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Marketplace Scratch Pad

Too little, too late for carmakers

Scott Jagow May 21, 2009

The news out of Detroit is that GM and the UAW have agreed to contract changes that’ll help GM cut labor costs and reduce obligations to a retiree health care fund. That’s nice, but it doesn’t really matter now.

From the NY Times:

The deal is one of the government’s requirements for G.M. to win more loans but not enough in itself to keep the carmaker from having to file for bankruptcy protection on June 1, the government’s deadline. More important, G.M. needs to persuade nearly all of the bondholders who hold more than $27 billion of its debt to swap their claims for stock in the restructured company. Most analysts expect the offer to fail.

Now, consider this paragraph from a CNN story about Chrysler dealerships being forced to close. The emphases are mine:

Experts pinpoint the start of the problem to the years following World War II, when American automakers rushed to saturate cities and suburbs with car dealerships, in part to thwart the emergence of German and Japanese competitors. A reduction was bound to happen at some point, but much of Chrysler’s decision in particular is attributable to its need to comply with the sharp cost-cutting terms of its bankruptcy agreement with the federal government.

The carmakers behave as if the problems started in February, instead of 1946. Had tough decisions been made somewhere along the decades, the American carmakers might not be where they are now, which is in the middle of a procrastination pile-up.

And unfortunately, not only do we have to watch the wreck, we have to pay the hospital bills too.

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