With GM nearly bankrupt, can America manage?
Filed under: Company News, Economy
General Motors (GM) most likely has just a few days before it files for bankruptcy, marking the final death gasps of a company that once controlled 50 percent of the North American vehicle market and sported a peak market value (in April 2000) of $54 billion.
As I've posted, GM's $74 billion in losses and market share decline -- to 19 percent in 2008 -- are due to its failure to adapt to change. And so, after a 98 percent plunge, this week GM is likely to lose most of its remaining $873 million in market value.
While the bankruptcy is great news for America's bankruptcy lawyers and investment bankers -- the pilot fish of American business, snapping up the scraps of food left behind by the economic sharks who create new wealth -- GM's demise also raises a more troubling question: Can America manage? Or more specifically, can American managers still create world-leading industries or have we lost it?
First, let's examine GM's pending bankruptcy and the huge amount of money to be made off it by those economic pilot fish. Weil, Gotshal & Manges, the New York firm handling the Lehman case, recently sought approval for billings of $55 million for just three months' work, and is expected to get more from GM.
GM, which has already gotten $19.4 billion in U.S. debt, will require almost four times more -- $40 billion to $70 billion in debtor-in-possession financing -- to create a new version of GM. Bankers will cash in on the GM bankruptcy gold rush as well.
America has recently proven itself to be a failure when it comes to sustaining an automobile industry and our finance industry has only succeeded in gaining control of the global economic system -- right before nearly wiping it out. So can the U.S. economic system still do anything right?
There are three industries where the U.S. still excels:
- Personal high tech. I'd give Apple (APPL) the nod for world-leading product innovation.
- Entertainment. Many Hollywood studios are still able to churn out very popular and in some cases, high quality, movies and other content.
- Biotechnology. Companies like Genentech (now owned by a Swiss pharmaceutical firm, Roche) and Genzyme (GENZ) have developed profitable and innovative cures for terrible diseases.
What does this tell us? The key to American business success is managing brainpower -- not assembly lines. If you're not part of that brainpower, you are likely to be an economic legacy rather than a creator of the future. What to do with all the people who lose their jobs in the wake of GM's pending bankruptcy is an American economic challenge of epic proportions.
Does American management have the brainpower to solve it?
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in the securities mentioned.
Why is Oprah going to cable? Hint: It's nothing to get teary about
Kisses from Hershey: Candymaker may court Cadbury with $17 billion bid
D-Day for Harry Reid: Can he wrangle 60 votes for Senate health reform bill?
Reader Comments (Page 1 of 1)
5-26-2009 @ 12:09PM
eh said...
Yes. Any Americans adversely affected by a GM bankruptcy should immediately put all of their money into the stock market -- an index fund will do. Soon they will be rich.
Reply
5-29-2009 @ 12:08AM
vince demarco said...
Can America come back? The current political system is anti capitalistic.Due to existing legislation,there will never be another Microsoft or equivalent company.One man,Bill Gates was responsible for creating in excess of ten thousand jobs and making a few thousand employees millionaires in the process. When Congress found out that Microsoft did not retain a lobbyist they went out of their way with threatening legislation such that a lobbyist firm had to be retained to give cash to the respective politicians.This is how America works.The next government attack on business concerned stock options. Followed by the S.O. accounting legislation which essentially doubled accounting fees. Is American business doomed. YES.
Reply
5-29-2009 @ 12:20AM
vince demarco said...
What happens to the thousands of GM & Chrysler workers that will or have lost their jobs? Very simple,as in Europe,they will end up on the dole or welfare. First,the politicians will say that they will be retrained for future work in the green energy sector.The only way this will work is if a new WPA is created to build Solar Energy Fields to create electricity that no one is able to afford without a substantial government subsidy. This may be the future of America,subsidized projects built by subsidized workers to produce a product that has to be subsidized to be affordable.This is a good case study for the Harvard Business School.
Reply
5-30-2009 @ 2:06AM
Eriq said...
Based on what i have been reading http://www.washingtontimes.com/news/2009/may/30/gm-tailgating-chrysler-bankruptcy/ this whole thing has been coming for years. I wonder what the unions are going to do??
Reply
5-30-2009 @ 8:32AM
Duke said...
America will be around for a while anyway. The economy has been downsized and Americans will adapt. It will be very awkward at first to pull in the spendig reins. We got use to money and good paying jobs for the last 30 years since deregulation first started. Regulation will not get GM back nor will it create the hundreds of thousands of jobs and be replaced by green jobs that will pay well and last for a number of decades. China is a growing country and can sustain itself with all the products they produce. America is now a dependent nation on borrowing from other countries and is now beholding to them. We have to face the fact that we are not the America of old but a far smaller economic force now that there are far few products to export.
Reply