6 ms·

Let G.M. go bankrupt

95 points by soundsop 18y ago

mdasen 18y ago
I doubt this would happen. Of all the players involved, it's probably the UAW that has the most to loose in a Chapter 11 situation. What's killing GM (and the other American auto manufacturers) is the unreasonably high labor obligations they have accumulated back when the industry was an oligopoly. The question is, will a president who ran as union-friendly allow UAW workers to loose a ton? GM has a lot of people on payroll earning more than many computer programmers who are simply idle - they don't do anything, don't show up to work, etc. The average labor cost per hour for GM's manufacturing is over $70/hour. While GM has made significant mis-steps in their management, the fact is that no management no matter how brilliant they were could compete when they have labor costs like that.
- Dilpil 18y ago
  Not that I don't believe you, but some sources for that would be nice. I've suspected this was true, but I've never seen a real in depth analysis and explanation of it.
  - jeroen 18y ago
    From 1996: http://query.nytimes.com/gst/fullpage.html?res=9507E1DE1239F936A15755C0A960958260 http://query.nytimes.com/gst/fullpage.html?res=9507E1DE1239F... "The company estimates its hourly cost of labor at $43" 2005: http://www.npr.org/news/specials/gmvstoyota/ http://www.npr.org/news/specials/gmvstoyota/ "Average Labor Cost per U.S. Hourly Worker $73.73" I can't find anything more recent.
    - nihilocrat 18y ago
      From the NPR source: "Average Hourly Salary for Non-Skilled, Assembly Line Worker: GM: $31.35/hour NOTE: Includes idle workers still on payroll and those on protected status." Just clearing things up for people who don't understand that labor cost != wages.
- peakok 18y ago
  This is an analysis you won't find outside of the U.S. Typically, the car industry is known for having strong union labors in a lot of other countries (especially in Europe), and while auto makers are always in trouble during recessions, no European one is nowhere near the critical condition of GM. The real problem is making cars that people want and selling them. I'll give you a clear example with the history of Fiat : Fiat is an Italian auto-maker that had a very bad decade, the cars weren't selling and their reputation was bad, when you tought about Fiat, the first image that came to you was a subpar car. After they attempted everything else (cutting costs, you guess how), they finally resolved to fire every single guy with a tie in the company, from the simple chief to the CEO, the WHOLE management that was pointing to the high cost workers, unions, etc. as the sole responsible for the demise of the company, all these people that refused to take responsability were fired and replaced by new heads, an unprecedented move. Guess what ? It worked. Fiat is making a strong come back in Europe and their reputation is building up again. Their cars are not synonymous of subpar anymore, they sell, even if it takes a lot of time to restore confidence and change your image, their strategy is ultimatly working. I believe GM could take a lesson or two here. The problem is when the management refuses to take responsibility of a failure, they aren't qualified anymore to excercise responsibility, and their real chances of saving the company, bailout or not, are very slim.
  - eru 18y ago
    Sources?
    - bjelkeman-again 18y ago
      These two stories at the Economist may help: http://www.economist.com/displaystory.cfm?story_id=11090197 http://www.economist.com/displaystory.cfm?story_id=11090197 http://www.economist.com/opinion/displaystory.cfm?story_id=11089887 http://www.economist.com/opinion/displaystory.cfm?story_id=1...
- timr 18y ago
  I'm tired of reading posts by internet libertarians, blaming the GM employees for the sins of the company. GM's labor costs are high because of pension costs. They promised an entire generation of workers old-age benefits if they gave their life to the company, and now the company wants to eliminate that deal, because they simply didn't plan for it correctly (oh yeah...they also made crappy, fuel-inefficient products that nobody wants). My grandfather was one of those pensioners. He retired from GM after over 30 years -- having sacrificed his hearing and his back to the job -- and the pension gave him a modicum of comfort until he died. His widow still relies on it to survive. There are thousands of other people just like them, who made a deal with the company in good faith, that the company would just love to revoke. I think GM should be allowed to go into bankruptcy, but if they do, the judge would do well to fire or eliminate the salary of every executive who failed to plan for pension costs, resisted fuel-efficiency standards, eliminated new product programs, and otherwise destroyed the company. Then, perhaps they can think about cutting the pension benefits of the blue-collar guys who gave their health to a corporate machine.
