Rescuing Gm

Our View: In Maryland And Nationally, The Firm's Radical Reorganization Will Be Painful And Expensive, But The Alternatives Could Be More Damaging

April 29, 2009

What's good for General Motors may not be so great for Maryland. A radical reorganization plan laid out by GM management this week could eliminate more than 2,000 Maryland jobs if as many as 40 of GM's 100 dealerships in the state close, as proposed by the company. The jobs of 240 workers at GM's Powertrain Baltimore Transmission Plant in White Marsh could be more secure if the Obama administration approves the GM reorganization plan because the modern, efficient plant produces parts for Chevrolet and GMC brands, which the company plans to continue producing . Meanwhile Maryland's larger GM dealers are hoping to pick up market shares and possibly add employees through the downsizing.

To ease a likely blow to the state's economy, the Maryland Department of Business and Economic Development should develop a plan in concert with the state Department of Labor, Licensing and Regulation to identify state dealerships likely to be closed and to work with the owners and their employees to save as many of their jobs as possible, either by assisting dealers in a transition to a new business model or by offering transitional assistance for their workers . Officials of both agencies say they are looking to save every job they can.

Beyond Maryland, the proposed GM reorganization is expected to have a significantly broader impact - both on the pace of a hoped for economic recovery and on the role of the federal government in the economy. GM says it plans to eliminate another 21,000 factory jobs, close 13 plants and cut its national 6,500 dealer network almost in half, a decision that is likely to cost more than 100,000 jobs at dealerships. Suppliers to the radically downsized GM are also likely to lose more than 100,000 employees. The disappearance of these skilled high-pay industrial and service jobs is likely to transmit fresh shocks to the nation's battered economy.

At the same time, GM estimates it would need an extra $11.6 billion in federal loans to carry it through the reorganization, if the company's many stakeholders can come to an agreement before an end of May deadline. In return for that money, the federal government would control GM, with the United Auto Workers holding a 39 percent share, if the union agrees to take stock instead of cash to pay off half of the $20.4 billion the company owes a union fund to cover retiree health care. Those are two critical ifs to the company's solvency.

The Obama administration says it would not seek seats on the company's board or take any active role in the management of the company. But ownership will make the government more directly responsible for GM's fate and that of thousands of members of the union that supported Mr. Obama for president. Saving the American auto industry will be a task fraught with political and economic risk. The challenges would multiply if GM is forced to file for bankruptcy because holders of $27 billion in unsecured company debt don't agree to a deal.

Is rescuing GM worth pursuing this perilous and costly course? The effects of doing nothing could be far more devastating, in lost jobs and manufacturing capacity.

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