Let G.M. go bankrupt

G.M. is in trouble, according to the latest news.  The company has some contracts and other obligations that it can’t afford.  What can the government do to help?

Answer: The government has already done everything that it needs to in order to help G.M.  The government established bankruptcy courts so that a company like G.M. can go through a Chapter 11 reorganization.  During the Chapter 11 process, a judge has the power to adjust the company’s obligations so that they can be paid from the company’s likely future revenue.  Chapter 11 was designed specifically so that employees can keep their jobs, albeit possibly at lower salaries, while shareholders and creditors suffer and/or are wiped out.

The stockholders, creditors, and employees of G.M. do not deserve to be spared the pain of the recession.  The rest of America will be taking pay cuts, losing jobs, giving discounts to customers, etc.  What is special about G.M. that they should be able to live as though 2008 never happened?

[Note that the current market capitalization of G.M. is only about $2.8 billion (compare to over $100 billion for Google).  The shareholders have already lost almost 100 percent of their investment.  The world won’t come to an end if these shareholders go from losing 95 percent to losing 100 percent.  An evaporation of $2.8 billion will barely register compare to the losses that the S&P 500 holders suffer nearly every day.]

54 Comments

  1. Malik Aziz

    November 27, 2008 @ 2:11 pm

    1

    Part of the problem with GM is that they were stealing from the pension fund. Thats why its underfunded. Gross mismanagement that everyone in the business sector turns a blind eye to; this as well as the corporate greed. Union employees making 25 an hour vs. Salary buffoons with a million dollar bonus and a golden parachute; and people want union employees to take a pay cut?Give me a break! The media makes it look like toyotas and hondas are GOD’s cars. They are small and zippy but I am 6’3″ and I need something to feel comfortable in. The car magazines never have anything good to say about any american car products. Now this is anti-american terrorist activities. This undermines the very hardworking work ethic, work a job- make a better life for you and your family. I go to the auto shows in chicago, indianapolis, and toronto. The american cars have more torque, more power, more room and yes more durability. You have to do preventive maintenance like any other car, and your auto should run for at least 150,000 – 200,000 miles. Remember union employees only work at the plants they do not ” Run the show “. For those who know – Chip cutters make the money for the company, not salary, its an expense. So why do different manufacturing plants have a salary to hourly ratio of 2 to 1, 3 to 1? The overhead at these plants is beyond asinine. GM has been making profit overseas, they have new dealerships and manufacturing in china. They have a deal in the works in russia, so its doing fine in their ventures overseas. On the homefront GM does not care about the american workers, its not that we make too much money, its GM is not making enough profit. Business 101 at Purdue University – Payroll is the least expense of any company but its always the first to be cut because you can readily see a change. Graduate in Aeronautical Technology.

  2. steve a

    November 29, 2008 @ 1:22 am

    2

    To further the prior comments about why helping GM is a problem, in addition to what Peter Schiff (and others) have said about helping to keep a GM job takes away one elsewhere, a case can also be made that by alleviating GMs woes right now and preventing a bankruptcy / liquidation they also deny someone in the market place the ability to buy and better utilize the resources that GM currently uses, so the attack is on two fronts, it keeps bad GM management in place when they’ve done nothing but run the company into the ground AND it prevents the assets from being purchased by someone who could perhaps turn the company (or parts of it) into a profitable entity.

    It’s government interventionism that’s gotten us to this point and for some reason many think that more interventionism will solve the problem…not likely in my view. Government needs to get out of the market and let the mechanisms work properly to eliminate this kind of behavior. By continuing this bailout mentality they’re just creating butt-loads of moral hazard…imo.

  3. Paul P.

    December 6, 2008 @ 10:15 am

    3

    As a (long ago) GM worker… Lets clear up a few points…

    1) The UAW killed itself when it shifted (as did the airlines) from “vested pension contributions” (where GM paid into a fund, and the *union* administered the fund) to “pay retirees out of current cash-flow” (this in exchange for higher wages). Current retirees, depending on when-retired, fit into a number of different pay-categories.

    2) GM killed itself by going along w/the UAW pay-or-strike modus operandi (GM knew “this day would come”)

    I am not anti-union by any means. But, in this case both GM and the UAW are guilty of killing themselves.

    3) The Pension Benefit Guarantee Corporation was a fiasco from the start. It pays *no more than* 60% of anyone’s pension (ask any retired United Air Lines pilot) and the fund is broke. PBGC is more ludicrous than social security.

    4) The gov’t is significantly to blame here. “Rules” prevent technology cooperation (e.g. EPA compliance) with gov’t mandates (leading to massive redundant-expenditures by the Big-3). Japan does not have this problem. Gov’t “laws” (honest) prevent Big-3 CEO’s from even *talking* to each other (the suggestion that Big-3 CEO’s would “carpool” to DC was “illegal” unless pre-approved by the gov’t!).

    I could go on. But (sadly) the auto industry is so hopelessly broken, no “fix” is going to work. What a mess. Let them fail. The point made “already 95% out of business, so-what on the other 5%” is excellent.

  4. Miraj Patel

    June 2, 2009 @ 1:53 am

    4

    If only they had listened to everyone of us who said to let them go bankrupt in the first place- they wouldn’t have wasted billions of our dollars.

    And now they want to subsidize auto purchases- I really don’t understand when they will stop ignoring economics and realize that all of this meddling is only going to make things worse.

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