  - Prrometheus 18y ago
    Nice anecdotes, but they also have rooms where workers they don't need and can't fire come in and sit for 8 hours everyday. The unions are a millstone around their neck. Airlines, car makers, government, schools. Four sectors that are unionized, four sectors that are grossly inefficient, four sectors that are kept alive by taxpayer money.
    - eru 18y ago
      Any sources for the 'sitting rooms'?
      - benzim 18y ago
        http://wsjclassroom.com/archive/06may/auto2_jobsbank.htm http://wsjclassroom.com/archive/06may/auto2_jobsbank.htm 15,000 workers are paid to do nothing.
        18y ago
- mgb 18y ago
  >is the unreasonably high labor obligations While Porche is insanely profitable because it exploits the slave labour wages and conditions for German autoworkers?
  - eru 18y ago
    Porsche does not pay pensions directly.
patrickg-zill 18y ago
Does anyone know for sure, what happens to the benefits and pensions of GM retirees, should GM go bankrupt? My understanding is that the plan is fully funded and is a separate entity at this point; thus no change for those already retired.
- cjenkins 18y ago
  I believe they would be protected under the http://www.pbgc.gov/ http://www.pbgc.gov/ at the very least. I'm not sure how it is structured in GM's specific case though.
Kilimanjaro 18y ago
Let * go bankrupt That's what capitalism stands for. Those who kept a well managed admin and saved for the worst should be rewarded, not those who failed.
- jbert 18y ago
  > Those who kept a well managed admin and saved for the worst should be rewarded, not those who failed. There's an interesting issue there, though. Given: 1 - in general, higher risk => higher reward (if the risk comes off ok) 2 - fast growing competitors can dominate a market, wage a price war or buy slower-growing companies Isn't there a potential problem that companies which are sensibly prudent can be simply out-competed by those which don't hedge against low-probability devastating events? i.e. the natural state of the current economic system could be said to favour companies which grow more quickly by accepting risks which mean they cannot survive in the long term?
  - gaius 18y ago
    Economists call this the Dotcom Fallacy.
    - jbert 18y ago
      What's the fallacy? Why is it an incorrect strategy? If your competitors are following it and you don't, aren't you at risk of being bought/losing a price war/losing market dominance?
  - lutorm 18y ago
    I think so too, like I said in my other post: check out "fooled by randomness" and the stories of investors who blow up.
  - modoc 18y ago
    Is there a reason to bail those companies out of bankruptcy with tax payer dollars? If you're simply pointing out the potential advantage that a large number of higher risk competitors may hold, remember that advantage is tempered by lacking the pole position and the resources that the large company typically enjoys. My startup is competing against some very large companies, and while we are faster, cheaper, better service, etc... They have existing marketshare, long term contracts, huge advertising/sales budgets, long track records, massive good-ol-boy networks, etc... We're doing great (we only want/need a few customers, not the whole market), but I doubt we'll ever "out-compete" the big fish to the point that they fail or we lead the market space. Being the big fish has a ton of advantages, even if they are slow moving.
dallasrpi 18y ago
If GM and Ford go bankrupt Detroit will resemble that movie "Escape from NY"
- andreyf 18y ago
  Why?
- fallentimes 18y ago
  It already does.
- dzohrob 18y ago
  You've obviously never been there - see http://www.forgottendetroit.com/ http://www.forgottendetroit.com/
vaksel 18y ago
the problem is that GM is just too big to be profitable, and its just not competitive anymore. Hell GM is the biggest manufacturer in the world yet its losing money left and right.
- modoc 18y ago
  It's actually #8 on the 2008 list. Although Toyota is the only auto maker above it (at #5). And my understanding is that Toyota is profitable. I'm not sure that's a valid excuse for GM.
  - vaksel 18y ago
    Is that worldwide? Just doesn't seem right. I mean they were #1 for 2007 when they did the stats in January. I'm talking about vehicle sales, not profitability.
    - modoc 18y ago
      That's the IW global manufacturing (which includes Oil, Coal, etc...) list, by gross revenue. If you're speaking specifically of auto companies, then they're #2, behind Toyota. Last year they were number one, but Toyota beat them in 2008.
