General Motors Corp. (NYSE: GM) should get government help with financing in Chapter 11 once it restructures in a pre-packaged bankruptcy. A restructuring would jettison GM's management team, cut labor costs, close unprofitable dealerships, and toss overboard GM's money-losing product lines. Taxpayers should not pay the salaries of people who can't operate a profitable business.
Here are six steps of a proposed restructuring that could save $16 billion a year:
- Allow GM to merge with Chrysler -- but only if Cerberus, which owns Chrysler, sees its equity wiped out -- to save $7 billion in annual costs;
- Dump unprofitable brands -- Cadillac, Chevy and Buick (it is popular in China) would be the surviving GM brands. All the others -- Saturn, Pontiac, GMC and Saab -- would be sold to interested buyers or shut down. This would save $5 billion a year;
- Close related dealerships -- this would cut $4 billion annually;
- Save the Jeep -- and merge other Chrysler brands with GM. Specifically, the Dodge Ram and Chrysler's minivan could be combined into the Chevy brand;
- Cut pay -- GM pays about 8,000 people who don't work through its Jobs Bank at GM and those who are on the job receive between $10 and $20 an hour more than those doing the same job in the U.S. working for Japanese auto companies. U.S. auto makers must find a way to make profitable vehicles. That means either raising prices to cover the higher labor costs or reducing those labor costs so there is room for a profit at current (or lower) prices;
- Replace management -- GM's CEO has presided over a 95% decline in the company stock during his tenure, which began in January 2000, during which time GM's market share has tumbled. It would be foolish to expect a change in strategy from the people who got GM into its current mess.
I think that the U.S. will only be able to compete if it raises the overall fuel efficiency of its vehicles so they rival those made by more successful competitors. However, this step will take years to accomplish and therefore should not be part of the pre-packaged bankruptcy plan. It's great that gasoline prices have fallen by half since July, but when the economy recovers, those prices will rise again. If the U.S. is to compete, it must build cars that are more fuel efficient.
It is unlikely that financial institutions would be willing to provide debtor-in-possession financing -- which would enable GM to operate in Chapter 11 bankruptcy -- before such a restructuring. But after these steps have been taken, financial institutions may be willing to step in with some help from the government.
Listening to "outsiders" make comments about the automobile industry is no doubt painful for those whose jobs in the industry are at risk. But if the industry asks for taxpayer money, then taxpayers must be represented when a debate rages over how our money will be spent. That's what the Boston Tea Party was all about.