NCPA - National Center for Policy Analysis


November 17, 2008

General Motors is a once-great company caught in a web of relationships designed for another era.  Instead of a taxpayer-funded bailout, GM should be allowed to go bankrupt, says Michael E. Levine, a distinguished research scholar and senior lecturer at New York University School of Law.

Consider the costs of tackling GM's problems with some kind of bailout plan:

  • After 42 years of eroding U.S. market share (from 53 percent to 20 percent) and countless announcements of "change," GM still has eight U.S. brands (Cadillac, Saab, Buick, Pontiac, GMC, Saturn, Chevrolet and Hummer).
  • As for its more successful competitors, Toyota (19 percent market share) has three, and Honda (11 percent) has two.

GM has about 7,000 dealers, Toyota has fewer than 1,500 and Honda has about 1,000:

  • These fewer and larger dealers are better able to advertise, stock and service the cars they sell.
  • GM knows it needs fewer brands and dealers, but the dealers are protected from termination by state laws.
  • This makes eliminating them and the brands they sell very expensive; it would cost GM billions of dollars and many years to reduce the number of dealers it has to a number near Toyota's.

Foreign-owned manufacturers who build cars with American workers pay wages similar to GM's, but their expenses for benefits are a fraction of GM's:

  • GM is contractually required to support thousands of workers in the UAW's "Jobs Bank" program, which guarantees nearly full wages and benefits for workers who lose their jobs due to automation or plant closure; consequently, it supports more retirees than current workers.
  • GM owns or leases enormous amounts of property for facilities it's not using and probably will never use again, and is obliged to support revenue bonds for municipalities that issued them to build these facilities.
  • It has other contractual obligations such as health coverage for union retirees.

Source: Michael E. Levine, "Why Bankruptcy Is the Best Option for GM," Wall Street Journal, November 17, 2008.

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