      - vaksel 18y ago
        ah I see...yeah I was talking only about the auto manufacturers.
- axod 18y ago
  Don't forget the fact it makes truly awful cars.
lutorm 18y ago
It seems that the first lesson that should be learned from all of these "too big to fail" entities needing bailout is that there are other reasons to prevent mergers than just antitrust. If we prevented corporations above a certain size from growing (by merging), wouldn't these problems with mega-sized failures sending shock waves through the system be fixed? Maybe it would be less efficient, but it makes me think of a similar situation where pure profit-driven capitalism has lead to a bad situation: agricultural monocultures. Hunting for efficiency has produced a state that is finely tuned to be maximally efficient in the current environment while being dangerously sensitive to changes in that environment. It's just not prudent to go all out, even if you think you have a good hand... especially if you're gambling with your children's college funds...
- Prrometheus 18y ago
  I don't think they're too big to fail. They are too big to fail without causing a political issue that challengers can use against incumbents. That is not equivalent.
thomasmallen 18y ago
Sure, do just that, but you'd better have a damn good safety net unless you want Detroit in flames. In spite of my libertarian views, this is why I voted for Obama: On the issue of labor. I figured that the economy was already screwed, and we needed somebody who could look out for the middle class that will be left to the wolves.
- hugh 18y ago
  Auto workers are a pretty weird subspecies of the "middle class" though. As far as I can figure out, they're lower-class people with lower-class jobs who get upper-middle-class money.
  - thomasmallen 18y ago
    What makes that a lower-class job? The fact that you're not at a desk? However, you make a good point: I maintain that the prevelant college degree requirement for most desk jobs is responsible for the declining middle class. We're barreling towards a two-class system with a college degree as the price of admission into the upper class.
    - byrneseyeview 18y ago
      What makes that a lower-class job? If you can only get a high salary by joining a cartel, you are in a low-class job. If you join the cartel instead of earning what you're worth or finding a different line of work, you are a low-class person.
      - thomasmallen 18y ago
        A union is a cartel now? Are you shitting me? It's amazing how anti-labor people are nowadays.
        thwarted 18y ago
        http://www.google.com/search?q=define:cartel http://www.google.com/search?q=define:cartel s/(firm|enterprise|organization)s?/people/g In as much as UAW, for example, couldn't be considered a "firm" or an "enterprise" already. In some sense, UAW is a contracting firm whose service is its members' work product.
indiejade 18y ago
Good idea. GM should accept the fallout resultant from their poor production choices. American auto manufacturers, GM especially, kept rolling out massive gas-guzzling SUVs, trucks, etc when the rest of the conscientious world was switching to smaller, more fuel-efficient vehicles. GM's production decisions, coupled with their obliviousness to market economics and the shift of tastes in the _world_ economy is what hurt them. A governmental bail-out of GM would be devastating, really. Let the old, tired monolith die so that baby innovations can bloom.
gills 18y ago
Don't kid yourselves, and don't pity the pigs at the trough. Long ago GM's core business became lending (GMAC), and vehicles the conduit by which they ensnare borrowers. It doesn't matter if they're ugly and unreliable as long as people sop up the 'Buy American!' bullshit and keep borrowing. They got sloppy with running the business while they were getting drunk over at the debt trough. Don't pity the executives and shareholders, they either knew what they were doing or lied to themselves - both feats worthy of losing their shirts in a bankruptcy restructuring. They did this to themselves and deserve the consequences. The blog is right, bankruptcy stands the best chance of keeping the right number of people gainfully employed at a new debt-free GM.
rw 18y ago
My family survives on G.M. salaries.
- davidw 18y ago
  Wouldn't it make more sense to cut out the middleman and help out families in trouble, rather than bail out entire companies that have been declining for years? Incidentally, this is yet another article that really is just politics/economics. Sigh.
louislouis 18y ago
Party at Flint, Michigan? http://www.imdb.com/title/tt0098213/ http://www.imdb.com/title/tt0098213/

