Posted by: David Welch on December 2, 2008
Having looked over the plans from Detroit’s three carmakers that will—they hope—get them financing from the federal government, I have to say that General Motors by far had the most sweeping action to try to remake itself. Of course, GM also has the most work to do and, judging from its own characterizations, the most pressing need for cash.
GM made the case that it needs at least $12 billion to keep going, and another $6 billion if the car market worsens. To prove it’s a good bet for the tax payers money, GM says it will sell, shutter dispose or shrink beyond recognition four if its brands—Saab, Saturn, Hummer and Pontiac. Smart move. It should have been done years ago, but GM was wedded to the brands because dumping them was just too expensive and too gut wrenching. WHen it’s done, the company can focus on Chevy, Cadillac, Buick and GMC.
Next, they want to negotiate cuts with the UAW that will slash labor costs by $4.5 billion. GM President Fritz Henderson didn’t say how he’ll get it. But they’re working on it. GM will also try to cut its $66 billion debt load in half. I love this move. First, it cuts a huge burden since GM pays more than $3 billion a year in interest. Next, it’s a fine example of Main Street getting one over on Wall Street for a change. A lot of that debt was racked up to fund the union pension plan. So the working-class retirees will keep their pension while Wall Street guys foot the bill. Don’t worry, investor class, you’re still way ahead of the game.
Ford and Chrysler mostly described what they have already accomplished. Then they went on a screed about how they will make a slew of electric cars and hybrids. That will satisfy the likes of House Speaker Nancy Pelosi, who gets a load of support from environmentalists. Ford, by the way, wants $9 billion and Chrysler wants $7 billion. But I didn’t see much in the way of transformation in either plan.
GM’s plan has some real elements of a company that has finally figuring out that business as usual won’t survive. But there are two big questions: One, why didn’t Wagoner pull some of these moves sooner? And two, will it all happen soon enough? Getting rid of those brands will take a lot of time. GM needs the market to turn around and it has to get its action plan finished quickly for this to work. Otherwise, even $18 billion might not do the trick. My guess is that GM can pull it off. The stakes are too high for any one stakeholder to hold out. But it’s going to be a cliffhanger. Congress said they wanted something transformational. GM might just have it.