I came really close to banging my fist on the steering wheel when it became very clear that the government intends to bailout General Motors. What? How is this a good plan? And why is it my responsibility to rescue them? So, today brings us another post in the That Makes Me Stabby series.

Why General Motors Wants a Bailout
Basically, GM wants a bailout because they failed to run their business properly. Unlike Toyota, which operates efficient factories in non-union towns and plans for the next 25 years, GM was content to stick with high-cost union towns and plan for the next 25 minutes. Rather than develop a wide range of cars, they chose to put most of their eggs in the truck/SUV basket. Now they can’t sell those cars to save their lives and they have nothing else to offer.

Toyota, in the meantime, cut its losses when its Tacoma truck failed and opted to build more small cars instead. GM wants us to give them money so they can rebuild their line, which they’ve previously failed to do.

There’s also the problem of reputation. Again, I look to Toyota, which focused on building high-quality cars and developed a reputation for durability. GM cut corners and built crappy cars no one wanted. They apparently make better cars now, but they can’t shake the impression that their cars are unreliable.

At this point, GM is so deep in the hole that their only hope is to get bailed out so they can merge with Chrysler.

Why Is This a Bad Idea?
Robert Reich said it best in his Marketplace piece this morning, but I’ll sum up his arguments, which I totally agree with.

1. We already have a system in place to deal with this and it’s called bankruptcy. Companies with bad business models go bankrupt. Their creditors get in line, debts are negotiated, and the company reorganizes into a leaner, better-managed company. It doesn’t typically shut down, and I don’t expect that GM would vanish if it went into bankruptcy. Several major airlines have emerged from bankruptcy and continue to fly years later. Yes, jobs would be lost, but they’re going to be lost anyway.

2. Bailout proponents argue that bailout out GM will save jobs. However, GM wants the money so it can merge with Chrysler. What happens when two companies merge? Streamlining, which is code for lay-offs. Car lines will have to be cut, duplicate admin functions will be cut, etc. Why does anyone think this is a good idea?

Furthermore, the argument that we have to save the “Big 3″ doesn’t hold water if the bailout will ensure that two of them merge, resulting in the “Big 2.”

3. If we keep bailout out these companies, what motivation do they have to become more nimble in responding to shifts in the economy? Again, I look to Toyota. How is that they, along with Honda and other Japanese auto manufacturers, saw demand shifting, but the Big 3 didn’t? Why should we reward an inability to plan for the future and respond to market realities?

Out of all the bailout plans, this one might have me the maddest. If GM didn’t want to fail, they should have made better cars. It’s not our responsibility to bail them out because they chose not to. It was their responsibility to earn my money. They didn’t, so they didn’t get it, and I don’t want them to have it now, either.

What do you think of the GM bailout plan? What’s making you stabby this week?

Comments

15 Responses to “That Makes Me Stabby: The General Motors Bailout”

  1. adam hartung on November 13th, 2008 6:36 am

    If America bails out GM and/or Ford we should demand a change in the leadership and management teams. Until someone Disrupts these companies and changes their management approach these companies will not be viable competitors. Read more at http://www.thephoenixprinciple.com

  2. gisela lesmana on December 12th, 2008 7:28 am

    Wow!!..

    Having tormented by what happened today, the whole market -stocks,bonds,curency,commodities- today has reacted after the senate finally failed to finalize the bailout plan, i think i should just agree with the reading above.

    I live in Asia, today, all across the board market fell off, Nikkei ang Hangseng -5.5%, crude oil slipped, even USD dropped at the lowest in 13 years against yen, USD 88. I think, the big 3 deserves to have ch.11…why?

    GM n friends failed to pass the good corporate principal. Do you agree to spend the taxpayer money and give it to the unamanagable management? The big 3 is clearly failed to compete in a free market competition, period. In terms of cost/car unit, cost/labor unit, and other managing unit in its accounting system they would only give a short operating income. We dont have to pay for the fuel of their company jets that they’re using. During their desperate time to seek a fund, what they did was a luxurious spending. What do you expect from an unmanagable management, i dont think they know budgeting then.

    Instead of giving a bailout, US govt should just spending the money to other government project, and this could help creating a marketplace for 3 million jobless-people-to-be. Just for an example, Singapore government spent their budget to build the MTR subway, to create a job during Asian financial crisis back in the 1997. Thay way, govt wouldve also profitting from a cheaper material prices, then cheaper labor cost (but every labor still has an income at least), because i agree, during a crisis what we all should do is tightening our own belt, be smart in budgeting.

    Even if finally US govt thinks GM n friends still need to be helped, what the government should do is, take all over the companies. Means, convert those all into state-owned company. Dont just give a sweet candy. Government should take all the equities, the debt, and reshuffle the management.

    Well this is just my opinion, no offense…I hope all parties could find the best way out, and i believe they will. But please…do not throw a jar of salt into the ocean…

  3. logan on February 17th, 2009 11:17 pm

    Maybe GM should include a DVD of ‘Pearl Harbor’ with each new vehicle.

    It was American manufacturing that helped the US win WWII. It also saved alot of American lives.

    Maybe, if it had gone the other way. Alot of these naysayers would not even exist. They would have no parents or grand parents.

