Buckets and a Ship Taking on Water

Yesterday I stopped at one of my favorite comic sites and saw a cemetary illustrated by Gary Brookins. It was the classic scene: crescent moon, barren trees, a mound of dirt piled next to the open grave. A tombstone read:
GM
1908-         

The image brought home the reality of the situation. The once largest producer of cars in the world and American icon, General Motors, is facing bankruptcy and possible collapse. It's not surprising. Saddled by expensive union contracts, layers of management, and substantial debt obligations, GM is not competitive. If they were considered the quality producer, they could perhaps be able to handle higher costs of production, but they destroyed their reputation with poorly made and designed cars in the 70s and early 80s. Comparatively now, American vehicles have closed the quality gap, but the old saying holds true that it's easier to destroy a reputation than it is to build one.

I am not going to make the argument to save GM. I'm not a believer in corporate welfare. Our bankruptcy system often gives inefficient dinosaurs a competitive advantage. There isn't going to be a "Buy America" slogan here either. Those slogans tend to be jingoistic and hypocritical. We say one thing and still buy from China. The automobile is, for the most part, just an expensive commodity. With commodities, it's important to produce them cheaply. That requires either a labor cost or technological advantage. Labor isn't and shouldn't be cheap here; we're a wealthy nation. The only choice is to improve technology and that requires investment money. In a case like GM, given the track record, who will invest?

But before we bury General Motors, consider AIG. The government has already "invested" over $150 billion dollars to prop up the ailing insurance company's balance sheet. Why? Because they are a large company and we're afraid of a complete financial meltdown? Yes, business needs financing; this drives innovation. The argument could also be made that AIG is a solid business who made one particularly unwise decision to be involved credit swaps in mortgage-backed securities. However, like GM, AIG has had a checkered recent history. The insurance company in 2005 was fined $1.6 billion for fraud. This makes me question AIG's business model. Who knows what's lies beneath the surface of the company's practices all these years?

If it's good to bailout AIG, why isn't it good to bailout GM? According to Yahoo Finance, AIG employs 116,000 people. GM employs 266,000. That's a quarter million people directly affected by the automaker. It's not likely that everyone would lose their jobs if General Motors went bankrupt, but I wouldn't be surprised if half did. Also consider the jobs tied to GM in auto parts companies and dealerships. Think about the restaurant which feeds all those employees. Yes, even consider the bank which waits for the mortgage payment from a man or woman who works on the car manufacturer's assembly line. Imagine what more foreclosures mean.

Is the federal government really making the correct choice about where it's spending its money (which is really our money)? More Big Money is invested in companies like AIG and Citigroup. So are we not letting them fail because of the financial system or because of personal finances? Consider that when someone writes that GM is an ailing company which will never be fit to survive in today's modern autombile industry. Consider who is protected and who is not.