GM: "The numbers don't copulate."

There is nothing as difficult and as expensive, but also nothing so futile, as trying to keep a corpse from stinking. -- Peter Drucker

DETROIT, MI - Today's news on General Motors reminds me of an old boss who'd occasionally misuse big words. One time our sales team was holed up in a budget meeting, and when the boss noticed some numbers that didn't make sense, instead of simply saying "The numbers don't add up," he said "The numbers don't copulate ...".  He meant to say "calculate."  Honest mistake.

By now you have read all about the GM bankruptcy filing.  No need to rehash it here.

It's a shame, obviously, but you can't talk your way out of problems you behave yourself into: GM's problems took decades to make, and both management and labor are to blame.  The whole relationship seems co-dependent to me, with each side enabling the others' behavior.

And what of it?  Well, the U.S. government now owns 60% of a car company that it wouldn't buy if it didn't have to.  Which means it's a bad investment, like lending money we don't have to a friend with a poor memory.  It's also a flagrant violation of the time honored "ignore sunk costs" rule which warns capitalists (is that a bad word yet?) against throwing good money after bad.

This is not a political rant.  It's a business rant.

The bailout will cost U.S. taxpayers a minimum of $60 billion, which is $206 for every man, woman, and child in America.  My family's share will be $1442.  Before my beloved Honda Civic was paid for last year, the payments were $189/month.  My share of the GM bailout equals 7.6 monthly car payments.  I don't own a GM car ...

... although now I own a tiny sliver of GM, the company.  We all do.  Same basic management.  Same basic union.  Same basic culture.  Nothing has really changed, except that consumer confidence in the brand is plummeting.  Would you buy a GM car?  Me neither, not when I could buy a car from a profitable, well-run, non-union Honda plant down the road in Ohio.

GM's bankruptcy plan calls for the company to IPO in 2010, at which time the government will sell 10% of its 60% share.  The government will sell its remaining shares over a 2-4 year period, as the stock appreciates.

But here's what doesn't add up:  Why would any investor buy GM's IPO shares if he knew that the government was going to unload tons more stock on the market over the next few years?  Makes no sense.  And who would invest in a business fraught with serious, structural conflicts of interest, such as "Is it better for GM's investors (me and you) to manufacture automobiles in China at a profit -- or make them on U.S. soil with union labor and lose our shirts?"

Amigos, the road to heck is paved with good intentions.  The only thing that's going to get copulated here are the U.S. taxpayers.
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Comments

[Michele]

We must dissolve unions. They are sinking our economy. BTW: Marysville IS non-union.

[Eric]

Nice article. I would check and confirm that the Honda plant at Marysville Ohio is non-union. I would think it is UAW.

On the whole though I wonder what alternative the government has to the buy outs? The united states must have a heavy manufacturing base as a strategic asset. Who do you think pumped out all the airplanes and tanks in ww2? It was GM and Ford and Chrysler. GM built Sherman tanks by the thousands and GM also built TBM-3 Avengers at its Eastern Aircraft plant in NJ. GM brought mass production techniques to the aviation business that werent there before. Grumman and Lockheed etc, didnt have the capacity or the ability.

We will probably never be in that kind of war again, but as Lenin said, "Quantity has a quality all its own". In the US, the only industry that has this capability is the automakers