GM Engine Overhaul

Never fear for Rick Wagoner. He’s walking away from GM with a $23 million pension. It’s the rank-and-file GM worker who is more likely to suffer.

Stupid Alert: David Brooks today argues that restructuring doesn’t work. The automakers have been “restructuring” for years, he says. He prophesies that

The most likely outcome, sad to say, is some semiserious restructuring plan, with or without court involvement, to be followed by long-term government intervention and backdoor subsidies forever. That will amount to the world’s most expensive jobs program. It will preserve the overcapacity in the market, create zombie companies and thus hurt Ford. It will raise the protectionist threat as politicians seek to protect the car companies they now run.

What should happen? Brooks says,

It would have been better to keep a distance from G.M. and prepare the region for a structured bankruptcy process. Instead, Obama leapt in. His intentions were good, but getting out with honor will require a ruthless tenacity that is beyond any living politician.

Let’s go back to what the Anonymous Liberal wrote yesterday:

When a company files for bankruptcy under Chapter 11 of Bankruptcy Code, it doesn’t just disappear into a puff of smoke. The goal of a Chapter 11 bankruptcy is a reorganization of the company, and that reorganization process is overseen at every step by the government. Upon filing of the Chapter 11 petition, a federal bankruptcy judge takes jurisdiction and all important decisions from that point forward must by approved by the court. The officers and executives of the company are often replaced. Sometimes a trustee is appointed to run things. All sorts of business issues get litigated during the process. Eventually, if things go according to plan, a plan of reorganization is approved by the judge and the reorganized company emerges from bankruptcy.

In other words, bankruptcy is a process by which a company relinquishes ultimate control of its destiny and its operations to the government in exchange for protection from its creditors. It gives the government a veto power over everything. What the Obama administration is doing right now is no different in principle from what a bankruptcy judge does; they’re just trying to do it outside of the formal bankruptcy process because they believe that doing so will minimize the harm to GM and the overall economy.

As I understand it, the concern is that if a big automaker actually did go into formal bankruptcy, consumers would be frightened away from buying the products. The other concern is that, at the moment, the automaker would be unlikely to get the loans needed to continue operations while the bankruptcy was in process.

Brooks insists that GM already was “restructuring” and had been for some time. I assume Brooks defines “restructuring” as “trying to wriggle out of Union contracts,” because that’s about all I saw the old GM management doing. Brooks continues,

Corporate welfare rarely works when the government invests in rising firms. The odds are really grim when it tries to subsidize fading ones. (In the ’80s, Chrysler already had the successful K-car in the pipeline.)

I’m not sure if he thinks that what the Obama Administration is doing amounts to corporate welfare, or if just shoveling money at Detroit while the old management floundered is corporate welfare.

Wingnut hysteria to the contrary, I don’t think President Obama or anyone else in Washington really wants to be running a car company right now. My interpretation is that the administration is putting GM through the steps of a bankruptcy while reducing the risk that GM will fail completely.

20 thoughts on “GM Engine Overhaul

  1. I believe that all execs. in “failing companies”, AIG, GM, etc. should be forced to terminate their pensions to the PBGC, just like the unions at GM (and others) were forced to do.

  2. I’m not clear on Brooks’s definition of “restructuring” by GM. To me, a key component of restructuring would be a drastic change in the company’s product line. I can’t think of even one hybrid vehicle manufactured under any of GM’s brands. I believe their most fuel-efficient vehicle may be the Chevrolet Aveo, a compact sedan. Otherwise, when I think of the GM brands, I think of full-size pickup trucks, SUVs the size of garden sheds, and big-boat sedans for the grandparents. I think, Hey look, GM has squeezed all the stupid out of the 1990s, and they’re gonna cling to it, by gum.

    Truth is, I doubt that the Obama administration, or any bankruptcy judge in the land, can convince GM to design and make vehicles that smart people want to buy. We may go through all this “bankruptcy-but-not-really” stuff, only to have the company fold in the end because they stuck with inferior, anachronistic products.

