Having already wasted billions of our tax dollars, GM and Chrysler are back. But don’t worry, they’ve got a plan:
General Motors and Chrysler, two flagships of traditional American manufacturing, reported yesterday that the decline of the U.S. economy has outpaced their bleakest expectations of just two months ago, forcing them to significantly boost their request for billions of dollars in government aid.
The companies said they plan to cut an additional 50,000 jobs worldwide, drop as many as six brands and shutter 14 plants in an attempt to survive one of the deepest recessions in decades.
Once-popular lines such as GM’s Hummer and Saturn will be spun off or, failing that, eliminated. Saab is up for sale. Chrysler will stop production of the PT Cruiser, Aspen and Durango by the end of the year.
“Today’s plan is significantly more aggressive because it has to be,” GM chief executive G. Richard Wagoner Jr. said. “We have taken stronger actions; we needed to.”
The automakers yesterday said they may need as much as $21.6 billion in additional loans — $5 billion for Chrysler and the rest for GM. The requests announced yesterday come on top of $17.4 billion the companies received in recent months.
Now . . . let me get this straight.
The only reason to bail out these failing companies is to save the jobs of its workers during dire economic times when it would be even more difficult than normal for them to find new work. Yet, they’re going to cut at least 50,000 jobs anyway.
And their plan for saving the company is to announce ahead of time that cars they’re trying to sell now will soon go out of production, which means the companies won’t be making spare parts for them, which means no one who isn’t an idiot will buy one of them.
Further, if the idea is to cut costs and they’ve figured out that the Aspen, Durango, and PT Cruiser are unprofitable why not stop making them now?
Explain again why we didn’t just let the companies declare bankrupcy and do this restructuring without taxpayer money? Which, by the way, might happen anyway:
GM said it might need as much as $100 billion in financing from the government if it were to go through the traditional bankruptcy process. Rick Wagoner, GM’s chairman and chief executive, said the bankruptcy scenarios are “risky” and “costly” and would only be pursued as a last resort.
Chrysler’s plan said the company would likely have to file for Chapter 11 protection if it doesn’t get additional loans from the government and concessions from unions, creditors and dealers. It said it would need $24 billion in financing if the company were to file for bankruptcy. But company officials said in a conference call that they believe a Chapter 11 filing is “not necessary” for Chrysler’s survival.
You’ll forgive me if I’m less than confident in their prognostication skills.
UPDATE: Dave Schuler adds,
As of this morning GM’s total stock valuation is $1.33 billion. The estimated value of GM’s assets is something like $30 billion. GM is literally worth more dead than alive.
If the objective is saving the jobs of GM’s workforce, here are two alternatives. GM’s 181,000 U. S. employees could buy the company. That’s something like $7,500 per employee. Or maybe some sort of debt for equity swap could be arranged. Heck, I think the U. S. government should lend GM’s employees the money to buy the company, perhaps on a need basis. Then if GM’s workforce think they can do a better job than GM’s current management they could do anything they cared to.
That certainly makes more sense than simply throwing good money after bad.
Update (Steve Verdon): It should also be pointed out that bankruptcy does not automatically mean that the company ceases to exist or that jobs are terminated immediately (i.e. not all 181,000 will be out of work). If the problem with GM, for example, is bad management and a bad business plan that bankruptcy can clear out the rot and possible save the company. Granted it might be in a leaner form (i.e. we might still lose those 47,000 jobs), but at least the American tax payers isn’t going to be at risk for tens of billions of loans to a company where the management has made a series so bad decisions.
