D-day for a GM plan

Our view: America's automotive giant must have a restructuring plan to get U.S. financing

December 01, 2008

Lampooning the prospects of a GM recovery plan was easy for Saturday Night Live writers. In a recent sketch, they simply cast an actor as a company executive and had him hold up a poster detailing the future dates of multibillion-dollar payments. The audience got it - easily.

Sadly, there are few signs that GM will produce anything much better when its representatives send their plan to Congress tomorrow and return to plead their case Dec. 9.

GM is continuing to bleed cash at a pace of $2 billion a month. It faces business challenges that are so intractable that it's hard to imagine the company achieving the radical restructuring necessary to survive without substantial government intervention. That's what is needed if there is to be any hope of saving hundreds of thousands of GM and related jobs.

But first, the company and the United Auto Workers must agree to end a contract provision that currently allows workers to be paid for as long as 18 months after being laid off. Also needed are significant pay cuts to move wages close to what U.S. employees of Japanese car companies make, and sharp reductions in retiree health care benefits. Beyond that, GM should slash the number of car brands and models it sells and close down thousands of redundant car dealerships, despite state laws that now protect them.

Experts say bankruptcy would be a risky path to recovery because the company would likely continue to bleed for years, possibly with production shut down, while armies of lawyers argue over business plans and the distribution of assets and liabilities.

GM's leaders are negotiating some possible concessions with the UAW and are taking other steps to economize. But the company is far from ready to take advantage of government aid with a new array of inexpensive, fuel-efficient cars. The car GM executives point to as emblematic of a brighter future - the Volt - is not expected to arrive on the market until late 2010 and will sell for $40,000. Industry experts say the electrically powered vehicle could give GM a long-term lift but offer little income in its early years.

Still, President-elect Barack Obama and congressional leaders are reluctant to see GM or other automakers fail and jobs disappear, despite their frustration with the lack of vision of the company's current management. The answer? Legislation that ties any aid to giving a presidentially appointed czar the power to demand that GM renegotiate its contracts, rapidly downsize and reshape the company.

Forcing this kind of radical change wouldn't make friends for the new administration, but it would bring needed change and could save a million jobs. That's an achievement that could transform the proposed $25 billion auto industry loan from an SNL joke to the most fruitful investment yet in the government's economic recovery effort.

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