Unexpectedly Intriguing!
November 15, 2005

It would have been unthinkable 10 years ago, and really unlikely just 5 years ago, but it appears that GM is on the verge of following its former Delphi division into bankruptcy.

While the responsibility for this now inevitable fate is shared by weak management, whose bad business decisions ultimately have led to this point, and extortive labor unions, who are primarily responsible for shaping the company's luxurious worker benefit provisions that sealed the company's fate, what happens next at GM will be a bellweather for other ossified non-competitive U.S. industries, with the impact sure to influence public policy decisions for decades to come.

What's the impact? When you consider the thousands and thousands of employees of General Motors, past and present, bankruptcy for GM will affect their very generous health care plans, pensions and other worker benefit programs, with much of the slack very possibly being taken up by the U.S. taxpayer - much as recent bankruptcies in the airline industry has demonstrated. The only problem with this outcome is that these benefits will be provided at a much lower level than had been promised - a fate that could have been avoided if GM and its unions had tranfered the ownership of these plans from the company and the unions to the individual employees through 401(k)-type retirement saving plans and personal health savings accounts.

The immediate questions for the auto industry may well affect how the business will be structured. Will the domestic U.S. auto industry adopt bankruptcy as part of its business model much like the perpetually-troubled U.S. airline industry has (another industry noted for its lousy management and greedy unions)? Is there a domestic automaking equivalent to Southwest Airlines that can point the way to sustainable success? Or have the foreign-based automakers who have already located major production facilities here the only hope for the future of automobile production in the U.S.?

The final question is one that will be answered by historians: Why did GM's stakeholders (its management, unions, employees, shareholders and local, state and national government entities) ever let it get this bad?

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