95 points by soundsop 18y ago

I doubt this would happen. Of all the players involved, it's probably the UAW that has the most to loose in a Chapter 11 situation. What's killing GM (and the other American auto manufacturers) is the unreasonably high labor obligations they have accumulated back when the industry was an oligopoly. The question is, will a president who ran as union-friendly allow UAW workers to loose a ton? GM has a lot of people on payroll earning more than many computer programmers who are simply idle - they don't do anything, don't show up to work, etc. The average labor cost per hour for GM's manufacturing is over $70/hour. While GM has made significant mis-steps in their management, the fact is that no management no matter how brilliant they were could compete when they have labor costs like that.

Dilpil 18y ago
Not that I don't believe you, but some sources for that would be nice. I've suspected this was true, but I've never seen a real in depth analysis and explanation of it.
- jeroen 18y ago
  From 1996: http://query.nytimes.com/gst/fullpage.html?res=9507E1DE1239F936A15755C0A960958260 http://query.nytimes.com/gst/fullpage.html?res=9507E1DE1239F... "The company estimates its hourly cost of labor at $43" 2005: http://www.npr.org/news/specials/gmvstoyota/ http://www.npr.org/news/specials/gmvstoyota/ "Average Labor Cost per U.S. Hourly Worker $73.73" I can't find anything more recent.
  - nihilocrat 18y ago
    From the NPR source: "Average Hourly Salary for Non-Skilled, Assembly Line Worker: GM: $31.35/hour NOTE: Includes idle workers still on payroll and those on protected status." Just clearing things up for people who don't understand that labor cost != wages.
peakok 18y ago
This is an analysis you won't find outside of the U.S. Typically, the car industry is known for having strong union labors in a lot of other countries (especially in Europe), and while auto makers are always in trouble during recessions, no European one is nowhere near the critical condition of GM. The real problem is making cars that people want and selling them. I'll give you a clear example with the history of Fiat : Fiat is an Italian auto-maker that had a very bad decade, the cars weren't selling and their reputation was bad, when you tought about Fiat, the first image that came to you was a subpar car. After they attempted everything else (cutting costs, you guess how), they finally resolved to fire every single guy with a tie in the company, from the simple chief to the CEO, the WHOLE management that was pointing to the high cost workers, unions, etc. as the sole responsible for the demise of the company, all these people that refused to take responsability were fired and replaced by new heads, an unprecedented move. Guess what ? It worked. Fiat is making a strong come back in Europe and their reputation is building up again. Their cars are not synonymous of subpar anymore, they sell, even if it takes a lot of time to restore confidence and change your image, their strategy is ultimatly working. I believe GM could take a lesson or two here. The problem is when the management refuses to take responsibility of a failure, they aren't qualified anymore to excercise responsibility, and their real chances of saving the company, bailout or not, are very slim.
- eru 18y ago
  Sources?
  - bjelkeman-again 18y ago
    These two stories at the Economist may help: http://www.economist.com/displaystory.cfm?story_id=11090197 http://www.economist.com/displaystory.cfm?story_id=11090197 http://www.economist.com/opinion/displaystory.cfm?story_id=11089887 http://www.economist.com/opinion/displaystory.cfm?story_id=1...
timr 18y ago
I'm tired of reading posts by internet libertarians, blaming the GM employees for the sins of the company. GM's labor costs are high because of pension costs. They promised an entire generation of workers old-age benefits if they gave their life to the company, and now the company wants to eliminate that deal, because they simply didn't plan for it correctly (oh yeah...they also made crappy, fuel-inefficient products that nobody wants). My grandfather was one of those pensioners. He retired from GM after over 30 years -- having sacrificed his hearing and his back to the job -- and the pension gave him a modicum of comfort until he died. His widow still relies on it to survive. There are thousands of other people just like them, who made a deal with the company in good faith, that the company would just love to revoke. I think GM should be allowed to go into bankruptcy, but if they do, the judge would do well to fire or eliminate the salary of every executive who failed to plan for pension costs, resisted fuel-efficiency standards, eliminated new product programs, and otherwise destroyed the company. Then, perhaps they can think about cutting the pension benefits of the blue-collar guys who gave their health to a corporate machine.
- Prrometheus 18y ago
  Nice anecdotes, but they also have rooms where workers they don't need and can't fire come in and sit for 8 hours everyday. The unions are a millstone around their neck. Airlines, car makers, government, schools. Four sectors that are unionized, four sectors that are grossly inefficient, four sectors that are kept alive by taxpayer money.
  - eru 18y ago
    Any sources for the 'sitting rooms'?
    - benzim 18y ago
      http://wsjclassroom.com/archive/06may/auto2_jobsbank.htm http://wsjclassroom.com/archive/06may/auto2_jobsbank.htm 15,000 workers are paid to do nothing.
      - 18y ago
mgb 18y ago
>is the unreasonably high labor obligations While Porche is insanely profitable because it exploits the slave labour wages and conditions for German autoworkers?
- eru 18y ago
  Porsche does not pay pensions directly.

