Tuesday, December 30, 2008

Good for GM

"For years I thought that what was good for our country was good for General Motors, and vice versa."
-Charlie Wilson, President of GM, in a hearing to become Pres. Eisenhower's Sec'y of Defense.

Well, here we are now. What is good for GM? Is it the same as what is good for the US?

Compared to the gargantuan sums that have been and are being thrown at financial firms, it would seem that only a piker could begrudge GM and GMAC some crumbs. And perhaps as Mish hypothesizes, there are ulterior motives to this bailout.

I went to college near Detroit. Anyone who talked to anyone knew that management despised labor, and labor hated management. Detroiters knew to fear Monday/Friday cars: those assembled either on Monday, when workers were hung over from the weekend, or on Friday, when their minds were on the upcoming weekend.

One observed over the decades an endless succession of WASPS: Roger Smiths, other Smiths, now the aptly named Wagon-er, all clueless. When GM announced an initiative this year to respond to the high price of oil (then about $115) with some innovative something-or-other, I stated to anyone who would listen that when GM talks, people listen and then go in the other direction. Mere weeks later, oil began a $100/bbl plunge.

In any case, what's most egregiously wrong with GM has nothing to do with the UAW.
It has to do with GM's decision to become a financial firm that happened to make cars. Anyone who watched CNBC probably saw incessant ads during the housing bubble days for Ditech. Ditech, a GMAC company, was one of the worse offenders in making loans to humans and humanoids with pulses but perhaps empty purses. Inflicting the fat cross-dressing spokesman innumerable times upon CNBC viewers is cause enough for corporate death, and an agonizing one at that!

In the bigger picture, the disaster with GM/GMAC and the US-based auto industry comes back to the financialization of America. If people believed in owning their own cars rather than renting them, and in truly owning their own homes rather than in essence renting them with a call option to sell if the price moved up enough, then the current financial and economic troubles simply would not be.

American industry has stretched too far too long to keep prices affordable by selling for too low a price and making it up on the interest; and then when things really fell apart, they started losing money on financing, too. There is no there there anymore for this game. The "good jobs" in auto mfg are largely gone for good. The sooner Bush, Paulson and Obama act accordingly, the better.

To answer my earlier question, there is really no good answer. GM is dying. It deserves to die. Whether it should die a natural death or continue on life support is up to the doctor (US Gov't) and the family (society at large). There is no right or wrong. There's simply a terminal patient.

The larger issue is whether GE and Amex should be rescued if this financial crisis continues as Prof. Roubini predicts. These guys are not as terminally stupid as GM has been for decades, but they're catching up fast.

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