As I write this column we are less than 12 hours away from General Motors filing for bankruptcy. There are so many legs to this story a spider would be envious, but I only have two so lets look at this from the only sides I think matters…The Pros…and The Cons. I’ll leave all the hoopla for the “Left..Right…Dems… Repubs..Union… Non Union, et al. (Fasten your seat belts, keep your hands inside the car, and restrain all loose objects, it’s going to be a dizzying ride!)
The pros of this decision to many will be,” The company is saved at this time, workers will still be employed, a collapse would have been debilitating, it gives us time to reorganize”, and there are many others. All of them sounding like they’re on sure footing. So one might say “OK Where’s the Cons?” Well here’s a couple….”What happens now that the UAW and the Government owns GM and the price, and wage concessions were not enough. They were too zealous in their assumptions, cuts of another 10, 20, 30 percent are needed immediately. What then?…..The new “Greener Models” are not selling…projections were far too optimistic…the forecast for sales is off 10, 20, 30 percent. What then? The competition such as Toyota, Nissan, Honda, begin building even better ” Greener ” cars than GM, all with American workers, and factories located in the USA. What Then?” As you can see, true business decisions are far more black and white than others would give credence to. That’s also the reason for the distinct difference of being a “Businessman”, and being an “Employee”. The mindset of each comes from two different universes where the expenditure of money and resources are involved.
As in all these scenarios, one never knows exactly which way is best with 100% certainty. If one could, you would never be in trouble, and also be the richest person in the world because you would know Everthing! So all we can do as business people or investors is put Capitol or Money if you will, in the surest and seemingly safest place we can. From the outside looking in, I believe the whole General Motors story will be written in the history books of economics 101 as a detailed map, and example of what NOT to DO and what Wont Work!
Some will say …”You have to give this time too work….Things take time to work out….You can’t turn a large boat on a dime!”…Seems like all that makes sense, but I’ll give you the other side of the coin….If I told you 18 months ago…Investment Banks as you’ve known them over the last 100 years will cease to exist….The Government will OWN…Freddie Mac, Fannie Mae, AIG, Citi just to name a few….Spent over 8 Trillion Dollars, and propose to put the USA federal deficit to over 12 Trillion dollars when we were at a surplus just a few short years ago, and General Motors would be owned by 70% of the US Government and 20% by the UAW, and be bankrupt, and DE-LISTED from the Dow Jones as of today.
You’re right….a boat that big doesn’t turn on a dime….It’s more like a pin!