Now that the government owns 60% of GM, what do you think it should do with it? President Obama swears he’ll be hands off but I don’t think he’ll remain that way for long, particularly if they resort to business as usual.
I would think that the two biggest matters would be
1- make sure that 10,000s of people don’t get laid off (I don’t have a problem with salaries being reduced if necessary, but that many layoffs, especially in areas that are already devastated, would be a disaster)
2- work towards and affordable hybrid vehicle to wean us from gas
Though I’ve little idea how to affect either of these would work.
What other things would you insist upon if you were the government’s GM Viceroy? What do you think are the most critical things to insist upon to see the company go back into the black (or as near as it can get) and to benefit the workers and the company?
Also, this is a GQ- it’s not outrage but something I honestly just don’t understand and would like to hear explained simply for somebody with no business background. I can understand GM going into the red, but how does any company go almost $100,000,000,000 into the red while generation many billions per year in sales, servicing, and financing? Is it due to debtload and stock prices, or… what?
As I have no business background, thus this is to be one of my Deist threads (set in motion and walk away).
Governments owning things like car factories is never a good idea.
At best they do things right and make the company profitable. That then leads to all sorts of conflicts of interest with laws concerning regulation of the industry. It also leads to a perception (and usually a reality) of unfair competition with private industry.
More usually the government makes complete hash of things. They use the organisation for their own partisan agendas such as “work towards an affordable hybrid vehicle to wean us from gas”. The organisation becomes a massive funding black hole, then it either goes belly up anyway or it is sold at a massive loss to the private sector.
The most critical thing to do is to to get the company into the black, but the longterm aim should be to increase the value of the company to the point where we can recoup the money for the buyout, and then sell it as fast as possible with minimal profit. Get the government out of it as soon as possible.
At the moment it’s hard to know how to do that. None of the other manufacturers are sure how to make profits, so I sure as hell don’t. But persuing idealistic goals like producing hybrid vehicle is a sure fire way not to do it. What is needed is to build cars that people want. Governments building cars that you think people should want is just going to produce a Yugo.
By all means if such a demand exists that they can make billions of dollars a year selling hybrids they should do so. But if they see this buyout as an opportunity to push their ideological agendas, which is what that suggestion sounds like, then it can’t end well.
Look at what is selling and produce the types of cars that people are actually buying (rather than what you happen to think people want to buy). Diversify production on the various car classes, but emphasize those that are currently selling. Avoid producing multiple cars of the same class. Earn modest, steady profits so that the government can sell off its ownership stake and get out of the automotive business.
GM sold their cars for less that it cost to make them, to the tune of tens of billions of dollars a year. That catches up to you fairly quickly. In 2008, GM generated $149 Billion in sales while incurring operating costs of $170 Billion. In contrast, Honda generated ¥12.0 Trillion (equivalent to approx. $120 Billion, give or take) while incurring operating costs of ¥11.0 Trillion. Reasons for GMs higher production costs include under-utilization of existing plant capacity (too many plants for the number of cars being produced), higher production times per car, higher average hourly wages, and higher health care costs.
There’s a lot of evidence that the UAW has a major problem with this. A “significant wage cuts in order to avoid serious layoffs” approach is most unlikely to see smooth sailing.
Controlling labor costs has been a huge (probably the #1) issue for GM - they failed at the job and are bankrupt because of it. Given political realities, what are the chances the US Govt. will do better?
So the OP has no business background, yet he has opinions on how a major American business ought to be run. This is fine as long as his ignorance (and, to be fair, mine) is isolated to just spouting off opinions on a message board. But since GM is now owned by the government, every single minor functionary and local potentate with a similar lack of expertise will try to have their views imposed on the GM product line, the GM workforce, or the GM physical plant.
Curious how this will play out? Just look up the history of British Leyland. I don’t think we’ll learn from that mistake, sadly, and I think the demise of Government Motors (Leyland) will play out in a similar fashion, the only difference being that it likely will cost more.
Leyland went bust as a nationalised company. GM didn’t need help with that. At this point it is difficult to see how the govt. could do any worse a job than the private sector managed.
Take it out back and quietly put it under with Chapter 7? Sell off the components to manufacturers who are more forward-looking? Start selling commemorative ‘GSSM’ merchandise?
Hopefully we at least get a viable plug-in model for our $50 billion.
Except that they will likely burn through billions more dollars in taxpayer funds (on top of the billions they already gave GM in “bailout” money when they weren’t nationalized that is now unrecoverable).
Leyland’s biggest problem (even before the full 1975 nationalization) was a lineup of models that were technologically dated, a stylistic mess and that didn’t fare well against strong competition. The same can be said for GM now, and with additional mandates being placed on the company from on high, it is difficult to see how things will be much different.
My understanding is that GM’s new cost structure is now at a level competitive with the Asian companies producing in America and such that they would be break-even (after the changes, including shedding excess dealerships, go into effect) at today’s sales volumes, and profitable if they do better than that.
It means we all own a little piece of General Motors. If you always wanted one of those cool Corvette jackets, but you didn’t own a Corvette, go buy one. Now you own lots of Corvettes. “Own a Corvette? Hell, I make 'em!”
If you were a little embarrassed to be a NASCAR fan, relax. Now, you have a business interest in every race.
And how much shareholder value has GM burnt through? You post has no foundation in fact - just another all-govt-is-bad-by-definition ideological rant with no basis that completely ignores the complete and utter economic debacle this ideology has left the world in.
Now what? Now each time GM needs money the “owners” will be asked for money. And the government will just take money from the taxpayer and give it to GM to keep it afloat because letting it go down after having invested so much bad money would be seen as a failure. So the goverment is obligated to keep investing good money after bad. And since all they need to do is tax others for that money they will keep doing it until after some years the whole exercise is seen as futile and the remains are finally liquidated which would have been the best thing to do from the start.
Of course, there is a tiny possibility that GM becomes hugely successful and then the Government can sell its shares at a profit. I wouldn’t bet on that though.
So your solution to this is to throw good money after bad?
Not quite - I certainly didn’t say in my post that government couldn’t do anything right. I don’t think they can build cars right, though - and having been in everything from a Rover to a Lada to a Trablant, I think I can safely opine such.
Kramer of “Mad Money” fame, said that it was merely a ‘Jobs program’, whose purpose was to keep the thousands if not more people off unemployment, welfare, and the streets.
That it was cheaper to spend the 50 billion to do that, as opposed to maybe spend twice as much in programs. He figured once the majority of the people either got retrained, retired or found new jobs, the government would allow GM to fade away.
So it’s a black hole, but not as black as it would have been to let GM die in one shot and toss all those people onto welfare and unemployment, foreclosures, etc.
It’s restructured like everything else. See this SEC filing for the tentative agreement reached. Some debt is retained, but there would be debt-for-equity swaps and the issuing of some warrants.
Retrained to do what? The country is bleeding jobs. The industrial base ,which offered middle class and upper jobs, is being dismantled and shipped away.
If they would have let the big 3 die, our unemployment would send a shudder through the markets and businesses. Obama’s people are fighting to save some jobs.
