Government MotorsPolicy

Congratulations taxpayers, you just purchased a 60% stake in the company that insisted on marketing Hummers when gas was $4/gallon. After receiving almost $50,000,000,000 from the govt, General Motors CEO Fritz Henderson said, “We understand there are no second chances. We won’t need one.”

So why are President Obama and the United Auto Workers union so confident GM will succeed? The UAW and govt will not be able to sell their shares of GM for roughly 2 years when they expect to have shares publically traded again. During that time, dozens of facilities employing roughly 20,000 employees will be shut down and benefits for retirees and their families will be reduced. Why wasn’t this done earlier when the company was bleeding money with no plan to correct its course? Perhaps when it is all said and done, GM will be a profitable company shed of its legacy burdens and poor performing brands. But could we have arrived at this point without risking so much of the taxpayers money? If this plan does not succeed, will there be another chance?

  • http://www.littledavidobermark.blogspot.com/ LittleDavid

    Amit,

    Just who were the people screaming loudest for the rights of people to buy hummers and other gas guzzlers back when gas was cheap to moderate when others attempted to increase the CAFE (Corporate Average Fuel Economy) standards a few years back?

    I heard a summation of what happened to General Motors today on NPR (National Public Radio) by someone who seemed to know more then either you or I.

    A summation, which might not be perfect.

    General Motors was producing what consumers wanted and the most profitable of these were gas guzzling SUV’s and pickup trucks. When the price of fuel started going up and demand for low fuel mileage vehicles started to decrease, they tried to adjust and started designing more fuel efficient vehicles. The blow of the sudden increase in fuel prices was a blow that left them dazed, but they probably could have shaken the blow off.

    Problem is they were dealt a one two punch. Immediately after the increase in fuel prices, the credit market dried up and the economy went into a tailspin due to the mortgage mess. This was the knockout blow. Not only was there greatly decreased demand for gas guzzlers, there was less demand for any cars. Just like every other automobile company, profits depend on volume because they operate on such a fine line. Even companies (like Toyota) with a fine line of fuel efficient vehicles are reporting losses.

    This expert, I can not give you his name, claimed General Motors (unlike Chrysler) has some pretty competitive cars in the pipeline. It was only the one two punch that knocked them out.

    While the expert did not go into it, I will add that GM had a high debt load that also needed continuing financing. With the mortgage meltdown the pool of creditors willing to continue to extend credit dried up.

    I’m hoping GM comes out of bankruptcy lean and mean. If the economy turns around they might return to profitability as long as the UAW (United Auto Workers) does not demand too much once the first signs of profits appear. But now the UAW will have a significant stock of ownership so perhaps they will not fight quite as hard against the profitability of the owners.

  • http://www.amit-singh.com Amit

    LD, GM does make many nice cars and unfortunately several of them compete with each other so they cannibalize their own business. and just like any business they have to sell the product the consumers want today and design/plan for the products they will want tomorrow. that is why in theory we pay CEO so much, to have the vision to keep the company profitable. GM should not only be looking to make smaller more fuel efficient cars but perhaps also things like light rail or something else I haven’t thought of.

    I don’t disagree that GM was dealt and one-two punch, but Ford and Toyota and several others are surviving. perhaps we don’t need so many big car companies afterall?

  • EJ

    “I don’t disagree that GM was dealt and one-two punch, but Ford and Toyota and several others are surviving. perhaps we don’t need so many big car companies afterall?”

    And thats the point. Ford and Toyota did what was necessary to put themselves in a position where they could weather a storm and survive. GM did not make reforms necessary to do so. They were barely limping along in the boom period and could not live through the trough.

  • http://www.MyViagraStore.com Jacquiline Willams

    It reminds me of what the leftwingers had to say about the GOP conference in Hawaii… which was bogus as usual; whereas this guys point is foolproof.