Saving Jobs by Saving General Motors

Klaus H. Hemsath
November 26, 2008

Klaus H Hemsath
http://thermalexpert.com

General Motors is getting close to going bankrupt and to being liquidated. Ineptitude and greed of its management, its board, and its union are finally catching up with the former king of the automotive industry.

In liquidation, foreign companies will buy several of its most modern plants. Any assets will be bought for cents on the dollar. Most of its work force of white and blue collar workers will become unemployed. The ripple effect on suppliers, vendors, and customers will be ruinous. A liquidation will degenerate into a national depression.

Management has tried repeatedly to save this legendary company but did not have the vision, the capabilities, and the financial backup. The GM board has been the major cause for the slow death of this company. In the face of continuing losses, the board insisted on healthy quarterly dividends. Not making enough cash and paying out dividends is stumbling towards the abyss. Any sudden downturn in sales or in margins forces the company into insolvency.

GM's top management and its board made one fatal miscalculation; they gambled that Congress will never let GM go out of business. This gamble was not reckless. After all, US Congress had saved Chrysler a few decades back. When the US financial crisis was threatening world markets with a meltdown, US Congress supported rampant fraud and gambling in the financial industry on a grand style. AIG, one such gambling insurance company, was awarded a huge financial bailout package. The Big Three could continue their businesses for years with a similar gift.

For the last several decades, the automotive industry has been under constant attack by competition, by its investors, and by government. GM management was not capable of fending them off. GM lost a huge portion of its market share, investors looted its cash, and US government told the automotive industry how to design cars.

The ill advised meddling of US Government in matters of fuel efficiency and emissions has cost the automotive industry dearly. Huge amounts of research funds were spent in meeting marginally effective government regulations. US Congress deserves much blame for legislating very wasteful and very expensive solutions for previously unsolved, technical problems.

When Mr. Wagoner and his compatriots came to claim their bailout package, they were admonished by Congress for flying to Washington on corporate jets. For the first time, they may have understood that their future was much more precarious than they expected after watching the generous, incompetent, and ineffective bailout of the financial industry only a few weeks earlier.

After assigning blame, it is time to look at possible solutions. Liquidating General Motors will do huge harm at the most inopportune period in US economic history. It is unacceptable. Providing massive loans to GM is not the right solution, either. Instead, GM needs a complete reorganization, new management, a new board, new products, and a competitive pay and benefit structure for its white and blue collar workers.

Going through a bankruptcy proceeding is one viable approach. Unquestionably, bankruptcy is a tough way to go. GM's image will be blemished severely and future customers may be worried about car warranties and used car values. Future sales will certainly take a hit. Bankruptcy is time consuming and will damage the company and the crippled US economy further.

A better way is an offer by US government to purchase all assets of the company through a newly formed automotive corporation organized and financed by the government. GM stock is cheap. Its stock is worth two billion dollars; buying the company is feasible. The new company can agree to honor ongoing transactions, future product warranties can be issued and honored, pension obligations can be settled permanently, and the public would be assured of future product viability. A fresh, unrestrained startup would be guaranteed.

Additionally, US Congress must consider security and strategic aspects. Nobody else can muster the legislative and financial wherewithal for creating a critically needed, highly competitive, massive, new manufacturing entity. The wide range of existing products and production facilities and huge, sunken, irretrievable investments must be leveraged into creating a rejuvenated company that is lean, mean, and efficient. This company must be managed to rebuild stock value for a future recovery of government funds through sale of government held equity.

Above all, the new GM needs an infusion of capable management, cash, new products, and a board consisting of all new stakeholders in the company. Complete requisite sales, production, financial, and other management systems are in place and can be used for commencing business immediately. The company can become competitive quickly after a thorough cleansing of undeserved preferences, outdated policies, and inefficient practices.

The US cannot afford to lose the millions of manufacturing jobs that will result from a GM shutdown. There is no cheaper way to preserve and create jobs than by reorganizing the old, leaderless GM and hitting the ground running with a newly energized, innovative successor corporation. It would be insane to let a company with product lines like Corvette, Cadillac, and GMC go out of business. The costs and losses of a failure are incomparably larger than the amount of temporary, financial assistance for a reorganized, competitive successor company.

The US can ill afford another financial debacle while we are still watching with consternation and wonderment the mismanagement of the $700 billion congressional bailout attempt.

Saving GM will be good for the US, Ford, and Chrysler!

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Dr. Hemsath recently published the book: CLIMATE CHANGE - GOLD RUSH OR DISASTER? For 50 years he has worked as scientist, process engineer, Corporate Vice President of R&D, Company President, CEO, and Inventor. He holds more than 60 US Patents. He is working on a new book: "THE SOLUTION FOR ENDING GLOBAL WARMING AND CLIMATE CHANGE". Go to http://www.thermalexpert.com