Saving General Motors

HHR on sale -- Picture courtesy of Wikipedia

by blogSpotter
"GM is really sort of a dinosaur", says Senator Richard Shelby with obvious derision. Shelby is the ranking Republican of the Committee for Banking, Housing and Urban Affairs. He is of the Marie Antoinette tradition -- he might as well say, "Let them eat cake". Shelby is not alone in thinking that the struggling auto giant should be allowed to lapse into Chapter 11. Michael Levine of WSJ writes in an Op-Ed that GM could cut itself loose from smothering relationships (unions, unprofitable dealerships, pension obligations) if only it were made to operate out of Chapter 11. If it went into Chapter 11, according to Levine, you would have the new GM Lite.

Jeff Sachs, writing for the Washington Post disagrees. Airlines can function under Chapter 11, because a customer purchasing an airline ticket isn't expecting a long term commitment. A car buyer will want parts and service for possibly a decade into the future -- they want to believe that their car company is a solid, going concern. Potential car buyers won't even initiate a relationship with a company that's on the ropes. Chapter 11 is not a viable option for large auto companies.

In an odd alignment of Jupiter with Mars, Eleanor Clift and Pat Buchanan were in strong agreement on The McLaughlin Group this past Sunday. Eleanor and Pat hold down opposite ends of the political continuum but they converge on this -- both see that allowing GM to fail would cause immediate unemployment to 3 million people. It would cause untold damage to the nation's supply chain and very possibly put us into a depression. On top of all that, we the tax payers would still be liable to handle health care, unemployment and pension default problems for the millions of workers displaced. It would create pure havoc. As one Op-Ed writer put it -- we can pay for a wedding or a funeral. Wouldn't you rather have a wedding?

Of course there would be strings attached to any government largesse. There would probably be reorganization, streamlining and product realignment -- very similar to behaviors imposed under Chapter 11, but not as limiting or destructive to parties involved. Many people have said of this, as they said of Lehman's and AIG, "They behaved foolishly. Let them die from their own stupid mistakes". In less frenetic times, these would be words to consider. Unfortunately, because of the market meltdown and credit crunch, we cannot exact such vengeance. We cannot take these companies to task without zeroing out every 401K account and sweeping every American into a major depression. To restore credibility to the marketplace we must also engage in an unseemly form of market forgiveness. To forgive in this case isn't so much an act of emotional altruism as it is an act of outright financial survival.

I must point out a certain irony. I drive through Highland Park, Texas each way to work and look at the beautiful mansions along Armstrong and Belfort Avenues. Guess what vehicles are popular here? Suburbans, Tahoes and Yukons -- the gas-guzzling progeny of General Motors. Are the free market evangelizers this ready and willing to say goodbye to their vehicles of choice? I would think for consistency's sake that they would at least switch to the "dinosaur" offerings of Toyota -- the Sequoia for example or maybe a Nissan Titan.

Another thought which attends all of this is our lame duck President. Usually this holiday interregnum between Election Day and Inauguration is lame and tame -- full of golf, valedictory speeches and sweet goodbyes. Who would imagine that we’d have a nail-biter where we have to wonder what legislation a voted-out government can bring to the table, to prevent economic collapse? Let's hope they can bring something for GM and for all of us. Everyone fasten your seat belts – it looks to be a very bumpy ride.

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