[R-G] Bankrupt Thinking

[Sid Shniad]

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Focus on the Corporation June 1, 2009 

Bankrupt Thinking 

By Robert Weissman 

What in the world is the Obama administration thinking? The GM 
bankruptcy -- entirely avoidable -- seems designed to hurt every 
constituency it is supposed to assist. 

First, as to the avoidability issue: There's no doubt that chronic 
mismanagement and the deep recession have left GM in dire straits. But 
with the government pouring tens of billions of dollars into the 
company, it is clear that needed restructuring could have been done 
outside of bankruptcy. By last week, even the problem of bondholders who 
sought $27 billion from the company (the government and GM were offering 
a 10 percent stake in the new company) was moving to resolution. Yet the 
Obama administration's auto task force has plunged GM into bankruptcy 
nonetheless. Why? There's no obvious answer to that question. 

Why does it matter? It matters because bankruptcy may further tarnish 
GM's already very weakened brand, and make recovery for the company much 
more difficult. It matters because it creates some unique problems. And 
it matters because it forecloses -- or, at least makes more difficult -- 
other ways to reorganize the company. 

The GM/auto task force plan for bankruptcy and restructuring -- shaped 
by a secretive, unaccountable group of Wall Street expats without 
expertise in the industry -- seems designed above all to perpetuate GM 
as a corporate entity. Preserving corporate GM should be not an end, but 
a means to protecting workers and their communities, preserving the U.S. 
manufacturing base, forcing the industry onto an innovative and 
ecologically sustainable path, and advancing consumer interests. It 
fails to meet any of these objectives, in entirely avoidable ways. 

GM probably needs to be downsized, but there are questions about the 
extent to which it should be downsized and the method. There are very 
significant questions about decisions being made to eliminate brands, 
close factories and terminate dealer relationships. The auto task force 
may well be needlessly costing tens or hundreds of thousands of jobs at 
auto plants and suppliers. It has authorized the closing of many 
hundreds of GM and Chrysler dealerships, even though these dealerships 
do not impose meaningful costs on the manufacturers. Dealership closings 
alone will result in more than 100,000 lost jobs. 

While there is probably a need to reduce GM's capacity, there is no need 
to cut worker wages and benefits. Auto worker wages contribute less than 
10 percent of the cost of a car, so even the most draconian cuts will do 
little to increase profits. Yet the Obama administration's auto task 
force helped push the United Auto Workers into further acceptance of a 
two-tier wage structure that will make new auto jobs paid just a notch 
above Home Depot jobs. This will drag down pay across the auto industry, 
with ripple effects throughout the entire manufacturing sector. 
Stunningly, the Obama administration brags that "the concessions that 
the UAW agreed to are more aggressive than what the Bush Administration 
originally demanded in its loan agreement with GM." 

http://tinyurl.com/nx68hm 

The ultimate evidence of the task force's disconnect from its public 
mission is its approval of GM plans to increase outsourcing production 
of cars for sale in the United States. GM has now disclosed its intent 
to begin production in China for sale in the United States. What is the 
possible rationale of permitting a company propped up with U.S. taxpayer 
funds to increase production overseas for sale in the U.S. market? The 
point of the bailout is not to make GM profitable at any cost, but to 
protect the communities that rely on the automaker, as well as U.S. 
manufacturing capacity. 

Finally, if the Chrysler bankruptcy is a harbinger, the bankruptcy is 
likely to wipe out the legal claims of people injured by defective and 
dangerous GM cars. 

None of this need be so. The government could have averted bankruptcy. 
It could have sent its plans to Congress for more careful review. It 
could have demanded that worker wages and conditions be maintained or 
improved, rather than worsened. It could have been more surgical in the 
downsizing it is requiring, and more forward-looking at preserving 
manufacturing capacity. The government could (and still can) choose to 
accept sucessorship liability in the New GM for the injuries inflicted 
on real people by Old GM. 

Some of these avoidable harms can still be averted, if the Obama 
administration chooses to exert the control that attaches to owning 60 
percent of GM. Unfortunately, President Obama says, to the contrary, 
that "our goal is to get GM back on its feet, take a hands-off approach, 
and get out quickly." 

More on a different way to manage the GM restructuring in my next column. 


Robert Weissman is editor of the Washington, D.C.-based Multinational 
Monitor, <http://www.multinationalmonitor.org> and director of Essential 
Action <http://www.essentialaction.org>. 

(c) Robert Weissman 

This article is posted at: 
<http://lists.essential.org/pipermail/corp-focus/2009/000318.html>. 

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