GM’s Dubious Anniversary

One year ago today, then-acting General Motors chairman Kent Kresa released the following statement: “The General Motors Board of Directors authorized the filing of a chapter 11 case with regret that this path proved necessary despite the best efforts of so many.

One year ago today, then-acting General Motors chairman Kent Kresa released the following statement:

“The General Motors Board of Directors authorized the filing of a chapter 11 case with regret that this path proved necessary despite the best efforts of so many. Today marks a new beginning for General Motors. A court-supervised process and transfer of assets will enable a New GM to emerge as a stronger, healthier, more focused and nimbler company with a determination not to just survive but to excel. The Board concluded that the proposed transformation will maximize the value of the enterprise, and the return to the many stakeholders who have been involved with GM over the years.

“We are appreciative of the support from the U.S. Treasury, the President’s Task Force on Autos, the UAW and its members, salaried employees and retirees, concurring bondholders, and very importantly, the American taxpayers. The Board is confident that this New GM can operate successfully in the intensely competitive U.S. market and around the world. The Board stands behind the people of GM in embracing this unique opportunity to create value and a new company that will design, engineer, build and market the best cars and trucks in world.”

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Today Steven Rattner, who was the lead auto advisor for the Obama administration in its efforts to save the U.S. auto industry in some form recognizable to most of us, has a piece on the op-ed page of the Washington Post. It opens with a gratuitous slap at the Bush Administration—which, it should be noted, did start the ball rolling via “bridge financing” for GM and Chrysler), and then goes on to ask, as though the answer is obvious, “isn’t it time to agree that the auto rescue has been a success?”

Well, doesn’t that remain to be seen? Sure, we still have GM and Chrysler. But they are both like those people you see in weight-loss ads, people who have lost weight to such an extent that they probably needed surgery to deal with all of the extra skin. What’s the long-term prognosis? What happens when they get a whiff of a Burger King Steakhouse XT Burger?

While Rattner includes Chrysler in his examination of what’s happened, the primary focus, undoubtedly for anniversary reasons, to say nothing of it being, ostensibly, too big to fail, is GM.

So what did Rattner say they did?

  1. Wiped out more than $65-billion in liabilities from the balance sheet of GM. And the government minders, including Rattner, “insisted on a cold-blooded look at operating costs” in contrast to the “years of rosy-scenario forecasting.” A result of that is the reduction of expenses at GM North America on the order of $8-billion.
  2. Made sales assumptions on a conservative basis such that GM could still make money at industry sales volumes of 10 million annual units.
  3. Demanded a “fresh approach to management.”

Who can quibble with any of that? Some people, of course. For example, rather that the fast-track bankruptcy process, they might say, GM should have gone through the more traditional, drawn-out approach, which would have, perhaps, resulted in the voiding of all contracts, which could have had the effect of lower production costs. It could have also resulted in empty dealership lots, but that’s another story.

What isn’t said clearly is the fact that all three items meant a whole lot of people lost their jobs, from the factory floor to the proverbial 14th floor.

Here’s hoping that five years from now Rattner will still proclaim success.