Post Scripts: GM – too valuable to lose

General Motors is both an auto maker and an insurance company and it is not doing too well these days. Some business people predict GM is headed for a big wreck. This may make some folks happy, although I can’t guess why. Trouble is, GM is so big and so important to the nation’s economy, their going belly-up would have a drastic effect on America’s economy. Already there are indications of such results and bond-rating agencies are making grim statements about GM’s future.

I’ve read the bankruptcy isn’t going to happen next month but it could happen next year. Both Moody’s and Standard & Poor have issued scary reports based upon GM’s embarrassing 25% market share. A GM executive reportedly has said: "There’s no big fix for us unless we get revenues back in shape."

The company lost over $8 billion last year. It needs to get out from under its financing arm, GMAC, but it can find no buyers. The recent bankruptcy of Delphi, its main parts supplier, hasn’t helped the situation. GM, in particular, is burdened by health costs which it supplies for over one million employees, retirees and dependents. At the end of last year, GM’s retiree health burden, an unfunded $64 billion, became a factor that adds $1,300 to the cost of every vehicle GM produces.

Oddly enough, GM is torn by two factors: its car business is doing poorly and since it is an insurance company as well, it faces obligations way beyond its ability to pay. Is there any hope? Well, I can recall when Lee Iacocca brought Chrysler back from disaster. Twenty years later Carlos Ghosn, of Lebanese descent, took over Nissan and made it an industry leader.

You might say it is a weird business: a car firm doing poorly and an insurance company over-burdened by debt it cannot pay off.

The facts are, GM is caught up in a battle with foreign competitors, whose products people find more exciting. Another big hurdle is dealing with the UAW union and its power to strike. This union has the power to screw up anything GM does to improve its situation. A strike of any kind now would likely doom GM.

There are people who believe GM should just cut the mustard and file for bankruptcy to reduce its liabilities to a manageable size, meanwhile selling all the cars it can. However, there are sizeable risks in taking this path – bankruptcy has sizeable costs and risks. GM won’t find help from President Bush who has already admonished car companies they need to deal with costs and make better products.

What Bush said to GM was: "GM: Drop Dead." Then, from an insider in GM, this statement: "Those who got GM into this mess have to be the ones who get GM out of the mess." It is my thinking GM is too valuable to lose. Let’s hope for a sensible solution.