Messy Divorce in the Works: GM's Arranged Marriage

Soon after taking over the helm at General Motors, CEO Fritz Henderson introduced the GM of the future – “Lean, flexible, and customer-focused.” During the same “rally the troops” announcement, he also introduced its new largest shareholder, the United States government. Hmmm. Something seems out of place there: Lean, flexible, customer-focused, and the United States government. Can you pick out the one that doesn’t fit the series?

I’m not saying the government is not exactly the best equipped to literally stick its nose into someone else’s business. Not yet; I’ll get to that in a minute. Before I do, let’s build a bit of a case by taking a look at some recent headlines:
- In the first quarter of 2009, General Motors saw its revenues fall by nearly half to $22.4 billion. Remember, that’s a drop of nearly 50% off a less-than-stellar first quarter ’08.
- Those $22.4 billion in revenues did absolutely nothing to stem GM’s hemorrhaging $10.2 billion negative cash flow over the quarter. Think about that - $22 billion in sales, yet $10 billion more went out of the company than came in. No household, run by us ignorant tax payers, would dare spend 50% more than it takes in. Nobody with any financial responsibility and wherewithal would.
- Uh oh. The U.S. government is currently sporting a nifty $11.2 trillion national debt (that’s $11,200,000,000,000. Assuming a U.S. population of 305 million, per person that’s – uh, never mind, my calculator won’t accept 11.2 trillion as a value).
- Let’s call a mulligan on this year; what about next? Oops, the new federal budget for fiscal 2010 weighs in at a hefty $3.6 trillion. At a minimum, that ’10 budget will add $1.2 trillion to the national debt. That’s in addition to the record $1.9 trillion (again, a minimum) that the debt will grow in fiscal ’09.
- By the time the Iowa presidential caucus rolls around in 2012, the projected national debt will be $17 trillion. If you take the New York Yankees’ opening day payroll this season of $202 million and kept it unchanged, the national debt in 2012 could pay for the next 84,158 seasons of Yankee baseball, with just a pinch left over to cover the first half of the next season. [The good news is that over the next 84,000 or so baseball seasons, the Yankees will probably figure out how to sell their $2,500 front row seats]
- Okay, budget aside, how about the “lean” aspect? Let’s see here, according to the Bureau of Labor Statistics, some 5 million private-sectors workers have lost their jobs in the last year, and the unemployment rate in that sector tops 9%. On the public-sector side, government, employment has grown in nearly every month of the current recession, and its unemployment rate is just 2.8%. I know what you’re thinking - you’re thinking those aren’t all federal government jobs; that they include state jobs. Yes, but many of those jobs are funded by federal economic stimulus grants.
- Good luck with the federal influence in union negotiations, GM, where your healthcare benefits for retirees and workers add an additional $2,500 in cost per car (Prescription drugs alone cost GM $1.9 billion.). Remember those jobs referenced in the public sector – lots of union influence. In California, unions spent $50 million in 2005 to help defeat ballot measures that would cap government spending (i.e.; protect public-sector jobs). The school system of Los Angeles County faces a $600 million budget deficit this year alone. Too many votes for politicians to not spend tax payer money there.
- As far as austere spending, GM is not going to learn a whole lot from the U.S. government, those famed purchasers of thousand dollar toilet seats. Remember the outrage on Capital Hill and in the public eye when the heads of the Big Three (what a misnomer, huh?) auto makers each flew to Washington on private planes? Well, you’d never catch a fat cat Washington politician flying in a private aircraft – particularly on junkets sponsored by campaign contributors.
- Speaker of the House Nancy Pelosi regularly flies coast to coast on “business” at tax payer expense in a military aircraft (read: private). By the way, for you “greenies,” each one of those flighst produce an estimated 80,000 pounds of carbon, much more than the average American produces in a year.

I love the U.S. government – I wouldn’t want to live under any other kind of system. It does a lot of things well. But, looking to the government to help managing a lean, flexible, and customer-centric organization is like hiring Courtney Love to protect your liquor and medicine cabinets. By June 1, General Motors will propose a sweeping business reorganization plan to Uncle Sam, whereupon, the government’s economic wizards (I know, I’m laughing too), will, if the proposal so convinces them, grant the company a new lifeline of federal dollars. That money, in the billions, won’t be used to create a sustainable enterprise; rather it will be used to float GM as it enters bankruptcy.

With our high powered journalistic machines at every media outlet in the U.S. fixated on whether Ms. California was going to loose her crown over a couple of booty call photos this week, you probably missed a juicy tidbit that slipped in under the slamming car door. General Motors decided to push up its next scheduled payment to suppliers. Ordinarily, its key suppliers would be paid June 2. GM is pushing that date up, sooner, to May 28. Now, you might be asking yourself, why would a company that so desperately needs cash look to spend their hard earned, or rather hard begged, cash early? GM is doing so because it knows it’s declaring bankruptcy on June 1, and wants to ensure that suppliers will continue to ship needed parts – needed so GM can continue to build cars that no one particularly wants or needs.

Bankruptcy is going to be a mess, just like the Chrysler bankruptcy is currently. A couple of GMs will eventually emerge: A “bad” GM with outdated brands and defaulted debt, and a “good” GM with union ownership, even more outdated brands, and an uncompetitive offering in an already overcrowded car marketplace.

An arranged marriage not exactly made in heaven – is it too late to stand up and object?

The government – you and I, and all the other tax payers – have already floated billions of much needed working capital to companies. It’s a necessary evil to keep companies afloat and workers employed. It’s an investment. When it’s an investment in a company with a somewhat promising future – in the banking industry, for example – it’s likely a good investment. When it’s an investment in a company that saw its glory days fade decades ago, it’s a “learning experience.”

Okay now, learning! Now that’s something the U.S. government can teach the private sector.

Just this guy’s opinion.

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