Outside of Detroit does anyone care that US Automakers GM and Chrysler are now Bankrupt

1 comment

Bloomberg, along with the WSJ, bring us an interesting viewpoint on the US automakers path down bankruptcy and the debate on who really cares. Living outside Detroit, I do feel sorry for the personal and financial tragedy that many are facing due to the bankruptcy of the automakers, but from a national/investment standpoint I am really unaffected by the failure of these two American icons. In fact I almost think, after years of life (government) support and bad business decisions, bankruptcy proceedings are the best thing that will happen to these companies. The stock market, politicians and the rest of America (ex-Detroit) seem to agree as well.

“The American people want GM to go bankrupt,” Dobski, a retired GM executive said. “They don’t care.” The disconnect between how the auto industry is perceived in Detroit and in the rest of the country was underscored in an April survey by CNN; it showed 76 percent of Americans favored allowing GM to fall into bankruptcy rather than extending further government aid.

“Bankruptcy is an incredible stigma,” said Dobski, 65. “I hate to see GM connected with that. GM is such an icon. GM is this area. It’s Detroit.” Detroit residents are struggling to come to grips with what would have been unthinkable as recently as 2004, when GM was completing a 10-year run in which it earned $41 billion, milking profits out of jumbo sport-utility vehicles like the Chevrolet Suburban and Silverado pickup trucks.

Dobski says he recently went to Washington with a group of “Main Street bondholders,” lobbying Congress for more say about the deal the government was cutting with GM. Both Republicans and Democrats seemed to dislike the company, if for different reasons, Dobski said. Their staffs didn’t seem to understand the industry’s reach, he said.

Competitive Pressures

For half a century, between the 1920s and the 1970s, GM seemed to have an instinctive feel for what Americans wanted before consumers themselves even knew it. Chrome, tail fins, muscle cars and even the first catalytic converters that let cars run on lead-free gasoline were developed at GM. But the company signed generous labor deals during the 1970s, including the right to retire after 30 years with full pension and benefits, partly because it believed the contracts would cripple its smaller competitors, Ford and Chrysler. Then along came Honda, Nissan and Toyota, which didn’t have to deal with labor contracts at all. That was the beginning of the agonizing decline

The inability to get people outside the region to understand Detroit auto makers was on display when executives of what were once called the Big Three appeared before Congress late last year, said James Blanchard, a former Michigan governor. As a U.S. representative, Blanchard coached former Chrysler chief Lee Iacocca through similar hearings in 1979. “I’m shocked they weren’t prepared,” Blanchard said.

Washington’s treatment of the auto industry, from the firing of GM Chief Executive Officer Rick Wagoner to the concessions wrested from employees and retirees, doesn’t sit well with Detroit residents who saw the larger bailouts being given to Wall Street firms where management remained in place, said writer Kevin Boyle, a Detroit native. He won a National Book Award in 2004 for an account of Detroit race relations in the 1920s.

“There’s a very strong mix of Midwestern resentment and class resentment that runs toward Washington policies,” Boyle said. “It ties into a deep feeling in the Midwest that there’s something more virtuous about making something than about investing money.”

I have written about the US automaker bailouts and bankruptcies before and if the Chrsyler bankruptcy (last month) is any guide, then the impact of the GM bankruptcy to the overall economy won’t be nearly as bad as feared. Unfortunately for Detroit, even the best case scenario offers little hope for residents in the near term. However, if the companies can emerge leaner, debt free and more efficient, then the long term picture is much rosier and pain now could reap huge benefits down the road as US automakers finally become 21st century companies.

“I’m confident that the steps I’m announcing today will mark the end of an old G.M. and the beginning of a new GM — a new GM that can produce the high quality, safe and fuel-efficient cars of tomorrow, that can lead American toward an energy-independent future, and that is once more a symbol of America’s success,” President Obama said. But that retooling, he said, “will come at a cost. It will take a painful toll on many Americans who have relied on General Motors throughout the generations.”

Related:
~ $5000 Used for New Car Subsidy in the proposed Cash-for-Clunkers Program
~ New Car (up to $49,500) Sales Tax Deduction in Obama Economic Stimulus Package – Updated with IRS Eligibility Criteria
~ I Want My Bailout Too and Here’s Why

Leave a Reply

1 Comment on "Outside of Detroit does anyone care that US Automakers GM and Chrysler are now Bankrupt"

[…] government subsidizing and bailing out companies forever because they cannot stand on (Examples: GM, Amtrack, Post Office, Citigroup, Fannie Mae).  I, for one, are sick of my tax dollars going to […]

wpDiscuz

Previous post:

Next post: