As Goes GM So Goes America

click on graph to enlarge

The financial collapse of General Motors (and Chrysler), unimaginable

just a year or two ago, has sent shivers through American industry. It hjas been said "As goes GM ,so goes America", if that is the case, the future of our country doesn't look too good. The above chart illustrates plainly why Gm and Chrysler became uncompetitive with the Japanese auot makers. The UAW through unfair labor contracts sucked the life blood out of the companies. The unfunded legacy costs for healthcare and pensions has transromed the companies from mainly and automaker to primarily a social services company. It looks like the U.S. is saddled with similar problems. This excellent article by James Quinn details the life of GM from it's humble beginnings to it's zenith in the 1950s. It's very education and sad at the same time.-Lou

As General Motors Goes, So Goes the Nation

By: James_Quinn

General Motors was founded in 1908 in Flint , Michigan and grew to be the largest corporation in the world. Its market capitalization reached $50 billion in 2000. In the past week its market capitalization dropped below $1 billion to levels last seen during the 1920's. The story of General Motors is the story of America . In 1953, at the peak of its dominance, its President Charles Wilson declared before Congress that what was good for the country was good for GM and vice versa. Its rise to power and decline towards insolvency parallel the rise and fall of the Great American Republic.

Overconfidence, hubris, lack of courage, foolish decisions made, and crucial decisions deferred have been the hallmarks of GM and U.S. GM's stock price reached at $1.77 last week, a 71 year low. It peaked at $100 during the Dot Com boom in 2000 and was still at $50 in 2007. The market has voted and it says GM is bankrupt.

American carmakers have seen their market share drop from 85% in 1985 to 43% today. GM's market share peaked at almost 50% in the 1960's. It reached a historic low of 19.5% in January. Their sales plummeted 49% from a year ago. GM has too much debt, too much bureaucracy, too many plants, too many car lines, too many employees, and too many future healthcare and pension obligations. Of course, the only way a company can be in such a disastrous position is through decades of mismanagement.

The only logical solution is for GM to enter a pre-packaged bankruptcy with financing provided by the U.S. government if bank financing is unavailable.

Shareholders and bondholders will be wiped out. They made a bad investment. Plants will be closed, UAW contracts restructured, management replaced, employees fired, debt written off and future obligations reduced. A much smaller viable company that can compete in the 21 st Century would exit bankruptcy in a year or two. A profitable, low market share is preferable to a high market share with billions in loses.

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