GM Bankruptcy - The New Amtrak

Financially, it makes sense for the government to look for a way to save GM and prevent GM from going bankrupt. If GM goes bankrupt, the costs to the federal and state governments will be huge. The Pension Benefit Guaranty Corporation would have to pay for the pensions of retired GM employees, the state and federal would pay for extended unemployment benefits, medical bills of laid off employees would be picked up by the state or Medicaid, property taxes on GM facilities would not be paid and more people would default on their mortgages and other debts.

However, it only makes sense for the Federal government to finance the resurrection of GM if there is a plan that makes it probable that the resurrection of GM will be successful and that the cost to the government of resurrecting GM is less than the cost of a GM bankruptcy to the government.

The UAW has not made any significant contract concessions in the recent contract modifications which have actually increased pay for UAW members in some cases. GM has also agreed to reopen and retool one or 2 US plants to make up to 160,000 small cars per year which were to be imported from a GM facility in China. GM has also agreed to severance packages for UAW employees that would make a Bank CEO blush. UAW employees with less than 10 years of service are being offered $45,000 in addition to a $25,000 car voucher.

Especially in the current economic environment, UAW employees should not receive benefit protection and severance pay made possible by the US taxpayer that are so much more generous than what the vast majority of other Americans are getting.

So, after about $50 billion already spent or expected to be committed in the near future from the US government to resurrect GM, we will end up with a GM with the same bloated cost structure that caused GM to fail in the 1st place. I think it likely that after the bankruptcy and restructuring, GM will return to Congress on an annual basis asking for more financial assistance much like Amtrak has done.

President Obama is a smart guy and must realize that the current plan will not save GM. I'm hoping that his support of the UAW is political window dressing and that he is planning to let the bankruptcy courts make the significant cuts to the UAW and dealer contracts that need to be made to make GM a viable business.