  3. Brooks really sounds like he’s ranting with his anti-government blinders on. Yes, the K-car was in the pipeline, but Chrysler apparently needed some handholding until the car could launch. Chevy’s Volt is in a similar circumstance today – who doesn’t want to see GM given another chance in order to see this potentially game-changing car see the light of day? Fortunately Obama has more brains than Brooks, as he recognizes that a formal BK – instead of the BK-by-any-other-name – is bad for the reasons you state.

    joanr16 – I’m a fairly regular visitor to the LA Auto Show, and have observed that the American manufacturers have brought out a number of hybrids in recent years. They tend to be in SUV type vehicles (for whatever reasons); I even saw a Ford Explorer/Escape hybrid on the road last night. (There are few things more automotively grotesque than a brontosaurus-like Cadillac Escalade emblazoned with the word “HYBRID” in eight inch gold letters across the lower door panels, but I really did see one at the auto show). You get the sense that these are Johnny-come-lately creations, and the public hasn’t quite warmed to them, given their low frequency of appearance on the roads. With about ten years of experience and hundreds of thousands of units on the road, Toyota’s Prius is the bellwhether vehicle in this pack.

    I can’t find it now, but Ian Welsh wrote something a few years ago, lamenting how the US automakers let their engineering expertise rot while Toyota had years to develop theirs. His conclusion was that the US automakers – because of this lack of depth in engineering expertise when it comes to hybrids – are hopelessly behind and incapable of catching up.

  4. I’m shocked, SHOCKED, that the Cabbage has written another article demonstrating that he doesn’t know what he is talking about.

  5. My sister and brother-in-law were in the market for another car.
    Buy one from a used car dealer to save money? The ones that had good gas mileage were almost as expensive as a brand new car. So, why not buy a new one?
    I tried to talk them into buying US. But, they feared that such a major investment might have no warrenty after a few years.
    So, they bought a Honda. I can’t blame them…

  6. Yes I think lots of people considering buying a new car will already have decided not to look at a Chrysler or GM product. That’s the trouble with any auto company once it gets the smell of death about it – everyone is worried they’ll get stuck with warranty and parts problems in a year or two if it goes out of business. Thus the fears of its collapse become self-fulfilling.

    We’ve been enduring this process for a while in Australia, and had billions of taxpayer dollars disappear in the process. It’s better to let the market determine the outcome and direct government assistance to supporting and retraining the workers affected.

  7. uncledad, thanks for the link.

    I see two problems, right off the bat, with the Chevy Malibu & Saturn Aura hybrids made by GM:

    1) their base prices are $4,000 to $5,000 higher than the base price for a new 09 Prius; and

    2) GM’s marketing really sucks if I haven’t heard of these vehicles, because I work with auto insurance all the livelong day.

    moonbat – the idea of a hybrid SUV has always made me laugh. I guess if one absolutely must drive a garden shed around town, it would be best if it gets as “good” gas mileage as Grandma’s big-boat Buick LeSabre.

    Also, “automotively grotesque” is my favorite phrase of the week.

  8. This conversation reminds me of a great south park episode. The south park kids become interested in becoming more green. They convince their parents that they should all be driving hybrid cars to save the environment. So all the parents buy hybrids, and for a few days the skies are blue and the air is clean (birds chirping etc.) We’ll as in all south park episodes things soon go terribly wrong. One day they wake up and their is a huge black cloud hanging over the city (lots of details left out). It turns out that the cloud is not smog. The smog that existed before everyone started driving hybrids had been replaced with a giant black cloud of smug!

  9. Detroit really is stuck in the 90’s. They keep saying, Americans want big SUVs and we have to build them. I say back, look at the number of cars sold by Toyota last year. That represents demand for something other than SUVs, guys. All you have to do is read the published sales numbers.

    One thing they could do in terms of restructuring is to squeeze the redundancy out of their product lines. I remember my dad working on standardizing things like lug nuts so they could buy in bulk and not have to stock a Buick lug nut and a Chevrolet lug nut. I also remember the time they got sued because somebody opened the hood on his Olds (I think) and found a Chevy engine in it, and GM had to change their advertising to say “there’s a GM motor in it” to avoid further problems.

    They’ve carried this to the point that the only difference between the Chevy, Olds, Pontiac and Buick models is trim levels and option packages. Do we really need four of the same thing?

