Topic: Economics
General Motors and their Cash Flow Crisis General Motors burned through $19.2 Billion dollars last year on their way to posting a $30.9 billion dollar loss. The only way they think they can survive is to get more of the tax money collected from you and I via aid from the Federal Government. I have a better solution, though I am certain it is one that the leadership at General Motors(not to mention the unions) will not like. Lower prices and reduce production.by EJ Moosa
(libertarian)
Friday, February 27, 2009
General Motors burned through $19.2 Billion dollars last year on their way to posting a $30.9 billion dollar loss.
The only way they think they can survive is to get more of the tax money collected from you and I via aid from the Federal Government. I have a better solution, though I am certain it is one that the leadership at General Motors(not to mention the unions) will not like. Lower prices and reduce production.
We can give General Motors billions and billions of dollars, but if the vehicles are not moving, why should we expect the outcome to change?
Here is my proposal: General Motors should produce only one vehicle for each three sales until they get the expense side of their cash flow situation in line with inflow from sales.
To turn the cash flow positive, General Motors should lower the selling price of each vehicle by 2% per week from the week it has been delivered to the dealer until it is sold. Selling three vehicles would provide the cash flow they need rather than requiring the taxpayers to pay more money to produce more vehicles that no one in purchasing. Selling three vehicles should provide the cash to produce one more. If not, their issues are even bigger than one trillion dollars could fix.
General Motors has a difficult time understanding what the price points are that Americans would be willing to buy their product. Lowering their vehicle prices each week until they are sold will give them the data they need to understand the price portion of the supply and demand curve for their products. History has shown that they are not even close to understanding this at the present time.
Recently, a family in Georgia auctioned off all their belongings on Ebay because they needed to boost their cash flow to cover medical expenses. They did not ask for a handout, or a bailout. They reduced their expenses and were willing to take a loss on items they had purchased because they needed cash flow. Sometimes, at critical moments in your life, this is what must be done.
The situation at General Motors is not different. They have billions of dollars locked up in vehicles sitting on lots that are not moving. Each day the vehicle sits, the costs for that vehicle rise. The vehicles are not sitting there freely. Insurance, security, sales people, (and many other expenses) accrue day by day on the vehicles that are not being sold. The Federal Government has been willing to give them aid,which has in turn allowed General Motors not to liquidate their assets first in the effort to improve their cash flow. By not forcing General Motors to sell what they have, we are increasing the cost of the vehicles even after they have been manufactured.
General Motors has the ability to improve their cash flow on their own. If a loss needs to be taken, let them take it on the vehicles already manufactured. Holding out to make a profit on those vehicles is serving no one any benefit. The American Taxpayer does not need to be left holding the bag.
We cannot continue to subsidize a company to manufacture a product that no one wants at the price that they have offered it to us. When they have the data, and see what price we will purchase the vehicles at, they can either tell the unions what needs to be done to produce vehicles at that price point, or they can shutter the factories. Either way,it should not be up to your or I to provide financial aid to resolve their financial crisis.
Were you or I to have such a cash flow crisis, we would be expected to liquidate assets as quickly as possible, even if we had to take a big loss on those assets. So why are we not asking this of General Motors? Maybe it's because then the politicians cannot claim credit for saving them.
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The views expressed in this
article are those of EJ Moosa only and do not represent
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Although your solution is the correct one, the reality is different. Politics has a higher impact on the whole GM screw-up. Bailouts will continue to occur because of the Democrats in Congress. The Union is still strongly dismantling the company and not willing to negotiate. There are legacy costs that need to be paid wheather G.M. is producing cars or not. There are union worker wages to be paid whether G.M. is producing cars or not. In essence, the union and the politicians have created what used to be variable costs and turned them into fixed costs, so by force of the Union, the politicians in Washington and over-regulation, G.M. has a hard time to adjust those costs because they are now fixed rather than variable.
If Washington and the Unions were completely removed from G.M., then your solution will be very easy to implement. Almost with the snap of the finger. But until you have the politicians, the unions and the "unwritten union" of high paid low performer execs, the solution is not as simple as you and I will do at our home.
Bankrupcy, elimination of legacy costs, elimination of the Union, plant closings, and wage reductions (including my wife's salary who works at the G.M. Tech Center in Warren) are essential for the survival of G.M.
NOT bail-outs. Government intervention will make it worst that what it already is.
I also used to work there as a high-tech non-union high-producer Engineer, and they reduced my salary by 100%! Yet there are still lousy Union contracts and legacy costs NOT producing and still there.
Today, after less than 1 year of getting fired by G.M. I am self-employed with my own business in a different industry and earning higher profits that what my salary used to be when employed by them. All that in this crappy economy and in this depressed area of Detroit. So much for G.M. efficiency by getting rid of their high producers like me and playing politics! Unless you are a career politician, politics gets you nowhere.
On the positive side, they did me a favor by firing me, thus motivating me to go on my own and becoming more financialy independent in the process.
Absolutely another reason that GM needs to be forced into bankruptcy, so that the contracts can be tossed.
The leadership for the past 40 years has been cowardly at GM.
But we cannot continue to force manufacturers to compete with GM as We the People subsidize them.
The people I know are tired of the excuses. We have heard them most of our lifetimes.
In the American system, today the whiners and the non-producers and those that make poor decisions are being rewarded with the hard earned(and saved) assets of the rest of us.
It'll be interesting what their plan is to show they are "viable". How can the government know what a viable company is? I'm sure Sens. Stabenow and Levin will say yes to any amount asked from the car companies. There won't be one Republican congressman from Michigan who will vote against it, dollars to donuts!
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