Alfred P. Sloan, once the chairman of General Motors in the mid 1930’s cautioned the United States government that “ as goes GM, so goes the nation”, or something to that effect. People in the 1930’s believed him then, the charm worked for several decades until 2009. With the global financial crisis, General Motors Corp. and Chrysler LLC are facing one of the most potent downswings in the auto industry(the worst in 27 years), and their fate as of today is hanging in a balance.You may recall that the automakers were the first in line to get federal bailouts, with very few questions asked, but the problem have proven to be much more pervasive than any of us anticipated, even for President Obama.
GM and its subsidiaries want more money to keep them afloat (restructuring comes with a price tag), the Obama administration wants them to reorganize immediate and the news is trickling down to Wall Street with another wave of panic.
I watched the New York Stock Exchange open this morning with negative expectations, and it wasn’t too long before the announcement reiterated the general suspicion that company creditors, shareholders, and everybody in between “will be expected to make more sacrifices”. Sacrifices in this context means “creative destruction”, which is its pure economic sense is not a bad thing, except that with unemployment on the steady rise, it adds salt to injury.
There are two sides to this story, like anything else. On one hand, the Obama administration sits back and watch the auto industry fail miserably (so that all of us will drive Fiats and Renaults), or take a preemptive and viable approach to force the auto industry to retool. Now “retool” is the most ambiguous word of all in this conversation, and my best guess that it doesn’t take a rocket scientist to know that this kind of “retooling” is not the same the weekend cleanup sessions to rearrange equipment at Home Depot.
Of course no one is calling for the auto industry to fail, and certainly if we grudgingly professed that AIG was too big to fail, I will argue that GM and Chrysler have enough gas guzzlers to make the same case. Eventually, a choice ought to be made, and you can bet that taxpayers are not willing to foot any more ludicrous capitalist indecisions. Sure enough when GM succeeds, America succeeds, but I know also that when GM mails out their million dollar bonus checks, none of them has my name and address on it.
This conversation about the US auto industry stepping up its competition is nothing new. They need “adequate working capital”, just as they did at the beginning of the year. Two months ago we were at this same juncture; talking about the whether or not to do away with Saturn and the enormous SUV’s flooding which most of us are addicted to. Go back even further. In the 1970s, Chrysler was losing money and struggling to pay its employees because of poor sales and large scale recalls of some of its cars. Jimmy Carter's administration in the late 1970s stepped in and kept the company afloat. Nothing changed and certainly the focus quickly shifted to AIG, and everyone forgot that the giant auto industry was still in a giant mess. As a side note, chairman and chief executive Rick Wagoner of General Motors was fired.
So what’s on the table today? Structured bankruptcy? That’s not too bad a proposal, except that I really don’t know too much about it. BUT if anything would indeed make it easier for GM and Chrysler to clear away old debts and emerge as smaller, leaner operations, more power to it. In the least, that would be better than complete extinction (which will never happen by the way).
One thing I know for a fact is that there is one more hour of trading left on Wall Street, and Dow Jones Industrial Average recording 320.62 in the red in not a pretty picture by any stretch of my imagination. Something tells me that “as GM goes, so goes the nation” still, or at least so does Wall Street, Main Street, and believe it or not, the street leading to your wallet.
Another random thought.
