necessarily think they deserve it (although in some ways they do, based on decades of sh1tty management and UAW excess) . . . BUT what if GM declared Chapter 11?
What's the worse thing that could happen? No one really knows, but the airlines have gone through BK. Some of them numerous times and yet they kept flying. It didn't materially affect the flying public nor did it impact safety. So maybe the airline industry is the best model.
Something needs to happen to address the deep structural problems of the Detroit 3. It's sad because GM (and to some extent Ford) have finally started to produce some really great vehicles. But the problems of too many brands, too many dealers, too many models continues to plague these companies. If they can't address this, they can not survive. Period.
Reply
Jake 6:19PM (10/30/2008)
If GM declares bankruptsy, they won't be able to sell a car. Who is going to buy a car from a company that might be gone next month. Warrantee, spare parts, etc. Who wants to buy a car from people who think that they are about to lose their job. That is the diff between GM declaring bankruptsy and an airline. The airline offers a service, not a product.
Billy C. 7:15PM (10/30/2008)
I might buy a GM car after they declare bankruptcy. I fly lots of airlines that were bankrupt, and no it is not different. I still have all my airline miles - GM will honor warranties for the same reason that airlines honor pre-bankruptcy airline miles.
I refuse to ever buy a GM car again if GM takes a government bailout.
Judy Zik 8:53PM (10/30/2008)
Bankruptcy is in reality what GM needs. They need the ability to close a few brands and dealerships and maybe some plants without the huge financial hit that otherwise doing these things causes.