Tuesday, February 07, 2006

GM on the brink?

Those who pay attention to such things have long noted that the US auto industry isn't what it used to be. Foreign competition, poor business decisions, bad timing and legendary quality problems (in fairness, now rectified) have combined to damage the once dominant US auto industry.

Many years ago, the statement was made "What's good for General Motors is good for America." Hyperbole, perhaps, but there was more than a little true in it at the time it was made. Now, GM is in what can be described as desperate straights, and the question has become "Is a failed General Motors good for America?"

The question is more than rhetorical. GM, even in its weakened state, still holds 26% of the US market, employs 324,000 people, and has a market worth of $13 billion. The dissolution of GM would throw not only those 324,000 out of work, but would effect 130,000 GM retirees and their spouses, in terms of retirement income and health care benefits.

The cost to a US economy could be enough to tip things from good to bad. The dollar costs would be hard enough to absorb, but the psychological costs of the failure of the #3 company on the Fortune 500 list may well be catastrophic.

This situation will be one to watch more closely. I remember when Chrysler was bailed out by the Federal government--many said the company was "too big to fail"--in other words, the cost of the failure of Chrysler Corporation was too high to pay. We will deem GM "too big to fail" as well? And if we do, can we afford to save it?

No comments: