Today GM presented its case for a taxpayer funded bailout (see GM Asks for $18 Billion). While GM’s plan of action comes close to addressing the concerns that plague GM, I am not certain that it goes far enough.
Last week I detailed what I thought it would take to right GM (see Pre-packaged Bankruptcy Unlikely). I wrote:
I have been adamant that whatever aid the taxpayer provides comes with properly structured terms, with properly structured incentives, and at a hefty price to current shareholders, creditors, and management.
In particular, in the case of GM, conditions for the receipt of aid could include:
- The ousting of current top management
- A moratorium on mergers and acquisitions
- A renegotiation of employment terms with the UAW, …with all options on the table
- The rationalization of brands - for GM my suggestion would be to keep only Chevrolet, Cadillac, Opel, and potentially, Buick (given its standing in the China market)
- A shutdown of all plants tied to brands that GM will no longer manufacture, and a consolidation of the remaining brands into a few, select plants
- Incentives (in the form of tax credits) to produce smaller, more fuel-efficient automobiles
Although these terms seem fairly onerous, such terms (or variants thereof) provide the only reasonable chance left to derive some value from GM.
Although GM’s plan does not go as far as that which I proffered, I have to admit that it represents a step in the right direction. As reported by the New York Times:
G.M., the world’s largest automaker for decades, said Tuesday that it was in such dire straits that it would deeply cut jobs, factories, brands and executive pay as part of its plea to get $12 billion in federal loans and an additional $6 billion line of credit.
To get the loans, G.M. is taking an ax to its money-losing North American operations from top to bottom.
G.M. said it planned to focus on four core brands — Chevrolet, Cadillac, Buick and GMC — and either sell, eliminate or consolidate the Saturn, Saab, Hummer and Pontiac brands.
Despite having radically downsized its operations in the last three years, G.M. said it would cut another 20 percent of its factories and jobs, seek to renegotiate the terms of $66 billion in debt, and push to reopen contract talks with the United Auto Workers to reduce labor costs.
The cutbacks will extend into the executive ranks as well. G.M.’s chairman, Mr.