patrickg-zill 18y ago

Does anyone know for sure, what happens to the benefits and pensions of GM retirees, should GM go bankrupt? My understanding is that the plan is fully funded and is a separate entity at this point; thus no change for those already retired.

cjenkins 18y ago
I believe they would be protected under the http://www.pbgc.gov/ http://www.pbgc.gov/ at the very least. I'm not sure how it is structured in GM's specific case though.

Kilimanjaro 18y ago

Let * go bankrupt That's what capitalism stands for. Those who kept a well managed admin and saved for the worst should be rewarded, not those who failed.

jbert 18y ago
> Those who kept a well managed admin and saved for the worst should be rewarded, not those who failed. There's an interesting issue there, though. Given: 1 - in general, higher risk => higher reward (if the risk comes off ok) 2 - fast growing competitors can dominate a market, wage a price war or buy slower-growing companies Isn't there a potential problem that companies which are sensibly prudent can be simply out-competed by those which don't hedge against low-probability devastating events? i.e. the natural state of the current economic system could be said to favour companies which grow more quickly by accepting risks which mean they cannot survive in the long term?
- gaius 18y ago
  Economists call this the Dotcom Fallacy.
  - jbert 18y ago
    What's the fallacy? Why is it an incorrect strategy? If your competitors are following it and you don't, aren't you at risk of being bought/losing a price war/losing market dominance?
- lutorm 18y ago
  I think so too, like I said in my other post: check out "fooled by randomness" and the stories of investors who blow up.
- modoc 18y ago
  Is there a reason to bail those companies out of bankruptcy with tax payer dollars? If you're simply pointing out the potential advantage that a large number of higher risk competitors may hold, remember that advantage is tempered by lacking the pole position and the resources that the large company typically enjoys. My startup is competing against some very large companies, and while we are faster, cheaper, better service, etc... They have existing marketshare, long term contracts, huge advertising/sales budgets, long track records, massive good-ol-boy networks, etc... We're doing great (we only want/need a few customers, not the whole market), but I doubt we'll ever "out-compete" the big fish to the point that they fail or we lead the market space. Being the big fish has a ton of advantages, even if they are slow moving.

dallasrpi 18y ago

If GM and Ford go bankrupt Detroit will resemble that movie "Escape from NY"

andreyf 18y ago
Why?
fallentimes 18y ago
It already does.
dzohrob 18y ago
You've obviously never been there - see http://www.forgottendetroit.com/ http://www.forgottendetroit.com/

vaksel 18y ago

the problem is that GM is just too big to be profitable, and its just not competitive anymore. Hell GM is the biggest manufacturer in the world yet its losing money left and right.

modoc 18y ago
It's actually #8 on the 2008 list. Although Toyota is the only auto maker above it (at #5). And my understanding is that Toyota is profitable. I'm not sure that's a valid excuse for GM.
- vaksel 18y ago
  Is that worldwide? Just doesn't seem right. I mean they were #1 for 2007 when they did the stats in January. I'm talking about vehicle sales, not profitability.
  - modoc 18y ago
    That's the IW global manufacturing (which includes Oil, Coal, etc...) list, by gross revenue. If you're speaking specifically of auto companies, then they're #2, behind Toyota. Last year they were number one, but Toyota beat them in 2008.
    - vaksel 18y ago
      ah I see...yeah I was talking only about the auto manufacturers.
axod 18y ago
Don't forget the fact it makes truly awful cars.

