So Chrysler has filed. Suppliers and dealers are scrambling for financing. Dealerships and plants are shutting down. This is all just a mini-preview of what would happen if GM had to file. In a shaky economy where there is some evidence the downtrends are decelerating, this would be an almost certain way to print a negative GDP in the third and fourth quarters and to raise the risk of a much more extended recession. At that point it will be difficult for this administration to say, “don’t blame us.”
Other news: Toyota loses $7.74 Billion in its latest fiscal quarter, more than the $6 Billion loss GM incurred for the same period. As we said, no one can make money at the current auto sales rate. Now, in addition to the GM debt holders being obstinate, the politicians are concerned that GM might add manufacturing capacity outside the US over the next five years, possibly taking the percentage of cars made elsewhere and sold in the US from 15% to 23%. Therefore, maybe we shouldn’t lend GM money if it is going to invest a portion of that for factories and jobs outside the US. As Robert Reich puts it (no longer a politician but an academic), “…it raises fundamental questions about the purpose of bailing out these big companies. If GM is going to do more of its production overseas, then why exactly are we saving GM?” Well, maybe it has something to do with the 77% that will be manufactured and sold domestically as well as the dealer networks that will be involved in 100% of the sales. It may have something to do with the efficiency of production that is sold not just in the US, but in local and growing markets elsewhere. It might have to do with the possibility that if GM isn’t making those cars to satisfy a segment of the US car buyers, someone else–probably not a US company–will.
Maybe it has something to do with having a large enough company with the design and engineering capability to be a leader in the next generations of electric and other non-fossil-fuel vehicles. This will be one of the first decisions in which this administration is involved where it has to take full responsibility for the consequences—intended or unintended.