The Future of GM and Ford?

Henry Blodget suggests we let them die (Clusterstock). We can include Chrysler in there as well. Henry writes:

The companies' problems result from:

• Their inability to build cars (cars, not trucks) Americans love
• Their inability to restructure their way out of their pension and union obligations
• Their inability to compete on their own merits.

Bankruptcy might help with the second bullet point. As for the first point, if they do somehow live on, shouldn't they focus on what they do best? Toyota and Honda have never had much success selling large trucks in the US and this seems like a legitimate competitive advantage for American companies. Focusing only on large trucks when oil prices are high might not be ideal, but they don't seem to have had much success with cars recently. Note that in this context I define "recently" as the past 30 years. Perhaps there is also room to make muscle cars as well, since they've had some decent success over the years with that.

As for the third bullet point? Well, James Surowiecki had an article in The New Yorker from May that now seems relevant:

In the current atmosphere of economic tumult, the announcement that Toyota sold a hundred and sixty thousand more cars than General Motors in the first three months of this year might seem like a minor news item. But it may very well signal the end of one of the most remarkable runs in business history. For seventy-seven years, in good times and bad, G.M. has sold more cars annually than any other company in the world. But Toyota has long been the auto industry’s most profitable and innovative firm. And this year it appears likely to become, finally, the industry’s sales leader, too.

Calling Toyota an innovative company may, at first glance, seem a bit odd. Its vehicles are more liked than loved, and it is often attacked for being better at imitation than at invention. Fortune, which typically praises the company effusively, has labelled it “stodgy and bureaucratic.” But if Toyota doesn’t look like an innovative company it’s only because our definition of innovation—cool new products and technological breakthroughs, by Steve Jobs-like visionaries—is far too narrow. Toyota’s innovations, by contrast, have focused on process rather than on product, on the factory floor rather than on the showroom. That has made those innovations hard to see. But it hasn’t made them any less powerful.

Read the rest. At the end of the day I see little reason for a bailout. Our current economy is referred to as post-Fordist for a reason, after all. In the 1950s our economy was mostly made up of large corporations, large unions, and big government. GM and Ford are the last vestiges of that earlier era and while for sentimental reasons I like having them around, I see little economic reason to "bail them out."

A bankruptcy and reorganization would appear to be the best outcome, though not for the union members who are expecting a pension. I am not sure how the American taxpayer escapes that burden. So is the real question whether we offer loans now and hope we avoid bailing out the retirees, or do we just wait and see what happens?

Update: Richard Florida is not pleased with the idea of a bailout either.