Is GM Worth Saving?
American made can mean top-quality and innovative. Or it could mean General Motors (NYSE: GM). And in its turn, GM stands for a drain on the U.S. economy.
But just because it’s a drain doesn’t mean that it isn’t necessary according to some. According to others, we should just say goodbye to that part of our automotive industry, say sorry to all of the workers who lose their jobs, and just have done with it.
So which one is it?
It’s a tough decision that everybody knows the outcome of already. As GM CEO Rick Wagoner talks to Washington officials about a $5 - $10 billion loaner, we all know what the answer is going to be. Yes.
Because whether for good or bad, that’s the business our government is in these days: bailing out.
The Bad, The Worse, And The Ugliest
In their defense, they have good reason to think such actions necessary, just like they did before. It isn’t just that the economy will be further wounded at the loss of another 177,000 lost jobs if GM goes under, not to mention the 49,000 jobs from its would-be partner Chrysler.
David Cole of the Center for Automative Research in Ann Arbor speculates that that kind of hit could cost Uncle Sam over $100 billion in pension obligations combined with the loss of people paying income taxes and needing government benefits instead.
That’s a bad amount, and it seems unthinkable to contemplate anything less than helping them out. But doing what might automatically seem like the decent thing to do has a cost as well.
If GM gets the money it wants and uses it to buy up Chrysler like it proposes, it will then have to cut 30,000 or more jobs from its acquisition. Why? Because GM has been steadily waning for years, and they already have too many factories, employees, models and brands as it is. The extra Chrysler employees would just be dead weight.
However, all told, Cole advises, “You’re looking at a rather nominal amount compared to the cost of a failure. You have to look at that as a good investment; an old ounce of prevention is worth a pound of cure.”
Trick Or Treat
But that begs the question of whether it really is a good investment. Are they really going to change their ways and give back to the economy in more proactive ways than they have been in recent years? Or are they simply going to take that $5 billion, $10 billion, or however much they’ll actually end up with, and squander it?
And whatever happened to the admittedly antiquated notion of letting businesses take their natural course and succeed or fail on their own merit? How healthy is it to encourage this kind of mentality in the long run?
I’ll agree with Cole that it’s an investment, but like any other investment out there, it’s also a risk.
http://www.smartprofitsreport.com/archives/2008/alternative-energy-sources555.html
Tuesday, October 28, 2008 — by Jeannette Di Louie, Assistant Editor of Mt. Vernon Research
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