GM says it needs more money from the federal government or it will run out of cash next month. It has made some progress with its creditors and the UAW, but neither of those negotiations is final, so some of what GM can do to cut costs and improve its balance sheet will have to be taken on faith.
The parts of the GM restructuring the the company can claim are firm are the closing of some brands including Saturn and Hummer, the shutdown of several factories, and the firing of 47,000 people.
GM claims the amount of money it will need for the year at $16.6 billion. That will not guarantee the largest car company in the U.S. will get to break-even. If auto sales in America keep falling, GM may need more capital this year, and it will almost certainly need more again in 2010.
The government is faced with several complex and painful decisions. Analysts believe that GM going into Chapter 11 would put hundreds of thousands of Americans at the car company and its suppliers out of jobs. To counter that, the Congress and Administration may have to keep GM on life support indefinitely. The alternative is too awful.
The part of the GM request for money that is very clear is that, in exchange for $16.6 billion, the company will fire 47,000 people. It may be the only example in U.S. history where the government will pay to put tens of thousands of its own citizens out on the street. Most of these people have probably been paying taxes to the IRS for years.
The perversion of the government stepping in to run an industry to save the broader economy is that it must live with the consequences of its own actions, which in this case involves investing capital into a restructuring that increases the burden on social services, causes great suffering, and is a lesson to private enterprise that failure can, in some cases, be rewarded.
The Administration knows that it has to save GM as part of steadying the economy, but it has put itself into a policy position where killing some jobs is the excuse for saving others.
— Douglas A. McIntyre
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