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Shared Sacrifice and Viability

February 17th, 2009 . by economistmom

GM and Chrysler submitted their “viability plans” today to the Treasury Department (as they asked for more than $20 billion more in aid).  The Detroit Free Press provides links to the full GM plan, and to the highlights of the Chrysler plan.  (UPDATE Wed. am: here’s a link to the Chrysler plan on Chrysler’s website.)  Both suggest a lot of shared sacrifice… From GM’s summary/highlights:

GM’s Plan calls for considerable sacrifice from all stakeholders
-Bondholders and other debtors
-Hourly and salaried employees, executives and retirees
-Dealers and suppliers
-Shareholders

and from a Nardelli email to Chrysler employees:

As we have indicated all along, shared sacrifice is necessary for Chrysler LLC’s survival. We will need to continue making tough choices in the days ahead, and it will be absolutely critical that every constituent—creditor groups, shareholders, suppliers, dealers, the UAW and our own employees—make concessions.

…and the plans clearly describe significant cost-cutting measures.  Yet let’s face it, ”breaking even” isn’t even an option for several years, according to both reports.  This is about minimizing the inevitable losses, rather than maximizing any gains.  From a CNN-Money story:

“The most important issue is not what the automakers are going to do to cut costs, but rather what the government is going to do to stimulate car sales,” stated Jeremy Anwyl, CEO of car sales tracker Edmunds.com. “No automaker is viable under the current market conditions, and so far the spending package appears to spread money too thin to actually make much of a difference in any one area.”

Some economists argued that the problems detailed in the plans show that GM and Chrysler are already failed companies.

“When consumers refuse to buy your product, that’s the economy telling you you’re bankrupt,” said Rich Yamarone, director of research at Argus Research. ”

But Yamarone said it may make sense to give them the money they need, even if it’s good money after bad, because the battered U.S. economy can’t weather the halt of operations at GM and Chrysler right now.

I really hope the automakers aren’t counting on government policy alone to stimulate their auto sales; those ideas for how to produce things that people want to buy really have to come from the industry itself–or else there’s really no way to consider the industry truly viable.  And I hope it indeed is good money going after bad, not bad money going after bad…  Let’s hope the federal government is good for all this borrowed money; they’re borrowing it to lend to the automakers, after all.  Did we mention “shared sacrifice” and “viability”?

One Response to “Shared Sacrifice and Viability”

  1. comment number 1 by: JV

    These are difficult challenges indeed and I hope that both GM and Chrysler succeed – their failure would have a cataclysmic effect on the US economy. Yet let’s not forget that not all US automakers asked for taxpayer money. Ford had the foresight to secure their financing and start their reinvention process long before the financial meltdown. With regard to viability and “how to produce things that people want to buy” the links below support that Ford is on the right track and hopefully their stimulus will come in the form of sales.

    http://www.usatoday.com/money/autos/reviews/healey/2009-02-05-2010-ford-fusion-hybrid_N.htm

    http://www.thefordstory.com