Many years ago, the U.S. Government "bailed out" Chrysler.  After 9/11 the Government bailed out the airline industry.  Most recently, AIG, and the banking industry.  Why not, so the argument goes, GM ?

Perhaps because it's too big to save.

It is argued that if GM were to fail, that the economic impact would ripple throughout the world, leaving a long and enduring recession in its wake.  This possibility certainly exists.  What, one must ask, are the consequences of a bailout?

The fact that GM is losing money at a stunning rate is not immediately reconcilable with their market position.  Their products are competitive, their pricing is decent, their marketing is very good, and they sell more cars than anyone in the world except Toyota - and it's very very close.  They hold a commanding market share, and have good production and distribution systems.  What will change with  Government participation ?

The ugly truth about GM is that they represent a microcosm of the United States Economy.  They are being burdened with an unsustainable health care and retirement burden that is the product of decisions made 30 years ago.  Some of the decisions made in the 70's were just plain bad business.  Some of them were sound at the time, but have become damaging because of unpredictable changes in actuarial reality and the cost of health care.  These are the same things that threaten the long term health of the U.S. economy.  GM entered into collective bargaining agreements that obligate the company to pay large pension checks to retired workers, while providing the best health care available in the civilized world.  When GM entered into these agreements, the average worker could be expected to live to 68 years old, and the end of life costs of care were normally small or at least reasonable.  In the current reality, that age now approaches 80.  Most importantly, the medical care costs for those that live beyond 75 are staggering.  In 2002, the "Health Research and Education Trust" published the results of its work on the subject of elderly care and found:

"From 1992 to 1996, mean annual medical expenditures (1996 dollars) for persons aged 65 and older were $37,581 ..."

Clearly, since that time medical care has not gone down.  Currently GM is supporting 2.5 retired workers for every active worker.  With medical costs escalating and operating margins plunging - there seems to be no way for General Motors to sustain the current status quo.  Quite simply, both they and the unions made a bad deal.  The union used poor judgment by asking for too much, and management used poor judgment in agreeing.  The consequence of such poor judgment, in the private sector - is failure.

Yes, the failure of GM would plunge thousands of people onto the public dole.  But is it not better that those on the public dole do so openly ?  Is it not better that they receive the level benefits consistent with social security and medicare rather than the gold plated benefits of the UAW ?  The workers and union are not innocent bystanders in this debacle.  They union made unsustainable demands, the workers voted for the contracts that have broken the company.   

It is unlikely that even a chapter 11 bankruptcy (reorganization) could salvage General Motors.  GM is yet another microcosm of what has become a major flaw in our current market system.  That is:

It is run by retards.

( Ok, that's a bit much - but what the heck, lets enjoy some free speech while we can)

More accurately, General Motors is no longer run by "car people."  Much is the same with every other fortune 500 company.  GM is run by "financial people."  These are a select group of people who rotate from large company to large company much the same way NFL coaches move from team to team.  The "CEO class" isn't particularly adept at any particular industry.  Rather they are adept in manipulation of corporate operations in order to maximize the per/share value of the company's common stock; and then to use that stock as a form of currency to acquire other businesses which in turn can further enhance the company stock value.

Oddly, when this writer attended MBA school - such speculation with either company equity or liquidity  was considered a cardinal sin of business management.  Now it is the staple of industry and the mainstay of the fortune 500.   This is not to say that CEO's are to be financially stupid, but to say that the focus of the company should be on cars, not stock manipulation. 

The dominance in "financial people" is much less so in the Asian auto industry.  For example, Toyota chose San Antonio Texas to locate it's 2,000  acre tundra plant.  For those that are not pick-up truck savvy, the Toyata Tundra is not a small efficient environmentally freindly vehicle.  It's a full sized pick up.  More  accurately, it's a 12 mpg beast.  And it's expensive.  The decision to locate in San Antonio was supported by many demographic and geographic aspects, but it was also influenced by the first hand observation of Toyota upper management, while walking through the parking lot of a Dallas Cowboys game.  After walking past row after endless row of parked large pick-up trucks (mostly Ford and GM), the Toyota management (so the legend goes) concluded - "We've got to build trucks in Texas."   And they did.

In the final analysis, the top management of GM, Ford, and Chrysler made bad decisions - ultimately because they were poor managers.  If their decision making and poor corporate performance was not conclusive enough evidence, one need only look to their reflexive response to the current challenge.  The founders of these companies were captains of industry, rugged individuals, and innovative entrepeneurs.  The current management teams bear little likeness to their founders.  (Umm... is there yet another microcosm here?)   The auto makers look more like Ray Nagin during Katrina than Henry Ford during the depression. 

The solution offered by the "Big Three ?"

Give us money.  Or we'll fail - and you'll look bad.  What's more, you might get voted out of office without labor backing.  This is not capitalism.  This is not wise.

These auto makers must either shed their unsustainable contracts via bankruptcy, or liquidate outright.  In either case, the factors of production must be re-allocated to the control of those that are capable free market industrialists who know the auto business - not a bunch of Wall Street stock manipulators.