Bail out the bums ... or not?

Look, friends and neighbors, GM stinks like rancid fish -- or Liberals from Cambridge. And we, as Americans, are stuck with Pelosi (I vant to suck your tax dollars) who has decided that GM et al. cannot be allowed to fail.

But first let me ask a question ... wasn't the $700 billion meant to buy toxic assets and remove them from bank balance sheets to permit loans again? Pelosi thinks not. Now that Congress has its greasy hands on the public checkbook, it wants to save big labor.

GM: eternal basket case. A pension plan that happens to make automobiles and trucks. By any normal measure, these cretins ought to be allowed to go "Chapter." You see, GM doesn't really produce anything that anyone wants. They haven't for decades. From over 50% of the U.S. market to a claimed 20% in just 25 years. The real number is probably much smaller than that, and as of November 2008, I understand that they are selling almost nothing at all. That takes some doing.

Why? I suppose a lot of it has to do with the quarterly report -- the 10Q so beloved of the SEC and analysts. So management, being the craven and ignorant invertebrates that they are, were and are afraid of doing anything new ... dissimilar to the managers of the past who boldly forged a new industry. Sclerotic is a word that comes to mind. They continued to produce gas-guzzling pieces of four-wheeled effluent -- crap -- long after it was completely clear that Americans in large numbers preferred fuel efficient (and dependable) Toyotas.

"America likes its large cars and trucks," was a consistent management refrain. The trouble is/was that in truth America liked cars that worked, didn't fall apart or dissolve during the winter, had a modicum of handling ease and didn't hurt the checkbook -- no elements of which are to be found in GM products.

Greater irony, then, that GM does produce competitive cars abroad: GM's German division, Opel, has long been thought of in the same breath as a Volkswagen or Honda/Toyota in Germany. Holden, GM's Aussie division makes world-beating cars that preclude the Asians from gaining a stranglehold down under. But for reasons that can only be described as "insanity" GM's American operations continued to build cars that nobody wants, with none of the brilliance of their German or Aussie products. Ancient designs using inferior engineering and the worst quality plastics imaginable. Dross that would make Russians blush.

Ford, the next in the line of Detroit morons, have even better cars manufactured in its foreign operations, including cars that have been "Car of the Year" across Europe, and where Japanese cars (which we so admire for their efficiency and dependability) are considered beneath contempt. FORD!! The new Ford Focus is a "world beater" as universally described by the motoring press of Europe and Asia. But it is not imported into or built in the United States. Ford seems to think that Americans wouldn't appreciate a car so good as to be considered by Europeans as better than its BMW/Mercedes sector competition ... and by a large margin. Instead, Ford decided to import the previous generation Focus to the U.S., something that was already past its sell-by date, five years ago. Small wonder people buy Toyotas and Hondas ... even Kias and Hyundais -- all the while a truly superior car is being made by your own subsidiary.

Chrysler. Don't let's even go there.

So the American tax payer is meant to bail out the idiots of Detroit. If we consider how bad the economic situation in Detroit is, how unearthly depressed and criminal the actual populace, then perhaps it should come as no surprise. Danang circa '67 would be more appealing than a mansion in Detroit. "Shock and Awe" is any week night along the 8 Mile.

But this is madness. The real trouble seems to lie in the following statistic: one in 10 American workers owes his or her job to the auto industry. If the pathetic, creaking wreck that is Detroit goes belly-up, the knock-on effect to the U.S. could be catastrophic: too important to let fail. And don't think that you'd be immune in Europe ... no, no, no ... Ford and GM are huge there too. There would be an immediate thrust to the solar plexus of the Euroland economy, followed by the inherited flu that will waft over from the U.S. to infect what ever remains solid in Europe. Bad indeed.

Also, European car manufacturers are hurting too ... nobody is buying cars. BMW and Mercedes export 30-50% of their products to the U.S. (depending on model, etc.). If nobody is buying, then Hans and Franz are not going to be making them ... or getting paid. Lay-offs in the German automobile industry are about as unpopular with their unions as the UAW. You want unrest?

Which brings up what might be the other wrench in the works: no matter how good their cars could be, GM and Ford simply cannot produce cars profitably in the U.S. given their servitude to the UAW, the United Auto Workers union. These companies have given away the keys to unions and labor over the past 50 years and can't get them back. No unions, no making cars. And so on down the supply chain: a vertically integrated union monopoly. Put simply, American car workers get paid too much for too little work producing some of the shoddiest goods on the planet. Not a great recipe for success. Did you know that a UAW member has better health care plans than do the investment bankers at Goldman Sachs? Or the President of the United States? No co-pay. No limits. For life. And their pension alpns are about as good: defined benefit plans. As a M&A lawyer, the first thing we looked for in doing due diligence on a target for clients was ... what kind of pension schemes do they have in place. Any defined benefit plans? Any way to force the seller to retain their obligations? And Toyota and Honda? Their U.S. operations are not so constrained -- unions are almost unheard of in their factories, although with Obama/Pelosi plans to re-instate bully-boy voting, unions may expand their influence (talk about stupid, that concept is perhaps the dumbest ever, except that the same bullies encourage their members to stuff the ballot boxes for their mentors in the Democratic party).

And GM's and Ford's pension plans are defined and in arrears -- underfunded to the tune of tens of billions -- maybe more. ERISA (a particularly nasty piece of legislation if there ever was one) protects the plan recipients and punishes the providers. To the extent that even if the companies could find a way to get the unions to agree to reasonable pay and benefits ... the government would likely stand in the way of correcting the imbalance. GM and Ford are screwed. Which means we are, and there is no way that a Democrat controlled Congress and House (let alone the Socialist-in-Chief) is going to reform the idiocy of ERISA to conform with financial reality. Better to let "the rich" fund the plans.

GM and Ford cannot possibly re-tool and revamp the pay/benefits structure in time to avoid bankruptcy. No way. Even if you could find Americans willing to buy Esclades, F-150s, Suburbans, Cadillacs, Buicks and Hummers. So, we buy time by giving them money which they can never repay, never hope to repay, and will burn through before Christmas. We buy ... a political band-aid in the hope (completely insane -- but so is Pelosi) that something will happen to cause households to start buying cars again, and American ones at that.

What could bring that about? War? Import barriers (remember the 1930's)? The tooth fairy? Maybe the best thing is to let it happen -- default. We are going to be paying those union pensions anyway, so why not do it directly? Just convert the payor to the real pocket book anyway, the taxpayer. AND in the process convert them to what the rest of us have to live through ... 401(k)s, Fidelity, Schwab ... etc., and the same risks that we have to face. Why should UAW thieves get a guarantee while we fear for our futures? As to the rest of the supply chain ... maybe some private equity can salvage some of the remain of the big three and bail out the parts people. But if not, we deserve it. Unemployment will go up alarmingly, but it will be cheaper than flushing tens of billions down the poop hole of the big three: unemployment benefits require less tax payer dollars than maintaining this charade any longer.

I am afraid the whole shooting match has to collapse before we can start again. And while we Americans can manage this, Europe is totally screwed.