Should GM get a bail-out?
Probably, but we should hold our nose while doing it!
Ignoring product development and marketing issues, GM has two major problems to overcome:
GM'S labor costs must come down so they can be competitive!
Direct manufacturing labor costs are the largest cost for GM by far - as with any auto maker. Since GM is paying much more for their direct labor than almost everyone else in the world, they can't offer their cars at a competitive price and still make a profit.
$35 dollars per hour for a janitor? With benefits, the janitor costs $70 per hour. This pay scale cannot be sustained. It was interesting while it lasted, but this rate of pay was never appropriate.
To be fair; GM has no control over labor costs. Unions overplayed their hand by driving these costs up so high – And they did it with our government’s blessing and encouragement.
GM spends outrageous amounts of money on corporate perks and salaries!
(Senior executive benefits and salaries) represent less than 1% of the GM's operating, so this doesn't really affect their ability to be competitive. However; the excessive greed (and the opulent lifestyle of their executives) creates an atmosphere that poisons the rest of the company.
Companies are led by example, as much as anything else. Ask a successful small business owner how his company reacts to his work habits, business practices and lifestyle. To use a real-world example; Wal-Mart’s Executive Benefits model is much more reasonable – and their call (for executives to live modest lives) is admirable! As I write this, Walmart has not yet asked for a bailout. However; I won't be surprised if they do: Why not get in line for "free money"?
With all this in mind, it's important to note that GM should be allowed to pay their executives whatever they want; and they should be allowed to run their company however they want. And if they screw up, they should be allowed to fail. In a perfect world, another company would buy their factories and make it work, or another American car company would grab their market share and expand operations in the US.
But we don’t live in a perfect world.
- If GM fails, and someone else tried to buy factories and then run them more efficiently; the union would stage a riot and tear the place apart!
- If GM fails, a non-union, foreign car maker would take it's market-share over-night: Actually; this has been happening slowly for years.
- The union won’t allow (a non-union U.S. factory) to take GM’s market share, in my opinion. So GM's only real competition is comming from outside the US.
- A union-scale US company cannot make affordable cars,
which brings us at a tragic impasse:
- If GM fails, millions of workers would hit the American labor market with nowhere to go.
For this reason alone, GM should probably not be allowed to fail; not all at once anyway. The downfall of GM is as inevitable as our impending social security bankruptcy. Without major changes, it will happen.
- The problems at GM highlight an extremely sad situation for large companies trying to be competitive in America:
- Corporate thugs are looking out for their own interest and creating an atmosphere of greed.
- Political thugs are trying to grab power for themselves and their circle of friends.
- Union thugs are holding the company and its employees for ransom.
- People are looking out for their own interests with no regard for their fellow man!
GM's problems didn't happen over night:
You may recall that Ross Perot bought into GM in the late 80s and tried to clean the place up. He started with the Executive perks. When the Senior executives saw what he had in mind, they made him an enormous offer for his shares in the company (well over the market price). Ross made a ton of money, GM execs got to keep their planes and spas, and the company continued into the direction that brought them where they are today.
GM: Nice cars. Really bad company!
PS: "Wait? How could the executives give Ross Perot more than market price for his stock? Shouldn't the shareholders have had something to say about this?"
That's a good question even if I did ask it myself!
In the mid 80's, Corporate lobbyists bought enough influence in Washington to make such deals legal. Prior to this, "corporate raiders" like T. Boone Pickens could buy poorly ran companies and make money by either selling their assets or improving their operations. Many of you may recall there was a massive shake-up in the oil industry in the late 70s and early 80s. A number of unprofitable oil companies were liquidated by so called "Corporate Raiders".
In today's political/business climate, Executives can protect themselves from "Corporate Raiders" because they have authority to make such stock deals without board approval or shareholder approval - The idea was that Exec's needed to be able to act fast under "emergancy situations".
I bring this up to make the point that our business climate didn't become toxic over-night. There have been a series of politically motivated decisions that reward the weak and make it hard for American businesses to be competitive in the global market.
Consider this for a moment. What would the Oil industry look like today if the weak oil companies had been protected from "Corporate Raiders"? Im' not saying today's oil companies are perfect, but they aren't in line asking for a bailout.