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“Ultimately, I think that GM is going to be a strong company,” said full-time US president and part-time automotive analyst Barack Obama this weekend. In spite of five months of high drama that saw two administrations fritter away $20bn so far, his optimism is warranted. Once General Motors emerges from almost certain bankruptcy, it may be in surprisingly good shape.
The question of long-term competitiveness has so far been eclipsed by acrimony over who will own how much of the carmaker after bankruptcy. Gripes from bondholders that they are receiving short shrift compared with the United Auto Workers may be justified, and might get more legal traction than Chrysler’s disgruntled bank lenders did. But bondholders’ counterproposal that they divvy up the equity with the union while the government remains a lender to a restructured GM is unrealistic. The debt would be too large an albatross for a restructured company. So, other than writing it off, it must be converted into a large equity stake.
Once GM exits bankruptcy, pessimists might say that having the US Treasury and a union trust fund controlling a large industrial company is a recipe for disaster. But other passive stakes by unions have worked historically, while the professionalism of the auto industry task force is encouraging. If GM is run for the most part like any other business, its prospects are bright in its leaner form. Shorn of debts, weak brands, excess dealerships, retiree costs and some foreign subsidiaries, it would take only a modest rebound in US car sales to make GM profitable. If US car sales return to at least replacement levels of about 12.5m vehicles a year from 9m currently, GM could even be highly profitable, letting taxpayers at least recoup some of their losses. In spite of politicians’ best efforts at wasting time and money, a clean slate provided by Chapter 11 can work wonders.
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