The New General Motors – Obama’s Financial Black Hole

by Richard H. Frank

American taxpayers have spent between $50 and $80 billion for the expedited bankruptcy and restructuring of General Motors.  Quarterly reports since GM (Government Motors) show losses at $1.3 billion and $9.6 billion respectively.   Forecasts show the restructured company will be out of money in April, 2010 and again in July.  The last three months of 2009 the company burned through $6.2 billion taxpayer dollars.

So what are the differences between the 1979 Chrysler Loan Guarantee Act and the 2009 Obama General Motors Bailout?  Consider the following:

  • In 1979 Chrysler management utilized the loan guarantees as a “bridge loan” that enabled them to use the tools that would have been available under Chapter II bankruptcy to renegotiate contracts, bank loans and to take cost-cutting actions in both the white collar and union work forces.
  • In 2009 government secured majority ownership in the company and rewarded unions with 35% ownership in exchange for yet undisclosed contract concessions.  Creditors, dealers and bond holders all got the shaft.
  • In 1979 the Government stayed out of management’s way and allowed Lee Iacocca to bring in a team of professionals to take charge of product development, supplier sourcing, operations and finance.
  • In 2009 Obama appointed a team of academics, headed by a 30-year old individual having little if any experience to set the course and objectives for the new General Motors.  Since then, we have seen the head of this group depart as well as Obama’s hand-picked Chairman.  Moreover, new product plans emphasize models that Americans do not want to buy.
  • The 1979 Loan Guarantees of $1.2 billion were paid back with interest by 1983.  The plan was in place for product development and operations productivity that would eventually return the corporation to profitability.  By the time Chrysler corporation was acquired by Daimler-Benz, the company had amassed $7 billion in cash.
  • The 2009 new GM plans to sell or close various operations appear to be moving very slowly if at all.  In the interim, we, the American taxpayers will meet the company payroll with no end in sight.

I think it would prove to be very educational for Congress to visit the “Henry Ford Museum” in Dearborn, Michigan and view a display that lists hundreds of automobile manufacturers that could not compete and eventually had to go out of business.  Names such as Packard, Hudson, Kaiser Frazer, Delorean, Dusenberg and on and on are listed.  These great companies passed on and were replaced by those having the product, management and productivity to survive in our free enterprise system.

It does not take a crystal ball or a PhD in Economics to understand that as owners of General Motors we are faced with a high probability of having a second real bankruptcy for the company.  Should we not, it will require us, the taxpaying public, to keep shoveling money in the black hole called General Motors.  Either alternative will be painful but rest assured one or both will happen.

Government must get out of our free enterprise system and allow private sector business principles to dictate winners and losers and not some bureaucrat or politician. If the first two quarters’ results for the new GM are any indication the worst has yet to come.

2 Responses

  1. You can write all the negativity you want, but GM is on it’s way of being the leader again! Our government will not lose a penny, in fact it will make a good chunk of money. Why don’t you write the truth instead of propagating twisted and half truth?

    • Unfortunately, the truth is that I spent forty-six years in Management in the automotive industry with the OEMs and with the supply base, including at General Motors itself. Management, Government regulations and unsustainable union demands all combined for the demise of this once great company. Nothing has been done through the acquisition and control by our Government to change the ultimate destiny for General Motors. Unless we see some evidence to the contrary over the next two quarters, I fear bankruptcy and liquidation will result.

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