Today's bankruptcy declaration in federal court by General Motors is an avoidable, crude weapon of mass devastation for workers, dealers, auto suppliers, small businesses and their depleted communities. For GM's voiceless owners -- the common shareholders -- it is a wipeout.
The proximate cause of the bankruptcy was supposed to be the inability of GM and the government's auto task force to reach an accommodation with GM's bondholders. But late last week, the bondholder problem was moving toward rapid resolution, and was clearly resolvable. Why then are GM and its multibillion government financier proceeding with bankruptcy?
The bankruptcy and the GM restructuring plan are the product of a secretive, unaccountable, Wall Street-minded government task force that assumed power because of a Congressional abdication of historic magnitude. By all rights, the restructuring plan should have been submitted to Congress for deliberative review and decision.
There is little doubt that GM's chronic mismanagement and the deep recession require restructuring and scaling back the auto giant. But the bankruptcy and restructuring plan appear poised to do so in ways that will needlessly harm the stakeholders meant to be helped by
Many, many jobs will be lost that could be preserved. There is reason to question whether too many plants and brands are being closed -- a matter that should have been taken up in Congress. Just the closing of hundreds of (GM and Chrysler) dealerships will cost more than 100,000 jobs. These sacrificed jobs will fray communities and impose enormous expenses on government entities that will have to provide unemployment and social relief, while suffering lost tax revenues.
The unionized workforce will see the wage and benefit structure slashed -- even though auto manufacturer wages make up less than 10 percent of the cost of a car -- so that new jobs at GM will no longer be a ticket to the middle class. This will drag down the wage structure of the entire auto industry -- exactly the wrong direction for the country.
America's manufacturing base will be further eroded, as GM pursues its Grand China Strategy -- increasing manufacturing outside of
Victims of defective GM products may find themselves with no legal avenue to pursue justice. In the Chrysler bankruptcy, with complete disregard for the real human lives involved, the Obama task force and auto company have maneuvered effectively to extinguish the product liability claims of victims of defective cars.
In a worst case scenario for the GM bankruptcy -- involving an extended court proceeding or severe impairment of consumer confidence in the GM brand -- all of these problems will be magnified. Again, given the path to resolution with the bondholders, this is an avoidable gamble.
The GM/task force bankruptcy plans appear geared to saving the General Motors entity -- but at a harsh and often avoidable cost to workers, communities, suppliers, consumers, dealers, and the nation's manufacturing capacity. It will also prove to be a complex political nightmare for President Obama.
With the company entering bankruptcy, the next challenge will be to ensure that the government exercises its ownership rights to undo and mitigate, to the extent possible, these damages. Among other measures, this should involve revisiting the serious drag-down, concessionary wage terms imposed on the United Auto Workers; demanding a moratorium on GM's outsourcing of production of cars for sale in