GM looking more like a junkyard dog

The name of the long-dead Detroit industrialist Alfred Sloan still comes up from time to time in political debate - and when it does, the quote that has become his memorial is likely to be delivered with a heavy slathering of irony.

"What's good for General Motors," said the man who built the car company, "is good for America."

See, say union reps and foes of globalism, that's how the system has always worked. Big companies expect Washington to do their bidding, which it usually does.

It's an interesting argument and not without a certain amount of truth.

Just think back a few years to when President George W. Bush defied his party's free traders and his own avowed principles by slapping heavy tariffs on imported steel.

Same with sugar, whose domestic production the US subsidises to the detriment of the South American nations that grow and process it more cheaply, yet can't get shelf space in American supermarkets.

But none of that is what brings Sloan to mind just now, when the company he fused and formed from a grab bag of struggling, under-capitalised outfits and parts suppliers is facing what could well prove to be the end of its road.

Three weeks ago, the ratings agency Standard & Poors downgraded GM's bonds to junk status. As for the stock, Wall Street analysts are all but unanimous in urging investors to dump it without delay. "For General Motors," said one professional stock picker, "it's going to take a heck of a comeback - if it can come back at all."

Sloan must be rolling in his grave, as he went to it in 1966 certain that he had found the secret for everlasting industrial vitality: a nifty little concept known as planned obsolescence.

Unlike rival Henry Ford, whose boast was that his vehicles were built to last, Sloan's epoch-making realisation was that consumers like change for the sake of it. Why build rugged and durable but unexciting cars like Ford's legendary Model T when a larger engine, an extra splash of chrome or some fanciful tail fins could induce potential buyers to trade up? The strategy worked so well that Ford, and every other US and international car-maker, was obliged to follow to suit.

That, as they say, was then. Today, while automotive fashions still change like hemlines, one thing about America's native industry doesn't: it's ongoing and seemingly permanent state of crisis, which has also seen Ford tagged by Wall Street as another junkyard dog.

The figures tell the story. Through competition from Asia-based car manufacturers, profit mar gins on most GM vehicles are negligible, with some analysts estimating that some eight million of the 28 million vehicles produced every year may actually be sold at a loss.

Worse, the company owes its retired workers about US$57 billion ($80 billion) in pension payments that it simply doesn't have.

And those same retirees are burdening another page of the corporate books as well. Over the years, in its effort to avoid strikes when business was good, the company agreed to pick up the tab for ex-workers' health insurance.

As of the end of 2004, that obligation to 1.1 million former employees was draining an annual US$6 billion from the corporate coffers.

Given those obligations, chief executive Rick Wagoner seemed almost pleased to announce in April that in the previous three months alone, GM had lost "only" US$1.1 billion-and-change on its North American operations - a figure many observers had feared would be even worse.

If Sloan's view that GM's health was vital to the future of industrial America still held true, neither Wagoner nor his stockholders would have reason to fret.

Back in the early 1980s, Chrysler slipped into a similar financial black hole, only to be bailed out when US congressmen tapped the public purse to protect an industry then seen as a vital national asset.

Chrysler reorganised, set its house and books in order, and eventually agreed to be taken over by Germany's Daimler. Today, while only nominally an American car company, it is in far better shape than any other member of Detroit's Big Three.

So why shouldn't history repeat itself? There are a couple of reasons, the first being that GM's plants are mostly in states with Democratic Party majorities - and unlike 25 years ago, the Democrats control neither Congress nor the White House, nor are they likely to regain the upper hand in Washington anytime soon.

The second factor is the more important. Chrysler's bailout was justified by arguments that American workers were losing their jobs to foreign imports, and that if the industry didn't get the support it needed, millions of Joe Six-Packs would be thrown on to the bread lines.

That argument was heard loud and clear in Tokyo boardrooms and later, in Seoul and Germany, and it was acted upon.

Today, Honda imports only one model from Japan, all the rest being built in places such as Tennessee and Arkansas. Same with Toyota, Nissan and Hyundai - even ritzy BMW builds its US cars in Georgia. All told, foreign-owned car companies now issue weekly pay cheques to more than 250,000 US workers.

And unlike GM's workforce, most aren't union members, whose hiring involves open-ended commitments to lifetime benefits.

GM spokesmen insist they are working on a plan to reverse their fortunes, but the hole the company has dug for itself is now so deep, few believe it can clamber out unscathed. As for going cap in hand to Capitol Hill and pleading for subsidies, nobody takes that scenario seriously.

Why should Republican politicians - for Red states are where most of the invaders set up shop - lift a finger to assure the future of a company whose revival could only threaten their constituents' jobs?

All of which means Wagoner's options are limited. By Wall Street's reckoning, he needs to shut plants, scrap money-losing marques and, most likely, declare bankruptcy in order to have the courts free the company from the burden of its pension and health-care obligations and union contracts.

What's good for GM is probably still good for America - even if that means sending what many believe to be the terminally dinged car-maker on a one-way trip to the wrecker's yard.