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In the grand scheme of things here bankruptcy would not be an entirely bad thing for GM. It would not mean that they would shut down their doors, and it would not mean that the Camaro would not make it to the market (in fact in bankruptcy court one of the principle things that a company is encouraged to do is to continue to operate in order to get itself back on stable financial grounds). However, what it would allow it to do is to renegotiate their contracts with the UAW. In 2005 health and welfare plans for employees tacked on over $1,500 to the cost of each automobile sold by GM. 3 years later and I would not be surprised if that is now double that figure since more and more employees are starting to hit the retirement age. Now to aggravate things whether you are willing to own up to it or not we are truly a “Walmart society”. What I mean by that is that we continually demand more and more from what we purchase but we are willing to pay less and less for it. (I heard it best described once as we demand a Cadillac for the price of a Hyundai). So what happens… as an automotive manufacturer your profit margins start to close up because the next generation of a car model will actually cost you more to manufacturer but you will not be able to sell it for the same amount of increase in price because everybody will scream about how expensive it has become. And on top of that your health and welfare costs are continually on the rise which also chips away at your already slim profit margins. It is a vicious cycle. Bankruptcy gives the General a lot of power to renegotiate those outstanding contracts with the UAW which will result in lower healthcare costs which will result in a higher profit margin for the company. But in reality no one in the financial sector wants GM to declare bankruptcy. Aside from the direct fiscal implications of such an action, the stock market and our economy in general is very much susceptible to perception and fear. If a cornerstone of the Dow (it has been a member of the index since 1925) is forced to declare bankruptcy things will get pretty ugly, not just on the American financial markets, but the international financial markets as well.
I know that there are those out there that look at Toyota, Honda, and so on that now have plants in the US and say well they don’t have the same kinds of problems that GM has. They will. Remember that the problem with healthcare at GM is not the cost of current employees, it is the cost of continuing health and welfare for all of it’s retired employee base. Their employees have been members of the UAW since 1935 so they have quite a few retired employees out there by now. All of these new players opening up manufacturing facilities in the US, while yes they are also signatory to the UAW, they have not been around long enough to have a large base of retired employees that add to the current health and welfare costs they are paying. They will in due time, but it will probably take them 20 years or so to get there.
Also, don’t forget the reason that the Japanese automakers are starting to open plants in the US is because they are starting to face the same kinds of problems with retired employees back in Japan that GM faces here. So much like GM looked to moving production to other countries to escape those costs, they are moving to the US to escape those costs, the difference is the GM started here.
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