Initial Post on “What if GM….”
Note I’ve just joined the forum so what follows may be redundant … I’ve not searched for what others have said on the topic. Yet. The following was posted as a comment to Marcie Belles, and I’m reposting here.
Anyway, I’m working with my university’s communications people right now to try to put together an audio portion, a news release and then work on op-eds and the like. Once I know a web link (later today!), I’ll put it here. I’ve also exchanged many emails with a forum member, David Ruggles, but have not posted them anywhere. If there’s demand… So for a first post, let me paint a scenario that could certainly kick off a bit of discussion.
But basically, once I started putting together numbers yesterday, things are much worse than I thought. GM really is facing demise if the status quo continues, and because suppliers are interlinked and GM is a necessary customer, that would lead to the entire NAFTA industry closing down on the manufacturing end. Dealerships would obviously have a hard time staying in business (not that it’s easy right now). Add all the employment numbers together, add in the indirect jobs at local stores and trucking companies and so on, and the macroeconomic impact would be very large — we’d be at double-digit unemployment at the national level, and of course much worse in some regions.
But the current loan package is only a band-aid, not a fix to a trauma patient who is not only bleeding but has internal injuries. If too many dealerships close their doors, covering the liquidity of assemblers won’t do the trick. If a big supplier goes belly up, it would need access to immediate bankruptcy financing — and while in normal times that might be possible, I suspect that’s not true right now.
Finally, we aren’t going to return to 16.9 mil average sales (10.9 mil in the latest data), and for the industry to be profitable we need capacity to be shut up and down the value chain. Toyota’s Texas truck plant … won’t their temptation be to take a deep pocket approach, you close yours? Dealerships — can GM and others close down 3,000 or more in quick order, to restore others to profitability, given 50 states each with their own franchise law? Supplier consolidation — how do you take over half a plant, when the other half is no longer needed and the parent company is on life support and failing rapidly?
Putting together a sensible package can’t happen in this Congress, under Bush Administration leadership. That option has been TARPed over. We have to hope that things hold together into February and the new Congress and Administration.
Sorry to be the quintessential purveyor of analysis from the dismal science.
Well, off to prep for my class this afternoon on the Chinese economy. They’re facing recession, too, a 4+ percentage point drop in growth, to a mere 8%. Not much profit to be had there, either, certainly not enough to paper over losses elsewhere.
