To be sure, management of both companies made foolish strategic decisions over the years and caused some of the problem. However, each company is at a competitive disadvantage when competing with foreign auto manufactures.
Like Social Security, it was a system that "worked" at the front end. But, would prove to be costly and structurally unsustainable over time.
Social Security--created in 1935--seemed to work at first because:
1) Life expectancy in the U.S. 1935 was 61.7 years. By 2005, it was 77.8 years. In short, when it was first created, many fewer people lived long enough to take advantage of it. Now, it is more the exception rather than the rule to reach retirement age.
Average lifespan chart.
2) The country was younger then. In 1930, the median age was 26.5 years. By 2009, it was 36.7 years. i.e., more younger people supporting fewer older people at that time. The trend is going in the opposite direction now.
1930 median age
2009 median age
Similarly, generous labor contracts were given to the unions when the U.S. automakers dominated the U.S. and the world. Generous retirements, work banks or paying people when they were out of work, and top notch health insurance.
But, just like Social Security, that model was workable as long as circumstances were favorable. Fast forward to 2008/2009. The financial crunch of late 2008 was the final straw in Chysler/GMs ability to stay afloat. (Turning a profit had been difficult enough).
In any normal business model they are allowed to go bankrupt, the secured creditors get first dibbs and some other positioned interest buys them and streamlines if not merges them. Typically, that means the employees get hurt. Imagine the surprise to many Americans who don't have the luxury of Uncle Sam as a sugar daddy, when the unions got taken care of on our dime. Furthermore, contract law was turned on it's head when the gov't strong-armed secure shareholders to accept pennies on the dollar. What message does that send to those who consider in investing in an industry that could be the subject of government interference? Why would you invest your money in a company knowing that if the U.S. government could effectively trample on your rights?
GM bond holders prepare for war.
On the day that Chrysler LLC filed for bankruptcy in New York courts President Obama blamed ‘speculators, hedge funds, and others’ for what he called ‘holding out for an undue profit’.
Why this was ridiculous is that bankruptcy contract law states that bond holders are first in the food chain to receive compensation for the notes they own. That is why companies sell bonds in the first place, to build capital and the investor, under contract law, has first claims on reimbursement should the company end up in bankruptcy.
When Chrysler filed for bankruptcy President Obama attempted to capitalize on the ignorance of the American people who don’t understand what bond holders are, or even what the law says. Instead the President attempted to paint an image of these bond holders as greedy hedge funds who were out to make a killing and only thinking of themselves. An insult to the bond holders and an insult to anyone who really knows what should happen in bankruptcy filings.
It is at this point, I decided not to subsidize union payoffs/government ownership of a vital sector of the economy.
In the meantime, I have a 2006 Chevy Cobalt which ran fine for the first couple years. It started exhibiting funny behavior in 2009 JUST AFTER the 3/36 warranty completed. That's about what you expect with those types of warranties. LOL. Anyway, a heard a chime, the dashboard lit and the power steering light among others stay on. This was followed by losing power steering, the dashboard needles all going to an "off" state (including the speedometer). So, I was driving blind in a way. The AC didn't work either. Okay, fine, I will see if this is a one off situation. Doesn't happen again for a while. It happened again and then not for a while. Eventually late 2009, it exhibited this behavior and I had a hard time starting it up. I got it going, but I was POed. After reading some horror stories on the internet, I kept thinking this will be a fix that will require time and effort to get at what needs fixing. In other words, $$. Thinking my car isn't that old and it works like this, I was like there is no way I will pay some pricey bill to fix a problem that shouldn't happen this early in it's life. I looked for a recall.
After much stubbornness-having to deal with this problem and having to sometimes spend 10+ minutes trying to start up my car. I eventually got wind of a recall on similar issues with this model car. Then I got a letter saying I'd get a notice, followed by the actual recall notice.
In the meantime, as late spring and then summer approached, the problem seemed to evidence itself less and I thought that I'd wait it out.
All is hunky dory and I haven't had any problem for weeks. Out of nowhere is starts up again this time it takes longer to start the car up. I took my recall notice and got the first appointment I could get. In the meantime, this Fine Piece of Detroit Machinery with no offense to Ford, is playing russian roulette with me. So, it is another week of fighting this beast and then hoping they don't say, well this isn't covered under our recall notice. I'm preparing to go "postal" on them if I hear that.
Moral of the story, if I had been open to buying a Government Motors car, this pretty well ended that that notion.
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