

Let G.M. go bankrupt - soundsop
http://blogs.law.harvard.edu/philg/2008/11/08/let-gm-go-bankrupt/

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mdasen
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.

~~~
peakok
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
Sources?

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bjelkeman-again
These two stories at the Economist may help:

<http://www.economist.com/displaystory.cfm?story_id=11090197>
[http://www.economist.com/opinion/displaystory.cfm?story_id=1...](http://www.economist.com/opinion/displaystory.cfm?story_id=11089887)

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Kilimanjaro
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
> 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?

~~~
nradov
GM was not ruined by a low-probability devastating event. They made bad
management decisions over and over again for decades. This was a train wreck
that everyone could see coming from miles away.

~~~
MikeCapone
If anything, GM is a casualty of the huge asset bubble caused by 4-5 years of
1-1.75% interest rates (Greenspan). That bubble had to burst, and when it did,
it was obvious that companies in bad shapes would be hit the most.

The fact that GM was in bad shape was its own doing, though.

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lutorm
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
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.

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gills
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.

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patrickg-zill
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
I believe they would be protected under the <http://www.pbgc.gov/> at the very
least. I'm not sure how it is structured in GM's specific case though.

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indiejade
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.

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

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dzohrob
You've obviously never been there - see <http://www.forgottendetroit.com/>

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thomasmallen
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
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
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
_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
A union is a cartel now? Are you shitting me? It's amazing how anti-labor
people are nowadays.

~~~
thwarted
<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.

~~~
hugh
The main difference between the UAW and a regular contracting firm is that if
I decide to stop buying labour from a regular contracting firm, that firm
can't and won't wind up blockading my factory entrance and trying to stop my
new labourers getting in.

Whereas if GM tried firing all its union employees and hiring non-union labour
instead... well, I'm sure you can guess what would happen.

If the UAW were a regular firm, it would be unobjectionable.

~~~
thwarted
That's good point. However, the UAW's ability and tendency to blockade the
factory entrance could be _worse_ than a regular firm or a cartel in some
respects.

~~~
hugh
Er, yes, well of course, that was my point.

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louislouis
Party at Flint, Michigan?

<http://www.imdb.com/title/tt0098213/>

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rw
My family survives on G.M. salaries.

~~~
davidw
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_.

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vaksel
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
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
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.

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modoc
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
ah I see...yeah I was talking only about the auto manufacturers.

