General Motors dissected by Rees-Mogg

I look forward to articles by (Lord) William Rees-Mogg, a former editor of The Times and now a regular contributor to the opinion pags of the same paper.

Today featured an article on the rise and demise of General Motors, a giant of American industry who has really struggled to come to terms with global competition, especially from the Asian sector. I'm familliar with most of the history of GM, and how it established itself post WWII to give America its industrial edge. I can even remember the quote of: “what’s good for General Motors is good for America”. I haven't had the interest to actually find out what's wrong with GM, and Rees-Mogg has elightened me.

“In character, today’s GM is a weird and painfully scarred combination of businesses. It is a car company doing poorly, and it is an insurance company engulfed by obligations way beyond its ability to pay."
As much as people don't wish to admit it, GM is heading towards Chapter 11 bankruptcy. As a loss of face, and a kick in the guts of American industry it stems from mistakes not easily rectifiable. The GM bonds are trading at $19, a low not seen circa 1982.
The main cause is the generous compensation given during the boom times, that have now cornered the company in leaner times. Fire the employees and its costly, keep them and you're stuck. It's a lesson to negotiate with unions at the bottom end of the business cycle. Like a Californian earthquake, it's not a question of if, but when the filing will happen. Being still such a huge conglomerate (to the tune of US$13bil) it can still sell off bits and pieces as time goes on. It doesn't change the core of the business which is slowly rotting away.

The bureaucratic management is wrong, the businesses owned are wrong, the liabilities are almost unlimited, the trade unions have already bled the company dry. Worst of all, the company is not competitive in markets or in costs. Even if the private markets were to give cash, or a government bail-out was given (President Bush has already ruled this out) it would not fix the problems described above. GM is a collosus poorly managed and it going to make quite a thud when it falls over.

Rees-Mogg speculates as to the make-up of the global industry in the future. Four or five including Toyota (Japan), possibly Ford (US), DaimlerChrysler (Diversified between Europe and Asia) and another Japanese/South Korean perhaps Renault/Nissan is an option. Why? The differential in manufacturing between Detroit and Beijing/Tokyo.