Thursday, November 6, 2008

What's good for GM is good for the country, and vice versa (pace Charlie Wilson)

General Motors drove itself into a deep ditch after a decade and more of bad product strategy. Should the federal government haul it out with a multibillion-dollar bailout?

For both short- and long-term reasons, the answer has to be yes.

Without more federal aid -- the company is seeking $25 billion in loans on top of billions already approved by Congress for retooling -- GM very likely will be forced into bankruptcy. The Washington Post's savvy, Pulitzer prize-winning business columnist Steven Pearlstein contended recently that "pre-packaged bankruptcy" would actually help put GM back on a path to stability. But many experts who follow Detroit closely -- more closely than Pearlstein -- agree bankruptcy would have disastrous consequences -- not just for the whiplashed U.S. auto industry but the reeling national economy. My initial impulse was to punish GM for its bad product decisions. But think back to investment banker Lehman Brothers' bankruptcy in September. More than any other single event, that hasty U.S.-decreed liquidation triggered the financial crisis that went global within days.

Pearlstein argues that a bankruptcy judge could quickly dismantle GM's obligations to the United Auto Workers. But GM has already offloaded $51 billion in retiree health-care obligations, and by 2010 it will start saving billions more with implementation of its two-tier, union-approved compensation schedule that halves hourly wages for production workers and slashes fringe benefits. Together, the two moves lower per-car production costs by close to $3,000.

That cost reduction, plus GM's continuing strong gains in productivity, plus retooling for higher-mileage cars and trucks (including super-hybrid electric "plug-ins"), should, finally, put the company in the same market fast lane as Toyota and other internationals that build vehicles in the U.S. But GM needs a $25 billion bridge to get to the turnaround year of 2010.

That doesn't mean that the federal government should just drop $25 billion in GM's lap. The loan should be accompanied by conditions -- not ones that encourage bureaucratic meddling, but promote the long-term health of the huge auto-related industry in Detroit, the tri-state area of Michigan, Ohio and Indiana, and throughout the U.S.

The conditions should ensure that GM implement its public pledges to pursue fuel-cell propulsion systems and the all-electric vehicle, and, shorter term, accelerate production of a stable of "plug-ins" (beyond the Chevy Volt due out in 2010) that would be transitional to the completely electrified car. The U.S. should also demand that Michigan take immediate steps to increase the number of new state engineering students, which was down more than 13% between 2000 and 2007, as mass boomer retirements were leaving big gaps among those critically important knowledge workers. These conditions should be prominently folded into President-elect Obama's strategy to produce 5 million "green collar" jobs over the next decade.

The demand for cars won't disappear with petroleum reserves. Beth Lowery, GM's vice president for environment, energy and safety policy, says global ownership by 2020 will increase to over 1 billion vehicles from the current 820 million. Many of those extra 180 million vehicles will be "green" ones. Most of them will be produced by international makers if GM goes under or is crippled by bankruptcy. The end result would do far more than mar the prestige of the U.S. as an industrial giant. It would devastate this country's ability to keep its already precarious technological lead as industries and entire national economies struggle to make the all-important transition to a post-petroleum future.

We should be careful that any damning epitaph we wish to chisel for GM doesn't become an RIP for the entire American economy.

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Postscript: For what "Engine Charlie" Wilson, the president of GM who became Dwight Eisenhower's secretary of defense, was famously misquoted saying at his confirmation hearing, check out his obituary from Time magazine.

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