lutorm 18y ago

It seems that the first lesson that should be learned from all of these "too big to fail" entities needing bailout is that there are other reasons to prevent mergers than just antitrust. If we prevented corporations above a certain size from growing (by merging), wouldn't these problems with mega-sized failures sending shock waves through the system be fixed? Maybe it would be less efficient, but it makes me think of a similar situation where pure profit-driven capitalism has lead to a bad situation: agricultural monocultures. Hunting for efficiency has produced a state that is finely tuned to be maximally efficient in the current environment while being dangerously sensitive to changes in that environment. It's just not prudent to go all out, even if you think you have a good hand... especially if you're gambling with your children's college funds...

Prrometheus 18y ago
I don't think they're too big to fail. They are too big to fail without causing a political issue that challengers can use against incumbents. That is not equivalent.

thomasmallen 18y ago

Sure, do just that, but you'd better have a damn good safety net unless you want Detroit in flames. In spite of my libertarian views, this is why I voted for Obama: On the issue of labor. I figured that the economy was already screwed, and we needed somebody who could look out for the middle class that will be left to the wolves.

hugh 18y ago
Auto workers are a pretty weird subspecies of the "middle class" though. As far as I can figure out, they're lower-class people with lower-class jobs who get upper-middle-class money.
- thomasmallen 18y ago
  What makes that a lower-class job? The fact that you're not at a desk? However, you make a good point: I maintain that the prevelant college degree requirement for most desk jobs is responsible for the declining middle class. We're barreling towards a two-class system with a college degree as the price of admission into the upper class.
  - byrneseyeview 18y ago
    What makes that a lower-class job? If you can only get a high salary by joining a cartel, you are in a low-class job. If you join the cartel instead of earning what you're worth or finding a different line of work, you are a low-class person.
    - thomasmallen 18y ago
      A union is a cartel now? Are you shitting me? It's amazing how anti-labor people are nowadays.
      - thwarted 18y ago
        http://www.google.com/search?q=define:cartel http://www.google.com/search?q=define:cartel s/(firm|enterprise|organization)s?/people/g In as much as UAW, for example, couldn't be considered a "firm" or an "enterprise" already. In some sense, UAW is a contracting firm whose service is its members' work product.

indiejade 18y ago

Good idea. GM should accept the fallout resultant from their poor production choices. American auto manufacturers, GM especially, kept rolling out massive gas-guzzling SUVs, trucks, etc when the rest of the conscientious world was switching to smaller, more fuel-efficient vehicles. GM's production decisions, coupled with their obliviousness to market economics and the shift of tastes in the _world_ economy is what hurt them. A governmental bail-out of GM would be devastating, really. Let the old, tired monolith die so that baby innovations can bloom.

gills 18y ago

Don't kid yourselves, and don't pity the pigs at the trough. Long ago GM's core business became lending (GMAC), and vehicles the conduit by which they ensnare borrowers. It doesn't matter if they're ugly and unreliable as long as people sop up the 'Buy American!' bullshit and keep borrowing. They got sloppy with running the business while they were getting drunk over at the debt trough. Don't pity the executives and shareholders, they either knew what they were doing or lied to themselves - both feats worthy of losing their shirts in a bankruptcy restructuring. They did this to themselves and deserve the consequences. The blog is right, bankruptcy stands the best chance of keeping the right number of people gainfully employed at a new debt-free GM.

rw 18y ago

My family survives on G.M. salaries.

davidw 18y ago
Wouldn't it make more sense to cut out the middleman and help out families in trouble, rather than bail out entire companies that have been declining for years? Incidentally, this is yet another article that really is just politics/economics. Sigh.

louislouis 18y ago

Party at Flint, Michigan? http://www.imdb.com/title/tt0098213/ http://www.imdb.com/title/tt0098213/