Charles Wilson, the head of GM in 1952, stated that “what is good for the country is good for General Motors, and what’s good for General Motors is good for the country”.  This imperial statement was made at a time when GM and other US manufacturers dominated  world production of goods.  Times have changed and the country now debates the best way to keep GM in business.  Opinions vary – here are some well crafted thoughts on the matter.

GM’s Problems Are 50 Years In The Making

The remarkable thing is that, once you account for the economic cycles, the trend for GM is exceptionally steady — an exceptionally steady trend downward.

If I were an alien beaming down from Rigel-3 looking at this pattern — an alien with an MBA degree — my first guess is that it would reflect some sort of systemic problem, some chronic imbalance that magnified over time. Something, in other words, like the costs of GM’s retiree pension and health care programs. It’s difficult to get a precise figure on these so-called legacy costs, but they averaged about $7 billion per year between 1993 and 2007 and are probably at least $10 billion per year now. Considering that GM has never made as much as $10 billion in profit in a year and that its entire operating lossses in 2008 were $13.8 billion, you can see why this is a significant problem.

Of course, GM benefited by promising its employees access to lucrative retirement programs — it benefited by being able to pay less to those employees in the form of salary. But whereas the benefits to GM came long ago, the costs come now.

GM was willing to cut its employees some very attractive deals in the 1950s through the 1980s — provided that they took them in the form of retirement benefits rather than salary, which wouldn’t hit GM’s books until much later and which until 1992 weren’t even required to be carried on its balance sheets all, making its financial statements (superficially) more appealing to its shareholders.

This issue is wrongly portrayed by both the liberal and the conservative media as one of management versus labor, when really it is a battle between General Motors past and General Motors present. In the 50s, 60s and 70s, everyone benefited: GM and its shareholders got the benefit of higher profit margins, and meanwhile, its employees benefited from GM’s willingness to cut a bad deal — for every dollar they were giving up in salary, those employees were getting a dollar and change back in retirement benefits. But now, everyone is hurting.

Nor does this provide for much in the way of solutions. The retirees might have benefited from GM’s short-sightedness — but they also worked hard Monday through Friday every week of in expectation of receiving the benefits that GM had promised them. From the standpoint of fairness, it would be much better to require GM to take the hit — but there isn’t much of GM left to punish, as its outstanding retiree obligations exceed its market capitalization many times over, and as the decision-makers who led GM into this position left the company decades ago. Today’s employees at GM, and the unions that organize them, likewise don’t have anything much to do with the problem — most of the excess costs it requires to produce a Buick versus a Toyota come in the form of legacy costs, not what those employees are receiving in salary and benefits today. And the taxpayer is bound to to get screwed either way, either picking up the tab to bail out GM, or bearing the costs of the pension programs, which are guaranteed by the government (although the legacy health benefits aren’t guaranteed).

US Hopes to Ease GM into Bankruptcy

The government may seek to ease General Motors into what it calls a “controlled” bankruptcy, somewhere between a prepackaged bankruptcy and court chaos, by persuading at least some creditors to agree to a plan that would cleave the company into two pieces, according to people briefed on the matter.

G.M.’s new chief, Fritz Henderson, also said that the pressure from the government pushed the automaker closer to bankruptcy.

“By no later than June 1, if we’re not able to accomplish this outside bankruptcy, we’ll be in bankruptcy,” he said at a news conference in Detroit on Tuesday. “It’s pretty clear. The government was unequivocal.”

G.M. joins a long list of companies in industries like airlines, railroads and steelmakers that have faced the prospect of being remade in bankruptcy.

The administration hopes to win support from some of G.M.’s creditors, notably the United Automobile Workers, which would be forced to pare its health care benefits and whose pension obligations would probably remain in the old company.

History offers almost no precedent for a G.M. bankruptcy filing. Companies like Continental Airlines and the Delphi Corporation, the auto parts maker, have used the courts to transform their businesses and reduce their costs. But none matched the size and interconnectedness of G.M.

There are critical differences between the airlines and G.M. There was no question of the demand for air travel in the United States, while critics of American automakers have questioned whether there is demand for their products and whether reducing costs will produce viable businesses.

GM Bankruptcy? Tell Me Another

President Obama rightly says “sacrifices” must be made if GM is to emerge as a viable company. But there’s one sacrifice he won’t make: his re-election chances, by leaving the fate of the UAW truly up to a bankruptcy judge.

Keep that in mind amid the defenestration of Rick Wagoner, who was not as popular with UAW Chief Ron Gettelfinger as Mr. Wagoner’s replacement, Fritz Henderson. Keep that in mind amid reports the administration favors a “quick and surgical” bankruptcy. It’s a bluff. The same administration that inserted itself into GM’s corporate governance to order the resignation of a CEO is hardly likely to defer to the prescribed legal order for a failing company, namely bankruptcy. Even a “prepackaged” filing runs too much risk of a judge imposing more “sacrifice” on the UAW than the administration is prepared to tolerate.

GM bondholders understand this: They’ve been intransigent precisely because they calculate the UAW is too important to Democratic electoral politics for Mr. Obama to risk losing control of the reorganization process to a bankruptcy judge.

Mr. Obama played the tough guy in getting rid of Mr. Wagoner, but he won’t go after the labor monopoly. In fact, the union will emerge with a stronger grip on Detroit — because it will be a major shareholder in a reorganized GM.

The irony is that Detroit has given plenty of evidence that it can make money, even with UAW overhead. Three of the top seven best-selling vehicles in February were Ford, Chevy and Dodge pickups.

Better than trying to rewrite GM’s business relationships — the job of a bankruptcy judge — Mr. Obama might take up the duties of a president. He might try giving the country a coherent auto policy for a change. He could repeal two fleets so Detroit could build its small cars profitably offshore and tame the UAW monopoly in the process. He could dump CAFE or impose a $5 gasoline tax so at least customers would have a reason to buy the cars Washington is forcing Detroit to build.

None of this will happen. Mr. Obama will be content with incoherent policies that poll well — which means GM, Chrysler and perhaps Ford eventually will need taxpayer subsidies as far as the eye can see — or until a real bankruptcy sometime after November 2012.

Can GM Survive?

There is no easy or quick solution for GM.  Politicians, economists and others can debate forever, but whether or not GM ultimately survives will depend on the American consumer.  If there is no demand for GM cars and trucks then GM will have no future.   I believe that GM can survive and prosper long term based on my great experiences with GM products, having owned 5 different GM vehicles over the years.   My last GM vehicle was a Cadillac CTS, a superb vehicle that outclassed any competitor in its class.   As long there are buyers for GM products, GM will have a future.