  4. Ken Mackay on February 18th, 2009 12:30 pm

    I read your article and you are wrong on several subjects:
    First of all, GM, Ford and Chrysler were forced into rediculous agreements by the UAW due to the labor shortage caused by the VietNam war. So was big steel and the power of the steelworkers union.
    I am not in favor of bailouts either. I would prefer to see chapter 11 but, before GM and the like can go into 11 they have to sell their foreign assets as the foreign governments have the right to take over these entities. For example, GM owns Opel, a german automaker who has received bailout funds from the German government. So, they need to sell these companies first and I agree that it should have been done by now.
    Finally, in regard to the SUVs,etc. Things have changed over night so to speak.
    If GM et al had started to market small fuel efficeint cars ten years ago, they would be in the same predicament as NO ONE would have bought those cars before the oil crisis.
    Its real simple, you produce what the market wants and the domestic automakers were successful for years selling the SUVs because that is what the public wanted.

    I do agree again that the automakers should have prepared to file for bankruptcy long ago as they knew at least 30 years ago that this day was coming with the unions and the legacy costs involved. Poor management planning for sure. The big 3 knew this day was coming 30/40 years ago from data gathered by their actuaries and financial planners.

  5. Aryn on February 18th, 2009 5:55 pm

    I have to disagree about fuel efficient cars, Ken. Toyota, Honda, and other Japanese manufacturers have focused on small, efficient cars for far more than ten years. They added SUVs and trucks to their line-ups, but the Honda Civic and Toyota Corolla have been bestsellers for more than thirty years. If they could see the trend that began with the 1970s oil crisis, why couldn’t the American car companies?

  6. Ben mirling on April 30th, 2009 5:38 pm

    It is oh so easy to cast aspersions on the “big three”. So easy to play Monday morning quarterback. Truth be told GM, Ford and Chrysler all had small, economical vehicles for sale, some of which were well rated for durability and performance as well as economy and fuel efficiency. Profit margins were small on those. A relatively small percentage of the “Big Three” sales were based on those vehicles. The vehicles the public wanted and bought in large quantities were the very profitable SUVs and full sized sedans- Chevy Impala was THE BEST SELLING CAR in the USA. If you ran a car company that sold few, not very profitable cars, of a type and many, very profitable cars, of another type which would you promote and manufacture? Ain’t nothing simple! The “Big Three” are hurting but so are Toyota and Honda etc. But as we look at the bailout— GM 395,000 employees at their peak, 38,000 proposed now– down 21,000 from present, no Pontiac, WHAT ARE WE BAILING OUT? GM so far still sells more vehicles than any other company. 38.000 jobs isn’t Mickey Mouse but it surely is a terribly shrunken version of Charlie Wilson’s GM. “Whats good for GM is good for America”.

  7. earl wilk on May 27th, 2009 6:55 pm

    the United States people need to know that General Motors and the Government have known about this coming crisis years in the making read about the group who have been fighting this for years trying to save the American Workers Jobs and stop closing plants and send their jobs overseas to china Russia and India where do you think your bailout money is going it ai’nt going to the working people in the US plants cause their closing them up and moving over seas you what to know the truth go to http://www.DisputeThis.us and order your copyfor $ 12.95 today because you deserve to know the real truth

  8. Stephen on December 11th, 2009 5:23 pm

    Okay first off Chevy is one of the most reliable vehicles. I have been in the auto buisness for 36 years and I have ALWAYS had good luck out of the Chevy Impala. Put my son in one and has drove the wheels off of it. You keep making reference to Toyota but that is a vehicle that extremely to work on. I just recently paid 350 for a key made. You ask why we should bail out GM? I tell you why…..jobs. This country is in desperate need of as many jobs for people as possible. I live in Bowling Green and i have many friends that work at the Corvette plant, With families. The whole economy is in a jam right now.

  9. Scott Wallace on December 18th, 2009 8:22 pm

    Whoever wrote this was so wrong on every point. Please tell me what it feels like to be a moron?

  10. Gm Bailout on December 31st, 2009 3:47 am

    A bailout that doesn’t cost the taxpayer a single penny. Bailout! The Game

  11. Josh Ritschard on March 4th, 2010 7:07 am

    Well yes G.M. has had its downfalls but I mean they havent exactly sent inocent families and others to death(AKA Sticking Accelerators) O ya and no brakes. So now tell me how durable and reliable is Toyota now? And all of this must be in the 25 year plan huh? So I look for General Motors for a high quality vehicle, and our money stays here not over in Japan…. real patriotic

  12. Aryn on March 4th, 2010 11:30 am

    You must be forgetting the current GM recall, and the fact that many GM cars aren’t built in the US. If you want to buy American, look at a Ford. So far they seem to have no recalls and are getting good quality ratings. They also didn’t take bailout funds. Like GM, many of their cars aren’t built in the US, but you might be able to find a few models that are built entirely in the US.

    When I wrote my post. Toyota had an unblemished safety record. The current news does concern me and I’ve taken Toyota off my consideration list. However, Toyota’s current failures do not in any way forgive GM’s epic failure for more than two decades.

  13. Senator Mike Johanns should pump the brakes on Toyota. « . . .did you notice? on March 5th, 2010 9:30 am

    [...] Recommended reading Possibly related posts: (automatically generated)Toyota recalls Priuses, heading for more trouble?U.S. Gets Additional Complaints of Crashes of ToyotasToyota to recall 3.8 million vehicles [...]

  14. j. Dyer on April 11th, 2010 1:00 am

    I have always bought American, but no more. I WILL NOT support this socialist agenda and the UAW that has ran the big three into the ground. Looking foward to my new Toyota truck.

  15. chris on July 7th, 2010 4:52 am

    GM dealers rip people off (loan females mostly) bad rep=fail need to be gone!

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