There's Bankrupt And Then There's Bankrupt
It was practically the same scene at the White House today, the same anxious tableau behind a President making the claim that the bankruptcy of an American auto giant actually signals a new beginning and a road to profitability and respectability.
General Motors filed for bankruptcy on Monday morning, submitting its reorganization papers to a federal clerk in Lower Manhattan in a move that President Obama said marked “the end of an old General Motors and the beginning of a new General Motors.”The bankruptcy of a once-proud auto giant that helped to define the nation’s car culture and played a part in creating the American middle class immediately rippled across the country, part of a process that the president said would take “a painful toll on many Americans” but lead ultimately to a strong company ready to compete in the 21st century.
Then comes the fine print. General Motors apparently had $82.3 billion in assets and $172.8 billion in debts. $172.8 billion! I don't know how you rack up that much debt without it carrying over through years if not decades.
We're still talking about the closing of over a dozen plants and factories, which will ripple through the supplier market. 21,000 union workers will lose their jobs. 40% of the dealers will close. The retiree health care fund will now be partially composed of stock that right now is trading for pennies.
The government will drop another $30 billion into the car company on top of the $20 billion already dropped, winding up owning 60-70% of the company, and while officials predict a recoup of that investment within five years, I don't think anyone would stake their life on that. With a collapse in wages and wealth, and no more home equity ATM, new car sales just won't rebound without serious prodding from government (like a cash for clunkers deal).
This has been coming for a long time, of course. Michael Moore, who owes a lot of his prominence to GM, in a weird way, with his first major film Roger & Me about the shuttering of a plant in Flint, warned about this 20 years ago.
It is with sad irony that the company which invented "planned obsolescence" -- the decision to build cars that would fall apart after a few years so that the customer would then have to buy a new one -- has now made itself obsolete. It refused to build automobiles that the public wanted, cars that got great gas mileage, were as safe as they could be, and were exceedingly comfortable to drive. Oh -- and that wouldn't start falling apart after two years. GM stubbornly fought environmental and safety regulations. Its executives arrogantly ignored the "inferior" Japanese and German cars, cars which would become the gold standard for automobile buyers. And it was hell-bent on punishing its unionized workforce, lopping off thousands of workers for no good reason other than to "improve" the short-term bottom line of the corporation. Beginning in the 1980s, when GM was posting record profits, it moved countless jobs to Mexico and elsewhere, thus destroying the lives of tens of thousands of hard-working Americans. The glaring stupidity of this policy was that, when they eliminated the income of so many middle class families, who did they think was going to be able to afford to buy their cars? History will record this blunder in the same way it now writes about the French building the Maginot Line or how the Romans cluelessly poisoned their own water system with lethal lead in its pipes [...]
Let's be clear about this: The only way to save GM is to kill GM. Saving our precious industrial infrastructure, though, is another matter and must be a top priority. If we allow the shutting down and tearing down of our auto plants, we will sorely wish we still had them when we realize that those factories could have built the alternative energy systems we now desperately need. And when we realize that the best way to transport ourselves is on light rail and bullet trains and cleaner buses, how will we do this if we've allowed our industrial capacity and its skilled workforce to disappear?
Moore has some very smart suggestions, including one I've made for a while - converting the auto production lines to create clean mass transit vehicles and high speed rail cars, fighting climate change while funding a real economic recovery that is tangible and creates infrastructure. Other factories could be retooled to produce wind turbines and solar panels. He wants a massive increase in the gas tax to pay for it, but we could do just as well using the $30 billion we're about to dump into GM and profiting from the economic growth of added production and jobs.
To the extent that there's any hope from this bankruptcy, it's that we can at least start to move away from the obsessive car culture that has poisoned our planet and cannot sustain itself. Any increase in economic activity will be accompanied by a spike in oil prices - heck, we're already seeing a spike because of less bad economic news. We need to start adjusting away from the oil-based economy, and the collapse of two major car companies can provide at least an impetus.