Monday 1 June 2009

General Motors - another British Leyland?

Already dubbed as "Government Motors", the former giant of car making has finally admitted defeat and been forced into bankruptcy. American taxpayers now own 60% of the company that the market decided couldn't cut the mustard any longer. Despite decades of stagnating wages and cuts to company benefits, GM just couldn't get market share and profit margins back to its former glory days. The event could be seen as a signal for the beginning of the end for American manufacturing but in truth this has been happening for years. Many companies tried to sustain the illusion, wrestling with superior Japanese or Korean productivity.

President Obama, the peoples president, has gone through with government intervention rather than speedy free market liquidation. Maybe he can do a better job of making cars than all previous failed attempts by states such as communist Russia for example, however I doubt it. The measures are supposed to save jobs, when in reality it will do more harm than good. Someone has to pay for uncompetitive companies if they are not immediately liquidated. If left to the market, the companies assets and labor would have been released. Manufactures who know how to make cars could have bought the means of production, and placed it under their stewardship to make better productive use of these resources. The labor could then have been employed by such organisations, with the excess moving into other areas of the economy that are still productive. As painful as that may have been in the short term, over the long term liquidation is a vital and a key component of economics. If there was no change, we would all have falling living standards as stagnation would occur.

Obama had to bail them out for one simple reason, people voted him into the White House to 'help' them. The problem is they expect him to act, when in reality the best course of action would be to do nothing.

America can catch a possible glimpse into their future as Britain experienced a similar situation a few decades back with British Leyland. A company that was mish-mashed together by government as British manufacturing was in turmoil during the turbulent seventies never stood a chance in the global marketplace. Generally it produced cars no one wanted, for high costs that were shabbily built. The end result after years of fighting market forces, were the good parts being sold to the companies that were productive in the industry, and the left overs put to other uses. In the end the UK could have saved all the pain by just letting the company fail in the seventies and letting the market take over just like what happened eventually over the following decades, but then again what would the politicians do if they couldn't meddle with business, to 'help' the people. Just like the UK then, the US taxpayers are having to foot an auto bailout all because the government says it needs to.

It's no surprise Americans have a love affair with Cars. Vast expanses of land, the largest oil reserves in its day and cutting edge production techniques pioneered by entrepreneurs such as Henry Ford destined America to embrace automobiles. Americas iconic rock band 'The Beach Boys' inter-weaved their lyrics and song titles after famous American models. 409 even mentions saving for a car - how times have changed. As the beach boys sung Fun, Fun, Fun those days GM once enjoyed have gone. It's time for America to stop clinging onto the past, move on from industries they can no longer compete in and look to do jobs they are still competitive in to produce new improved products better than the rest of the world.

4 comments:

  1. You're dumb, Leyland died because the U.K. Goverment forced nearly all Brit manufacting (planes, cars, washing machines) weak and strong into one large company which was ran by U.K. officals that fell on it's face, unlike the case with GM where the goverment owns GM.

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  2. There were differences but the principle is the same - Government stepping in to try save the industry. As the famous saying goes "History doesn't repeat itself, but it does rhyme".

    BL was formed by a merger of private businesses (GM has made many acquisitions over the years too), but in 1974 when it was clear BL were in trouble the British Government stepped in for similar reasons to the Obama administration. Quotes can be found from this source which has a good overview of events:

    "As a direct consequence of the woes that British Leyland were going through in the summer of 1974, the company scaled down their previously budgeted-for expansion plans. Quite simply, British Leyland were not in a position to pay for them and so, asked the City Banks to help them out with medium term finance - amounting to an overdraft facility £150 million. The company also instigated talks with the Department of Trade and Industry and told them that they would be able to continue with their expansion plans if they could find £100 million from external sources - or to put it more directly, the Government."

    "Tony Benn spoke to the House of Commons on the 6th December and stated that as a “leading exporter”, and a huge employer of people in the Midlands, it was of paramount importance that government money should be used in the assistance of the company. Plans were drawn up for the emergency assistance of British Leyland and Sir Don Ryder was appointed on the 18th December to prepare a report into the future of the company"


    I don't know what the future holds for GM and what the US Government plans are, hence the question mark in the posts title, but it is Government interfering again and just like with BL they will be defeated by market forces. They may decide to put it under government management, try and merge it with a more successful company etc. The key lesson is they should have just let it fail and let the market price its assets.

    Using taxpayer money to buy a company is false capital - capital is productive savings from past work - government money is future earnings. Like BL, GM could also signify the great decline in US manufacturing.

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  3. The MoPower Dude15 June 2009 at 05:11

    Yes, and then again, no, but yes too.

    BL was, from a certain perspective, going to fail and do so very loudly. What the British government didn't do correctly was appoint a new director in chief to completely overhaul the company, much like one would for a car in restoration.

    What needs to happen with GM is not only an infusement of cash but also a review of what it is that GM does best (apparently making vehicles of some nature) and bring it back to just that.

    GM got too big. Allow me to rephrase, GM became too spread out, too poorly managed, and they allowed themselves to be ::expletive deleted:: by the UAW.

    In my humble opinion, which may be wrong as hell, if GM were to survive they need 2 things: extreme downsizing and a new workforce. If it weren't for that law passed decades ago, i'd say fire the UAW, hire in a scab workforce, and slim down the offerings to concentrate on the future. Be it electric, petrol, diesel, wind, solar or a combination of two or more of those concepts, it is the future that allows a company to live in the now.

    I mean shit, look at Renault, GOP bailout, now private and relatively profitable. if the french can do it we can too.

    although I type this now, i really cannot foresee GM being here in 20 years

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  4. I don't know what the future holds for GM and what the US Government plans are, hence the question mark in the posts title, but it is Government interfering again and just like with BL they will be defeated by market forces. They may decide to put it under government management, try and merge it with a more successful company etc. The key lesson is they should have just let it fail and let the market price its assets.




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