6: Good News from General Motors

EVENT

I've been so wrapped up in the Tigers that in my other political posts that I haven't been writing you at all about recent developments with General Motors. This is, however, unambiguously Good News from almost every perspective, and it's not a small deal at all, despite the fact that it seems to get the second page treatment in newspapers at the very least.

Essentially, several months ago, just after offering buyout options to tens of thousands of workers, announcing layoffs amounting to over a third of the North American workforce as well as the closing of multiple plants (forgive me if I can't dig up all the numbers and sources just now, but this is solid, and something I've written about frequently), a Mr. Kirkorian, who owns just shy of 10% of GM stock, started putting pressure on GM CEO Richard Shoemaker to explore a merger with Ranault-Nissan. Because the CEO of that company recently oversaw a complicated and contraversial merger of those two companies, and because are now outperforming GM on a profit-to-vehicle basis, it's simple arithmetic that the merger would cause a short-term jump in GM stock price... doubtless why Kirkorian is so supportive of the move in the first place.

This IS an unambigous situation with a clear good guy / bad guy for everyone involved. It is NOT a case of bleeding-heart liberals against the New Democrats, or even supply-side economics. EVERYONE should be cheering on GM management in this move. Why?

1) Because the merger would damage at the least, and kill at the worst, GM's hopes of long-term viability. Keep in mind that the critical move to reduce its workforce is not just to increase profitability per vehicle (as it has been in the past) but to actually match the size of its market share... a relatively justifyable premise for downsizing if I've ever seen one.

2) GM has actually made (a few furtive) gestures to get to the root of the problem by making a range of vehicles that will sell... right now that means better gas mileage on smaller vehicles and exploration of gas alternatives.

3) Renault-Nissan is NOT making the sort of cars described in 2). They are making vehicles of reasonable but not exceptional quality very much in line with what Pontiac, Chevrolet, and Saturn has been putting out lately.

To sum up: A merger would only accomplish one positive thing -- a temporary spike in GM stoke price that would only benefit short-term, large-chunk investors like Kirkorian. Playing by supply-side rules, that equation can only work economically if those people LEAVE their money in those stocks for gradual appreciation.

It would reverse the painful structural changes has had to make in the last several years (as part of a process that has taken thirty years) and hurt pretty much everyone else: smaller stockholders, stockholders who have made longer-term investments, General Motors itself, not to mention Nissan-Renault, and all of the employees, management, and even customers of those two companies.

Mr. Kirkorian will not play with kid gloves, so I'm happy to see that for once GM management is up to the challenge. Even if the refusal was caused by a failure to deliver many billions of dollars in the event of a merger, I think the real intention was to make the merger ridiculous. In which case both sides did the reasonable things.

At any rate, if there's any time in the whole process of General Motor's restructuring process to give them unqualified and unambiguous support, it is now. Hopefully they can stand against whatever threats or disinsentives Kirkorian puts up next, and persuade him that he'll only see his stock work to his profit when it works to the ultimate profit of the company in which he has chosen to invest.

END OF POST.