General Motors Proposal Does Not Look Realisitic
Today General Motors revealed that it is going to ask for $18 billion dollars from the Federal government in bailout loans. Currently the company assets are worth about $38 billion but it is carrying a debt of over $66 billion dollars. Even by reducing the total amount of factories and employees by 1/3 over the next year to stay afloat with the government loans the company will have to ask creditors to accept 50 cents on the dollar.
General Motor’s Chief Operating Officer, Frederick Henderson, is claiming that the company can pay back the loan in three years assuming it is going to suddenly dominate the market over Toyota and every other car company in the world. This would require them to sell over 15 million vehicles a year at record profits and the lowest costs ever. In an interview with Chris Matthews of MSNBC today, Mr. Henderson indicated that development of the Cadillac brand would be important but beyond that could not give specific details about how General Motors could be competitive. Mr. Matthews asked him several times to lay out a plan for how the company would get Americans to buy General Motors products but Mr. Henderson remained silent.
The economic news in America is getting worse by the day. Even the most optimistic economic analysts are saying that an economic recovery will not occur for at least another year maybe two. Congress and the new President need to be realistic and careful about how much money they spend. Today cities, counties, and state governments are already asking for trillions of dollars in aid.
Any money given to the American automakers will not create any new jobs. Even if we give the automakers all the money they want it is likely that there is going to be significant collapse and pain in the industry. Who really believes that Americans will suddenly buy millions more cars than they have the past few years and even if they do why would they buy inferior products?
General Motors does not have a marketable car now or in the near future that can compete successfully with other companies. In Europe and Asia where gasoline costs sometimes three times as much as in the United States, electric vehicles have yet to be successfully developed which can compete with small cars equipped with four cylinder engines. You do not have to have a degree in economics or business to understand that there is not enough of a market for all three major automakers to survive. Having an American owned automaker that can compete with the world is a worthy goal but it must be pursued reasonably. Better to have one or two successful companies than three failed companies.
Tony Magaña grew up in McAllen Texas, attended Texas A&M University, served as an officer in Army Reserve, and holds a doctorate from Harvard University. The co-founder of Contempo Magazine has participated in Valley business for over 20 years.He is a member of the National Association of Hispanic Journalists.
