Tell me. I seem to have missed something.
Why can’t GM file Chapter 11? It’s out of dough. It’s out of liquid capital. It is being crushed under the weight of eleven different union contracts that have sucked all the profit out of the company. It’s sitting on top of what is still the world’s largest and most capable medium-manufacturing facilities, but it top executives can’t for the life of them figure out how to use those remarkable assets to sell a car that anyone wants to buy.
But it refuses to put a Chapter 11 on the table – in part because a bankruptcy judge would almost certainly appoint a trustee to administer and abrogate all of the contracts, both with the unions and its executives, sell out equity in the company to third-party investors and thus dilute shareholder value, and maybe even break the company up into multiple competitors, the way AT&T was broken up in the 1980’s.
But, from the perspective of the public benefit and the role GM plays in the economy, would any of that be so bad? The breakup of AT&T was good for competition, and the market is coalescing back into a world where there are only two or three major providers anyway.
Independent manufacturers think, well, independently from one another. GM itself consists of several "companies" like Saturn, GMC, Pontiac, Cadillac, and Chevrolet. Making these companies truly independent of one another seems, in principle, like a good thing.
There is no reason for GM to sell three functionally identical mid-sized sedans or four functionally identical SUVs, under different names and by different "companies" within GM. Sure, each of the companies has a slightly different flavor from one another. But they're all peddling basically the same cars.
Someone said once, what's good for General Motors is good for America. I say, competition in the open market is good for America. We've outgrown General Motors. It's time to break it up -- not by antitrust action, but by the company spinning off into separate components and really competing. Toyota would be the biggest automaker in the world, followed by Tata, but so what?
Really -- so what?
November 13, 2008
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2 comments:
The argument, which was made by Chrysler before its own bailout in the 80s, is that no one will buy a car from a company that is in bankruptcy.
The possibility of a breakup, unfortunately, is probably nill. Along what dimensions would you break the company up? Sure, there are brands, but as you know the cars are the same. There isn't a Pontiac plant and a separate Chevrolet plant.
Also, remember that the judge has an obligation to try to maximize the stakeholders' value when the company is in bankruptcy. A breakup would certainly not do that. Which company would get the management team? The design team? The IT system? How would the other companies replace all of these?
They split up a bunch of things by function and delivery in the case of AT&T and could do it for GM, too. Not along Pontiac-versus-Chevy lines, but perhaps focused more on function like what kinds of vehicles particular plants are geared to assemble.
Now, if you owned AT&T stock in 1982, you wound up owning proportionate shares in each of the seven RBOCs as well as the parent corproation. From there, the market sorted out which RBOC had the best team and the best ideas. It looks like the best teams were the ones at Bell Atlantic, Pacific Telesis and USWest. If you had stuck with, say, Bell Atlantic, which is now Verizon, how long would it have taken you to recover your stake, accounting for inflation? I bet the answer is less than five years.
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