  10. automotively grotesque?… Well, GM’s Hummer certainly fits that description. I can’t think of any vehicle more repulsive than that monstrosity. Now GM is trying to find a buyer for their Hummer division…Gee, I wonder why?

  11. “As I understand it, the concern is that if a big automaker actually did go into formal bankruptcy, consumers would be frightened away from buying the products.”

    Lions and tigers and bears – oh my.

    That must be what they actually want, because god forbid they admit that consumers are frightened away from buying their products for far more substantial reasons. Bankruptcy gives them an excuse for consumers’ reticence.

  12. Joan – About 10 years ago, GM produced a plug-in hybrid for California called the EV-1, which was leased by Saturn. It had 160 mile range, could drive 60 MPH and had all the real-world buzzes & whistles like A/C. The vehicle was possible because a GM subsiiary developed a Nickel battery that worked much etter than lead-acid batteries. Court decisions overturned the California law that would have madated zero-emmissions vehicles, and all the EV-1 was recalled at the lease term and crushed. Want to guess who made the decision? Rick Wagoner.

    So why wasn’t the vehicle put into production when gas hit $4 per gallon? Because GM sold the subsidiary that owned the patent on the Nickel battery – to Texaco, so we are trying to make cars like the Volt work on lead-acid batteries while the oil industry sits on the technology that could make plug-ins work.

  13. Doug – I didn’t know the EV-1 story. Well, Mr. Wagoner sure earned that $23 million parachute, didn’t he? (April Fool’s snark, of course.)

    btw, I see the Internets are still up, and that stealth worm thingie hasn’t been activated yet.

  14. The EV-1 story is well told in a great film, Who Killed the Electric Car?. I sat in an EV-1 at the auto show, and it was a real Wow car. Simple controls, great styling, and for once GM produced something that was way out in front, compared to all their bland output from the 90s. Let’s hope the Volt has the same kind of pizzazz.

  15. Swami – Plug-ugly is the only word to describe the Hummer, a car so ugly that a number of years ago when it first came out, Congress, always willing to oblige a powerful monied interest, passed a bill (bribe) allowing a $75,000 tax write-off for a company of a certain minimum size for every Hummer it bought for company use.

    Guess Brooks doesn’t know (are we surprised?) that the Chrysler bailout in ’79 eventually profitted the Fed $311,000,000.

    Detroit makes its big bucks on behemoths – always has – which is the reason why it held off on making small cars (in demand in the ’60’s and ’70’s, but so what) then watched agape as the foreign makers moved into what had been their territory – never to leave, as it turned out.

  16. I hadn’t heard the EV-1 story either. That is so shortsighted it’s breathtaking.

    A long while ago, GM was very good at advanced engineering. I saw a van run by (HUGE!) fuel cells back in the 60s running around their tech center in Warren, MI. They had a show car operated by computers in the 60s as well. A lot of that engineering made it to production over the years. Why they stopped productizing their innovations is anybody’s guess.

  17. felicity is right — the auto industry can push the Hummer, for which there was a very tiny market, but it can’t be bothered by making affordable, mechanically reliable small sedans, hybrids or not.

    And yea, the foreign companies got into our market in the 1960s because they filled a marketing niche that Detroit left open — small, basic, less-expensive cars. Even when Detroit got something right — the original Ford Mustang, for example — it couldn’t resist “improving” it by making it bigger and heavier.

    My dad used to buy the biggest Buick he could find until he had the money to switch to the biggest Caddy he could find, but that generation of consumer is pretty much gone.

  18. I do think that marketing is amiss with the GM hybrids, but GM is not unique in having difficulty in this area. Remember that Honda came out with a hybrid at the same time as Toyota, but failed in the marketplace, possibly in part because it was a not-so sporty two-seater and people expected it to perform like a CRX Si.

    I’m guessing that’s part of the problem with the Malibu and Aura hybrids. Imagine if Toyota had called the Prius a Corolla hybrid and all the automotive writers would’ve complained about how expensive it was– instead they gave it oddball styling and it’s own name and nobody objected– GM could do the same with the Aura and Malibu.

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