Why GM needs to go bankrupt

I think we’re at a point where we would all be better off if GM went into bankruptcy. Bankruptcy doesn’t mean the company is gone forever, it just means the company has to restructure the way it does business and it could come out in a better position for it’s own benefit and ours. Look at Delta as a key example.

  • Back in ’02, I began getting concerned about gas prices rising. When I was a college freshmen (’99-’00) gas was less than a dollar a gallon. Those days are now long gone. By ’02 I was noticing the rise and I eventually decided stop driving Cadillacs and Lincolns in favor of smaller more economical sedans. I had many friends getting rid of their SUV’s in similar moves. If I was an automotive executive, I would have begun contemplating a switch in my manufacturing strategy. Perhaps for once GM could have decided here to have more economical sedans and less monster trucks, i.e. Hummer, Yukon, Yukon XL, Yukon Denali, Escalade, Tahoe, Tahoe XL, Suburban, Avalanche…I still haven’t even gotten to the pickup trucks and still plenty of other SUV’s. How many of these monster trucks are really necessary? How many of GM’s trucks and cars for that matter are the same or very similar, just with different brands? This is the first reason why GM needs to restructure. You don’t need 3 different types of trucks in every size category. GM has more trucks in 2009 than the entire line of Honda vehicles, and most of them are more expensive and are not built as well (and won’t last as long) as the Honda’s. Compare their websites and you’ll see what I’m talking about.
  • In addition to shoving gas guzzlers down our throat, GM (and all American automakers for that matter) really haven’t improved the quality of their vehicles in terms of long term wear & tear. American cars are built to last only a few years so that the companies make money back in repairs and by the customer trading in to buy again. Foreign cars are built to last a long time, key fundamental difference here. Think about it – you can get an early 90’s Honda, Toyota, Mercedes, BMW, etc. and still push that now and be fine as long as you take care of it. A Chevy? Ford? not so much. My personal mechanic has stressed this to me numerous times from first hand experience.
  • The third and perhaps most important reason why there needs to be a significant change with GM is due to their salaries. First I want to congratulate anyone who has benefited from a lucrative career there. I hope that you have been wise with your money. I really hate to say this but GM has overpaid it’s workers for many years. The absolute lowest entry level salary at GM is $40,000. Keep in mind this is for someone who most likely doesn’t even have a degree. Plenty of entry level college grads are starting out for much less than that. According to the September 2006 edition of the Wall St Journal, “on average, GM pays $81.18 an hour in wages and benefits to its U.S. hourly workers. Those increased costs, including the cost of health care, were passed along to consumers, adding $1,600 to the price of every vehicle GM produced. In February 2008, after General Motors offered buyouts to 74,000 employees, the Center for Automotive Research estimated the average wage, including benefits, for current GM workers had dropped to $78.21 an hour.” Adding onto the salaries are the GM workers union, which has also grown too powerful.

Again I’m not trying to “hate” per se, but an assembly line worker without a college degree should not be earning more per year than a college professor. But apparently that’s been the case for quite some time in many instances. This type of system cannot continue and needs to be restructured across the board for GM to progress. In my opinion we should not be throwing billions of bailout money into this type of flawed system anymore.

Notes:
The $78/hr number comes from GM’s 2007 Annual Report (see page 62). It includes all costs associated with hiring employees: salary, employer part of social security, employer contributions to pension plan, 401(k), health care and other benefits, holiday and vacation pay, etc. According to the referred report, these costs will go down to $26/hr when the 2007 National Agreement (the contract agreed with the unions that year) is fully implemented. The same report mentions $15/hr for new employees, and $28/hr for existing employees as “base wages.”

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