The GM Bankruptcy- What You Don't Hear From Pundits

Much is being made of today's formal filing for bankruptcy by General Motors. The Wall Street Journal ran it as its lead first-page article. CNBC covered it as the lead story all morning, with AutoNation's CEO, Mike Jackson and former WSJ executive and auto sector expert, Paul Ingrassia, as guests.

Everyone is so tentative about the event. Even my one-time friend, Paul Ingrassia, seemed to soft-pedal his opinion about the eventual outcome of the government takeover of GM. The most he would say was, in reply to a direct question, that he would not now buy the firm's equity.

I guess you just have to read between the lines. Paul did clearly state that there are still too many work rules in place to suggest a changed managerial environment. He further opined that, without a genuine change in managerial climate and culture, GM won't get any better.

Despite Paul's semi-candor, the overall tone was one of suspension of common sense, with repeated, genuine-sounding questions regarding GM's future viability, profitability, etc.

Mike Jackson then weighed in, imploring all viewers to buy GM! Trucks! Cars! Whatever!

You think Mike has skin in the game? You bet. For him, the more suppliers, the better. Not to mention his inventory.

Honestly, these people have lost their minds!

GM should have done this, on its own, at least a year ago. As the Wall Street Journal noted in today's lead editorial, Wagoner originally threatened a bankruptcy that would require $100B of government aid. We're already up to $36B, including GMAC, with more to come from debtor-in-possession financing, raising the ante to about $66B.

And this is before the 'new' GM operates with a newly-empowered UAW and a government owner.

Why gloss over the obvious, and ask pointless questions? Here are the facts:

GM mismanaged itself into failure. Between bad political moves, inept handling of its main union, the UAW, and poor product development and pricing, it mishandled every major "stakeholder." As Ingrassia noted, GM essentially managed itself for the UAW's benefit ever since an historic strike at two Flint factories some years ago.

The management team that led GM into this mess is largely intact and in place. According to the UAW's chief, Ron Gettelfinger, his active union members have lost nothing in this bankruptcy. Thus, GM's wage costs continue to be, although lower than before, probably too high to be competitive with other, US-based auto makers in the southern US.

The US government now owns the bulk of the company, but claims to not want to actively manage the firm. This is the worst of both worlds- government control, with a stated intent to engage in 'benign neglect.'

As I am writing this, the president of the US is opining about saving "two storied names in the US auto industry."

And that is the problem. The companies ended up in bankruptcy, but only after lavish federal aid and bailouts. Meaning the money was wasted, because the firms went into Chapter 11 anyway.

Nobody ever said that an earlier Chapter 11 for GM or, for that matter, Chrysler, required liquidation. This was a misleading claim foisted on the American public and Congress by GM, Chrysler and the UAW, all of whom required panic among lawmakers at the prospect of more unemployed blue-collar workers.

The future? You don't need pundits to figure that out. In fact, best you don't listen to them at all, so you can see more clearly.

Chrysler is being dismembered, much in the way that a conventional Chapter 11 filing would have resulted. The viable parts will endure, the rest will not.

For GM, however, as an identifiable company, I believe further misery, losses and ineptitude are in the cards.

The combination of federal oversight and current management pretty much guarantees similar lackluster operating results going forward. Sure, labor costs will be a bit lower. But the root causes of GM's failure- bad management, stodgy union rules, inhospitable emissions and related regulations and, now, a new mandate to build a small, unprofitable, unwanted-by-consumers car in the US, with UAW labor- virtually guarantee the same outcome which GM has delivered in the past.

It is noteworthy that Chrysler, as I observed in this prior post, was not truly 'saved' back in the 1970s. It was merely granted an expensive stay of execution. And with much more detail and Congressional involvement, I might add.

So, forget all the hoopla today over the GM filing. It should have happened at least 12 months ago, and resulted in the dismemberment of the company into pieces to be sold, closed, or relaunched as a shrunken auto maker. But the way it's been handled now, nothing but failure will come of this event.

I was correct in my early blog post about at least one of Detroit's auto makers losing a CEO, and the company. Unfortunately, I'm probably correct about forecasting the outcome of GM's peculiar brand of bankruptcy 'rescue,' as well.