GM is not too big to fail

Posted By Daniel W. Drezner Monday, June 1, 2009 - 2:32 PM Share

I don't have any deep thoughts about the GM bankruptcy that were not already expressed in the first few paragraphs of Michael McKee's Bloomberg story:

General Motors Corp. once mattered so much to the U.S. economy that a two-month strike in 1970 helped trigger a 4.2 percent drop in gross domestic product for the fourth quarter, as national auto production fell 82 percent.
Then, GM accounted for about half the cars and light trucks sold in the country. Now, GM controls just 20 percent of the market, and analysts say its bankruptcy filing will barely register in the broader economy.
GM’s drawn-out restructuring, an increase in U.S. manufacturing by foreign carmakers and the recession-induced decline in auto sales all have meant more to the economy than today’s legal filing.
“Bankruptcy now is irrelevant in terms of the economic consequence of what’s happening to GM,” said Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pennsylvania. “Either way, it’s going to be a shadow of what it was, in terms of jobs and income.”
GM has been reducing payrolls for three decades. Its U.S. employment peaked in 1979 at 618,365, when it was the nation’s largest private employer and auto manufacturing accounted for 4.1 percent of GDP. At the end of this year’s first quarter, autos were 1.5 percent of the economy, and GM had 88,000 U.S. workers.

One of the most difficult and painful aspects in any mature economy is the phasing out of uncompetitive sectors. Delay and denial, however, accomplish nothing but deferring the pain until later (one oddity of the auto sector is that even most people who blame Ameria's industrial decline on globalization/Japan/China/slave labor in Bangladesh tend to shed very few tears for Detroit. I suspect this is because it's very, very hard to defend the long-term performance of either management or labor in this sector).

It's not like I'm thrilled that GM is going under or anything, but as transitions go, this one has been pretty drawn out. When GM lost a record amount in the early nineties, there was a fair amount of speculation about when the firm was finally going to go under.

Now we know.

This story, on the other hand, scares the ever-living crap out of me for reasons that I still need to process.

EXPLORE:ECONOMICS, GLOBALIZATION

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BLUE13326

5:11 PM ET

June 1, 2009

What is it going to be: 60,

What is it going to be: 60, 80, 100 or more billion dollars that the taxpayer is throwing at these companies that we'll never see back? That's my money, your money, our kids' money, and for what?

$100,000,000,000 used to be a lot of money; now, it's just six-nine months of welfare for the car companies and their unions.

We are heading toward economic ruin, and most of the elite class seems to have decided to worry about global warming, or bask in the charm of Michelle Obama's arms or Barak's empty speeches, the 21st-Century version of re-arranging deck chairs on the Titanic.

BRETT

6:10 AM ET

June 2, 2009

Aside from being a major

Aside from being a major employer, a major unionized employer (hence Democratic reluctance to see them fall), and a politically influential company, they also happen to be sitting in Michigan, which may or may not become a swing state in the next election in 2012. Obama lets GM fall at his political peril.

My only grievance is basically "Why should we let our auto-makers fall when everybody else is handing out favors to their auto-makers?" China has used tariffs, the French just give out money, and so forth. As far as I know, the only country that has refused to help their auto-makers is Sweden. Moreover, you know the job losses won't end with GM and its network companies - a major part of the reason why foreign companies have auto plants here is because of auto-trade regulations passed under pressure from GM and the other companies of the Big Three. What happens when that pressure lets up?

TESS

12:50 PM ET

June 2, 2009

good

My only grievance is basically "Why should we let our auto-makers fall when everybody else is handing out favors to their auto-makers?"

Well, that is because most people don't even seem to care that the other automakers are subsidized, or that Daimler made major capital transfers from Chrysler then bailed. Of course, we do here, it is our neighbors, family and friends that are now suffering.

Michigan has been a blue state right through the Bush era I think in good part due to the fact we started feeling this down turn here, and the economic slow was a matter of great political discussion in the Gore/Bush run off. I still remember The Big Three and several industrial leaders releasing a study for Congress to consider just before the election on the relative added burden to their cost of the USA medical complex versus the cost of their competitors where their is socialized medicine. Things were bad then, it is not any better nearly ten years later.

I worry about the lag impact of the Tier one and Tier two suppliers of the lay offs and bankruptcy. It has already hit Visteon,then again Ford is probably doing well because it bundled off its less profitable parts into Visteon and separated . Those outside the tier structure are also hit here, like tool suppliers are also hurting. Not to mention the impacts felt in the restaurants, hotel, travel, shopping centers, medical complex, ect.... Even the schools here are closing, and laying off major parts of their people: both the public schools and private. That of course won't be felt until school resumes under current contracts. So, as much as I realized the rest of American does not care, it is hard not to living here watching people lose their homes. You bet it will impact the way we vote.