Helping GM Or Giving LeBron A Couple More Games
Jun 2nd, 2009 | 2 responses
Let me begin my making it clear that I do understand the concepts behind the GM bailout (as well as the earlier Chrysler package). I realize that failing to do anything to assist these large corporations could have a drastic impact on the economy in terms of job loss, down the pipeline business failures and so on.
But that does not take away from my frustration in helping out businesses who have failed in their basic purpose, to make money and succeed.Yet they are being given a second or third chance, not unlike telling Cleveland that they get to play a couple more games to try and win again.
From the point of view of Ford this has to be quite frustrating. While they have certainly not done everything right and they do have some debt issues to deal with, the fact remains that they are still in business.
In truth they have done what a business is supposed to do, make a better product, implement a good business model and sell more products to the public than the other guy.
Obviously there are other factors in the failure of GM, the economic slump has weakened demand and the credit crisis has limited the ability for them to get loans. But Ford has been through the same bumps in the road and they are still around
So while they cannot take full credit for it, they have achieved what every small business owner strives to do, knock the other guy out of the game.
And yet in the moment of victory they find that the other guy is being brought back in to the game by a much more powerful organization, in this case the federal government, using the massive power of the taxpayer.
Indeed it is not hard to imagine that some of the money being given to GM or to Chrysler actually came from Ford in the form of taxes, either paid by them or by one of their dealers.
Imagine if you had to pay part of your income into a fund to send money to your competition ?
Or to carry the basketball analogy forward, imagine if Orlando had to spend part of a playoff game scoring points for Cleveland to help them catch up ?
Again, I do understand that we are sort of caught in a no win situation of deciding between bailing these companies out or letting them fail and seeing major economic consequences. But it seems kind of like Ford is being punished for succeeding and that is a pretty sad thing.
2 Responses to “Helping GM Or Giving LeBron A Couple More Games”
You're exactly right – the government is helping the company that did everything wrong compete with the company that did more things right. From a competitive standpoint GM does not deserve to survive.
My last 3 car purchases were Fords (the last one an Escape Hybrid) and I see no reason to buy GM.
Ford will actually be further disadvantaged because the emergent GM will have much reduced its debt service via bankruptcy, while Ford will have to compete on an uneven playing field with its marketplace debt burden. Ford's raised capital on the open market (thus incurring debt) in order to raise operating cash flow and avoid the need to seek a “bridge loan” from the US Govt, like that provided to GM.
Nonetheless, solvent companies have to compete against emergent formerly bankrupt companies every day (e.g. Southwest vs United) and there is no reason why GM or Chrysler should be barred from the bankruptcy process. The rub here is that there are no private institutions willing to provide the debtor in possession financing that GM needs to emerge from bankruptcy. (I wonder why…) The only willing and capable financier is good ol' Uncle Sam, who is throwing another $30 billion in DIP financing on top of the $20 billion “bridge loans” already provided to GM to keep it afloat prior to bankruptcy. So without financing from the government, GM could not gain the financing required to emerge from bankruptcy, and thus would likely be liquidated. In return for this generous bailout, Uncle Sam ends up owning some 60% of GM. That's where GM is getting bailed out… not bankruptcy itself, which would almost certainly end in liquidation, but getting debtor in possession financing from the US Govt (i.e. us taxpayers).